<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<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>
SUMMIT CARE CORPORATION
- --------------------------------------------------------------------------------
(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):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / 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:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------
<PAGE> 2
SUMMIT CARE CORPORATION
2600 W. MAGNOLIA BOULEVARD
BURBANK, CALIFORNIA 91505-3031
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 12, 1996
Notice is hereby given that the Annual Meeting of Shareholders of Summit
Care Corporation will be held at the Universal City Hilton Hotel, 555 Universal
Terrace Parkway, Universal City, California, on December 12, 1996, at 11:00
a.m., for the following purposes:
(1) To elect three (3) directors to serve for a term of two (2) years each
and until their successors have been elected and qualified; and
(2) To transact such other business as may properly come before the Annual
Meeting and any adjournments thereof.
Only shareholders of record at the close of business on October 16, 1996
are entitled to receive notice of, and to vote at, the Annual Meeting and any
adjournments thereof.
PLEASE PROMPTLY VOTE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD. This
will ensure that your shares are voted in accordance with your wishes and that a
quorum will be present. You are cordially invited to attend the Annual Meeting,
and you may vote in person even though you have returned your proxy card.
By Order of the Board of Directors
/s/ MELODY STOK
-------------------------------------
Secretary
October 31, 1996
<PAGE> 3
SUMMIT CARE CORPORATION
2600 W. MAGNOLIA BOULEVARD
BURBANK, CALIFORNIA 91505-3031
PROXY STATEMENT
------------------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Summit Care Corporation (the "Company") for
use at the Annual Meeting of Shareholders to be held on December 12, 1996, or at
any adjournments thereof, for the purposes set forth herein and in the foregoing
Notice. This Proxy Statement and the accompanying Proxy are being mailed to the
Company's shareholders on approximately October 31, 1996.
Shares represented by properly executed proxies, if received in time and
not revoked or suspended, will be voted in accordance with the instructions
indicated thereon or, if no instructions are given, will be voted for the
election of all nominees for director; and, in accordance with the discretion of
the named proxy holders, upon any other business which may properly come before
the Annual Meeting and any adjournments thereof. A shareholder giving a proxy
has the power to revoke it at any time before it is exercised by attending and
voting at the Annual Meeting or by filing with the Secretary of the Company
either a written notice of revocation or a duly executed proxy bearing a later
date.
At the close of business on October 16, 1996, the date fixed by the Board
of Directors of the Company for determining those shareholders entitled to vote
at the Annual Meeting (the "Record Date"), the outstanding shares of the Company
entitled to vote consisted of 6,772,800 shares of Common Stock. Each shareholder
of record at the close of business on the Record Date is entitled to one vote
for each share then held on each matter submitted to a vote of the shareholders.
The Company has eliminated cumulative voting for directors.
Ernst & Young LLP, independent certified public accountants, have audited
the Company's financial statements for the year ended June 30, 1996 and have
been selected to audit the Company's financial statements for the year ended
June 30, 1997. They will have a representative at the Annual Meeting who will
have an opportunity to make a statement and be available to respond to
appropriate questions.
ELECTION OF DIRECTORS
NOMINEES
The Company's Board of Directors consists of a total of six directors and
is divided into two classes, each comprised of three directors. At each annual
meeting of shareholders, one class of directors is elected, each of whom holds
office for a term of two years, until such time as his or her successor is
elected and qualified. The Board of Directors has nominated John A. Brende, Gary
L. Massimino and Keith B. Pitts, each of whom is an incumbent director, to be
elected at the 1996 Annual Meeting of Shareholders to serve as directors of the
Company until the annual meeting of shareholders in 1998 and until such time as
their respective successors are elected and qualified.
In the election of directors, the proxy holders intend, unless directed
otherwise, to vote for the election of the nominees named below, all of whom are
now members of the Board of Directors. It is not anticipated that any of the
nominees will decline or be unable to serve as director. If, however, that
should occur, the proxy holders will vote the proxies in their discretion for
any nominee designated by the present Board of Directors to fill the vacancy.
<PAGE> 4
The following table gives certain information as to each person nominated
for election as a director:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE
----------------------------------- --- --------
<S> <C> <C>
John A. Brende 49 1993
Keith B. Pitts 39 1994
Gary L. Massimino 60 1995
</TABLE>
Mr. Brende is Chairman, President and Chief Executive Officer of J.A.B.
Industries, Inc., a real estate development and construction company, which is
wholly-owned by him, as well as a partner in various real estate partnerships.
Mr. Pitts has served as Executive Vice President and Chief Financial
Officer of OrNda HealthCorp ("OrNda"), a public health care services company,
since August 1992. From July 1991 to August 1992, Mr. Pitts was a partner in
Ernst & Young's Southeast Region Health Consulting Group, and from January 1988
to July 1991 he was a partner and Regional Director in Ernst & Young's Western
Region Health Care Consulting Group.
Mr. Massimino is a financial consultant. He served as Executive Vice
President and Chief Financial Officer of Regency Health Services, Inc.
("Regency") from April 1994 until December 31, 1995. He was Executive Vice
President and Chief Financial Officer of Care Enterprises, Inc. ("Care") from
February 1990 until April 1994.
The following table sets forth similar information with respect to
incumbent directors of the Board of Directors who are not nominees for election
at this year's Annual Meeting of Shareholders.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE
----------------------------------- --- --------
<S> <C> <C>
William C. Scott 59 1986
Donald J. Amaral 44 1991
William J. Casey 51 1993
</TABLE>
Mr. Scott became Chief Executive Officer of the Company in May 1994 and
Chairman of the Board in December 1995. Mr. Scott has served as President of the
Company since December 1985 and held the office of Chief Operating Officer from
December 1985 until May 1994. Mr. Scott served as Senior Vice President of SHL
from December 1985 until its acquisition by OrNda in April 1994. Mr. Scott is
also a director of Pacific Southwest, Inc. and a director of Fairfield
Communities, Inc.
Mr. Amaral has been President and Chief Executive Officer of Coram
Healthcare Corp since September of 1995. From April 1994 until August 31, 1995,
Mr. Amaral served as President and Chief Operating Officer of OrNda. Mr. Amaral
served as President and Chief Executive Officer of Summit Health Ltd. ("SHL"),
the Company's former majority shareholder, from October 1989 and Chief Executive
Officer of SHL from October 1991 until April 1994, when OrNda acquired SHL. See
"Certain Relationships and Related Transactions." Mr. Amaral served as Chairman
of the Board of the Company from May 1994 until December 1995 and as the
Company's Chief Executive Officer from May 1991 to May 1994.
Mr. Casey is Chief Executive Officer of William J. Casey, Inc., a health
care consulting firm. Since 1995, Mr. Casey has also served as interim Chief
Executive Officer of Merced Community Medical Center, in Merced, California. Mr.
Casey is also a Contract Administrator for NP Medical Group, Inc., a health care
consulting company which provides physician services to government centers, and
a director of Intercare Medical Centers, Inc.
2
<PAGE> 5
SHAREHOLDINGS
The following table sets forth certain information as to the shares of
Common Stock of the Company owned as of October 16, 1996, by (i) each person
who, insofar as the Company has been able to ascertain, beneficially owned more
than five percent of the outstanding shares of the Common Stock of the Company,
(ii) each director and nominee, (iii) each executive officer identified in the
Summary Compensation Table below, and (iv) all directors and officers as a
group.
<TABLE>
<CAPTION>
NUMBER PERCENT
NAME OF BENEFICIAL OWNER OF OF
OR IDENTITY OF GROUP(1) SHARES CLASS
----------------------------------------------------- --------- -------
<S> <C> <C>
J.P. Morgan & Co., Incorporated(2)................... 1,068,850 15.8
60 Wall Street
New York, NY 10260
Baron Capital Partners, L.P.(3)...................... 902,157 13.3
BAMCO, Inc.
Baron Capital Management, Inc.
450 Park Avenue
New York, NY 10022
Westfield Capital Management Co., Inc.(4)............ 737,100 10.9
One financial Center
Boston, MA 02111
RCM Capital Management(5)............................ 632,000 9.3
RCM Limited L.P.
RCM General Corporation
Four Embarcadero Center, Suite 3000
San Francisco, CA 94111
William C. Scott(6).................................. 101,000 1.5
Derwin L. Williams(6)................................ 20,000 *
Melodye Stok(6)...................................... 6,000 *
John A. Brende(6).................................... 5,000 *
William J. Casey(6).................................. 5,000 *
Donald J. Amaral(6).................................. 3,000 *
Keith Pitts(6)....................................... 3,000 *
Gary L. Massimino(6)................................. 3,000 *
All directors and executive officers as a group(6)... 146,000 2.2
</TABLE>
- ---------------
* Less than 1%.
(1) Except where otherwise indicated, each person has sole voting and
investment power over the Common Stock shown as beneficially owned,
subject to community property laws where applicable. Except where
otherwise indicated, each person's address is c/o Summit Care
Corporation, 2600 West Magnolia Boulevard, Burbank, California
91505-3031.
(2) Based on an amendment to a report on Schedule 13G filed by J.P. Morgan
& Co., Incorporated ("J.P. Morgan") with the Commission on April 30,
1996. J.P. Morgan or its subsidiaries have sole power to dispose of all
of the shares shown as beneficially owned by them and sole power to
vote 756,100 of the shares.
(3) Based on a report on Schedule 13D filed by Baron Capital Management,
Inc. ("Baron") with the Commission on April 24, 1996. Baron or its
subsidiaries have sole power to dispose of all of the shares shown as
beneficially owned by them and sole power to vote 902,157 of the
shares.
(4) Based on an amendment to a report on Schedule 13G filed by Westfield
Capital Management Co., Inc. ("Westfield") with the Commission on
January 4, 1996. Westfield or its subsidiaries have sole power to vote
and to dispose of all of the shares shown as beneficially owned by
them.
3
<PAGE> 6
(5) Based on an amendment to a report on Schedule 13G filed by RCM Capital
Management ("RCM") with the Commission on February 7, 1996. RCM or its
subsidiaries have sole power to dispose of all of the shares shown as
beneficially owned by them and sole power to vote 556,600 of the
shares.
(6) Includes shares which such persons have the right to acquire within 60
days of the date of this Proxy Statement pursuant to the exercise of
outstanding stock options, of which 33,000 shares are attributable to
Mr. Scott, 5,000 shares are attributable to Mr. Williams, 1,000 shares
are attributable to Ms. Stok, 2,000 shares are attributable to each of
Messrs. Amaral, Massimino and Pitts, 1,500 shares are attributable to
each of Messrs. Brende and Casey, and 48,000 shares are attributable to
all directors and executive officers as a group.
SPECIAL COMMITTEES AND ATTENDANCE AT BOARD MEETINGS
The Board of Directors has an Audit Committee which is comprised of Messrs.
Casey, Massimino and Pitts. The functions of the Audit Committee are to (i)
review at least annually all transactions in which directors or officers may
have conflicts of interest ("Related Party Transactions"), (ii) approve all
material Related Party Transactions prior to their consummation, (iii) make
recommendations as to the appointment of the independent accountants of the
Company, (iv) review with such accountants their reports and the scope and
results of their examination of the financial statements of the Company, (v)
review the adequacy of the Company's system of internal accounting controls, and
(vi) conduct a review of all transactions in which directors or officers may
have conflicts of interest. The Audit Committee held four meetings during the
fiscal year ending June 30, 1996.
The Board of Directors has a Compensation Committee which consists of
Messrs. Amaral, Massimino and Casey. Functions of this Committee include (i) the
review of certain compensation plans relating to directors and officers, and
(ii) the general review of the Company's employee compensation policies. This
Committee held three meetings during fiscal 1996.
The Board of Directors has an Executive Committee which consists of William
C. Scott, Chairman, Donald J. Amaral and William J. Casey. The Executive
Committee did not meet during fiscal 1996.
There is no nominating committee or committee exercising similar functions.
During fiscal 1996, the Board of Directors held eleven meetings. Each of the
Company's current directors attended at least 75% of the aggregate number of
meetings of the Board and meetings of the committees of which such directors
were members during the period that they served as directors or committee
members.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation earned during the last
three fiscal years by the Company's Chief Executive Officer and the Company's
four most highly compensated executive officers other than the Chief Executive
Officer whose salary and bonus exceed $100,000 (the "Named Executive Officers")
for the last completed fiscal year:
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
FISCAL ------------------- OPTION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS COMPENSATION
----------------------------------- ------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
William C. Scott 1996 $369,869 $150,000 165,000 $ 0
Chairman/President/CEO 1995 344,869 162,500 50,000 0
1994 323,726 160,200 50,000 0
David G. Schumacher, Jr.(1) 1996 102,154 -- 50,000 0
Sr. Vice President/ 1995 -- -- -- 0
Operations and COO 1994 -- -- -- 0
Derwin L. Williams(2) 1996 171,008 50,000 25,000 0
Sr. Vice President/Finance, 1995 147,162 40,000 20,000 0
Chief Financial Officer,
Treasurer 1994 140,649 -- 15,000 0
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
FISCAL ------------------- OPTION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS COMPENSATION
----------------------------------- ------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Melodye Stok 1996 $113,683 $ 15,000 5,000 $ 0
Vice President/Controller 1995 108,914 25,000 10,000 0
Chief Accounting Officer 1994 107,003 24,000 2,500 0
</TABLE>
- ---------------
(1) Mr. Schumacher joined the Company in January 1996.
(2) Mr. Williams joined the Company in July 1993.
OPTION GRANTS
The following table provides certain information in connection with the
grants of stock options made by the Company pursuant to the Company's Stock
Option Plan during fiscal 1996 to each of the Named Executive Officers:
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
% OF TOTAL GRANT
OPTIONS DATE
OPTIONS GRANTED TO EXERCISE OR PRESENT
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION VALUE
NAME (#)(1) FISCAL YEAR(2) ($/SHARE)(3) DATE ($)(4)
------------------------------ ------- -------------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C>
William C. Scott.............. 165,000 32.7% $21.00 10/31/05 $2,072,400
David G. Schumacher, Jr....... 50,000 9.9 22.50 01/02/06 673,000
Derwin L. Williams............ 25,000 5.0 21.00 10/31/05 314,000
Melodye Stok.................. 5,000 1.0 21.00 10/31/05 62,800
</TABLE>
- ---------------
(1) The options become exercisable in installments of 20% on each anniversary of
the date of grant in the event that the Company attains specified earnings
per share targets for the fiscal year preceding the date of vesting.
(2) The Company granted options representing a total of 504,000 shares in fiscal
1996.
(3) The exercise price on the date of grant was equal to 100% of the fair market
value of the underlying Common Stock on the date of grant.
(4) As suggested by the Securities and Exchange Commission's new rules on
executive compensation disclosure, the Company uses the Black-Scholes model
of option valuation to determine grant date present value. The Company does
not advocate or necessarily agree that the Black-Scholes model can properly
determine the value of the option. The present value calculation for each of
the Named Executive Officers is based on a ten year option term and assumes
an interest rate of 6.8%, a dividend yield of zero percent (0%) and
volatility of forty-three and two-tenths percent (43.2%).
OPTION EXERCISES AND FISCAL YEAR END VALUES
The following table provides certain information concerning the exercise of
stock options by the Named Executive Officers in fiscal 1996 and shows the
number of shares covered by both exercisable and nonexercisable stock options
held as of the end of fiscal 1996. Also shown are the values for "in-the-money"
5
<PAGE> 8
options, which represent the positive difference between the exercise price of
such options and the fiscal year end price of the Common Stock of the Company:
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS
SHARES FY-END (#) AT FY-END ($)
ACQUIRED ON --------------- -----------------
EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (#) REALIZED UNEXERCISABLE UNEXERCISABLE
------------------------- ----------- ------------- --------------- -----------------
<S> <C> <C> <C> <C>
William C. Scott......... 0 $ 0 53,000/247,000 $441,500/635,000
David G. Schumacher, 0 0 0/50,000 0/0
Jr.....................
Derwin L. Williams....... 0 0 10,000/50,000 56,260/135,590
Melodye Stok............. 5,500 61,980 4,000/17,000 28,120/65,915
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board establishes compensation levels for
the Company's President and its other officers based upon both competitive
practice, experience and overall performance. The Committee provides direction
and governs all compensation matters relating to these individuals. The
Compensation Committee is chaired by Mr. Amaral and consists of two other
members, Mr. Massimino and Mr. Casey.
The Company maintains compensation programs designed to motivate, retain
and attract management with incentives linked to financial performance and
enhanced shareholder value. The fundamental philosophy is to relate the amount
of compensation "at risk" for an executive directly to her or his contribution
to the Company's success in achieving superior performance objectives. The
Company executive compensation program consists of three main components: (i)
base salary, (ii) annual bonus based on overall Company performance, and (iii)
stock based incentives which are intended to encourage the achievement of
superior results over time and to align management and shareholder interests.
The second and third elements constitute the "at risk" portion of the
compensation program. The nature of the long-term programs, as well as the
extended vesting periods for stock options mean that executives may realize
their incentive awards at a substantially later time than when the Company's
shareholders benefit from stock price appreciation.
The salary and bonus which the President and the other Named Executive
Officers were paid for the fiscal year ending June 30, 1996 reflect the business
results achieved for fiscal 1996 and the Committee's determination of management
success in earnings growth and new business development. The Committee
determined that the President's bonus, which comprised approximately twenty-nine
percent (29%) of his total compensation for the fiscal year ended June 1996, was
appropriate due to the Company's results, growth and development.
Recent Company grants of stock options to its management consisted of
ten-year options issued with an exercise price equal to the fair market value of
the Company's common stock as of the date of grant, with a vesting schedule of
up to five years.
All amounts paid or accrued during fiscal 1996 under the above described
plans and programs are included in proxy tables.
COMPENSATION COMMITTEE
Donald J. Amaral, Chair
Gary L. Massimino
William J. Casey
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Donald J. Amaral, Gary L.
Massimino and William J. Casey. Until August 31, 1995, Mr. Amaral served as
President and Chief Operating Officer of OrNda, which, at that time owned
approximately 29.3% of the outstanding shares of the Company's Common Stock.
6
<PAGE> 9
OrNda currently does not have any ownership position in the Common Stock of the
Company. See "Certain Relationships and Related Transactions." Mr. Amaral was
Chief Executive Officer of the Company until May 1994. Mr. Amaral was an officer
and director of SHL prior to its acquisition by OrNda and became an officer and
director of OrNda at the time of its acquisition of SHL.
COMPENSATION OF DIRECTORS
Each director who is not an officer of the Company is paid $1,000 per
month, $1,000 for each Board of Directors meeting he attends and $500 for each
telephonic meeting and committee meeting in which he participates. Directors who
are also executive officers of the Company do not receive any additional
compensation for serving as members of the Board of Directors or any committee
thereof. Nonemployee directors are automatically granted stock options pursuant
to the Stock Option Plan. In fiscal 1996, Messrs. Amaral, Massimino and Pitts
each received options to purchase 10,000 shares of Common Stock and Messrs.
Brende and Casey each received options to purchase 7,500 shares of Common Stock,
all with an exercise price of $21.00 per share. Such options were made with
exercise prices equal to the fair market price of the Company's Common Stock on
their dates of grant and provided that twenty percent of the options would vest
in each of the first five years following the dates of grant.
MARKET PERFORMANCE OF COMMON STOCK
The following graph sets forth the performance, since June 30, 1990, of the
market price of the Company's Common Stock as of the end of each fiscal year, as
reported by NASDAQ, compared to the NASDAQ Index and the NASDAQ Health Index:
SUMMIT CARE CORPORATION
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) NASDAQ U.S. NASDAQ HEALTH SUMMIT CARE
- --------------------- ----------- ------------- -----------
<S> <C> <C> <C>
1991 100 100 100
1992 120 118 76
1993 151 137 155
1994 153 155 174
1995 204 169 176
1996 261 257 210
</TABLE>
7
<PAGE> 10
In March 1992, the Company completed an initial public offering of stock at
$10.50 per share. This per share value is used for all periods in the
performance graph prior to June 30, 1992. In June 1994, the Company completed a
secondary offering of 1,725,000 shares of stock at $17.75 per share.
INSIDER FILINGS
The Company has implemented procedures to receive and review all insider
filings under Section 16(a) of the Securities Exchange Act of 1934, as amended.
Based on a review of those filings, the Company believes there were no
delinquencies during the last fiscal year.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April 1994, OrNda HealthCorp, ("OrNda"), a public health care services
company that owns and operates acute care hospitals and related health care
facilities, acquired the Company's former majority shareholder, Summit Health
Ltd. ("SHL"). Immediately following the acquisition, OrNda owned approximately
38.4% of the outstanding shares of the Company's Common Stock. As of July 1,
1995, OrNda owned approximately 29.3% of the Company's Common Stock. OrNda has
sold its position in the Company's Common Stock and currently has no position in
the Company's Common Stock. See "Exchangeable Notes" below. SHL was merged into
OrNda on September 27, 1994.
The Company is or has been a party to various arrangements or transactions
with SHL and certain entities that were affiliated with the Company prior to
OrNda's acquisition of SHL. Management believes that the terms of these
arrangements were and are no less favorable to the Company than could be
obtained from unaffiliated parties. With respect to any future transactions
between the Company and OrNda, certain of the Company's officers or directors
may have conflicts as a consequence of holding or having held positions with
OrNda. Two independent directors constitute the majority of the Audit Committee,
which reviews all Related Party Transactions at least annually and approves all
material Related Party Transactions prior to consummation.
Arrangements Between the Company and OrNda HealthCorp. Prior to the
Company's initial public offering in 1992, the Company and SHL entered into a
Services Agreement, pursuant to which SHL provided the Company with certain
management and administrative services for which the Company reimbursed SHL at
cost. The Services Agreement provides, among other things, that: (i) SHL and the
Company will maintain existing arrangements concerning the Company's sublease of
certain facilities to unrelated parties; (ii) SHL will not withdraw or modify
its guaranty of the Company's obligations under certain real property leases;
(iii) SHL will indemnify the Company against any liabilities arising in
connection with the Company's initial public offering under securities laws and
arising from previous divestitures of facilities by the Company; and (iv) the
Company will be entitled at no cost to use the name "Summit" and SHL's logo. The
Services Agreement has a five year term expiring in May 1997, although the
provisions regarding indemnification will survive the termination of the
Agreement on the terms provided therein. The license of the name and logo may be
terminated upon one year's written notice in the event that SHL holds less that
25% of the outstanding shares of the Company's Common Stock. As a result of
SHL's merger into OrNda and OrNda's divestiture of its position in the Company's
Common Stock, the Company is negotiating to amend the Services Agreement to
reflect that OrNda currently provides the Company only with the services of
certain tax accounting employees and to address other changes in the
relationship between the Company and OrNda. The Company's net remittance to
OrNda under the Services Agreement was approximately $500,000 in fiscal 1991,
$350,000 in fiscal 1992, $350,000 in fiscal 1993, $350,000 in fiscal 1994,
$23,000 in fiscal 1995, and $50,000 in fiscal 1996.
In the Services Agreement, SHL agreed that, other than in respect of its
ownership interest in the Company, it did not intend to engage in the businesses
of offering long-term health or retirement care services or pharmaceutical or
infusion therapy services of the character offered by the Company. For a period
of five years ending in May 1996, SHL agreed to refer any opportunities it
receives to engage in such businesses to the Company.
8
<PAGE> 11
The Company, SHL and Sierra Land Group, Inc. ("Sierra") an entity under
common ownership with SHL and the Company prior to OrNda's purchase of SHL,
entered into a Tax Sharing Agreement as of May 17, 1991, amended as of February
5, 1992 (the "Tax Sharing Agreement"). The Tax Sharing Agreement includes two
main components. First, the parties and their respective majority-owned
subsidiaries agreed to certain allocations of state tax liabilities for their
combined income or franchise tax returns with several states, including
California. Since the completion of the Company's Stock Offering on June 16,
1994, the Company is no longer subject to the joint filing component of the Tax
Sharing Agreement. Second, the Tax Sharing Agreement includes provisions whereby
SHL indemnifies the Company against certain contingencies.
The joint filing component of the Tax Sharing Agreement provided that if
each group of corporations headed by a party was profitable for a taxable year,
the total state tax liability for such year was allocated among the groups in
proportion to the amount of state tax which would have been payable by each
group if each group had filed its own combined report. If at least one group was
profitable and at least one group incurred a loss for a taxable year, each
profitable group was liable for the amount of state tax which would have been
payable by it if it had filed its own combined report. The loss group or groups
were liable for any balance of the total state tax liability, or were entitled
to receive from the profitable groups any excess of the aggregate amount of the
profitable groups' tax liabilities pursuant to the agreement over the amount of
the total state tax liability. If each group incurred a loss for a taxable year,
each group was liable for the aggregate amount of state taxes imposed by the
state on the corporations in such group.
The Company was a member of the SHL federal consolidated group since the
Company was incorporated in 1981 as a wholly owned subsidiary of SHL, and, as a
wholly owned subsidiary, was required to file as part of the group. Since the
Company's initial public offering, the Company has no longer been required to
and has ceased filing its federal income tax returns as part of the consolidated
group.
The Tax Sharing Agreement also provided that SHL would indemnify the
Company against all losses incurred by the Company in connection with federal,
state or local taxes, including interest and penalties, that may be finally
determined to be payable by any person or entity for any period ending before
July 1, 1991. SHL also indemnified the Company against all losses incurred by
the Company in connection with the portion of federal income taxes, including
interest and penalties, that may be finally determined to be payable by SHL or
its affiliates for the fiscal year ending June 30, 1993 that is allocable to SHL
or its affiliates other than the Company. In February 1990, in the course of an
ongoing audit of SHL's federal income tax returns for fiscal years 1984, 1985
and 1986, the IRS challenged the propriety of certain accounting methods and
raised other income tax issues. SHL reported in its proxy statement dated March
14, 1994 relating to the OrNda transaction that the most significant area of
dispute with the IRS involves the cash method of accounting used by certain of
SHL's subsidiaries during 1984, 1985 and 1986 and that, if that method of
accounting is finally determined to be improper, SHL has estimated that
approximately $29.5 million of income tax and interest would have to be paid to
the IRS by the SHL consolidated tax group. Although only a small portion of the
potential income tax liability is related to the Company's operations, the
Company, as a member of the SHL consolidated group during the years for which
the audit is being conducted, would be jointly and severally liable for group
federal income tax liabilities. In the event that SHL were not able to discharge
any such liabilities fully, the Company could be held responsible for any unpaid
portion. There can be no assurance that SHL would be capable of indemnifying the
Company in accordance with the Tax Sharing Agreement or that OrNda, which is not
a party to such agreement, would fund SHL's indemnification obligations if SHL
were unable to pay.
As noted above, as a group member, the Company was jointly and severally
liable for, and was aware of, the potential liability relating to the
above-mentioned audit of SHL prior to entering into the Tax Sharing Agreement.
The Company's entering into the Tax Sharing Agreement had no effect on its tax
liabilities to federal or state authorities. The Company entered into the Tax
Sharing Agreement to obtain indemnification for the federal tax liabilities of
the consolidated group and to provide for the allocation of state tax benefits
and burdens in a fair manner, as discussed above, among members of the group,
which include public and private companies. In any given taxable year, the Tax
Sharing Agreement could have operated to the benefit or the detriment of a
particular group member. For example, a group member incurring a loss bore a
smaller share of the group's California franchise tax liability, while a
profitable group member bore a larger share than it would
9
<PAGE> 12
have in the absence of any tax sharing agreement. However, the amount of the
profitable group member's increased liability in that situation did not exceed
the amount of its franchise tax savings from the filing of a combined report
with the other group members.
Lease of Centers. The Company is a party to certain real property leases
that require, as a condition to the Company's tenancy, that SHL guarantee the
Company's obligations under each lease. Pursuant to the Services Agreement
described above, SHL agreed not to withdraw or modify any of the lease
guarantees it provided with respect to such leases until May 1997.
The Company's Skilled Care Pharmacy facility in Pasadena, California is
subleased by the Company from a subsidiary of OrNda under a five-year sublease.
Rent for the pharmacy is $4,426 per month, which the Company believes is less
than market rent. The Company subleases its Phoenix skilled nursing care center
from OrNda under a ten-year lease providing for payments of $37,500 per month.
The Phoenix center is leased by OrNda from Sierra for an aggregate of $25,000
per month. The amount of the Company's monthly lease payment for the Phoenix
center, though in excess of the rent paid by OrNda on the property, is believed
by the Company to be at market rates.
The Company has entered into two contractual arrangements, either directly
or through third parties, with OrNda hospitals whereby the Company provides
planning, development and management services in connection with the hospitals'
sub-acute units. For these services, the Company is reimbursed the salary and
benefits of the unit supervisor, who is an employee of the Company, and
receives, in addition, a management fee. The term of each of the contracts is 42
months, expiring July 31, 1997.
Exchangeable Notes. As a result of OrNda's acquisition of SHL, OrNda
succeeded to SHL's position in certain 7 1/2% Exchangeable Subordinated Notes
issued by SHL (the "Exchangeable Notes") that were exchangeable for all of the
shares of the Company's Common Stock owned by OrNda or, at OrNda's option, for
an amount of cash equal to the market price of the shares on the date of
exchange. In August 1995, OrNda redeemed all of the outstanding Exchangeable
Notes in exchange for OrNda's interest in the Company's Common Stock and OrNda
currently has no position in the Company's Common Stock.
SUBMISSION OF SHAREHOLDER PROPOSALS
Any proposal by a shareholder intended to be presented at the 1997 Annual
Meeting must be received by the Company at its principal executive offices by
July 3, 1997, to be included in the 1997 Proxy Statement, and all other
conditions for such inclusion must be satisfied.
ANNUAL AND QUARTERLY REPORT
The Company's Annual Report for the year ended June 30, 1996, and Quarterly
Report for the quarter ended September 30, 1996, are being mailed to all
shareholders. Any shareholder who has not received a copy of either may obtain
one by writing to the Company.
THE COMPANY WILL ALSO PROVIDE WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON
FORM 10-K FOR THE FISCAL YEAR ENDING JUNE 30, 1996, AND ITS QUARTERLY REPORT ON
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996, FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION, UPON REQUEST FROM ANY PERSON WHO WAS A HOLDER OF
RECORD, OR WHO REPRESENTS IN GOOD FAITH THAT HE OR SHE WAS A BENEFICIAL OWNER,
OF COMMON STOCK OF THE COMPANY ON OCTOBER 16, 1996. ANY SUCH REQUEST SHALL BE
ADDRESSED TO THE SECRETARY OF THE COMPANY AT 2600 WEST MAGNOLIA BOULEVARD,
BURBANK, CALIFORNIA 91505-3031, TELEPHONE NUMBER (818) 841-8750.
10
<PAGE> 13
SOLICITATION OF PROXIES
The total cost of this solicitation will be borne by the Company. In
addition to the mails, proxies may be solicited by directors, officers and
regular employees by personal interviews, telephone and telegraph. No director,
officer or employee will be paid additional compensation for any such
solicitation. It is anticipated that brokerage firms and other persons
representing the beneficial owners of stock entitled to vote at the Annual
Meeting will forward soliciting material to such beneficial owners, and such
brokerage firms and other persons will be reimbursed for their reasonable
out-of-pocket expenses incurred in this connection.
OTHER MATTERS
The Company knows of no other matters to be presented at the Annual
Meeting, but if any other matters should properly come before the Annual
Meeting, it is intended that the persons named in the accompanying Proxy will
vote the same in accordance with their best judgment.
11
<PAGE> 14
REVOCABLE
PROXY
SUMMIT CARE CORPORATION
2600 W. Magnolia Boulevard
BURBANK, CALIFORNIA 91505-3031
FOR ANNUAL MEETING OF SHAREHOLDERS DECEMBER 12, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Summit Care Corporation (the "Company") hereby
constitutes and appoints William C. Scott, Derwin Williams, Melody Stok and
each of them, the attorney and proxy of the undersigned, with full power of
substitution and revocation, to attend the Annual Meeting of Shareholders of
the Company (the "Annual Meeting") to be held at the Universal City Hilton
Hotel, 555 Universal Terrace Parkway, Universal City, California, on Thursday,
December 12, 1996, at 11:00 a.m., local time, and at any adjournments thereof,
and to vote all the shares of stock of the Company which the undersigned may be
entitled to vote, upon the following matters.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY AND WILL BE
VOTED AS DIRECTED BY THE UNDERSIGNED SHAREHOLDER. THIS PROXY WILL BE VOTED FOR
PROPOSAL 1 AND IN ACCORDANCE WITH THE RECOMMENDATIONS OF A MAJORITY OF THE
BOARD OF DIRECTORS AS TO ANY OTHER MATTERS IF NO INSTRUCTIONS TO THE CONTRARY
ARE MARKED HEREIN.
(Continued and to be signed and dated on reverse side)
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 15
(Continued from reverse side)
Please mark
your votes as
indicated in
this example. [X]
FOR WITHHELD
1. ELECTION OF DIRECTORS [ ] [ ]
To elect the following directors to serve for
a term of two years and until their successors
have been elected and qualified:
NOMINEES
FOR DIRECTOR: John A. Brende
Gary L. Massimino
Keith B. Pills
For, except vote withheld from the following nominee(s):
--------------------------------------------------------
The undersigned shareholder hereby acknowledges receipt of the Notice of
Annual Meeting and Proxy Statement and hereby revokes any proxy or proxies
heretofore given. This proxy may be revoked at any time prior to the Annual
Meeting.
If you receive more than one proxy card, please date, sign and return all
cards in the accompanying envelope.
Dated: , 1996 Signature(s)
--------------- ----------------------------------
Please mark, date and sign as your name appears below and return in the
enclosed envelope. If acting as executor, administrator, trustee, guardian,
etc., you should so indicate when signing. If the signer is a corporation,
please sign the full name by duly appointed officer. If a partnership, please
sign in partnership name by authorized person. If shares are held jointly, each
shareholder named should sign.
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
