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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
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Commission File Number 0-19294
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
REHABCARE GROUP, INC.
---------------------
(Exact name of Registrant as specified in its charter)
Delaware 51-0265872
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
7733 Forsyth Boulevard, Suite 1700, St. Louis, MO 63105
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(Address of principal executive offices and zip code)
314-863-7422
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act.) Yes X No
----- -----
Indicate the number of shares outstanding of the Registrant's common stock, as
of the latest practicable date.
Class Outstanding at May 12, 2003
- -------------------------------------- ---------------------------
Common Stock, par value $.01 per share 15,901,104
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1 of 21
REHABCARE GROUP, INC.
Index
Part I. - Financial Information
Item 1. - Condensed Consolidated Financial Statements
Condensed consolidated balance sheets,
March 31, 2003 (unaudited) and December 31, 2002 3
Condensed consolidated statements of earnings for the
three months ended March 31, 2003 and 2002 (unaudited) 4
Condensed consolidated statements of cash flows for the
three months ended March 31, 2003 and 2002 (unaudited) 5
Notes to condensed consolidated financial statements (unaudited) 6
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. - Quantitative and Qualitative Disclosures about Market Risks 16
Item 4. - Controls and Procedures 16
Part II. - Other Information 16
Item 1. - Legal Proceedings 16
Item 4. - Submission of Matters to Security Holders 17
Item 6. - Exhibits and Reports on Form 8-K 18
Signatures 19
Certification of President and Chief Executive Officer 20
Certification of Chief Financial Officer 21
2 of 21
PART 1. - FINANCIAL INFORMATION
Item 1. - Condensed Consolidated Financial Statements
- -----------------------------------------------------
REHABCARE GROUP, INC.
Condensed Consolidated Balance Sheets
(dollars in thousands, except share and per share data)
March 31, December 31,
2003 2002
---- ----
Assets (unaudited)
------
Current assets:
Cash and cash equivalents $ 13,280 $ 9,580
Marketable securities, available-for-sale 4 4
Accounts receivable, net of allowance for doubtful
accounts of $5,319 and $5,181, respectively 89,693 87,221
Income taxes receivable -- 2,497
Deferred tax assets 3,928 2,529
Other current assets 3,709 3,625
------- -------
Total current assets 110,614 105,456
Marketable securities, trading 3,746 4,252
Equipment and leasehold improvements, net 18,843 19,844
Excess cost over net assets acquired, net 101,685 101,685
Other 4,100 4,293
------- -------
Total assets $238,988 $235,530
======= =======
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 1,558 $ 1,959
Accrued salaries and wages 26,826 28,579
Accrued expenses 8,204 7,072
Income taxes payable 86 --
------- -------
Total current liabilities 36,674 37,610
Deferred compensation and other long-term
liabilities 3,805 4,266
Deferred tax liabilities 5,802 5,040
------- -------
Total liabilities 46,281 46,916
------- -------
Stockholders' equity:
Preferred stock, $.10 par value, authorized
10,000,000 shares, none issued and outstanding -- --
Common stock, $.01 par value; authorized 60,000,000
shares, issued 19,854,978 shares and 19,846,416
shares as of March 31, 2003 and December 31,
2002, respectively 199 198
Additional paid-in capital 111,719 111,671
Retained earnings 135,496 131,452
Less common stock held in treasury at cost,
4,002,898 shares as of March 31, 2003 and
December 31, 2002 (54,704) (54,704)
Accumulated other comprehensive earnings (3) (3)
------- -------
Total stockholders' equity 192,707 188,614
------- -------
$238,988 $235,530
======= =======
See accompanying notes to condensed consolidated financial statements.
3 of 21
REHABCARE GROUP, INC.
Condensed Consolidated Statements of Earnings
(amounts in thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
2003 2002
---- ----
Operating revenues $138,842 $138,229
Costs and expenses:
Operating expenses 104,690 102,826
Selling, general & administrative
Divisions 18,290 18,980
Corporate 6,796 7,946
Depreciation and amortization 2,239 1,925
------- -------
Total costs and expenses 132,015 131,677
------- -------
Operating earnings 6,827 6,552
Interest income 14 106
Interest expense (165) (165)
Other income (expense) (20) 3
------- -------
Earnings before income taxes 6,656 6,496
Income taxes 2,612 2,468
------- -------
Net earnings $ 4,044 $ 4,028
======= =======
Net earnings per common share:
Basic $ 0.26 $ 0.23
======= =======
Diluted $ 0.25 $ 0.22
======= =======
Weighted-average number of
common shares outstanding:
Basic 15,851 17,338
======= =======
Diluted 16,443 18,211
======= =======
See accompanying notes to condensed consolidated financial statements.
4 of 21
REHABCARE GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
2003 2002
---- ----
Cash flows from operating activities:
Net earnings $ 4,044 $ 4,028
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 2,239 1,925
Provision for doubtful accounts 559 1,102
Income tax benefit realized on employee
stock option exercises 7 171
Change in assets and liabilities:
Accounts receivable, net (3,031) 1,984
Prepaid expenses and other current assets (84) (243)
Other assets 118 130
Accounts payable and accrued expenses 731 (1,449)
Accrued salaries and wages (1,753) 746
Deferred compensation (375) 190
Income taxes 1,946 2,283
------- -------
Net cash provided by operating activities 4,401 10,867
------- -------
Cash flows from investing activities:
Additions to equipment and leasehold improvements, net (914) (3,311)
Purchase of marketable securities (77) (183)
Proceeds from sale/maturities of marketable securities 497 1,015
Other, net (249) (723)
------- -------
Net cash used in investing activities (743) (3,202)
------- -------
Cash flows from financing activities:
Exercise of stock options 42 269
------- -------
Net cash provided by financing activities 42 269
------- -------
Net increase in cash
and cash equivalents 3,700 7,934
Cash and cash equivalents at beginning of period 9,580 18,534
------- -------
Cash and cash equivalents at end of period $ 13,280 $ 26,468
======= =======
See accompanying notes to condensed consolidated financial statements.
5 of 21
REHABCARE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
Three Month Periods Ended March 31, 2003 and 2002
(Unaudited)
Note 1. - Basis of Presentation
- -------------------------------
The condensed consolidated balance sheets and related condensed
consolidated statements of earnings, and cash flows contained in this Form 10-Q,
which are unaudited, include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany accounts and activity have been
eliminated in consolidation. In the opinion of management, all entries necessary
for a fair presentation of such financial statements have been included. The
results of operations for the three months ended March 31, 2003, are not
necessarily indicative of the results to be expected for the fiscal year.
Certain prior year amounts have been reclassified to conform with the current
year presentation.
The condensed consolidated financial statements do not include all
information and footnotes necessary for a complete presentation of financial
position, results of operations and cash flows in conformity with accounting
principles generally accepted in the United States of America. Reference is made
to the Company's audited consolidated financial statements and the related notes
as of December 31, 2002 and 2001 and for each of the years in the three-year
period ended December 31, 2002, included in the Annual Report on Form 10-K on
file with the Securities and Exchange Commission, which provide additional
disclosures and a further description of the Company's accounting policies.
Note 2. - Critical Accounting Policies and Estimates
- ----------------------------------------------------
The Company's condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America. Preparation of these statements requires management to
make judgments and estimates. Some accounting policies have a significant impact
on amounts reported in these financial statements. A summary of significant
accounting policies and a description of accounting policies that are considered
critical may be found in our 2002 Annual Report on Form 10-K, filed on March 14,
2003, in the Critical Accounting Policies and Estimates section of "Item 7. -
Managements Discussion and Analysis of Financial Condition and Results of
Operations."
Note 3. - Goodwill and Other Identifiable Intangible Assets
- -----------------------------------------------------------
Statement of Financial Accounting Standards (Statement) No. 142 "Goodwill
and Other Intangible Assets" eliminates the requirement to amortize goodwill and
indefinite-lived intangible assets, requiring instead that those assets be
tested for impairment at least annually, and more often when events indicate
that an impairment may exist. An impairment loss must be recognized if the
carrying amount of an intangible asset is not recoverable and its carrying
amount exceeds its fair value. As required by Statement No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets", a long-lived asset shall be
tested for recoverability whenever a significant adverse change in the business
climate occurs that could affect the value of a long-lived asset. Due to
conditions in the healthcare staffing industry, our healthcare staffing division
is experiencing declines in operating revenues and operating earnings, which
resulted in the consolidation of certain branch locations within this division
during this quarter. As a result, the Company has performed a test for
recoverability under the provisions of Statement No. 144 as of March 31, 2003.
In addition to the recoverability test under Statement No. 144, the Company
performed an impairment test under the provisions of Statement No. 142 as of
March 31, 2003. Based on the tests performed, the Company has determined that
long-lived assets (including goodwill) are not impaired as of March 31, 2003.
The Company will continue to perform impairment tests on a quarterly basis until
events or circumstance indicate that testing is no longer required.
6 of 21
REHABCARE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------------------
Note 4. - Stock-Based Compensation
- ----------------------------------
The Company accounts for stock-based employee compensation plans using the
intrinsic value method under Accounting Principles Board Opinion No. 25 and
related interpretations. Accordingly, stock-based employee compensation cost is
not reflected in net earnings, as all stock options granted under the plans had
an exercise price equal to the market value of the underlying common stock on
the date of grant. Had compensation cost for the Company's stock-based
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the method of Statement No. 123,
"Accounting for Stock-Based Compensation," the Company's net earnings and
earnings per share would have been reduced to the pro forma amounts indicated
below:
Three Months Ended
March 31,
2003 2002
---- ----
(in thousands, except per share data)
Net earnings, as reported $4,044 $4,028
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects 1,098 1,157
------ ------
Pro forma net earnings $2,946 $2,871
====== ======
Basic net earnings per share: As reported $0.26 $0.23
===== =====
Pro forma $0.19 $0.17
===== =====
Diluted net earnings per share: As reported $0.25 $0.22
===== =====
Pro forma $0.18 $0.16
===== =====
Note 5. - Net earnings per share
- --------------------------------
Basic net earnings per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted average common shares
outstanding for the period. Diluted net earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised and converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity (as
calculated utilizing the treasury stock method).
7 of 21
REHABCARE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------------------
The following table sets forth the computation of basic and diluted net earnings
per share:
Three Months Ended
March 31,
2003 2002
---- ----
(in thousands,
except per share data)
Numerator:
Numerator for basic/diluted net earnings
per share - net earnings available
to common stockholders $ 4,044 $ 4,028
====== ======
Denominator:
Denominator for basic net earnings per share -
weighted-average shares outstanding 15,851 17,338
Effect of dilutive securities:
Stock options 592 873
------ ------
Denominator for diluted net earnings per share -
adjusted weighted-average shares 16,443 18,211
====== ======
Basic net earnings per share $ 0.26 $ 0.23
====== ======
Diluted net earnings per share $ 0.25 $ 0.22
====== ======
Note 6. - Industry Segment Information
- --------------------------------------
The Company operates in two business segments that are managed separately
based on fundamental differences in operations: program management services and
healthcare staffing services. Program management includes hospital
rehabilitation services (including inpatient acute rehabilitation and skilled
nursing units and outpatient therapy programs) and contract therapy programs.
All of the Company's services are provided in the United States. Summarized
information about the Company's operations for the three months ended March 31,
2003 and 2002 in each industry segment is as follows:
8 of 21
REHABCARE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------------------
Operating revenues from
Unaffiliated Customers Operating Earnings
----------------------- ----------------------
(in thousands) (in thousands)
Three months ended Three months ended
March 31, March 31,
2003 2002 2003 2002
---- ---- ---- ----
Program management:
Hospital
rehabilitation
services $ 46,159 $ 43,909 $ 7,074 $ 6,663
Contract therapy 30,926 23,415 1,739 1,560
------- ------- ------- -------
Program
management total 77,085 67,324 8,813 8,223
Healthcare staffing 62,116 70,905 (1,986) (1,671)
------- ------- ------- -------
Total 139,201 138,229 $ 6,827 $ 6,552
======= ======= ====== ======
Less Intercompany
revenues* 359 --
------- -------
$138,842 $138,229
======= =======
*Intercompany revenues represent healthcare staffing sales made to hospital
rehabilitation services and contract therapy at market rates.
Depreciation and
Amortization Capital Expenditures
--------------------- ----------------------
(in thousands) (in thousands)
Three months ended Three months ended
March 31, March 31,
2003 2002 2003 2002
---- ---- ---- ----
Program management:
Hospital
rehabilitation
services $ 1,467 $ 1,225 $ 355 $ 2,230
Contract therapy 318 227 276 904
------- ------- ------ ------
Program
management total 1,785 1,452 631 3,134
Healthcare staffing 454 473 283 177
------- ------- ------- ------
Total $ 2,239 $ 1,925 $ 914 $ 3,311
======= ======= ======= ======
Total Assets Unamortized Goodwill
---------------------- ----------------------
(in thousands) (in thousands)
as of March 31 as of March 31
2003 2002 2003 2002
---- ---- ---- ----
Program management:
Hospital
rehabilitation
services $109,546 $126,073 $ 35,739 $ 35,739
Contract therapy 36,398 30,051 12,990 12,990
------- ------- ------- -------
Program
management total 145,944 156,124 48,729 48,729
Healthcare staffing 93,044 100,775 52,956 52,956
------- ------- ------- -------
Total $238,988 $256,899 $101,685 $101,685
======= ======= ======= =======
9 of 21
REHABCARE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------------------
Note 7. - Recent Accounting Pronouncements
- ------------------------------------------
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (Statement) No. 143, "Accounting for
Asset Retirement Obligations." Statement No. 143 requires that the fair value of
a liability for an asset retirement obligation be recognized in the period that
it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset. The Company adopted Statement No. 143 effective January
1, 2003. The adoption of Statement No. 143 did not have a material impact on the
Company's consolidated financial position or results of operations.
In June 2002, the FASB issued Statement No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities." This statement nullifies Emerging
Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." This statement requires that a liability
for a cost associated with an exit or disposal activity be recognized when the
liability is incurred rather than the date of an entity's commitment to an exit
plan. The Company implemented Statement No. 146 on January 1, 2003. The adoption
of Statement No. 146 did not have a material impact on the Company's
consolidated financial position or results of operations.
In December 2002, the FASB issued Statement No. 148 "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123." Statement No. 148 amends Statement No. 123, "Accounting for
Stock-Based Compensation," to provide alternative methods of transition for a
voluntary change to the fair value- based method of accounting for stock-based
employee compensation. In addition, Statement No. 148 amends the disclosure
requirements of Statement No. 123 to require prominent disclosures in both
annual and interim financial statements about the reported results. While the
Company has not elected to adopt fair value accounting for its stock-based
compensation, it has complied with the new disclosure requirements under
Statement No. 148. As adopted, this statement does not have a material impact on
the Company's financial position or results of operations.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities". This interpretation explains how to identify
variable interest entities and how an enterprise assesses its interest in a
variable interest entity to decide whether to consolidate that entity. It
applies in the first fiscal year or interim period beginning after June 15,
2003, to variable interest entities in which the variable interest was acquired
before February 1, 2003. As adopted, this interpretation does not have a
material effect on the Company's financial position or results of operations.
10 of 21
REHABCARE GROUP, INC.
Item 2. - Management's Discussion and Analysis of Financial Condition and
- --------------------------------------------------------------------------------
Results of Operations
- ---------------------
This Quarterly Report on Form 10-Q contains forward-looking statements that
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements involve known and
unknown risks and uncertainties that may cause the Company's actual results in
future periods to differ materially from forecasted results. These risks and
uncertainties may include, but are not limited to, the effect and timing of
additional corrective actions that may be taken in supplemental staffing,
fluctuations in occupancy of and use of staffing agencies by the Company's
hospital and long-term care clients, changes in and compliance with governmental
reimbursement rates, regulations or policies, the inability to attract new
client relationships or to retain existing client relationships, the inability,
or additional costs, to attract operational and professional employees, the
adequacy and effectiveness of operating and administrative systems, litigation
risks, including an inability to predict the ultimate costs and liabilities or
the disruption of RehabCare Group's operations, competitive effects on pricing
and margins, and general economic conditions.
Results of Operations
- ---------------------
The Company derives its revenue from two business segments: program
management services for hospitals and skilled nursing facilities and healthcare
staffing services. The Company's program management segment includes hospital
rehabilitation services (including inpatient acute rehabilitation, skilled
nursing units and outpatient therapy programs) and contract therapy programs.
The Company's healthcare staffing segment includes both supplemental personnel
and traveling personnel who are typically placed based on hourly and 13-week
assignments, respectively.
Selected Operating Statistics:
Three Months Ended
March 31,
2003 2002
---- ----
Hospital Rehabilitation Services
- --------------------------------
Operating Revenues (in thousands)
Inpatient $34,137 $31,769
Outpatient 12,022 12,140
------- -------
Total $46,159 $43,909
Average Number of Programs
Inpatient 138 134
Outpatient 50 56
--- ---
Total 188 190
Contract Therapy
- ----------------
Operating Revenues (in thousands) $30,926 $23,415
Average Number of Locations 431 337
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REHABCARE GROUP, INC.
Operating Statistics: (Continued)
- ---------------------------------
Three Months Ended
March 31,
2003 2002
---- ----
Healthcare Staffing
- -------------------
Operating Revenues (in thousands)
Supplemental $35,436 $46,048
Travel 26,680 24,857
------- -------
Total* $62,116 $70,905
Gross Profit Margin
Supplemental 20.3% 22.5%
Travel 19.8% 21.3%
Total 20.1% 22.1%
Weeks Worked
Supplemental 25,134 35,403
Travel 13,607 12,989
------ ------
Total 38,741 48,392
Average Number of
Supplemental branches 82 112
* Includes intercompany revenues of $0.4 million at market rates from the
Company's healthcare staffing division to the Company's hospital rehabilitation
and contract therapy divisions during the three months ended March 31, 2003.
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
- -------------------------------------------------------------------------------
Operating Revenues
Operating revenues during the first quarter of 2003 increased by $0.6
million, or 0.4%, to $138.8 million compared to $138.2 million in the first
quarter of 2002. Revenue increases in contract therapy, travel staffing and the
inpatient segment of hospital rehabilitation services were offset by revenue
decreases in supplemental staffing and the outpatient segment of hospital
rehabilitation services.
Hospital rehabilitation services revenues, consisting of inpatient and
outpatient programs, increased by $2.3 million, or 5.1% from $43.9 million in
the first quarter of 2002 to $46.2 million in the first quarter of 2003.
Inpatient revenues increased by $2.4 million, or 7.5%, from $31.8 million in the
first quarter of 2002 to $34.1 million in the first quarter of 2003 as a result
of a 2.6% increase in the average number of programs operated and a 4.7%
increase in average revenue per location, primarily resulting from contract
modifications to conform with the prospective payment system for rehabilitation.
Outpatient revenues decreased by $0.1 million from the first quarter of 2002 to
$12.0 million in the first quarter of 2003, reflecting a 10.7% decrease in the
average number of programs operated, offset by a 10.7% increase in the average
revenue per outpatient program.
12 of 21
REHABCARE GROUP, INC.
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
- --------------------------------------------------------------------------------
(Continued)
- -----------
Contract therapy revenues increased by 32.1% from $23.4 million in the
first quarter of 2002 to $30.9 million in the first quarter of 2003, primarily
reflecting a 27.9% increase in the average number of locations and a 3.2%
increase in the average revenue per location. The increase in the average
revenue per location is primarily the result of same store growth and a
continued focus on opening larger locations.
Healthcare staffing revenues decreased from $70.9 million in the first
quarter of 2002 to $62.1 million in the first quarter of 2003(including $0.4
million inter-company sales at market rates to inpatient and contract therapy).
Supplemental staffing revenues decreased by $10.6 million, or 23.0%, to $35.4
million in the first quarter of 2003, reflecting the consolidation of branch
locations in the first quarter as a result of a decline in the demand for
staffing agency services. The average number of branch locations decreased from
112 in the first quarter of 2002 to 82 in the first quarter of 2003. The
decrease in supplemental staffing revenues is attributable to a 29.0% decrease
in weeks worked as a result of the consolidation of branch locations, offset by
an 8.5% increase in average revenue per week worked as a result of placing more
highly credentialed staff such as registered nurses as compared to certified
nurse assistants, as well as increased bill rates. Travel staffing revenues
increased by 7.3% from $24.9 million in the first quarter of 2002 to $26.7
million in the first quarter of 2003 as weeks worked and revenue per week worked
increased 4.8% and 2.5%, respectively.
Cost and Expenses
Operating expenses, excluding provision for doubtful accounts, as a
percentage of operating revenues increased from 73.6% in the first quarter of
2002 to 75.0% in the first quarter of 2003, primarily reflecting the continued
migration of the skill mix in our staffing division to more highly credentialed
professionals and increased labor and benefit costs as a percentage of operating
revenues in all divisions except inpatient, where increased productivity offset
increased labor and benefit expenses. The provision for doubtful accounts as a
percentage of operating revenues decreased from 0.8% in the prior year quarter
to 0.4% in the current quarter due to the improvement in the aging categories of
our accounts receivables. Selling, general and administrative expenses as a
percentage of operating revenues decreased from 19.5% in the first quarter of
2002 to 18.1% in the first quarter of 2003 as a result of reductions in selling,
general and administrative costs across all divisions except staffing which
incurred approximately $0.8 million in branch office closing costs in the first
quarter as a result of the consolidation of smaller branch locations.
Depreciation and amortization expense as a percent of operating revenues
increased to 1.6% from 1.4% due to depreciation expense recorded on additional
capital expenditures.
In the hospital rehabilitation services division, operating expenses
(excluding provision for doubtful accounts) increased by 6.4%, or $1.9 million,
primarily reflecting increased salary costs in inpatient as a result of the 7.5%
increase in operating revenues and increased salary related expenses in both
inpatient and outpatient as a result of higher workers compensation,
professional liability and health insurance expenses. Lower than anticipated
volumes in outpatient during the first two months of the quarter, combined with
the increased salary-related costs as a percentage of operating revenues,
resulted in lower profitability in outpatient, while increased productivity in
inpatient more than offset the increased salary-related expenses, leading to
increased profitability in inpatient. The provision for doubtful accounts as a
percentage of operating revenues was comparable for each period. Selling,
general and administrative expenses for this division decreased as a percentage
of operating revenues from 9.3% to 9.1%, reflecting essentially the same costs
on a greater operating revenue base. Corporate general and administrative
13 of 21
REHABCARE GROUP, INC.
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
- --------------------------------------------------------------------------------
(Continued)
- -----------
expenses, which represent allocations of corporate office expenses based upon
utilization by divisions, decreased for the division as a percentage of
operating revenues from 5.5% to 4.5%. Depreciation and amortization expense as a
percentage of operating revenues increased from 2.8% in the first quarter of
2002 to 3.2% in the first quarter of 2003, reflecting continued investments in
software and developed software costs. As a result, operating earnings (earnings
before interest and income taxes) increased from $6.7 million in the first
quarter of 2002 to $7.1 million in the first quarter of 2003.
In the contract therapy division, operating expenses (excluding provision
for doubtful accounts) increased by 38.1%, or $6.5 million, primarily due to
higher wage and benefits costs for therapists and a greater use of higher cost
contract labor. The provision for doubtful accounts as a percentage of operating
revenues was comparable for each period. Division selling, general and
administrative expenses as a percentage of operating revenues decreased from
11.0% in the first quarter of 2002 to 9.2% in the first quarter of 2003.
Corporate general and administrative expenses, which represent allocations of
corporate office expenses based upon utilization by divisions, also decreased
for the division as a percentage of operating revenues from 6.9% to 6.4%.
Depreciation and amortization expense as a percentage of operating revenues were
comparable for the two periods. Accordingly, operating earnings (earnings before
interest and income taxes) in this division increased by $0.2 million, or 11.5%,
to $1.7 million.
In the staffing division, operating expenses decreased 10.2%, or $5.6
million, primarily due to the 12.4% decrease in operating revenues, offset by
increased salary-related expenses. Gross profit margins in the supplemental
staffing division decreased from 22.5% in the first quarter of 2002 to 20.3% in
the first quarter of 2003, while gross profit margins in the travel division
also decreased in the first quarter of 2003 to 19.8% compared to 21.3% in the
comparable quarter last year. These decreases in gross profit margins are
primarily the result of market-driven pricing adjustments, increased
salary-related expenses and competitive efforts by healthcare clients to reduce
agency staff. Provision for doubtful accounts decreased $0.6 million in the
first quarter of 2003 compared to the first quarter of 2002 due to a decrease in
operating revenues and improvement in accounts receivable aging. Division
selling, general and administrative expenses as a percentage of operating
revenues increased from 17.3% in the first quarter of 2002 to 18.1% in the first
quarter of 2003 primarily due to the additional expenses of approximately $0.8
million incurred in the closing of less productive branches. Corporate general
and administrative expenses, which represent allocations of corporate office
expenses based upon utilization by divisions, decreased for the division as a
percentage of operating revenues from 5.5% to 4.4%. Depreciation and
amortization expenses as a percentage of operating revenues were comparable for
both periods. Therefore, operating earnings (earnings before interest and
income taxes) in the staffing group decreased by $0.3 million from a loss of
$1.7 million in the first quarter of 2002 to a loss of $2.0 million.
Non-operating Items
Interest income decreased by $0.1 million when comparing the first quarter
of 2003 to the first quarter of 2002 as a result of decreased average cash
balances and interest rates.
14 of 21
REHABCARE GROUP, INC.
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
- --------------------------------------------------------------------------------
(Continued)
- -----------
Interest expense primarily represents commitment fees paid on the unused
portion of the line of credit and was comparable for the periods compared. The
Company has no outstanding balance on the line of credit as of March 31, 2003
and March 31,2002.
Earnings before income taxes increased by 2.5% to $6.7 million in the first
quarter of 2003 from $6.5 million in the first quarter of 2002. The provision
for income taxes was $2.6 million in the first quarter of 2003 compared to $2.5
million in the first quarter of 2002, reflecting effective income tax rates of
39.2% and 38.0%, respectively. The effective tax rate increase is a result of
increased non-deductible meals provided to traveling radiologists in relation to
earnings before income taxes. Net earnings in the first quarter of 2003
increased slightly as compared to the first quarter of 2002. Diluted net
earnings per share increased by 11.3% from $0.22 in the first quarter of 2002 to
$0.25 in the first quarter of 2003 primarily due to a 9.7% decrease in the
weighted-average shares outstanding. The decrease in the weighted-average shares
outstanding was attributable primarily to the repurchase of 1.7 million shares
of common stock during the third quarter of 2002 and a smaller dilutive effect
of stock options resulting from a lower average stock price.
Liquidity and Capital Resources
As of March 31, 2003, we had $13.3 million in cash and current marketable
securities and a current ratio, the amount of current assets divided by current
liabilities, of 3.0 to 1. Working capital increased by $6.1 million to $73.9
million as of March 31, 2003 as compared to $67.8 million as of December 31,
2002 due to an increase in current assets of $5.2 million combined with a
decrease in current liabilities of $0.9 million. The increase in current assets
was primarily due to increased cash balances as a result of cash generated from
operations and an increase in accounts receivable and deferred tax assets. Net
accounts receivable were $89.7 million at March 31, 2003, compared to $87.2
million at December 31, 2002. The number of days' average net revenue in net
receivables was 57.6 and 57.7 at March 31, 2003 and December 31, 2002,
respectively. The increase in deferred tax assets is primarily due to an
increase in accrued vacation, accrued workers compensation and accrued
professional liability insurance and an increase in the allowance for doubtful
accounts. The decrease in current liabilities was primarily the result of a
decrease in accrued salaries and wages due to the payout of accrued year-end
bonuses in the first quarter offset by an increase in health insurance accruals
and an increase in combined accounts payable and accrued expenses due to
increased workers compensation and professional liability accruals and expenses.
The Company's operating cash flows constitute the Company's primary source
of liquidity and historically have been sufficient to fund working capital,
capital expenditures, internal business expansion and debt service requirements.
The Company expects to meet its future working capital, capital expenditures,
internal and external business expansion and debt service requirements from a
combination of internal sources and outside financing. The Company has a $125.0
million revolving line of credit with no balance outstanding as of March 31,
2003. The Company has $6.2 million in letters of credit issued to insurance
carriers as collateral for reimbursement of claims. The letters of credit reduce
the amount the Company may borrow under the line of credit. The Company also has
a $7.6 million promissory note issued to our workers compensation carrier as
additional collateral. The promissory note is not recorded as a liability on the
balance sheet as it would only become payable upon an event of default as
defined in the security agreement with the workers compensation carrier.
15 of 21
REHABCARE GROUP, INC.
Item 3. - Quantitative and Qualitative Disclosures About Market Risks
- ---------------------------------------------------------------------
There have been no material changes in the reported market risks since the
filing of the Company's Annual Report on Form 10K for the year ended December
31, 2002.
Item 4. - Controls and Procedures
- ---------------------------------
As of March 31, 2003, the Company's Chief Executive Officer and Chief
Financial Officer have conducted an evaluation of the effectiveness of the
design and operation of the Company's disclosure controls and procedures (as
defined in Rule 13a-14 (c) and 15d-14 (c) under the Securities Exchange Act of
1934, as amended). Based on that evaluation, the Company's Chief Executive
Officer and Chief Financial Officer have concluded that the Company's disclosure
controls and procedures are effective in making known in a timely fashion
material information required to be filed in this report. There have been no
significant changes in internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Part II. - Other Information
- ----------------------------
Item 1 - Legal Proceedings
- --------------------------
The Company is subject to various claims and legal actions in the ordinary
course of business. These matters include, without limitation, professional
liability and employee-related matters and inquiries and investigations by
governmental agencies relating to Medicare or Medicaid reimbursement and other
issues.
In May 2002, the Company was named as a defendant in a suit filed in the
United States District Court for the Eastern District of Missouri alleging
violations of the federal securities laws and seeking to certify the suit as a
class action. Certain current and former officers of the Company are also
defendants in the suit and are being jointly defended with the Company. The
court has appointed a lead plaintiff and lead counsel for the action. The
proposed class consists of persons who purchased shares of the Company's common
stock between August 10, 2000 and January 21, 2002. The plaintiffs filed an
amended complaint in December 2002 that focuses primarily on alleged weaknesses
in the software system selected by the Company's Staffing Group and the
purported negative effects of such systems on the healthcare staffing services
business operations. the Company's director and officer liability insurance
carrier has preliminarily accepted coverage of the action, including the payment
of defense costs after the satisfaction of the Company's deductible, subject to
the applicable limits of the policy. The Company and other defendants recently
filed a motion to dismiss with the court. No discovery has been commenced in the
case pending the court's ruling on the motion to dismiss.
In August 2002, each of the Company's directors was named as a defendant
and the Company was named as the nominal defendant in a derivative suit filed in
the Circuit Court of St. Louis County, Missouri. The complaint, which is based
upon similar events as are alleged in the federal securities class action, was
filed on behalf of the derivative plaintiff by a law firm that had earlier filed
suit against the Company in the federal case. The Company filed a motion to
dismiss based primarily on the derivative plaintiff's failure to make a pre-suit
demand on the board, which was denied. The federal court hearing the securities
law class action recently stayed discovery in the derivative proceeding until
discovery commences in the federal securities law class action.
16 of 21
REHABCARE GROUP, INC.
Item 1 - Legal Proceedings (Continued)
- --------------------------------------
In February 2003, the Company was named as a co-defendant in a complaint
filed in the United States District Court for the Northern District of Illinois
seeking investment banking fees under a retainer agreement executed by Maurice
Echales in February 1997 on behalf of eai Healthcare Staffing Solutions ("eai"),
a company that we acquired in December 1999. Mr. Echales, the former owner of
eai, has also been named as a defendant in this suit. The complaint asserts fees
in connection with three separate financing transactions and two acquisition
transactions, which we understand were consummated by eai prior to its
acquisition by the Company. The Company is a party to the suit in the Company's
position as successor to eai. At the time of the acquisition, the Company had
identified potential fees under this retainer agreement as a possible contingent
liability of eai and the Company negotiated indemnification from Mr. Echales and
his spouse in the stock purchase agreement for any fees and costs, including
attorney's fees and expenses, arising from such retainer agreement. The Company
and Mr. Echales have agreed in principle that Mr. Echales will indemnify the
Company for all but one count in the complaint. The respective attorneys for the
parties are currently preparing an indemnification agreement confirming Mr.
Echales obligation to indemnify the Company.
Item 4. - Submission of Matters to Security Holders
- ---------------------------------------------------
The Annual Meeting of Stockholders of the Company was held on Wednesday,
April 30, 2003, at which time the stockholders voted to elect the six incumbent
directors to hold office until the next annual meeting of stockholders of the
Company or until their successors have been duly elected and qualified. The
names of each of the directors of the Company who were reelected at the Annual
Meeting and the votes cast "FOR" or for which authority to vote was "WITHHELD"
is as follows:
Name For Withheld Authority
- ---- --- ------------------
William G. Anderson 11,107,523 2,108,355
Colleen Conway-Welch 9,778,180 3,437,698
Alan C. Henderson 11,107,459 2,108,419
John H. Short 11,107,523 2,108,355
H. Edwin Trusheim 11,107,523 2,108,355
Theodore M. Wight 11,107,523 2,108,355
17 of 21
REHABCARE GROUP, INC.
- ---------------------
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
See exhibit index
(b) Reports on Form 8-K
The Company has filed the following Current Reports on Form 8-K
during the period ended March 31, 2003:
Filing Date Description of Event
February 6, 2003 Item 9. Press release dated February 6, 2003,
announcing our earnings for the 4th quarter and
year ended December 31, 2002 and 2003 earnings
guidance.
Item 9. The script for a conference call held
by the registrant on February 6, 2003.
March 20, 2003 Item 9. Text of investor presentation in use
beginning March 20, 2003.
18 of 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REHABCARE GROUP, INC.
May 14, 2003
By: /s/ Vincent L. Germanese
----------------------------
Vincent L. Germanese
Senior Vice President, Chief Financial
Officer and Secretary
19 of 21
CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER
- ------------------------------------------------------
I, Alan C. Henderson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of RehabCare Group,
Inc.:
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003 By: /s/ Alan C. Henderson
----------------------------
Alan C. Henderson
President and Chief Executive Officer
20 of 21
CERTIFICATION OF CHIEF FINANCIAL OFFICER
- ----------------------------------------
I, Vincent L. Germanese, certify that:
1. I have reviewed this quarterly report on Form 10-Q of RehabCare Group,
Inc.:
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003 By: /s/ Vincent L. Germanese
----------------------------
Vincent L. Germanese
Senior Vice President and Chief Financial
Officer and Secretary
21 of 21
EXHIBIT INDEX
-------------
3.1 Restated Certificate of Incorporation (filed as Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1, dated May 9, 1991
[Registration No. 33-40467], and incorporated herein by reference)
3.2 Certificate of Amendment of Certificate of Incorporation (filed as Exhibit
3.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
May 31, 1995 and incorporated herein by reference)
3.3 Amended and Restated Bylaws (filed as Exhibit 3.3 to the Registrant;
Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 and
incorporated herein by reference.)
4.1 Rights Agreement, dated August 28, 2002, by and between the Registrant and
Computershare Trust Company, Inc. (filed as Exhibit 1 to the Registrant's
Registration Statement on Form 8-A filed September 5, 2002 and incorporated
herein by reference)
10.1 Form of Termination Compensation Agreement for Alan C. Henderson *
99.1 Certification of periodic financial report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, U.S.C. Section 1350.
99.2 Certification of periodic financial report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, U.S.C. Section 1350.
- -------------------------
* Management contract or compensatory plan or arrangement
Exhibit 10.1
REHABCARE GROUP, INC.
TERMINATION COMPENSATION AGREEMENT
----------------------------------
This agreement ("Agreement") has been entered into this 1st day of May, by
and between RehabCare Group, Inc., a Delaware corporation (the "Company"), and
Alan C. Henderson, an individual (the "Executive").
RECITALS
The Board of Directors of the Company has determined that it is in the best
interests of the Company and its stockholders to reinforce and encourage the
continued attention and dedication of the Executive to the Company as the
Company's President and Chief Executive Officer and to assure that the Company
will have the continued dedication of the Executive, notwithstanding the
possibility or occurrence of a Change in Control (as defined below). The Board
desires to provide for the continued employment of the Executive as President
and Chief Executive Officer on terms competitive with those of other
corporations, and the Executive is willing to rededicate himself and continue to
serve the Company as its President and Chief Executive Officer. Additionally,
the Board believes it is imperative to diminish the inevitable distraction of
the Executive by virtue of the personal uncertainties and risks created by a
potential or pending Change in Control and to encourage the Executive's full
attention and dedication to the Company currently and in the event of any
potential or pending Change in Control, and to provide the Executive with
compensation and benefits arrangements upon any termination after a Change in
Control and certain terminations of employment prior to a Change in Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied. Therefore, in order to accomplish these objectives, the Board
has caused the Company to enter into this Agreement.
IT IS AGREED AS FOLLOWS:
Section 1: Definitions and Construction.
1.1 Definitions. For purposes of this Agreement, the following words and
phrases, whether or not capitalized, shall have the meanings specified
below, unless the context plainly requires a different meaning.
1.1(a) "Accrued Obligations" has the meaning set forth in Section 4.1(a) of
this Agreement.
1.1(b) "Annual Base Salary" has the meaning set forth in Section 2.4(a) of
this Agreement.
1.1(c) "Board" means the Board of Directors of the Company.
1.1(d) "Cause" has the meaning set forth in Section 3.3 of this Agreement.
1.1(e) "Change in Control" means:
(i) The acquisition by any individual, entity or group, or a Person (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of
ownership of twenty percent (20%) or more of either (a) the then
outstanding shares of common stock of the Company (the "Outstanding Company
Common Stock") or (b) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election
of directors (the "Outstanding Company Voting Securities"); or
(ii) Individuals who, as the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election,
by the Company's stockholders was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
as a member of the Incumbent Board, any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest (as such terms are used in Rule l4a-11 of Regulation l4A
promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board; or
(iii) Approval by the stockholders of the Company of a reorganization,
merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, (a) more than fifty percent (50%)
of, respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or consolidation and
the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (b) no Person beneficially owns, directly or
indirectly, twenty percent (20%) or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation or the combined voting power of the
then outstanding voting securities of such corporation, entitled to vote
generally in the election of directors and (c) at least a majority of the
members of the board of directors of the corporation resulting from such
reorganization, merger or consolidation were members of the Incumbent Board
at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation;
(iv) Approval by the stockholders of the Company of (a) a complete
liquidation or dissolution of the Company or (b) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to a corporation, with respect to which following such sale or other
disposition, (1) more than forty percent (40%) of, respectively, the then
outstanding shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to
such sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (2) no Person
beneficially owns, directly or indirectly, twenty percent (20%) or more of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election
of directors and (3) at least a majority of the members of the board of
directors of such corporation were members of the Incumbent Board at the
time of the execution of the initial agreement or action of the Board
providing for such sale or other disposition of assets of the Company.
1.1(f) "Change in Control Date" means the date that the Change in Control
first occurs.
1.1(g) "Company" has the meaning set forth in the first paragraph of this
Agreement and, with regard to successors, in Section 5.2 of this Agreement.
1.1(h) "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.1(i) "Date of Termination" has the meaning set forth in Section 3.6 of
this Agreement.
1.1(j) "Disability" has the meaning set forth in Section 3.2 of this
Agreement.
1.1(k) "Disability Effective Date" has the meaning set forth in Section 3.2
of this Agreement.
1.1(l) "Effective Date" means the date of this Agreement.
1.1(m) "Employment Period" means the period beginning on the Effective Date
and ending on the later of (i) February 28, 2006, or (ii) February 28 of
any succeeding year during which notice is given by either party (as
described in Section 2.1 of this Agreement) of such party's intent not to
renew this Agreement.
1.1(n) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
1.1(o) "Excise Tax" has the meaning set forth in Section 4.2(e)(i) of this
Agreement.
1.1(p) "Gross-Up Payment" has the meaning set forth in Section 4.2(i) of
this Agreement.
1.1(q) "Incentive Bonus" has the meaning set forth in Section 2.4(b) of
this Agreement.
1.1(r) "Incumbent Board" has the meaning set forth in Section 1.1(e)(ii) of
this Agreement.
1.1(s) "Notice of Termination" has the meaning set forth in Section 3.5 of
this Agreement.
1.1(t) "Other Benefits" has the meaning set forth in Section 4.1(e) of this
Agreement.
1.1(u) "Outstanding Company Common Stock" has the meaning set forth in
Section 1.1(e)(i) of this Agreement.
1.1(v) "Outstanding Company Voting Securities" has the meaning set forth in
Section 1.1(e)(i) of this Agreement.
1.1(w) "Payment" has the meaning set forth in Section 4.2(e)(i) of this
Agreement.
1.1(x) "Person" means any "person" within the meaning of Sections 13(d) and
14(d) of the Exchange Act.
1.1(y) "Prorated Target Bonus" has the meaning set forth in Section 4.1(b)
of this Agreement.
1.1(z) "Severance Bonus Amount" has the meaning set forth in Section 4.2(b)
of this Agreement.
1.1(aa)"Term" means the period that begins on the Effective Date and ends
on the earlier of: (i) the Date of Termination, or (ii) the close of
business on the later of February 28, 2006, or February 28 of any renewal
term.
1.2 Gender and Number. When appropriate, pronouns in this Agreement used in the
masculine gender include the feminine gender, words in the singular include
the plural, and words in the plural include the singular.
1.3 Headings. All headings in this Agreement are included solely for ease of
reference and do not bear on the interpretation of the text. Accordingly,
as used in this Agreement, the terms "Article" and "Section" mean the text
that accompanies the specified Article or Section of the Agreement.
1.4 Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Missouri, without reference to its
conflict of law principles.
Section 2: Terms and Conditions of Employment.
2.1 Period of Employment. The Executive shall remain in the employ of the
Company throughout the Term of this Agreement in accordance with the terms
and provisions of this Agreement. This Agreement will automatically renew
for annual one-year periods unless either party gives the other written
notice, by September 1, 2005, or September 1 of any succeeding year, of
such party's intent not to renew this Agreement.
2.2 Positions and Duties.
2.2(a) Throughout the Term of this Agreement, the Executive shall serve as
President and Chief Executive Officer of the Company subject to the
reasonable directions of the Board. The Executive shall have such authority
and shall perform such duties as are specified by the Bylaws of the Company
and the Board for the office of President and Chief Executive Officer,
subject to the control exercised by the Board from time to time. In
addition, each year throughout the Term that the Executive serves as the
President and Chief Executive Officer of the Company, the Executive shall
be nominated by the Nominating Committee and/or the Board for election as a
director at the annual meeting of stockholders of the Company.
2.2(b) Throughout the Term of this Agreement (but excluding any periods of
vacation and sick leave to which the Executive is entitled), the Executive
shall devote reasonable attention and time during normal business hours to
the business and affairs of the Company and shall use his reasonable best
efforts to perform faithfully and efficiently such responsibilities as are
assigned to him under or in accordance with this Agreement; provided that,
it shall not be a violation of this Section 2.2(b) for the Executive to (i)
serve on corporate, civic or charitable boards or committees, (ii) deliver
lectures or fulfill speaking engagements, or (iii) manage personal
investments, so long as such activities do not significantly interfere with
the performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement or violate the Company's conflict
of interest policy as in effect immediately prior to the Effective Date.
2.3 Situs of Employment. Throughout the Term of this Agreement, the Executive's
services shall be performed at the location where the Executive was
employed immediately prior to the Effective Date, or any office of the
Company which is located in the greater St. Louis area.
2.4 Compensation.
2.4(a) Annual Base Salary. At the date of this Agreement, the Executive
shall receive an annual base salary ("Annual Base Salary") of Five Hundred
Thousand Dollars ($500,000), which shall be paid in equal or substantially
equal semi-monthly installments. During the Term of this Agreement, the
Annual Base Salary payable to the Executive shall be reviewed at least
annually and shall be increased at the discretion of the Board or the
Compensation Committee of the Board but shall not be reduced.
2.4(b) Incentive Bonuses. In addition to Annual Base Salary, the Executive
shall be awarded the opportunity to earn an incentive bonus on an annual
basis ("Incentive Bonus") under the incentive compensation plan approved by
the Board or the Compensation Committee of the Board as of the Effective
Date. During the Term of this Agreement, the annual target Incentive Bonus
that the Executive will have the opportunity to earn shall be reviewed at
least annually and be increased at the discretion of the Board or the
Compensation Committee of the Board.
2.4(c) Incentive, Savings and Retirement Plans. Throughout the Term of this
Agreement, the Executive shall be entitled to participate in all incentive,
savings and retirement plans generally available to other peer executives
of the Company.
2.4(d) Welfare Benefit Plans. Throughout the Term of this Agreement (and
thereafter, subject to Section 4.1(d) hereof), the Executive and/or the
Executive's family, as the case may be, shall be eligible for participation
in and shall receive all benefits under welfare benefit plans, practices,
policies and programs provided by the Company (including, without
limitation, medical, prescription, dental, disability, salary continuance,
employee life, group life, accidental death and travel accident insurance
plans and programs) to the extent generally available to other peer
executives of the Company.
2.4(e) Expenses. Throughout the Term of this Agreement, the Executive shall
be entitled to receive prompt reimbursement for all reasonable business
expenses incurred by the Executive in accordance with the policies,
practices and procedures generally applicable to other peer executives of
the Company.
2.4(f) Fringe Benefits. Throughout the Term of this Agreement, the
Executive shall be entitled to such fringe benefits as generally are
provided to other peer executives of the Company.
2.4(g) Office and Support Staff. Throughout the Term of this Agreement, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to personal secretarial and other
assistance, as are generally provided to other peer executives of the
Company.
2.4(h) Vacation. Throughout the Term of this Agreement, the Executive shall
be entitled to paid vacation in accordance with the plans, policies,
programs and practices as are generally provided to other peer executives
of the Company, plus an additional one day per month.
Section 3: Termination of Employment.
3.1 Death. The Executive's employment shall terminate automatically upon the
Executive's death during the Employment Period.
3.2 Disability. If the Company determines in good faith that the Disability of
the Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), the Company may give to the
Executive written notice in accordance with Section 6.2 of its intention to
terminate the Executive's employment. In such event, the Executive's
employment with the Company shall terminate effective on the thirtieth
(30th) day after receipt of such notice by the Executive (the "Disability
Effective Date"), provided that, within the thirty (30) days after such
receipt, the Executive shall not have returned to full-time performance of
the Executive's duties. For purposes of this Agreement, "Disability" shall
mean that the Executive has been unable to perform the services required of
the Executive hereunder on a full-time basis for a period of one hundred
eighty (180) consecutive business days by reason of a physical and/or
mental condition. "Disability" shall be deemed to exist when certified by a
physician selected by the Company and acceptable to the Executive or the
Executive's legal representative (such agreement as to acceptability not to
be withheld unreasonably). The Executive will submit to such medical or
psychiatric examinations and tests as such physician deems necessary to
make any such Disability determination.
3.3 Termination for Cause. The Company may terminate the Executive's employment
during the Employment Period for "Cause," which shall mean termination
based upon: (i) the Executive's willful and continued failure to
substantially perform his duties with the Company (other than as a result
of incapacity due to physical or mental condition), after a written demand
for substantial performance is delivered to the Executive by the Company,
which specifically identifies the manner in which the Executive has not
substantially performed his duties, (ii) the Executive's commission of an
act constituting a criminal offense that would be classified as a felony
under the applicable criminal code or involving moral turpitude,
dishonesty, or breach of trust, or (iii) the Executive's material breach of
any provision of this Agreement. For purposes of this Section, no act or
failure to act on the Executive's part shall be considered "willful" unless
done, or omitted to be done, without good faith and without reasonable
belief that the act or omission was in the best interest of the Company.
Notwithstanding the foregoing, the Executive shall not be deemed to have
been terminated for Cause unless and until (i) he receives a Notice of
Termination from the Company, (ii) he is given the opportunity, with
counsel, to be heard before the Board, and (iii) the Board finds, in its
good faith opinion, that the Executive was guilty of the conduct set forth
in the Notice of Termination.
3.4 Voluntary Termination by the Executive. The Executive may voluntarily
terminate his employment with the Company for any reason or for no reason
at any time during the Employment Period.
3.5 Notice of Termination. Any termination by the Company for Cause or
Disability, or by the Executive for any reason or no reason, shall be
communicated by Notice of Termination to the other party, given in
accordance with Section 6.2. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment
under the provision so indicated, and (iii) if the Date of Termination (as
defined in Section 3.6 hereof) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than
fifteen (15) days after the giving of such notice). The failure of the
Company to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Cause shall not waive any right of the
Company hereunder or preclude the Company from asserting such fact or
circumstance in enforcing the Company's rights hereunder.
3.6 Date of Termination. "Date of Termination" means (i) if the Executive's
employment is terminated by the Company for Cause, the Date of Termination
shall be the date of receipt by the Executive of the Notice of Termination
or any later date specified therein, as the case may be, (ii) if the
Executive's employment is terminated by reason of death or Disability, the
Date of Termination shall be the date of death of the Executive or the
Disability Effective Date, as the case may be, or (iii) if the Executive's
employment is voluntarily terminated by the Executive for any reason or no
reason, the Date of Termination shall be a date specified in the Notice of
Termination, (iv) if the Executive's employment is terminated by the
Company other than for Cause, death, or Disability, the Date of Termination
shall be the date of receipt by the Executive of the Notice of Termination;
provided that if within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, or by a final judgment,
order or decree of a court of competent jurisdiction (the time for appeal
therefrom having expired and no appeal having been perfected).
Section 4: Certain Benefits Upon Termination.
4.1 Termination Without Cause Prior to a Change in Control. If, prior to a
Change in Control during the Employment Period, the Company terminates the
Executive's employment without Cause, the Executive shall be entitled to
the payment of the benefits provided below:
4.1(a) Accrued Obligations. Within thirty (30) days after the Date of
Termination, the Company shall pay to the Executive the sum of (1) the
Executive's accrued salary through the Date of Termination, (2) the accrued
benefit payable to the Executive under any deferred compensation plan,
program or arrangement in which the Executive is a participant subject to
the computation of benefits provisions of such plan, program or
arrangement, and (3) any accrued vacation pay; in each case to the extent
not previously paid (the "Accrued Obligations").
4.1(b) Annual Base Salary and Target Bonus Continuation. For a period of
twelve (12) months beginning in the month after the Date of Termination,
the Company shall pay to the Executive on a monthly basis one-twelfth of an
amount equal the Executive's then-current Annual Base Salary and Prorated
Target Bonus. For purposes of this Agreement, the term "Prorated Target
Bonus" means an amount determined by multiplying the actual percentage of
the Executive's base salary paid to the Executive as an Incentive Bonus in
the year prior to the year in which the Date of Termination occurs by the
Executive's then-current Annual Base Salary as of the Date of Termination
and prorating this amount by multiplying it by a fraction, the numerator of
which is the number of days during the then-current calendar year that the
Executive was employed by the Company up to and including the Date of
Termination and the denominator of which is 365. The Company at any time
may elect to pay the balance of such payments then remaining in a lump sum.
4.1(c) Stock-Based Awards. To the extent not otherwise provided for under
the terms of the Company's stock-based benefit plans or the Executive's
grant agreement, all stock-based awards held by the Executive that have not
expired and are scheduled to vest and/or become exercisable within six (6)
months after the Date of Termination in accordance with their respective
terms, shall vest and/or become exercisable as of the Date of Termination
and shall remain exercisable after the Date of Termination in accordance
with the original terms of their respective grant agreements.
4.1(d) Medical and Health Benefit Continuation. For a period of twelve (12)
months beginning in the month the Date of Termination occurs, the Company
shall pay the costs of medical and health benefits to the Executive and/or
the Executive's family at least equal to those which would have been
provided to them in accordance with the Company's plans, programs,
practices and policies if the Executive's employment had not been
terminated; provided, however, that if the Executive becomes reemployed
with another employer and is eligible to receive medical or health benefits
under another employer-provided plan, program, practice or policy the
medical and health benefits described herein shall be immediately
terminated upon the commencement of coverage under the new employer's plan,
program, practice or policy.
4.1(e) Other Benefits. To the extent not previously paid or provided, the
Company shall timely pay or provide to the Executive and/or the Executive's
family any other amounts or benefits required to be paid or provided for
which the Executive and/or the Executive's family is eligible to receive
pursuant to this Agreement and under any plan, program, policy or practice
or contract or agreement of the Company as those provided generally to
other peer executives and their families ("Other Benefits").
4.2 Benefits Upon a Change in Control. If a Change in Control occurs during the
Employment Period and within three years after the Change in Control Date
(a) the Company terminates the Executive's employment without Cause, or (b)
the Executive voluntarily terminates employment with the Company for any
reason or no reason, then the Executive shall become entitled to the
payment of the benefits as provided below:
4.2(a) Accrued Obligations. Within thirty (30) days after the Date of
Termination, the Company shall pay to the Executive the Accrued Obligations
and the Prorated Target Bonus.
4.2(b) Severance Amount. Within thirty (30) days after the Date of
Termination, the Company shall pay to the Executive as severance pay in a
lump sum, in cash, an amount equal to 2.99 times the sum of the Executive's
then-current Annual Base Salary and Severance Bonus Amount. For purposes of
this Agreement, the term "Severance Bonus Amount" means an amount
determined by averaging the percentages of the Executive's base salary that
were actually paid to the Executive as an Incentive Bonus during the five
most recently completed years prior to the year in which the Date of
Termination occurs and multiplying such average percentage by the
Executive's then-current Annual Base Salary.
4.2(c) Stock-Based Awards. To the extent not otherwise provided for under
the terms of the Company's stock-based benefit plans or the Executive's
grant agreements, all stock-based awards held by the Executive that have
not expired in accordance with their respective terms shall vest and/or
become fully exercisable as of the Change in Control Date and shall remain
exercisable after the Change in Control Date in accordance with the
original terms of the respective grant agreements.
4.2(d) Other Benefits. To the extent not previously paid or provided, the
Company shall timely pay or provide to the Executive and/or the Executive's
family any Other Benefits.
4.2(e) Gross-up Payments.
(i) Anything in this Agreement to the contrary notwithstanding, in the
event that it shall be determined that any payment by the Company to or for
the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise but
determined without regard to any additional payments required under this
Section 4.2(e)) (a "Payment") would be subject to the excise tax imposed by
Code Section 4999 (or any successor provision) or any interest or penalties
are incurred by the Executive with respect to such excise tax (such excise
tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest or penalties imposed
with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment on an after-tax basis
equal to the Excise Tax imposed upon the Payment. The intent of the parties
is that the Company shall be responsible in full for, and shall pay, any
and all Excise Tax on any Payments and Gross-up Payment(s) and any income
and all excise and employment taxes (including, without limitation,
penalties and interest) imposed on any Gross-up Payment(s) as well as any
loss of deduction caused by or related to the Gross-up Payment(s).
(ii) Subject to the provisions of Section 4.2(e)(iii), all determinations
required to be made under this Section 4.2(e), including whether and when a
Gross-up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determinations, shall be
made by KPMG LLP (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and to the Executive within
fifteen (15) business days of receipt of notice from the Company or the
Executive that there has been or will be a Payment. In the event that the
Accounting Firm is serving as the accountant or auditor for the Person
effecting the Change in Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the
"Accounting Firm" hereunder). All fees and expenses of the Accounting Firm
shall be paid solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 4.2(e), shall be paid by the Company to the
Executive within five (5) days after the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall furnish the Executive with a written
opinion that failure to report the Excise Tax on the Executive's applicable
federal income tax return would not result in the imposition of a
negligence or similar penalty. Any determination by the Accounting Firm
shall be binding upon the Company and the Executive in the absence of a
material mathematical or legal error. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that the
Gross-Up Payments will not have been made by the Company that should have
been made or that the Gross-Up Payments will have been made that should not
have been made, in each case consistent with the calculations required to
be made hereunder. In the event that the Company exhausts its remedies
pursuant to Section 4.2(e)(iii) below and the Executive is thereafter
required to make a payment of any Excise Tax or any interest, penalty or
addition to tax related thereto, the Accounting Firm shall determine the
amount of the underpayment of Excise Taxes that has occurred and such
underpayment and interest, penalty or addition to tax shall be promptly
paid by the Company to the Executive, along with such additional amounts
described in Section 4.2(e)(i). In the event that the Accounting Firm
determines that an overpayment of Gross-Up Payment(s) has occurred, any
such overpayment shall be treated for all purposes as a loan to the
Executive with interest at the applicable federal rate provided for in
Section 7872(f)(2) of the Code, due and payable within ninety (90) days
after written demand to the Executive by the Company; provided, however,
that the Executive shall have no duty or obligation whatsoever to repay
such overpayment if Executive's receipt of the overpayment, or any portion
thereof, is included in the Executive's income and the Executive's
repayment of the same is not deductible by the Executive for federal or
state income tax purposes.
(iii) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than ten (10) business days after the
Executive is informed in writing of such claim by the Internal Revenue
Service and the notification shall apprise the Company of the nature of the
claim and the date on which such claim is required to be paid. The
Executive shall not pay such claim prior to the expiration of a 30-day
period following the date on which the Executive has given such
notification to the Company (or such shorter period ending on the date that
any payment of taxes with respect to such claim is required). If the
Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(A) give the Company any information reasonably requested by the
Company relating to such claim;
(B) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company;
(C) cooperate with the Company in good faith in order to effectively
contest such claim; and
(D) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay all costs and
expenses (including additional interest and penalties) incurred in
connection with such contest, and shall indemnify and hold the Executive
harmless, on an after-tax basis to the Executive, for any Excise Tax or
income tax (including interest and penalties with respect thereto) imposed
as a result of such contest. Without limitation on the foregoing provisions
of this Section 4.2(e), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo
any and all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at its sole
option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive
agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction or in one or
more appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis, and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income
tax (including interest or penalties with respect thereto) imposed with
respect to such advance; and provided further that any extension of the
statute of limitations relating to payment of taxes for the taxable year of
the Executive with respect to which such contested amount is claimed to be
due is limited solely to such contested amount. Furthermore, the Company's
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised
by the Internal Revenue Service or any other taxing authority.
(iv) If after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 4.2(e)(iii), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 4.2(e)(iii))
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Company
pursuant to Section 4.2(e)(iii), a determination is made that the Executive
shall not be entitled to a refund with respect to such claim and the
Company does not notify the Executive in writing of its intent to contest
such denial or refund prior to the expiration of thirty (30) days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of the Gross-Up Payment required to be paid by
the Company to the Executive.
4.3 Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period (either prior or subsequent
to a Change in Control), this Agreement shall terminate without further
obligations to the Executive's legal representatives under this Agreement,
other than for (i) payment of Accrued Obligations (as defined in Section
4.1(a)) (which shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within thirty (30) days of the Date of
Termination) and (ii) the timely payment or provision of Other Benefits (as
defined in Section 4.1(e)), including death benefits pursuant to the terms
of any plan, policy, or arrangement of the Company.
4.4 Disability. If the Executive's employment is terminated by reason of the
Executive's Disability during the Employment Period (either prior or
subsequent to a Change in Control), this Agreement shall terminate without
further obligations to the Executive, other than for (i) payment of Accrued
Obligations (as defined in Section 4.1(a)) (which shall be paid to the
Executive in a lump sum in cash within thirty (30) days of the Date of
Termination) and (ii) the timely payment or provision of Other Benefits (as
defined in Section 4.1(e)) including Disability benefits pursuant to the
terms of any plan, policy or arrangement of the Company.
4.5 Termination by the Company for Cause or Voluntarily by the Executive Prior
to a Change in Control. If the Executive's employment shall be terminated
by the Company for Cause during the Employment Period (either prior or
subsequent to a Change in Control) or voluntarily by the Executive for any
reason or for no reason prior to a Change in Control, this Agreement shall
terminate without further obligations to the Executive, other than for (i)
payment of the Executive's Accrued Obligations (as defined in Section
4.1(a)) (which shall be paid to the Executive in a lump sum in cash within
thirty (30) days of the Date of Termination), and (ii) the timely payment
or provision of Other Benefits (as defined in Section 4.1(e)), as
applicable for such termination.
4.6 Non-Exclusivity of Rights. Except as provided in Section 4.1(d), nothing in
this Agreement shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided by the
Company and for which the Executive may qualify, nor shall anything herein
limit or otherwise affect such rights as the Executive may have under any
other contract or agreement with the Company. Amounts which are vested
benefits of which the Executive is otherwise entitled to receive under any
plan, policy, practice or program of, or any other contract or agreement
with, the Company at or subsequent to the Date of Termination, shall be
payable in accordance with such plan, policy, practice or program or
contract or agreement.
4.7 Full Settlement. The Company's obligation to make the payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and,
except as provided in Section 4.1(d), such amounts shall not be reduced
whether or not the Executive obtains other employment. The Company agrees
to pay promptly as incurred, to the full extent permitted by law, all legal
fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the
Executive or others of the validity or enforceability of, or liability
under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive regarding
the amount of any payment pursuant to this Agreement), plus in each case
interest on any delayed payment at the applicable Federal rate provided for
in Code Section 7872(f)(2)(A).
Section 5: Successors.
5.1 Successors of Executive. This Agreement is personal to the Executive and,
without the prior written consent of the Company, the rights (but not the
obligations) shall not be assignable by the Executive otherwise than by
will or the laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by the Executive's legal representatives.
5.2 Successors of Company. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of the Company or the
division in which the Executive is employed, as the case may be, to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to terminate the Agreement at his
option on or after the Change in Control Date for Good Reason. As used in
this Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor to its business or the business of the Division and/or
its assets or the assets of the Division which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
Section 6: Miscellaneous.
6.1 Other Agreements. This Agreement supersedes all prior dated agreements,
letters and understandings concerning severance benefits payable to the
Executive, either before or after a Change in Control. The Board may, from
time to time in the future, provide other incentive programs and bonus
arrangements to the Executive with respect to the occurrence of a Change in
Control that will be in addition to the benefits required to be paid in the
designated circumstances in connection with the occurrence of a Change in
Control. Such additional incentive programs and/or bonus arrangements will
affect or abrogate the benefits to be paid under this Agreement only in the
manner and to the extent explicitly agreed to by the Executive in any such
subsequent program or arrangement.
6.2 Notice. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to
the respective addresses as set forth below; provided that all notices to
the Company shall be directed to the attention of the Chairman of the
Board, or to such other address as one party may have furnished to the
other in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
Notice to Executive:
-------------------
Alan C. Henderson
c/o RehabCare Group, Inc.
7733 Forsyth Boulevard
Suite 1700
St. Louis, Missouri 63105
Notice to Company:
-----------------
RehabCare Group, Inc.
7733 Forsyth Boulevard
Suite 1700
St. Louis, Missouri 63105
Attention: Chief Financial Officer
7.3 Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
7.4 Withholding. The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
7.5 Waiver. The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company
may have hereunder, including, without limitation, the right of the
Executive to terminate employment for Good Reason pursuant to Section 3.4
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
IN WITNESS WHEREOF, the Executive and the Company, pursuant to the
authorization from its Board, have caused this Agreement to be executed in its
name on its behalf, all as of the day and year first above written.
By: /s/ Alan C. Henderson
------------------------
Alan C. Henderson
REHABCARE GROUP, INC.
By: /s/ H. Edwin Trusheim
------------------------
Name: H. Edwin Trusheim
Title: Chairman of the Board
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of RehabCare Group, Inc. (the "Company")
on Form 10-Q for the period ending March 31, 2003 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Alan C. Henderson,
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350,
as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Alan C. Henderson
------------------------------------
Alan C. Henderson
Chief Executive Officer of
RehabCare Group, Inc.
May 14, 2003
* A signed original of the written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of RehabCare Group, Inc. (the "Company")
on Form 10-Q for the period ending March 31, 2003 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Vincent L.
Germanese, Senior Vice President Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Vincent L. Germanese
------------------------------------
Vincent L. Germanese
Chief Financial Officer
RehabCare Group, Inc.
May 14, 2003
* A signed original of the written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.