SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 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):
(4) Proposed maximum aggregate value of transaction:
(5) Total Fee paid:
[ ] 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.:
(3) Filing Party:
(4) Date Filed:
[RehabCare logo]
7733 FORSYTH BOULEVARD
SUITE 2300
ST. LOUIS, MISSOURI 63105
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 2, 2006
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 2, 2006, at 8:00 a.m., local
time, for the following purposes:
1. To elect eight 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. 2006 Equity Incentive
Plan;
3. To ratify the appointment of KPMG LLP as
RehabCare's independent registered public
accounting firm for the fiscal year ending
December 31, 2006; and
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 6, 2006, 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.
David B. Groce,
Senior Vice President, General Counsel &
Corporate Secretary
March 28, 2006
[RehabCare logo]
7733 FORSYTH BOULEVARD
SUITE 2300
ST. LOUIS, MISSOURI 63105
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 2, 2006
-----------------
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 2, 2006, 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 28, 2006.
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 eight directors nominated by our board of directors in Proposal I, in
favor of the approval of the RehabCare Group, Inc. 2006 Equity Incentive
Plan in Proposal II and in favor of the ratification of KPMG LLP as our
independent registered public accounting firm 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 6, 2006, are entitled to notice of, and to vote at, the annual
meeting. On this date, there were 16,906,763 shares of our common stock,
$0.01 par value, outstanding, including 68,710 shares of unvested restricted
stock.
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Each outstanding share of our common stock on the record
date is entitled to one vote for each director to be elected at the annual
meeting and one vote on each proposal presented at the 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 eight highest vote
totals will be elected as our directors. As a result of the foregoing, 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. 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. 2006 Equity
Incentive Plan requires the affirmative vote of a majority of votes cast on
the proposal, provided that the total votes cast on the proposal represent
over 50 percent of our outstanding shares. An abstention will be counted as
a vote cast and will have the effect of a vote cast against the proposal. A
broker non-vote will have the effect of a vote against this proposal only to
the extent that the total votes do not exceed 50 percent of our outstanding
shares.
The ratification of the appointment of KPMG LLP as our
independent registered public accounting firm requires the affirmative vote
of a majority of the votes cast on the proposal. An abstention will be
counted as a vote cast and will have the effect of a vote cast against the
proposal. A broker non-vote 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 as of
March 6, 2006:
NUMBER OF SHARES PERCENT OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK(1)
------------------------------------ ------------------ ---------------
FMR Corp.(2) 2,522,300 14.92%
82 Devonshire Street
Boston, Massachusetts 02109
Snow Capital Management, L.P.(3) 1,641,702 9.71%
2100 Corporate Drive, Suite 300
Pittsburgh, Pennsylvania 15237
Franklin Resources, Inc.(4) 1,363,792 8.07%
One Franklin Parkway
San Mateo, California 94403-1906
<FN>
- -------------------
(1) The percentage calculations are based upon 16,906,763 shares of our
common stock outstanding on March 6, 2006, including 68,710 shares of
unvested restricted stock.
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(2) The information provided is based on Amendment No. 12 to Schedule 13G,
dated February 14, 2006, filed jointly by FMR Corp., a holding
company, Edward C. Johnson 3rd, a principal stockholder and the
chairman of FMR Corp. FMR Corp. reported sole voting power with
respect to 345,886 shares reported as beneficially owned. Each of FMR
Corp. and Edward C. Johnson 3rd reported sole dispositive power with
respect to all 2,522,300 shares reported as beneficially owned.
(3) The information provided is based on Amendment No. 1 to Schedule 13G,
dated January 20, 2006, filed by Snow Capital Management, L.P., an
investment adviser. Snow Capital Management, L.P. reported sole voting
and dispositive power with respect to all 1,641,702 shares reported as
beneficially owned.
(4) The information provided is based on Amendment No. 1 to Schedule 13G,
dated February 6, 2006, filed by Franklin Resources, Inc., a holding
company, Charles B. Johnson, a control person, and Rupert H. Johnson,
a control person. Franklin Resources, Inc., Charles B. Johnson and
Rupert H. Johnson reported sole voting and dispositive power with
respect to none of the shares reported as beneficially owned. The
reporting person reported that its subsidiary, Franklin Templeton
Portfolio Advisors, Inc., an investment adviser, had sole voting and
dispositive power with respect to 647,992 of the shares reported as
beneficially owned. The reporting person reported that its subsidiary,
Franklin Advisers, Inc., an investment adviser, had sole voting and
dispositive power with respect to 590,900 of the shares reported as
beneficially owned. The reporting person reported that its subsidiary,
Franklin Templeton Investments, an investment adviser, had sole voting
and dispositive power with respect to 124,900 of the shares reported
as beneficially owned.
SECURITY OWNERSHIP BY MANAGEMENT
The following table sets forth, as of March 6, 2006, 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)
- ------------------------ ------------------ ---------------
Colleen Conway-Welch, Ph.D., R.N. 41,491 (4)
Anthony S. Piszel, CPA 7,500 (4)
Suzan L. Rayner, M.D. 7,500 (4)
Harry E. Rich 0 (4)
H. Edwin Trusheim 181,768 1.06%
Larry Warren 7,500 (4)
Theodore M. Wight 87,230 (4)
John H. Short, Ph.D. 241,359 1.41%
Tom E. Davis 196,882 1.15%
Patricia M. Henry 101,642 (4)
Mark A. Bogovich 21,404 (4)
Jeff A. Zadoks 3,760 (4)
Vincent L. Germanese, CPA 77,626 (4)
All directors and executive officers as a group (14 persons) 979,862 5.49%
<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 40,761, 7,500, 7,500, 178,768, 7,500, 87,230, 218,359,
187,892, 92,373, 21,269, 2,500, 77,626 and 929,278 shares subject to
stock options owned by Dr. Conway-Welch, Mr. Piszel, Dr. Rayner, Mr.
Trusheim, Mr. Warren, Mr. Wight, Dr. Short, Mr. Davis, Ms. Henry, Mr.
Bogovich, Mr. Zadoks, Mr. Germanese and all directors and executive
officers as a group, respectively, that are either presently
exercisable or exercisable within 60 days of March 6, 2006. Totals also
include 669 shares and 135 shares allocated to Ms. Henry and Mr.
Bogovich, respectively, under our 401(k) plan.
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(3) Based upon 16,906,763 shares of our common stock outstanding as of
March 6, 2006, 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 6,
2006.
(4) Less than one percent.
PROPOSAL I.
ELECTION OF DIRECTORS
At the annual meeting, our stockholders will vote on the
election of eight directors to serve a term of one year until the 2007
annual meeting or until their successors shall have been duly elected and
qualified. In light of the unexpected death of Mr. C. Ray Holman, who was a
member of the Board of Directors prior to his death in November 2005, and
the addition of three new Directors during the past 12 months, the Board of
Directors and the Company's executive management team have asked Mr. H.
Edwin Trusheim to stand for re-election for one more term, and to continue
to serve as Chairman of the Board through the end of 2006.
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 eight 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 eight 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 or nominees is
set forth below.
COLLEEN CONWAY-WELCH, PH.D., R.N., 61, 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, Ardent Health Services and Caremark RX, Inc.
ANTHONY S. PISZEL, CPA, 51, has been a director since
October 2005. Mr. Piszel serves as Executive Vice President and Chief
Financial Officer for Health Net, Inc., a large publicly traded managed
health care company. Prior to joining Health Net in August 2004, Mr. Piszel
held several senior management positions at Prudential Insurance Company of
America for in excess of five years. Most recently, Mr. Piszel held the
position of senior vice president and controller for Prudential Financial,
Inc.
SUZAN L. RAYNER, MD, MPH, 50, has been a director since
July 2005. Dr. Rayner serves as the Executive Vice President Medical Affairs
/ Medical Director for Schwab Rehabilitation Hospital where she has been
employed since 2000.
HARRY E. RICH, 65, has been a director since February
2006. Prior to his retirement Mr. Rich served as the Chief Financial Officer
for the St. Louis Public Schools from November 2003 to November 2005. Prior
to that position, Mr. Rich served as Executive Vice President for Crown
Capital Investment Advisors from August 2001 to October 2003. Mr. Rich
served as Executive Vice President
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and Chief Financial Officer of Brown Shoe Company, Inc. until his retirement
in 2000. Mr. Rich also serves on the board of directors of Baker Footwear
Group, Inc. and Midwest BankCentre, Inc.
H. EDWIN TRUSHEIM, 78, 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.
LARRY WARREN, 58, has been a director since October 2005.
Prior to his retirement, Mr. Warren served as Chief Executive Officer of the
University of Michigan Hospital where he was employed from 1986 to 2005.
THEODORE M. WIGHT, 63, has been a director since 1991.
Prior to his retirement, Mr. Wight served as a general partner of the
general partners of Walden Investors, a venture capital company, and Pacific
Northwest Partners SBIC, L.P., a venture capital company. In June 2004,
Pacific Northwest Partners SBIC, L.P. entered into a consent judgment
whereby the United States Small Business Administration was appointed as
receiver for Pacific Northwest Partners SBIC, L.P. for the purpose of
marshaling and liquidating all of its assets with the goal of maximizing
recovery and satisfying the claims of creditors.
JOHN H. SHORT, PH.D., 61, has been our President and Chief
Executive Officer since May 2004 having served as our Interim President and
Chief Executive Officer since June 2003 and a director of the company since
1991. Prior to joining the company, Dr. Short was the Managing Partner of
Phase 2 Consulting, LLC, a management and economic consulting firm for the
healthcare industry for in excess of five years.
BOARD OF DIRECTORS AND COMMITTEES
BOARD STRUCTURE AND MEETINGS
During the year ended December 31, 2005, our board of
directors met ten times, five 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 2005. 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
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 independent 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 under
the "For Our Investors" section and are available in print to any
shareholder who requests them. In compliance with the New York Stock
Exchange Corporate Governance Standards, our board of directors holds
regularly scheduled executive sessions without management. Our independent
non-employee chairman, H. Edwin Trusheim, presides at all executive sessions
of the board of directors.
DIRECTOR INDEPENDENCE
It is critical that the board reflect a substantial degree
of independence from management, both in fact and in appearance.
Accordingly, while the board will determine, from time to time, the number
of employee directors that will be permitted, a substantial majority of the
board will remain independent directors. Under no circumstances will the
proportion of employee directors exceed one-third
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of the entire board membership. In addition, the board operates under the
direction of an independent, non-executive chairman of the board. For a
director to be considered independent, the board must determine that the
director does not have any direct or indirect material relationship with the
company. The board has established corporate governance guidelines to assist
it in determining director independence, which conform to the independence
requirements in the New York Stock Exchange listing rules. The portion of
the guidelines that relates to director independence is set forth below. The
board has determined that Dr. Conway-Welch, Mr. Piszel, Dr. Rayner, Mr.
Rich, Mr. Trusheim, Mr. Warren and Mr. Wight satisfy the New York Stock
Exchange's independence requirements and our independence guidelines.
William G. Anderson, a director of the company who is retiring at the end of
his current term of office at the 2006 annual meeting, was also determined
to be independent under the New York Stock Exchange listing rules and our
independence guidelines. In making the independence determinations, the
board of directors reviewed all of our directors' relationships with the
company based primarily on a review of the responses of the directors to
questions regarding employment, business, familial, compensation and other
relationships with the company and its management.
In determining that Mr. Wight is independent, the board
considered that Mr. Wight maintains personal ownership of 1.34% of the total
capitalization of a software vendor with which the company did business
until September 2005. The company paid the software vendor approximately
$7,000 and $330,000 in 2005 and 2004, respectively. After examining this
relationship, the board determined that Mr. Wight was independent from the
company and management.
In addition to applying the company's corporate governance
guidelines, the board will consider all relevant facts and circumstances in
making an independence determination, and not merely from the standpoint of
the director, but also from that of persons or organizations with which the
director has an affiliation. Independence depends not only on the personal,
employment and business relationships of each director, but also upon the
board's overall relationship with, and attitude towards, management.
Providing objective, independent judgment is at the core of the board's
oversight responsibilities. The board and each outside director will reflect
this independence.
Under the guidelines, an independent director is a member
of the board of directors of the company who:
o Is not receiving, and has not received, for the three
years prior to the date of determination, more than
$100,000 per year in direct compensation from the company,
other than director and committee fees and receipt of
fixed amounts of compensation under a retirement plan
(including deferred compensation) for prior service to the
company (provided that such compensation is not contingent
in any way on continued service) and has no immediate
family member who is receiving or has received such
compensation either currently or during such three-year
period;
o Is not, and has not been, for the three years prior to the
date of determination, an employee of the company and has
no immediate family member who is or has been, for the
three years prior to the date of determination, an
executive officer of the company;
o Is not, and has not been, affiliated with or employed by
the present or a former internal or external auditor of
the company, and has no immediate family member who is, or
has been, affiliated with or employed in a professional
capacity by the present or a former internal or external
auditor of the company, unless, in each case, it has been
more than three years since the affiliation, employment or
the auditing relationship ended;
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o Is not, and has not been (and has no immediate family
member who is or has been), for the three 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 the company that
concurrently employed the director (or immediate family
member) as an executive officer;
o Is not an executive officer or an employee (and has no
immediate family member who is an executive officer) of
another company that presently, or at any time within the
three years prior to the date of determination, makes
payments to, or receives payments from, the company for
property or services in an amount which, in any single
fiscal year, exceeds the greater of $1 million, or 2% of
such other company's consolidated gross revenues; and
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.
For the purpose of determining independence under the
foregoing principles, "immediate family member" means a director's 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. The committee may conclude that a director is independent
if the disqualifying issue relates to an immediate family member who is no
longer an immediate family member as a result of legal separation or divorce
or if the relevant immediate family member has died or become incapacitated.
References to any company include any parent or subsidiary in a consolidated
group with the company.
It is a responsibility of the board to regularly assess
each director's independence and to take appropriate actions in any instance
in which the requisite independence has been compromised.
AUDIT COMMITTEE
Messrs. Anderson (chairman), Piszel and Rich and Dr.
Conway-Welch comprise the Audit Committee. The Audit Committee met ten times
during 2005, five of which were telephonic meetings. Mr. Piszel and Mr. Rich
joined the Audit Committee upon their election to the board in October 2005
and February 2006, respectively. Mr. C. Ray Holman was a member of the Audit
Committee until his death in November 2005. 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
duties 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.
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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. Our board has designated William G. Anderson and
Anthony S. Piszel as "audit committee financial experts."
COMPENSATION AND NOMINATING/CORPORATE GOVERNANCE COMMITTEE
The members of the Compensation and Nominating/Corporate
Governance Committee are Messrs. Trusheim, Warren and Wight with Mr. Wight
serving as the chairman of the committee. Mr. Warren joined the committee
upon his election to the board in October 2005. In addition to Messrs.
Trusheim, Warren and Wight, Mr. Joseph R. Swedish served on the Compensation
and Nominating/Corporate Governance Committee until his resignation from the
board in February 2005. Each member of the Compensation and
Nominating/Corporate Governance Committee meets the independence
requirements of the New York Stock Exchange. The Compensation and
Nominating/Corporate Governance Committee met six times during 2005, one of
which was a telephonic meeting. 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;
o reviewing our incentive compensation and equity-based
plans and recommending to our board of directors
changes to such plans as needed;
o overseeing the search for individuals, including
considering nominees for directors recommended by our
stockholders, qualified to become members of our
board of directors and recommending to our board of
directors for approval director nominees to be
presented for election at our annual meeting of
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 the 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.
8
COMPLIANCE COMMITTEE
The Compliance Committee members are Mr. Anderson and Drs.
Conway-Welch and Rayner with Dr. Conway-Welch serving as the Chairperson of
the committee. Dr. Rayner joined the Compliance Committee upon her election
to the board in July 2005. Mr. C. Ray Holman was Chairman of the Compliance
Committee until his death in November 2005. 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 2005.
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
during 2005. The Chairperson of each standing committee of the board of
directors is eligible to receive an additional $1,000 from the company for
each in-person meeting of these committees. 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 Second Amended and Restated 1996 Long-Term
Performance Plan. In January 2005, we granted options to acquire 7,500
shares of our common stock at an exercise price of $26.50 per share, the
fair market value of our common stock on the date of grant, to each of
Messrs. Anderson, Holman, Trusheim and Wight and Dr. Conway-Welch. In
addition, in March 2005, we granted options to acquire 4,000 shares of our
common stock at an exercise price of $29.14 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 July 2005, we granted options to acquire 7,500
shares of our common stock at an exercise price of $25.82 per share, the
fair market value of our common stock on the date of grant, to Dr. Rayner at
her election to the board. In October 2005, we granted options to acquire
7,500 shares of our common stock at an exercise price of $20.46, the fair
market value of our common stock on the date of grant, to each of Messrs.
Piszel and Warren at their election to the board.
The company encourages each of its directors to be
familiar with the operations of our facilities. The company believes that
such familiarity will better inform the board's processes and
decision-making. Each of the non-employee directors is therefore also
entitled to a fee of $1,000 per visit, plus reimbursement of expenses, in
connection with up to five (5) site visits per year.
MISCELLANEOUS
We have adopted a Code of Ethics for Senior Executive and
Financial Officers and a Code of Business Conduct and Organizational Ethics
for all directors and employees. These codes of ethics are posted on our
website, www.rehabcare.com, under the "For Our Investors" section and are
available in print to any shareholder who requests them.
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.
9
REPORT OF THE 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. At the end of the fiscal year ended December 31, 2005, the
committee was composed of three non-employee directors, Messrs. Trusheim
(chairman), Warren and Wight. Messrs. Trusheim and Wight served on the
committee for the entire fiscal year. Mr. Warren joined the committee in
October, 2005. Mr. Wight became the Chairman of the committee on February 7,
2006.
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 to help enable the company to achieve its
goals. We base our compensation policy on the principle that the financial
rewards to the executive are aligned with the financial interests of our
stockholders.
Our executive compensation strategy consists of three
separate elements, including base salary, annual incentive compensation and
long-term incentive compensation. The Compensation and Nominating/Corporate
Governance Committee determines the appropriate compensation 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 and service based organizations with similar revenue,
earnings and market capitalization profiles to us. 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,
compensation consultants and professional groups.
The following is a summary of the policies underlying each element.
BASE SALARY
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. 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.
On the basis of the committee's review of the performance
of our executive officers during 2005, the committee increased the salaries
of Dr. Short, Mr. Davis and Ms. Henry for 2005 by between 4% and 12.2%,
effective March 1, 2006. Mr. Zadoks received a compensation adjustment
effective November 1, 2005 immediately prior to being designated as a named
executive officer. The committee declined to make a further adjustment to
the salary of Mr. Zadoks at the time it reviewed the compensation of the
other named executive officers.
10
ANNUAL INCENTIVE COMPENSATION
The committee has established an annual incentive plan
pursuant to which the Chief Executive Officer, the named executive officers
and other key employees can earn cash bonuses primarily based upon the
actual performance of the company during the fiscal year against performance
objectives established by the committee at the beginning of the year. In
this manner, a substantial portion of the executive officer's annual
compensation is tied to the financial performance of the company for that
year. A much smaller portion of the executive officer's annual bonus
opportunity is tied to the achievement of pre-established individual
performance measures which are not directly tied to financial performance of
the company but which are believed to benefit the company's operations and
results.
Bonus targets for executive officers have been established
for 2006 by levels of title and responsibility. These bonus targets are
expressed as a percentage of an executive officer's year-end annual base
salary (between 35% and 60%). Participants may earn cash bonus amounts based
upon the company's performance against pre-established operating revenues
and earnings per share targets and individual performance against
established objectives. Each of the performance criteria are weighted
relative to the other performance criteria.
Due to the relative weighting of each of the criteria for
the annual cash bonus and the fact that achievement of actual operating
revenue and earnings per share levels in excess of the target goals will
yield greater than a one hundred percent target bonus opportunity for such
criteria, executive officers can earn between 0% and 108% of their annual
base salary as an annual cash bonus depending on the company's actual
financial performance.
Upon achievement in excess of 85% of the pre-established
target goals for operating revenue and earnings per share, cash bonuses are
computed and paid on a sliding scale up to a maximum amount established for
each executive officer. If less than 85% of the target goals for operating
revenue or earnings per share are not met, no bonus will be paid under the
criteria not achieved. The maximum bonus will be earned at the achievement
of 110% of the target goal for operating revenues and at the achievement of
120% of the target goal for earnings per share.
Each of the named executive officers has also been given
individual objectives as part of the annual bonus plan allowing such officer
to earn a portion of his or her annual bonus opportunity. The decision as to
whether this portion of the bonus has been earned will be based upon a
year-end performance evaluation by the Chief Executive Officer, or his
designee, of the executive officer's performance against his or her
individual objectives.
For services rendered during the year ended December 31,
2005, certain of our executive officers received cash bonuses based upon the
achievement of year-to-year growth in revenue. These performance-based cash
bonuses were computed on the basis of criteria established by the committee
at the beginning of 2005 that are similar to the computations and criteria
described above for 2006 bonuses, with adjustments in the relative weighting
of the performance criteria and the percentage of annual base salary upon
which target bonus amounts are to be computed for certain executive
officers, as well as revisions in the target bonus percentages paid out at
various levels of achievement of the target performance goals. For services
performed in 2005, the committee approved the award of performance-based
cash bonuses to each of Mr. Davis, Ms. Henry, Mr. Bogovich, Mr. Zadoks and
Mr. Germanese in the amounts set forth on the summary compensation table for
2005.
11
LONG-TERM INCENTIVE COMPENSATION
The committee believes that long-term incentive
compensation is the most direct way of tying executive performance to
increases in stockholder value. The company periodically evaluates the
appropriate program delivery mix of both equity and cash based plans. Based
on such evaluation, for the three-year performance period starting in 2006
and ending in 2008, the committee established a long-term performance plan
consisting of a target cash award payout opportunity for executive officers
equal to between 15% and 75% of the officers' current annual base salaries.
Participants may earn cash bonus amounts based upon the company's
performance against pre-established operating revenues and earnings per
share targets and individual performance against established objectives
established by the committee for the performance period. Each of the
performance criteria is weighted relative to the others in determining the
cash amount payable as long-term incentive compensation.
Upon achievement of at least 80% of the operating revenue
and/or earnings per share target goals established by the committee for the
period, cash awards will be paid to the executive officer on a sliding scale
to a maximum amount established for the executive officer. If less than 80%
of the target goals are not met for the performance period, the executive
officer will not be entitled to any long-term performance award. The maximum
long-term performance award will be earned at the achievement of 110% of the
target goal for operating revenues and at the achievement of 120% of the
target goal for earnings per share.
Each of the named executive officers has a portion of his
or her long-term bonus opportunity tied to the achievement of individual
objectives during the performance period. The decision whether this bonus
has been earned will be based on a cumulative three year performance
evaluation by the Chief Executive Officer, or his designee, of the executive
officer's performance against his or her individual objectives.
Due to the fact that achievement of actual operating
revenue and earnings per share levels in excess of the target goals will
yield greater than a one hundred percent long-term incentive award
opportunity for such criteria, executive officers can earn between 0% and
120% of their current annual base salary as a long-term cash award for the
2006-2008 performance period depending on the company's actual financial
performance.
In conjunction with the establishment of cash-based award
opportunities for the 2006-2008 performance period, the committee also
granted awards of restricted stock as the equity component of the long-term
performance award. The equity award is designed to enhance executive
retention and equity ownership. The restricted stock subject to the awards
will vest in their entirety upon the third anniversary of the date of grant,
subject to continued employment of the particular executive officer with the
company on such date. The following restricted stock awards were granted as
part of the 2006-2008 performance award: Mr. Davis, 8,990 shares; Ms. Henry,
8,600 shares; and Mr. Zadoks, 1,260 shares.
Similarly, at the beginning of 2005, the committee had
established long-term performance awards targets consisting of both cash and
equity for the 2005-2007 performance period. The targets for the cash
portion of the award were established by the committee in a manner similar
to the computations and criteria described above for the cash portion of the
2006-2008 performance awards, with adjustments to the percentage of annual
base salary upon which target long-term performance cash awards are to be
computed for certain executive officers, as well as revisions in the target
long-term performance cash award percentages to be paid out at various
levels of achievement of the target long-term performance goals.
12
The committee also established performance-based option
awards pursuant to which all or any portion of the options granted will be
forfeited to the company in the event that the maximum level for the
pre-established performance goals are not fully achieved. If less than the
maximum performance targets are achieved, only a portion of these options
will vest on a sliding scale and if the minimum performance targets are not
achieved, all of the options will be forfeited to the company. The following
performance-based option awards were granted as part of the 2005-2007
performance award: Mr. Davis, 26,250 shares; Ms. Henry, 22,142 shares; Mr.
Bogovich, 9,910 shares; and Mr. Germanese, 27,155 shares.
The committee also awarded time-vested options as part of
the equity portion of the 2005-2007 long-term performance awards. The
following time-vested option awards were granted as part of the 2005-2007
performance award: Mr. Davis, 12,018; Ms. Henry, 10,143; Mr. Bogovich,
3,429; and Mr. Germanese, 12,436. These options become exercisable with
respect to 25%, 50%, 75% and 100% of the total number of shares subject to
the options on each of the first, second, third and fourth anniversaries,
respectively, of the date of award. The company accelerated the vesting of
these out-of-the-money options on December 15, 2005 to reduce compensation
expense that otherwise would be recorded in future periods following the
company's adoption of SFAS 123R on January 1, 2006. In addition, the board
believes this action further enhances management's focus on increasing
shareholder returns and will increase employee morale and retention.
Our board of directors, upon the recommendation of the
committee, has given the Chief Executive Officer the authority to grant
newly hired executives 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.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In connection with the committee's review of the
performance of all executive officers during 2005 and adjustment of the
salaries of all executive officers for 2006, Dr. Short's base salary was
increased 4% to $578,448 effective as of March 1, 2006. The committee
determined Dr. Short's compensation increase based upon the company's
overall performance, its success in implementing its strategy, the
achievement of its goals, the alteration of roles of his management team and
its performance, the compensation paid by competing companies and the
company's prospects, among other objective and subjective factors.
Consistent with the performance criteria applicable to the
other named executive officers and previously discussed under the caption
"Annual Incentive Compensation" in this committee report, Dr. Short is
eligible for an annual bonus based upon the same performance criteria and
targets and individual performance goals described above. Dr. Short's target
bonus opportunity is computed on the basis of 60% of his year-end 2006
annual base salary, but due to relative weighting of each of the criteria
for the annual cash bonus and the fact that achievement of actual operating
revenue and earnings per share levels in excess of the target levels will
yield greater than one hundred percent of the target annual bonus
opportunity for such criteria, Dr. Short can earn between 0% and 108% of his
annual base salary at year end 2006 as an annual cash bonus depending on the
company's actual financial performance.
Likewise, Dr. Short is eligible to participate in the
long-term performance plan under similar terms and conditions as the other
named executive officers as previously discussed under the caption
"Long-Term Incentive Compensation" in this committee report. Dr. Short
participates in the long-term incentive plan for the 2006-2008 period and
the 2005-2007 period only to the extent of a cash award. Dr. Short's target
long-term performance cash award is computed on the basis of 75% of his
current annual base salary for the 2006-2008 performance period and 50% of
his then-current annual base
13
salary for the 2005-2007 performance period. If the company achieves 110% of
the target goal for operating revenues and 120% of the target goal for
earnings per share and the committee determines that Dr. Short has met his
individual objectives during the 2006-2008 performance period, he can
receive up to 120% of his current annual base salary as a cash performance
award for the period.
As a part of Dr. Short's employment arrangement he was
awarded an option to purchase 250,000 shares of the company's common stock
at market price on the date of grant, May 4, 2004. Dr. Short is not eligible
for any additional equity grants until 2008.
Although the foregoing describes the committee's current
compensation policies applicable to the executive officers, the committee
reserves the right to change these policies at such time in the future and
in such a manner as the committee deems necessary or appropriate.
COMPENSATION AND NOMINATING/CORPORATE GOVERNANCE
COMMITTEE OF THE BOARD OF DIRECTORS
H. EDWIN TRUSHEIM LARRY WARREN
THEODORE M. WIGHT
14
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
For the years ended December 31, 2005, 2004 and 2003, 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 services rendered to
us.
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------- ------------------------------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION OPTIONS (#)(1) COMPENSATION ($)(2)
- --------------------------- ---- ---------- --------- ------------ -------------- -------------------
John H. Short, Ph.D. 2005 549,333 115,580 -- -- 4,200
President and Chief 2004 321,875 224,434 120,000(4) 250,000 532,479(5)
Executive Officer (3) 2003 -- -- -- -- 391,600(6)
Tom E. Davis 2005 311,653 60,251 -- 26,250 11,502(7)
Executive Vice President and 2004 299,183 160,406 -- 17,038 4,110
Chief Development Officer 2003 281,667 24,959 -- 20,000 4,000
Patricia M. Henry 2005 292,400 57,626 -- 22,142 40,898(8)
Executive Vice President 2004 251,400 153,368 -- 14,373 3,900
2003 235,000 15,000 -- 20,000 4,000
Mark A. Bogovich 2005 182,633 35,536 -- 9,910 4,200
Former Vice President and 2004 158,758 90,571 -- 6,269 3,496
Chief Accounting Officer(9) 2003 130,241 15,000 -- 5,000 2,604
Jeff A. Zadoks 2005 153,583 46,265 -- -- 3,889
Vice President, Interim 2004 137,000 43,422 -- -- 1,484
Chief Financial Officer(10) 2003 11,417 1,200 -- 5,000 --
Vincent L. Germanese 2005 294,967 20,000 -- 27,155 4,200
Senior Vice President, Corporate 2004 309,500 176,569 -- 17,626 4,110
Development, Former Chief 2003 300,000 15,000 -- 20,000 250
Financial Officer and Secretary (11)
<FN>
- -------------------
(1) Totals for 2005 represent performance option awards granted to the
named executive officers as part of the 2005-2007 performance award.
These options are subject to performance-based vesting conditions and
will vest or not vest based on the attainment of performance standards
for the 2005-2007 performance period.
(2) Except as otherwise indicated, totals include amounts contributed by us
pursuant to the matching portion of our 401(k) plan.
(3) John Short, Ph.D. became our President and Chief Executive Officer in
May 2004. He served as our Interim President and Chief Executive
Officer from June 2003 until May 2004. Dr. Short's services to us as
Interim President and Chief Executive Officer were provided pursuant to
the terms of a consulting agreement with Phase 2 Consulting, a
consulting firm in which Dr. Short was the managing partner. Dr. Short
was not separately compensated by us for his services until his
election as President and Chief Executive Officer in May 2004.
(4) Amount represents $120,000 provided to Dr. Short to compensate him for
the cost of relocating to St. Louis.
(5) Amount includes aggregate monthly fees of $220,000 and aggregate
incentive fees of $312,050 paid to Phase 2 Consulting pursuant to our
consulting agreement with Phase 2 Consulting, which terminated
effective May 3, 2004 upon the acquisition of Phase 2 Consulting by the
company.
(6) 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.
(7) Amount includes $7,302 paid to Mr. Davis as a car allowance.
15
(8) Amount includes $36,698 paid to Ms. Henry for reimbursement of travel
expenses.
(9) Mr. Bogovich ceased being employed by the company effective February 9,
2006.
(10) Mr. Zadoks' employment with the company commenced on December 1, 2003.
(11) Mr. Germanese ceased being an executive officer on September 1, 2005
when he took a different position with the company.
EMPLOYMENT, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
The company currently has a termination compensation
agreement with Dr. John H. Short, our President and Chief Executive Officer.
Under the agreement, upon termination of employment by Dr. Short for good
reason or by the company without cause prior to a change in control, the
company will continue for a period of 24 months after the termination date
monthly payments to Dr. Short equal to one-twelfth of the sum of his
then-current annual salary and his target bonus for the year in which the
termination occurs. If Dr. Short's employment is terminated within two years
after a change in control by the company without cause or by Dr. Short for
any reason, he will be entitled to a lump-sum cash payment equal to 2.99
times his then-current annual salary plus 2.99 times an amount determined by
multiplying his then-current annual salary on the termination date by the
greater of: (i) the average bonus percentage actually earned by Dr. Short
for the five years (or such shorter period that Dr. Short was employed by
the company) prior to the change in control or (ii) his target bonus
percentage for the year in which the change in control occurs. In addition,
Dr. Short will also be entitled to receive an amount equal to his target
bonus percentage for the year that the change in control occurs multiplied
by his then-current annual salary on the termination date, prorated for the
portion of the year during which he was employed by the company.
In any of the above-described terminations, Dr. Short will
also be entitled to the continuation of his health and welfare benefits for
up to two years after the date of termination. In the case of a pre-change
in control termination, all stock-based awards that would have become
exercisable within six months of the termination date will vest and become
exercisable as of the termination date and shall remain exercisable in
accordance with the original terms of the grant. In the case of a change in
control, all unexpired stock-based awards will vest and become fully
exercisable as of the date of the change in control and will remain
exercisable in accordance with the original terms of the grant. Dr. Short
will also be entitled to executive-level outplacement services by a vendor
selected by the company.
We currently have separate termination compensation
agreements with each of Mr. Davis and Ms. Henry. Under these agreements,
upon termination of employment by the executive officer for good reason or
by the company without cause prior to change in control, the company will
continue for 12 months after the termination date monthly payments equal to
one-twelfth of the executive's then-current salary and target bonus for the
year in which the termination occurs. If Mr. Davis or Ms. Henry's employment
is terminated within two years after a change in control by the executive
for good reason or by the company without cause, the executive will be
entitled to a lump-sum cash payment equal to 1.5 times his or her then
current annual salary plus 1.5 times his or her target bonus in the year
that the change in control occurs. In addition, Mr. Davis and Ms. Henry will
also be entitled to receive an amount equal to his or her target bonus
percentage for the year that the change in control occurs multiplied by his
or her then-current annual salary on the termination date, prorated for the
portion of the year during which he or she was employed by the company.
16
In any of the above-described pre-change in control
terminations, Mr. Davis or Ms. Henry will also be entitled to the
continuation of his or her health and welfare benefits for up to twelve
months after the date of termination. In the case of a termination after a
change in control transaction, Mr. Davis or Ms. Henry will be entitled to
the continuation of his or her health and welfare benefits for up to
eighteen months after the date of termination. In either case, the
terminated officer will be entitled to executive-level outplacement services
by a vendor selected by the company.
Each of these agreements also contains non-compete and
non-solicitation covenants that extend for one year after termination of the
executive officer's employment as well as confidentiality provisions
protecting the confidential data and information of the company.
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.
A change in control transaction is generally:
o an acquisition by any one person or group of 30% 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 50%
or more of the company's outstanding voting stock or
a majority of the company's directors; 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.
17
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, 2005, and the number
of exercisable and unexercisable stock options at December 31, 2005, as well
as the value of such stock options having an exercise price lower than the
closing price on December 31, 2005 ("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 ($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE(1)
---- ------------ ------------ --------------------- --------------
John H. Short, Ph.D. -- $ -- 192,317 / 151,044 $ 658,254 / 0
Tom E. Davis -- -- 187,892 / 36,250 1,408,395 / 5,400
Patricia M. Henry -- -- 92,373 / 32,142 5,400 / 5,400
Mark A. Bogovich -- -- 21,269 / 12,410 64,906 / 9,500
Jeff A. Zadoks -- -- 2,500 / 2,500 5,500 / 5,500
Vincent L. Germanese -- -- 77,626 / 37,155 5,400 / 5,400
<FN>
- -------------------
(1) Based on a price per share of $20.20, the closing price of our common
stock on December 31, 2005.
18
OPTION GRANTS IN LAST YEAR
The following table sets forth information concerning
stock option grants made in the year ended December 31, 2005, to the
executive officers named in the Summary Compensation Table.
INDIVIDUAL GRANT
---------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL RATES
NUMBER OF TOTAL OPTIONS OF STOCK PRICE APPRECIATION
SECURITIES GRANTED TO FOR OPTION TERM(4)
UNDERLYING EMPLOYEES IN EXERCISE OR ---------------------------
OPTIONS FISCAL BASE PRICE EXPIRATION
NAME GRANTED (#)(1)(2) YEAR (%) ($/SH) DATE(3) 5% ($) 10% ($)
---- ----------------- -------- ------ ------- ------ -------
John H. Short, Ph.D. -- -- -- -- -- --
Tom E. Davis 38,268 11.70% $27.99 2/8/2015 $673,622 $1,707,092
Patricia M. Henry 32,285 9.87% 27.99 2/8/2015 568,305 1,440,197
Mark A. Bogovich 13,339 4.08% 27.99 2/8/2015 234,803 595,037
Jeff A. Zadoks -- -- -- -- -- --
Vincent L. Germanese 39,591 12.10% 27.99 2/8/2015 696,911 1,766,109
<FN>
- -------------------
(1) Includes the following time-based option awards granted to the named
executive officers as part of the 2004-2006 performance award: Mr.
Davis 12,018; Ms. Henry, 10,143; Mr. Bogovich, 3,429; and Mr.
Germanese, 12,436. These options become exercisable with respect to
25%, 50%, 75% and 100% of the total number of shares subject to the
options on each of the first, second, third and fourth anniversaries,
respectively, of the date of award. The vesting of time-based option
awards with an exercise price greater than $20.34 that were granted
prior to December 15, 2005 was accelerated to December 15, 2005.
(2) Includes the following performance option awards granted to the named
executive officers as part of the 2005-2007 performance award: Mr.
Davis, 26,250; Ms. Henry, 22,142; Mr. Bogovich, 9,910; and Mr.
Germanese, 27,155. These options are subject to performance-based
vesting conditions and will vest or not vest based on the attainment of
performance standards for the 2005-2007 performance period.
(3) 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.
(4) 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.
PROPOSAL II.
APPROVAL OF THE REHABCARE GROUP, INC.
2006 EQUITY INCENTIVE PLAN
On February 7, 2006, our board of directors authorized,
subject to stockholder approval, the creation of the RehabCare Group, Inc.
2006 Equity Incentive Plan. The purposes of the 2006 Equity Incentive Plan
are to provide employees an incentive for continuation of their efforts for
the success of the company and for continuity of employment, to induce
directors of the company to remain directors of the company over the long
term, to align directors' and employees' interests in the company's
financial
19
performance more directly with those of the stockholders and to aid the
company in competing with other enterprises for the services of new
directors and employees. The 2006 Equity Incentive Plan will provide
benefits similar to those provided under the RehabCare Group, Inc. Second
Amended and Restated 1996 Long-Term Performance Plan. By its terms, new
awards may not be granted under the Second Amended and Restated 1996
Long-Term Performance Plan after its expiration effective April 23, 2006. As
of December 31, 2005 there were 874,512 shares remaining available for grant
under the Second Amended and Restated 1996 Long-Term Performance Plan, of
which 68,710 shares subject to restricted stock awards and 64,000 shares
underlying option awards were granted and 48,910 shares underlying option
awards were forfeited between year-end and the record date of March 6, 2006,
With respect to the remaining 790,712 shares available for grant, the
company agrees that no more than 45,000 shares subject to equity awards
shall be granted out of this plan between the record date and April 23,
2006, the plan's effective expiration date. The following table summarizes
the awards outstanding and available for grant:
======================================================================================================================
AS OF DECEMBER 31, 2005 AS OF THE RECORD DATE OF MARCH 6, 2006
- ----------------------------------------------------------------------------------------------------------------------
Number of stock options 2,347,441 2,351,931
outstanding(1),(2)
Number of unvested restricted shares 0 68,710
granted and outstanding
Total number of awards granted and 2,347,441 2,420,641
outstanding
Shares available to grant under the 874,512 790,712 of which no more than 45,000 can
Second Amended and Restated 1996 be granted between the record date and
Long-Term Performance Plan the expiration date of the Second Amended
and Restated 1996 Long-Term Performance
Plan.
<FN>
(1) No dividend equivalents attributable to any outstanding option awards.
(2) Weighted average exercise price of $20.73 and weighted average term to
expiration of 5.23 years for options outstanding as of March 6, 2006.
- ----------------------------------------------------------------------------------------------------------------------
An aggregate of 1,000,000 shares will be available for
future grants of stock options and stock-based incentives to our key
employees and our directors under the 2006 Equity Incentive Plan. No more
than 200,000 shares may be granted to non-employee directors under the plan.
We are requesting that the stockholders approve the number of shares
described above for issuance under the plan. The 2006 Equity Incentive Plan
is intended to replace the RehabCare Group, Inc. Second Amended and Restated
1996 Long-Term Performance Plan because the company will not be able to make
further awards under the Second Amended and Restated 1996 Long-Term
Performance Plan, after April 23, 2006. Accordingly, the board of directors
believes that the approval of the plan is necessary and appropriate to (i)
further the aims of the company's executive compensation policies and
objectives, and (ii) maintain flexibility and uninterrupted availability of
authorized shares for our key employees and our non-employee directors'
compensation program.
The 2006 Equity Incentive Plan will be administered by the
Compensation and Nominating/Corporate Governance Committee of our board of
directors. The members of this committee are all independent directors. The
committee, by majority action thereof, is authorized in its sole discretion
to determine the individuals to whom 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 at the discretion of the committee, the
amount of awards to be granted is not determinable.
20
Notwithstanding the above, the maximum number of shares
subject to stock options and stock appreciation rights that may be awarded
to any individual may not exceed 100,000 shares in any calendar year, except
for the chief executive officer for whom the annual maximum shall be 250,000
(each as adjusted in accordance with the plan). The maximum number of shares
subject to all other equity awards that may be awarded to any individual may
not exceed 100,000 shares in any calendar year. No non-employee director may
receive an award subject to more than 15,000 shares in any one-year period.
Currently, approximately 40 employees, officers and
directors are eligible to participate in the 2006 Equity Incentive Plan. The
complete text of the plan is set forth in Appendix A 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) stock units, (e) incentive
stock options; (f) nonqualified stock options; or (g) any other type of
equity based award.
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 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 more 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. The participating
employee will have no right to receive dividends on, or to vote any shares
subject to, a
21
performance award 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 of control).
STOCK UNITS. The committee may grant awards consisting of
stock units under the plan. A stock unit represents the right to receive a
share of stock from the company at a designated time in the future. These
awards may be subject to restrictions, terms and conditions established by
the committee. The participating employee will generally not have the rights
of a shareholder until the stock subject to the award is issued. In the
discretion of the committee, a participating employee may receive payments
in cash, or adjustment in the number of stock units, equivalent to the
dividends the participating employee would have received if he or she had
been the owner of shares of stock rather than stock units.
INCENTIVE STOCK OPTIONS. Incentive stock options may be
granted only to participants who are employees of the company at the time of
grant. 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. 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 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 may not be
exercisable later than ten years after the date they are granted.
Nonqualified stock options may terminate earlier following termination of
employment or termination of a director's services as a board member, as
provided in the option agreement under which the option is granted. 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.
OTHER EQUITY AWARDS. The committee may grant other types
of equity-based awards not otherwise described in the plan in such amounts
and subject to such terms as the committee may determine.
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. The company will not adjust or amend the exercise price of
any stock options previously awarded under the plan, whether through
amendment, cancellation, replacement grants or any other means, without the
approval of the company's stockholders.
22
TRANSFERABILITY OF AWARDS
With the exception of nonqualified stock options, lifetime
transfers of awards granted under the plan are generally not permitted. A
participant is allowed to transfer awards granted under the plan upon his or
her death by will or through the laws of descent and distribution. In
addition to the foregoing methods, nonqualified stock options may be
transferred by a participant to (i) the participant's spouse, children or
grandchildren; (ii) a trust for the benefit of the participant or the
participant's spouse, children or grandchildren; or (iii) a company with
respect to which eighty percent or more of the equity interests in the
company are owned by the participant or the participant's spouse, children
or grandchildren. No other transfers of awards under the plan are permitted.
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 the year of the disqualifying disposition, except to the extent (if any)
that such deduction may be limited under Sections 162(m) or 280G of the
Internal Revenue Code of 1986, as amended ("Code").
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, except to the extent (if any) that
such deduction may be limited under Sections 162(m) or 280G of the Code.
Subject to a voluntary election by the holder under
Section 83(b) of the Code, a holder will realize income as a result of the
award of restricted stock at the time the restrictions expire on such
shares. An election pursuant to Section 83(b) of the Code would have the
effect of causing the holder to realize income in the year in which such
award was granted. The amount of income realized will be the difference
between the fair market value of the shares on the date such restrictions
expire (or on the date of issuance of the shares, in the event of a Section
83(b) election) over the purchase price, if any, of such shares. 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, except to
the extent (if any) that such deduction may be limited under Sections 162(m)
or 280G of the Code.
23
An officer, director or employee will realize income as a
result of a performance award or stock unit 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 or the amount of
the cash compensation paid. We will be entitled to a corresponding deduction
equal to the income realized in the year of such issuance or payment, except
to the extent (if any) that such deduction may be limited under Sections
162(m) or 280G of the Code.
The tax consequences to the participant described above
assume that, to the extent any award under the plan is subject to the
requirements of Section 409A of the Code, such award will comply with that
section. In the event any such award that is subject to Section 409A were
determined not to be in compliance with Section 409A, the participant could
be subject to earlier taxation, a penalty tax of twenty percent of the
amount includible in gross income, and interest on federal income taxes that
would have been payable if such amount were taxable when first deferred.
EQUITY COMPENSATION PLAN BENEFIT INFORMATION
The following table provides information as of December
31, 2005 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 2,347,441 $20.91 874,512
Equity compensation plans not
approved by stockholders - - -
=========== ======== ==========
Total 2,347,441 $20.91 874,512
The vote required to approve the 2006 Equity Incentive
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. 2006 Equity Incentive Plan.
PROPOSAL III.
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Audit Committee has appointed KPMG LLP as our
independent registered public accounting firm (independent auditors) for the
fiscal year ended December 31, 2006 and the board of directors is asking for
ratification of this appointment. Although we are not required to seek
shareholder ratification of our independent registered public accounting
firm 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
24
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.
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, 2005 DECEMBER 31, 2004
----------------- -----------------
Audit Fees (1) ............... $ 663,000 $ 630,695
Audit-Related Fees (2) ........ 46,900 285,171
Tax Fees (3) ................. 71,283 260,960
All Other Fees (4) ........... -- --
=========== ==============
Total ...................... $ 781,183 $ 1,176,826
<FN>
- -------------------
(1) Audit Fees consist of fees rendered for professional services rendered
for the audit of our financial statements included in our Form 10-K
during the years ended December 31, 2005 and 2004, review of our Form
10-Qs 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 plans for 2005 and 2004, due diligence procedures
related to acquisitions, and documentation assistance in 2004 under
Section 404 of the Sarbanes-Oxley Act of 2002.
(3) Tax Fees consist of fees rendered for professional services rendered
for tax compliance and tax advice. These services include assistance
regarding federal and state tax compliance and tax and compliance work
in connection with acquisitions. Such fees can be further categorized
as tax compliance and preparation services and tax consulting and
advisory services. For 2005 we paid $19,760 for tax compliance and
preparation services and $51,523 for tax consulting and advisory
services. For 2004 we paid $219,000 for tax compliance planning and
preparation services and $41,960 for tax consulting and advisory
services.
(4) All Other Fees consist of fees for products and services other than the
services reported above.
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 2005 and 2004, 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. The Audit Committee pre-approved all of the fees for
services covered under the captions "Audit Related Fees," "Tax Fees," and
"All Other Fees" for fiscal years 2005 and 2004.
25
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 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 registered public
accounting firm for the fiscal year ended December 31, 2006.
Our board of directors recommends a vote "FOR"
ratification of the appointment of KPMG LLP as our independent registered
public accounting firm for the fiscal year ended December 31, 2006.
REPORT OF THE AUDIT COMMITTEE
DUTIES AND RESPONSIBILITIES
The primary function of the Audit Committee is oversight
of our financial reporting process on behalf of our board of directors. The
company's 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 company's independent auditors, KPMG LLP, 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 officers and employees of the company 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 our 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 fulfilling its oversight responsibilities, the
committee reviewed the audited financial statements and management's report
on the effectiveness of our internal control over financial reporting 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 are responsible for
expressing an opinion on the conformity of our audited financial statements
to generally accepted accounting principles and on management's report on
the effectiveness of our internal control over financial reporting. The
Audit Committee has the sole authority and responsibility to select,
appoint, evaluate and, where appropriate, replace the independent auditors.
The Audit Committee also oversees the performance of the company's internal
audit function.
26
DISCLOSURE POLICY
We adopted a Corporate Disclosure Policy effective October
25, 2004, and we amended it on March 10, 2006. This policy covers all
employees and board members of the company as to completeness and accuracy
of disclosures made in public filings and as required under Regulation Fair
Disclosure.
CHARTER
The Audit Committee operates pursuant to a charter, which
was approved and adopted by the board of directors first on May 10, 2000,
and which was amended on August 27, 2003 and July 27, 2004. The charter and
our performance under the charter are reassessed annually by the Audit
Committee. The Audit Committee charter can be found on our website at
www.rehabcare.com under the "For Our Investors" section and is available in
print to any shareholder who requests it.
INDEPENDENCE AND QUALIFICATION OF MEMBERS
Our board of directors has determined that each of the
members of the Audit Committee is independent within the meaning of the
listing standards of the New York Stock Exchange and the Securities Exchange
Act of 1934, as amended, and that each of the committee members possesses
the financial qualifications required of Audit Committee members under the
Exchange Act. Our board has determined William G. Anderson and Anthony S.
Piszel meet the Securities and Exchange Commission's requirements for, and
has designated each of them as, Audit Committee financial experts.
INDEPENDENCE OF AUDITORS FROM MANAGEMENT
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 required to be discussed 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.
We discussed with KPMG LLP their independence from the
company and management and considered the auditor's independence for all
audit and non-audit services performed. We meet privately with the
independent auditors, have the sole authority to retain and dismiss the
independent auditors and periodically review their performance and
independence from management. The independent auditors have unrestricted
access and report directly to the committee. The Audit Committee has sole
authority to approve all audit engagement fees and terms and pre-approve all
non-audit services.
We have the authority to conduct any investigation we deem
appropriate in fulfilling our responsibilities and have the ability to
retain, at the company's expense, any legal, accounting or other consultants
we deem necessary in the performance of our duties without the prior
approval of the full board of directors.
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
27
Report on Form 10-K for the year ended December 31, 2005, for filing with
the Securities and Exchange Commission.
ANNUAL EVALUATION OF MEMBERS
We annually evaluate the performance of the committee and its
members and report our conclusions to the board of directors. No audit
committee member serves on the audit committee of more than two other public
companies.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
WILLIAM G. ANDERSON, CPA COLLEEN CONWAY-WELCH, PH.D., R.N.
ANTHONY S. PISZEL, CPA HARRY E. RICH
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Beginning in 2003, we retained a software vendor for various
computer related activities. John H. Short, our President and Chief
Executive Officer and a director, is also a director of the software company
and Theodore M. Wight, a director, was also a director of the software
company until his resignation from the software company's board on April 27,
2005. Dr. Short owns 5.5% of the fully diluted capitalization of the
software company. Until June 2004, when the United States Small Business
Administration was appointed as a receiver for Pacific Northwest Partners
SBIC, L.P., Mr. Wight was deemed to control through his affiliation with
Pacific Northwest Partners SBIC, L.P., 27.3% of the fully diluted
capitalization of the software company. Subsequent to June 2004, Mr. Wight
retained personal ownership of 1.34% of the total capitalization of the
software company. We paid the software vendor approximately $7,000 and
$330,000 in 2005 and 2004, respectively. Effective September 30, 2005, we
terminated our website hosting agreement with the software vendor.
We purchased air transportation services from 55JS Limited, Co.
at an approximate cost of $560,000 and $190,000 for the year ended December
31, 2005 and the period from May 3, 2004 to December 31, 2004, respectively.
55JS Limited, Co. is owned by Dr. Short, our President and Chief Executive
Officer. The air transportation services are billed to us for hourly usage
of 55JS's plane for company business.
PROPOSALS OF STOCKHOLDERS
Proposals of stockholders and nominations for directors intended to
be presented at the 2007 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 28, 2006, 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 2007 annual meeting of stockholders only if written notice
of the proposal is received by us by not earlier than January 31, 2007 and
not later than March 2, 2007.
28
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, 2005.
29
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 January 1, 2001 and ending December 31, 2005:
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG
REHABCARE GROUP, INC, NYSE MARKET INDEX AND PEER INDEX
[GRAPH]
Assumes $100 invested on January 1, 2001 in RehabCare Group, Inc. common stock,
the NYSE Market Index and the HEA Index
and assumes that all dividends were reinvested.
- ---------------------------------------------------------------------------------------------------------------
Fiscal Year Ending
Company/ Index/ ----------------------------------------------------------------------------------------
Market 12/31/2000 12/31/2001 12/31/2002 12/31/2003 12/31/2004 12/31/2005
- ---------------------------------------------------------------------------------------------------------------
RehabCare Group $100 $57.62 $37.14 $41.38 $54.48 $39.32
- ---------------------------------------------------------------------------------------------------------------
Health Care Provider $100 $95.87 $87.31 $117.57 $153.85 $207.01
- ---------------------------------------------------------------------------------------------------------------
NYSE Market Index $100 $91.09 $74.41 $96.39 $108.85 $117.84
- ---------------------------------------------------------------------------------------------------------------
30
ANNUAL REPORT
We simultaneously mailed our annual report for the year
ended December 31, 2005, to our stockholders. A copy of our Annual Report on
Form 10-K for the year ended December 31, 2005, 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 "For Our Investors" 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.
David B. Groce,
Senior Vice President, General Counsel &
Corporate Secretary
March 28, 2006
31
APPENDIX A
REHABCARE GROUP, INC.
2006 EQUITY INCENTIVE PLAN
1. PURPOSES. The purposes of this 2006 Equity Incentive Plan (the
"Plan") are (i) to encourage certain employees of RehabCare Group, Inc. (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. For
purposes of this Plan, Subsidiary means any corporation or other entity,
whether domestic or foreign, in which the Corporation has or obtains,
directly or indirectly, a proprietary interest of more than fifty percent
(50%) by reason of stock ownership or otherwise.
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 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. Subject to adjustment as
provided in Section 16, there is hereby reserved for issuance under the Plan
an aggregate of One Million (1,000,000) shares of Common Stock of the
Corporation, which may be authorized but unissued or treasury shares. The
maximum number of shares that may be issued pursuant to ISOs under this Plan
shall be one million (1,000,000) shares. The maximum number of shares that
may be granted to nonemployee Directors shall be two hundred thousand
(200,000) shares, and no nonemployee Director may receive an award subject
to more than fifteen thousand (15,000) shares in any one-year period.
Shares covered by an award shall only be counted as used to the
extent they are actually issued. Any shares related to awards which
terminate by expiration, forfeiture, cancellation, or otherwise without the
issuance of such shares, are settled in cash in lieu of shares, or are
exchanged with the Committee's permission, prior to the issuance of shares,
for awards not involving shares, shall be available again for grant under
this Plan. Moreover, if the option price of any Option granted under this
Plan or the tax withholding requirements with respect to any award granted
under this Plan are satisfied by tendering shares to the Corporation (by
either actual delivery or by attestation), or if an SAR is exercised, only
the number of shares issued, net of the shares tendered, if any, will be
deemed delivered for purposes of
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determining the maximum number of shares available for delivery under
this Plan.
The maximum number of shares of Common Stock subject to stock
options and stock appreciation rights that may be awarded to any individual
shall not exceed 100,000 shares in any calendar year, except for the chief
executive officer for whom the annual maximum shall be 250,000 (each as
adjusted in accordance with Section 16). The maximum number of shares of
Common Stock subject to all other equity awards that may be awarded to any
individual shall not exceed 100,000 shares in any calendar year.
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)
stock units ("Stock Units"); (e) incentive stock options ("ISOs"); (f)
nonqualified stock options ("NQSOs"); and any other type of equity-based
award ("Other Equity Awards"), 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 deliver to the participant an
agreement awarding the benefit, duly executed by and on behalf of the
Corporation.
7. STOCK APPRECIATION RIGHTS. A SAR is the right to receive all or
a portion of the difference between the fair market value of a share of
Common Stock and the exercise price of the SAR established by the Committee,
subject to such terms and conditions set forth in a SAR Agreement as may be
established by the Committee in its sole discretion. At the discretion of
the Committee, SARs may be exercised (a) in lieu of exercise of an option,
(b) in conjunction with the exercise of an option, (c) upon lapse of an
option, (d) independent of an option or (e) each of the above in connection
with a previously awarded option under the Plan. 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
later than ten years after the date they are granted and will expire in
accordance with the terms established by the Committee. The grant price of a
SAR must be at least equal to one hundred percent (100%) of the fair market
value of the shares as determined on the grant date.
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 or Stock Units) at
any purchase price less than the fair market value thereof on the date of
issuance or transfer, or as a bonus. In the case of any Restricted Stock:
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(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) Except as otherwise provided in a participant's award
agreement, 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) Except as otherwise provided in a participant's award
agreement, the participant shall be entitled to vote the Restricted Stock
during the period of restriction.
(e) The Committee shall determine whether Restricted Stock
is to be delivered to the participant with an appropriate legend imprinted
on the certificate or if the certificate will be deposited in escrow pending
removal of the restrictions.
9. PERFORMANCE AWARDS. Subject to the terms and provisions of this
Plan, the Committee, at any time and from time to time, may grant
performance awards to participants in such amounts and upon such terms as
the Committee shall determine. Performance Awards may 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. The goals established by the Committee may
include: net earnings or net income (before or after taxes); earnings per
share; net sales or revenue growth; net operating profit; return measures
(including, but not limited to, return on assets, capital, invested capital,
equity, sales, or revenue); cash flow (including, but not limited to,
operating cash flow, free cash flow, cash flow return on equity, and cash
flow return on investment); earnings before or after taxes, interest,
depreciation, and/or amortization; gross or operating margins; productivity
ratios; share price (including, but not limited to, growth measures and
total shareholder return); expense targets; margins; operating efficiency;
market share; customer satisfaction; working capital targets; economic value
added or EVA(R) (net operating profit after tax minus the sum of capital
multiplied by the cost of capital); and return on average total capital
employed.
In the event the minimum 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 actual
shares are issued.
10. STOCK UNITS. A Stock Unit represents the right to receive a
share of Common Stock from the Corporation at a designated time in the
future, subject to such restrictions, terms and conditions set forth in a
Stock Unit Agreement as may be established by the Committee in its sole
discretion. The participant generally does not have the rights of a
shareholder until receipt of the Common Stock. A Stock Unit agreement may,
in the discretion of the Committee, provide for payments in cash, or
adjustment in the number of Stock Units, equivalent to the dividends the
participant would have received if the participant had been the owner of
shares of Common Stock rather than Stock Units.
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11. 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. ISOs will be exercisable not earlier than six months and not
later than ten years after the date they are granted and will terminate not
later than three months after termination of employment for any reason other
than death or disability. In the event termination of employment occurs as a
result of death or disability, such an option will be exercisable for twelve
months after such termination to the extent provided in the ISO agreement.
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.
12. 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. NQSOs will be exercisable not later than ten years after
the date they are granted. In no event shall any option be exercised more
than ten years after its grant, and an option may terminate earlier
following termination of employment or termination of a Director's services
as a Board Member, as provided in the option agreement.
13. OTHER EQUITY AWARDS. The Committee may grant other types of
equity-based awards not otherwise described in the Plan in such amounts and
subject to such terms as the Committee shall determine.
14. TERMINATION OF EMPLOYMENT. Each award agreement shall set forth
the terms and conditions applicable to an award following termination of the
participant's employment with or provision of services to the Corporation or
a Subsidiary, as the case may be. Such provisions shall be determined in the
sole discretion of the Committee, shall be included in the award agreement
entered into with each participant, need not be uniform among all awards
issued pursuant to this Plan, and may reflect distinctions based on the
reasons for termination.
15. VESTING REQUIREMENTS. Except with respect to a maximum of ten
percent (10%) of the share authorization, any Full Value Awards which vest
on the basis of the participant's continued employment with or provision of
service to the Corporation shall not provide for vesting which is any more
rapid than annual pro rata vesting over a three (3) year period and any Full
Value Awards which vest upon the attainment of performance goals shall
provide for a performance period of at least twelve (12) months.
Notwithstanding the foregoing, the Committee may permit acceleration of
vesting of such Full Value Awards in the event of the Participant's death,
disability, or retirement, or a Change in Control. For purposes of this Plan
a Full Value Award means an award other than in the form of an option or
SAR, and which is settled by the issuance of shares.
16. ADJUSTMENT PROVISIONS.
(a) If the Corporation shall at any time change the number
of issued shares of
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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.
17. NONTRANSFERABILITY. Each benefit granted under the Plan to a
participant shall not be transferable, other than an NQSO 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 an NQSO, 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 17, "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. Notwithstanding the foregoing, no award granted pursuant
to this Plan may be transferred for value (as defined in the General
Instructions to Form S-8).
18. TAXES. The Corporation shall be entitled to withhold the amount
of any tax attributable to any amounts payable or shares deliverable under
the Plan after giving the person entitled to receive such payment or
delivery notice as far in advance as practicable, and the Corporation may
defer making payment or delivery as to any benefit if any such tax is
payable until indemnified to its satisfaction. With respect to withholding
required upon the exercise of options or SARs, upon the lapse of
restrictions on Restricted Stock or Stock Units, or upon the achievement of
performance goals related to Performance Awards and Other Equity Awards,
participants may elect, subject to approval of the Committee, to satisfy the
withholding requirement, in whole or in part, by having the Corporation
withhold shares having a fair market value on the date the tax is to be
determined equal to the required withholding. All such elections shall be
subject to such restrictions or limitations that the Committee, in its sole
discretion, deems appropriate.
19. BENEFICIARY. A participant may designate one or more persons
(concurrently, contingently or successively) to whom Restricted Stock,
Performance Awards, Stock Units or Other Equity 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
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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.
20. 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.
21. DURATION, INTERPRETATION, AMENDMENT AND TERMINATION. No benefit
shall be granted more than five 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. Without the prior
approval of the Corporation's stockholders, the Corporation will not effect
a "repricing" (as such term is defined in Section 303A.08 of the New York
Stock Exchange Rules) of any stock option or other benefit granted under the
terms of 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 shall reduce the amount of any existing award 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.
22. CHANGE IN CONTROL OF THE CORPORATION. Notwithstanding any other
provision of this Plan to the contrary and subject to the requirements of
Code Section 409A when applicable to an award, the provisions of this
Section 22 shall apply in the event of a Change in Control, unless otherwise
determined by the Committee in connection with the grant of an award as
reflected in the applicable award agreement.
Upon a Change in Control, except to the extent that another award
meeting the requirements of Section 22(a) (a "Replacement Award") is
provided to the participant to replace such award (the "Replaced Award"),
all then-outstanding options and SARs shall become fully vested and
exercisable, and all other then-outstanding awards whose exercisability
depends merely on the satisfaction of a service obligation by a participant
to the Corporation or Subsidiary shall vest in full and be free of
restrictions related to the vesting of such awards. The treatment of any
other awards shall be as determined by the Committee in connection with the
grant thereof, as reflected in the applicable award agreement.
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Except to the extent that a Replacement Award is provided to the
participant, the Committee may, in its sole discretion, (i) determine that
any or all outstanding awards granted under the Plan, whether or not
exercisable, will be canceled and terminated and that in connection with
such cancellation and termination the holder of such award may receive for
each share subject to such awards a cash payment (or the delivery of stock,
other securities or a combination of cash, stock and securities equivalent
to such cash payment) equal to the difference, if any, between the
consideration received by stockholders of the Corporation in respect of a
share in connection with such transaction and the purchase price per share,
if any, under the award multiplied by the number of shares subject to such
award; provided that if such product is zero or less or to the extent that
the award is not then exercisable, the awards will be canceled and
terminated without payment therefore.
(a) An award shall meet the conditions of this Section
22(a) (and hence qualify as a Replacement Award) if: (i) it has a value at
least equal to the value of the Replaced Award as determined by the
Committee in its sole discretion; (ii) it relates to publicly traded equity
securities of the Corporation or its successor in the Change in Control or
another entity that is affiliated with the Corporation or its successor
following the Change in Control; and (iii) its other terms and conditions
are not less favorable to the participant than the terms and conditions of
the Replaced Award (including the provisions that would apply in the event
of a subsequent Change in Control). Without limiting the generality of the
foregoing, the Replacement Award may take the form of a continuation of the
Replaced Award if the requirements of the preceding sentence are satisfied.
The determination of whether the conditions of this Section 22(a) are
satisfied shall be made by the Committee, as constituted immediately before
the Change in Control, in its sole discretion.
(b) Upon a termination of employment or termination of
directorship of a participant, occurring in connection with or during the
period of two (2) years after such Change in Control, other than for cause
(as defined in an applicable award agreement or, if not defined in an award
agreement, as determined in the sole discretion of the Committee), (i) all
Replacement Awards held by the participant shall become fully vested and (if
applicable) exercisable and free of restrictions, and (ii) all options and
SARs held by the participant immediately before the termination of
employment or termination of directorship that the participant held as of
the date of the Change in Control or that constitute Replacement Awards
shall remain exercisable for not less than one (1) year following such
termination or until the expiration of the stated term of such option or
SAR, whichever period is shorter; provided, that if the applicable award
agreement provides for a longer period of exercisability, that provision
shall control.
(c) For purposes of this Plan, Change in Control shall
mean:
(i) The acquisition by any individual, entity or
group, or a Person (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of
ownership of thirty percent (30%) or more of either (a) the then outstanding
shares of common stock of the Corporation (the "Outstanding Corporation
Common Stock") or (b) the combined voting power of the then outstanding
voting securities of the Corporation entitled to vote generally in the
election of directors (the "Outstanding Corporation Voting Securities"); or
(ii) Individuals who, as of the date this Plan is
approved by the Corporation's stockholders, constitute the Board of
Directors of the Corporation (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to such date whose election, or
nomination for election, by the Corporation's stockholders was approved by a
vote of at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of the
Incumbent Board, but
B-7
excluding, as a member of the Incumbent Board, any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(iii) Approval by the stockholders of the
Corporation of a reorganization, merger or consolidation, in each case,
unless, following such reorganization, merger or consolidation, (a) more
than fifty percent (50%) of, respectively, the then outstanding shares of
common stock of the corporation resulting from such reorganization, merger
or consolidation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in the
election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Corporation Common Stock
and Outstanding Corporation Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same
proportions as their ownership, immediately prior to such reorganization,
merger or consolidation, of the Outstanding Corporation Common Stock and
Outstanding Corporation Voting Securities, as the case may be, (b) no Person
beneficially owns, directly or indirectly, thirty percent (30%) or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then outstanding voting securities of such corporation,
entitled to vote generally in the election of directors and (c) at least a
majority of the members of the board of directors of the corporation
resulting from such reorganization, merger or consolidation were members of
the Incumbent Board at the time of the execution of the initial agreement
providing for such reorganization, merger or consolidation;
(iv) Approval by the stockholders of the
Corporation of (a) a complete liquidation or dissolution of the Corporation
or (b) the sale or other disposition of all or substantially all of the
assets of the Corporation, other than to a corporation, with respect to
which following such sale or other disposition, (1) more than forty percent
(40%) of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Corporation Common Stock and
Outstanding Corporation Voting Securities immediately prior to such sale or
other disposition in substantially the same proportion as their ownership,
immediately prior to such sale or other disposition, of the Outstanding
Corporation Common Stock and Outstanding Corporation Voting Securities, as
the case may be, (2) no Person beneficially owns, directly or indirectly,
thirty percent (30%) or more of, respectively, the then outstanding shares
of common stock of such corporation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors and (3) at least a majority of the
members of the board of directors of such corporation were members of the
Incumbent Board at the time of the execution of the initial agreement or
action of the Board providing for such sale or other disposition of assets
of the Corporation.
23. STOCKHOLDER APPROVAL. The Plan was adopted by the Board of
Directors February 7, 2006, to be effective on approval of the Plan by the
stockholders of the Corporation.
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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 123456 C0123456789 12345
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A ELECTION OF DIRECTORS (FOR TERM EXPIRING IN 2007)
1. The Board of Directors has proposed and recommends a vote "FOR" the
following:
WITH- WITH- WITH-
FOR HOLD FOR HOLD FOR HOLD
01 - Colleen Conway-Welch, Ph.D. [ ] [ ] 04 - Harry E. Rich [ ] [ ] 07 - Larry Warren [ ] [ ]
02 - Anthony S. Piszel, CPA [ ] [ ] 05 - John H. Short, Ph.D. [ ] [ ] 08 - Theodore M. Wight [ ] [ ]
03 - Suzan L. Rayner, M.D. [ ] [ ] 06 - H. Edwin Trusheim [ ] [ ]
B APPROVAL OF THE 2006 EQUITY INCENTIVE PLAN
The Board of Directors has proposed and recommends a vote "FOR" the following:
FOR AGAINST ABSTAIN Please mark this box with an X if you plan to attend the
2. Approval of the RehabCare Group, Inc. 2006 [ ] [ ] [ ] Annual Meeting in person. [ ]
Equity Incentive Plan.
C RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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
The Board of Directors has proposed and recommends a vote "FOR" the determine in their sole discretion.
following:
3. Ratification of the appointment of KPMG LLP as FOR AGAINST ABSTAIN
RehabCare's independent registered public accounting [ ] [ ] [ ]
firm for the fiscal year ending December 31, 2006.
PLEASE REFER TO THE REVERSE SIDE FOR TELEPHONE AND INTERNET VOTING INSTRUCTIONS.
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
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- ------------------------------------------------------------------------
Signature 2 - Please keep signature within the box
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Date (mm/dd/yyyy)
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[ ] [ ] / [ ] [ ] / [ ] [ ] [ ] [ ]
- ------------------------------------------------------------------------
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PROXY - REHABCARE GROUP, INC. ESPP
- -------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby nominates, constitutes and appoints John H. Short,
Ph.D. and David B. Groce (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 2, 2006 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 2006 EQUITY INCENTIVE PLAN AND "FOR" THE RATIFICATION OF THE APPOINTMENT
OF KPMG, LLP AS REHABCARE'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006.
The undersigned acknowledges receipt of the 2005 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)
TELEPHONE AND INTERNET VOTING INSTRUCTIONS
YOU CAN VOTE BY TELEPHONE OR INTERNET! AVAILABLE 24 HOURS A DAY 7 DAYS A
WEEK!
Instead of mailing your proxy, you may choose one of the two voting methods
outlined below to vote your proxy.
[phone] TO VOTE USING THE TELEPHONE (WITHIN U.S. AND CANADA)
o Call toll free 1-800-652-VOTE (8683) in the United States or Canada any time
on a touch tone telephone. There is NO CHARGE to you for the call.
o Follow the simple instructions provided by the recorded message.
[mouse] TO VOTE USING THE INTERNET
o Go to the following web site:
WWW.COMPUTERSHARE.COM/EXPRESSVOTE
o Enter the information requested on your computer screen and follow the
simple instructions.
IF YOU VOTE BY TELEPHONE OR THE INTERNET, PLEASE DO NOT MAIL BACK THIS PROXY
CARD.
PROXIES SUBMITTED BY TELEPHONE OR THE INTERNET MUST BE RECEIVED BY 1:00
A.M., CENTRAL DAYLIGHT TIME ON MAY 2, 2006.
THANK YOU FOR VOTING
REHABCARE GROUP, INC.
[ ] Mark this box with an X if you have made
changes to your name or address details
above.
- --------------------------------------------------------------------------------
-------
ANNUAL MEETING PROXY CARD 123456 C0123456789 12345
------------- -------
- --------------------------------------------------------------------------------
A ELECTION OF DIRECTORS (FOR TERM EXPIRING IN 2007)
1. The Board of Directors has proposed and recommends a vote "FOR" the
following:
WITH- WITH- WITH-
FOR HOLD FOR HOLD FOR HOLD
01 - Colleen Conway-Welch, Ph.D. [ ] [ ] 04 - Harry E. Rich [ ] [ ] 07 - Larry Warren [ ] [ ]
02 - Anthony S. Piszel, CPA [ ] [ ] 05 - John H. Short, Ph.D. [ ] [ ] 08 - Theodore M. Wight [ ] [ ]
03 - Suzan L. Rayner, M.D. [ ] [ ] 06 - H. Edwin Trusheim [ ] [ ]
B APPROVAL OF THE 2006 EQUITY INCENTIVE PLAN
The Board of Directors has proposed and recommends a vote "FOR" the following:
FOR AGAINST ABSTAIN Please mark this box with an X if you plan to attend the
2. Approval of the RehabCare Group, Inc. 2006 [ ] [ ] [ ] Annual Meeting in person. [ ]
Equity Incentive Plan.
C RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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
The Board of Directors has proposed and recommends a vote "FOR" the determine in their sole discretion.
following:
3. Ratification of the appointment of KPMG LLP as FOR AGAINST ABSTAIN
RehabCare's independent registered public accounting [ ] [ ] [ ]
firm for the fiscal year ending December 31, 2006.
PLEASE REFER TO THE REVERSE SIDE FOR TELEPHONE AND INTERNET VOTING INSTRUCTIONS.
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 David B. Groce (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 2, 2006 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 2006 EQUITY INCENTIVE PLAN AND "FOR" THE RATIFICATION OF THE APPOINTMENT
OF KPMG, LLP AS REHABCARE'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006.
The undersigned acknowledges receipt of the 2005 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)
TELEPHONE AND INTERNET VOTING INSTRUCTIONS
YOU CAN VOTE BY TELEPHONE OR INTERNET! AVAILABLE 24 HOURS A DAY 7 DAYS A
WEEK!
Instead of mailing your proxy, you may choose one of the two voting methods
outlined below to vote your proxy.
[phone] TO VOTE USING THE TELEPHONE (WITHIN U.S. AND CANADA)
o Call toll free 1-800-652-VOTE (8683) in the United States or Canada any time
on a touch tone telephone. There is NO CHARGE to you for the call.
o Follow the simple instructions provided by the recorded message.
[mouse] TO VOTE USING THE INTERNET
o Go to the following web site:
WWW.COMPUTERSHARE.COM/EXPRESSVOTE
o Enter the information requested on your computer screen and follow the
simple instructions.
IF YOU VOTE BY TELEPHONE OR THE INTERNET, PLEASE DO NOT MAIL BACK THIS PROXY
CARD.
PROXIES SUBMITTED BY TELEPHONE OR THE INTERNET MUST BE RECEIVED BY 1:00
A.M., CENTRAL DAYLIGHT TIME ON MAY 2, 2006.
THANK YOU FOR VOTING
REHABCARE GROUP, INC.
- --------------------------------------------------------------------------------
ANNUAL MEETING PROXY CARD
- --------------------------------------------------------------------------------
A ELECTION OF DIRECTORS (FOR TERM EXPIRING IN 2007)
1. The Board of Directors has proposed and recommends a vote "FOR" the
following:
WITH- WITH- WITH-
FOR HOLD FOR HOLD FOR HOLD
01 - Colleen Conway-Welch, Ph.D. [ ] [ ] 04 - Harry E. Rich [ ] [ ] 07 - Larry Warren [ ] [ ]
02 - Anthony S. Piszel, CPA [ ] [ ] 05 - John H. Short, Ph.D. [ ] [ ] 08 - Theodore M. Wight [ ] [ ]
03 - Suzan L. Rayner, M.D. [ ] [ ] 06 - H. Edwin Trusheim [ ] [ ]
B APPROVAL OF THE 2006 EQUITY INCENTIVE PLAN
The Board of Directors has proposed and recommends a vote "FOR" the following:
FOR AGAINST ABSTAIN
2. Approval of the RehabCare Group, Inc. 2006 [ ] [ ] [ ]
Equity Incentive Plan.
C RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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
The Board of Directors has proposed and recommends a vote "FOR" the determine in their sole discretion.
following:
3. Ratification of the appointment of KPMG LLP as FOR AGAINST ABSTAIN
RehabCare's independent registered public accounting [ ] [ ] [ ]
firm for the fiscal year ending December 31, 2006.
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 David B. Groce (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 2, 2006 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 2006 EQUITY INCENTIVE PLAN AND "FOR" THE RATIFICATION OF THE APPOINTMENT
OF KPMG, LLP AS REHABCARE'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006.
The undersigned acknowledges receipt of the 2005 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 30 of the proxy statement contains a Performance Graph. The
information contained within the graph is presented in a tabular format
immediately following the graph.