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
APRIL 29, 2008
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 April 29, 2008 at 8:30 a.m., Central Daylight Savings Time,
for the following purposes:
1. To elect eight directors to hold office until the next annual meeting
or until their successors shall have been duly elected 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,
2008; 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 3, 2008, 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,
Patricia S. Williams
Senior Vice President & General Counsel
March 31, 2008
[RehabCare logo]
7733 FORSYTH BOULEVARD
SUITE 2300
ST. LOUIS, MISSOURI 63105
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 29, 2008
-----------------
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 April 29,
2008 at 8:30 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 31, 2008.
The proxy set forth on the accompanying proxy card is being
solicited by our Board of Directors. All proxies will be voted in accordance
with the instructions contained in the proxy. If no direction is specified in
the proxy, executed proxies will be voted for the election of the eight
directors nominated by our Board of Directors in Proposal I 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.
2
Only our stockholders of record at the close of business on
March 3, 2008, are entitled to notice of, and to vote at, the annual meeting.
On this date, there were 18,036,672 shares of our common stock, $0.01 par
value, outstanding, including 484,852 shares of unvested restricted stock.
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. Ms.
Patricia S. Williams, Senior Vice President and General Counsel, will serve as
the inspector of elections at the annual meeting and will tabulate the votes.
A plurality of the votes cast is required for the election
of directors, which means that the nominees with the eight highest vote totals
will be elected as our directors. As a result of the foregoing, a designation
on the proxy that the stockholder is "withholding authority" for a nominee or
nominees and broker "non-votes" do not have an effect on the results of the
vote for the election of directors. A designation on the proxy that the
stockholder is "withholding authority" to vote for a nominee or nominees will
be counted, but broker "non-votes" will not be counted, for the purpose of
determining the number of shares represented at the meeting for purposes of
determining whether a quorum of shares is present. A broker "non-vote" occurs
when a nominee holding shares for a beneficial owner does not vote on a
particular proposal because the nominee does not have discretionary voting
power with respect to that item and has not received instructions from the
beneficial owner.
The 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 3, 2008:
NUMBER OF SHARES PERCENT OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK (1)
------------------------------------ ------------------ ----------------
FMR LLC (2) 1,816,723 10.07%
82 Devonshire Street
Boston, Massachusetts 02109
Dimensional Fund Advisors LP (3) 1,413,027 7.83%
1299 Ocean Avenue
Santa Monica, California 90401
Barclays Global Investors, NA (4) 1,060,710 5.88%
45 Fremont Street
San Francisco, California 94105
<FN>
- --------------------
(1) The percentage calculations are based upon 18,036,672 shares of our
common stock outstanding on March 3, 2008, including 484,852 shares of
unvested restricted stock.
3
(2) The information provided is based on Amendment No. 15 to Schedule 13G,
dated February 14, 2008, which was filed jointly by FMR LLC, a holding
company, Edward C. Johnson 3rd, a principal stockholder and the chairman
of FMR LLC and Fidelity Management & Research Company, a wholly-owned
subsidiary of FMR LLC and an investment advisor, and Fidelity Advisor
Small Cap Fund, an investment company. FMR LLC and Edward C. Johnson 3rd
reported sole voting power with respect to none of the shares owned
directly by the Fidelity Funds, which power resides with the Funds'
Boards of Trustees. Fidelity International Limited and several of its
foreign-based subsidiaries have the sole power to vote 10,400 shares.
Each of FMR LLC and Edward C. Johnson 3rd reported sole dispositive
power with respect to all 1,816,723 shares reported as beneficially
owned.
(3) The information provided is based on Schedule 13G, dated December 31,
2007, which was filed by Dimensional Fund Advisors LP, an investment
adviser. Dimensional Fund Advisors LP reported sole voting power with
respect to 1,413,027 shares and sole dispositive power with respect to
all 1,413,027 shares reported as beneficially owned.
(4) The information provided is based on Schedule 13G, dated February 6,
2008, which was filed by Barclays Global Investors, N.A., 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, Barclays Global Investors Japan
Limited, an investment advisor, Barclays Global Investors Canada
Limited, an investment advisor, Barclays Global Investors Australia
Limited, an investment advisor and Barclays Global Investors
(Deutschland) AG, an investment advisor. The reporting person reported
that Barclays Global Investors, NA. had sole voting power with respect
to 463,358 shares and sole dispositive power with respect to 526,314
shares. The reporting person reported that Barclays Global Fund Advisors
had sole voting power with respect to 391,375 shares and sole
dispositive power with respect to 534,396 shares. The reporting person
reported that Barclays Global Investors, Ltd had sole dispositive power
with respect to 17,609 shares. The reporting person reported that
Barclays Global Investors Japan Trust and Banking Company Limited,
Barclays Global Investors Japan Limited, Barclays Global Investors
Canada Limited, Barclays Global Investors Australia Limited, and
Barclays Global Investors (Deutschland) AG, reported voting and
dispositive power with respect to none of the shares.
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SECURITY OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of March 3, 2008, the
beneficial ownership of our common stock by each director and each named
executive officer 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. 58,991 (4)
Christopher T. Hjelm 7,500 (4)
Anthony S. Piszel, CPA 25,000 (4)
Suzan L. Rayner, M.D. 25,000 (4)
Harry E. Rich 18,500 (4)
Larry Warren 25,000 (4)
Theodore M. Wight 90,030 (4)
John H. Short, Ph.D. 431,360 2.35%
Tom E. Davis 15,000(5) (4)
Patricia M. Henry 153,677 (4)
Jay W. Shreiner 63,150 (4)
Mary Pat Welc 40,673 (4)
Jeff A. Zadoks 10,640 (4)
All directors and executive officers as a group (15 persons) 990,757 5.31%
<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, 64,730, 308,148,
111,230, 15,000, 24,132, 5,000 and 629,001 shares subject to stock
options owned by Dr. Conway-Welch, Mr. Piszel, Dr. Rayner, Mr. Rich, Mr.
Warren, Mr. Wight, Dr. Short, Ms. Henry, Mr. Shreiner, Ms. Welc, Mr.
Zadoks, and all directors and executive officers as a group,
respectively, that are either presently exercisable or exercisable within
60 days of March 3, 2008. Totals also include 667 and 1,191 shares
allocated to Ms. Henry and Ms. Welc respectively under our 401(k) plan
and 190 shares allocated to Dr. Short owned by his son under our 401(k)
plan. As to Ms. Henry, Mr. Shreiner, Ms. Welc and Mr. Zadoks, the totals
also include 16,420, 17,270, 4,900, and 1,990, respectively, shares of
restricted stock granted to them on February 5, 2008.
(3) Percent of ownership is based upon 18,036,672 shares of our common stock
outstanding as of March 3, 2008, 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 3, 2008.
(4) Less than one percent.
(5) Ownership is based on Mr. Davis's last Form 4 filing prior to his
resignation from the Company effective November 1, 2007. Amount excludes
restricted shares that were forfeited upon his resignation.
5
PROPOSAL I.
ELECTION OF DIRECTORS
At the annual meeting, our stockholders will vote on the
election of eight directors to serve a term of one year until the 2009 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 eight directors listed below, except as otherwise
directed by the stockholder on the proxy card. If for any reason any nominee
becomes unavailable for election, which is not now anticipated, the persons
named in the accompanying proxy card will vote for a substitute nominee as
designated by our Board of Directors. The eight nominees receiving the highest
number of votes will be elected as our directors. Each nominee currently
serves as one of our directors.
Our Board of Directors recommends a vote "FOR" the election
of each of the nominees.
The name, age, principal occupation or position, business
experience and other directorships for each of the directors or nominees is
set forth below. No family relationship exists between any of our directors or
executive officers.
COLLEEN CONWAY-WELCH, PH.D., R.N., 64, 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 dean since 1984.
Dr. Conway-Welch also serves on the Board of Directors of Pinnacle Bank,
Ardent Health Services, Healthline and Minute Clinic (which are all private
companies).
ANTHONY S. PISZEL, CPA, 53, 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.
CHRISTOPHER T. HJELM, 46, has been a director since July,
2007. Mr. Hjelm serves as Senior Vice President and Chief Information Officer
at The Kroger Company, where he has been employed since 2005. Prior to joining
The Kroger Company, Mr. Hjelm served as the Chief Information Officer for the
Travel Distribution Services division of Cendant between December, 2004 and
July, 2005. Mr. Hjelm was employed by Orbitz as the Chief Information Officer
from July, 2003 to November, 2004 when it was acquired by Cendant. Mr. Hjelm
was a Senior Vice President at eBay Technology with eBay, Inc. from March,
2002 to June, 2003.
SUZAN L. RAYNER, MD, MPH, 52, 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, 68, 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.
6
Louis Public Schools from November 2003 to November 2005. Prior to that
position, Mr. Rich served as Executive Vice President for Crown Capital
Investment Advisors from August 2001 to October 2003. Mr. Rich served as
Executive Vice President 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, 60, has been a director since October 2005.
Since October 2006, Mr. Warren has been serving as the Chief Executive Officer
of Howard University Hospital in Washington, D.C. Prior to his retirement, Mr.
Warren served as Chief Executive Officer of the University of Michigan
Hospital where he was employed from 1986 to 2005.
THEODORE M. WIGHT, 65, has been a director since 1991. Prior
to his retirement, Mr. Wight served since 1983 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 since 1994.
JOHN H. SHORT, PH.D., 63, 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, 2007, our Board of
Directors held six (6) meetings, two (2) 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 2007. 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, except Mr. Piszel.
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
established corporate governance guidelines to assist it in determining
director
7
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. Hjelm, 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 $120,000 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
8
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 Hjelm comprise the Audit
Committee. The Audit Committee met eight (8) times during 2007. Four (4) of
the meetings were conducted by telephone. Mr. Hjelm joined the Audit Committee
upon his election to the Board in July 2007. Our current director, Mr. Wight,
also served on the Audit Committee during 2007. 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."
COMPENSATION AND NOMINATING/CORPORATE GOVERNANCE COMMITTEE
The members of the Compensation and Nominating/Corporate
Governance Committee are Messrs. Wight (Chair), Rich, and Warren. 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 four (4) times during 2007. None
of the meetings were conducted by telephone. The duties of the Compensation
and Nominating/Corporate Governance Committee include but are not limited to:
9
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
chief executive officer and other executive officers;
o reviewing market data to assess the competitiveness of our
compensation programs for the chief executive officer and other
executive officers;
o reviewing and determining our chief executive officer's compensation,
including base salary and long and short term incentives, based on
its evaluation of our chief executive officer'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 chief executive officer'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.
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 on the same basis
as all nominees. 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.
10
COMPLIANCE COMMITTEE
The Compliance Committee members are Dr. Conway-Welch
(Chair), Dr. Rayner, and Mr. Warren. 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 (4) meetings during 2007,
none of which were telephonic meetings.
COMPENSATION AND NOMINATING/CORPORATE GOVERNANCE COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
No member of the Compensation and Nominating/Corporate
Governance Committee is, or was during the fiscal year ended December 31,
2007, an officer, former officer, or employee of the Company or any of its
subsidiaries, or a person having a relationship requiring disclosure by the
Company pursuant to Item 404 of Regulation S-K. No executive officer of the
Company served as a member of (i) the compensation Committee of another entity
of which one of the executive officers of such entity served on the Company's
Compensation and Nominating/Corporate Governance Committee or (ii) the Board
of Directors of another entity of which one of the executive officers of such
entity served on the Company's Board, during the year ended December 31, 2007.
MISCELLANEOUS
We have 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 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 2007:
o John Short President & Chief Executive Officer (CEO)
o Jay Shreiner Executive Vice President & Chief Financial Officer (CFO)
o Patricia Henry Executive Vice President
o Mary Patricia Welc Senior Vice President
o Jeff Zadoks Vice President and Chief Accounting Officer
o Tom Davis Executive Vice President
(Mr. Davis resigned from the Company in November 2007)
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 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.
12
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 that total executive compensation -
with fixed and performance-based (short-term and long-term) components be set
at approximately 75% in cash and 25% in equity. This approach seeks to
minimize equity accounting expense and shareholder dilution.
ROLE OF EXECUTIVE OFFICERS
Each year, the chief executive officer reviews the
performance of named executive officers (other than himself, whose performance
is reviewed by the Committee) and makes recommendations to the Committee
regarding salary adjustments and annual cash and stock-based award amounts.
The chief executive officer, with assistance from the senior vice president of
human resources and the chief financial officer, also makes recommendations to
the Committee regarding annual performance measures, goals, and targets. The
Committee may, in its discretion, adjust any recommendations made by the chief
executive officer. The Committee has engaged Hewitt Associates, LLC as its
independent advisor on matters pertaining to executive compensation,
retention, and incentives.
The chief financial officer verifies the actual business
performance results against the goals of the Committee-approved incentive
programs and, in turn, the chief financial officer makes recommendations to
the Committee on discretionary 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 2007 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.
13
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 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 110 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, target long term incentive, and target total
compensation) was derived for all of the named executive officer positions.
During the third quarter of 2006, the Committee requested
that the comparator study conducted by Hewitt be updated to reflect annual
market pay trends since 2005, and the impact, if any, on the statistical
regressed results for RehabCare Group, Inc. based on the acquisition of
Symphony Health Services on July 1, 2006.
After reviewing the comparator group data, the Committee
authorized the following elements of executive compensation for named
executive officers in 2007:
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.
14
BASE SALARY
The Committee considers market data, the executive's
qualifications, experience, 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 2006 review (and 2007
update) indicated that, generally, our named executive officers receive a
fair, reasonable, and competitive base salary as compared with executive
officers in the comparator groups.
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 conducted annually. Based on factors
described above, the Committee approved salary increases effective March 1,
2007 of 3% for Dr. Short, Mr. Shreiner, Ms. Henry, and Mr. Davis, and a salary
increase of 3.5% for Ms. Welc. The Committee also approved a salary increase
effective August 1, 2007 of 16.7% for Mr. Zadoks in consideration of his
performance and benchmark data for his position.
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.
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 in setting these
Company financial goals. 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 2007,
the 80% financial objective was allocated as follows: 48% was based on an
earnings per share target of $1.07, and 32% was based on a revenue target of
$727.2 million.
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
15
that is earned by our business activities and is represented by the operating
revenue figure on our income statement.
Beginning in 2007, the Committee re-weighted the 80%
financial component for certain named executive officers with Division level
profit and loss responsibility. For Mss. Henry and Welc the 80% financial
objectives were allocated as follows: 15% on the Company earnings per share
target, 10% on the Company revenue target, 33% on Division level income and
22% on Division level revenue. The last two measurements directly support
corporate earnings per share and revenue objectives but are tied more closely
to the executive's direct accountabilities. The same 85% of target award
performance must be achieved for either Division level component to be paid.
Each named executive officer is eligible to earn a target
bonus based on a percentage of his or her salary. The percentage varied
depending on his or her position as follows: 35% of base salary for Mr.
Zadoks; 40% of base salary for Ms. Welc; 45% of base salary for Mr. Shreiner;
50% of base salary for Ms. Henry; and 60% of base salary for Dr. Short (Mr.
Davis's target was 45% but he became ineligible for an STIP bonus for 2007
when he resigned in November 2007). 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 2007, we did not achieve 85% of the earnings per share
target and, as a result, no award was approved based on that factor. We
achieved 97.7% of the revenue target and, coupled with achievement of
individual performance goals by each named executive officer, the Committee
approved the following cash awards per the plan design: Dr. Short, $152,188;
Mr. Shreiner, $74,321; and Mr. Zadoks, $35,703. Ms. Henry's division also
achieved 92.6% of its operating earnings goal and 100.8% of its revenue goal,
for which the Committee approved an award to Ms. Henry per the plan design of
$128,920. In addition, Ms. Welc's division achieved 93.7% of its operating
earnings goal and 96.8% of its revenue target, for which the Committee
approved an award to Ms. Welc per the plan design of $58,747. The cash awards
were paid in March 2008.
Separately, the Committee approved, on a one time basis, an
additional payment recognizing a select number of key managers for the
successful integration and synergy results achieved associated with the July
1, 2006 Symphony Health Services acquisition. The Committee approved the
following cash awards: Dr. Short, $75,000; Mr. Shreiner and Ms. Henry,
$50,000; Ms. Welc, $35,000; and Mr. Zadoks, $25,000.
LONG-TERM INCENTIVE PLAN
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 ("LTIP")
which provides for cash and equity awards to be made under the LTIP. In the
past, the awards made under 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 Statement
& Financial Accounting Standard ("SFAS") 123R, which occurred on January 1,
2006.
16
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.
In 2007, the Committee decided to continue the same LTIP
award strategy as 2006 in providing a cash component using a three year
performance cycle and a restricted stock grant. The Committee believes this
combination continues to provide a strong 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.
For the 2007-2009 cycle, the total LTIP opportunity for each
named executive officer is noted below:
===========================================================================================================
TOTAL LTIP AWARD % OF TOTAL IN CASH % OF TOTAL
TARGET AS A INCENTIVE PLAN IN EQUITY
NAMED EXECUTIVE OFFICER % OF BASE SALARY (2007-2009 CYCLE) (RESTRICTED STOCK)
-----------------------------------------------------------------------------------------------------------
CEO -- Short 75% 100% 0%
-----------------------------------------------------------------------------------------------------------
CFO-- Shreiner 100% 25% 75%
-----------------------------------------------------------------------------------------------------------
EVP-- Henry 125% 40% 60%
-----------------------------------------------------------------------------------------------------------
EVP-- Welc 75% 33% 67%
-----------------------------------------------------------------------------------------------------------
VP-- Zadoks 35% 43% 57%
-----------------------------------------------------------------------------------------------------------
SVP -- Davis 100% 25% 75%
-----------------------------------------------------------------------------------------------------------
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 as amended effective March 10, 2006 and December 11, 2007), 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.) Mr. Davis became ineligible to
participate when he resigned from the Company on November 1, 2007.
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.
17
2005-2007 PERFORMANCE CYCLE
CASH
----
For the 2005-2007 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 2005-2007 performance
cycle, the threshold, target, and maximum goals were as follows:
================================================================================
GOALS ACTUAL
------------------------------------------ PERFORMANCE
THRESHOLD TARGET MAXIMUM ACHIEVED
- --------------------------------------------------------------------------------
EPS (60%) $1.987 $2.379 $2.854 $0.73
- --------------------------------------------------------------------------------
REVENUE (40%) $530M $634M $700M $711.7M
- --------------------------------------------------------------------------------
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; Ms. Henry, $44,520; Ms. Welc, $31,158;
and Mr. Zadoks, $26,250. These amounts were paid in March 2008. Mr. Shreiner
was not employed by our Company during the first year of the performance cycle
and therefore was not eligible to participate. Mr. Davis became ineligible for
an LTIP bonus for 2005-2007 when he resigned in November 2007.
2006-2008 PERFORMANCE CYCLE
CASH
----
For the 2006-2008 cycle, which will pay out in March 2009,
the threshold, target and maximum financial goals are as follows:
===================================================================================================
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 is 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.
18
2007-2009 PERFORMANCE CYCLE
CASH
----
For the 2007-2009 cycle, which will pay out in March 2010,
the threshold, target, and maximum financial goals are as follows:
=============================================================================
GOALS
-------------------------------------------------
THRESHOLD TARGET MAXIMUM
- -----------------------------------------------------------------------------
EPS (60%) $0.816 $1.026 $1.235
- -----------------------------------------------------------------------------
REVENUE (40%) $744.7M $935.0M $1,030.8M
- -----------------------------------------------------------------------------
EQUITY
DISCRETIONARY EQUITY AWARDS
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% per year over four years. The
Committee has also given the CEO the alternative discretionary authority to
grant newly-hired executives up to 1,500 shares of restricted stock.
During 2007, the Committee did not grant any stock options
to named executive officers.
In 2006 and 2007, the Committee granted 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.
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
19
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 both 2007 and 2006, Messrs. Zadoks and Davis were the
only named executive officers 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 examination. 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 $150,000, 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 examination). Prior to his
resignation on November 1, 2007, Mr. Davis received a car allowance of $6,389
as a part of his original employment terms.
SEVERANCE AND CHANGE IN CONTROL COMPENSATION ARRANGEMENTS
In March 2006, we entered into new executive severance and
change-in-control agreements with a limited number of executives including the
following named executive officers: Dr. Short, Messrs. Shreiner and Davis and
Mss. Henry and Welc. In December 2007 we entered into a modified agreement
with Dr. Short. 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.
20
The agreement with our chief executive officer, 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, the average of his annual STIP
bonuses paid with respect to the three fiscal years with the Company ending
before his termination, vesting of any time based outstanding equity awards
that are scheduled to vest within 6 months, a prorated vesting at the target
award level of any outstanding performance stock (using a fraction multiplier
with the denominator of 36 and a numerator of the number of months in the
performance period which have elapsed at the date of termination), 24 months
of continued health benefits, and 12 months of outplacement services. 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 the
average of his annual STIP bonuses paid with respect to the three fiscal years
with the Company ending before his termination, vesting of all outstanding
equity awards (performance stock based grants shall be deemed to have been
fully performed and performance targets fully met), 24 months of continued
health benefits, and 12 months of outplacement services. In addition, Dr.
Short will also be entitled to receive an amount equal to his target bonus
percentage for the year that the change in control occurs multiplied by his
then-current annual salary on the termination date, prorated for the portion
of the year during which he was employed by the Company. In either occurrence,
Dr. Short shall not be permitted to determine, directly or indirectly, the
taxable year of payment.
The agreements for Mr. Shreiner, Mr. Davis, and Ms. Henry,
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 of all outstanding equity awards, 12
months of continued health benefits, and 12 months of outplacement services.
Ms. Welc is covered by a severance plan that, upon
termination of employment by the Company without cause or termination for good
reason (such as a material change in salary, responsibilities and authority,
or place of work), and prior to change in control, provides severance benefits
of 12 months salary continuation, an STIP award at target for the year in
which the termination occurs and 9 months of continued health benefits. Ms.
Welc has a termination compensation agreement which provides for the following
upon termination due to a change in control within 2 years of the transaction
date: a lump-sum cash payment equal to 12 months of her current annual salary
plus her target bonus in the year that the change in control occurs, vesting
of all outstanding equity awards, 12 months of continued health benefits, and
12 months of outplacement services.
Mr. Zadoks is covered by a severance plan for the Company's
Vice Presidents that upon termination by the Company without cause, or
termination for good reason (such as a material change in salary,
responsibilities and authority, or place of work), severance benefits will
include 9 months of salary continuation, 9 months of continued health
benefits, and 12 months of outplacement services.
Separately, as identified in the long term incentive plan,
in the event of a change in control, the current award targets for named
executive officers will be prorated to the date of the change in control based
on the target award opportunity using the greater of actual performance at the
change in control date or target award level. This provision applies for the
two performance periods of 2006-2008 and 2007-2009.
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. Dr. Short's agreement was modified in December 2007 such
that any
21
payments by the Company that would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended, shall be
decreased to the greatest amount that could be paid to him that would not give
rise to any such excise taxes.
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
encourages named executive officers and other senior management executives to
acquire and hold shares of Company stock.
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.
22
SUMMARY COMPENSATION TABLE
The table below summarizes the total compensation paid to
each of the named executive officers for the fiscal years ended December 31,
2007 and 2006.
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------
CHANGE IN
PENSION VALUE
&
NON-QUALIFIED
NON-EQUITY DEFERRED
STOCK OPTION INCENTIVE PLAN COMPENSATION ALL OTHER
YEAR SALARY BONUS AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL
(1) (2) (3) (4) (5) (6)
- ------------------------------------------------------------------------------------------------------------------------
JOHN SHORT, 2007 $590,149 $75,000 $131,886 $335,938 $4,902 $1,137,875
CEO
2006 $573,813 $334,950 $334,794 $4,629 $1,248,186
- ------------------------------------------------------------------------------------------------------------------------
JAY SHREINER, 2007 $337,917 $50,000 $134,359 $58,240 $74,321 $148,639 $803,476
CFO
2006 $240,096 $46,151 $44,691 $53,940 $1,100 $385,978
- ------------------------------------------------------------------------------------------------------------------------
PATRICIA HENRY, 2007 $344,854 $50,000 $129,748 $45,770 $173,440 $4,508 $748,320
EXECUTIVE VP
2006 $329,054 $48,515 $64,287 $124,520 $6,729 $573,105
- ------------------------------------------------------------------------------------------------------------------------
MARY PATRICIA 2007 $205,531 $35,000 $53,943 $14,593 $89,905 $4,667 $403,639
WELC, SVP
2006 $199,035 $21,550 $14,593 $40,381 $3,931 $279,490
- ------------------------------------------------------------------------------------------------------------------------
JEFF ZADOKS, 2007 $191,250 $25,000 $18,712 $2,952 $61,953 $4,509 $304,376
VP & CHIEF
ACCOUNTING
OFFICER 2006 $166,875 $20,000 $7,114 $7,163 $29,938 $4,235 $235,325
- ------------------------------------------------------------------------------------------------------------------------
TOM DAVIS, 2007 $350,263 $0 $0 $0 $10,930 $361,193
EXECUTIVE VP
2006 $323,597 $50,723 $70,281 $122,537 $11,707 $578,845
- ------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The amounts shown above reflect actual amounts received or deferred
during 2007 and 2006. Mr. Davis voluntarily resigned from the Company
effective November 1, 2007; $57,010 of his salary reflects a payout for
his accrued but unused paid days off.
(2) 2007 amounts reflect the Committee's decision to recognize select key
executives and managers on a one time basis, for the successful
integration and synergy results achieved associated with the July 1, 2006
Symphony Health Services acquisition. In 2006, Mr. Zadoks was given a one
time payment for the successful financial integration of the Symphony
Health Services acquisition.
(3) Reflects the costs recognized for financial statement reporting purposes
for the fiscal years ended December 31, 2007 and 2006 in accordance with
SFAS 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, 2007 included in the Company's
Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March 11, 2008.
(4) Reflects the costs recognized for financial statement reporting purposes
for the fiscal years ended December 31, 2007 and 2006 in accordance with
FAS 123(R), excluding estimated forfeitures. Costs may include amounts
from awards granted prior to 2006. Mr. Davis forfeited options to
purchase 31,250 shares when he resigned on November 1, 2007.
(5) 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 set out below and which are discussed in
the Compensation Discussion and Analysis, and in the narrative to the
Grants of Plan-Based Awards Table. Upon his resignation, Mr. Davis was no
longer eligible for STIP or LTIP awards.
23
- -----------------------------------------------------------------------------------
STIP AWARD LTIP AWARD
- -----------------------------------------------------------------------------------
John Short, CEO 2007 $152,188 $183,750 2005-2007
2006 $151,044 $183,750 2004-2006
- -----------------------------------------------------------------------------------
Jay Shreiner, CFO 2007 $74,321 N/A 2005-2007
2006 $53,940 N/A 2004-2006
- -----------------------------------------------------------------------------------
Patricia Henry, Executive VP 2007 $128,920 $44,520 2005-2007
2006 $80,000 $44,520 2004-2006
- -----------------------------------------------------------------------------------
Mary Patricia Welc, Senior VP 2007 $58,747 $31,158 2005-2007
2006 $40,381 N/A 2004-2006
- -----------------------------------------------------------------------------------
Jeff Zadoks, VP & Chief 2007 $35,703 $26,250 2005-2007
Accounting Officer
2006 $29,938 N/A 2004-2006
- -----------------------------------------------------------------------------------
Tom Davis, Executive V.P. 2007 $0 N/A 2005-2007
2006 $69,757 $52,780 2004-2006
- -----------------------------------------------------------------------------------
<FN>
(6) The amounts included in this column represent Company matching
contributions under the 401(k) savings plan. Mr. Davis also received a
car allowance of $6,389 and $7,302 in 2007 and 2006 respectively. Ms.
Henry was reimbursed $2,321 for personal travel expenses during the first
two months of 2006 and Mr. Shreiner had $146,706 in relocation earnings
in 2007.
24
The following table sets forth information concerning grants
of plan-based awards made during the fiscal year ended December 31, 2007 to
the named executive officers:
GRANTS OF PLAN-BASED AWARDS
- -----------------------------------------------------------------------------------------------------------------------------------
ESTIMATED FUTURE PAYOUTS ESTIMATED FUTURE PAYOUTS
UNDER NON-EQUITY UNDER EQUITY INCENTIVE
INCENTIVE PLAN AWARDS PLAN AWARDS
- -----------------------------------------------------------------------------------------------------------------------------------
ALL OTHER ALL OTHER
STOCK OPTION
AWARDS: AWARDS:
NUMBER OF NUMBER OF EXERCISE OR GRANT DATE
SHARES OF SECURITIES BASE PRICE FAIR VALUE
STOCK OR UNDERLYING OF OPTION OF EQUITY
NAME GRANT DATE THRESHOLD TARGET MAXIMUM THRESHOLD TARGET MAXIMUM UNITS OPTIONS AWARDS AWARDS
(1) (2)
- ----------------------------------------------------------------------------------------------------------------------------------
2/6/2007 (STIP) $86,539 $357,600 $643,680
JOHN SHORT -----------------------------------------------------------------------------------------------------------------------
2/6/2007 (LTIP) $130,151 $433,836 $759,213
- ----------------------------------------------------------------------------------------------------------------------------------
2/6/2007 (STIP) $37,026 $153,000 $275,400
JAY -----------------------------------------------------------------------------------------------------------------------
SHREINER 2/6/2007 (LTIP) $24,750 $82,500 $144,375
-----------------------------------------------------------------------------------------------------------------------
2/6/2007 16,420 $247,449
- ----------------------------------------------------------------------------------------------------------------------------------
2/6/2007 (STIP) $41,987 $173,500 $312,300
PATRICIA -----------------------------------------------------------------------------------------------------------------------
HENRY 2/6/2007 (LTIP) $50,505 $168,350 $294,613
-----------------------------------------------------------------------------------------------------------------------
2/6/2007 16,760 $252,573
- ----------------------------------------------------------------------------------------------------------------------------------
2/6/2007 (STIP) $20,038 $82,800 $149,040
MARY -----------------------------------------------------------------------------------------------------------------------
PATRICIA 2/6/2007 (LTIP) $14,996 $49,987 $87,477
WELC -----------------------------------------------------------------------------------------------------------------------
2/6/2007 6,630 $99,914
- ----------------------------------------------------------------------------------------------------------------------------------
2/6/2007 (STIP) $17,787 $73,500 $132,300
-----------------------------------------------------------------------------------------------------------------------
JEFF ZADOKS 2/6/2007 (LTIP) $8,100 $27,000 $47,250
-----------------------------------------------------------------------------------------------------------------------
2/6/2007 2,390 $36,017
- ----------------------------------------------------------------------------------------------------------------------------------
2/6/2007 (STIP) $36,590 $151,200 $272,160
-----------------------------------------------------------------------------------------------------------------------
TOM DAVIS 2/6/2007 (LTIP) $24,466 $81,553 $142,718
(3) -----------------------------------------------------------------------------------------------------------------------
2/6/2007 16,230 $244,586
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) In February 2007, 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 2007 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 Division level income and revenue performance
objectives in Mss. Henry and Welc's plan the same achievement levels and
award payout opportunities are required for an award payout on each
respective component. With regards to performance based individual
objectives, the award can range from 0% up to 100% of target.
For the three-year LTIP performance cycles (2007-2009, payable in March
2010 and 2006-2008, payable in March 2009), if at least 80% of the
targeted earnings per share goal is achieved, then 30% of the target
payment will be paid. If 100% of the target earnings per share goal is
achieved, then 100% of the target payment will be made. A maximum of
175% of target will be paid if 120% of the earnings per share goal is
achieved. No payout is to be made if less than 80% of the targeted
financial goal is achieved. With regard to the revenue target, if at
least 80% of the targeted goal is achieved, then 30% of the target
payment will be paid. If 100% of the goal is attained, then 100% of the
target payment will be made. The maximum payout of 175% will be made if
110% of the targeted revenue goal is achieved. The 2006-2008 performance
cycle included a
25
performance based individual objectives goal and the award can range from
0% up to 100% of target based on results. The 2007-2009 performance cycle
has only earnings per share and revenue performance targets.
(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 Company's 2006 Equity Incentive Plan.
(3) Each of the stock awards made to Mr. Davis were forfeited upon his
resignation from the Company on November 1, 2007.
The following table sets forth information concerning
outstanding equity awards at December 31, 2007 for our named executive
officers:
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
- --------------------------------------------------------------------------------------------------------------------------------
OPTION AWARDS STOCK AWARDS
-----------------------------------------------------------------------------------------------------------------
EQUITY NUMBER MARKET EQUITY
INCENTIVE PLAN OF VALUE OF INCENTIVE PLAN EQUITY INCENTIVE
NUMBER OF NUMBER OF AWARDS: NUMBER SHARES SHARES AWARDS: NUMBER PLAN AWARDS:
SECURITIES SECURITIES OF SECURITIES OR UNITS OR UNITS OF UNEARNED MARKET OR PAYOUT
UNDERLYING UNDERLYING UNDERLYING OF STOCK OF STOCK SHARES, UNITS, VALUE OF UNEARNED
UNEXERCISED UNEXERCISED UNEXERCISED OPTION OPTION THAT THAT OR OTHER SHARES, UNITS, OR
OPTIONS OPTIONS UNEARNED EXERCISE EXPIRATION HAVE NOT HAVE NOT RIGHTS THAT OTHER RIGHTS THAT
NAME EXERCISABLE UNEXERCISABLE OPTIONS PRICE DATE VESTED VESTED HAVE NOT VESTED HAVE NOT VESTED
(#) (#) (#) (1) ($) (#) ($) (#) (2) ($)
- --------------------------------------------------------------------------------------------------------------------------------
30,000 $10.22 1/26/2009
-----------------------------------------------------------------------------------------------------------------
15,200 $12.69 1/14/2010
-----------------------------------------------------------------------------------------------------------------
4,861 $39.50 1/14/2011
JOHN SHORT -----------------------------------------------------------------------------------------------------------------
7,000 $25.09 1/14/2012
-----------------------------------------------------------------------------------------------------------------
6,300 $18.93 1/16/2013
-----------------------------------------------------------------------------------------------------------------
223,954 26,046 $21.58 5/3/2014
- --------------------------------------------------------------------------------------------------------------------------------
7,500 22,500 $19.11 3/27/2016 9,460 $213,418
JAY SHREINER -----------------------------------------------------------------------------------------------------------------
16,420 $370,435
- --------------------------------------------------------------------------------------------------------------------------------
8,000 $34.00 8/30/2010 8,600 $194,016
-----------------------------------------------------------------------------------------------------------------
60,000 $22.63 3/6/2012 16,760 $378,106
-----------------------------------------------------------------------------------------------------------------
20,000 $19.66 12/16/2013
PATRICIA HENRY -----------------------------------------------------------------------------------------------------------------
4,230 $23.09 10/26/2014
-----------------------------------------------------------------------------------------------------------------
10,143 $27.99 2/8/2015
-----------------------------------------------------------------------------------------------------------------
22,142 $27.99 2/8/2015
- --------------------------------------------------------------------------------------------------------------------------------
10,000 $34.00 8/30/2010 3,820 $86,179
-----------------------------------------------------------------------------------------------------------------
MARY 5,000 $40.00 8/29/2011 6,630 $149,573
PATRICIA -----------------------------------------------------------------------------------------------------------------
WELC 5,000 $22.15 8/28/2012
-----------------------------------------------------------------------------------------------------------------
10,330 $27.99 2/8/2015
- --------------------------------------------------------------------------------------------------------------------------------
5,000 $18.00 12/1/2013 1,260 $28,426
JEFF ZADOKS -----------------------------------------------------------------------------------------------------------------
2,390 $53,918
- --------------------------------------------------------------------------------------------------------------------------------
15,000 $34.00 2/1/2008
-----------------------------------------------------------------------------------------------------------------
20,000 $22.15 2/1/2008
TOM DAVIS -----------------------------------------------------------------------------------------------------------------
5,020 $23.09 2/1/2008
-----------------------------------------------------------------------------------------------------------------
12,018 $27.99 2/1/2008
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) On May 3, 2004, Dr. Short was granted an award of 250,000 options. 12.5%
of his options vested on November 3, 2004, and his remaining options vest
at the rate of 2.1% per month for each month thereafter. On February 8,
2005, Mr. Davis, Ms. Henry and Ms. Welc were granted 26,250, 22,142 and
10,330 options, respectively. These three-year cliff vesting options were
subject to performance-based vesting conditions based on the attainment
of performance standards for the 2005-2007 performance period. All of the
remaining options listed in this column vest at the rate of 25% per year
over the first four years of the award's ten-year term.
(2) All stock awards listed in this column were granted under the LTIP and
will vest on the third anniversary of the date of the award.
26
The following table sets forth information concerning each
exercise of options and the vesting of restricted stock during the fiscal
year ended December 31, 2007 by the named executive officers:
OPTION EXERCISES AND STOCK VESTED
- ------------------------------------------------------------------------------------------------
OPTION AWARDS STOCK AWARDS
--------------------------------------------------------------------
VALUE VALUE
NUMBER OF SHARES REALIZED ON NUMBER OF SHARES REALIZED ON
NAME ACQUIRED ON EXERCISE EXERCISE ACQUIRED ON VESTING VESTING
(#) ($) (#) ($)
- ------------------------------------------------------------------------------------------------
JOHN SHORT 15,000 $73,939
- ------------------------------------------------------------------------------------------------
JAY SHREINER
- ------------------------------------------------------------------------------------------------
PATRICIA HENRY
- ------------------------------------------------------------------------------------------------
MARY PATRICIA WELC
- ------------------------------------------------------------------------------------------------
JEFF ZADOKS
- ------------------------------------------------------------------------------------------------
TOM DAVIS 140,854 $1,409,324
- ------------------------------------------------------------------------------------------------
The Company does not offer any type of pension or qualified
defined benefit retirement plan.
PENSION BENEFITS
- ---------------------------------------------------------------------------------------------
PRESENT VALUE OF
NUMBER OF YEARS ACCUMULATED PAYMENTS DURING
NAME PLAN NAME CREDITED SERVICE BENEFIT LAST FISCAL YEAR
(#) ($) ($)
- ---------------------------------------------------------------------------------------------
JOHN SHORT
- ---------------------------------------------------------------------------------------------
JAY SHREINER
- ---------------------------------------------------------------------------------------------
PATRICIA HENRY
- ---------------------------------------------------------------------------------------------
MARY PATRICIA WELC
- ---------------------------------------------------------------------------------------------
JEFF ZADOKS
- ---------------------------------------------------------------------------------------------
TOM DAVIS
- ---------------------------------------------------------------------------------------------
The Company does not offer any type of pension or qualified
defined benefit retirement plan.
27
Only Mr. Zadoks and Mr. Davis participated in the Company's
nonqualified deferred compensation plan during 2007. The following table sets
forth information concerning contributions, earnings, and balances under our
nonqualified deferred compensation plans for Mr. Zadoks and Mr. Davis as of
December 31, 2007:
NONQUALIFIED DEFERRED COMPENSATION
- ----------------------------------------------------------------------------------------------------------------
BEGINNING REGISTRANT AGGREGATE AGGREGATE AGGREGATE
BALANCE ON EXECUTIVE CONTRIBUTIONS EARNINGS WITHDRAWALS/ BALANCE AT
NAME 1/1/2007 CONTRIBUTIONS IN LAST FY IN LAST FY DISTRIBUTIONS LAST FYE
---------------------------------------------------------------------------------
($) ($) ($) ($) ($) ($)
- ----------------------------------------------------------------------------------------------------------------
JOHN SHORT N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------
JAY SHREINER N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------
PATRICIA HENRY N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------
MARY PATRICIA WELC N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------
JEFF ZADOKS $13,439 $13,494 $270 $778 $0 $27,981
- ----------------------------------------------------------------------------------------------------------------
TOM DAVIS - TOTAL $710,505 $85,776 $1,716 $29,390 ($682,359) $145,028
- ----------------------------------------------------------------------------------------------------------------
TOM DAVIS - SCHWAB $54,129 $85,776 $1,716 $2,764 $0 $144,385
- ----------------------------------------------------------------------------------------------------------------
TOM DAVIS- MERRILL LYNCH $656,376 $0 $0 $26,626 ($682,359) $643
- ----------------------------------------------------------------------------------------------------------------
For both participants, 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. 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.
28
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 chief
financial officer, 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. In
2007, the American Funds American Balanced fund was removed, and replaced with
the Van Kampen Equity Income fund. The overall investment strategy was not
altered as a result of this change.
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 up to 100% of their
annual base salary and up to 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 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.
29
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL
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 discussed below had been satisfied on
December 31, 2007. 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. Davis voluntarily resigned from the Company in November 2007.
------------------------------------------------------------------------------
NAME OF PARTICIPANT: TERMINATION FOR GOOD REASON OR
JOHN SHORT WITHOUT CAUSE
------------------------------------------------------------------------------
INVOLUNTARY CHANGE IN
TERMINATION CONTROL
TYPE OF PAYMENT $ $
------------------------------------------------------------------------------
Salary Continuation $1,192,000
------------------------------------------------------------------------------
Annual Incentive $139,604
------------------------------------------------------------------------------
Option Awards $25,525
------------------------------------------------------------------------------
Performance Plan N/A $422,712
------------------------------------------------------------------------------
Welfare Benefits $6,865 $6,865
------------------------------------------------------------------------------
Outplacement $12,000 $12,000
------------------------------------------------------------------------------
Excise Tax and Gross Up $1,432,164
------------------------------------------------------------------------------
Severance Payments $2,557,056
------------------------------------------------------------------------------
Total $1,350,469 $4,456,322
------------------------------------------------------------------------------
The Company currently has a termination compensation
agreement with Dr. Short, our 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 to pay
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
the average of his annual STIP bonuses paid with respect to the three fiscal
years with the Company ending before his termination. 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 and the average of his annual STIP bonuses paid
with respect to the three fiscal years with the Company ending before his
termination. 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.
30
With regards to outstanding (or unvested) long-term
incentive awards made in 2007 and 2006 - in the event of a change in control -
all equity award restrictions lapse and become fully vested (performance stock
based grants shall be deemed to have been fully performed and performance
targets fully met); and for the cash based plan(s), 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 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 time based vested 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, and any outstanding
performance stock will vest on a pro-rated basis at the target award level
(using a fraction multiplier with the denominator of 36 and a numerator of the
number of months in the performance period which have elapsed at the date of
termination). 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 the named
executive. Dr. Short's agreement was modified in December 2007 such that any
payments by the Company that would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended, shall be
decreased to the greatest amount that could be paid to him that would not give
rise to any such excise taxes.
A change in control transaction, as defined in Dr. Short's
agreement, 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.
31
"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.
------------------------------------------------------------------------------
NAME OF PARTICIPANT: TERMINATION FOR GOOD REASON OR
JAY SHREINER WITHOUT CAUSE
------------------------------------------------------------------------------
INVOLUNTARY CHANGE IN
TERMINATION CONTROL
TYPE OF PAYMENT $ $
------------------------------------------------------------------------------
Salary Continuation $340,000
------------------------------------------------------------------------------
Annual Incentive $153,000
------------------------------------------------------------------------------
Option Awards $77,625
------------------------------------------------------------------------------
Restricted Stock $583,853
------------------------------------------------------------------------------
Performance Plan N/A $77,917
------------------------------------------------------------------------------
Welfare Benefits $6,898 $10,347
------------------------------------------------------------------------------
Outplacement $12,000 $12,000
------------------------------------------------------------------------------
Excise Tax and Gross Up $546,714
------------------------------------------------------------------------------
Severance Payments $892,500
------------------------------------------------------------------------------
Total $511,898 $2,200,956
------------------------------------------------------------------------------
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 to pay 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.
32
With regard to outstanding (or unvested) long-term incentive
awards made in 2007 and 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:
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.
33
------------------------------------------------------------------------------
NAME OF PARTICIPANT: TERMINATION FOR GOOD REASON OR
PATRICIA HENRY WITHOUT CAUSE
------------------------------------------------------------------------------
INVOLUNTARY CHANGE IN
TERMINATION CONTROL
TYPE OF PAYMENT $ $
------------------------------------------------------------------------------
Salary Continuation $347,000
------------------------------------------------------------------------------
Annual Incentive $173,500
------------------------------------------------------------------------------
Restricted Stock $572,122
------------------------------------------------------------------------------
Performance Plan N/A $156,117
------------------------------------------------------------------------------
Welfare Benefits $6,182 $9,272
------------------------------------------------------------------------------
Outplacement $12,000 $12,000
------------------------------------------------------------------------------
Excise Tax and Gross Up $551,588
------------------------------------------------------------------------------
Severance Payments $954,250
------------------------------------------------------------------------------
Total $538,682 $2,255,349
------------------------------------------------------------------------------
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 to pay 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 2007 and 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.
34
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:
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.
35
------------------------------------------------------------------------------
NAME OF PARTICIPANT: TERMINATION FOR GOOD REASON OR
MARY PATRICIA WELC WITHOUT CAUSE
------------------------------------------------------------------------------
INVOLUNTARY CHANGE IN
TERMINATION CONTROL
TYPE OF PAYMENT $ $
------------------------------------------------------------------------------
Salary Continuation $207,000
------------------------------------------------------------------------------
Annual Incentive $82,800
------------------------------------------------------------------------------
Restricted Stock $235,752
------------------------------------------------------------------------------
Performance Plan N/A $49,987
------------------------------------------------------------------------------
Welfare Benefits $5,293 $7,057
------------------------------------------------------------------------------
Outplacement $12,000 $12,000
------------------------------------------------------------------------------
Excise Tax and Gross Up
------------------------------------------------------------------------------
Severance Payments $372,600
------------------------------------------------------------------------------
Total $307,093 $677,396
------------------------------------------------------------------------------
Ms. Welc is covered by a severance plan for Company Senior
Vice Presidents 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 to pay for 12 months after the termination date monthly
payments equal to one-twelfth of her then-current salary and target bonus for
the year in which the termination occurs.
Ms. Welc has a termination compensation agreement which, if
her employment is terminated within two years after a change in control by the
executive for good reason or by the Company without cause, she will be
entitled to a lump-sum cash payment equal to 1.0 times her then-current annual
salary plus 1.0 times her target bonus in the year that the change in control
occurs. In addition, Ms. Welc 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 2007 and 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.
36
In any of the above-described pre-change in control
terminations, Ms. Welc will also be entitled to the continuation of her health
and welfare benefits for up to nine months after the date of termination. In
the case of a termination after a change in control transaction, Ms. Welc will
be entitled to the continuation of her health and welfare benefits for up to
twelve months after the date of termination. Under either plan, Ms. Welc will
be entitled to executive-level outplacement services by a vendor selected by
the Company.
Both the severance plan and the termination compensation
agreement contain 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. Welc 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 Ms. Welc's failure to substantially
perform her assigned duties or willful misconduct materially injurious to the
Company. "Good reason" generally means the assignment of Ms. Welc 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.
37
------------------------------------------------------------------------------
NAME OF PARTICIPANT: TERMINATION FOR GOOD REASON OR
JEFF ZADOKS WITHOUT CAUSE
------------------------------------------------------------------------------
INVOLUNTARY CHANGE IN
TERMINATION CONTROL
TYPE OF PAYMENT $ $
------------------------------------------------------------------------------
Salary Continuation $157,500
------------------------------------------------------------------------------
Annual Incentive $36,750 $73,500
------------------------------------------------------------------------------
Restricted Stock $82,344
------------------------------------------------------------------------------
Performance Plan N/A $25,500
------------------------------------------------------------------------------
Welfare Benefits $7,395
------------------------------------------------------------------------------
Outplacement $12,000
------------------------------------------------------------------------------
Excise Tax and Gross Up
------------------------------------------------------------------------------
Severance Payments
------------------------------------------------------------------------------
Total $213,645 $181,344
------------------------------------------------------------------------------
Mr. Zadoks is covered by a severance plan for Company Vice
Presidents 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 to pay for 9 months after the termination date monthly
payments equal to one-twelfth of his then-current salary. Mr. Zadoks will also
be entitled to the continuation of his health and welfare benefits for up to
nine months after the date of termination and to executive-level outplacement
services by a vendor selected by the Company.
"Cause" generally means Mr. Zadoks's failure to
substantially perform his assigned duties or willful misconduct materially
injurious to the Company. "Good reason" generally means the assignment of Mr.
Zadoks 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.
The severance plan 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.
With regards to the outstanding short-term incentive award
made in 2007, if Mr. Zadoks's employment is involuntarily terminated through
job elimination or not for cause, the award will be prorated on 50% of the
stated target award opportunity and the number of days the incumbent actually
participated in the plan during the calendar year. If Mr. Zadoks is
terminated, due to a change in control, the award will be prorated based on
the date of the change in control using the greater of actual performance at
the change in control date or target award level.
38
With regards to outstanding (or unvested) long-term
incentive awards made in 2007 and 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.
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.
DIRECTOR COMPENSATION
- -----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN PENSION
VALUE AND
FEES NONQUALIFIED
EARNED OR NON-EQUITY DEFERRED
PAID IN STOCK OPTION INCENTIVE PLAN COMPENSATION ALL OTHER
NAME CASH AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL
($) (1) ($) (2) ($) ($) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------------------
COLLEEN CONWAY-WELCH $50,000 $69,659 $119,659
- -----------------------------------------------------------------------------------------------------------------------------------
ANTHONY S. PISZEL $55,000 $69,659 $124,659
- -----------------------------------------------------------------------------------------------------------------------------------
SUZAN L. RAYNER $40,000 $69,659 $109,659
- -----------------------------------------------------------------------------------------------------------------------------------
HARRY E. RICH $81,000 $69,659 $150,659
- -----------------------------------------------------------------------------------------------------------------------------------
CHRISTOPHER T. HJELM $20,000 $32,095 $52,095
- -----------------------------------------------------------------------------------------------------------------------------------
LARRY WARREN $41,000 $69,659 $110,659
- -----------------------------------------------------------------------------------------------------------------------------------
THEODORE M. WIGHT $85,000 $69,659 $154,659
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) In 2007, each non-executive director received an annual cash retainer of
$40,000, except Mr. Hjelm. Mr. Hjelm received six months of the annual
cash retainer as his service on the Board began on July 31, 2007. Harry
E. Rich, as the non-executive Chairman of the Board, received an
additional annual cash retainer of $40,000 for the additional time,
effort, service, and assistance that such role entails. Mr. Rich also
received $1,000 for a site visit in 2007. Anthony S. Piszel, as the chair
of the Audit Committee, received an additional annual cash retainer of
$15,000 for the additional time, effort, service, and assistance that
such role entails. Mr. Warren received an additional $1,000 for a site
visit. Theodore Wight, as the chair of the Compensation and
Nominating/Corporate Governance Committee, and Colleen Conway-Welch, as
the chair of the Compliance Committee, each received an additional annual
cash retainer of $10,000 for the additional time, effort, service, and
assistance that those roles entail. Mr. Wight also received $5,000 for
five site visits and a one time payment of $30,000 for his efforts
relating to the negotiation of the employment agreement with Dr. Short as
well as other activities related to the recruiting of senior management.
(2) In 2007, each non-executive director, other than Mr. Hjelm, received an
annual grant of 5,000 shares of restricted stock as of January 16, 2007.
Mr. Hjelm was awarded 2,500 shares of restricted stock as of July 31,
2007, the date he joined the Board. The grant date fair value of
restricted stock awards granted to directors in 2007 was as follows:
Colleen Conway-Welch - $72,850; Anthony S. Piszel - $72,850;
39
Suzan L. Rayner - $72,850; Harry E. Rich - $72,850; Larry Warren -
$72,850; Theodore Wight - $72,850; and Christopher T. Hjelm - $35,425.
The dollar amount reflects the costs recognized for financial statement
reporting purposes for the fiscal year ended December 31, 2007 in
accordance with FAS 123(R), excluding estimated forfeitures.
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 approved by the full
Board. Prior to these pay changes the compensation levels had remained
constant since 2003.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Compensation and Nominating/Corporate Governance
Committee is 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. During 2007, we purchased air transportation services
from 55JS at an approximate cost of $457,000.
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 2007, Ms. Wilkes earned total
compensation of $590,836, which is comprised of regular earnings in the amount
of $331,425, and bonus payments in the amount of $259,411.
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, 2008 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
40
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, 2007 DECEMBER 31, 2006
----------------- -----------------
Audit Fees (1) ............... $ 724,800 $ 781,150
Audit-Related Fees (2) ........ 116,112 268,420
Tax Fees (3) ................. 4,735 39,045
All Other Fees (4) ........... -- --
============ ==============
Total ...................... $ 845,647 $ 1,088,615
<FN>
- --------------------
(1) Audit Fees consist of fees for professional services rendered for the
audit of our financial statements included in our Form 10-K during the
years ended December 31, 2007 and 2006, 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 our
employee benefit plans for 2007 and 2006, the audit of separate entity
financial statements for one of our subsidiaries for 2007 and 2006 and
due diligence procedures related to acquisitions in 2006.
(3) Tax Fees consist of fees rendered for professional services for federal
and state tax compliance and tax consulting and advice. For 2007 and
2006, all tax fees were paid 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 2007 and 2006, the Audit Committee pre-approved all
of the fees for services covered under the captions "Audit Fees," "Audit
Related Fees," "Tax Fees," and "All Other Fees" for fiscal years 2007 and
2006.
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.
41
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, 2008.
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, 2008.
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.
42
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 can be found on our website at www.rehabcare.com, under the
"For Our Investors" section, and is available to any shareholder who requests
it.
INDEPENDENCE AND QUALIFICATION OF MEMBERS
Our Board of Directors has determined that each of the
members of the Audit Committee is independent within the meaning of the
listing standards of the New York Stock Exchange and the Securities Exchange
Act of 1934, as amended, and that each of the Committee members possesses the
financial qualifications required of Audit Committee members under the
Exchange Act. Our Board has determined 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 114 (Communication With Audit
Committees). 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, 2007, for filing with the Securities and Exchange
Commission.
43
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 HARRY E. RICH CHRISTOPHER T. HJELM
PROPOSALS OF STOCKHOLDERS
Proposals of stockholders and nominations for directors
intended to be presented at the 2009 annual meeting of stockholders must be
received by our corporate secretary, 7733 Forsyth Boulevard, Suite 2300, St.
Louis, Missouri 63105, by not later than December 1, 2008, 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 2009 annual meeting of stockholders only if written notice of the proposal
is received by us by not earlier than January 29, 2009 and not later than
February 28, 2009.
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, 2007, except as follows:
(1) Tom Davis, David Groce, Jay Shreiner, Jeff Zadoks, and
Patricia Henry received grants of restricted shares on February 6,
2007 that were inadvertently not reported on Form 4 until February
26, 2007; and
(2) Mary Patricia Welc became an executive officer subject
to Section 16(a) filing requirements on February 6, 2007, but this
event was inadvertently not reported on a Form 3 until February 26,
2007.
44
ANNUAL REPORT
We have simultaneously mailed our Annual Report for the year
ended December 31, 2007, to our stockholders. A copy of our Annual Report on
Form 10-K for the year ended December 31, 2007, as filed with the Securities
and Exchange Commission (excluding exhibits), may be obtained by any
stockholder, without charge, upon making a written or telephone request to
Betty Cammarata, Investor Relations, 7733 Forsyth Boulevard, Suite 2300, St.
Louis, Missouri 63105, telephone 800-677-1238, or by accessing our Internet
site at www.rehabcare.com and clicking on the "For Our Investors" section.
HOUSEHOLDING OF MATERIALS
In some instances, only one copy of this proxy is being
delivered to multiple stockholders sharing an address, unless we have received
instructions from one or more of the stockholders to continue to deliver
multiple copies. We will deliver promptly upon oral or written request a
separate copy of the proxy statement to any stockholder at your address. If
you wish to receive a separate copy of the proxy statement, you may call us at
800-677-1238, or send a written request to Betty Cammarata, Investor
Relations, RehabCare Group, Inc., 7733 Forsyth Boulevard, Suite 2300, St.
Louis, Missouri 63105. If you have received only one copy of the proxy
statement and wish to receive a separate copy for each stockholder in the
future, you may call us at the telephone number or write us at the address
listed above.
Alternatively, stockholders sharing an address who now
receive multiple copies of the proxy statement may request delivery of a
single copy, also by calling us at the number or writing to us at the address
listed above.
OTHER MATTERS
As of the date of this proxy statement, our Board of
Directors does not intend to present, nor has it been informed that other
persons intend to present, any matters for action at the annual meeting other
than those specifically referred to herein. If, however, any other matters
should properly come before the annual meeting, it is the intention of the
persons named as proxies to vote the shares represented by proxy cards
granting such proxies discretionary authority to vote on such other matters in
accordance with their judgment as to our best interest on such matters.
Patricia S. Williams
Senior Vice President, General Counsel &
Corporate Secretary
March 31, 2008
45
[REHABCARE LOGO]
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 THE INTERNET OR
TELEPHONE MUST BE RECEIVED BY MIDNIGHT,
CENTRAL DAYLIGHT SAVINGS TIME, ON APRIL 25,
2008.
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
----------- -----
- -------------------------------------------------------------------------------
IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE
--
PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
[A] PROPOSAL 1 -- ELECTION OF DIRECTORS (FOR TERM EXPIRING IN 2009)
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 - Christopher T. Hjelm [ ] [ ] 03 - Anthony S. Piszel, CPA [ ] [ ]
04 - Suzan L. Rayner, MD [ ] [ ] 05 - Harry E. Rich [ ] [ ] 06 - John H. Short, Ph.D. [ ] [ ]
07 - Larry Warren [ ] [ ] 08 - Theodore M. Wight [ ] [ ]
[B] 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
2008. shall determine in their sole
discretion.
[C] NON-VOTING ITEMS
CHANGE OF ADDRESS -- Please print new address below.
MEETING ATTENDANCE
Mark box to the
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attend the Annual
- ------------------------------------------------------------------------ Meeting.
[D] AUTHORIZED SIGNATURES -- THIS SECTION MUST BE COMPLETED FOR YOUR VOTE TO BE
COUNTED. -- DATE AND SIGN BELOW
Please sign exactly as your shares are registered. Joint owners should each
sign. When signing as attorney, executor, administrator, corporate officer,
trustee, guardian, or custodian, please give full title.
Date (mm/dd/yyyy) -- Signature 1 -- Signature 2 --
Please print date below. Please keep signature within the box. Please keep signature within the box.
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/ /
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IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE
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PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
[REHABCARE LOGO]
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PROXY - REHABCARE GROUP, INC.
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby nominates, constitutes and appoints John H. Short,
Ph.D. and Patricia S. Williams (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 April
29, 2008 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, 2008.
The undersigned acknowledges receipt of the 2007 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)