<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
REGENCY HEALTH SERVICES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] Fee not required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
REGENCY HEALTH SERVICES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
AND PROXY STATEMENT
MAY 8, 1997
Dear Stockholder:
On behalf of the Board of Directors, you are cordially invited to attend
the Annual Meeting of Stockholders of Regency Health Services, Inc. to be held
on Thursday, May 8, 1997 at 9:00 a.m., local time, at the Sutton Place Hotel,
4500 MacArthur Boulevard, Newport Beach, California. At the meeting, you are
being asked to:
1. Elect two Directors for a three-year term, or until their successors
are elected and qualified;
2. Transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on March 21, 1997 as
the record date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting. Only holders of common stock at the close of
business on the record date will be entitled to vote at the Annual Meeting.
Please sign, date, and return your proxy in the enclosed envelope so that
your shares may be voted at the meeting. If the shares are held in more than one
name, all holders of record must sign. If you plan to attend the Annual Meeting,
please notify me so that identification can be prepared for you. Thank you for
your interest and consideration.
By Order of the Board of Directors,
/s/ DAVID A. GRANT
------------------------------------
David A. Grant, Secretary
Tustin, California
April 7, 1997
STOCKHOLDERS OR OMNIBUS PROXIES ARE URGED TO SIGN, DATE, AND PROMPTLY MAIL THE
PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE, WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING.
<PAGE> 3
REGENCY HEALTH SERVICES, INC.
PROXY STATEMENT
This statement is furnished in connection with the solicitation, on behalf
of the Board of Directors of Regency Health Services, Inc. a Delaware
corporation ("Regency" or the "Company"), of proxies for use at the Annual
Meeting of Stockholders of the Company ("Annual Meeting"), to be held at the
Sutton Place Hotel, 4500 MacArthur Boulevard, Newport Beach, California, on
Thursday, May 8, 1997 at 9:00 a.m., and at any and all adjournments thereof. It
is anticipated that the mailing to stockholders of this Proxy Statement and the
enclosed proxy will commence on or about April 7, 1997. The mailing address of
the principal executive offices of the Company is 2742 Dow Avenue, Tustin,
California 92780.
Only stockholders of record at the close of business on March 21, 1997 will
be entitled to vote at the meeting. At the close of business on March 21, 1997
there were outstanding 15,794,594 shares of the Company's common stock. Each
share of common stock is entitled to one vote. There is no provision in the
Company's Certificate of Incorporation for cumulative voting.
Abstentions and broker non-votes are each included in the determination of
a quorum. An affirmative vote of a majority of the votes cast at the meeting is
required for the election of each Director. Abstentions are counted in all
tabulations of the votes cast. Therefore, abstentions have the same effect as a
vote "against." Broker non-votes are not counted for vote tabulation purposes.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Proposal 1 -- Election of Directors................................................... 2
Continuing Directors.................................................................. 3
Certain Relationships................................................................. 4
Executive Compensation................................................................ 5
Report of the Human Resources Committee............................................... 8
Security Ownership of Certain Beneficial Owners and Management........................ 11
Management............................................................................ 13
Other Business........................................................................ 14
General Information................................................................... 14
</TABLE>
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<PAGE> 4
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Bylaws provide that the number of Directors of the Company
shall be seven (7). The Company's Certificate of Incorporation and Bylaws
provide for a Board of Directors that is divided into three classes. Each year
the stockholders elect the members of a class for a term of three years.
Currently, the terms of office for members of Class III, Class I and Class II of
the Board of Directors will expire, respectively, on the dates of the Annual
Meetings in 1997, 1998, and 1999. The Certificate of Incorporation and the
Bylaws of the Company provide that each class be as nearly equal in number as
the then-authorized number of Directors constituting the Board. In order to meet
this requirement, the Board, re-classified Mr. Matros from Class II to Class
III. The members of Class III whose term expires at the 1997 Annual Meeting are
John W. Adams and Richard K. Matros. Two members of the Board of Directors will
be elected at the 1997 Annual Meeting. The Board of Directors has nominated John
W. Adams and Richard K. Matros. Persons elected Directors at the 1997 Annual
Meeting will hold office until their terms expire on the date of the 2000 Annual
Meeting or until the election and qualification of their successors.
Shares represented by proxies solicited hereby will be voted for the
election of the Board's nominees unless authority to so vote is withheld. The
nominees have consented to being named herein and to serve if elected. If they
should become unavailable for election prior to the Annual Meeting, the proxies
intend to vote for a substitute nominee, if designated by the Board of
Directors.
The following, which has been provided by the nominees and Directors, sets
forth for the nominees and for each Director whose term continues, his principal
occupation or employment during at least the past five years, and the period
during which he has served as a Director of the Company.
1997 NOMINEES
JOHN W. ADAMS, age 53, has been Chairman of the Board of Directors since
September 8, 1994. He was Chief Executive Officer of the Company from September
8, 1994 to June 8, 1995, and has been a Director of the Company since April
1994. He has been President of Smith Management Company, a New York-based
investment firm, since January 1984. Mr. Adams also currently serves as Chairman
of the Board of Servico, Inc. and Chairman of the Board of Hawaiian Airlines,
Inc., and is a member of the Board of Directors of Harvard Industries, Inc. and
several privately held companies. Mr. Adams is a Member of Class III of the
Board of Directors and a member of the Executive Committee.
RICHARD K. MATROS, age 43, has been Chief Executive Officer since June 8,
1995 and President and a Director of the Company since April 1994. He was Chief
Operating Officer from April 1994 until June 8, 1995. He was a Director of Care
Enterprises, Inc. ("Care"), a wholly owned subsidiary of the Company, from
November 1991 until April 1994; President and Chief Operating Officer of Care
from September 1991 until April 1994; and Chief Executive Officer of Care from
January 1994 to April 1994. Mr. Matros was Executive Vice President, Operations
of Care from March 1988 to September 1991. He has over 20 years of experience in
the long-term care industry and is active in the California Association of
Health Facilities, serving as President and serves on the Multi-Facility
Committee of the American Health Care Association. Mr. Matros also currently
serves as a member of the Board of Directors of Hawaiian Airlines, Inc. Mr.
Matros is a member of Class II of the Board of Directors and a member of the
Executive Committee.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE NOMINEES.
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<PAGE> 5
CONTINUING DIRECTORS
TONY ASTORGA, age 51, has been a member of the Board of Directors of the
Company since February 1992. Since January 1988, Mr. Astorga has served as
Senior Vice President, Chief Financial Officer, and Treasurer of Blue Cross &
Blue Shield of Arizona, Inc. He is a member of Class I of the Board of Directors
of the Company and a member of the Audit Committee. His term expires in 1998.
GREGORY STEPHEN ANDERSON, age 40, has served as a Director of the Company
since December 1986. Mr. Anderson is President of Anderson & Wells Investment
Companies, Managing Director of El Dorado Investment Company, a General Partner
of Sundance Venture Partners L.P. and Vice President of Sundance Capital
Corporation. Mr. Anderson also currently serves as a member of the Board of
Directors for Mega Warehouse Foods, Gateway Data Sciences Corp. and several
privately held companies. Mr. Anderson is a member of Class II of the Board of
Directors and a member of the Executive and the Human Resources Committees. His
term expires in 1999.
ROBERT G. COO, age 55, has been a Director of the Company since April 1994.
Since March 1995, Mr. Coo has been an independent financial consultant. Mr. Coo
was Vice President, Chief Financial Officer and Secretary of Pengo Industries,
Inc., from June 1991 to March 1995. From 1987 to 1990, Mr. Coo was Vice
President, Finance and Secretary of Renewable Resource Systems, Inc. Mr. Coo
also currently serves as a member of the Board of Directors of First National
Bank and Hawaiian Airlines, Inc. (Mr. Coo is the brother-in-law of John W.
Adams, Chairman of the Company). Mr. Coo is a member of Class I of the Board of
Directors of the Company and a Member of the Audit Committee. His term expires
in 1998.
JOHN F. NICKOLL, age 62, has been a Director of the Company since April
1984. He has been Chairman since 1995 and Chief Executive Officer and President
of The Foothill Group, Inc. since 1985 and 1976, respectively. He was Vice
Chairman of The Foothill Group, Inc. from 1970 until 1995. Mr. Nickoll is
Chairman, Chief Executive Officer and President of Foothill Capital Corporation,
a subsidiary of the Foothill Group. Mr. Nickoll is Managing General Partner of
Foothill Partners, Foothill Partners II and Foothill Partners III. Mr. Nickoll
currently serves as a member of the Board of Directors of CIM Investment Trust.
Mr. Nickoll is a member of the Class II of the Board of Directors and is a
member of the Audit Committee. His term expires in 1999.
ARTHUR J. PASMAS, age 62, has been a Director of the Company since April
1994. Since 1987, Mr. Pasmas has served as a Vice President of Smith Management
Company. Prior thereto, he was founder in 1968, President and Chief Executive
Officer of Resources Investment Corporation and its parent, Energy Management
Corporation (acquired by Smith Management Company in 1987). He presently serves
as Chairman of the Board of GOEX International, Inc., and is a Director of
Inland Resources, Inc. Mr. Pasmas is a member of Class I of the Board of
Directors of the Company and a member of the Human Resources Committee. His term
expires in 1998.
COMPENSATION OF DIRECTORS
Each non-employee Director of the Company receives $10,000 per year for
serving on the Company's Board of Directors, $1,250 for each Board meeting
attended, $500 for each telephonic meeting, and $1,000 for each Audit and Human
Resources Committee meeting attended that occurs on dates other than on the
dates of the Board meetings. Messrs. Adams and Anderson receive $3,000 monthly
for serving on the Executive Committee. Mr. Adams receives $12,500 monthly for
serving as Chairman of the Board. In addition, pursuant to the Regency Health
Services, Inc. Director Stock Plan, each non-employee Director of the Company
receives 2,000 restricted shares of Company common stock and options to purchase
an additional 6,000 shares of Company common stock on July 1 of each year. The
period of restriction for each award of shares of restricted stock expires on
the last to occur of: the end of the six month period following the grant date;
the participant's direct or indirect pecuniary ownership of shares not subject
to restrictions for at least 12 months, provided that the restriction shall
lapse with respect to one restricted share granted for every two shares of
unrestricted shares; and the participant's attendance at 75% of the scheduled
Board meetings during the 12 month period immediately preceding the grant date.
All shares that remain restricted when the Director's service on the Company's
Board terminates will be forfeited. The stock options are granted at fair market
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<PAGE> 6
value on the date of grant and the participants are entitled to exercise such
options beginning six months and one day after grant and ending ten years after
grant.
BOARD MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors held ten meetings during fiscal 1996. All members of
the Board of Directors participated in more than 75% of the meetings of the
Board of Directors. The Board of Directors currently has three committees: an
Audit Committee, an Executive Committee, and a Human Resources Committee. The
Audit Committee makes recommendations to the Board of Directors as to the
engagement or discharge of the independent public accountants; reviews the
results of the auditing engagement with the independent public accountants;
reviews the scope and results of the Company's internal auditing procedures;
reviews the adequacy of the Company's system of internal accounting controls;
and directs and supervises investigations into matters within the scope of its
duties. The Audit Committee held three meetings during fiscal 1996. Presently,
this Committee is composed of Mr. Astorga, Mr. Coo, and Mr. Nickoll. The
Executive Committee performs the functions delegated to it by the Board of
Directors acting as a whole. The Executive Committee held two meetings during
fiscal 1996. Presently, this Committee is composed of Mr. Adams, Mr. Anderson,
and Mr. Matros. The Human Resources Committee approves the compensation,
including bonuses, for the Company's executive officers. The Human Resources
Committee held three meetings during fiscal 1996. Presently, this Committee is
composed of Mr. Anderson and Mr. Pasmas.
CERTAIN RELATIONSHIPS
In June 1990, Regency entered into a 10-year lease with four five-year
option periods for its Glendora facility, which is owned by Glendora Hospital
Partners, a California general partnership. Andersen and Wells Co. and Gregory
S. Anderson Company, both corporations controlled by Gregory S. Anderson, are
partners in Glendora Hospital Partners. The lease provides for equal monthly
payments for three years, after which the monthly payment is adjusted annually
based upon certain increases in the Consumer Price Index. Lease expense paid by
Regency for the year ended December 31, 1996 for the Glendora facility was
approximately $445,875.
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<PAGE> 7
EXECUTIVE COMPENSATION
The Summary Compensation Table below sets forth information concerning
compensation earned in the fiscal years ended December 31, 1996, 1995, and 1994
by Richard K. Matros, the Company's Chief Executive Officer, and by the four
other most highly compensated persons who were serving as executive officers of
the Company on December 31, 1996 and whose compensation for the year ended
December 31, 1996 was in excess of $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------
AWARDS
ANNUAL COMPENSATION ----------- PAYOUTS
NAME AND ------------------------------------------ RESTRICTED SECURITIES ---------- ALL OTHER
PRINCIPAL OTHER ANNUAL STOCK UNDERLYING LTIP COMPENSATION
POSITION YEAR SALARY($) BONUS($) COMPENSATION AWARD(S)($) OPTIONS(#) PAYOUTS($) ($)
- ----------------- ----- -------- -------- ------------ ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard K. Matros 1996 $375,000(1) $375,000 -- -- 300,000 -- --
President, 1995 320,000(1) 163,824 -- -- -- $1,296,266(2) --
Chief 1994 300,000(1) 200,000(3) -- -- 250,000 -- --
Executive
Officer
Bruce D. 1996 250,000(1) 250,000 -- -- 250,000 -- --
Broussard 1995 -- 125,000(4) -- -- -- -- $ 65,554(5)
Executive Vice 1994 -- -- -- -- -- -- --
President,
Chief Financial
Officer
Anthony B. Way 1996 189,987(6) -- -- -- -- --
Executive Vice 1995 200,000(1) 101,600 -- -- -- -- 70,732(7)
President, 1994 -- 100,000(4) -- -- 70,000 -- --
Operations
Stephen W. 1996 190,000(1) 79,000 -- -- -- -- --
Carlton 1995 140,000(1) 107,000(8) -- -- 25,000 -- --
Senior Vice 1994 -- -- -- -- -- -- --
President,
Home Health and
Pharmacy
Services
Clare Hendrick 1996 165,000(1) 55,000 -- -- 25,000 -- 43,846(5)
Senior Vice 1995 -- -- -- -- -- -- --
President, 1994 -- -- -- -- -- -- --
Professional
Services
David A. Grant 1996 160,300(1) 80,000 -- -- -- -- --
Senior Vice 1995 79,537(1) 119,500(9) -- -- 40,000 -- 62,309(5)
President, 1994 -- -- -- -- -- -- --
Corporate
Planning and
Development,
General
Counsel and
Secretary
</TABLE>
- ---------------
(1) Payment made pursuant to employment agreement.
(2) Represents cash and the value of stock issued as a result of the settlement
of SARs issued in 1991.
(3) Includes a $50,000 payment made in recognition of efforts in connection with
the merger of Care and the Company (the "Merger") and in consideration of
other factors.
(4) Represents a signing bonus pursuant to employment agreement.
(5) Represents relocation costs paid by the Company.
(6) Mr. Way's employment terminated October 16, 1996. His annual rate of
compensation during 1996 was $220,000. In connection with the termination of
his employment, the Company paid $165,000 to Mr. Way, which amount is not
included in the reported figure.
(7) Includes relocation costs of $66,788 paid by the Company on behalf of Mr.
Way.
(8) Includes a signing bonus of $50,000 pursuant to employment agreement.
(9) Includes a signing bonus of $75,000 pursuant to employment agreement.
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<PAGE> 8
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1996
The following table provides information on option grants to the Named
Executive Officers in the year ended December 31, 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE VALUE($)(1)
- --------------------------- --------- ------------ --------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Bruce D. Broussard......... 250,000 27.4(2) $ 10.00 January 2, 2006 $1,411,325.00
Clare Hendrick............. 25,000 2.7(2) $ 12.50 March 6, 2006 $ 157,357.50
Richard K. Matros.......... 300,000 32.9(2) $ 10.00 January 2, 2006 $1,713,920.00
</TABLE>
- ---------------
(1) As suggested by the Commission's rules on executive compensation disclosure,
the Company has used the Black-Scholes model of option valuation to
determine grant date present value. The Company does not advocate or
necessarily agree that the Black-Scholes model can properly determine the
value of an option. The present value calculation is based on a weighted
average expected life of 7.65 years and assumes an interest rate of 5.9%, no
dividend yield and volatility of 41.0%.
(2) Options issued pursuant to the Company's Long-Term Incentive Plan and the
percentage represents the individual's options granted in relation to all
options granted pursuant to such plan. The options granted to Messrs. Matros
and Broussard are subject to accelerated vesting based on achieving certain
economic value added ("EVA") goals in accordance with formulas contained in
the stock option agreements.
AGGREGATED OPTION IN YEAR ENDED DECEMBER 31, 1996 AND
YEAR-END OPTION VALUES
The following table sets forth certain information regarding (i) the
exercise of stock options (which are also included in the Summary Compensation
Table) by the Named Executive Officers in the year ended December 31, 1996, and
(ii) the value of stock options held by the Named Executive Officers as of
December 31, 1996, which equals the positive difference between the exercise
price of such options and the year-end price of the Company's common stock.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE OPTIONS AT 12/31/96(#) 12/31/96($)(1)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bruce D. Broussard........... -- -- -- 250,000 -- --
Stephen W. Carlton........... -- -- 6,250 18,750 -- --
David A. Grant............... -- -- 10,000 30,000 -- --
Clare Hendrick............... -- -- -- 25,000 -- --
Richard K. Matros............ -- -- 173,812 429,438 $ 290,911 $24,745
</TABLE>
- ---------------
(1) The average of the high and low prices of Company common stock on the NYSE
on December 31, 1996 was $9.625.
EMPLOYMENT AGREEMENTS
Pursuant to his current employment agreement, Mr. Matros, is the President
and Chief Executive Officer. His employment agreement became effective on April
4, 1994, the effective time of the Merger. Effective January 1, 1996, the annual
base salary was increased to an amount not less than $375,000, which amount will
be reviewed at least annually by the Company and may be increased as determined
by the Board of Directors of the Company.
The Company has employment agreements with Stephen W. Carlton, Senior Vice
President, Home Health and Pharmacy Services and Sherri L. Medina, Senior Vice
President, Rehabilitation Services. During the term of their employments, Mr.
Carlton and Ms. Medina will receive an annual base salary of not less than
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$140,000 and $132,000, respectively, which amounts will be reviewed at least
annually by the Company and may be increased as determined by the Board of
Directors of the Company.
The Company has employment agreements with Bruce D. Broussard, Executive
Vice President and Chief Financial Officer and David A. Grant, Senior Vice
President, Corporate Planning and Development and General Counsel. During the
term of their employments, Messrs. Broussard and Grant will receive an annual
base salary of not less than $250,000 and $150,000, respectively, which amounts
will be reviewed at least annually by the Company and may be increased as
determined by the Board of Directors of the Company.
Additionally, the Company has employment agreements with Clare L. Hendrick,
Senior Vice President, Professional Services and Steven C. Ronilo, Senior Vice
President, Human Resources and Education. During the term of their employments,
Ms. Hendrick and Mr. Ronilo will receive an annual base salary of not less than
$165,000 and $145,000, respectively, which amounts will be reviewed at least
annually by the Company and may be increased as determined by the Board of
Directors of the Company.
If the employment of any of the aforementioned executives is terminated by
the Company other than for Cause or by the executive for Good Reason (each as
defined in the employment agreements), such executive will receive in a lump
sum, an amount equal to the sum of (i) all base salary that such executive would
have been paid had the executive continued to be employed for the term of his or
her contract following the termination date plus certain bonus payments or a
payment in accordance with the Company's severance policies and (ii) under
certain circumstances, immediate vesting of benefits previously granted to such
executive under stock option and other benefit plans or agreements.
Effective October 16, 1996, Mr. Way ceased employment with the Company.
Pursuant to an agreement entered in connection with the cessation of his
employment with the Company, Mr. Way was paid an aggregate of $165,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee (also known as the "Human Resources Committee")
of the Company's Board of Directors is presently composed of Gregory S. Anderson
and Arthur J. Pasmas, who are not employees of the Company. Mr. Anderson has
certain business relationships with the Company described above. See "CERTAIN
RELATIONSHIPS." Mr. Pasmas is a Vice President of Smith Management Company, of
which Mr. Adams, the Chairman of the Board and former Chief Executive Officer of
the Company, is President and Director. Smith Management Company, together with
its affiliates, is the largest stockholder of the Company. Mr. Pasmas'
compensation is determined by the Board of Directors of Smith Management
Company. Richard K. Matros is a member of the Compensation Committee of Hawaiian
Airlines, Inc. Mr. Adams, Chairman of the Board and former Chief Executive
Officer of the Company is Chairman of the Board of Hawaiian Airlines, Inc.
REPORT OF THE HUMAN RESOURCES COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Human Resources Committee has responsibility for Regency's executive
compensation policies and practices. The committee approves all elements of
compensation for corporate officers and administers the Regency Long-Term
Incentive Plan, under which stock and other awards are made to officers, other
executives, and selected key employees. The committee regularly reports on its
activities to the Board of Directors. The committee is comprised of two outside
Directors who are not officers or employees of Regency or its subsidiaries and
who are not eligible to participate in any of the plans or programs that the
committee administers.
COMPENSATION PHILOSOPHY
Regency's executive compensation programs are based on the belief that the
interests of the executive should be directly aligned with those of the
stockholders. The programs are strongly oriented towards a pay-at-
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risk philosophy that ties compensation to both the annual and long-term
financial performance of the Company, as well as to long-term stockholder
return. The committee has established the following principles to guide
development of the Company's compensation programs and to provide a framework
for compensation decisions:
- provide a total compensation package that will attract the best talent
to Regency, motivate individuals to perform at their highest levels,
reward outstanding performance, and retain executives whose skills are
critical for building long-term stockholder value;
- establish annual incentives for senior management that are directly
tied to the overall financial performance of the Company; and
- implement long-term incentives to focus executives on managing from
the perspective of an owner with an equity stake in the business, and
align executive compensation with benefits realized by the Company's
stockholders.
COMPENSATION PROGRAMS AND PRACTICES
The committee determines salary ranges and incentive award opportunities
for executive officers. Many of these officers are parties to multi-year
employment agreements pursuant to which base compensation levels are fixed in
amount. The committee has the discretion to increase such rate of compensation,
but not to reduce the compensation paid.
SALARY AND ANNUAL INCENTIVE
Salaries are established by the committee for those executives who are not
parties to employment agreements based on an executive's scope of
responsibilities, level of experience, individual performance and contribution
to the business. Executive officers receive an annual incentive bonus based on
individual performance and effort, as well as on evaluation of the Company's
overall performance. During 1996, the Committee received recommendations from
Mr. Matros, Chief Executive Officer and President of the Company. Incentive
bonuses paid in 1996 to certain key executives were based primarily on an
evaluation of their individual effort and performance in achieving targeted
operating goals and strategic objectives.
STOCK OPTIONS
The Committee believes that the interests of executives must be closely
aligned with those of the stockholders. Long-term incentives in the form of
stock options provide a vehicle to reward executives only if there is an
increase in stockholder value. Stock options are granted to officers, other
executives, and selected employees whose contributions and skills are important
to the long-term success of the Company. Options are granted at fair market
value on the date of grant with ten-year terms.
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<PAGE> 11
Several factors were considered in determining the size of stock option
grants to the executive officers. The options granted to Messrs. Matros and
Broussard vest over a ten year term and are intended to incentivize them to
achieve certain EVA goals which are based on the performance of the Company in
achieving a return on capital in excess of the Company's cost of capital. No
specific weight was given to any factor, nor was the number of options granted
determined on any formula basis.
COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
On June 8, 1995, the Board of Directors of the Company elected Richard K.
Matros as the Chief Executive Officer of the Company. The Board approved the
payment of an annual salary of not less than $300,000 to Mr. Matros, as provided
for in his employment agreement, in his capacity as Chief Executive Officer.
Effective January 1, 1996, the annual base salary amount was increased to an
amount not less than $375,000. In addition, his employment agreement provides
the opportunity for Mr. Matros to receive a bonus equal to 100% of his base
salary amount subject to meeting certain defined goals and objectives. Mr.
Matros' 1996 bonus was based on the Committee's judgment that certain EVA goals
which are based on the performance of the Company in achieving a return on
capital in excess of the Company's cost of capital had been met and that the
Company's actual EVA for 1996 exceeded the EVA that was forecast.
DISCUSSION OF CORPORATE TAX DEDUCTION ON COMPENSATION IN EXCESS OF $1 MILLION A
YEAR
Internal Revenue Code Section 162(m), enacted in 1993, precludes a public
corporation from taking a deduction in 1994 or subsequent years for compensation
in excess of $1 million for its chief executive officer or any of its four other
highest-paid officers. Certain performance-based compensation, however, is
specifically exempt from the deduction limit.
The committee has been following this matter closely. In December 1993, the
Internal Revenue Service issued proposed regulations implementing this
legislation. In December 1995 final regulations were issued.
Based on the final regulations, any compensation derived from the exercise
of stock options or stock appreciation rights previously granted under the
Regency Long-Term Incentive Plan and prior stock option plans should be exempt
from the limit on the corporate tax deduction. Similarly, any compensation
deriving from the Long-Term Incentive Plan options granted in 1995 should be
excluded from the limit. The Company has taken steps to assure that compensation
derived from stock options granted under the Long-Term Incentive Plan in 1996
and in future years will be exempt.
This report is submitted by the Human Resources Committee:
Gregory S. Anderson
Arthur J. Pasmas
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the preceding report and
the following Performance Graph shall not be incorporated by reference into any
such filings.
9
<PAGE> 12
PERFORMANCE GRAPH
The following graph shows an indexed comparison of the cumulative total
return on the Company's common stock, the Standard & Poor's 500 Index, and a
self-constructed peer group index for a 54-month period commencing on May 31,
1992 for investments in the indexes and June 26, 1992 for investments in the
Company's common stock. The graph assumes that $100 was invested on June 26,
1992 in the Company's common stock and on May 31, 1992 in each index, and that
all dividends were reinvested.
COMPARISON OF 54 MONTH CUMULATIVE TOTAL RETURN*
AMONG REGENCY HEALTH SERVICES, INC., THE S&P 500 INDEX
AND THE S&P TECHNOLOGY SECTOR INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD REGENCY HEALTH S & P TECHNOLOGY
(FISCAL YEAR COVERED) SERVICES, INC. S & P 500 SECTOR
--------------------- -------------- --------- ----------------
<S> <C> <C> <C>
6/26/92 100 100 100
JUN-92 100 99 98
SEP-92 108 102 96
DEC-92 148 107 101
MAR-93 154 111 110
JUN-93 163 112 114
SEP-93 181 115 116
DEC-93 215 117 124
MAR-94 238 113 129
JUN-94 227 114 123
SEP-94 171 119 135
DEC-94 171 119 145
MAR-95 204 131 164
JUN-95 162 143 203
SEP-95 168 154 213
DEC-95 156 164 209
MAR-96 173 173 221
JUN-96 175 180 239
SEP-96 171 186 262
DEC-96 148 201 296
</TABLE>
* $100 INVESTED ON 6/26/92 IN STOCK OR ON
5/31/92 IN INDEX -- INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
10
<PAGE> 13
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of the Company's common stock, as of the close of business
on March 21, 1997 (unless otherwise noted), by (i) any person who is known by
the Company to be the beneficial owner of more than 5% of the common stock (ii)
Directors individually, and (iii) Directors and executive officers of the
Company as a group. The information presented is based upon filings with the
Commission and information furnished to the Company by such beneficial owners.
Except as otherwise indicated, the address of each person is in care of the
Company, 2742 Dow Avenue, Tustin, California 92780.
<TABLE>
<CAPTION>
REGENCY COMMON STOCK
-------------------------------
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP(1) CLASS
--------------------------------------------------------- ----------------- ----------
<S> <C> <C>
The Smith Group(2)....................................... 4,088,084 shares 25.9%
885 Third Avenue
New York, New York 10022
The Foothill Group(3).................................... 1,012,819 shares 6.4
11111 Santa Monica Boulevard, Suite 1508
Santa Monica, California 90025
Tweedy, Browne Company, L.P.(4).......................... 1,001,237 shares 6.3
52 Vanderbilt Avenue
New York, New York 10017
DIRECTORS:
John W. Adams(5)......................................... 89,564 shares *
Gregory S. Anderson(6)................................... 61,598 shares *
Tony M. Astorga(7)....................................... 36,000 shares *
Robert G. Coo(8)......................................... 47,199 shares *
Richard K. Matros(9)..................................... 293,130 shares 1.9
John F. Nickoll(10)...................................... 480,395 shares 3.0
Arthur J. Pasmas(11)..................................... 29,000 shares *
Bruce D. Broussard(12)................................... 25,000 shares *
Steve W. Carlton(13)..................................... 12,700 shares *
Clare L. Hendrick(14).................................... 6,350 shares *
David A. Grant(15)....................................... 10,300 shares *
All executive officers and Directors
as a group (13 persons)(16)............................ 1,116,132 shares 6.9%
</TABLE>
- ---------------
* Less than 1%
(1) The Company's common stock consists of 15,794,594 shares issued and
outstanding as of March 21, 1997. The beneficial ownership amounts set
forth herein include shares subject to options which are exercisable within
60 days of March 21, 1997.
(2) Reflects the aggregate number of shares reported for The Smith Group
including shares beneficially owned by a group comprised of SOLVation Inc.,
d/b/a/ Smith Management Company, Randall D. Smith, Energy Management
Corporation, The Durian Trust, SEGA Associates, L.P., Pengo Securities, and
John W. Adams.
(3) Reflects the aggregate number of shares reported for The Foothill Group
including shares beneficially owned by Condor Investments L.P., a Minnesota
limited partnership, Foothill Capital Corporation, a California
corporation, Foothill Partners L.P., a Delaware Limited Partnership, Dennis
R. Ascher, Jeffrey T. Nikora and John F. Nickoll.
(4) Reflects the aggregate number of shares reported for Tweedy, Browne
Company, L.P., TBK Partners, L.P., and Vanderbilt Partners, L.P.
11
<PAGE> 14
(5) Mr. Adams is the sole general partner of SEGA Associates, L.P. and
accordingly has voting control and beneficial ownership of 45,564 shares of
common stock held by SEGA Associates, L.P., as reported in the Schedule
13D, Amendment No. 5 dated March 17, 1997 and filed with the Securities and
Exchange Commission. In addition, Mr. Adams is the President and indirectly
owns 4.2% of Smith Management Company. Also includes options to purchase
18,000 shares of common stock.
(6) Includes 17,500 shares of common stock owned of record by El Dorado
Investment Company, which shares may be deemed beneficially owned by Mr.
Anderson by virtue of his being the Managing Director of El Dorado
Investment Company. Also includes options to purchase 18,000 shares of
common stock.
(7) Includes options to purchase 24,000 shares of common stock.
(8) Includes options to purchase 18,000 shares of common stock.
(9) Includes options to purchase 267,417 shares of common stock.
(10) Includes options to purchase 18,000 shares of common stock and 457,106
shares of common stock reported as beneficially owned by Mr. Nickoll in the
Schedule 13D dated April 13, 1995 and filed with the Securities and
Exchange Commission. John F. Nickoll is the President, Co-Chief Executive
Officer and a Director of The Foothill Group, Inc.
(11) Includes options to purchase 18,000 shares of common stock.
(12) Includes options to purchase 25,000 shares of common stock.
(13) Includes options to purchase 12,500 shares of common stock.
(14) Includes options to purchase 6,250 shares of common stock.
(15) Includes options to purchase 10,000 shares of common stock.
(16) Includes beneficial ownership of common stock as follows: John W. Adams,
71,564 shares; Gregory S. Anderson, 43,598 shares; Tony M. Astorga, 12,000
shares; Stephen W. Carlton, 200 shares; Robert G. Coo, 29,199 shares;
Richard K. Matros, 25,713 shares; John F. Nickoll, 462,395 shares; Arthur
J. Pasmas, 11,000 shares; Steven C. Ronilo, 8,483 Shares; Clare L.
Hendrick, 100 shares; and David A. Grant, 300 shares. Also includes stock
options held by Directors and executive officers of the Company for the
purchase of the following number of shares of common stock: John W. Adams,
18,000 shares; Gregory S. Anderson, 18,000 shares; Tony M. Astorga, 24,000
shares; Robert G. Coo, 18,000 shares; Richard K. Matros, 267,417 shares;
John F. Nickoll, 18,000 shares; Arthur J. Pasmas, 18,000 shares; Bruce D.
Broussard, 25,000 shares; Stephen W. Carlton, 12,500 shares; David A.
Grant, 10,000 shares; Clare L. Hendrick, 6,250 shares; Sherri L. Medina,
6,250 shares; and Steven C. Ronilo, 10,163 shares.
12
<PAGE> 15
MANAGEMENT
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to
Executive Officers of the Company:
<TABLE>
<CAPTION>
NAME POSITION AGE
- ---------------------- --------------------------------------------------- ----
<S> <C> <C>
Richard K. Matros(1) President, Chief Executive Officer and Director 43
Bruce D. Broussard Executive Vice President and Chief Financial 34
Officer
Stephen W. Carlton Senior Vice President of Home Health and Pharmacy 44
Services
David A. Grant Senior Vice President of Corporate Planning and 52
Development, General Counsel and Secretary
Clare Hendrick Senior Vice President of Professional Services 50
Sherri L. Medina Senior Vice President of Rehabilitation Services 36
Steven C. Ronilo Senior Vice President of Human Resources and 47
Education
</TABLE>
- ---------------
(1) Member of the Executive Committee.
Mr. Matros has been Chief Executive Officer since June 8, 1995 and
President and a Director of the Company since April 1994. He was Chief Operating
Officer from April 1994 until June 8, 1995. In addition, he was a Director of
Care from November 1991 until April 1994, was President and Chief Operating
Officer of Care from September 1991 until April 1994, and was Chief Executive
Officer of Care from January 1994 to April 1994. Mr. Matros was Executive Vice
President, Operations of Care from March 1988 to September 1991.
Mr. Broussard has been Executive Vice President and Chief Financial Officer
since January 1, 1996. Before joining Regency, Mr. Broussard was Chief Financial
Officer and Director of Sun Healthcare Group, Inc. from 1993 to October 1995.
From 1990 to 1993, Mr. Broussard served as Vice President and Treasurer for
Continental Medical Systems, Inc.
Mr. Carlton has been Senior Vice President of Pharmacy Services for the
Company since January 1995, and Senior Vice President of Home Health and
Pharmacy Services since September 20, 1996. Before joining Regency, Mr. Carlton
served from January 1990 to December 1994 as Vice President of Operations for
the Western Region and Western Division of Medisave Pharmacies, a wholly owned
subsidiary of the Hillhaven Corporation. He has over 18 years of management
experience in all facets of the provision of pharmacy and ancillary services to
the healthcare industry.
Mr. Grant has been Senior Vice President, Corporate Planning and
Development, General Counsel and Secretary since June 1995. From May, 1990 until
May, 1995 he was Vice President and Senior Corporate Counsel of Walker Methodist
Inc., a long-term healthcare provider
Ms. Hendrick has been Senior Vice President of Professional Services since
April, 1996. From September, 1990 until March, 1996, she was Vice President of
Nursing of Beverly Enterprises, Inc.
Ms. Medina has been Senior Vice President of Rehabilitation Services since
July 1995. Ms. Medina founded SCRS and Communicology, Inc. of Ohio ("SCRS") in
1988. In July, 1995, the Company acquired SCRS. Ms. Medina served as President
of SCRS since its incorporation in 1991 through December 31, 1996.
Mr. Ronilo has been Senior Vice President of Human Resources and Education
since January, 1996. He was Vice President, Human Resources of the Company from
April, 1994 to December, 1996. Mr. Ronilo was Vice President, Human Resources of
Care from March, 1990 until April, 1994.
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Directors and executive officers of the Company and persons who hold more than
10% of a registered class of the Company's equity securities ("Reporting
Persons") to file with the Securities and Exchange Commission (the "Commission")
13
<PAGE> 16
initial reports of ownership and reports of changes in ownership of equity
securities of the Company. Reporting Persons are required by Commission
regulations to furnish the Company with copies of all Section 16(a) forms they
file. To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the year ended December 31, 1996, all Section 16(a)
filing requirements applicable to the Reporting Persons were complied with.
OTHER BUSINESS
As of the date of this Proxy Statement, management knows of no other
business that will be presented for consideration at the Annual Meeting.
However, if other proper matters are presented at the meeting, it is the
intention of the proxy holders named in the accompanying proxy to take such
action as shall be in accordance with their judgment on such matters. The quorum
requirement for convening the meeting is a majority of the outstanding common
stock.
GENERAL INFORMATION
REVOCABILITY OF PROXIES
Any proxy solicited hereby may be revoked by the person or persons giving
it at any time before it has been exercised at the Annual Meeting by giving
notice of revocation to the Secretary of the Company in writing, by submitting a
later-dated proxy, or by voting the shares in person at the 1997 Annual Meeting.
Holders whose shares are in street name should consult with their brokers
concerning procedures for revocation. Subject to such revocation, all shares
represented by a properly executed proxy will be voted as directed by the holder
on the proxy card. If no choice is specified, proxies will be voted FOR the
election of John W. Adams and Richard K. Matros to the Board of Directors.
SOLICITATION COSTS
The Company will pay the cost of preparing and mailing this proxy statement
and other costs of the proxy solicitation made by the Company's Board of
Directors. Certain of the Company's officers and employees may solicit the
submission of proxies authorizing the voting of shares in accordance with the
Board of Directors' recommendations, but no additional remuneration will be paid
by the Company for the solicitation of those proxies. Such solicitations may be
made by personal interview, telephone, and telegram. Arrangements have also been
made with brokerage firms and others for the forwarding of proxy solicitation
materials to the beneficial owners of common stock, and the Company will
reimburse them for reasonable out-of-pocket expenses incurred in connection
therewith.
14
<PAGE> 17
STOCKHOLDER PROPOSALS AND NOMINATIONS FOR 1998 ANNUAL MEETING
The Company's 1998 Annual Meeting is anticipated to occur in May or June of
1998. The Company requests that all such proposals be addressed to Corporate
Secretary, Regency Health Services, Inc., 2742 Dow Avenue, Tustin, California
92780, and mailed by certified mail, return receipt requested. The Company's
Bylaws require that notice of stockholder nominations for Directors and related
information be received by the Secretary of the Company at least thirty (30)
days prior to the date of the 1998 Annual Meeting.
By Order of the Board of Directors
/s/ DAVID A. GRANT
----------------------------------
David A. Grant, Secretary
Tustin, California
April 7, 1997
THE COMPANY WILL MAIL UNDER SEPARATE COVER A COPY OF ITS 1996 ANNUAL REPORT TO
EACH STOCKHOLDER ENTITLED TO VOTE AT THE ANNUAL MEETING. INCLUDED IN THE 1996
ANNUAL REPORT ARE THE COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER
31, 1996. THE COMPANY'S 1996 ANNUAL REPORT DOES NOT FORM ANY PART OF THE
MATERIAL FOR SOLICITATION OF PROXIES.
15
<PAGE> 18
PROXY
REGENCY HEALTH SERVICES, INC.
2742 DOW AVENUE
TUSTIN, CALIFORNIA 92780
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints David A. Grant and Bruce D. Broussard
as Proxies, each with the power to appoint his substitute, and hereby
authorizes them to represent and vote, as designated on the reverse side of
this proxy, all the shares of Common Stock of Regency Health Services, Inc.
held of record by the undersigned on March 21, 1997, at the Annual Meeting of
Stockholders to be held on May 8, 1997, or at any adjournment thereof.
PLEASE SIGN ON THE REVERSE SIDE
-------------------
SEE REVERSE
SIDE
-------------------
<PAGE> 19
Please mark your
[X] votes as in this
example
<TABLE>
<CAPTION>
FOR all nominees WITHHOLD AUTHORITY
listed at right to vote
(except as marked for all nominees
to the contrary below) listed at right
<S> <C> <C> <C> <C>
1. ELECTION OF [ ] [ ] Nominees: John W. Adams 2. In their discretion the Proxies are authorized
DIRECTORS Richard K. Matros to vote upon such other business as may
properly come before the meeting.
This proxy, when properly executed will be
voted in the manner directed herein by the
undersigned stockholders.
INSTRUCTIONS: To withhold authority to vote for any If no direction is made, this proxy will be
individual nominee mark the "FOR all nominees" box voted for Proposal 1 and at the discretion of
above and write in a nominee's name below the Proxies on such other matters that properly
come before the meeting or any adjournments
--------------------------------------------------- thereof.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON.
WHEN SHARES ARE HELD BY JOINT TENANTS
BOTH MUST SIGN.
SIGNATURE__________________________________DATED________________ ________________________________________ _____________________
SIGNATURE IF JOINTLY OWNED PRINT NAME
NOTE: Upon signing as attorney, executor, administrator, trustee or guardian, please give full title. If corporation, please sign
in full corporation name by President or other authorized officer. If a partnership, please sign in partnership name by
authorized person.
</TABLE>
