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 ON
MAY 1, 2007
Dear Stockholder:
The officers and directors of RehabCare Group, Inc. (the "Company") cordially
invite you to attend the annual meeting of stockholders to be held at the
Pierre Laclede Center, Second Floor, 7733 Forsyth Boulevard, St. Louis,
Missouri 63105, on May 1, 2007, at 8:00 a.m., Central Daylight Savings Time,
for the following purposes:
1. To elect seven directors to hold office until the next annual
meeting or until their successors shall have been duly elected or
appointed and qualified;
2. To ratify the appointment of KPMG LLP as the Company's independent
registered accounting firm for the fiscal year ending December 31,
2007; and
3. To transact any and all other business that may properly come before
the annual meeting or any adjournment thereof.
The Board of Directors encourages you to vote FOR items 1 and 2. Only
stockholders of record at the close of business on March 5, 2007, are entitled
to notice of, and to vote at, the annual meeting or any adjournment thereof.
Your vote is important. You may vote by telephone, over the internet, or by
dating, signing and returning the enclosed proxy card in the envelope provided
so that your shares are represented. Voting by any other means will not affect
your right to vote in person should you later decide to attend the annual
meeting.
Sincerely,
David B. Groce,
Senior Vice President & General Counsel
March 27, 2007
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[RehabCare logo]
7733 FORSYTH BOULEVARD
SUITE 2300
ST. LOUIS, MISSOURI 63105
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 1, 2007
-----------------
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 1,
2007, 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 27, 2007.
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 seven
directors nominated by our board of directors in Proposal I and in favor of
the ratification of KPMG LLP as our independent registered public accounting
firm in Proposal II. 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 5, 2007, are entitled to notice of, and to vote at, the annual meeting.
On this date, there were 17,455,012 shares of our common stock, $0.01 par
value, outstanding, including 311,270 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 seven 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 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 5% or more of our common stock as of March 5, 2007:
NUMBER OF SHARES PERCENT OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK(1)
- ------------------------------------ ------------------ ---------------
Snow Capital Management, L.P.(2) 1,808,215 10.36%
2100 Georgetowne Drive, Suite 400
Sewickley, Pennsylvania 15143
Wells Fargo & Company(3) 1,390,140 7.96%
420 Montgomery Street
San Francisco, California 94104
FMR Corp.(4) 1,283,700 7.35%
82 Devonshire Street
Boston, Massachusetts 02109
Kennedy Capital Management, Inc.(5) 1,060,936 6.08%
10829 Olive Boulevard
St. Louis, Missouri 63141
Franklin Resources, Inc.(6) 983,196 5.63%
One Franklin Parkway
San Mateo, California 94403-1906
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Barclays Global Investors, NA(7) 919,906 5.27%
45 Fremont Street
San Francisco, California 94105
<FN>
- -----------------------
(1) The percentage calculations are based upon 17,455,012 shares of our
common stock outstanding on March 5, 2007, including 311,270 shares of
unvested restricted stock.
(2) The information provided is based on Amendment No. 3 to Schedule 13G,
dated February 5, 2007, filed by Snow Capital Management, L.P., an
investment adviser. Snow Capital Management, L.P. reported sole voting
power with respect to 1,762,305 shares and sole dispositive power with
respect to all 1,808,215 shares reported as beneficially owned.
(3) The information provided is based on Schedule 13G, dated January 24,
2007, filed by Wells Fargo & Company, a holding company, on behalf of
Wells Capital Management Incorporated, Wells Fargo Funds Management,
LLC, Peregrine Capital Management, Inc. and Wells Fargo Bank, National
Association. Wells Fargo & Company reported sole voting power with
respect to 1,313,865 shares and sole dispositive power with respect to
1,390,140 shares beneficially owned.
(4) The information provided is based on Amendment No. 14 to Schedule 13G,
dated February 14, 2007, filed jointly by FMR Corp., a holding company,
Edward C. Johnson 3rd, a principal stockholder and the chairman of FMR
Corp and Fidelity Management & Research Company, a wholly-owned
subsidiary of FMR Corp and an investment advisor. FMR Corp and Edward C.
Johnson 3rd reported voting power with respect to none of the shares
owned directly by the Fidelity Funds, which power resides with the
Funds' Boards of Trustees. Each of FMR Corp. and Edward C. Johnson 3rd
reported sole dispositive power with respect to all 1,283,700 shares
reported as beneficially owned.
(5) The information provided is based on Schedule 13G, dated February 13,
2007, filed by Kennedy Capital Management, Inc., an investment adviser.
Kennedy Capital Management, Inc. reported sole voting power with respect
to 1,041,951 shares reported as beneficially owned and sole dispositive
power with respect to all 1,060,936 shares reported as beneficially
owned.
(6) The information provided is based on Amendment No. 2 to Schedule 13G,
dated January 31, 2007, filed by Franklin Resources, Inc., a holding
company, Charles B. Johnson, a control person, and Rupert H. Johnson,
Jr., 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 613,796 of the shares reported as
beneficially owned. The reporting person reported that its subsidiary,
Franklin Advisers, Inc., an investment adviser, had sole voting power
with respect to 360,100 shares and dispositive power with respect to
369,400 of the shares reported as beneficially owned.
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(7) The information provided is based on Schedule 13G, dated January 31,
2007, filed by Barclays Global Investors, NA,, a bank, on behalf of
Barclays Global Fund Advisors, an investment advisor, Barclays Global
Investors, Ltd, a bank, Barclays Global Investors Japan Trust and
Banking Company Limited, a bank, and Barclays Global Investors Japan
Limited, an investment advisor. The reporting person reported that
Barclays Global Investors, NA, a bank, had sole voting power with
respect to 337,786 shares and sole dispositive power with respect to
388,676 shares. The reporting person reported that Barclays Global Fund
Advisors, an investment advisor, had sole voting and dispositive power
with respect to 520,256 shares. The reporting person reported that
Barclays Global Investors, Ltd, a bank, had sole voting and dispositive
power with respect to 10,974 shares. The reporting person reported that
Barclays Global Investors Japan Trust and Banking Company Limited, a
bank, and Barclays Global Investors Japan Limited, an investment
advisor, reported voting and dispositive power with respect to none of
the shares.
SECURITY OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of March 5, 2007, 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. 53,991 (4)
Anthony S. Piszel, CPA 20,000 (4)
Suzan L. Rayner, M.D. 20,000 (4)
Harry E. Rich 13,500 (4)
Larry Warren 20,000 (4)
Theodore M. Wight 110,030 (4)
John H. Short, Ph.D. 313,358 1.77%
Tom E. Davis 218,112 1.24%
Patricia M. Henry 123,402 (4)
Jay W. Shreiner 33,380 (4)
David B. Groce 23,640 (4)
All directors and executive officers
as a group (12 persons) 956,813 5.26%
<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 48,261, 15,000, 15,000, 7,500, 15,000, 94,730, 265,858,
177,892, 97,373, 7,500, 2,500 and 750,364 shares subject to stock options
owned by Dr. Conway-Welch, Mr. Piszel, Dr. Rayner, Mr. Rich, Mr. Warren,
Mr. Wight, Dr. Short, Mr. Davis, Ms. Henry, Mr. Shreiner, and Mr. Groce,
and all directors and executive officers as a group, respectively, that
are either presently exercisable or exercisable within 60 days of March
5, 2007. Includes 669 shares allocated to Ms. Henry under our 401(k)
plan. As to Mr. Davis, Ms. Henry, Mr. Shreiner, and Mr. Groce, the totals
also include 16,230, 16,760, 16,420, and 11,940, respectively, shares of
restricted stock granted to them on February 6, 2007.
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(3) Based upon 17,455,012 shares of our common stock outstanding as of March
5, 2007, 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 5, 2007.
(4) Less than one percent.
PROPOSAL I.
ELECTION OF DIRECTORS
At the annual meeting, our stockholders will vote on the
election of seven directors to serve a term of one year until the 2008 annual
meeting or until their successors shall have been duly elected and qualified.
The persons named as proxies on the accompanying proxy card
intend to vote all duly executed proxies received by our board of directors
for the election of the seven 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 seven 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. No family relationship exists between any of our directors or
executive officers.
COLLEEN CONWAY-WELCH, PH.D., R.N., 62, 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, 52, has been a director since
October 2005. Mr. Piszel has served, since November 2006, as Executive Vice
President and Chief Financial Officer of Freddie Mac, a publicly traded
company financier of home loans created by the U.S. Congress. Prior to joining
Freddie Mac, Mr. Piszel served between August 2004 and November 2006 as
Executive Vice President and Chief Financial Officer of HealthNet, Inc., a
large publicly traded managed health care company. For more than five years
prior to his employment with HealthNet, Mr. Piszel held several senior
management positions at Prudential Insurance Company of America, including
Senior Vice President and Controller for Prudential Financial, Inc.
SUZAN L. RAYNER, MD, MPH, 51, 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, 67, has been a director since February 2006,
and Chairman of the Board since August 1, 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.
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Rich served as Executive Vice President 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.
LARRY WARREN, 59, 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. Since
October 2006, Mr. Warren has been serving as the Interim Chief Executive
Officer of Howard University Hospital in Washington, D.C.
THEODORE M. WIGHT, 64, 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 of that
company for the purpose of marshalling and liquidating all of its assets.
JOHN H. SHORT, PH.D., 62, 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, for in excess of five years, Dr. Short was
the Managing Partner of Phase 2 Consulting, LLC, a management and economic
consulting firm for the healthcare industry.
BOARD OF DIRECTORS AND COMMITTEES
BOARD STRUCTURE AND MEETINGS
During the year ended December 31, 2006, our board of
directors held eight meetings, four 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 2006. 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,
Mr. Rich, 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 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
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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. Warren and Mr.
Wight satisfy the New York Stock Exchange's independence requirements and our
independence guidelines. In making the independence determinations, the board
of directors reviewed all of our directors' relationships with the Company
including 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 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;
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
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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. Piszel (Chair), Rich and Wight comprise the Audit
Committee. The Audit Committee met ten times during 2006. Six of the meetings
were conducted by telephone. Mr. Piszel and Mr. Rich joined the Audit
Committee upon their election to the board in October 2005 and February 2006,
respectively. Mr. Wight joined the Audit Committee in August 2006. Our former
director, William G. Anderson, and our current director, Dr. Conway-Welch,
also served on the Audit Committee during 2006. The duties of the Audit
Committee include but are not limited to:
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 auditors 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 auditors' report and the performance of the
independent auditors throughout the year.
Each member of the Audit Committee meets the independence
requirements of the New York Stock Exchange. Each member of our Audit
Committee is financially literate, knowledgeable and qualified to review
financial statements. Our board has designated Anthony S. Piszel as our "audit
committee financial expert."
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COMPENSATION AND NOMINATING/CORPORATE GOVERNANCE COMMITTEE
The members of the Compensation and Nominating/Corporate
Governance Committee are Messrs. Wight (Chair), Rich, and Warren. Mr. Rich
joined the committee in February 2006 when he joined the board. Our former
director, Mr. Trusheim, also served on the committee during 2006. 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 five times during 2006. Two of
the meetings were conducted by telephone. The duties of the Compensation and
Nominating/Corporate Governance Committee include but are not limited to:
o reviewing and approving our company's compensation philosophy,
compensation programs, including base salary, annual and long-term
incentives, employment agreements, change in control agreements,
severance agreements, and other benefits and perquisites;
o reviewing and approving our company's comparator compensation group
used for purposes of benchmarking the compensation levels of the CEO
and other executive officers;
o reviewing market data to assess the competitiveness of our
compensation programs for the CEO and other executive officers;
o reviewing and determining our CEO's compensation, including base
salary and long and short-term incentives, based on its evaluation
of our CEO's performance and taking into account our company's
performance, relative shareholder return, and market and benchmark
data;
o reviewing and determining the short-term and long-term goals and
objectives of our compensation programs;
o reviewing and approving or modifying our CEO's recommendations
regarding base salary, short-term and long-term incentives, and
other components of compensation to other executive officers;
o reviewing and recommending to our board of directors policies
concerning compensation, both cash and equity, payable to directors
based on, among other things, the needs of the Company, the skills
and experience of the directors, the need to recruit and retain new
directors, and benchmark and market data;
o reviewing and approving or rejecting proposed transactions between
our company and related parties in terms of the fairness,
reasonableness, and avoidance of appearance of impropriety or
conflict of interest relative to such proposed transactions;
o overseeing the search for qualified individuals to be nominated to
the board of directors and recommending such individuals to the
board;
o reviewing and recommending changes to the committee structure of the
board, including the memberships of the committees; and
o developing, recommending and reviewing all corporate governance
guidelines.
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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.
COMPLIANCE COMMITTEE
The Compliance Committee members are Dr. Conway-Welch
(Chair), Dr. Rayner, and Mr. Warren. Mr. Warren joined the Compliance
Committee in October 2006. Our former director, Mr. Anderson, also served on
the Compliance Committee during 2006. The Compliance Committee oversees our
compliance program and, among other things, is responsible for:
o reviewing and making recommendations as to our compliance
policies and procedures;
o reviewing our processes for receiving, retaining, and
appropriately dealing with compliance-related allegations
and reports to help ensure the prompt initiation of
corrective measures;
o overseeing the performance of our Chief Compliance Officer
in terms of the management of the compliance program and
its various activities and objectives;
o reviewing the results of periodic compliance audits and
other monitoring procedures to help assure the integrity
of our policies, procedures, and control systems; and
o making recommendations to our executive management as the
Compliance Committee deems necessary to further the goals
of the compliance program.
The Compliance Committee held four meetings during 2006, two of which were
telephonic meetings.
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: Harry Rich, 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.
11
EXECUTIVE COMPENSATION
- -------------------------------------------------------------------------------
COMPENSATION AND NOMINATING/CORPORATE GOVERNANCE COMMITTEE REPORT
-----------------------------------------------------------------
The Compensation and Nominating/Corporate Governance Committee (the
"Committee") met with management to review and discuss the following
Compensation Discussion and Analysis. Based on such review and discussion, the
Committee recommended to the Company's Board of Directors that the
Compensation Discussion and Analysis be included in this proxy statement.
The Committee:
-------------
Theodore M. Wight (Chairman), Harry E. Rich, Larry Warren
- -------------------------------------------------------------------------------
COMPENSATION DISCUSSION AND ANALYSIS
Throughout this proxy statement, the following employees are
referred to as named executive officers for 2006:
o John Short President & Chief Executive Officer
o Jay Shreiner Senior Vice President & Chief Financial Officer
o Patricia Henry Executive Vice President
o Tom Davis Executive Vice President
o David Groce Senior Vice President & General Counsel
o Mark Bogovich Interim Chief Financial Officer
(Mr. Bogovich resigned from the Company in
February 2006)
The Committee has oversight responsibility for our
compensation program. The compensation program is intended to provide fair,
reasonable, and competitive compensation to the named executive officers,
other corporate officers, and our employees generally. The following
discussion provides detailed information regarding the compensation objectives
and policies for our named executive officers and should be read in
conjunction with the compensation tables and related narratives also contained
in this proxy statement.
COMPENSATION PHILOSOPHY AND OVERVIEW
The compensation program for our named executive officers
has been developed under the direction of the Committee to align the interests
of our named executive officers with the interests of our stockholders. The
Committee believes that compensation of the named executive officers should
include both cash and stock-based compensation that focuses performance on
established goals. The Committee's aim is to provide a competitive
compensation program that will attract, retain, and reward executives who can
assist the Company in achieving its business objectives of continued
profitable growth and delivery of high quality services in an ever-changing
and highly fragmented healthcare services industry. The compensation program
for our named executive officers consists of base salary, short-term
incentives, long-term incentives, tax deferred retirement savings, and various
health and welfare benefit
12
plans. Our named executive officers may, under certain circumstances, be
entitled to additional compensation in the event of severance or a change in
control of the Company.
In designing the compensation program, the Committee uses
benchmarked data for each individual component of compensation (base salary,
annual incentive, long-term incentive, severance, and change in control
compensation) as an important factor considered in decisions as to the amount
of each component to pay or make available to named executive officers. The
Committee has independently engaged its own advisor, Frederic W. Cook & Co,
Inc., with whom the Committee consults from time to time on matters pertaining
to executive compensation, retention, and incentives. Decisions are based on
factors such as market data provided by outside consultants, and the
performance, experience, leadership skills, and specific responsibilities of
each named executive officer. The Committee recognizes that in order to
attract and retain certain executives, other factors such as competition and
geographical location may also be considered in given situations.
The Committee desires total executive compensation with
fixed and performance-based (short-term and long-term) components where
approximately 75% is cash and 25% is equity. This approach seeks to minimize
equity accounting expense and shareholder dilution.
No member of the Committee has ever been employed by the
Company and no named executive officer of the Company has ever served on the
board of directors or compensation committee of any other company which
includes a member of our board of directors.
ROLE OF EXECUTIVE OFFICERS
Each year, the CEO reviews the performance of named
executive officers (other than the CEO himself who is reviewed by the
Committee) and makes recommendations to the Committee regarding salary
adjustments and annual cash and stock-based award amounts. The CEO, with
assistance from the Senior Vice President, Human Resources and the Chief
Financial Officer, also makes recommendations to the Committee regarding
annual performance measures, goals, and targets. We have engaged Hewitt
Associates, LLC as our independent advisor on matters pertaining to executive
compensation, retention, and incentives. The Committee may, in its discretion,
adjust any recommendations made by the CEO.
The CFO verifies the actual business performance results
against the goals of the Committee-approved incentive programs and, in turn,
the CEO, makes recommendations to the Committee on award payouts for the named
executive officers. Our Human Resources Department monitors the effectiveness
of the executive compensation program in meeting its overall objectives by
periodically reviewing market and benchmark data to assess the competitiveness
of the program. All of this information is provided to and reviewed in detail
with the Committee.
DISCUSSION OF 2006 EXECUTIVE COMPENSATION PROGRAM
In the fourth quarter of 2005, we faced certain recruitment
and retention challenges, changes in our business portfolio, and a variety of
complex external forces that bore on the Company's operations. In light of
these dynamics and the organizational quest for profitable growth and quality,
the Committee conducted a review of our executive compensation plans.
The Committee reviewed executive compensation against two
comparator groups and sources of data. Two groups were utilized because no
other public company exactly resembles our company in terms of operational
focus, size, and geographical coverage. The first comparator group
13
consisted of eighteen select, publicly held healthcare service companies with
similar industry focus and size as our company. Named executive officer
compensation information (base salary, annual incentive and long-term
incentive data) was gathered from the proxy statements of those companies,
which are listed below:
Alliance Imaging, Inc Hooper Holmes, Inc.
Allied Healthcare Products, Inc. Horizon Healthcare Services, Inc.
AMN Healthcare Services, Inc. Labone, Inc.
Cross Country Healthcare, Inc. Matria Healthcare, Inc.
Dendrite International, Inc. NDC Health Corporation
Eclipsys Corporation Option Care, Inc.
Gentiva Health Services, Inc. Per-Se Technologies, Inc.
Healthextras, Inc. Rotech Healthcare, Inc.
Trizetto Group, Inc. Ventiv Health, Inc.
The second comparator group consisted of one hundred
and ten companies that participate in Hewitt Associates' proprietary
Total Compensation Measurement(TM) database. This group included a mix of
- ------------------------------
public and private companies from several industry sectors (service, light
manufacturing, and healthcare) with revenue, earnings, and market
capitalization comparable to us. The median annual revenue for this group was
$1.3 billion, while revenue ranged between $116 million to $3 billion. The data
results were statistically regressed to reflect an organization comparable to
the Company. Using this group of companies, total compensation information
(base salary, target annual incentive, target total cash, long-term incentive,
and target total compensation) was derived for four of the named executive
officer positions.
After reviewing the comparator group data, the Committee
authorized the following elements of executive compensation for named
executive officers in 2006:
o Base Salary
o Short-Term Incentive
o Long-Term Incentive
o Severance
o Change-In-Control Compensation
o Key Management Physical Exam
The details of each of these components are discussed further below.
BASE SALARY
The Committee considers market data, the executive's
qualifications and experience and industry knowledge, leadership and teamwork
skills, and scope of responsibilities as factors in establishing base salaries
for each named executive officer. Occasionally, the Committee may consider
other factors such as competition and geographical location. Market data at
the 50th percentile of the comparator groups is reviewed at least bi-annually
to ensure that base salaries remain competitive. The 2005 review indicated
that, generally, our named executive officers receive a fair, reasonable, and
competitive base salary as compared with executive officers in the comparator
groups.
14
The yearly base salary change for each named executive
officer is determined after considering his or her duties and
responsibilities, position relative to the market, the established merit
budget increase for the year, and each executive's achievement of the prior
year's business objectives. Performance reviews are typically completed in the
first two months of each calendar year, with base salary adjustments effective
as of March 1.
Based on the Committee's assessment of performance in 2005,
the Committee approved salary increases of 4% for Dr. Short and Mr. Davis in
2006. Ms. Henry's salary was increased 12.2% after the Committee assessed the
scope of her expanded responsibilities, her experience, her performance, and
her leadership skills. Mr. Bogovich, who resigned from the Company in February
2006, did not receive a base salary adjustment. Mr. Groce's salary was
increased 9.1% on December 1, 2006, his first employment anniversary date,
after consideration of his performance and benchmark data for his position.
Mr. Shreiner was hired in March 2006 and his base salary was not reviewed or
adjusted during 2006.
ANNUAL INCENTIVE COMPENSATION OR STIP
The Committee has established an annual incentive plan which
our company refers to as the Short-Term Incentive Plan or STIP. The STIP is
designed to establish a link between our business results and executive cash
awards; to drive performance and accountability; to provide competitive cash
award opportunities; and to reward above-average performance with
above-average total cash compensation. All named executive officers are
eligible to participate in the STIP. A group of other employees are also
eligible for STIP awards.
Award opportunities are weighted 80% on specified corporate
financial objectives and 20% on individual goals, which are tied to the
executive's business unit or functional area. The individual component by
design provides for a discretionary award opportunity and is measured on such
factors as providing executive leadership, managing within established budgets
and, for certain positions, achieving margin objectives or managing our
capital structure.
Each year the Committee selects financial performance
measures and specific targets for our incentive plans. These goals are based
on our strategic direction and plan. In the past, the Committee has set
double-digit year-over-year growth objectives in both revenues and earnings
per share. The Committee has and will consider the specific circumstances
facing us during any coming year, including competition, general economic
trends, and regulatory influences bearing on our performance. The amount of
any award depends on whether we perform better, at, or worse than the target.
We must achieve at least 85% of the target for any award associated with that
target to be paid. For fiscal 2006, the 80% financial objective was allocated
as follows: 48% was based on an adjusted earnings per share target of $1.206,
and 32% was based on an adjusted revenue target of $634 million. These goals
include revisions made during the year to reflect the impact of certain
acquisitions completed by us during the year. Prior to adjustment for the
impact of the acquisitions, the targets were $1.42 adjusted earnings per share
and $515.6 million in revenues. The original earnings per share target was set
after adjustment for the impact of certain non-operating and non-recurring
items.
The Committee chose earnings per share and revenue as the
financial performance targets because it believes those measures are the most
important measures of growth and profitability, and create greatest alignment
with the interests of our shareholders. Earnings per share is the portion of
our net income allocated to each weighted average diluted share. Weighted
average diluted shares are computed by determining the number of weighted
average common shares outstanding and adding common stock equivalents for
outstanding dilutive stock options and restricted shares. Revenue is the
amount of money that is earned by our business activities and is represented
by the operating revenue figure on our income statement.
15
In 2004, we exceeded the minimum payout threshold for both
revenue and earnings per share. In 2005 and 2006, we exceeded the minimum
payout threshold for revenue but not for earnings per share.
Each named executive officer could earn a target bonus based
on a percentage of his or her salary. The percentage varied depending on his
or her position as follows: 45% of base salary for Messrs. Davis, Shreiner,
and Groce; 50% of base salary for Ms. Henry; and 60% of base salary for Dr.
Short. (Mr. Bogovich's target was 45% but he became ineligible for an STIP
bonus for 2006 when he resigned in February 2006.) The percentage of salary is
determined in part based on market data and in part based on internal equity
considerations. The exact amount earned by each named executive officer is
determined by applying the achieved weighted performance factors to the
individual's targeted percentage of salary.
For 2006, we did not achieve 85% of the earnings per share
target and, as a result, no award has been approved based on that factor. We
achieved 97.0% of the revenue target and, coupled with the attainment of
individual performance goals for each named executive officer, the Committee
approved the following cash awards: Dr. Short, $151,044. Mr. Shreiner, $53,940
(pro rated for a partial year); Mr. Davis, $69,757; Ms. Henry, $80,000; and
Mr. Groce, $51,322. The cash awards will be paid in April 2007.
LONG-TERM INCENTIVE PLAN OR LTIP
TOTAL AWARD OPPORTUNITY
In order to motivate executives to focus on our long-term
performance and to tie executive compensation to increases in stockholder
value, the Committee has established a long-term incentive program, or LTIP.
In the past, the LTIP primarily consisted of grants of stock options that
vested over a period of years. In 2004, the Committee modified the program to
include discretionary annual grants of stock options and a new cash component
using a three-year performance cycle. At the same time, the number of options
granted were gradually reduced to minimize the potential impact on shareholder
dilution and the eventual planned adoption of SFAS 123R, which occurred on
January 1, 2006.
In 2005, the LTIP included a cash component using a three
year performance cycle, time-based options that would vest over a period of
years, and performance-based options that would vest on the achievement of
certain defined financial objectives.
In 2006, the Committee decided to discontinue annual stock
option grants (both time-vested and performance-based), and it replaced the
equity portion of the LTIP with restricted stock. A new cash component
incentive plan (2006-2008 cycle) was also approved. The Committee believes
this combination provides a stronger retention incentive and keeps senior
executives focused on achieving our strategic objectives.
Each year, the Committee determines the target total LTIP
award for each named executive officer based on a combination of that
executive's contribution to our results, internal fairness considerations, and
external market competitiveness. The total award opportunity, expressed as a
percentage of base salary, varies by position, and the mix of award components
(cash and equity), also varies by position.
16
For 2006-2008 cycle, the total LTIP opportunity for each
named executive officer is noted below:
========================================================================================================
% OF TOTAL IN CASH % OF TOTAL IN
TOTAL LTIP AWARD TARGET AS A INCENTIVE PLAN EQUITY
NEO % OF BASE SALARY (2006-2008 CYCLE) (RESTRICTED STOCK)
- --------------------------------------------------------------------------------------------------------
CEO-- Short 75% 100% 0%
- --------------------------------------------------------------------------------------------------------
CFO-- Shreiner 100% 25% 75%
- --------------------------------------------------------------------------------------------------------
EVP-- Davis 100% 25% 75%
- --------------------------------------------------------------------------------------------------------
EVP-- Henry 125% 40% 60%
- --------------------------------------------------------------------------------------------------------
SVP/GC-- Groce 75% 33% 67%
- --------------------------------------------------------------------------------------------------------
Dr. Short's entire award target is a cash opportunity of 75%
of base salary because, in accordance with his employment agreement dated May
3, 2004 (and amended effective March 10, 2006), he is not eligible for an
equity grant until 2008. (Dr. Short was granted an option to purchase 250,000
shares of our common stock at market price on the date of grant, May 3, 2004,
when he became CEO.)
CASH INCENTIVE PLAN
For the cash-based portion of each annual LTIP award, the
Committee selects financial performance measures and specific thresholds,
targets, and maximum goals which we need to achieve during the three-year
performance period. Payouts are made at the end of the cycle. For each of the
cycles, if the threshold or minimum goal is achieved, 30% of the targeted
payout will occur. If the targeted goal is achieved, 100% will be paid. If the
maximum goal is achieved, 175% of the target will be paid.
For the 2004-2006 cycle which just ended, threshold, target,
and maximum financial goals were established based on a 20% compound annual
growth rate in earnings per share and revenue over the three-year period. The
short-term incentive plan utilized the same measures to reinforce the
strategy. Sixty percent of the performance award was weighted on the earnings
per share factor and 40% on the revenue factor. For the 2004-2006 performance
cycle, the threshold, target, and maximum goals were as follows:
2004-2006 PERFORMANCE CYCLE
============================================================================
GOALS ACTUAL
---------------------------------------- PERFORMANCE
THRESHOLD TARGET MAXIMUM ACHIEVED
- ----------------------------------------------------------------------------
EPS (60%) $1.503 $1.800 $2.159 $0.422
- ----------------------------------------------------------------------------
REVENUE (40%) $457M $547M $604M $614.793M
- ----------------------------------------------------------------------------
While the earnings per share performance was below
threshold, the revenue goal maximum was exceeded, resulting in a payout of
175% of target for the revenue portion. For the entire plan, participants
earned 70% percent of their target awards. Named executive officers earned the
following amounts: Dr. Short, $183,750; Mr. Davis, $52,780; and Ms. Henry,
$44,520. These amounts will be paid in March 2007. None of our other current
named executive officers were employed by our company at the beginning of the
cycle.
17
For the 2005-2007 cycle, which will pay out in March 2008,
the threshold, target, and maximum financial goals are as follows:
2005-2007 PERFORMANCE CYCLE
==========================================================================
GOALS
-----------------------------------------------
THRESHOLD TARGET MAXIMUM
- --------------------------------------------------------------------------
EPS (60%) $1.987 $2.379 $2.854
- --------------------------------------------------------------------------
REVENUE (40%) $530M $634M $700M
- --------------------------------------------------------------------------
For the 2006-2008 cycle, which will pay out in March 2009,
the threshold, target and maximum financial goals are as follows:
2006-2008 PERFORMANCE CYCLE
==========================================================================
GOALS
-------------------------------------------------
THRESHOLD TARGET MAXIMUM
- --------------------------------------------------------------------------
EPS (48%) $1.190 $1.494 $1.797
- --------------------------------------------------------------------------
REVENUE (32%) $550.3M $690.9M $761.7M
- --------------------------------------------------------------------------
PERSONAL OBJECTIVES (20%) 1% 100% 100%
- --------------------------------------------------------------------------
In the 2006-2008 cycle, cumulative performance of individual
objectives are included in addition to the financial goals noted above. These
objectives, similar to the short-term incentive plan, are weighted at 20% of
the total cash award opportunity. Named executive officers can earn between 0%
and 120% of their base salary depending on our actual performance and the
respective payout opportunities of each of the named executive officers.
EQUITY PLAN
Although stock options are no longer granted as part of the
LTIP, the Committee has given the CEO discretionary authority to grant
newly-hired executives stock options to purchase up to 10,000 shares of common
stock in keeping with the provisions of the Company's 2006 Equity Incentive
Plan. Each such grant will have an exercise price equal to the closing price
of the Company's shares on the date of grant. Such grants have a term of 10
years. The stock options vest at a rate of 25 percent per year over four
years. The Committee has also given the CEO the alternative discretionary
authority to grant newly-hired executives up to 5,000 shares of restricted
stock.
During 2006, the Committee granted 30,000 stock options at
$19.11 per share to Mr. Shreiner with a grant date of March 27, 2006, his date
of hire.
Beginning in 2006, the Committee began granting restricted
stock on a three year cliff vesting schedule. The Committee believes that
cliff vested awards are more effective in retaining executives. Equity grants
are typically approved at the Committee's February meeting with the grant date
being the board's approval date. Awards are based on individual performance,
company performance, and the base salary of each executive.
18
The Committee has never granted stock options with exercise
prices that are less than the closing price of the Company's stock on the
grant dates, nor has it granted equity-based awards which are priced on a date
other than the grant date.
Vesting rights cease upon termination of employment except
in the case of death, disability or retirement. Vested options may be
exercised within 90 days after termination of employment or within 2 years
after retirement, death or disability.
RETIREMENT PLANS
The named executive officers participate in a 401(k) savings
plan which is made available to all employees on the same terms and
conditions. The plan is a tax-qualified retirement savings plan under which
the named executive officers, like all employees, can contribute on a pre-tax
basis up to certain limits established by the Internal Revenue Service. We
match 50%, up to the first 4%, of the employee's contribution. Our matching
contributions are vested after one year of service. Each participant in the
plan can choose from a range of investments offered by Schwab Managed
Retirement Trust Funds.
DEFERRED COMPENSATION PLAN
The Company has a voluntary nonqualified deferred
compensation program under which the named executive officers and other key
executives may defer up to 70% of their annual base salary and up to 70% of
their annual and long-term cash-based incentive awards. In addition, if any
contributions are made to the qualified 401(k) savings plan that exceed the
limitations established by the Internal Revenue Service, participants may have
the excess deferred under the nonqualified deferred compensation plan. This
plan is discussed in more detail under the narrative for the Nonqualified
Deferred Compensation table.
In 2006, Mr. Davis was the only named executive officer who
participated in the plan.
OTHER BENEFITS
Named executive officers and other senior executives are
covered by the same health, life, and disability plans as our other employees
generally. In addition, named executive officers are entitled to reimbursement
for a comprehensive annual executive physical. To help them defray the cost of
moving to their place of work, newly recruited out of town executives, like
other employees, may be eligible for a pre-tax relocation benefit of between
$25,000 and $100,000, depending on their positions in the Company and the
anticipated actual cost to them of relocating. Our relocation policy requires
that the relocation benefit be repaid on a sliding scale of between 100% and
33% by the executive if the executive voluntarily resigns within three years
of commencement of employment.
PERQUISITES
We do not provide named executive officers, or other
employees, with any perquisites (other than, in the case of certain senior
executives, the annual executive physical). Mr. Davis receives a car allowance
of $7,302 as a part of his original employment terms.
19
SEVERANCE AND CHANGE IN CONTROL COMPENSATION ARRANGEMENTS
During 2006, we entered into new executive severance and
change-in-control agreements with a limited number of executives including the
named executive officers. The Committee believes that such arrangements are
essential to ensure that we have a competent executive team in place through
periods of uncertainty and potential strategic change, and that such
arrangements provide needed continuity and successful operation of our
business. Through these arrangements, the Committee also sought to provide an
incentive to newly recruited senior executives who, otherwise, would not join
the organization without them.
The agreement with our CEO, Dr. Short, provides that upon
termination of his employment by the Company without cause, or termination by
Dr. Short for good reason (such as a material change in salary,
responsibilities and authority, or place of work), severance benefits will
include: 24 months of salary continuation, payment of his STIP award at target
for the year of termination, vesting of any outstanding equity awards, and 24
months of continued health benefits. For termination upon or following a
change in control, Dr. Short will receive a lump-sum payment of 2.99 times his
then current annual base pay plus a prorated portion of his target bonus for
the 5-year period prior to the year of termination, vesting of all outstanding
equity awards, 24 months of continued health benefits, and 12 months of
outplacement services.
The agreements for Mr. Shreiner, Mr. Davis, Ms. Henry, and
Mr. Groce provide that, upon termination by the Company without cause, or
termination by one of those executives for good reason (such as a material
change in salary, responsibilities and authority, or place of work), severance
benefits will include 12 months of salary continuation, payment of the STIP
award at target for the year of termination, and 12 months of continued health
benefits. For termination upon a change in control, they will receive a
lump-sum payment of 1.5 times their then current annual base salary plus a
STIP award at target for the year of termination, vesting all outstanding
equity awards, 12 months of continued health benefits, and 12 months of
outplacement services.
All of the named executive officers are also entitled to
gross-up payments for any excise tax incurred by them under Section 280G of
the Internal Revenue Code in connection with any severance or change in
control compensation.
These agreements are described in more detail under the
section entitled Potential Payments upon Termination or Change in Control.
EXECUTIVE STOCK OWNERSHIP GUIDELINES
We do not currently have a policy requiring named executive
officers to own defined minimum levels of Company stock. The Committee intends
to reconsider establishing such a requirement during its meetings in 2007.
COMPENSATION RECOVERY
The Company is subject to the provisions of Section 304 of
the Sarbanes-Oxley Act of 2002 concerning executive disgorgement of certain
compensation and profits in the event the Company's financial statements would
have to be restated as a result of misconduct. The Company does not maintain
any other policy on disgorgement.
20
SUMMARY COMPENSATION TABLE
The table below summarizes the total compensation paid to
each of the named executive officers for the fiscal year ended December 31,
2006.
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------------
CHANGE IN
PENSION VALUE
AND
NON-EQUITY NONQUALIFIED
INCENTIVE DEFERRED
STOCK OPTION PLAN COMPENSATION ALL OTHER
YEAR SALARY BONUS AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL
($) (1) ($) ($) (2) ($) (3) ($) (4) ($) ($) (5) ($)
- ---------------------------------------------------------------------------------------------------------------------
JOHN SHORT, 2006 $573,813 $334,950 $334,794 $4,629 $1,248,186
CEO
- ---------------------------------------------------------------------------------------------------------------------
JAY SHREINER, 2006 $240,096 $46,151 $44,691 $53,940 $1,100 $385,978
CFO
- ---------------------------------------------------------------------------------------------------------------------
MARK BOGOVICH, 2006 $52,654 $1,646 $54,300
INTERIM CFO
- ---------------------------------------------------------------------------------------------------------------------
TOM DAVIS, 2006 $323,597 $50,723 $70,281 $122,537 $11,707 $578,845
EXECUTIVE VP
- ---------------------------------------------------------------------------------------------------------------------
PATRICIA 2006 $329,054 $48,515 $64,287 $124,520 $6,729 $573,105
HENRY,
EXECUTIVE VP
- ---------------------------------------------------------------------------------------------------------------------
DAVID GROCE, 2006 $220,833 $23,701 $38,188 $51,322 $3,667 $337,711
SENIOR VP
- ---------------------------------------------------------------------------------------------------------------------
<FN>
(1) The amounts shown above reflect actual amounts received or deferred
during 2006. Mr. Shreiner became employed by the Company on March 27,
2006. Mr. Bogovich voluntarily resigned from the Company effective
February 10, 2006; $24,548 of his salary reflects a payout for his
accrued but unused paid days off.
(2) Reflects the costs recognized for financial statement reporting purposes
for the fiscal year ended December 31, 2006 in accordance with FAS
123(R), excluding estimated forfeitures. Costs may include amounts from
awards granted prior to 2006. Assumptions used in the calculation of
these amounts are included in Note 2 to our audited financial statements
for the fiscal year ended December 31, 2006 included in the Company's
Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March 14, 2007.
(3) Reflects the costs recognized for financial statement reporting purposes
for the fiscal year ended December 31, 2006 in accordance with FAS
123(R), excluding estimated forfeitures. Costs may include amounts from
awards granted prior to 2006. Mr. Bogovich forfeited options to purchase
12,410 shares when he resigned on February 10, 2006.
(4) Amounts in this column reflect the cash awards to the named executive
officers under the short-term incentive plan (STIP) and the long-term
incentive plan (LTIP) which are discussed in the Compensation Discussion
and Analysis, and in the narrative to the Grant of Plan-Based Awards
Table.
Name Short-Term Incentive Award Long-Term Incentive Award (2004 -2006 plan)
- ---- -------------------------- -------------------------------------------
John Short $151,044 $183,750
Jay Shreiner $ 53,940 N/A
Mark Bogovich N/A N/A
Tom Davis $ 69,757 $52,780
Patricia Henry $ 80,000 $44,520
David Groce $ 51,322 N/A
Mr. Davis deferred $42,176 of his 2006 STIP award.
(5) The amount included represents Company matching contributions under the
401(K) savings plan. Mr. Davis also received a car allowance of $7,302
and Ms. Henry was reimbursed $2,321 for personal travel expenses during
the first two months of 2006.
21
The following table sets forth information concerning grants
of plan-based awards earned for the fiscal year ended December 31, 2006 for
the named executive officers:
GRANTS OF PLAN-BASED AWARDS
- ----------------------------------------------------------------------------------------------------------------------------------
ESTIMATED FUTURE PAYOUTS ESTIMATED FUTURE PAYOUTS
UNDER NON-EQUITY INCENTIVE UNDER EQUITY INCENTIVE
PLAN AWARDS PLAN AWARDS
--------------------------- -------------------------
ALL OTHER ALL OTHER
STOCK OPTION
AWARDS: AWARDS:
NUMBER OF NUMBER OF EXERCISE OR
SHARES OF SECURITIES BASE PRICE GRANT DATE
STOCK OR UNDERLYING OF OPTION FAIR VALUE
NAME GRANT DATE THRESHOLD TARGET MAXIMUM THRESHOLD TARGET MAXIMUM UNITS OPTIONS AWARDS OF EQUITY
($) ($) (1) ($) (#) (#) (#) (#) (2) (#) (3) ($/SH) AWARDS
- ----------------------------------------------------------------------------------------------------------------------------------
2/7/2006 (STIP) $83,991 $347,069 $624,724
JOHN SHORT -----------------------------------------------------------------------------------------------------------------------
2/7/2006 (LTIP) $100,950 $417,150 $667,440
- ----------------------------------------------------------------------------------------------------------------------------------
3/27/2006 (STIP) $27,470 $113,511 $204,320
-----------------------------------------------------------------------------------------------------------------------
JAY 3/27/2006 (LTIP) $18,301 $75,625 $121,000
SHREINER -----------------------------------------------------------------------------------------------------------------------
3/27/2006 9,460 - - $180,781
-----------------------------------------------------------------------------------------------------------------------
3/27/2006 - 30,000 $19.11 $233,334
- ----------------------------------------------------------------------------------------------------------------------------------
MARK
BOGOVICH N/A
- ----------------------------------------------------------------------------------------------------------------------------------
2/7/2006 (STIP) $35,524 $146,795 $264,231
-----------------------------------------------------------------------------------------------------------------------
TOM DAVIS 2/7/2006 (LTIP) $18,977 $78,416 $125,466
-----------------------------------------------------------------------------------------------------------------------
2/7/2006 8,990 - - $169,641
- ----------------------------------------------------------------------------------------------------------------------------------
2/7/2006 (STIP) $40,741 $168,350 $303,030
-----------------------------------------------------------------------------------------------------------------------
PAT HENRY 2/7/2006 (LTIP) $36,300 $150,000 $240,000
-----------------------------------------------------------------------------------------------------------------------
2/7/2006 8,600 - - $162,282
- ----------------------------------------------------------------------------------------------------------------------------------
2/7/2006 (STIP) $26,136 $108,000 $194,400
-----------------------------------------------------------------------------------------------------------------------
DAVID
GROCE 2/7/2006 (LTIP) $13,310 $55,000 $88,000
-----------------------------------------------------------------------------------------------------------------------
2/7/2006 4,200 - - $79,254
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) In February 2006, the Committee set the year's threshold, target, and
maximum levels for each component of the financial performance goals with
corresponding threshold, target, and maximum levels of payout based on
the percentage of the goal achieved for both the short-term incentive
plan (STIP) and the 3-year cash based long-term incentive plan (LTIP).
For the 2006 STIP, if at least 85% of the targeted earnings per share
goal were achieved, 30 percent of the target was to be paid. If 100% of
the target earnings per share goal was achieved, 100% payout would have
been made. A maximum of 200% of target would have been paid if 120% of
the earnings per share goal was achieved. No payout was to be made if
less than 85% of the targeted financial goal was achieved. With regard to
the revenue target, if at least 85% of the targeted goal was achieved,
30% of the payout would have been made. If 100% of the goal was attained,
100% of the payout would have been made. The maximum payout of 200% would
have been paid if 110% of the targeted revenue goal was achieved. For the
3 year (2006-2008) LTIP, payable in March 2009, if at least 80% of the
targeted earnings per share goal is achieved, 30% of the target will be
paid. If 100% of the target earnings per share goal is achieved, 100%
payout will have been made. A maximum of 175% of target will be paid if
120% of the earnings per share goal was achieved. No payout is to be made
if less than 80% of the targeted financial goal was achieved. With regard
to the revenue target, if at least 80% of the targeted goal is achieved,
30% of the payout will be paid. If 100% of the goal is attained, 100% of
the payout will be made. The maximum payout of 175% will be made if 110%
of the targeted revenue goal is achieved.
(2) The stock awards presented in this column reflect the number of awards
granted for each named executive officer pursuant to our LTIP. Such
awards were granted under the Second Amended and Restated 1996 Long-Term
Performance Plan.
(3) The Committee granted 30,000 nonqualified stock options at $19.11 per
share to Mr. Shreiner with a grant date of March 27, 2006, his date of
hire.
22
The following table sets forth information concerning
outstanding equity awards at December 31, 2006 for our named executive
officers:
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
- ----------------------------------------------------------------------------------------------------------------------------------
OPTION AWARDS STOCK AWARDS
------------------------------------------------------------- ---------------------------------------------------
EQUITY
INCENTIVE
EQUITY PLAN AWARDS:
EQUITY INCENTIVE MARKET OR
INCENTIVE PLAN AWARDS: PAYOUT
PLAN AWARDS: MARKET NUMBER OF VALUE OF
NUMBER OF NUMBER OF NUMBER OF NUMBER OF VALUE OF UNEARNED UNEARNED
SECURITIES SECURITIES SECURITIES SHARES OR SHARES OR SHARES, SHARES,
UNDERLYING UNDERLYING UNDERLYING UNITS OF UNITS OF UNITS, OR UNITS, OR
UNEXERCISED UNEXERCISED UNEXERCISED OPTION OPTION STOCK THAT STOCK THAT OTHER RIGHTS OTHER RIGHTS
OPTIONS OPTIONS UNEARNED EXERCISE EXPIRATION HAVE NOT HAVE NOT THAT HAVE THAT HAVE
NAME EXERCISABLE UNEXERCISABLE OPTIONS PRICE DATE VESTED VESTED NOT VESTED NOT VESTED
(#) (#) (#) (1) ($) (#) ($) (#) (2) ($)
- ----------------------------------------------------------------------------------------------------------------------------------
15,000 $12.31 1/14/2008
------------------------------------------------------------------------------------------------------------------
30,000 $10.22 1/26/2009
------------------------------------------------------------------------------------------------------------------
15,200 $12.69 1/14/2010
------------------------------------------------------------------------------------------------------------------
JOHN SHORT 4,861 $39.50 1/14/2011
------------------------------------------------------------------------------------------------------------------
7,000 $25.09 1/14/2012
------------------------------------------------------------------------------------------------------------------
6,300 $18.93 1/16/2013
------------------------------------------------------------------------------------------------------------------
161,455 88,545 $21.58 5/3/2014
- ----------------------------------------------------------------------------------------------------------------------------------
JAY SHREINER 30,000 $19.11 3/27/2016 9,460 $140,481
- ----------------------------------------------------------------------------------------------------------------------------------
15,000 $7.08 2/1/2007 8,990 $133,502
------------------------------------------------------------------------------------------------------------------
39,208 $9.38 12/15/2008
------------------------------------------------------------------------------------------------------------------
31,646 $9.38 12/15/2008
------------------------------------------------------------------------------------------------------------------
40,000 $9.22 6/30/2009
------------------------------------------------------------------------------------------------------------------
TOM DAVIS 15,000 $34.00 8/30/2010
------------------------------------------------------------------------------------------------------------------
20,000 $22.15 8/28/2012
------------------------------------------------------------------------------------------------------------------
15,000 5,000 $19.66 12/16/2013
------------------------------------------------------------------------------------------------------------------
5,020 $23.09 10/26/2014
------------------------------------------------------------------------------------------------------------------
12,018 $27.99 2/8/2015
------------------------------------------------------------------------------------------------------------------
26,250 $27.99 2/8/2015
- ----------------------------------------------------------------------------------------------------------------------------------
8,000 $34.00 8/30/2010 8,600 $127,710
------------------------------------------------------------------------------------------------------------------
60,000 $22.63 3/6/2012
------------------------------------------------------------------------------------------------------------------
PAT HENRY 15,000 5,000 $19.66 12/16/2013
------------------------------------------------------------------------------------------------------------------
4,230 $23.09 10/26/2014
------------------------------------------------------------------------------------------------------------------
10,143 $27.99 2/8/2015
------------------------------------------------------------------------------------------------------------------
22,142 $27.99 2/8/2015
- ----------------------------------------------------------------------------------------------------------------------------------
DAVID GROCE 2,500 7,500 $20.25 12/1/2015 4,200 $62,370
- ----------------------------------------------------------------------------------------------------------------------------------
MARK BOGOVICH
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) On May 3, 2004, Dr. Short was granted an award of 250,000 options. 12.5%
of his options vested on November 3, 2004, and his remaining options vest
at the rate of 2.1% per month for each month thereafter. On February 8,
2005, Mr. Davis and Ms. Henry were granted 26,250 and 22,142 options,
respectively. These three-year cliff vesting options are subject to
performance-based vesting conditions and will vest or not vest based on
the attainment of performance standards for the 2005-2007 performance
period. All of the remaining options listed in this column vest at the
rate of 25% per year over the first four years of the award's ten-year
term.
(2) All stock awards listed in this column vest on the third anniversary of
the date of the award. Accordingly, Mr. Shreiner's stock award vests on
March 27, 2009. All of the remaining stock awards listed in this column
vest on February 7, 2009.
23
OPTION EXERCISES AND STOCK VESTED
- ------------------------------------------------------------------------------------------------
OPTION AWARDS STOCK AWARDS
-------------------------------- ----------------------------------
NUMBER OF SHARES VALUE VALUE
ACQUIRED ON REALIZED ON NUMBER OF SHARES REALIZED ON
NAME EXERCISE EXERCISE ACQUIRED ON VESTING VESTING
(#) ($) (#) ($)
- ------------------------------------------------------------------------------------------------
JOHN SHORT 15,000 $66,113
- ------------------------------------------------------------------------------------------------
JAY SHREINER
- ------------------------------------------------------------------------------------------------
MARK BOGOVICH 10,000 $25,319
- ------------------------------------------------------------------------------------------------
TOM DAVIS
- ------------------------------------------------------------------------------------------------
PAT HENRY
- ------------------------------------------------------------------------------------------------
DAVID GROCE
- ------------------------------------------------------------------------------------------------
PENSION BENEFITS
- ---------------------------------------------------------------------------------------------
PRESENT VALUE OF
NUMBER OF YEARS ACCUMULATED PAYMENTS DURING
NAME PLAN NAME CREDITED SERVICE BENEFIT LAST FISCAL YEAR
(#) ($) ($)
- ---------------------------------------------------------------------------------------------
JOHN SHORT
- ---------------------------------------------------------------------------------------------
JAY SHREINER
- ---------------------------------------------------------------------------------------------
TOM DAVIS
- ---------------------------------------------------------------------------------------------
PATRICIA HENRY
- ---------------------------------------------------------------------------------------------
MARK BOGOVICH
- ---------------------------------------------------------------------------------------------
DAVID GROCE
- ---------------------------------------------------------------------------------------------
The Company does not offer any type of pension or qualified defined benefit
retirement plan.
24
The following table sets forth information concerning
contributions, earnings, and balances under our nonqualified deferred
compensation plans for the named executive officers:
NONQUALIFIED DEFERRED COMPENSATION
- --------------------------------------------------------------------------------------------------------------------
BEGINNING EXECUTIVE REGISTRANT AGGREGATE AGGREGATE AGGREGATE
BALANCE ON CONTRIBUTIONS CONTRIBUTIONS EARNINGS WITHDRAWALS/ BALANCE
NAME 1/1/2006 IN LAST FY IN LAST FY IN LAST FY DISTRIBUTIONS AT LAST FYE
($) ($) ($) ($) ($)
- --------------------------------------------------------------------------------------------------------------------
JOHN SHORT
- --------------------------------------------------------------------------------------------------------------------
JAY SHREINER
- --------------------------------------------------------------------------------------------------------------------
TOM DAVIS - TOTAL (1) $616,011 $42,960 $851 $50,683 $0.00 $710,505
- --------------------------------------------------------------------------------------------------------------------
TOM DAVIS - SCHWAB (1) $3,573 $42,960 $851 $6,745 $0.00 $54,129
- --------------------------------------------------------------------------------------------------------------------
TOM DAVIS - MERRILL LYNCH (1) $612,438 $0.00 $0.00 $43,938 $0.00 $656,376
- --------------------------------------------------------------------------------------------------------------------
PATRICIA HENRY
- --------------------------------------------------------------------------------------------------------------------
MARK BOGOVICH
- --------------------------------------------------------------------------------------------------------------------
DAVID GROCE
- --------------------------------------------------------------------------------------------------------------------
<FN>
(1) In 2006, Mr. Davis was the only named executive officer that
participated in the Company's nonqualified deferred compensation plan.
His Schwab plan earnings of $6,745 attributed to participant's selected
benchmark fund - Sound Shore Larger Cap Value Fund. His Merrill Lynch
plan earnings of $43,938 are attributed to participant's selected
benchmark funds ($20,971 in the CMA Money Market Fund, and $22,967 in
the BlackRock S&P 500 Index fund accounting for 61% of the earnings and
the BlackRock Small Cap Index Fund accounting for 39% of the earnings.)
No contributions were attributed to a 401(k) refund. The participant
contributions reported above are included in the salary compensation
that was already reported in the summary compensation table. Only
registrant contributions and aggregate earnings are additional
compensation.
The Company provides a voluntary nonqualified deferred compensation
program under which the named executive officers and other key
executives may defer up to 70% of their annual base salary and up to
70% of their annual and long-term cash-based incentive awards. In
addition, if any contributions are made to the qualified 401(k) savings
plan that exceed the limitations established by the Internal Revenue
Service, participants may have the excess deferred under the
nonqualified deferred compensation plan.
Each year participants can elect to defer compensation in the plan that
is administered for RehabCare Group, Inc. by Schwab Retirement Plan
Services Inc. The plan closely reflects the same family of funds that
are offered under the qualified 401(k) plan. Participants may elect to
invest their money in one or more of the 10 mutual funds that are
available under the plan, including RehabCare Group, Inc. Common Stock.
Participants can also elect to change investment options or transfer
existing funds at any time throughout the year. The plan does not offer
a guaranteed rate of return fund election - but does provide a money
market fund. Deferred compensation account balances appreciate or lose
value based on how the selected funds perform. During the annual
enrollment election process participants are provided the opportunity
to elect distribution payouts for the covered compensation. The plan
provides for payouts at a future date either while currently employed
or upon termination from the Company. Participants can elect to receive
either a lump sum payment or annual installments for up to ten (10)
years.
The current plan was adopted effective as of July 1, 2005 to comply
with Sec 409(a) of the IRS tax code. A committee comprised of our CFO,
Jay Shreiner, and other managers are responsible for administering the
plan. The committee reviews each quarter the performance of the plan
and information provided by Schwab Retirement Plan Services Inc. No
changes have been made in the plan's investment options since the
plan's inception.
Prior to 2005, the Company offered a deferred compensation plan which
was and continues to be administered by Merrill Lynch Trust Company. At
that time the plan was restricted from future receipt of compensation
and it is in the process of being phased out. The plan permitted
employees at the Vice President level and above to defer no more than
100% of their annual base salary and no more than 100% of their annual
and long-term cash-based incentive awards. In addition, if any
contributions were made to the qualified RehabCare 401(k) Plan that
exceeded the limitations established by the Internal Revenue Service,
participants were permitted to have the excess deferred under the
nonqualified plan. Each year participants could elect to defer
compensation into the plan which was administered by Merrill Lynch
Trust Company. Participants could elect to invest their money in one or
more of the mutual funds that are available under the plan.
Participants can also elect to change investment options or transfer
existing funds at any time throughout the year. The plan does not offer
25
a guaranteed rate of return fund election - but does provide a money
market fund. Deferred compensation account balances appreciate or lose
value based on how the selected funds perform. During the annual
enrollment election process participants were provided the opportunity
to elect distribution payouts for the covered compensation. The plan
provided for payouts at a future date either while currently employed
or upon termination from the Company. Participants could elect to
receive either lump sum payments or annual installments for up to ten
(10) years.
SEPARATION
The tables below reflect the amount of compensation that
each named executive officer would be entitled to if the conditions to the
entitlement to such compensation had been satisfied on December 31, 2006. The
amounts payable to any named executive officer can only be determined at the
time, and based on the actual facts and circumstances, of a given named
executive officer's actual separation of employment from the Company. Mr.
Bogovich voluntarily resigned from the Company in February 2006 and he was not
covered by any termination compensation agreement.
- -----------------------------------------------------------------------------------------
TERMINATION FOR GOOD REASON OR WITHOUT
NAME OF PARTICIPANT: JOHN SHORT CAUSE
- -----------------------------------------------------------------------------------------
INVOLUNTARY CHANGE IN
TYPE OF PAYMENT TERMINATION CONTROL
($) ($)
- -----------------------------------------------------------------------------------------
Salary Continuation $1,156,976
- -----------------------------------------------------------------------------------------
Annual Incentives $347,069
- -----------------------------------------------------------------------------------------
Performance Plan n/a $139,050
- -----------------------------------------------------------------------------------------
Welfare Benefits $6,144 $6,144
- -----------------------------------------------------------------------------------------
Outplacement $12,000 $12,000
- -----------------------------------------------------------------------------------------
Excise Tax & Gross-Up $1,635,706
- -----------------------------------------------------------------------------------------
Severance Payments $3,114,365
- -----------------------------------------------------------------------------------------
TOTAL $1,522,189 $4,907,265
- -----------------------------------------------------------------------------------------
The Company currently has a termination compensation
agreement with John Short, President & 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.
With regards to outstanding (or unvested) long-term
incentive awards made in 2006 - in the event of a change in control - all
equity award restrictions lapse and become fully vested; and for the cash
based plan, the award will be prorated to the date of change in control based
on the target award opportunity of the incumbent using the greater of actual
performance at the "change in control" date or target award level.
26
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.
The agreement also contains non-compete and non-solicitation
covenants that extend for one year after termination of his 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," the Company will make an
additional "gross-up" payment to cover the additional taxes owed by Dr. Short.
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 a majority of our directors by one or
more third parties under common control;
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 Dr. Short's failure to substantially
perform his assigned duties or willful misconduct materially injurious to the
Company. "Good reason" generally means the assignment of Dr. Short to lesser
duties, a reduction in or cancellation of his salary, bonus, compensation or
other benefit plans, his relocation to a new metropolitan area, or any breach
of the agreement by the Company.
27
SEPARATION
- ------------------------------------------------------------------------------------
TERMINATION FOR GOOD REASON OR
NAME OF PARTICIPANT: JAY SHREINER WITHOUT CAUSE
- ------------------------------------------------------------------------------------
INVOLUNTARY CHANGE IN
TYPE OF PAYMENT TERMINATION CONTROL
($) ($)
- ------------------------------------------------------------------------------------
Salary Continuation $330,000
- ------------------------------------------------------------------------------------
Annual Incentives $113,511
- ------------------------------------------------------------------------------------
Restricted Stock $140,481
- ------------------------------------------------------------------------------------
Performance Plan $ 25,208
- ------------------------------------------------------------------------------------
Welfare Benefits $ 6,210 $ 9,315
- ------------------------------------------------------------------------------------
Outplacement $ 12,000 $ 12,000
- ------------------------------------------------------------------------------------
Severance Payments $778,778
- ------------------------------------------------------------------------------------
TOTAL $461,721 $965,782
- ------------------------------------------------------------------------------------
Mr. Shreiner has a termination compensation agreement which,
upon termination of employment by him for good reason or by the Company
without cause prior to change in control, provides that the Company will
continue for 12 months after the termination date monthly payments equal to
one-twelfth of his then-current salary and target bonus for the year in which
the termination occurs. If Mr. Shreiner's employment is terminated within two
years after a change in control by him for good reason or by the Company
without cause, he will be entitled to a lump-sum cash payment equal to 1.5
times his then current annual salary plus 1.5 times his target bonus in the
year that the change in control occurs. In addition, Mr. Shreiner 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.
With regards to outstanding (or unvested) long-term
incentive awards made in 2006 - in the event of a change in control - all
equity award restrictions lapse and become fully vested; and for the cash
based plan, the award will be prorated to the date of change in control based
on the target award opportunity of the incumbent using the greater of actual
performance at the "change in control" date or target award level.
In any of the above-described pre-change in control
terminations, Mr. Shreiner will also be entitled to the continuation of his
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. Shreiner will be entitled to the continuation of his health
and welfare benefits for up to eighteen months after the date of termination.
In either case, Mr. Shreiner will be entitled to executive-level outplacement
services by a vendor selected by the Company.
Mr. Shreiner's agreement 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 Mr. Shreiner to the payment of a federal
excise tax as "excess parachute payments," the Company will make an additional
"gross-up" payment to cover the additional taxes owed by the officer.
A change in control transaction is generally:
28
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 by one or
more third parties under common control;
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 Mr. Shreiner's failure to
substantially perform his assigned duties or willful misconduct materially
injurious to the Company. "Good reason" generally means the assignment of Mr.
Shreiner to lesser duties, a reduction in or cancellation of his salary,
bonus, compensation or other benefit plans, his relocation to a new
metropolitan area, or any breach of the agreement by the Company.
SEPARATION
- ----------------------------------------------------------------------------------
TERMINATION FOR GOOD REASON OR
NAME OF PARTICIPANT: TOM DAVIS WITHOUT CAUSE
- ----------------------------------------------------------------------------------
INVOLUNTARY CHANGE IN
TYPE OF PAYMENT TERMINATION CONTROL
($) ($)
- ----------------------------------------------------------------------------------
Salary Continuation $326,211
- ----------------------------------------------------------------------------------
Annual Incentives $146,795
- ----------------------------------------------------------------------------------
Restricted Stock $ 133,502
- ----------------------------------------------------------------------------------
Performance Plan $ 26,139
- ----------------------------------------------------------------------------------
Welfare Benefits $ 9,021 $ 13,530
- ----------------------------------------------------------------------------------
Outplacement $ 12,000 $ 12,000
- ----------------------------------------------------------------------------------
Severance Payments $ 856,305
- ----------------------------------------------------------------------------------
TOTAL $494,027 $1,041,476
- ----------------------------------------------------------------------------------
Mr. Davis has a termination compensation agreement which,
upon termination of employment by him for good reason or by the Company
without cause prior to change in control, provides that the Company will
continue for 12 months after the termination date monthly payments equal to
one-twelfth of his then-current salary and target bonus for the year in which
the termination occurs. If Mr. Davis' employment is terminated within two
years after a change in control by him for good reason or by the Company
without cause, he will be entitled to a lump-sum cash payment equal to 1.5
times his then current annual salary plus 1.5 times his target bonus in the
year that the change in control occurs. In addition, Mr. Davis 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.
With regards to outstanding (or unvested) long-term
incentive awards made in 2006 - in the event of a change in control - all
equity award restrictions lapse and become fully vested; and for the cash
based plan, the award will be prorated to the date of change in control based
on the target award opportunity of the incumbent using the greater of actual
performance at
29
the "change in control" date or target award level.
In any of the above-described pre-change in control
terminations, Mr. Davis will also be entitled to the continuation of his
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 will be entitled to the continuation of his health and
welfare benefits for up to eighteen months after the date of termination. In
either case, Mr. Davis will be entitled to executive-level outplacement
services by a vendor selected by the Company.
Mr. Davis' agreement 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 Mr. Davis to the payment of a federal
excise tax as "excess parachute payments," the Company will 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 by one or
more third parties under common control;
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 Mr. Davis' failure to substantially
perform his assigned duties or willful misconduct materially injurious to the
Company. "Good reason" generally means the assignment of Mr. Davis to lesser
duties, a reduction in or cancellation of his salary, bonus, compensation or
other benefit plans, his relocation to a new metropolitan area, or any breach
of the agreement by the Company.
30
SEPARATION
- ---------------------------------------------------------------------------------------
TERMINATION FOR GOOD REASON OR WITHOUT
NAME OF PARTICIPANT: PAT HENRY CAUSE
- ---------------------------------------------------------------------------------------
INVOLUNTARY CHANGE IN
TYPE OF PAYMENT TERMINATION CONTROL
($) ($)
- ---------------------------------------------------------------------------------------
Salary Continuation $336,700
- ---------------------------------------------------------------------------------------
Annual Incentives $168,350
- ---------------------------------------------------------------------------------------
Restricted Stock $ 127,710
- ---------------------------------------------------------------------------------------
Performance Plan $ 50,000
- ---------------------------------------------------------------------------------------
Welfare Benefits $ 5,589 $ 8,383
- ---------------------------------------------------------------------------------------
Outplacement $ 12,000 $ 12,000
- ---------------------------------------------------------------------------------------
Severance Payments $ 925,925
- ---------------------------------------------------------------------------------------
TOTAL $522,639 $1,124,018
- ---------------------------------------------------------------------------------------
Ms. Henry has a termination compensation agreement which,
upon termination of employment by her for good reason or by the Company
without cause prior to change in control, provides that 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 Ms. Henry's employment is terminated
within two years after a change in control by her for good reason or by the
Company without cause, she will be entitled to a lump-sum cash payment equal
to 1.5 times her then current annual salary plus 1.5 times her target bonus in
the year that the change in control occurs. In addition, Ms. Henry will also
be entitled to receive an amount equal to her target bonus percentage for the
year that the change in control occurs multiplied by her then-current annual
salary on the termination date, prorated for the portion of the year during
which she was employed by the Company.
With regards to outstanding (or unvested) long-term
incentive awards made in 2006 - in the event of a change in control - all
equity award restrictions lapse and become fully vested; and for the cash
based plan, the award will be prorated to the date of change in control based
on the target award opportunity of the incumbent using the greater of actual
performance at the "change in control" date or target award level.
In any of the above-described pre-change in control
terminations, Ms. Henry will also be entitled to the continuation of 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, Ms. Henry will be entitled to the continuation of her health and
welfare benefits for up to eighteen months after the date of termination. In
either case, Ms. Henry will be entitled to executive-level outplacement
services by a vendor selected by the Company.
Ms. Henry's agreement 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 Ms. Henry to the payment of a federal
excise tax as "excess parachute payments," the Company will make an additional
"gross-up" payment to cover the additional taxes owed by the officer.
A change in control transaction is generally:
31
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 by one or
more third parties under common control;
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 Ms. Henry's failure to substantially
perform her assigned duties or willful misconduct materially injurious to the
Company. "Good reason" generally means the assignment of Ms. Henry to lesser
duties, a reduction in or cancellation of her salary, bonus, compensation or
other benefit plans, her relocation to a new metropolitan area, or any breach
of the agreement by the Company.
SEPARATION
- ---------------------------------------------------------------------------------------
TERMINATION FOR GOOD REASON OR
NAME OF PARTICIPANT: DAVID GROCE WITHOUT CAUSE
- ---------------------------------------------------------------------------------------
INVOLUNTARY CHANGE IN
TERMINATION CONTROL
TYPE OF PAYMENT ($) ($)
- ---------------------------------------------------------------------------------------
Salary Continuation $240,000
- ---------------------------------------------------------------------------------------
Annual Incentives $108,000
- ---------------------------------------------------------------------------------------
Restricted Stock $ 62,370
- ---------------------------------------------------------------------------------------
Performance Plan $ 18,333
- ---------------------------------------------------------------------------------------
Welfare Benefits $ 8,862 $ 13,293
- ---------------------------------------------------------------------------------------
Outplacement $ 12,000 $ 12,000
- ---------------------------------------------------------------------------------------
Severance Payments $630,000
- ---------------------------------------------------------------------------------------
TOTAL $368,862 $735,996
- ---------------------------------------------------------------------------------------
Mr. Groce has a termination compensation agreement which,
upon termination of employment by him for good reason or by the Company
without cause prior to change in control, provides that the Company will
continue for 12 months after the termination date monthly payments equal to
one-twelfth of his then-current salary and target bonus for the year in which
the termination occurs. If Mr. Groce's employment is terminated within two
years after a change in control by the executive for good reason or by the
Company without cause, he will be entitled to a lump-sum cash payment equal to
1.5 times his then-current annual salary plus 1.5 times his target bonus in
the year that the change in control occurs. In addition, Mr. Groce 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.
With regards to outstanding (or unvested) long-term
incentive awards made in 2006 - in the event of a change in control - all
equity award restrictions lapse and become fully vested; and for the cash
based plan, the award will be prorated to the date of change in control based
on the target award opportunity of the incumbent using the greater of actual
performance at the "change in control" date or target award level.
32
In any of the above-described pre-change in control
terminations, Mr. Groce will also be entitled to the continuation of his
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. Groce will be entitled to the continuation of his health and
welfare benefits for up to eighteen months after the date of termination. In
either case, Mr. Groce will be entitled to executive-level outplacement
services by a vendor selected by the Company.
Mr. Groce's agreement 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 Mr. Groce to the payment of a federal
excise tax as "excess parachute payments," the Company will 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 by one or
more third parties under common control;
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 Mr. Groce's failure to substantially
perform his assigned duties or willful misconduct materially injurious to the
Company. "Good reason" generally means the assignment of Mr. Groce to lesser
duties, a reduction in or cancellation of his salary, bonus, compensation or
other benefit plans, his relocation to a new metropolitan area, or any breach
of the agreement by the Company.
33
DIRECTOR COMPENSATION
- ----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN PENSION
VALUE AND
FEES NONQUALIFIED
EARNED OR NON-EQUITY DEFERRED
PAID IN STOCK OPTION INCENTIVE PLAN COMPENSATION ALL OTHER
NAME (1) CASH AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL
($) (4) ($) ($) (5) ($) ($) ($)
- ----------------------------------------------------------------------------------------------------------------------------------
COLLEEN CONWAY-WELCH $24,000 $68,050 $92,050
- ----------------------------------------------------------------------------------------------------------------------------------
ANTHONY S. PISZEL $21,000 $114,225 $135,225
- ----------------------------------------------------------------------------------------------------------------------------------
SUZAN L. RAYNER $20,000 $80,759 $100,759
- ----------------------------------------------------------------------------------------------------------------------------------
HARRY E. RICH $23,000 $69,126 $92,126
- ----------------------------------------------------------------------------------------------------------------------------------
H. EDWIN TRUSHEIM (2) $15,000 $68,050 $83,050
- ----------------------------------------------------------------------------------------------------------------------------------
LARRY WARREN $22,000 $114,225 $136,225
- ----------------------------------------------------------------------------------------------------------------------------------
THEODORE M. WIGHT $25,000 $68,050 $93,050
- ----------------------------------------------------------------------------------------------------------------------------------
WILLIAM G. ANDERSON (3) $12,000 $0 $12,000
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The grant date fair value of option awards granted to directors
in 2006 was as follows: Colleen Conway-Welch - $68,050; Anthony
S. Piszel - $68,050; Suzan L. Rayner - $68,050; Harry E. Rich -
$69,126; H. Edwin Trusheim - $108,448; Larry Warren - $68,050;
Theodore Wight - $68,050; and William G. Anderson - $68,050.
(2) Mr. Trusheim resigned effective August 1, 2006. On that date,
he forfeited options to purchase a total of 4,000 shares.
(3) Mr. Anderson resigned effective May 1, 2006. On that date, he
forfeited options to purchase a total of 7,500 shares.
(4) Cash Fee Payment Basis - Colleen Conway-Welch - 4 board
meetings, 4 committee chair meetings; Anthony S. Piszel - 4
board meetings, 1 committee chair meeting; Suzan L. Rayner - 4
board meetings; Harry E. Rich - 4 board meetings and 3 site
visits; H. Edwin Trusheim - 3 board meetings; Larry Warren - 4
board meetings, 2 site visits; Theodore Wight - 4 board
meetings, 4 committee chair meetings, 1 site visit; and William
G. Anderson - 2 board meetings; 2 committee chair meetings.
(5) Reflects the costs recognized for financial statement reporting
purposes for the fiscal year ended December 31, 2006 in
accordance with FAS 123(R), excluding estimated forfeitures.
Costs may include amounts from awards granted prior to 2006.
We use a combination of cash and stock-based compensation to
attract and retain qualified candidates to serve on our board.
In setting director compensation, the Company considers the
significant amount of time that directors expend in fulfilling
their duties to the Company as well as the skills required by
the Company for members of its board. Dr. Short, RehabCare
Group, Inc.'s CEO is a member of the board of directors but he
does not receive any compensation for serving on the Board.
Similar to executive officers, directors are not subject to a
minimum share ownership requirement. For a number of years, we
utilized published proxy data for comparable sized companies
that were headquartered in Saint Louis, Missouri as a key
external benchmark consideration, since there are no other
public companies that exactly resemble our company in terms of
operational focus, size, and geographical coverage.
Compensation levels have remained constant since 2003.
For 2006, directors who were not also our employees were paid
$5,000 for each meeting of the board of directors that he or
she attended in person during 2006. The Chairperson of each
standing committee of the board of directors was eligible to
receive an additional $1,000 from the Company for each
in-person meeting of these committees. We also reimbursed our
directors for expenses incurred in connection with their
attendance at board meetings.
Each of the non-employee directors received annual stock option
grants under the Second Amended and Restated 1996 Long-Term
Performance Plan. In January 2006, we granted options to
acquire 7,500 shares of our common stock at an exercise price
of $18.73 per share, the fair market value of RehabCare Group,
Inc.'s common stock on the date of grant, to each of Drs.
Conway-Welch and Rayner, and Messrs, Piszel, Trusheim, Warren,
Wight and Anderson. In addition, in March 2006, we granted
options to acquire 4,000 shares of our common stock at an
exercise price of $20.43 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 February
34
2006, we granted options to acquire 7,500 shares of our common
stock at an exercise price of $18.87, the fair market value of
our common stock on the date of grant, to Mr. Rich at his
election to the board.
In October of 2006, the board and the Company's management
conferred with the Company's independent consultant, Hewitt
Associates, as well as the Compensation and
Nominating/Corporate Governance Committee's independent
consultant, Frederic W. Cook, to help ensure that the level,
structure, and amount of compensation paid to the Company's
directors is fair, reasonable, and competitive. Director
compensation and all relevant market and benchmark data was
considered by the committee and then recommended for approval,
modification, or rejection by the full board. Beginning in
2007, each non-executive director will receive an annual cash
retainer of $40,000. In addition, each non-executive director
will receive an annual grant of 5,000 shares of restricted
stock as of January 15th (the same date used in prior years for
awards of equity-based compensation to directors). The
non-executive chairman of the board will receive an additional
annual cash retainer of $40,000 for the additional time,
effort, service, and assistance that such role entails.
Likewise, the chair of the Audit Committee and the chair of the
Compensation and Nominating/Corporate Governance Committee will
receive an additional annual cash retainer of $15,000, and the
Chair of the Compliance Committee will receive an additional
annual cash retainer of $10,000, for the additional time,
effort, service, and assistance that those roles entail.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Committee is also responsible for reviewing and
approving or rejecting all proposed related party transactions. In doing so,
the Committee is guided by the terms and provisions of our (i) Corporate
Governance Guidelines, (ii) Code of Business Conduct and Organizational
Ethics, (iii) Code of Conduct for Senior Executives and Financial Officers,
and (iv) Compliance Plan. The Committee seeks to ensure that any transaction
between the Company and a related party is made at arm's length, avoids even
the appearance of any impropriety, and is commercially fair and reasonable to
the Company.
On September 1, 2006, the Company and 55JS, Ltd., a company
that is owned and controlled by the Company's CEO, Dr. Short, entered into a
Non-Continuous Dry Lease Agreement relative to a Learjet 35 (the "Aircraft")
owned by 55JS. Pursuant to the terms of the agreement, the Aircraft (without a
flight crew) is made available by 55JS to us for private air transportation
consistent with all requirements of the Federal Aviation Regulations. The
agreement requires that we reimburse 55JS for all variable operating expenses
incurred when the Aircraft is used on company business. The agreement provides
that we shall reimburse 55JS for a pro rated share of the fixed ownership
expenses of 55JS. The agreement further provides that, in no event, shall 55JS
be entitled to total reimbursement in excess of an amount that equals the
average market cost of three charter operators in the St. Louis region for the
same type of aircraft based on the same number of flight hours. The agreement
superseded a previous agreement that was in effect between the parties prior
to September 1, 2006. In 2006, we paid 55JS $392,000 for use of the Aircraft
consistent with the terms and conditions of the agreement.
Mary Wilkes, who lives in the same household as our CEO, Dr.
Short, is Senior Managing Director of our Phase 2 Consulting, Inc. subsidiary.
In such capacity, Ms. Wilkes is responsible for seeking new consulting
engagements and working on such engagements. In 2006, Ms. Wilkes earned total
compensation of $466,163.
PROPOSAL II.
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, 2007 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
35
Exchange Commission to have responsibility for the appointment of our
independent auditors, this proposal is put before you in order to seek your
views on this important corporate matter. If you do not ratify the
appointment, the Audit Committee will take the matter under advisement. We
anticipate that representatives of KPMG LLP will attend the annual meeting.
Such representatives will have an opportunity to make a statement if they
wish, and will be available to respond to appropriate questions.
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, 2006 DECEMBER 31, 2005
----------------- -----------------
Audit Fees (1)............... $ 781,150 $ 663,000
Audit-Related Fees (2)....... 268,420 46,900
Tax Fees (3)................. 39,045 71,283
All Other Fees (4)........... -- --
========== ==========
Total..................... $1,088,615 $ 781,183
<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, 2006 and 2005, 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 2006 and 2005 and due diligence procedures
related to acquisitions.
(3) Tax Fees consist of fees rendered for professional services for federal
and state tax compliance and tax consulting and advice. For 2006, all tax
fees were paid for 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.
(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 2006 and 2005, the Audit Committee pre-approved
non-audit services related to tax compliance, consulting and advisory services
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 2006 and
2005.
36
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, 2007.
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, 2007.
37
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.
DISCLOSURE POLICY
We adopted a Corporate Disclosure Policy effective October
25, 2004, and we amended it on March 3, 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, July 27, 2004 and October 30, 2006. The
charter and our performance are reassessed annually by our members. The Audit
Committee charter, which is attached, can also be found on our website at
www.rehabcare.com under the "For Our Investors" section, and is available to
any shareholder who requests it.
38
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 Anthony S. Piszel meets the Securities
and Exchange Commission's requirements for, and has designated him as, Audit
Committee financial expert.
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 Report on Form 10-K for
the year ended December 31, 2006, 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
ANTHONY S. PISZEL, CPA HARRY E. RICH THEODORE M. WIGHT
39
PROPOSALS OF STOCKHOLDERS
Proposals of stockholders and nominations for directors
intended to be presented at the 2008 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, 2007, 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 2008 annual meeting of stockholders only if written notice of the proposal
is received by us by not earlier than January 31, 2008 and not later than
March 2, 2008.
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, 2006.
ANNUAL REPORT
We have simultaneously mailed our annual report for the year
ended December 31, 2006, to our stockholders. A copy of our Annual Report on
Form 10-K for the year ended December 31, 2006, 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.
40
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 27, 2007
41
REHABCARE GROUP, INC.
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
PURPOSE
The purpose of the Audit Committee (the "Committee") is to assist the
Board of Directors of RehabCare Group, Inc. (the "Company") in its oversight
of:
o The integrity of the Company's financial statements, including
monitoring the Company's financial reporting process and systems of
internal controls regarding finance, legal accounting and regulatory
compliance;
o The Company's compliance with applicable legal and regulatory
requirements with respect to financial reporting;
o The qualifications and independence of the Company's independent
auditors; and
o The performance of the independent auditors and the Company's internal
audit function.
The Committee shall have the sole authority to retain and terminate
the independent auditors of the Company and to approve any non-audit
relationship with the independent auditors. The Committee has the authority to
conduct any investigation it deems appropriate in fulfilling its
responsibilities and has the ability to retain, at the Company's expense, any
legal, accounting or other consultants or experts that it deems necessary in
the performance of its duties.
In addition, the Committee will prepare its report that is required
by the rules and regulations of the Securities and Exchange Commission to be
included in the Company's proxy statement for the annual meeting of
stockholders and provide an avenue of communication among the independent
auditors, the internal auditors, those responsible for the financial
management of the Company and the Board of Directors.
COMPOSITION, QUALIFICATIONS AND MEETINGS
Committee members shall satisfy the requirements of the New York
Stock Exchange and the federal securities laws. The Committee shall be
comprised of three or more directors as determined by the Board of Directors,
each of whom shall be an "independent" director. An independent director is a
member of the Board of Directors of the Company who:
o The Board of Directors has affirmatively determined has no material
commercial, industrial, banking, consulting, legal, accounting,
charitable or familial relationship with the Company, either
individually or as a partner, stockholder or officer of an
organization or entity having such a relationship with the Company,
which relationship would adversely impact the director's independence
in connection with the Company;
o Is not currently receiving, and has not received, during the three
years prior to the date of determination, any 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
42
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;
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 Is compensated by the Company solely with the directors' fees that
are paid by the Company to each Committee member and, if applicable,
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).
For the purpose of determining independence, "immediate family
member" means such 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 determine a
director to be 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.
Each director who serves on the Committee shall, in the judgment of
the Board of Directors, have a basic understanding of finance and accounting
and be able to read and understand financial statements, and at least one
member shall be an "Audit Committee financial expert." A director shall be
considered an Audit Committee financial expert if the director:
o Has an understanding of financial statements and generally accepted
accounting principles;
o Has the ability to assess the general application of such principles
in connection with the accounting for estimates, accruals and
reserves;
o Has experience preparing, or actively supervising others in,
auditing, analyzing or evaluating financial statements with a
breadth and level of complexity generally comparable to the breadth
43
and complexity of issues that can reasonably be expected to arise in
the Company's financial statements;
o Has an understanding of internal controls and procedures for
financial reporting; and
o Has an understanding of the functions of the Committee.
The Board of Directors can determine that a person has acquired the
above attributes through the person's education and the person's direct
experience as, or experience actively supervising, a principal financial
officer, principal accounting officer, controller, public accountant or
auditor or another position with responsibility for the preparation, auditing
or evaluation of financial statements.
Committee members shall be appointed by the Board of Directors and
shall serve until such member's successor is appointed and qualified or until
such member's earlier resignation or removal. The members of the Committee may
be removed, with or without cause, by a majority vote of the Board of
Directors. A Committee member shall not concurrently serve on the audit
committee of more than three public companies unless the Board of Directors
(1) determines that such concurrent service would not impair his or her
ability to serve on the Company's Committee and (2) discloses its
determination in the Company's annual proxy statement.
The Committee shall meet at least four times annually, or more
frequently as circumstances dictate. The Committee Chair shall approve an
agenda in advance of each meeting. If a Committee Chair is not designated or
present at a Committee meeting, the members of the Committee may designate a
Chair by a majority vote of the Committee membership.
RESPONSIBILITIES AND DUTIES
The primary function of the Committee is oversight, which recognizes
that the Company's management is responsible for the preparation, presentation
and integrity of the Company's financial statements as well as the maintenance
of appropriate accounting and financial reporting practices and policies and
internal controls and procedures designed to provide reasonable assurances
that the Company is in compliance with applicable accounting standards, laws
and regulations. The Committee also recognizes that the independent auditors
are responsible for planning and performing a proper audit of the Company's
annual financial statements and performing reviews of the Company's quarterly
financial statements prior to the filing of each of these reports with the
Securities and Exchange Commission.
The Committee recognizes that the persons who are responsible for the
financial management of the Company and the independent auditors have more
time, knowledge and detailed information regarding the Company and its
financial information than do the Committee members. Consequently, in carrying
out its responsibilities, the Committee is not providing any expert or special
assurances as to the Company's financial statements or any professional
certification as to the independent auditors' work. Each member of the
Committee is entitled to rely on (i) the integrity of those persons and
organizations within and outside the Company from which he or she receives
information and (ii) the accuracy of the financial and other information
provided to the Committee by such persons and organizations, absent actual
knowledge to the contrary (which shall be promptly reported to the Board of
Directors).
In carrying out its oversight responsibilities, the Committee shall:
o On an annual basis, prior to the mailing of the proxy materials for
the annual meeting of stockholders of the Company, recommend to the
Board of Directors a public accounting firm to be placed before the
stockholders for ratification as the Company's independent auditors
for the
44
ensuing year and set the compensation of, or terminate, the
independent auditors as the Committee deems necessary. The
independent auditors shall report directly to the Committee and the
Committee shall be directly responsible for oversight of the
independent auditors, including the resolution of any disagreements
between the independent auditors and those persons responsible for
the financial management of the Company. The Committee shall have
the sole authority to (1) approve all audit engagement fees and
terms and (2) pre-approve all non-audit services;
o Engage counsel and other consultants and advisors that it deems
necessary to advise the Committee on any matter within the scope of
the Committee's duties, and cause the Company to pay such counsel,
consultants and advisors. The Committee has the authority to procure
these outside services and provide for their compensation without
the prior approval of the Board of Directors;
o Meet with the independent auditors and management of the Company to
review the scope of the proposed audit for the then-current year,
the proposed audit fees and the audit procedures to be utilized, and
at the conclusion of the audit, review the audit, including any
comments or recommendations of the independent auditors, and elicit
the judgment of the independent auditors regarding the quality of
the accounting principles applied to the Company's financial
statements;
o Review the annual audited and quarterly financial statements with
management of the Company and the independent auditors, including
the disclosures in the Management's Discussion and Analysis section
of the Form 10-K or Form 10-Q. In conjunction with such annual or
quarterly review, the Committee shall review:
o Major issues regarding accounting principles and financial
statement presentation, including any significant changes in
the Company's selection or application of accounting principles
and major issues as to the adequacy and effectiveness of
internal controls and any special audit actions taken in light
of major internal control deficiencies;
o Analyses prepared by management and/or the independent auditors
setting forth significant financial reporting issues and
judgments made in connection with the preparation of the
financial statements, including an analysis of the effects of
alternative methods of generally accepted accounting principles
on the financial statements; and
o The effect of regulatory and accounting initiatives, as well as
off-balance sheet structures, on financial statements.
o Significant transactions not a normal part of the Company's
operations.
o Significant issues concerning litigation, contingencies, claims
or assessments and all material accounting issues that require
disclosure in the financial statements.
o The yearly report prepared by management, and attested to by
the independent auditors, assessing the effectiveness of
internal controls over financial reporting and stating
management's responsibility for establishing and maintaining
adequate internal control over financial reporting prior to its
inclusion in the Company's Annual report on Form 10-K.
45
o Reports from the Company's independent auditors, management and
internal auditing department to assess the impact on the
Company of significant accounting or financial reporting
developments that may have a bearing on the Company.
o Instances where management has obtained "second opinions" on
the independent audit or on accounting and financial reporting
policies from other certified public accountants or other
financial accounting advisors that must be reported under
applicable disclosure rules.
o Discuss the type of information to be disclosed in earnings press
releases, earnings guidance and other financial presentations that
are to be provided to analysts, rating agencies and the general
public, paying particular attention to the use of "pro forma" or "as
adjusted" financial disclosures that are not determined in
accordance with generally accepted accounting principles;
o Discuss the Company's financial risk exposures, the steps management
of the Company has taken to monitor and control such exposures and
the Company's guidelines and policies regarding risk assessment and
management;
o Review the Company's policies relating to the ethical handling of
conflicts of interest and review past or proposed transactions
between the Company and members of management as well as policies
and procedures with respect to officers' expense accounts and
perquisites, including the use of corporate assets. The Committee
shall consider the results of any review of these policies and
procedures by the Company's independent auditors.
o Provide the opportunity for management of the Company, the internal
auditors and the independent auditors to meet separately with the
Committee. The items to be discussed at the meeting with the
independent auditor should include any difficulties encountered in
the course of the audit work, any restrictions placed on the scope
of the independent auditors' activities and access to information,
any disagreements with management and the evaluation by the internal
auditors of the Company's financial, accounting and internal
auditing personnel and the cooperation that the independent auditors
received from such personnel during the course of the audit. The
Committee may also review:
o Any accounting adjustments that were noted by the independent
auditors but "passed" (as immaterial or otherwise);
o Any communications between the independent auditors' on-site
team and the independent auditors' national offices about
auditing or accounting issues raised in the course of the audit
of the Company's financial statements; or
o The quality of the Company's financial and accounting personnel
and any recommendations that the independent auditors may have
(which discussion may cover, among other topics, improving
internal financial controls, controls over accounting and
financial compliance, the selection of accounting principles
and management reporting systems.)
o Any management letter issued, or proposed to be issued, by the
independent auditors to the Company.
The meeting with the internal auditors should include a review of the
responsibilities, budget and
46
staffing of the Company's internal audit function as well as the
internal auditors' independence and authority, reporting
obligations, proposed internal audit plan for the coming year and
coordination of the plan with the independent auditor. The internal
auditors should also present a summary of findings for completed
internal audits and progress reports on current internal audit
plans, with explanations for any deviations from the plan;
o Obtain and review, at least annually, a report by the independent
auditors describing the firm's internal quality control procedures,
and any material issues raised by the most recent internal quality
control review of the firm or by any governmental or professional
investigation within the preceding five years with respect to any
audit conducted by the firm and steps taken by firm to deal with
such issues;
o Evaluate on an annual basis the qualifications, performance and
independence of the independent auditors, based on the Committee's
review of the independent auditors' report and the performance of
the independent auditors throughout the year. In making its
evaluation, the Audit Committee should take into consideration the
opinion of management and the Company's internal auditors. In
conjunction with this evaluation, the Committee shall review the
independent auditors' lead partner and consider whether the Company
should regularly rotate firms to assure continuing auditors'
independence. The Committee shall present to the Board of Directors
its conclusions with respect to the independent auditors;
o At least annually, review and approve all relationships between the
independent auditors and the Company, other than the audit of the
financial statements with a view toward ensuring the objectivity and
independence of the independent auditors in this regard. The
Committee will set clear hiring policies with respect to employees
or former employees of the independent auditors by the Company to
ensure that there is no direct or indirect adverse effect on the
independence of the independent auditors due to the potentiality of
future employment by the Company of such personnel;
o Establish procedures for the receipt, retention and treatment of
complaints and concerns received by the Company regarding
accounting, internal controls and auditing matters and for the
confidential, anonymous submission of such complaints and concerns
by employees of the Company; and
o Establish procedures for the receipt, retention and treatment of
reports of evidence of a material violation made by attorneys
appearing and practicing before the SEC in the representation of the
Company or any of its subsidiaries, or reports made by the Company's
chief executive officer or general counsel in relation thereto.
o As requested by the Board from time to time, review with management
significant financial matters affecting the Company, whether or not
related to a review of the quarterly or annual financial statements
(which reviews may include, among other things, discussion of such
matters as the Company's interim operating results versus planned
results, management's plan regarding the Company's business
combination strategies, regulatory audit results or the Company's
capital financing alternatives).
o Prepare the report of the Committee as required by the rules and
regulations of the Securities and Exchange Commission to be included
in the Company's proxy materials and submit reports of all meetings
of the Committee to, and discuss matters covered at each meeting
with, the Board of Directors. The reports to the Board of Directors
should include a review of any issues related to
47
the quality and the integrity of the Company's financial statements,
its compliance with legal and regulatory requirements and the
performance of the independent auditors and the internal auditors.
ANNUAL REVIEW
The Committee shall annually perform a review and evaluation of the
performance of the Committee and its members and report its conclusions to the
Board of Directors. In addition, the Committee shall assess the adequacy of
the Charter and the Committee's own performance under the Charter. The
Committee will determine whether any changes to the Charter are advisable or
any corrective actions should be undertaken to correct any deficiencies or
weaknesses noted in the review and evaluation. The Committee shall present any
amendments to the Charter or corrective actions that the Committee deems
necessary or appropriate to the Board of Directors for its approval.
ADOPTION AND PUBLICATION
The Charter shall be published on the Company's Internet website,
filed with the Securities and Exchange Commission at least every three years
in accordance with applicable regulations and otherwise be filed or reported
as may be required by law.
* * * * *
48
[REHABCARE LOGO]
000004 000000000.000000 ext 000000000.000000 ext
MR A SAMPLE 000000000.000000 ext 000000000.000000 ext
DESIGNATION (IF ANY) 000000000.000000 ext 000000000.000000 ext
ADD 1
ADD 2
ADD 3
ADD 4
ADD 5
ADD 6
ELECTRONIC VOTING INSTRUCTIONS
YOU CAN VOTE BY INTERNET OR TELEPHONE!
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.
VALIDATION DETAILS ARE LOCATED BELOW IN
THE TITLE BAR.
PROXIES SUBMITTED BY TELEPHONE OR THE
INTERNET MUST BE RECEIVED BY 1:00 A.M.,
CENTRAL DAYLIGHT SAVINGS TIME, ON MAY 1,
2007.
VOTE BY INTERNET
o Log on to the Internet and go
[PHOTO] to www.investorvote.com
o Follow the steps outlined on
the secured website.
VOTE BY TELEPHONE
o Call toll free 1-800-652-VOTE
(8683) within the United States,
[PHOTO] Canada & Puerto Rico any time on
a touch tone telephone. There is
NO CHARGE to you for the call.
o Follow the instructions
provided by the recorded message.
Using a BLACK INK pen, mark your
---------
votes with an X as shown in this [X]
example. Please do not write
outside the designated areas.
- -------------------------------------------------------------------------------
-----
ANNUAL MEETING PROXY CARD 123456 C0123456789 12345
----------- -----
- -------------------------------------------------------------------------------
IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE
--
PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
PROPOSAL 1 -- ELECTION OF DIRECTORS (FOR TERM EXPIRING IN 2008)
The Board of Directors has proposed and recommends a vote "FOR" the following:
FOR WITHHOLD FOR WITHHOLD FOR WITHHOLD
01 - Colleen Conway-Welch, Ph.D. [ ] [ ] 02 - Anthony S. Piszel, CPA [ ] [ ] 03 - Suzan L. Rayner, MD [ ] [ ]
04 - Harry E. Rich [ ] [ ] 05 - John H. Short, Ph.D. [ ] [ ] 06 - Larry Warren [ ] [ ]
07 - Theodore M. Wight [ ] [ ]
PROPOSAL 2 -- RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors has proposed and recommends a vote "FOR" the following:
FOR AGAINST ABSTAIN
Ratification of the appointment of KPMG [ ] [ ] [ ] The proxies are authorized to vote upon
LLP as RehabCare's independent such other matters as may properly come
registered public accounting firm for before the meeting or any adjournment
the fiscal year ending December 31, thereof in such manner as said proxies
2007. shall determine in their sole
discretion.
NON-VOTING ITEMS
CHANGE OF ADDRESS -- Please print new address below.
MEETING ATTENDANCE
Mark box to the
- ------------------------------------------------------------------------ right if you plan to [ ]
attend the Annual
- ------------------------------------------------------------------------ Meeting.
AUTHORIZED SIGNATURES -- THIS SECTION MUST BE COMPLETED FOR YOUR VOTE TO BE
COUNTED. -- DATE AND SIGN BELOW
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.
Date (mm/dd/yyyy) -- Signature 1 -- Signature 2 --
Please print date below. Please keep signature within the box. Please keep signature within the box.
- ------------------------------------ -------------------------------------- --------------------------------------
/ /
- ------------------------------------ -------------------------------------- --------------------------------------
C 1234567890 J N T MR A SAMPLE (THIS AREA IS SET UP TO
ACCOMMODATE 140 CHARACTERS) MR A SAMPLE
1 U P X 0 1 2 5 5 0 1 AND MR A SAMPLE AND MR A SAMPLE AND MR A
SAMPLE AND MR A SAMPLE AND MR A SAMPLE
AND MR A SAMPLE AND MR A SAMPLE AND
IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE
--
PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
- ---------------------------------------------------------------------------
[REHABCARE LOGO]
- -------------------------------------------------------------------------------
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 1,
2007 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 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, 2007.
The undersigned acknowledges receipt of the 2006 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)
[REHABCARE LOGO]
Using a BLACK INK pen, mark your
---------
votes with an X as shown in this
example. Please do not write
outside the designated areas. [X]
- -------------------------------------------------------------------------------
ANNUAL MEETING PROXY CARD
- -------------------------------------------------------------------------------
PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE
ENCLOSED ENVELOPE.
- -------------------------------------------------------------------------------
PROPOSAL 1 -- ELECTION OF DIRECTORS (FOR TERM EXPIRING IN 2008)
The Board of Directors has proposed and recommends a vote "FOR" the following:
FOR WITHHOLD FOR WITHHOLD FOR WITHHOLD
01 - Colleen Conway-Welch, Ph.D. [ ] [ ] 02 - Anthony S. Piszel, CPA [ ] [ ] 03 - Suzan L. Rayner, MD [ ] [ ]
04 - Harry E. Rich [ ] [ ] 05 - John H. Short, Ph.D. [ ] [ ] 06 - Larry Warren [ ] [ ]
07 - Theodore M. Wight [ ] [ ]
PROPOSAL 2 -- RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors has proposed and recommends a vote "FOR" the following:
FOR AGAINST ABSTAIN
Ratification of the appointment of KPMG [ ] [ ] [ ] The proxies are authorized to vote upon
LLP as RehabCare's independent such other matters as may properly come
registered public accounting firm for before the meeting or any adjournment
the fiscal year ending December 31, thereof in such manner as said proxies
2007. shall determine in their sole
discretion.
AUTHORIZED SIGNATURES -- THIS SECTION MUST BE COMPLETED FOR YOUR VOTE TO BE
COUNTED. -- DATE AND SIGN BELOW
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.
Date (mm/dd/yyyy) -- Signature 1 -- Signature 2 --
Please print date below. Please keep signature within the box. Please keep signature within the box.
- ------------------------------------ -------------------------------------- --------------------------------------
/ /
- ------------------------------------ -------------------------------------- --------------------------------------
1 U P X 0 1 2 5 5 0 2
PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE
ENCLOSED ENVELOPE.
- -------------------------------------------------------------------------------
[REHABCARE LOGO]
===============================================================================
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 1,
2007 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 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, 2007.
The undersigned acknowledges receipt of the 2006 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)