<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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
SUMMIT CARE CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
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<PAGE> 2
SUMMIT CARE CORPORATION
2600 W. MAGNOLIA BOULEVARD
BURBANK, CALIFORNIA 91505-3031
----------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 29, 1998
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 January 29, 1998, 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 December 15, 1997
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
Secretary
<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 January 29, 1998, 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 January 7, 1998. Only shareholders of
record at the close of business on December 15, 1997 are entitled to receive
notice of, and to vote at, the Annual Meeting and any adjournments thereof.
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.
On October 15, 1997, the outstanding shares of the Company entitled to vote
consisted of 6,776,000 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, 1997 and have
been selected to audit the Company's financial statements for the year ended
June 30, 1998. 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 is to consist 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 William C. Scott,
Donald J. Amaral and William J. Casey, each of whom is an incumbent director, to
be elected at the 1997 Annual Meeting of Shareholders to serve as directors of
the Company until the annual meeting of shareholders in 1999 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.
1
<PAGE> 4
The following table gives certain information as to each person nominated
for election as a director:
<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE
---- --- --------------
<S> <C> <C>
William C. Scott 60 1986
Donald J. Amaral 45 1991
William J. Casey 52 1993
</TABLE>
Mr. Scott became Chief Executive Officer of the Company in May 1994 and
Chairman of the Board in December 1995. Mr. Scott served as President of the
Company from December 1985 until January 1996 and held the office of Chief
Operating Officer from December 1985 until May 1994. Mr. Scott served as Senior
Vice President of Summit Health Ltd. ("SHL"), the Company's former parent
company, from December 1985 until its acquisition by OrNda Health Corp.
("OrNda") in April 1994. See "Certain Relationships and Related Transactions."
Mr. Scott is a director of Fairfield Communities, Inc.
Mr. Amaral has been President and Chief Executive Officer of Coram
Healthcare Corp since October 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 SHL from October 1989 and
Chief Executive Officer of SHL from October 1991 until April 1994, when OrNda
acquired SHL. 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., and has
served as a consultant in the healthcare industry, specializing in hospital
management evaluation, hospital planning, managed care contracting and
turnaround services. From 1986 to the present, Mr. Casey has also served as
Contract Administrator for Emergency Department Physicians' Medical Group, Inc.
and affiliated medical groups, which provide physician services to
non-governmental facilities. From 1988 to the present, Mr. Casey has served as
Contract Administrator for NP Medical Group, Inc., which provides physician
services to governmental facilities. Mr. Casey also serves as a director of
Coram Healthcare Corp. and TriCo Bancshares.
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>
NAME AGE DIRECTOR SINCE
---- --- --------------
<S> <C> <C>
John A. Brende 50 1993
Gary L. Massimino 61 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 managing partner in various real estate
partnerships.
Mr. Massimino is a financial consultant. He served as Executive Vice
President and Chief Financial Officer of Regency Health Services, Inc. from
April 1994 until December 31, 1995. He was Executive Vice President and Chief
Financial Officer of Care Enterprises, Inc. from February 1990 until April 1994.
Keith B. Pitts, who had served as a Director of the Company since 1994,
resigned as a Director effective July 28, 1997, to assume the chief executive
position of another long-term health care provider.
SHAREHOLDINGS
The following table sets forth certain information as to the shares of
Common Stock of the Company owned as of October 15, 1997, 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.
2
<PAGE> 5
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER NUMBER OF PERCENT OF
OR IDENTITY OF GROUP(1) SHARES CLASS
----------------------- ------ -----
<S> <C> <C>
J.P. Morgan & Co., Incorporated(2)............. 1,218,900 18.0
60 Wall Street
New York, NY 10260
Baron Capital Group, Inc.(3)................... 714,925 10.6
BAMCO, Inc.
Baron Capital Management, Inc.
Baron Capital, Inc.
767 Fifth Avenue, 24th Floor
New York, NY 10153
Franklin Resources, Inc.(4).................... 694,700 10.3
777 Mariners Island Blvd.
San Mateo, CA 94403
William C. Scott(5)............................ 161,000 2.4
David G. Schumacher, Jr.(5).................... 13,000 *
Derwin L. Williams(5).......................... 32,500 *
Michael H. Martel(5)........................... 16,000 *
Donald J. Amaral(5)............................ 6,500 *
John A. Brende(5).............................. 8,500 *
William J. Casey(5)............................ 9,500 *
Gary L. Massimino(5)........................... 7,000 *
All directors and executive officers as a group(5) 254,000 3.7
</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 December 31, 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 888,800
of the shares.
(3) Based on an amendment to a report on Schedule 13G filed by Baron Capital
Group, Inc. ("Baron") with the Commission on July 8, 1997. Baron or its
subsidiaries have sole power to vote and dispose of all of the shares shown
as beneficially owned by them.
(4) Based on a report on Schedule 13G filed by Franklin Resources, Inc.
("Franklin") with the Commission on February 10, 1997. Franklin or its
subsidiaries have sole power to vote and to dispose of all of the shares
shown as beneficially owned by them.
(5) 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 48,000 shares are attributable to Mr. Scott, 8,000
shares are attributable to Mr. Williams, 4,000 shares are attributable to
Mr. Martel, 3,500 shares are attributable to Mr. Massimino, 3,000 shares
are attributable to Mr. Schumacher, 2,500 shares are attributable to each
of Messrs. Amaral, Brende and Casey, and 74,000 shares are attributable to
all directors and executive officers as a group.
3
<PAGE> 6
SPECIAL COMMITTEES AND ATTENDANCE AT BOARD MEETINGS
The Board of Directors has an Audit Committee which is comprised of Messrs.
Massimino, Chairman, Amaral and Brende. 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, and (v)
review the adequacy of the Company's system of internal accounting controls. The
Audit Committee held five meetings during the fiscal year ended June 30, 1997.
The Board of Directors has a Compensation Committee which consists of
Messrs. Casey, Chairman, Massimino and an open position since the resignation of
Mr. Pitts. 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 two
meetings during fiscal 1997.
The Board of Directors has an Executive Committee which consists of Messrs.
Scott, Chairman, Casey and an open position since the resignation of Mr. Pitts.
The Executive Committee did not meet during fiscal 1997.
The Board of Directors has a Stock Option Committee which consists of
Messrs. Brende and Casey. The function of this Committee is to administer the
Company's Stock Option Plan. The Stock Option Committee held two meetings during
fiscal 1997.
There is no nominating committee or committee exercising similar functions.
During fiscal 1997, the Board of Directors held seven 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 exceeded $100,000 (the "Named Executive
Officers") for the last completed fiscal year:
<TABLE>
<CAPTION>
LONG-TERM
FISCAL ANNUAL COMPENSATION COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTION AWARDS COMPENSATION
--------------------------- ---- ------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
William C. Scott 1997 $394,773 $ -- -- $ --
Chairman and Chief Executive 1996 369,869 150,000 165,000 --
Officer 1995 344,869 162,500 50,000 --
David G. Schumacher, Jr.(1) 1997 215,404 -- 15,000 --
President and Chief Operating 1996 102,154 -- 50,000 --
Officer 1995 -- -- -- --
Derwin L. Williams 1997 181,423 -- -- --
Sr. Vice President/Finance, 1996 171,008 50,000 25,000 --
Chief Financial Officer, Treasurer 1995 147,162 40,000 20,000 --
Michael H. Martel(2) 1997 152,404 10,000 10,000 --
Sr. Vice President/Marketing 1996 141,308 -- 10,000 --
1995 36,250 10,000 25,000
Melodye Stok(3) 1997 115,947 -- -- --
Vice President/Controller, 1996 113,683 15,000 5,000 --
Chief Accounting Officer 1995 108,914 25,000 10,000 --
</TABLE>
4
<PAGE> 7
----------
(1) Mr. Schumacher joined the Company in January 1996
(2) Mr. Martel joined the Company in March 1995.
(3) Ms. Stok resigned in May 1997; she was succeeded in June 1997 by John L.
Farber as Vice President, Controller, Chief Accounting Officer and
Secretary.
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 1997 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>
David G. Schumacher, Jr 15,000 13.4% $ 13.75 12/12/06 $103,800
Michael H. Martel 10,000 8.9% 13.75 12/12/06 69,200
John L. Farber 10,000 8.9% 12.00 06/04/07 60,400
</TABLE>
- ----------
(1) The options become exercisable in installments of 20% on each anniversary
of the date of grant in the event that the Company attains specified
earnings per share targets for the fiscal year preceding the date of
vesting. Under the terms of the Company's Stock Option Plan, the Stock
Option Committee retains discretion, subject to Plan limits, to modify the
terms of outstanding options and to reprice the options.
(2) The Company granted options representing a total of 112,000 shares in
fiscal 1997.
(3) The exercise price on the date of grant was equal to 100% of the fair
market value of the underlying Common Stock on the date of grant.
(4) As suggested by the Securities and Exchange Commission's new rules on
executive compensation disclosure, the Company uses the Black-Scholes model
of option valuation to determine grant date present value. The Company does
not advocate or necessarily agree that the Black-Scholes model can properly
determine the value of the option. The present value calculation for each
of the Named Executive Officers is based on a ten year option term and
assumes an interest rate of 6.4%, a dividend yield of 0% and volatility of
48.4%.
OPTION EXERCISES AND FISCAL YEAR END VALUES
The following table provides certain information concerning the exercise of
stock options by the Named Executive Officers in fiscal 1997 and shows the
number of shares covered by both exercisable and nonexercisable stock options
held as of the end of fiscal 1997. Also shown are the values for "in-the-money"
options, which represent the positive difference between the exercise price of
such options and the fiscal year end price of the Common Stock of the Company:
5
<PAGE> 8
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS
ACQUIRED ON FY-END (#) AT FY-END ($)
EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (#) REALIZED UNEXERCISABLE UNEXERCISABLE
---- --- -------- --------------- -------------
<S> <C> <C> <C> <C>
William C. Scott............. 0 $0 113,000/187,000 $87,600/14,400
David G. Schumacher, Jr. .... 0 0 10,000/55,000 ---/---
Derwin L. Williams........... 0 0 22,000/38,000 ---/---
Michael H. Martel............ 0 0 12,000/33,000 ---/---
Melodye Stok................. 0 0 8,500/11,000 7,608/1,152
John L. Farber............... 0 0 0/10,000 ---/15,000
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board establishes compensation levels for
the Company's Chairman and Chief Executive Officer 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. Casey and
consists of two other members, Mr. Massimino and an open position since the
resignation of Mr. Pitts.
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's 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 which the Chairman and Chief Executive Officer and the other
Named Executive Officers were paid for the fiscal year ended June 30, 1997
reflect the business results achieved for fiscal 1997 and the Committee's
determination of management success in earnings growth and new business
development. The Committee determined that no bonuses would be paid for the
fiscal year ended June 30, 1997.
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 1997 under the above described
plans and programs are included in the proxy tables.
COMPENSATION COMMITTEE
William J. Casey, Chairman
Gary L. Massimino
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 1997, Mr. Massimino received an option to
purchase 7,500 shares of Common Stock and Messrs. Amaral, Brende, Casey and
Pitts each received options to purchase 2,500 shares of Common Stock, all with
an exercise price of $13.75 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.
6
<PAGE> 9
MARKET PERFORMANCE OF COMMON STOCK
The following graph sets forth the performance, since June 30, 1992, 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>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NASDAQ U.S. 100 126 127 109 218 265
NASDAQ Health 100 115 131 143 218 201
Summit Care 100 203 226 231 275 169
</TABLE>
In March 1992, the Company completed an initial public offering of stock at
$10.50 per share. 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. In August 1995,
OrNda sold its position in the Company's Common Stock and currently has no
position in the Company's Common Stock. SHL was merged into OrNda on September
27, 1994. OrNda was merged into Tenet Healthcare Corporation ("Tenet") in
January 1997.
The Company 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 no less favorable to the Company than could have been obtained from
unaffiliated parties. 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 Tenet Healthcare Corporation. 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 expired in March 1997, although the provisions
regarding indemnification survive the termination of the Agreement on the terms
provided therein. The Services Agreement provided, among other things, that: (i)
SHL and the Company would maintain existing arrangements concerning the
Company's sublease of certain facilities to unrelated parties; (ii) SHL would
not withdraw or modify its guaranty of the Company's obligations under certain
real property leases; (iii) SHL would 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 would be entitled at no cost to use the name
"Summit" and SHL's logo. 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. The Company had net receipts of $31,000 from OrNda
under the Services Agreement in fiscal 1997.
7
<PAGE> 10
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. 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 SHL federal
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 ended 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 ended 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 involved the cash method of accounting used by certain of
SHL's subsidiaries during 1984, 1985 and 1986. The Company, as a member of the
SHL consolidated group during the years for which the audit was being conducted,
is jointly and severally liable for group federal income tax liabilities.
However, the dispute has been settled with the IRS and there is no adverse
effect on the Company.
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 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 subleases its Phoenix skilled nursing care center from Tenet
under a ten-year lease providing for payments of $37,500 per month. The Phoenix
center is leased by Tenet 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 Tenet on the property, is believed by the Company to
be at market rates.
8
<PAGE> 11
SUBMISSION OF SHAREHOLDER PROPOSALS
Any proposal by a shareholder intended to be presented at the 1998 Annual
Meeting must be received by the Company at its principal executive offices by
October 1, 1998, to be included in the 1998 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, 1997, and Quarterly
Report for the quarter ended September 30, 1997, 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 ENDED JUNE 30, 1997, AND ITS QUARTERLY REPORT ON
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997, 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 DECEMBER 15, 1997. ANY SUCH REQUEST SHALL BE
ADDRESSED TO INVESTOR RELATIONS, SUMMIT CARE CORPORATION, 22613 OLD CANAL ROAD,
YORBA LINDA, CALIFORNIA 92887, TELEPHONE NUMBER (714) 279-1450.
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.
9
<PAGE> 12
SUMMIT CARE CORPORATION
2600 W. MAGNOLIA BOULEVARD
BURBANK, CALIFORNIA 91505-3031
FOR ANNUAL MEETING OF SHAREHOLDERS DECEMBER 11, 1997
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, John Farber 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 11, 1997, 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)
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FOLD AND DETACH HERE
<PAGE> 13
<TABLE>
<S> <C> <C> <C> <C>
(Continued from reverse side) Please mark
your votes as [X]
indicated in
this example
1. ELECTION OF DIRECTORS FOR WITHHELD
To elect the following directors to serve for
a term of two years and until their successors [ ] [ ]
have been elected and qualified:
NOMINEES The undersigned shareholder hereby acknowledges receipt
FOR DIRECTOR: Donald J. Amaral of the Notice of Annual Meeting and Proxy Statement and
William J. Casey hereby revokes any proxy or proxies heretofore given. This
William C. Scott proxy may be revoked at any time prior the Annual Meeting.
For, except vote withheld from the following nominee(s): If you receive more than one proxy card, please date, sign
and return all cards in the accompanying envelope.
- --------------------------------------------------------
Dated:_____________________________, 1997 Signature(s)__________________________________________________________________________
Please mark, date and sign as your name appears below and return in the supplied 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.
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FOLD AND DETACH HERE
</TABLE>
