<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
November 21, 1996
To The Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Meadowbrook Rehabilitation Group, Inc. (the "Company") will be held at 10:00
a.m., P.S.T. on Thursday, November 21, 1996 at the Watergate Towers Building,
2200 Powell Street, Conference Room 1, Emeryville, California for the following
purposes:
1. To elect directors to serve until the 1997 Annual Meeting of
Stockholders and thereafter until their successors are elected
and qualified.
2. To ratify the appointment of Arthur Andersen LLP as independent
auditors for the 1997 fiscal year.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only stockholders of record at the close of business on Monday, September
30, 1996 are entitled to notice of and to vote at the meeting or any
postponement or adjournment thereof. A list of stockholders entitled to vote at
the Annual Meeting will be available for inspection at the Watergate Towers
Building, 2200 Powell Street, Suite 800, Emeryville, California for at least 10
days prior to and during the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to
complete, sign, date and return the enclosed proxy as promptly as possible in
the postage prepaid envelope enclosed for that purpose. Any stockholder
attending the meeting may vote in person even if he or she has returned a proxy.
Sincerely,
Harvey Wm. Glasser, M.D.
President and Chief Executive Officer
Emeryville, California
October 15, 1996
YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting, you are requested to
complete, sign and date the enclosed proxy as promptly as possible and return it
in the enclosed envelope (to which no postage need be affixed if mailed in the
United States).
<PAGE>
2200 Powell Street
Suite 800
Emeryville, California 94608
____________________
PROXY STATEMENT
____________________
This Proxy Statement is furnished in connection with the solicitation by
and on behalf of the Board of Directors of Meadowbrook Rehabilitation Group,
Inc. (the "Company") of proxies to be used at the Annual Meeting of Stockholders
of the Company (the "Annual Meeting") to be held on Thursday, November 21, 1996,
and any postponement or adjournment thereof. A copy of the Company's Annual
Report to Stockholders for the fiscal year ended June 30, 1996, which includes
the Company's financial statements as of and for the fiscal year ended June 30,
1996, accompanies this Proxy Statement and the accompanying form of proxy and
each are being mailed to stockholders on or about October 15, 1996.
The shares represented by the proxies received pursuant to this
solicitation and not revoked will be voted at the Annual Meeting. A stockholder
who has given a proxy may revoke it by giving written notice of revocation to
the Secretary of the Company, or by giving a duly executed proxy bearing a later
date. Attendance in person at the Annual Meeting does not of itself revoke a
proxy; however, any stockholder who does attend the Annual Meeting may revoke a
proxy previously submitted by voting in accordance with specifications on the
enclosed proxy. When a proxy is properly signed and returned but no such
specifications are made, such proxies will be voted FOR the election of the four
nominees for director listed in this Proxy Statement, and FOR ratification of
the appointment of Arthur Andersen LLP as the Company's independent auditors for
the 1997 fiscal year.
The Company will bear the expense of preparing, printing and mailing this
Proxy Statement and the proxies solicited hereby and will reimburse banks,
brokerage firms and nominees for their reasonable expenses in forwarding
solicitation materials to beneficial owners of shares held of record by such
banks, brokerage firms and nominees. In addition to the solicitation of proxies
by mail, officers and regular employees of the Company may communicate with
stockholders either in person or by telephone or telegraph for the purpose of
soliciting such proxies; no additional compensation will be paid for such
solicitation.
OUTSTANDING SHARES AND VOTING RIGHTS
Only stockholders of record at the close of business on September 30, 1996
(the "record date") are entitled to notice of the date of and to vote at the
Annual Meeting. At the close of business on the record date, the Company had
outstanding 1,157,244 shares of Class A Common Stock and 773,000 shares of Class
B Common Stock. The Class A Common Stockholders are entitled to one vote per
share. The Class B Common Stockholders are entitled to ten votes per share. A
plurality of the votes cast is required for the election of the four nominees
for director listed in this Proxy Statement. The affirmative vote of the holders
of a majority of the aggregate voting power of the shares of Class A Common
Stock and Class B Common Stock, voting together as a single class, present or
represented at the meeting, is required for ratification of Arthur Andersen LLP
as the Company's independent auditors for the 1997 fiscal year or to transact
such other business as may properly come before the Annual Meeting, or any
adjournment thereof. Abstentions with respect to any matter are treated as
shares present or represented by proxy and entitled to vote on that matter and
thus have the same effect as negative votes. Broker non-votes and other
circumstances in which proxy authority has been withheld do not constitute
abstentions.
<PAGE>
ELECTION OF DIRECTORS
Nominees
The Board of Directors of the Company currently consists of four members.
The following four persons have been nominated by the Board of Directors to
serve as directors until the 1997 Annual Meeting of Stockholders and thereafter
until their respective successors are duly elected and qualified.
Kenneth Barber has been a director of the Company since November 1994. Mr.
Barber joined Continental Medical Systems, Inc. (CMS) as Executive Vice
President in February 1987 and was elected a director in April 1988 and served
as Senior Executive Vice President from July 1991. He acted in these capacities
until his retirement in April 1994. At present, he is a consultant to CMS, which
is now a subsidiary of Horizon Healthcare, Inc. Mr. Barber is 66 years old.
Harvey Wm. Glasser, M.D. founded the Company in 1986 and since that time he
has served as Chairman of the Board and a director of the Company. Dr. Glasser
has been Chief Executive Officer since January 1, 1994 and was Co-Chief
Executive Officer from July 1993 until December 31, 1993. Dr. Glasser also
served as the Company's Chief Executive Officer and President from the date of
its founding until June 1992. From 1972 to 1986, Dr. Glasser was the founder,
sole shareholder and President of Western Hospital Corporation, which managed
fifteen acute care hospitals in California, New Mexico, Oklahoma and Texas. Dr.
Glasser has been the principal owner of eight hospitals, including one acute
rehabilitation hospital which he operated from 1973 to June 1987. Dr. Glasser
received his M.D. degree from the University of Chicago School of Medicine and
trained in psychiatry at Stanford University Medical Center and Mt. Zion
Hospital. Dr. Glasser is 61 years old.
Robert Rush has been a director of the Company since February 1994. In 1992
he founded Rush Enterprises, Inc. which acquires and/or invests in small local
businesses. From 1989 to 1992 he was the Executive Vice President, Treasurer and
Chief Financial Officer for MedRehab, a medical rehabilitation service company
which was engaged in providing physical, occupational, speech and respiratory
therapies through outpatient clinics and contracts in nursing homes and
hospitals. Mr. Rush is 44 years old.
Edward Stolman has been a director of the Company since December 1993. In
1982 he founded Stolman Investments, dealing in real estate, corporate and
partnership investments, healthcare investments and consulting; he currently
serves as the owner and proprietor. In 1993 he became a director and consultant
for Carepartners, Inc. and the Chairman of the Board for Managed Occupational
Management, Inc., which operates in the field of workers' compensation and
industrial medicine. Mr. Stolman is 70 years old.
If any nominee is unable or declines to serve as a director (a contingency
which the Company does not foresee), the proxies in the accompanying form will
be voted for any nominee who may be nominated by the present Board of Directors
to fill such vacancy or the size of the Board may be reduced accordingly.
Officers are elected at the first Board of Directors meeting following the
Annual Meeting at which the directors are elected and serve until their
successors are elected and qualified. There are no family relationships between
any of the directors, nominees for director, and executive officers.
<PAGE>
Board and Committee Meetings
The Company has standing Audit and Compensation Committees of the Board of
Directors.
The Audit Committee consists of Robert Rush, Chairman, Edward Stolman and
Kenneth Barber. The Audit Committee monitors the effectiveness of the audit
conducted by the Company's independent auditors and the Company's internal
financial and accounting controls, and reports its findings to the Board of
Directors. The committee meets with management and the independent auditors as
may be required. The independent auditors have full and free access to the Audit
Committee without the presence of management. The Audit Committee held two
meetings during fiscal 1996.
The Compensation Committee consists of Edward Stolman, Chairman, Kenneth
Barber and Robert Rush. This committee determines the compensation of the
officers of the Company and senior level managers. The members of the
Compensation Committee also administer the 1994 Incentive Stock Plan of
Meadowbrook Rehabilitation Group, Inc. (the "Stock Plan"). This committee held
four meetings in fiscal 1996.
During the past fiscal year, there were six regular meetings of the Board
of Directors and one special meeting. Each incumbent director attended more than
75% of the aggregate number of all board meetings and meetings of committees on
which he served.
Compensation of Directors
During fiscal 1996, each director of the Company who is not an officer of
the Company received $1,000 per month.
Under the Stock Plan, non-employee directors are eligible to receive
non-qualified stock options. The Stock Plan provides that each non-employee
director of the Company in office on the first business day of January shall
receive a non-qualified stock option to purchase 1,667 shares of Class A Common
Stock, which will vest over a three year period. The Stock Plan also provides
that each new non-employee director will receive a one time grant of a
non-qualified stock option for 3,333 shares of Class A Common Stock. Such stock
options become exercisable in their entirety on the first anniversary of the
date of grant. The exercise price of all such options is equal to the fair
market value of the shares on the date of grant and all such options vest in
full in the event of the optionee's death, disability or retirement after age
65. In each case, the option term is 10 years unless the optionee's service
terminates earlier.
Non-employee directors are not eligible for any grants or awards other than
the grants and awards described above.
<PAGE>
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Class A Common Stock and Class B Common Stock as of
September 30, 1996, by (i) each of the Company's directors and nominees for
director, (ii) each executive officer named in the Summary Compensation Table
below, (iii) all executive officers and directors of the Company as a group, and
(iv) each person known to the Company who beneficially owns more than 5% of the
outstanding shares of either class of the Company's Common Stock.
<TABLE>
<CAPTION>
Percentage
Beneficially Owned
Class A Common Stock Class B Common Stock of Total Votes
---------------------------- -------------------------- Entitled to be Cast
Number of Number of by Holders of
Shares Percentage Shares Percentage Common Stock
Directors, Executive Officers Beneficially of Beneficially of Voting as a Single
and 5% Stockholders Owned (1) Class (2) Owned (1) Class Class (2)
- ------------------------------- ------------ ----------- ------------ ---------- --------------------
<S> <C> <C> <C> <C> <C>
Harvey Wm. Glasser, M.D. (3) 26,261 (4) 2.2% 773,000 100.0% 86.8%
Robert Rush (5) 7,084 0.6% ---- ---- 0.1%
Edward Stolman (5) 8,750 0.7% ---- ---- 0.1%
Kenneth Barber (5) 3,750 0.3% ---- ---- 0.0%
James F. Murphy (5) 21,251 1.8% ---- ---- 0.2%
Anita M. Macke (6) 35,000 2.9% ---- ---- 0.4%
Heartland Advisors (7) 530,128 43.8% ---- ---- 5.9%
All executive officers and
directors as a group
(six persons) (8) 102,096 8.4% 773,000 100.0% 87.6%
<FN>
(1) To the Company's knowledge, the persons named in the table have sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where
applicable and the information contained in the footnotes to this table.
(2) Percentages are calculated with respect to a holder of stock options
exercisable on or prior to January 21, 1997 as if such holder had exercised
such options. Shares deemed issued to a holder of stock options pursuant to
the preceding sentence are not included in the percentage calculation with
respect to any other stockholder.
(3) Dr. Glasser's address is 2200 Powell Street, Suite 800, Emeryville, CA
94608.
(4) Excludes 19,635 shares of Class A Common Stock held in irrevocable trusts
for the benefit of Dr. Glasser's adult children. Dr. Glasser does not act
as a trustee of any of the trusts. Dr. Glasser disclaims beneficial
ownership of such shares.
(5) All shares subject to stock options exercisable on or prior to January 21,
1997.
(6) Includes 12,500 shares subject to options exercisable on or prior to
January 21, 1997.
(7) Based on information obtained in Schedule 13G dated June 7, 1996. Heartland
Advisors' address is 790 North Milwaukee Street, Milwaukee, WI 53202.
(8) Excludes shares excluded in note (4) above and includes shares included in
note (5) above.
</FN>
</TABLE>
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
earned by the Company's Chief Executive Officer and the two other executive
officers of the Company as of June 30, 1996 for services rendered in all
capacities to the Company during the last three fiscal years.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Awards
------------
Annual Compensation
---------------------- Securities
Fiscal Underlying
Name and Principal Position Year Salary Bonus Options/SARs
- ----------------------------------------------------------------- ------------
Harvey Wm. Glasser, M.D. 1996 $164,023 $0 0
President and Chief 1995 $198,008 $0 0
Executive Officer 1994 $201,008 $0 0
James F. Murphy 1996 $132,505 $15,000 0
Vice President and 1995 $125,213 $37,100 35,000
Chief Financial Officer (1) 1994 $129,753 $10,000 110,000
Anita M. Macke 1996 $96,332 $30,360 10,000
Vice President/Administrator 1995 $91,854 $15,000 0
and Secretary 1994 $92,810 $9,500 0
(1) James F. Murphy joined the Company in 1993 as a consultant. Mr. Murphy's
1994 salary includes $85,000 paid under his consulting agreement with the
Company.
<PAGE>
<TABLE>
The following tables set forth certain information as of June 30, 1996 and
for the year then ended with respect to stock options granted to the executive
officers named in the Summary Compensation Table above.
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants Potential Realizable Value
----------------------------------------------------------------- at Assumed Annual Rates
Number of % of Total of Stock Price
Securities Options/SARs Appreciation for Option Term
Underlying Granted to Exercise -----------------------------
Options/SARs Employees in Price per Expiration
Name Granted Fiscal Year Share Date 5% 10%
- ------------------------ ------------ ------------ --------------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Harvey Wm. Glasser, M.D. --- --- --- --- --- ---
James F. Murphy --- --- --- --- --- ---
Anita M. Macke 10,000 26.1% $3.375 - $6.188 10/25/06 $52,666 $55,174
</TABLE>
AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
Number of Securities Underlying
Unexercised
Options/SARs
at Fiscal Year-End
---------------------------------------
Name Exercisable Unexercisable
- ------------------------ ------------------ ------------------
Harvey Wm. Glasser, M.D. --- ---
James F. Murphy 18,334 18,334
Anita M. Macke 12,500 14,167
<PAGE>
COMPENSATION COMMITTEE REPORT
The Company's executive compensation is determined by the Compensation
Committee (the "Committee") of the Board of Directors. The Committee, consisting
of three non-employee directors, is responsible for determining the salaries of
the executive officers and for granting awards under the Company's Stock Plan.
The Committee met four times during fiscal 1996.
1996 Compensation Policy and Objectives
Due to the Company's poor financial performance in the prior four fiscal
years, the Committee's compensation policy and objectives for fiscal 1996 were
(i) to attract and retain a highly qualified management team, (ii) to provide
incentives to management to create stockholder value, and (iii) to preserve its
limited cash reserves. Executive officers are compensated with a combination of
base salaries, incentive stock options and cash bonuses.
The salaries of the Company's executive officers are based on each
officer's past employment, experience and functional responsibilities. A primary
component of each executive officer's compensation, except for Dr. Glasser's
compensation as set forth below, are incentive stock options granted under the
Stock Plan.
During the first quarter of fiscal 1996, the Committee established a fiscal
1996 net income goal for the Company, which if met, would entitle each executive
officer to a cash bonus ranging up to 55% of base salary. The Company did not
meet its net income goal for 1996. The Committee also established certain goals
for the Vice President and Chief Financial Officer with respect to the
collection of accounts receivable. Such goals were met and accordingly, Mr.
Murphy received a $15,000 cash bonus. The $30,360 cash bonus paid to Ms. Macke
was not provided for in her compensation plan, but was deemed appropriate by the
Committee based on extraordinary performance during fiscal 1996.
1996 Chief Executive Officer Compensation
Dr. Glasser's salary is reviewed annually by the Committee based on his
responsibilities as the Chief Executive Officer and not on the Company's past
financial performance. On this basis, the Committee set Dr. Glasser's annual
salary for fiscal 1996 at $180,000, approximately 10% lower than the previous
fiscal year. Effective April 1, 1996, Dr. Glasser voluntarily reduced his annual
salary to $100,000. The Committee also established a net income goal for the
Company which, if met, would have entitled Dr. Glasser to a $100,000 cash bonus.
Such net income goal was not met and no bonus was paid to Dr. Glasser with
respect to fiscal 1996.
Because of Dr. Glasser's significant stock ownership as a founder of the
Company, Dr. Glasser is not compensated with stock-based compensation. Dr.
Glasser is not eligible to receive grants under the Company's Stock Plan.
Compensation Committee
Kenneth Barber
Robert Rush
Edward Stolman
October 15, 1996
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph shows a comparison of the cumulative total stockholder
return on the Company's Class A Common Stock beginning February 13, 1992 and
ending June 30, 1996 with the S&P's 500 Composite Index and the Standard &
Poor's Healthcare Miscellaneous Index. The total returns are based on changes in
stock prices and reinvestment of all dividends assuming an initial investment of
$100.
(Please note that a Stock Performance Graph is located here. A hard copy
of the graph will be sent to the SEC)
<TABLE>
<CAPTION>
February 13 June 30 June 30 June 30 June 30 June 30
1992 1992 1993 1994 1995 1996
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Meadowbrook Rehabilitation Group, Inc. $100.00 $60.58 $21.15 $14.42 $15.38 $3.85
S&P Healthcare Miscellaneous Index $100.00 $89.35 $61.20 $58.64 $76.57 $99.09
S&P 500 $100.00 $101.21 $115.01 $116.62 $147.03 $185.26
</TABLE>
<PAGE>
Certain Transactions
A corporation owned and controlled by the Company's President and Chief
Executive Officer, Harvey Wm. Glasser, M.D., purchased and leased to the Company
several facilities which the Company was not able to purchase due to its lack of
capital and borrowing capacity prior to its initial public offering in February
1992. The Company continued to make payments under one such lease during fiscal
1996, that lease being for the Company's rehabilitation hospital in Gardner,
Kansas. Such lease provides for a base rent plus a percentage of the leased
facility's net revenues. Under the lease agreement, the Company is responsible
for all taxes and expenses associated with the ownership and operation of the
property. The Company made payments in the amount of $405,000 during fiscal 1996
under the lease for such hospital. The lease expires in 2001.
During fiscal 1994, the Company closed the operations of its San Jose,
California subacute facility, which also was leased from the corporation
controlled by Dr. Glasser. In December 1994, the Company sold its lease for the
San Jose facility to an investment partnership for a nominal sum. The investment
partnership's rent obligation commenced on February 15, 1995 and the Company
made no rent payments thereunder during fiscal 1996. The Company, however,
remains obligated to make lease payments of $19,500 per month to the lessor
until August 1998 in the event that the investment partnership defaults on its
obligations under the lease.
Compliance with Section 16(a) of the Exchange Act
Based on a review of forms submitted to the Company during and with respect
to the 1996 fiscal year and the written representation of reporting persons, the
Company believes that all reports required to be filed under Section 16(a) of
the Exchange Act for transactions occurring during fiscal 1996 were timely
filed.
<PAGE>
APPROVAL OF APPOINTMENT OF INDEPENDENT AUDITORS
The Company has appointed Arthur Andersen LLP as its independent auditors
for the fiscal year ending June 30, 1997 on the recommendation of the Audit
Committee. Representatives of Arthur Andersen LLP are expected to be present at
the Annual Meeting and will have the opportunity to make a statement if they so
desire and will be available to respond to appropriate questions. If the
stockholders do not approve the selection of Arthur Andersen LLP, the selection
of other independent auditors will be considered by the Board of Directors,
although the Board of Directors would not be required to select different
independent auditors.
OTHER BUSINESS
The Board of Directors does not know of any business to be presented at the
Annual Meeting other than the matters set forth above, but if other matters
properly come before the meeting it is the intention of the persons named in the
proxies to vote in accordance with their best judgment on such matters.
SUBMISSION OF PROPOSALS OF STOCKHOLDERS
Proposals of stockholders intended to be presented at the Company's 1997
Annual Meeting of Stockholders must be received at the Corporate Secretary's
Office, 2200 Powell Street, Suite 800, Emeryville, California 94608, no later
than June 17, 1997 to be considered for inclusion in the Proxy Statement and
form of proxy for that meeting.
By Order of the Board of Directors
Harvey Wm. Glasser, M.D.
President and Chief Executive Officer
Dated: October 15, 1996
