SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
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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 Section 240.14a-12
REHABCARE GROUP, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person Filing Proxy Statement if other than the Registrant)
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:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
[RehabCare Group(SM) logo]
7733 FORSYTH BOULEVARD
SUITE 2300
ST. LOUIS, MISSOURI 63105
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 4, 2004
Dear Stockholder:
The annual meeting of stockholders of RehabCare Group, Inc. will be
held at the Pierre Laclede Center, 7733 Forsyth Boulevard, Second Floor, St.
Louis, Missouri 63105, on May 4, 2004, 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 consider and act upon a proposal to approve the RehabCare
Group, Inc. Second Amended and Restated 1996 Long-Term
Performance Plan.
3. To ratify the appointment of KPMG LLP as independent auditors
for the fiscal year ending December 31, 2004.
4. To transact any and all other business that may properly come
before the annual meeting or any adjournment thereof.
Only our stockholders of record at the close of business on March
8, 2004, 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 IN PERSON 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.
John H. Short, Ph.D.
Interim President and Chief Executive Officer
March 29, 2004
[RehabCare Group(SM) logo]
7733 FORSYTH BOULEVARD
SUITE 2300
ST. LOUIS, MISSOURI 63105
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 4, 2004
-----------------
GENERAL INFORMATION
This proxy statement is furnished to the stockholders of RehabCare
Group, Inc. in connection with our 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 63105, on May 4, 2004,
at 8:00 a.m., local time, and at all adjournments thereof, 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 our stockholders on or about
March 29, 2004.
The proxy set forth on the accompanying proxy card is being
solicited by our board of directors. 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 for the election of the six
directors nominated by our board of directors in Proposal I, in favor of the
approval of the RehabCare Group, Inc. Second Amended and Restated 1996
Long-Term Performance Plan in Proposal II and in favor of the ratification
of KPMG LLP as our independent auditors in Proposal III. 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 our corporate secretary at our
principal offices or by attending the annual meeting and voting the shares
in person. Attendance alone at the annual meeting will not 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.
We will bear the entire expense of soliciting proxies. Proxies
initially will be solicited by mail. Our directors, executive officers and
employees may also solicit proxies personally or by telephone or other
means, but we will not compensate these persons for providing the
solicitation services.
Only our stockholders of record at the close of business on March
8, 2004, are entitled to notice of, and to vote at, the annual meeting. On
such date, there were 16,177,479 shares of our common stock, $0.01 par
value, issued and outstanding.
Each outstanding share of our common stock on March 8, 2004, is
entitled to one vote for each director to be elected at the annual meeting
and one vote on each additional proposal presented at the
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annual meeting. Our stockholders do not have the right to cumulate votes in
the election of directors. A majority of the outstanding shares of common
stock present in person or by proxy will constitute a quorum at the annual
meeting. A plurality of the votes cast is required for the election of
directors, which means that the nominees with the six highest vote totals
will be elected as our directors. As a result, a designation on the proxy
that the stockholder is "withholding authority" for a nominee or nominees
and broker "non-votes" do not have an effect on the results of the vote for
the election of directors. A designation on the proxy that the stockholder
is "withholding authority" to vote for a nominee or nominees will be
counted, but broker "non-votes" will not be counted, for the purpose of
determining the number of shares represented at the meeting for purposes of
determining whether a quorum of shares is present at the meeting. A broker
"non-vote" occurs when a nominee holding shares for a beneficial owner does
not vote on a particular proposal because the nominee does not have
discretionary voting power with respect to that item and has not received
instructions from the beneficial owner.
The approval of the RehabCare Group, Inc. Second Amended and
Restated 1996 Long-Term Performance Plan requires the affirmative vote of a
majority of votes cast on the proposal, provided that the total vote cast on
the proposal represents over 50 percent of our outstanding shares.
Therefore, shares subject to abstention will have the effect of a vote
against this proposal to the extent that the total vote does not exceed 50
percent of our outstanding shares. A broker "non-vote" will have no effect
on this proposal.
The ratification of the appointment of KPMG LLP as our independent
auditors requires the affirmative vote of a majority of the votes cast on
the proposal. Therefore, abstentions and broker "non-votes" will have no
effect on the proposal to ratify KPMG LLP as our auditors.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following entities are known to our management to be the
beneficial owners of five percent or more of our common stock:
NUMBER OF SHARES PERCENT OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK(1)
------------------------------------ ------------------ ---------------
FMR Corp.(2) 1,737,500 10.7%
82 Devonshire Street
Boston, Massachusetts 02109
Boston Partners Asset Management, LLC(3) 950,810 5.9
28 State Street, 20th Floor
Boston, Massachusetts 02109
Becker Capital Management, Inc.(4) 924,700 5.7
1211 SW Fifth Avenue, Suite 2185
Portland, Oregon 97204
Mellon Financial Corporation(5) 817,969 5.1
c/o Mellon Financial Corporation
One Mellon Center
Pittsburgh, Pennsylvania 15258
<FN>
- --------
(1) The percentage calculations are based upon 16,177,479 shares of our
common stock issued and outstanding on March 8, 2004.
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(2) The information provided is based on Amendment No. 9 to Schedule 13G,
dated February 16, 2004, filed jointly by FMR Corp., a holding
company, Edward C. Johnson 3d, a principal stockholder and the
chairman of FMR Corp., and Abigail P. Johnson, a principal stockholder
and member of the board of directors of FMR Corp. Each of FMR Corp.,
Edward C. Johnson 3d and Abigail P. Johnson reported sole dispositive
power with respect to all 1,737,500 shares reported as beneficially
owned.
(3) The information provided is based on Amendment No. 2 to Schedule 13G,
dated February 10, 2004, filed by Boston Partners Asset Management,
LLC, an investment advisor. Boston Partners Asset Management, LLC
reported sole voting and dispositive power with respect to all 950,810
shares reported as beneficially owned.
(4) The information provided is based on a Schedule 13G, dated February 2,
2004, filed by Becker Capital Management, Inc., an investment advisor.
Becker Capital Management, Inc. reported sole voting power with
respect to 842,300 of the shares and sole dispositive power with
respect to all 924,700 shares reported as beneficially owned.
(5) The information provided is based on a Schedule 13G, dated February 2,
2004, filed by Mellon Financial Corporation and related entities.
Mellon Financial Corporation reported sole voting power with respect
to 484,744 of the shares and sole dispositive power with respect to
all 817,969 shares reported as beneficially owned.
SECURITY OWNERSHIP BY MANAGEMENT
The following table sets forth, as of March 8, 2004, the beneficial
ownership of our 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 PERCENT OF OUTSTANDING
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1)(2) COMMON STOCK(3)
- ------------------------ ------------------------ ---------------
William G. Anderson, CPA 216,291 1.3%
Colleen Conway-Welch, Ph.D., R.N. 26,211 (4)
C. Ray Holman 12,500 (4)
John H. Short, Ph.D. 116,361 (4)
H. Edwin Trusheim 198,768 1.2
Theodore M. Wight 72,230 (4)
Tom E. Davis 142,104 (4)
Vincent L. Germanese, CPA 12,500 (4)
Patricia M. Henry 36,695 (4)
Gregory F. Bellomy 0 0
Todd M. Cook 23,212 (4)
Alan C. Henderson 468,195(5) 2.8
All directors and executive officers as a group (13 persons) 1,335,202 7.7%
<FN>
- --------
(1) Except as otherwise noted, each individual has sole voting and
investment power with respect to the shares listed beside his or her
name.
(2) Totals include 183,361, 25,761, 7,500, 93,361, 195,768, 72,230,
142,104, 12,500, 36,000, 0, 22,976, 412,964, and 1,214,525 shares
subject to stock options owned by Anderson, Conway-Welch, Holman,
Short, Trusheim, Wight, Davis, Germanese, Henry, Bellomy, Cook,
Henderson, and all directors and executive officers as a group,
respectively, that are either presently exercisable or exercisable
within 60 days of March 8, 2004. With respect to Mr. Henderson's
options to purchase 412,964 shares, the total includes 362,964 shares
subject to stock options owned by a trust of which Mr. Henderson is the
trustee. Totals also include 695 shares allocated to Ms. Henry under
our 401(k) plan.
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(3) Based upon 16,177,479 shares of our common stock issued and outstanding
as of March 8, 2004, 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 within 60 days of March 8,
2004.
(4) Less than one percent.
(5) Includes (A) 20,075 shares owned by a trust of which Mr. Henderson is
the trustee, (B) 1,100 shares owned by Mr. Henderson's spouse as
custodian for one of Mr. Henderson's children, as to which shares Mr.
Henderson has no voting or investment power, and (C) 900 shares owned
directly by one of Mr. Henderson's children, as to which shares Mr.
Henderson has no voting or investment power.
PROPOSAL I.
ELECTION OF DIRECTORS
At the annual meeting, our stockholders will vote on the election
of six directors to serve a term of one year until the 2005 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 our board of directors for the
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 a substitute nominee as designated
by our board of directors. The six nominees receiving the highest number of
votes will be elected as our directors. Each nominee currently serves as one
of our directors. Our board of directors recommends a vote "FOR" the
election of each of the nominees.
The name, age, principal occupation or position, business
experience and other directorships for each of the directors is set forth
below.
H. EDWIN TRUSHEIM, 76, has been our chairman of the board of
directors since 1998 and has served as a director since 1992. Prior to his
retirement, Mr. Trusheim served as chairman of the board of directors and
chief executive officer of General American Life Insurance Company.
WILLIAM G. ANDERSON, CPA, 71, has been a director since 1991. Prior
to his retirement, Mr. Anderson served as vice chairman of Ernst & Young, a
public accounting firm.
COLLEEN CONWAY-WELCH, PH.D., R.N., 59, has been a director since
September 2000. Dr. Conway-Welch serves as the dean and a professor at
Vanderbilt University's School of Nursing, where she has been employed since
1984. Dr. Conway-Welch also serves on the board of directors of Pinnacle
Bank in Nashville, Tennessee, Ardent Health Services and Caremark RX, Inc.
C. RAY HOLMAN, 61, joined our board of directors in 2003. He is the
retired chairman of the board and chief executive officer of Mallinckrodt,
Inc. Mr. Holman currently serves on the boards of The Laclede Group, Inc.,
Home Care Supply, Inc. and InteliStaf Holdings, Inc.
JOHN H. SHORT, PH.D., 59, has been a director since 1991, and has
served as our Interim President and Chief Executive Officer since June 2003.
Dr. Short also serves as managing partner of Phase 2 Consulting, a
healthcare consulting business.
THEODORE M. WIGHT, 61, has been a director since 1991. Mr. Wight
serves as a general partner of the general partners of Walden Investors, a
venture capital business, and Pacific Northwest
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Partners SBIC, L.P., a venture capital business, and also serves as a
director of various privately-held companies.
BOARD OF DIRECTORS AND COMMITTEES
During the year ended December 31, 2003, our board of directors met
ten times, three of which were telephonic meetings. Each director attended
not less than 75% of the meetings of our board of directors and committees
of which such director was a member during 2003. It is our policy to
strongly encourage the members of our board of directors to attend the
annual meeting of stockholders. At the last annual meeting, all but one of
the then current directors were in attendance.
Our board of directors has standing Audit, Compensation and
Nominating/Corporate Governance and Compliance Committees. Each of the
committees of our board of directors is comprised of non-employee directors.
Our board of directors has adopted a written charter for each of these
committees. The full text of each charter and our corporate governance
guidelines are available on our website located at www.rehabcare.com.
Additionally, a copy of the audit committee charter is attached as Appendix
A hereto. In compliance with the New York Stock Exchange Corporate
Governance Standards, our board of directors holds regularly scheduled
executive sessions without management, and will at least annually schedule
an executive session with only non-employee directors.
Messrs. Anderson and Holman and Dr. Conway-Welch comprise the Audit
Committee. The Audit Committee met seven times during 2003. The duties of
the Audit Committee include:
o recommending to the board of directors a public accounting
firm to be placed in nomination for stockholder
ratification as our independent auditors and compensating
and terminating the independent auditors as deemed
necessary;
o meeting periodically with our independent auditors and
financial management to review the scope of the proposed
auditor for the then-current year, the proposed audit fees
and the audit procedures to be utilized, reviewing the
audit and eliciting the judgment of the independent
auditors regarding the quality of the accounting
principles applied to our financial statements; and
o evaluating on an annual basis the qualifications,
performance and independence of the independent auditors,
based on the committee's review of the independent
auditor's report and the performance of the independent
auditors throughout the year.
Each member of the Audit Committee meets the independence
requirements of the New York Stock Exchange. Each member of our Audit
Committee is financially literate, knowledgeable and qualified to review
financial statements. The "audit committee financial expert" designated by
our board of directors is William G. Anderson.
In October 2003, our board of directors changed the name of the
Compensation and Nominating Committee to the Compensation and
Nominating/Corporate Governance Committee. The members of the Compensation
and Nominating/Corporate Governance Committee are Messrs. Trusheim and
Wight. The Compensation and Nominating/Corporate Governance Committee met
five times during 2003. The duties of the Compensation and
Nominating/Corporate Governance Committee include:
o reviewing and recommending to our board of directors the
salaries of all our executive officers and authorizing all
other forms of executive compensation;
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o reviewing our incentive-compensation and equity-based
plans and recommending changes to such plans as needed;
o overseeing the search for individuals qualified to become
members of our board of directors and selecting director
nominees to be presented for approval at our annual
meeting of stockholders;
o considering nominees for directors recommended by our
stockholders; and
o reviewing our corporate governance guidelines at least
annually and recommending changes to our board of
directors as necessary.
The Compensation and Nominating/Corporate Governance Committee of
our board of directors is responsible under its charter for identifying and
selecting qualified candidates for election to the board of directors prior
to each annual meeting of the stockholders. In addition, stockholders who
wish to recommend a candidate for election to the board of directors may
submit such recommendation to the chairman of the committee. Any
recommendation must include name, contact information, background,
experience and other pertinent information on the proposed candidate and
must be received by us within the time limits set forth herein under the
title "Proposals of Stockholders" for consideration by the committee. In
accordance with the committee's charter and our corporate governance
guidelines, we are willing to consider candidates recommended by
stockholders. In identifying and evaluating nominees for director, the
committee considers each candidate's qualities, experience, background and
skills, as well as other factors which the candidate may bring to the board
of directors.
The Compliance Committee members are Messrs. Holman and Anderson
and Dr. Conway-Welch. The Compliance Committee oversees the implementation
and operation of our ongoing regulatory compliance program, including the
enforcement of appropriate disciplinary mechanisms to ensure that all
reasonable steps are taken to respond to a regulatory offense and to prevent
future offenses of a similar kind. The Compliance Committee met four times
during 2003.
We have adopted a Code of Ethics for Senior Executive and Financial
Officers. The code of ethics is posted on our website, www.rehabcare.com,
under the "Investor Information" section.
We have established procedures for stockholders or other interested
parties to communicate directly with our board of directors. Such parties
can contact our board of directors by mail at: RehabCare Group, Inc.,
Attention: H. Edwin Trusheim, Chairman of the Board, 7733 Forsyth Boulevard,
Suite 2300, St. Louis, Missouri 63105. All communications made by this means
will be received by the Chairman of the Board.
DIRECTORS' FEES
Directors who are not also our employees were paid $5,000 for each
meeting of our board of directors that he or she attended in person and also
received a one-time payment of $5,000 for all telephonic meetings of our
board of directors during 2003. We also reimburse our directors for expenses
incurred in connection with their attendance at board meetings.
Each of the non-employee directors also receives annual stock
option grants under our 1999 Non-Employee Director Stock Plan. In January
2003, we granted options to acquire 6,300 shares of our common stock at an
exercise price of $18.93 per share, the fair market value of our common
stock on the date of grant, to each of Messrs. Anderson, Trusheim and Wight
and Drs. Short and Conway-Welch. In addition, in March 2003, we granted
options to acquire 4,000 shares of our common stock at an
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exercise price of $17.37 per share, the fair market value of our common
stock on the date of grant, to Mr. Trusheim for his services as chairman of
the board. In September 2003, we granted options to acquire 7,500 shares of
our common stock at an exercise price of $18.56 per share, the fair market
value of our common stock on the date of grant, to Mr. Holman at his
election to the board.
REPORT OF COMPENSATION AND NOMINATING/CORPORATE
GOVERNANCE COMMITTEE
REGARDING EXECUTIVE COMPENSATION
GENERAL
The Compensation and Nominating/Corporate Governance Committee of
our board of directors administers our executive compensation program.
During the year ended December 31, 2003, the committee was composed of two
non-employee directors, Messrs. Trusheim (chairman) and Wight.
Our executive compensation policy is designed and administered to
provide a competitive compensation program that enables us 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. We base our compensation policy on the
principle that the financial rewards to the executive are aligned with the
financial interests of our stockholders. We believe that through this
principle we will meet our ultimate responsibility to our stockholders by
striving to give a suitable long-term return on their investment through
earnings from operations and prudent management of our business and
operations.
Our executive compensation strategy consists of three separate
elements, including base salary, annual incentive compensation and long-term
incentive compensation. The following is a summary of the policies
underlying each element.
BASE SALARY
The Compensation and Nominating/Corporate Governance Committee
determined the salary ranges for each of our executive officer positions
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 these types of executives and a consideration
of the level of experience and performance profile of the particular
executive officer. In considering the competitors in the market, we
emphasize privately-held and publicly-traded healthcare outsourcing
companies with similar revenue, earnings and market capitalization profiles
to us.
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 for 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.
Salary increases for each of the executive officers are considered
annually by the committee and are based upon individual performance
evaluations conducted by the committee. In the case of all executive
officers other than Dr. Short, the committee also receives and considers the
recommendations of the chief executive officer.
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On the basis of the committee's 2003 review of our executive
officers, the committee increased the salary of Mr. Henderson by 8.7% and
the salaries of Messrs. Bellomy, Davis, Germanese and Ms. Henry by between
0% and 21%.
ANNUAL INCENTIVE COMPENSATION
For services rendered during the year ended December 31, 2003,
certain of our executive officers received cash bonuses based on
performance-based criteria. Mr. Davis received a performance-based cash
bonus based upon a formula approved by the committee annually. The bonus is
computed based upon the achievement of year-to-year growth in operating
earnings and revenue by the particular officer's division and in earnings
per share by the whole company. Each of the criteria is assigned a specific
weighting for purposes of the bonus computation. For 2003, Mr. Davis
received a cash bonus of $24,959 under the formula. In addition, as approved
by the board of directors, Mr. Germanese and Ms. Henry were each paid a
discretionary $15,000 bonus and Mr. Bellomy was paid a discretionary bonus
of $75,000 in recognition of their services in connection with the
transition of our leadership. Dr. Short and Messrs. Henderson and Cook did
not receive a bonus during 2003.
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. Our long-term incentive programs are stock-based, thereby
providing executive officers with an incentive to continue high quality
performance with us over a long period of time while building a meaningful
investment in common stock.
Under the plans, we grant our executive officers and other eligible
employees options to purchase shares of our common stock from time to time
based upon their respective levels of duties. Our board of directors, upon
the recommendation of the committee, has given the chief executive officer
the authority to grant newly hired employees options to purchase up to
10,000 shares of our common stock. Each option has an exercise price equal
to the fair market value of common stock on the date of grant and has a term
of 10 years.
The committee periodically evaluates the level of long-term
incentives provided to each of our executive officers and each officer's
relative contributions to corporate performance. Based on such evaluation,
during the year ended December 31, 2003, the committee approved grants of
additional options to certain executive officers in recognition of their
increases in authority, responsibility and contributions toward improvements
in our operating performance. During the year ended December 31, 2003,
Messrs. Henderson, Bellomy and Cook received no option grants and Messrs.
Davis and Germanese and Ms. Henry received option grants of 20,000 shares
each. Dr. Short received option grants of 6,300 shares during the year ended
December 31, 2003 for his services as a member of our board of directors.
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 served as our President and Chief Executive Officer
until his retirement in June 2003. Prior to his retirement, Mr. Henderson's
base salary, annual incentive compensation and long-term incentive
compensation were determined by the committee in the same manner as is used
for executive officers generally as well as by reference to Mr. Henderson's
employment agreement with us.
8
Dr. Short became our Interim President and Chief Executive Officer
in June 2003. In connection with Dr. Short's appointment as Interim
President and Chief Executive Officer, we entered into a consulting
agreement with Phase 2 Consulting, a consulting firm in which Dr. Short is
the managing partner. Pursuant to the consulting agreement, Phase 2
Consulting provides various management, consulting and advisory services to
us, including having Dr. Short serve as our Interim President and Chief
Executive Officer. Accordingly, all compensation for Dr. Short's services to
us as Interim President and Chief Executive Officer is made pursuant to the
consulting agreement, and Dr. Short does not receive any additional
compensation from us for his services. Pursuant to the consulting agreement,
we pay to Phase 2 Consulting a monthly consulting fee of $55,000 during the
term of the agreement, plus reimbursement of business expenses. In addition,
Phase 2 Consulting is entitled to receive an incentive fee capped at $1.3
million payable in cash or shares of our common stock based upon achievement
of predetermined performance standards. For services rendered during 2003,
we paid to Phase 2 Consulting an aggregate of $391,600 in fees under the
consulting agreement, which amount consisted of $385,000 in monthly fees and
$6,600 in incentive fees, and we reimbursed Phase 2 Consulting for $164,400
in expenses.
COMPENSATION AND NOMINATING/CORPORATE GOVERNANCE
COMMITTEE OF THE BOARD OF DIRECTORS
H. EDWIN TRUSHEIM THEODORE M. WIGHT
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COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
For the years ended December 31, 2003, 2002 and 2001, the following
table presents summary information concerning compensation awarded, paid to
or earned by our chief executive officer and each of our other most highly
compensated executive officers for the year ended December 31, 2003 for
services rendered to us.
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION ($)(1)
- ---------------------------- ---- ---------- --------- ----------- -------------------
John H. Short, Ph.D. 2003 -- -- -- 391,600(3)
Interim President and
Chief Executive Officer(2)
Alan C. Henderson 2003 199,678 -- -- 613,610(5)
Former President and 2002 455,837 178,581 -- 4,000
Chief Executive Officer(4) 2001 431,680 -- 200,000 3,400
Tom E. Davis 2003 281,667 24,959 20,000 4,000
President, Hospital Rehabilitation 2002 238,958 54,251 20,000 4,000
Services 2001 230,833 41,781 -- 3,400
Patricia M. Henry 2003 235,000 15,000 20,000 4,000
President, Contract Therapy(6) 2002 207,917 107,008 60,000 4,000
2001 155,682 90,000 -- 3,400
Vincent L. Germanese 2003 300,000 15,000 20,000 250
Senior Vice President, 2002 25,000 5,774 50,000 --
Chief Financial Officer
and Treasurer(7)
Gregory F. Bellomy 2003 263,457 75,000 -- 20,127(9)
Former President, StarMed 2002 262,917 19,719 30,000 3,000
Staffing(8) 2001 211,478 137,461 55,000 3,400
Todd M. Cook 2003 178,806 -- -- 4,000
Former President, Travel 2002 142,417 -- 15,000 3,891
Staffing(10) 2001 150,480 83,769 10,000 4,000
<FN>
- --------
(1) Except as otherwise indicated, totals include amounts contributed by us
pursuant to the matching portion of our 401(k) plan.
(2) John Short, Ph.D. became our Interim President and Chief Executive
Officer in June 2003. Dr. Short's services to us are provided pursuant
to the terms of our consulting agreement with Phase 2 Consulting, a
consulting firm in which Dr. Short is the managing partner. Dr. Short
is not separately compensated by us for his services. For a discussion
of this arrangement, see "Compensation of Chief Executive Officer" in
the "Report of the Compensation and Nominating/Corporate Governance
Committee Regarding Executive Compensation" included in this proxy
statement.
(3) Amount represents aggregate monthly fees of $385,000 and aggregate
incentive fees of $6,600 paid to Phase 2 Consulting pursuant to our
consulting agreement with Phase 2 Consulting.
(4) Mr. Henderson retired as our President and Chief Executive Officer in
June 2003.
(5) The amount disclosed includes $582,290 payable to Mr. Henderson
pursuant to a consulting agreement entered into by us and Mr. Henderson
in connection with Mr. Henderson's retirement from our company.
Pursuant to the consulting agreement, Mr. Henderson agreed to provide
consulting services to us during the period from June 4, 2003 to June
3, 2004. In addition, the amount disclosed includes $27,320 paid to Mr.
Henderson upon his retirement in respect of unused paid days off
accrued through June 3, 2003, and $4,000 contributed by us pursuant to
the matching portion of our 401(k) plan.
10
(6) Ms. Henry became one of our executive officers in November 2001. Prior
to November 2001, Ms. Henry served as Senior Vice President of
Operations of our contract therapy division.
(7) Mr. Germanese became one of our executive officers in November 2002.
Prior to joining us, Mr. Germanese served as vice president of Cap
Gemini Ernst & Young and partner at Ernst & Young.
(8) Mr. Bellomy's employment with us terminated on June 30, 2003.
(9) Amount includes $17,288 paid to Mr. Bellomy upon his leaving our
employment in respect of unused paid days off accrued through June 30,
2003.
(10) Mr. Cook became one of our executive officers in July 2003. Prior to
July 2003, Mr. Cook served as Senior Vice President of our former
StarMed Travel Division and a Senior Vice President of Operations for
us. Mr. Cook's employment with us terminated in February 2004.
EMPLOYMENT, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
Mr. Henderson retired from his position as our president and chief
executive officer effective June 3, 2003. In connection with Mr. Henderson's
retirement, he entered into a consulting agreement with us pursuant to which
he has agreed to serve as a consultant to us from June 4, 2003 until June 3,
2004. Pursuant to the consulting agreement Mr. Henderson is entitled to
receive the following:
o a cash payment of $582,290, payable in 26 equal
consecutive semi-monthly installments of $22,395.77;
o continuation of medical and health benefits for Mr.
Henderson and his family through June 3, 2004;
o cash payment of any unused paid days off accrued through
June 3, 2003;
o a monthly vehicle allowance of $400 for the months of June
2003 through and ending May 2004; and
o all stock options granted to Mr. Henderson prior to June 3,
2003 continue to vest through June 3, 2004 and will
remain exercisable through June 3, 2006.
We currently have separate termination compensation agreements with
each of Mr. Davis and Ms. Henry. Each of these agreements generally provides
the named executive with benefits upon termination of his or her employment
without cause prior to a change in control transaction equal to his or her
then-current salary and bonus for the 12 months following termination. If
the executive officer's employment is terminated within three years after a
change in control transaction without cause or for good reason, he or she
will be entitled to a lump-sum cash payment equal to 1.5 times his or her
annual compensation, including a bonus based upon his or her five-year
average bonus percentage. In each case, the terminated officer will also be
entitled to the continuation of his or her health and welfare benefits for
up to one year after the date of termination and the vesting of all
stock-based awards that would have become exercisable within six months of
the termination date.
If the value of the cash payments and the continuation or
acceleration of benefits upon termination under any of the termination
compensation agreements would subject the executive officer to the payment
of a federal excise tax as "excess parachute payments," we will be required
to make an additional "gross-up" payment to cover the additional taxes owed
by the officer.
11
A change in control transaction is generally:
o an acquisition by any one person or group of 25% or more
of our outstanding common stock;
o the replacement of the majority of our directors;
o stockholder approval of a reorganization, merger or consolidation
that changes the stock ownership of the board; or
o approval by the stockholders of a complete liquidation or
dissolution of us or the sale of substantially all of our
assets.
"Cause" generally means the executive officer's failure to
substantially perform his or her assigned duties or willful misconduct
materially injurious to us. "Good reason" generally means the assignment of
the executive officer to lesser duties, a reduction in or cancellation of
his or her salary, bonus, compensation or other benefit plans, his or her
relocation to a new metropolitan area, or any breach of the agreement by us.
Mr. Cook's employment as our President, Travel Staffing was
terminated in February 2004 in connection with the sale of our StarMed
Staffing division. We had a separate termination compensation arrangement
with Mr. Cook which provided him with certain benefits upon the termination
of his employment in connection with a change of control transaction.
Pursuant to that arrangement, in February 2004 we made a cash payment of
$250,000 to Mr. Cook in connection with the termination of his employment.
12
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information with respect to the
exercise of stock options by the executive officers named in the Summary
Compensation Table during the year ended December 31, 2003, and the number
of exercisable and unexercisable stock options at December 31, 2003, as well
as the value of such stock options having an exercise price lower than the
last reported trading price on December 31, 2003 ("in-the-money" options)
held by the executive officers named in the Summary Compensation Table.
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
SHARES YEAR-END (#) YEAR-END ($)(1)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ------------ ------------ ---------------------- -----------------
John H. Short, Ph.D. -- $ -- 93,361 / -- $ 744,644 / --
Alan C. Henderson 33,156 426,748 442,964 / 150,000 5,043,502 / --
Gregory F. Bellomy 50,000 277,750 -- / -- -- / --
Tom E. Davis -- -- 142,104 / 38,750 1,536,400 / 32,000
Patricia M. Henry 21,000 189,300 21,000 / 67,000 -- / 32,000
Vincent L. Germanese -- -- 12,500 / 57,500 -- / 32,000
Todd M. Cook -- -- 20,976 / 19,500 92,135 / 18,958
<FN>
- --------
(1) Based on a price per share of $21.26, the last reported sale price of
our common stock on December 31, 2003.
13
OPTION GRANTS IN LAST YEAR
The following table sets forth information concerning stock option
grants made in the year ended December 31, 2003, to the executive officers
named in the Summary Compensation Table.
INDIVIDUAL GRANT
--------------------------------------------------------
POTENTIAL REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL RATES
NUMBER OF TOTAL OPTIONS OF STOCK PRICE APPRECIATION
SECURITIES GRANTED TO FOR OPTION TERM(3)
UNDERLYING EMPLOYEES IN EXERCISE OR ---------------------------
OPTIONS FISCAL BASE PRICE EXPIRATION
NAME GRANTED(#)(1) YEAR (%) ($/SH) DATE(2) 5%($) 10% ($)
---- ------------- ------------- ----------- ---------- ----- -------
John H. Short, Ph.D. 6,300(4) --(4) 18.93 1/16/2013 194,260 309,327
Alan C. Henderson -- -- -- -- -- --
Tom E. Davis 20,000 12.99 19.66 12/16/2013 640,481 1,019,860
Patricia M. Henry 20,000 12.99 19.66 12/16/2013 640,481 1,019,860
Vincent L. Germanese 20,000 12.99 19.66 12/16/2013 640,481 1,019,860
Gregory F. Bellomy -- -- -- -- -- --
Todd M. Cook -- -- -- -- -- --
<FN>
- --------
(1) Except as otherwise noted, the option becomes 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 24 months after termination
of employment in the case of 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 our views as to the likely trend in our 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 our 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.
(4) The options were granted to Dr. Short pursuant to our 1999 Non-Employee
Directors Stock Plan prior to his appointment as our Interim President
and Chief Executive Officer, and not in connection with his service as
an executive officer. Accordingly, the options were not used in
calculating the percent of total options granted to employees in the
2003 fiscal year. Dr. Short's options vested six months from the date
of grant.
PROPOSAL II.
APPROVAL OF THE REHABCARE GROUP, INC.
SECOND AMENDED AND RESTATED 1996 LONG-TERM PERFORMANCE PLAN
In March 2004, our board of directors approved, subject to
stockholder approval, the RehabCare Group, Inc. Second Amended and Restated
1996 Long-Term Performance Plan. The purpose of the Second Amended and
Restated 1996 Long-Term Performance Plan is to merge our 1999 Non-Employee
Directors Stock Plan with and into our Amended and Restated 1996 Long-Term
Performance Plan, and to make certain other procedural changes to its terms.
As a result of the combination of the plans, an aggregate of
1,168,946 shares will be available for future grants of stock options and
stock-based incentives to our key employees and our directors. The total
number of shares authorized for issuance under the two plans will be
aggregated in
14
the combined plan and we are not requesting that the stockholders increase
the number of shares already authorized. In view of the fact that only
31,327 shares remain for issuance under the 1999 Non-Employee Directors
Stock Option Plan, the board of directors believes that the combination of
the plans is appropriate to maintain flexibility and uninterrupted
availability of authorized shares for our non-employee directors'
compensation program without increasing potential dilution to our
stockholders.
Our Amended and Restated 1996 Long-Term Performance Plan was
originally adopted by our board of directors to provide stock options and
stock-based incentive awards to key employees. The plan, which was
originally adopted in 1996, was amended and restated in 1999 to increase the
number of shares reserved for issuance under the plan from 2,100,000 shares
to 4,100,000 shares and to make other procedural changes. As of the date
hereof, grants of awards under the Amended and Restated 1996 Long-Term
Performance Plan have resulted in the issuance or reservation for issuance
of 2,962,381 shares, leaving a balance of 1,137,619 shares for future grant.
Our 1999 Non-Employee Directors Stock Option Plan, which was adopted in
1999, authorized 200,000 shares for issuance and provides for the granting
of stock options and other stock-based awards to our non-employee directors.
As of the date hereof, grants of awards under the 1999 Non-Employee
Directors Stock Option Plan have resulted in the issuance or reservation for
issuance of 168,673 shares, leaving a balance of only 31,327 shares
available for future grant.
The Second Amended and Restated 1996 Long-Term Performance Plan
will continue to be administered by the Compensation and
Nominating/Corporate Governance Committee of our board of directors
currently consisting of two of our directors, each of whom is a non-employee
director. 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 plan, to prescribe, amend and rescind
rules and regulations relating to the plan, to provide for conditions and
assurances deemed necessary or advisable to protect our interests, and to
make all other determinations necessary or advisable for the administration
of the plan to the extent not contrary to the express provisions of the
plan. Because awards are granted under the plan in the discretion of the
committee, the amount of awards to be granted is not determinable.
Notwithstanding the above, the maximum number of shares of our
stock subject to stock options that may be awarded to any individual shall
not exceed two hundred fifty thousand (250,000) shares in calendar year
2004, and shall not exceed fifty thousand (50,000) shares in any calendar
year after 2004 (both limits as adjusted in accordance with the plan).
Currently, approximately 160 employees, officers and directors are
eligible to participate in the Second Amended and Restated 1996 Long-Term
Performance Plan. The complete text of the plan is set forth in Appendix B
to this proxy statement. The following summary of the plan is qualified by
reference to the complete text of the plan.
DESCRIPTION OF PLAN
Under the terms of the plan, our officers, directors and key
employees or our officers, directors and key employees of any designated
subsidiary will be eligible to receive (a) stock appreciation rights; (b)
restricted stock; (c) performance awards; (d) incentive stock options; and
(e) nonqualified stock options.
STOCK APPRECIATION RIGHTS. The committee may grant stock
appreciation rights 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 of the stock appreciation
rights and the "Base
15
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 our common stock on the date of
grant of the stock appreciation rights. In the committee's discretion, the
value of a stock appreciation right may be paid in cash or our common stock,
or a combination thereof. A stock appreciation right 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 stock
appreciation right 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 stock
appreciation right shall be established by the committee, but in no event
shall a stock appreciation right be exercisable earlier than six months nor
later than ten years from the date of grant.
RESTRICTED STOCK. The committee may issue shares of our 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 the case of any restricted stock, the
purchase price, if any, will be determined by the committee, the restricted
stock may be subject to (i) restrictions on the sale or other disposition
thereof; (ii) rights of us to reacquire the restricted stock at the purchase
price, if any, originally paid therefor upon termination of the employee's
employment or upon termination of the director's services as a member of our
board of directors within specified periods; and (iii) such other
restrictions, conditions and terms as the committee deems appropriate.
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 our common stock, monetary units payable in cash or
a combination thereof. These grants would result in the issuance, without
payment therefor, of our 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 our 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
us).
INCENTIVE STOCK OPTIONS. The committee may grant incentive stock
options to purchase shares of our common stock at a price not less than 100%
of the fair market value of the shares on the date the option is granted.
Incentive 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 employment for any reason
other than death or disability, and during such three month period shall be
exercisable only as to those shares with respect to which it had become
exercisable on the date of termination of employment. In the event of
termination of employment as a result of death or disability, such option,
to the extent exercisable on the date of termination as a result of death or
disability, will be exercisable for twelve months after such termination. If
the optionee dies within twelve months after termination of employment by
disability, then the period of exercise following death shall be the
remainder of the twelve-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 incentive stock option be exercised
more than ten years after its grant. The aggregate fair market value
(determined as of the time an option is granted) of the stock with respect
to which incentive stock options are exercisable for the first
16
time by an optionee during any calendar year (under all option plans of us
and our subsidiaries) shall not exceed $100,000.
NONQUALIFIED STOCK OPTIONS. The committee may grant nonqualified
stock options to purchase shares of our common stock at purchase prices not
less than 100% of the fair market value of the shares on the date the option
is granted. 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 employment
or after termination of a director's services as a member of our board of
directors for any reason other than death, retirement or disability. In the
event termination of employment or termination of services as a director
occurs as a result of death, retirement or disability, such an option, to
the extent exercisable on the date of such termination, will be exercisable
for twenty-four months after such termination. If the optionee dies within
twenty-four months after termination of employment or termination of service
as a director by retirement or disability, then the period of exercise
following death shall be the remainder of the twenty-four month period or
three months, whichever is longer. However, in no event shall any option be
exercised more than ten years after its grant. The committee 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.
The board of directors may terminate, amend or modify the plan;
provided, however, that no such action of the board of directors may,
without the approval of our stockholders: (a) increase the total number of
shares of our common stock which may be issued under the plan or increase
the amount or type of benefits that may be granted; (b) change the minimum
purchase price, if any, of shares of our common stock which may be subject
to benefits; or (c) modify the requirements as to eligibility for benefits
under the plan.
FEDERAL INCOME TAX CONSEQUENCES
No income will be realized by a participating officer, director or
employee on the grant of an incentive stock option or a nonqualified stock
option, the grant of a stock appreciation right or upon the award of
restricted stock, and we 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. We 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. We 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 stock appreciation right, 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. We 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 Internal Revenue Code of 1986, as amended, 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 Internal Revenue
17
Code of 1986, as amended 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. We 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, director 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. We will be entitled
to a corresponding deduction equal to the income realized in the year of
such issuance or payment.
EQUITY COMPENSATION PLAN BENEFIT INFORMATION
The following table provides information as of December 31, 2003
with respect to the shares of our common stock that may be issued under our
existing equity compensation plans.
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
FUTURE ISSUANCE UNDER
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE EQUITY COMPENSATION
BE ISSUED UPON EXERCISE EXERCISE PRICE OF PLANS (EXCLUDING
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, SECURITIES REFLECTED IN
WARRANTS AND RIGHTS WARRANTS AND RIGHTS COLUMN (a))
PLAN CATEGORY (a) (b) (c)
----------------------------- ------------------- ------------------- -----------------------
Equity compensation plans approved by
stockholders 2,781,904 $18.92 1,137,646
Equity compensation plans not
approved by stockholders -- -- --
========= ====== =========
Total 2,781,904 $18.92 1,137,646
The vote required to approve the Second Amended and Restated 1996
Long-Term Performance Plan is a majority of the shares of our common stock
voting, in person or by proxy, at the annual meeting, provided that the
total vote cast on the proposal represents over 50 percent of our
outstanding shares. Our board of directors recommends a vote "FOR" the
approval of the RehabCare Group, Inc. Second Amended and Restated 1996
Long-Term Performance Plan.
PROPOSAL III.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee has appointed KPMG LLP as our independent
auditors for the fiscal year ended December 31, 2004 and the board of
directors is asking for ratification of this appointment. Although advisory
only because the Audit Committee is required under the Sarbanes-Oxley Act of
2002 and the related rules and regulations of the Securities and Exchange
Commission to have responsibility for the appointment of our independent
auditors, this proposal is put before you in order to seek your views on
this important corporate matter. If you do not ratify the appointment, the
Audit Committee will take the matter under advisement. We anticipate that
representatives of KPMG LLP will attend the annual meeting. Such
representatives will have an opportunity to make a statement if they wish,
and will be available to respond to appropriate questions.
18
The following table presents fees for professional audit services
rendered by KPMG LLP for the audit of our annual financial statements, and
fees billed for other services rendered by KPMG LLP for the fiscal years
shown.
FISCAL YEAR ENDED FISCAL YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- -----------------
Audit Fees (1) ............... $341,575 $ 297,000
Audit-Related Fees (2) ........ 304,150 38,943
Tax Fees (3) ................. 275,600 228,650
All Other Fees (4) ........... 0 768,714
======== ==========
Total ...................... $921,325 $1,333,307
<FN>
- --------
(1) Audit Fees consist of fees rendered for professional services rendered
for the audit of our financial statements included in our Forms 10-K
and 10-Qs during the years ended December 31, 2003 and 2002 and
services that are normally provided by KPMG LLP in connection with
statutory and regulatory filings or engagement.
(2) Audit Related Fees consist of fees rendered for assurance and related
services that are reasonably related to the performance of the audit or
review of our financial statements and are not reported under "Audit
Fees." This category includes fees related primarily to an audit of the
employee benefit plan for 2003 and 2002, due diligence procedures
related to the sale of our staffing division in 2003, documentation
assistance in 2003 under Section 404 of the Sarbanes-Oxley Act of 2002
and audit procedures requested by management at a specific staffing
branch location in 2002.
(3) Tax Fees consist of fees rendered for professional services rendered
for tax compliance, tax advice and tax planning. These services include
assistance regarding federal and state tax compliance, tax planning and
compliance work in connection with acquisitions. For 2003, such fees
can be further categorized as tax compliance planning and preparation
($164,100) and tax consulting and advisory ($111,500).
(4) All Other Fees consist of fees for products and services other than the
services reported above and includes fees related primarily to
assistance provided to manage the implementation of a new payroll
system and the development of a charter with respect to the Health
Insurance Portability and Accountability Act in 2002.
Our Audit Committee has established a policy requiring the approval
of all audit engagement fees and terms and the pre-approval of all non-audit
services provided to us by KPMG LLP. The policy prohibits the Audit
Committee from delegating to management the committee's responsibility to
pre-approve permitted services of our independent auditor.
During 2003, the Audit Committee pre-approved non-audit services
related to tax compliance, assistance with documenting controls under
Sarbanes-Oxley Section 404 and due diligence assistance on potential
acquisitions and the disposition of our healthcare staffing division. The
Audit Committee pre-approved 100% of the fees for services covered under the
captions "Audit Related Fees," "Tax Fees," and "All Other Fees" for fiscal
years 2002 and 2003.
Prior to retaining KPMG LLP to provide any non-audit services, the
Audit Committee considered whether KPMG LLP's provision of all these
services was compatible with maintaining the
19
independence of KPMG LLP and determined that the provision of these services
would not interfere with KPMG LLP's independence.
The affirmative vote of a majority of the shares of our common
stock voting in person or by proxy at the annual meeting is required to
ratify the appointment of KPMG LLP as our independent auditors for the
fiscal year ended December 31, 2004. Our board of directors recommends a
vote "FOR" ratification of the appointment of KPMG LLP as our independent
auditors for the fiscal year ended December 31, 2004.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees our financial reporting process on
behalf of our board of directors. Management has the primary responsibility
for the financial statements and the reporting process, including the
systems of internal controls. The committee operates pursuant to a written
charter, which was approved and adopted by our board of directors on May 10,
2000, and which was amended effective August 27, 2003, a copy of which is
attached to this proxy statement as Appendix A. Our board of directors has
determined that each of the members of the committee are independent within
the meaning of the listing standards of the New York Stock Exchange and the
Securities Exchange Act of 1934, as amended. Our board of directors has
determined that William G. Anderson meets the Securities and Exchange
Commission's requirements for, and has designated him as, the "Audit
Committee Financial Expert."
In fulfilling its oversight responsibilities, the committee
reviewed the audited financial statements in our Annual Report on Form 10-K
with management. In connection with its review of the financial statements,
the committee discussed with management the quality, not just the
acceptability, of the accounting principles, the reasonableness of
significant judgments and the clarity of disclosures in the financial
statements. Our independent auditors, KPMG LLP, are responsible for
expressing an opinion on the conformity of our audited financial statements
to generally accepted accounting principles. The Audit Committee has the
sole authority and responsibility to select, appoint, evaluate and, where
appropriate, replace the independent auditors.
The committee meets with the independent auditors, with and without
management present, to discuss the scope and plans for the audit, results of
their examinations, their evaluations of our internal controls and the
overall quality of our financial reporting. The committee reviewed with the
independent auditors the acceptability of our accounting principles and such
other matters as are required to be discussed with the committee under
generally accepted auditing standards, including, but not limited to, those
matters under SAS 61 (Codification of Statements on Auditing Standards). The
committee has received from the independent auditors the written disclosure
and the letter required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees). In connection with this
disclosure, the committee has discussed with the independent auditors the
auditors' independence from management and us.
In reliance on the reviews and discussions referred to above, the
Audit Committee recommended to our board of directors that the audited
financial statements be included in the Annual Report on Form 10-K for the
year ended December 31, 2003, for filing with the Securities and Exchange
Commission.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
WILLIAM G. ANDERSON, CPA COLLEEN CONWAY-WELCH, PH.D., R.N. C. RAY HOLMAN
20
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 2003, our board of directors approved and we entered into a
contract with Verus, Inc. to develop a new public website for us. John H.
Short, Ph.D., our Interim President and Chief Executive Officer and Theodore
M. Wight, one of our directors, are directors of Verus, Inc. Mr. Wight and
Dr. Short and their affiliated entities own 27.3% and 5.5% of the fully
diluted capitalization of the software company, respectively. The original
contract amount was for $320,000 and has since been modified for expected
additional costs of $34,500. The work is anticipated to be completed by the
second quarter of 2004.
During the first quarter of 2004, we entered into an addendum to
the aforementioned contract with Verus, Inc. to identify and document the
actual costs and timeline required to complete our employee portal/HR center
project. The addendum to the contract is for the amount of $47,000 and the
work is anticipated to be completed by the second quarter of 2004.
During 2003, we entered into an agreement with Phase 2 Consulting.
Pursuant to the terms of the agreement, Phase 2 Consulting will provide us
with management, consulting and advisory services, including having John H.
Short, Ph.D., the managing director of Phase 2 Consulting and a member of
our board of directors, serve as our Interim President and Chief Executive
Officer. A monthly consulting fee of $55,000 will be paid to Phase 2
Consulting during the term of the agreement plus reimbursement of business
expenses. In addition, Phase 2 Consulting will be entitled to an incentive
fee capped at $1.3 million payable in cash or shares of our stock based on
predetermined performance standards. For services rendered during 2003, we
paid to Phase 2 Consulting an aggregate of $391,600 in fees under the
consulting agreement, which amount consisted of $385,000 in monthly fees and
$6,600 in incentive fees, and we reimbursed Phase 2 Consulting for $164,400
in expenses.
PROPOSALS OF STOCKHOLDERS
Proposals of stockholders and nominations for directors intended to
be presented at the 2005 annual meeting of stockholders must be received by
our corporate secretary, 7733 Forsyth Boulevard, Suite 2300, St. Louis,
Missouri 63105, by not later than November 29, 2004, for consideration for
inclusion in the proxy statement and proxy card for that meeting. Upon
receipt of any such proposal, we will determine whether or not to include
such proposal in the proxy statement and proxy card in accordance with
regulations governing the solicitation of proxies. Stockholder proposals and
nominations for directors that do not appear in the proxy statement may be
considered at the 2005 annual meeting of stockholders only if written notice
of the proposal is received by us by not earlier than February 2, 2005 and
not later than March 4, 2005.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires that our executive officers and directors, and persons who own more
than 10% of our outstanding stock, file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Based solely on a
review of the reports furnished to us and written representations from our
directors and executive officers, we believe that our directors and
executive officers complied with all applicable Section 16(a) filing
requirements during the year ended December 31, 2003.
21
STOCKHOLDER RETURN PERFORMANCE GRAPH
The following graph compares the cumulative stockholder returns,
assuming the reinvestment of dividends, of our common stock on an indexed
basis with the New York Stock Exchange ("NYSE") Market Index and the Dow
Jones Industry Group - Index of Health Care Providers ("HEA Index") for the
period beginning December 31, 1998 and ending December 31, 2003:
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG REHABCARE GROUP, INC.,
NYSE MARKET INDEX AND HEA INDEX
ASSUMES $100 INVESTED ON DECEMBER 31, 1998 IN REHABCARE GROUP, INC.
COMMON STOCK, THE HEA INDEX AND THE NYSE MARKET INDEX
[GRAPH]
- ----------------------------------------------------------------------------------------------------------------------
Dec. 31, 1998 Dec. 31, 1999 Dec. 29, 2000 Dec. 31, 2001 Dec. 31, 2002 Dec. 31, 2003
- ----------------------------------------------------------------------------------------------------------------------
RehabCare Group,
Inc. 100 113.71 549.83 316.79 204.20 227.53
- ----------------------------------------------------------------------------------------------------------------------
HEA Index 100 88.56 150.00 143.80 130.96 176.36
- ----------------------------------------------------------------------------------------------------------------------
NYSE Market Index 100 109.50 112.11 102.12 83.42 108.07
- ----------------------------------------------------------------------------------------------------------------------
22
ANNUAL REPORT
We simultaneously mailed our annual report for the year ended
December 31, 2003, to our stockholders.
A copy of our Annual Report on Form 10-K for the year ended
December 31, 2003, as filed with the Securities and Exchange Commission
(excluding exhibits), may be obtained by any stockholder, without charge,
upon making a written or telephone request to Betty Cammarata, Investor
Relations, 7733 Forsyth Boulevard, Suite 2300, St. Louis, Missouri 63105,
telephone 800-677-1238, or by accessing our Internet site at
www.rehabcare.com and clicking on the "Investor Relations" section.
HOUSEHOLDING OF MATERIALS
In some instances, only one copy of this proxy is being delivered
to multiple stockholders sharing an address, unless we have received
instructions from one or more of the stockholders to continue to deliver
multiple copies. We will deliver promptly upon oral or written request a
separate copy of the proxy statement to any stockholder at your address. If
you wish to receive a separate copy of the proxy statement, you may call us
at 800-677-1238, or send a written request to Betty Cammarata, Investor
Relations, RehabCare Group, Inc., 7733 Forsyth Boulevard, Suite 2300, St.
Louis, Missouri 63105. If you have received only one copy of the proxy
statement and wish to receive a separate copy for each stockholder in the
future, you may call us at the telephone number or write us at the address
listed above. Alternatively, stockholders sharing an address who now receive
multiple copies of the proxy statement may request delivery of a single
copy, also by calling us at the number or writing to us at the address
listed above.
OTHER MATTERS
As of the date of this proxy statement, our board of directors 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 our best interest on such matters.
Vincent L. Germanese
Senior Vice President, Chief Financial Officer
and Secretary
March 29, 2004
23
APPENDIX A
REHABCARE GROUP, INC.
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
PURPOSE
The purpose of the Audit Committee (the "Committee") is to assist
the Board of Directors of RehabCare Group, Inc. (the "Company") in its
oversight of:
o the integrity of the Company's financial statements,
including monitoring the Company's financial reporting
process and systems of internal controls regarding
finance, legal accounting and regulatory compliance;
o the Company's compliance with applicable legal and
regulatory requirements with respect to financial
reporting;
o the qualifications, independence and performance of the
Company's independent auditors; and
o the performance of the independent auditors and the
Company's internal audit function.
The Committee shall have the sole authority to retain and terminate
the independent auditors of the Company and to approve any non-audit
relationship with the independent auditors. The Committee has the authority
to conduct any investigation it deems appropriate in fulfilling its
responsibilities and has the ability to retain, at the Company's expense,
any legal, accounting or other consultants or experts that it deems
necessary in the performance of its duties.
In addition, the Committee will prepare its report that is required
by the rules and regulations of the Securities and Exchange Commission to be
included in the Company's proxy statement for the annual meeting of
stockholders and provide an avenue of communication among the independent
auditors, the internal auditors, those responsible for the financial
management of the Company and the Board of Directors.
COMPOSITION, QUALIFICATIONS AND MEETINGS
Committee members shall satisfy the requirements of the New York
Stock Exchange and the federal securities laws. The Committee shall be
comprised of three or more directors as determined by the Board of
Directors, each of whom shall be an "independent" director. An independent
director is a member of the Board of Directors of the Company who:
o the Board of Directors has affirmatively determined has no
other material commercial, industrial, banking,
consulting, legal, accounting, charitable or familial
relationship with the Company, either individually or as a
partner, stockholder or officer of an organization or
entity having such a relationship with the Company, which
relationship would adversely impact the director's
independence in connection with the Company;
o is not, and has not been for the five years prior to the
date of determination, an employee of the Company;
o is not, and has not been, affiliated with or employed by
the present or former auditor of the
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Company, or one of the auditors' affiliates, unless it has been
more than five years since the affiliation, employment or
the auditing relationship ended;
o is not, and has not been for the five years prior to the
date of determination, part of an interlocking
directorship in which an executive officer of the Company
serves on the compensation committee of a company that
concurrently employs the director;
o has, and for the five years prior to the date of
determination had, no immediate family members (i.e.,
----
spouse, parents, children, siblings, mothers- and
fathers-in-law, sons- and daughters-in-law, brothers- and
sisters-in-law and anyone who shares the director's home)
in any of the above categories; provided, however, that in
-----------------
the case of employment of one of the above-described
immediate family members, the family member must have
served as an officer or partner of the subject entity to
impact the director's independence; and
o is compensated by the Company solely with the directors'
fees that are paid by the Company to each Committee
member.
Each director who serves on the Committee shall, in the judgment of
the Board of Directors, have a basic understanding of finance and accounting
and be able to read and understand financial statements, and at least one
member shall be an "Audit Committee financial expert." A director shall be
considered an Audit Committee financial expert if the director:
o has an understanding of financial statements and generally
accepted accounting principles;
o has the ability to assess the general application of such
principles in connection with the accounting for
estimates, accruals and reserves;
o has experience preparing, or actively supervising others
in, auditing, analyzing or evaluating financial statements
with a breadth and level of complexity generally
comparable to the breadth and complexity of issues that
can reasonably be expected to arise in the Company's
financial statements;
o has an understanding of internal controls and procedures
for financial reporting; and
o has an understanding of the functions of the Committee.
The Board of Directors can determine that a person has acquired the
above attributes through the person's education and the person's direct
experience as, or experience actively supervising, a principal financial
officer, principal accounting officer, controller, public accountant or
auditor or another position with responsibility for the preparation,
auditing or evaluation of financial statements.
Committee members shall be appointed by the Board of Directors and
shall serve until such member's successor is appointed and qualified or
until such member's earlier resignation or removal. The members of the
Committee may be removed, with or without cause, by a majority vote of the
Board of Directors. A Committee member shall not concurrently serve on the
audit committee of more than three public companies unless the Board of
Directors (1) determines that such concurrent service would not impair his
or her ability to serve on the Company's Committee and (2) discloses its
determination in the Company's annual proxy statement.
The Committee shall meet at least four times annually, or more
frequently as circumstances
A-2
dictate. The Committee Chair shall approve an agenda in advance of each
meeting. If a Committee Chair is not designated or present at a Committee
meeting, the members of the Committee may designate a Chair by a majority
vote of the Committee membership.
RESPONSIBILITIES AND DUTIES
The primary function of the Committee is oversight, which
recognizes that the Company's financial management is responsible for the
preparation, presentation and integrity of the Company's financial
statements as well as the maintenance of appropriate accounting and
financial reporting practices and policies and internal controls and
procedures designed to provide reasonable assurances that the Company is in
compliance with applicable accounting standards, laws and regulations. The
Committee also recognizes that the independent auditors are responsible for
planning and performing a proper audit of the Company's annual financial
statements and performing reviews of the Company's quarterly financial
statements prior to the filing of each of these reports with the Securities
and Exchange Commission.
The Committee recognizes that the persons who are responsible for
the financial management of the Company and the independent auditors have
more time, knowledge and detailed information regarding the Company and its
financial information than do the Committee members. Consequently, in
carrying out its responsibilities, the Committee is not providing any expert
or special assurances as to the Company's financial statements or any
professional certification as to the independent auditors' work. Each member
of the Committee is entitled to rely on (i) the integrity of those persons
and organizations within and outside the Company from which he or she
receives information and (ii) the accuracy of the financial and other
information provided to the Committee by such persons and organizations,
absent actual knowledge to the contrary (which shall be promptly reported to
the Board of Directors).
In carrying out its oversight responsibilities, the Committee
shall:
o On an annual basis, prior to the mailing of the proxy
materials for the annual meeting of stockholders of the
Company, recommend to the Board of Directors a public
accounting firm to be placed in nomination for stockholder
ratification as the Company's independent auditors for the
ensuing year and compensate and terminate the independent
auditors as the Committee deems necessary. The independent
auditors shall report directly to the Committee and the
Committee shall be directly responsible for oversight of
the independent auditors, including the resolution of any
disagreements between the independent auditors and those
persons responsible for the financial management of the
Company. The Committee shall have the sole authority to
(1) approve all audit engagement fees and terms and (2)
pre-approve all non-audit services;
o Engage counsel and other consultants and advisors that it
deems necessary to advise the Committee on any matter
within the scope of the Committee's duties, and cause the
Company to pay such counsel, consultants and advisors. The
Committee has the authority to procure these outside
services and provide for their compensation without the
prior approval of the Board of Directors;
o Meet with the independent auditors and financial
management of the Company to review the scope of the
proposed audit for the then-current year, the proposed
audit fees and the audit procedures to be utilized, and at
the conclusion of the audit, review the audit, including
any comments or recommendations of the independent
auditors, and elicit the judgment of the independent
auditors regarding the quality of the accounting
principles applied to the Company's financial statements;
A-3
o Review the annual audited and quarterly financial
statements with financial management of the Company and
the independent auditors, including the disclosures in the
Management's Discussion and Analysis section of the Form
10-K or Form 10-Q. In conjunction with such annual or
quarterly review, the Committee shall review:
o major issues regarding accounting principles and financial
statement presentation, including any significant changes
in the Company's selection or application of accounting
principles and major issues as to the adequacy and
effectiveness of internal controls and any special audit
actions taken in light of major internal control
deficiencies;
o analyses prepared by financial management and/or the
independent auditors setting forth significant financial
reporting issues and judgments made in connection with the
preparation of the financial statements, including an
analysis of the effects of alternative methods of
generally accepted accounting principles on the financial
statements; and
o the effect of regulatory and accounting initiatives, as
well as off-balance sheet structures, on financial
statements.
o Discuss the type of information to be disclosed in
earnings press releases, earnings guidance and other
financial presentations that are to be provided to
analysts, rating agencies and the general public, paying
particular attention to the use of "pro forma" or "as
adjusted" financial disclosures that are not determined in
accordance with generally accepted accounting principles;
o Discuss the Company's financial risk exposures, the steps
financial management of the Company has taken to monitor
and control such exposures and the Company's guidelines
and policies regarding risk assessment and management;
o Provide the opportunity for financial management of the
Company, the internal auditors and the independent
auditors to meet separately with the Committee. The items
to be discussed at the meeting with the independent
auditor should include any difficulties encountered in the
course of the audit work, any restrictions placed on the
scope of the independent auditors' activities and access
to information, any disagreements with financial
management and the evaluation by the internal auditors of
the Company's financial, accounting and internal auditing
personnel and the cooperation that the independent
auditors received from such personnel during the course of
the audit. The Committee may also review:
o Any accounting adjustments that were noted by the
independent auditors but "passed" (as immaterial or
otherwise);
o Any communications between the independent auditors'
on-site team and the independent auditors' national
offices about auditing or accounting issues raised in the
course of the audit of the Company's financial statements;
or
o Any management letter issued, or proposed to be issued, by
the independent auditors to the Company.
The meeting with the internal auditors should include a review
of the responsibilities, budget and staffing of the
Company's internal audit function as well as the internal
auditors' independence and authority, reporting
obligations, proposed internal audit plan for the coming
year and coordination of the plan with the independent
auditor. The internal auditors should also present a
A-4
summary of findings for completed internal audits and
progress reports on current internal audit plans, with
explanations for any deviations from the plan;
o Obtain and review, at least annually, a report by the
independent auditors describing the firm's internal
quality-control procedures, and any material issues raised
by the most recent internal quality-control review of the
firm or by any governmental or professional investigation
within the preceding five years with respect to any audit
conducted by the firm;
o Evaluate on an annual basis the qualifications,
performance and independence of the independent auditors,
based on the Committee's review of the independent
auditors' report and the performance of the independent
auditors throughout the year. In conjunction with this
evaluation, the Committee shall review the independent
auditors' lead partner and consider whether the Company
should regularly rotate firms to assure continuing
auditors' independence. The Committee shall present to the
Board of Directors its conclusions with respect to the
independent auditors;
o At least annually, review and approve all relationships
between the independent auditors and the Company, other
than the audit of the financial statements with a view
toward ensuring the objectivity and independence of the
independent auditors in this regard. The Committee will
set clear hiring policies with respect to employees or
former employees of the independent auditors by the
Company to ensure that there is no direct or indirect
adverse effect on the independence of the independent
auditors due to the potentiality of future employment by
the Company of such personnel;
o Establish procedures for the receipt, retention and
treatment of complaints and concerns received by the
Company regarding accounting, internal controls and
auditing matters and for the confidential, anonymous
submission of such complaints and concerns by employees of
the Company; and
o Prepare the report of the Committee as required by the
rules and regulations of the Securities and Exchange
Commission to be included in the Company's proxy materials
and submit reports of all meetings of the Committee to,
and discuss matters covered at each meeting with, the
Board of Directors. The reports to the Board of Directors
should include a review of any issues related to the
quality and the integrity of the Company's financial
statements, its compliance with legal and regulatory
requirements and the performance of the independent
auditors and the internal auditors.
The Committee stands at the crucial intersection of financial
management, independent auditors, internal auditors and the Board of
Directors. While the Committee may obtain the input of financial management
with respect to its oversight responsibilities, the Committee shall not
delegate these responsibilities to financial management.
ANNUAL REVIEW
The Committee shall annually perform a review and evaluation of the
performance of the Committee and its members and report its conclusions to
the Board of Directors. In addition, the Committee shall assess the adequacy
of the Charter and the Committee's own performance under the Charter. The
Committee will determine whether any changes to the Charter are advisable or
any corrective actions should be undertaken to correct any deficiencies or
weaknesses noted in the review and evaluation. The Committee shall present
any amendments to the Charter or corrective actions that the
A-5
Committee deems necessary or appropriate to the Board of Directors for its
approval.
ADOPTION AND PUBLICATION
The Board of Directors hereby approves and adopts this amendment to
the Charter of the Audit Committee, effective August 27, 2003.
The Charter shall be published on the Company's Internet website,
filed with the Securities and Exchange Commission at least every three years
in accordance with applicable regulations and otherwise be filed or reported
as may be required by law.
A-6
APPENDIX B
REHABCARE GROUP, INC.
SECOND 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
Plan was amended and restated effective on March 3, 1999 to increase the
number of shares reserved for issuance under the Plan and to make certain
other procedural changes to its terms. The Corporation adopted the 1999
Non-Employee Directors Stock Plan effective as of March 3, 1999. The Amended
and Restated 1996 Long-Term Performance Plan and the 1999 Non-Employee
Director Stock Plan were approved by the Corporation's stockholders on April
30, 1999. The Corporation now wishes to merge the 1999 Non-Employee Director
Plan with and into the Plan, to amend and restate the Plan to reflect such
merger, and to make certain other procedural changes to its terms.
This merger and amendment shall be effective immediately upon
adoption by the Board of Directors, subject to approval by the stockholders
of the Corporation at the 2004 Annual Meeting of Stockholders. In the event
the stockholders of the Corporation do not approve this merger and amendment
at such Annual Meeting, awards made pursuant to the Plan and to the 1999
Non-Employee Directors Stock Plan that cannot be satisfied with shares
reserved for issuance under the respective plans without regard to this
merger and amendment shall be null and void.
Pursuant to the authority reserved in Section 15 of the Plan, and
in Section 14 of the 1999 Non-Employee Directors Stock Plan, the Board of
Directors of the Corporation hereby merges the 1999 Non-Employee Directors
Stock Plan into the Plan and amends and completely restates the Plan to read
in its entirety as follows:
1. PURPOSES. The purposes of this Plan are (i) 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; and (ii) to induce Directors of the
Corporation to remain directors of the Corporation over the long term, to
align the Directors' interests in the Corporation's financial performance
more directly with those of the stockholders and to aid the Corporation in
competing with other enterprises for the services of new Directors.
2. ADMINISTRATION. The Plan will be administered by the
Compensation and Nominating/Corporate Governance Committee (the "Committee")
of the Board of Directors of the Corporation consisting of two or more
Directors as the Board may designate from time to time. 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. Determinations, interpretations or other
actions made or taken by the Committee 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
Committee 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
award agreements (which need not be identical), and to take whatever action
is necessary to carry out the purposes 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
B-1
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 four million three hundred thousand
(4,300,000) 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 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.
Notwithstanding the above, the maximum number of shares of stock
subject to stock options that may be awarded to any individual shall not
exceed two hundred fifty thousand (250,000) shares in calendar year 2004,
and shall not exceed fifty thousand (50,000) shares in any calendar year
after 2004 (both limits as adjusted in accordance with Section 12).
4. PARTICIPANTS. Participants will consist of such officers,
Directors, 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. AWARD OF BENEFITS. The Committee may, in its sole discretion,
grant benefits in accordance with the Plan, and establish the timing,
pricing, amount, and other terms and conditions of such grants, which need
not be uniform with respect to the various participants or with respect to
different grants to the same participant. 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 Committee 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.
B-2
7. 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.
(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.
8. 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 or upon termination
of the Director's services as a member of the Board within specified
periods; and (iii) 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
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participant with an appropriate legend imprinted on the certificate or if
the certificate will be deposited in escrow pending removal of the
restrictions.
9. 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.
10. 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. The
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. 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, and during such three month period shall be exercisable only as
to those shares with respect to which it had become exercisable on the date
of termination of employment. In the event termination of employment occurs
as a result of death or disability, such an option, to the extent
exercisable on the date of termination as a result of death or disability,
will be exercisable for 12 months after such termination. If the optionee
dies within 12 months after termination of employment by disability, then
the period of exercise following death shall be the remainder of the
12-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. ISOs shall be granted
only to employees of the Corporation or a subsidiary.
11. 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. The 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 or after termination of a
Director's services as a Board Member for any reason other than death,
retirement or
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disability. In the event termination of employment or termination of
services as a Director occurs as a result of death, retirement or
disability, such an option, to the extent exercisable on the date of such
termination, will be exercisable for 24 months after such termination. If
the optionee dies within 24 months after termination of employment or
termination of service as a Director 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.
12. 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, the maximum number of shares
available to a particular participant, 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.
(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.
13. NONTRANSFERABILITY. Each benefit granted under the Plan to a
participant shall not be transferable, other than a Nonqualified Stock
Option to a Permissible Transferee, except by will or the laws of descent
and distribution, and shall be exercisable, during the participant's
lifetime, only by the participant or, in the case of a Nonqualified Stock
Option, a Permissible Transferee. In the event of the death of a
participant, exercise or payment shall be made only:
(a) By or to a Permissible Transferee, 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 or her death.
For purposes of this Section 13, "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's family shall include only the participant's spouse, children
and grandchildren.
14. 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
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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.
15. BENEFICIARY. A participant may designate one or more persons
(concurrently, contingently or successively) to whom Restricted Stock or
Performance Awards will be distributed and by whom stock options and SARs
will be exercisable if the participant dies before receiving complete
payment of such amounts. Any such designation must be made on a form
acceptable to the Corporation for this purpose, will be effective on the
date received by the Corporation and may be revoked by the participant by a
subsequent written designation delivered to the Corporation while the
participant is alive. If the participant fails to designate a beneficiary or
if no designated beneficiary survives the participant, then any such benefit
shall be transferred to the participant's estate.
16. TENURE. A participant's right, if any, to continue to serve the
Corporation and its subsidiaries as an officer, employee, Director or
otherwise, shall not be enlarged or otherwise affected by his or her
designation as a participant under the Plan.
17. DURATION, INTERPRETATION, AMENDMENT AND TERMINATION. No benefit
shall be granted more than ten years after the date of initial 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 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.
18. STOCKHOLDER APPROVAL. The Plan was initially adopted by the
Board of Directors on April 23, 1996, and was approved by stockholders of
the Corporation on June 26, 1996. An amendment and restatement of the Plan
was approved by stockholders of the Company on April 30, 1999.
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REHABCARE GROUP, INC.
/ / Mark this box with an X if you have
made changes to your name or address
details above.
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ANNUAL MEETING PROXY CARD
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/A/ ELECTION OF DIRECTORS (FOR TERM EXPIRING IN 2005)
1. The Board of Directors has proposed and recommends a vote "FOR" the
following:
FOR WITHHOLD
01 - William G. Anderson, CPA / / / /
02 - Colleen Conway-Welch, Ph.D. / / / /
03 - C. Ray Holman / / / /
04 - John H. Short, Ph.D. FOR WITHHOLD
/ / / /
05 - H. Edwin Trusheim
/ / / /
06 - Theodore M. Wight
/ / / /
/B/ APPROVAL OF THE SECOND AMENDED AND RESTATED 1996 LONG-TERM PERFORMANCE
PLAN
The Board of Directors has proposed and recommends a vote "FOR" the following:
FOR AGAINST ABSTAIN
2. Approval of the RehabCare Group, Inc.
Second Amended and Restated 1996 Long-Term / / / / / /
Performance Plan.
Please mark this box with an X if you plan to attend the
Annual Meeting in person. / /
/C/ RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has proposed and recommends a vote "FOR" the following:
3. Ratification of the appointment of FOR AGAINST ABSTAIN
KPMG LLP as independent auditors for
the fiscal year ending December 31, / / / / / /
2004.
The proxies are authorized to vote upon such other matters as may properly
come before the meeting or any adjournment thereof in such manner as said
proxies shall determine in their sole discretion.
/D/ AUTHORIZED SIGNATURES - SIGN HERE - THIS SECTION MUST BE COMPLETED FOR YOUR
INSTRUCTIONS TO BE EXECUTED.
Please sign this proxy card exactly as your shares are registered. When
signing as attorney, executor, administrator, trustee or guardian, please
give your full title. If more than one person holds the power to vote the
same shares, any one of them may sign this proxy card. If the shareholder is
a corporation, this proxy card must be signed by a duly authorized officer
of the shareholder.
Signature 1 - Please keep signature within the box
- -----------------------------------------------------
- -----------------------------------------------------
Signature 2 - Please keep signature within the box
- -----------------------------------------------------
- -----------------------------------------------------
Date (mm/dd/yyyy)
- -----------------------------------------------------
- ------------------------------------------------------------------------------
PROXY - REHABCARE GROUP, INC.
- ------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby nominates, constitutes and appoints John H. Short,
Ph.D. and Vincent L. Germanese (or such other person as is designated by the
Board of Directors of RehabCare Group, Inc. ("RehabCare")) (the "Proxies"),
or either of them, with full power to act alone, true and lawful
attorney(s), with full power of substitution, for the undersigned and in the
name, place and stead of the undersigned to vote as designated on the
reverse side all of the shares of common stock, $0.01 par value, of
RehabCare entitled to be voted by the undersigned at the Annual Meeting of
Stockholders to be held on May 4, 2004 and at any adjournments or
postponements thereof.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED "FOR" ALL THE NAMED NOMINEES FOR DIRECTOR, "FOR" APPROVAL OF
THE SECOND AMENDED AND RESTATED 1996 LONG-TERM PERFORMANCE PLAN AND "FOR"
THE RATIFICATION OF THE APPOINTMENT OF KPMG, LLP AS INDEPENDENT AUDITORS FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2004.
The undersigned acknowledges receipt of the 2003 Annual Report to
Stockholders and the Notice of Annual Meeting and the Proxy Statement.
Please mark, sign, date and return the Proxy Card promptly using the
enclosed envelope.
(SEE REVERSE SIDE TO VOTE)
APPENDIX
Page 22 of the proxy statement contains a Performance Graph. The
information contained within the graph is presented in a tabular format
immediately following the graph.