NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
November 20, 1997
To The Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Meadowbrook Rehabilitation Group, Inc. (the "Company") will be held at 3:30
p.m., on Thursday, November 20, 1997 at the Watergate Towers Building, 2000
Powell Street, Fourteenth Floor Conference Room, Emeryville, California for the
following purposes:
1. To elect directors to serve until the 1998 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 1998 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, 1997 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, 2000 Powell Street, Suite 1203, 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, 1997
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 20, 1997,
and any postponement or adjournment thereof. A copy of the Company's Annual
Report to Stockholders for the fiscal year ended June 30, 1997, which includes
the Company's financial statements as of and for the fiscal year ended June 30,
1997, accompanies this Proxy Statement and the accompanying form of proxy and
each are being mailed to stockholders on or about October 15, 1997.
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 person. Subject to any such revocation,
all shares represented by properly executed proxies will be voted 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 three 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 1998 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, 1997
(the "record date") are entitled to notice 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 three 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 1998 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
During fiscal 1997 the Board of Directors reduced the size of the Board
from four members to three members. The Board of Directors of the Company
currently consists of three members. The following three persons have been
nominated by the Board of Directors to serve as directors until the 1998 Annual
Meeting of Stockholders and thereafter until their respective successors are
duly elected and qualified.
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 62 years old.
John P. McCracken has been a director of the Company since April 1997. In 1996,
he founded First Step Consulting which provides sales and marketing consulting
services within the computer industry. From 1995 to 1996 he was President and
Chief Executive Officer of WitchDesk, Inc., a computer software company. From
1993 to 1995 he served as Director of New Business Development for Award
Software International, a computer software company. From 1991 to 1993 he was
International Sales Manager for Star Signal Corporation, a computer hardware
manufacturer. Mr. McCracken is 35 years old.
Robert G. 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.
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.
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 G. Rush, Chairman, and John P.
McCracken. 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 one meeting during
fiscal 1997.
The Compensation Committee consists of John P. McCracken, Chairman, and
Robert G. 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 one meeting in fiscal 1997.
During the past fiscal year, there were four regular meetings of the Board
of Directors and two special meetings. 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 1997, 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 in each
year 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, 1997, 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 Shares Common Stock
Directors, Executive Beneficially Percentage Beneficially Percentage Voting as a
Officers and 5% Stockholders Owned (1) of Class (2) Owned (1) of Class Single Class (2)
---------------------------- ----------- ------------ ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Harvey Wm. Glasser, M.D. (3) 26,261 (4) 2.2% 773,000 100.0% 86.8%
Robert G. Rush................... 10,833 (5) .9% -- -- 0.1%
John P. McCracken................ -- --% -- -- --%
James F. Murphy.................. 36,250 (5) 3.0% -- -- 0.4%
Heartland Advisors, Inc. (6) .... 530,128 44.0% -- -- 5.9%
All executive officers and
directors as a group
(four persons).................. 73,344 6.1% 773,000 100.0% 87.3%
<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 20, 1998 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 2000 Powell Street, Suite 1650, Emeryville, CA 94608.
(4) Excludes 19,635 shares 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 20, 1998.
(6) Information based in Schedule 13G dated February 12, 1997. Address is 790 North Milwaukee Street, Milwaukee, Wisconsin
53202.
</FN>
</TABLE>
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
earned by the Company's Chief Executive Officer and the other executive officer
of the Company as of June 30, 1997 for services rendered in all capacities to
the Company during the last three fiscal years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Awards
------------
Annual Compensation
------------------- Securities
Fiscal Underlying
Name and Principal Position Year Salary Bonus Options/SARs
- -------------------------------------- ------ -------- ------- ------------
<S> <C> <C> <C> <C>
Harvey Wm. Glasser, M.D. 1997 $100,010 $0 0
President and Chief Executive Officer 1996 $164,023 $0 0
1995 $198,008 $0 0
James F. Murphy 1997 $132,505 $20,262 0
Vice President and 1996 $132,505 $15,000 0
Chief Financial Officer 1995 $125,213 $37,100 35,000
</TABLE>
<PAGE>
The following tables set forth certain information as of June 30, 1997 and
for the year then ended with respect to stock options granted to the executive
officers named in the Summary Compensation Table above.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants Potential
------------------------------------------------------ Realizable Value
Number of % of Total of Stock Price
Securities Options/SARs Exercise Appreciation for
Underlying Granted to Price Option Term
Options/SARs Employees per Expiration -----------------
Name Granted in Fiscal Year Share Date 5% 10%
- ------------------------ -------------- -------------- -------- ---------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Harvey Wm. Glasser, M.D. -- -- -- -- -- --
James F. Murphy -- -- -- -- -- --
</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 36,250 12,084
<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 two 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 one time during fiscal 1997.
1997 Compensation Policy and Objectives
Due to the Company's poor financial performance over several years and the
prospect (at the beginning of fiscal 1997) of a significant transition in the
nature of the Company's business, the Committee's compensation policy and
objectives for fiscal 1997 were (i) to retain the Company's management team
throughout the transition period, (ii) to provide incentives to management to
create stockholder value, and (iii) to preserve and enhance its limited cash
reserves. Executive officers are compensated with a combination of base
salaries, incentive stock options and cash bonuses. Certain key managers
received retention bonuses during fiscal 1997 in return for remaining during the
Company's transition.
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 1997, the Committee established a fiscal
1997 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 1997, and as a result no bonuses were paid on this
basis. The Committee also established certain goals for the Vice President and
Chief Financial Officer with respect to the collection of accounts receivable
and the completion of certain sale transactions. Such goals were met and
accordingly, Mr. Murphy received a $20,262 cash bonus.
1997 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 1997 at $100,000, approximately 39% lower than the previous
fiscal year. 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 1997.
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
John P. McCracken
Robert G. Rush
October 15, 1997
<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, 1997 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 1993 1994 1995 1996 1997
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Meadowbrook Rehabilitation Group, Inc. $100.00 $34.92 $23.81 $35.40 $6.35 $8.99
S$P Healthcare Miscellaneous Index $100.00 $68.49 $65.63 $85.69 $110.89 $110.89
S&P 500 $100.00 $113.63 $115.23 $145.27 $183.04 $246.32
</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. One such lease, for the Company's rehabilitation hospital in Gardner,
Kansas, was in effect during fiscal 1997. Subsequent to year end, however, Dr.
Glasser sold the Kansas facility leased to the Company in conjunction with the
Company's sale of its Kansas operations. Such lease provided for a base rent
plus a percentage of the leased facility's net revenues. Under the lease
agreement, the Company was responsible for all taxes and expenses associated
with the ownership and operation of the property. The Company made payments in
the amount of $382,000 during fiscal 1997 under the lease for such hospital.
During fiscal 1994, the Company closed the operations of its San Jose,
California subacute facility, which also was leased from a 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 and the
investment partnership's rent obligation commenced on February 15, 1995. 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. The Company made no rent payments
under such lease during fiscal 1997.
Section 16(a) Beneficial Ownership Reporting Compliance
Based on a review of forms submitted to the Company during and with respect
to the 1997 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 Securities Exchange Act of 1934 for transactions occurring during fiscal
1997 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, 1998 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 1998
Annual Meeting of Stockholders must be received at the Corporate Secretary's
Office, 2000 Powell Street, Suite 1203, Emeryville, California 94608, no later
than June 17, 1998 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, 1997
