<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 Section 240.14a-11(c) or Section
240.14a-12
LIVING CENTERS OF AMERICA, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
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<PAGE> 2
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LIVING CENTERS
OF AMERICA
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
AND
PROXY STATEMENT
MEETING DATE
FEBRUARY 6, 1997
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT!
PLEASE MARK, DATE AND SIGN THE ENCLOSED PROXY CARD AND
PROMPTLY RETURN IT TO THE COMPANY IN THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 3
LIVING CENTERS OF AMERICA, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 6, 1997
The Annual Meeting of Stockholders of Living Centers of
America, Inc., a Delaware corporation (the "Company"), will be held on
Thursday, February 6, 1997, at 10:00 a.m., Houston time, at the Holiday Inn
Select, 14703 Park Row, Houston, Texas, or at such time or place or both as any
of the officers of the Company shall determine (the "Annual Meeting") for the
following purposes:
1. To elect two directors; and
2. To transact such other business as may properly come
before the meeting or any adjournment thereof.
The record date for voting at the meeting is December 16,
1996. Only holders of Common Stock of record at the close of business on the
record date shall be entitled to notice of and 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 stand
in more than one name, all holders of record should sign.
By Order of the Board of Directors,
/s/ EDWARD L. KUNTZ
Edward L. Kuntz
Chairman of the Board
/s/ SUSAN THOMAS WHITTLE
Susan Thomas Whittle
Secretary
December 27, 1996
<PAGE> 4
LIVING CENTERS OF AMERICA, INC.
PROXY STATEMENT
This statement is furnished in connection with the
solicitation on behalf of the Board of Directors of Living Centers of America,
Inc., a Delaware corporation ("Living Centers" or the "Company"), of proxies
for use at the annual meeting of stockholders of the Company, to be held at the
Holiday Inn Select, 14703 Park Row, Houston, Texas, on Thursday, February 6,
1997, at 10:00 a.m. and any adjournment thereof (the "Annual Meeting"). It is
anticipated that the mailing to stockholders of definitive copies of this Proxy
Statement and the enclosed proxy will commence on or about December 27, 1996.
The mailing address of the principal executive offices of the Company is 15415
Katy Freeway, Suite 800, Houston, Texas 77094.
Only stockholders of record at the close of business on
December 16, 1996 will be entitled to vote at the Annual Meeting. At the close
of business on December 12, 1996, there were outstanding 19,505,113 shares of
the Company's common stock, par value $.01 per share ("Common Stock"). Each
share of Common Stock is entitled to one vote. There is no provision in the
Company's Restated Certificate of Incorporation for cumulative voting.
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation and
By-Laws provide that the Board of Directors is divided into three classes.
Each year the stockholders are asked to elect the members of a class for a term
of three years. Currently, the terms of office for members of Class I, Class
II and Class III of the Board of Directors will expire, respectively, on the
dates of the annual meeting of stockholders of the Company in 1999, 1997 and
1998. The members of Class II, whose terms expire on the date of the Annual
Meeting, are Anthony M. Frank and Leroy D. Williams. The Board of Directors
has nominated Mr. Frank and Mr. Williams for reelection to Class II. Persons
who are elected Class II directors at the Annual Meeting will hold office until
their terms expire on the date of the annual meeting of stockholders of the
Company in 2000 or until the election and qualification of their successors.
So far as the Board of Directors has been advised, only the
two persons named above as nominees will be nominated for election as directors
at the Annual Meeting. It is intended that the shares represented by proxies
in the accompanying form will be voted for the election of these two nominees
unless authority so to vote is withheld. The nominees have consented to being
named herein and to serve if elected. If either of them should become
unavailable for election prior to the Annual Meeting, the proxies will be voted
for a substitute nominee or nominees designated by the Board of Directors or
the number of directors may be reduced accordingly.
The following sets forth information concerning each of the
nominees for election to the Board of Directors and each director whose term
continues, including his name, age, principal occupation or employment during
at least the past five years and the period during which such person has served
as a director of the Company.
NOMINEES
ANTHONY M. FRANK, age 64, became a director of the Company in
November 1992. Since January 1992, he has served as chairman of Acrogen, Inc.,
a biotechnology firm. He is also currently chairman of Independent BankCorp.
of Arizona and Reliance HomeFirst Income Plan, Inc., a reverse mortgage
company. Mr. Frank was Postmaster General of the United States from February
1988 to March 1992. He is also a director of Temple-Inland, Inc., Charles
Schwab Corporation, ICM Property Investors, Inc., General American Investors
Company, Inc., and Adia Temporary Services. He is a member of Class II of the
Board of Directors and is Chairman of the Audit Committee and a member of the
Compensation and Stock Option Committees of the Board of Directors.
1
<PAGE> 5
LEROY D. WILLIAMS, age 55, became President of the Company in
February 1996 and a director of the Company in January 1992. He was appointed
Chief Operating Officer in August 1995 and Executive Vice President in December
1991. In March 1985, he was appointed Vice President-Finance of Living Centers
and became Senior Vice President-Finance in January 1991. He is a member of
Class II of the Board of Directors. Mr. Williams has been employed by the
Company since 1978.
Directors will be elected by a plurality of the votes of the
shares of Common Stock present in person or represented by proxy at the Annual
Meeting and entitled to vote in the election of directors. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE FOR BOTH NOMINEES.
CONTINUING DIRECTORS
ROBERT H. HURLBUT, age 61, has been a director of the Company
since November 1993. For more than four years prior to October 1993, Mr.
Hurlbut was the President and Chief Executive Officer of Vari-Care, Inc., a
corporation operating nursing home facilities. Since October 1, 1993, when the
Company acquired Vari-Care, Inc. in a negotiated merger transaction, Mr.
Hurlbut has been managing his personal investments. He is a member of Class I
of the Board of Directors and is a member of the Audit, Quality, Compensation
and Stock Option Committees of the Board of Directors.
EDDY J. ROGERS, JR., age 56, has been a director of the
Company since November 1992. From October 1989 to January 1995, he was a
partner in the Houston, Texas office of the law firm of Mayer, Brown & Platt.
In January 1995, Mr. Rogers became a partner in the Houston, Texas office of
the law firm of Mayor, Day, Caldwell and Keeton, LLP. He is a member of Class
I of the Board of Directors and is a member of the Audit Committee and Chairman
of the Compensation Committee of the Board of Directors.
ROGER J. BULGER, M.D., age 63, became a director in November
1992. Since 1988, he has been serving as President of the Association of
Academic Health Centers, as an adjunct professor at The University of Texas
School of Public Health and as a clinical professor for the Department of
Medicine at Georgetown University Medical Center. Dr. Bulger previously
served as President of the Health Science Center at Houston of The University
of Texas. He is a member of Class III of the Board of Directors and is a
member of the Compensation, Stock Option and Quality Committees of the Board of
Directors.
EDWARD L. KUNTZ, age 51, became Chief Executive Officer and a
director of the Company in December 1991, Chairman in January 1992 and
President in November 1993. Mr. Kuntz served as President of the Company until
February 1996. He joined Living Centers as Executive Vice President in
February 1985 and served in such capacity until December 1991. He is a member
of Class III of the Board of Directors.
DONALD C. BEAVER, age 56, became Vice Chairman of the Company
in August 1994 and a director of the Company on July 31, 1995. Prior to that
time, he was Chairman, Chief Executive Officer, President and Treasurer of The
Brian Center Corporation and had served in that capacity since founding of that
company in 1972. He is a member of Class III of the Board of Directors and is
a member of the Quality Committee of the Board of Directors.
COMPENSATION OF OUTSIDE DIRECTORS
Directors who are not employees of the Company or any of its
subsidiaries receive a director's fee of $6,250 for each fiscal quarter in
which a director serves as such. Directors who are employees of the Company or
any of its subsidiaries do not receive additional compensation for service on
the Board of Directors.
The Company's 1992 Stock Option Plan, as amended (the "Stock
Option Plan"), provides that on the first day in December on which the New York
Stock Exchange is open for business (an "Annual Grant Date"),
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<PAGE> 6
each then existing nonemployee director of the Company will automatically be
granted a nonqualified option (a "Director Option") to purchase 2,000 shares of
Common Stock; provided, however, that any nonemployee director on an Annual
Grant Date who has not received an initial grant of a Director Option to
purchase 5,000 shares of Common Stock will instead receive such initial
Director Option covering 5,000 shares.
The exercise price per share of Common Stock with respect to
each Director Option is the fair market value of a share of Common Stock on the
Annual Grant Date (determined in accordance with the terms of the Stock Option
Plan). The Stock Option Plan provides that 20% of the shares originally
subject to each Director Option will become exercisable on the date of each
annual meeting of stockholders of the Company, but in no event may a Director
Option be exercised after 10 years from the date of grant. Upon the
termination of service by a director, the unvested portion of his Director
Options will be cancelled. In the event of a "change of control" of the
Company (as defined in the Stock Option Plan), all outstanding Director Options
will immediately become exercisable in full.
BOARD MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors held four regularly scheduled meetings
during the 1996 fiscal year. The Board of Directors currently has an Audit
Committee, a Quality Committee, a Compensation Committee and a Stock Option
Committee. All committees are composed entirely of nonemployee directors,
except for the Quality Committee on which Mr. Beaver became a member on July
31, 1995. The Board does not have a standing nominating committee or other
committee performing a similar function. Each director then serving as such
participated in all meetings of the Board and the committees on which he served
during the 1996 fiscal year in person or by telephone.
The Audit Committee makes recommendations to the Board of
Directors as to the engagement or discharge of the independent public
accountants, reviews the plan and 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, monitors compliance with the Company's business
conduct policy and directs and supervises investigations into matters within
the scope of its duties. The Audit Committee held two meetings during the 1996
fiscal year. The Audit Committee is composed of Messrs. Hurlbut, Frank and
Rogers.
The Quality Committee is a standing committee of the Board of
Directors to assist it in fulfilling its supervisory responsibilities with
regard to the Company's ongoing efforts to improve its management systems,
communications, service delivery practices, and achievement of certain quality
service benchmarks. The Quality Committee consists of three members, Messrs.
Hurlbut, Beaver, and Dr. Bulger. The Quality Committee held three meetings
during the 1996 fiscal year. The Vice President of Professional Services
serves as staff to the Committee Chairperson and attends each Quality Committee
meeting.
The Compensation Committee approves remuneration and
compensation arrangements involving the Company's directors, executive officers
and other key employees. The Compensation Committee also administers the
granting of incentives under the Company's management incentive bonus plan.
During fiscal 1996, the Compensation Committee met three times. The
Compensation Committee is composed of Messrs. Rogers, Hurlbut, Frank and Dr.
Bulger.
The Stock Option Committee administers the Stock Option Plan
and the Company's Deferred Retirement Income Plan effective March 1, 1992, as
amended (the "DRIP"). The Stock Option Committee held two meetings during the
1996 fiscal year. The Stock Option Committee is composed of Messrs. Hurlbut,
Frank and Dr. Bulger.
3
<PAGE> 7
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE -- The table set forth below contains information
regarding compensation for services in all capacities to the Company for fiscal
years ended September 30, 1996, 1995 and 1994 of those persons who were, at
September 30, 1996, (i) the chief executive officer and (ii) the other four
most highly compensated executive officers of the Company.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL -----------------------
COMPENSATION(1) RESTRICTED SECURITIES ALL
FISCAL --------------- STOCK UNDERLYING LTIP OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARD(2) OPTIONS PAYOUTS COMP.(3)
--------------------------- ------ ------ ----- ---------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Edward L. Kuntz, 1996 $482,990 $193,050 $ -- 61,275 $ -- $ 11,591
Chairman of the Board 1995 411,263 249,632 -- 22,100 -- 10,122
President and Chief 1994 370,000 214,500 -- 16,000 -- 13,444
Executive Officer
Leroy D. Williams, 1996 $332,553 $120,252 $ -- 45,250 $ -- $ 7,981
Executive Vice President 1995 235,539 146,276 -- 6,375 -- 8,564
and Chief Operating Officer 1994 215,000 123,443 -- 8,625 -- 8,550
William R. Korslin 1996 $188,301 $ 99,940 $ -- 8,750 $ -- $ --
President, American 1995 159,212 44,007 -- 15,000 -- --
Pharmaceutical Services
and Vice President of Living 1994 135,802 74,108 -- 10,000 -- --
Centers of America, Inc.
Keith Krein, M.D., 1996 $203,168 $ 48,905 $ -- 7,250 $ -- $ 4,876
Vice President, Professional 1995 189,381 57,331 -- 3,000 -- 3,668
Services 1994 178,750 41,071 -- 2,400 -- 6,535
Susan Thomas Whittle 1996 $162,732 $ 59,831 $ -- 7,250 $ -- $ 3,905
Vice President, General 1995 146,255 51,494 -- 3,000 -- 4,551
Counsel and Secretary 1994 133,750 15,000 -- 3,000 -- --
</TABLE>
- ---------------
(1) There were no amounts paid in fiscal 1996, 1995 or 1994 in the category
"Other Annual Compensation" which were required to be reported.
(2) As of September 30, 1996 and 1995, there were no restricted stock holdings
relating to the Company's securities as contemplated by this category.
(3) Represents primarily the value (in Living Centers' stock based on the
closing market price on September 30, 1996, 1995 or 1994, as the case may
be) of matching contributions made by the Company on behalf of the
individual as a result of participation in the Company's Deferred
Retirement Income Plan.
4
<PAGE> 8
OPTION GRANTS TABLE -- The following table shows, as to the
executive officers named in the summary Compensation Table, information
regarding stock options granted pursuant to the Stock Option Plan during the
year ended September 30, 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------------
PERCENT OF TOTAL
NUMBER OF OPTIONS EXERCISE GRANT
SECURITIES GRANTED TO PRICE DATE
UNDERLYING EMPLOYEES IN PER EXPIRATION PRESENT
NAME OPTIONS(1) FISCAL 1996 SHARE DATE VALUE(2)
---- ---------- ---------------- ----- ---------- --------
<S> <C> <C> <C> <C> <C>
Edward Kuntz 45,000 6.91% $31.75 12/01/05 $ 898,527
16,275 2.50% 24.25 07/18/06 $ 248,203
Leroy. Williams 24,000 3.68% $31.75 12/01/05 $ 479,214
10,000 1.53% 36.375 02/01/06 $ 228,758
11,250 1.73% 24.25 07/18/06 $ 171,568
William R. Korslin 5,000 .79% $36.875 04/25/06 $ 115,951
15,000 2.30% 31.75 12/01/06 $ 299,508
3,750 .58% 24.25 07/18/06 $ 57,188
Keith Krein, M.D. 5,000 .77% $31.75 12/01/05 $ 99,836
2,250 .35% 24.25 07/18/06 $ 34,313
Susan Thomas Whittle 5,000 .77% $31.75 12/01/05 $ 99,836
2,250 .35% 24.25 07/18/06 $ 34,313
</TABLE>
- ---------------
(1) Represents incentive stock options granted under the Stock Option Plan,
except that the grants include 63,017, 40,227, 14,368, 2,365 and 3,900
nonqualified options thereunder for Messrs. Kuntz, Williams, Korslin, Krein
and Ms. Whittle, respectively. The stock options were granted on DECEMBER
1, 1995, AND JULY 18, 1996. All the options become exercisable in 20%
increments on each annual anniversary of the date of the grant. In the
event of termination, vested options can be exercised for ninety days
following the date of termination, and are forfeited thereafter. See
"Compensation Committee Report on Executive Compensation" beginning on page
7.
(2) The values of the options granted under the Stock Option Plan were
calculated by using the Black-Scholes option pricing model assuming a
standard deviation of 32.01%, risk free rate of return of 5.0%, dividend
yield of 0% and time of exercise of 3,413 days. The estimated grant date
value does not reflect any discount on account of vesting or forfeiture
provisions or prohibitions on transfer. The actual value, if any, an
executive may realize will depend on the excess of the stock price over the
exercise price on the date the option is exercised. There is no assurance
the value realized by an executive will be at or near the value estimated
by the Black-Scholes model. The estimated values under the Black-Scholes
model are based on assumptions as to variables such as interest rate, stock
price volatility and future dividend yield. The estimated grant date value
does not reflect any discount on account of vesting provisions or
prohibitions on transfer.
Each of the options under the Stock Option Plan becomes
immediately exercisable in the event of a change of control of the Company. A
"change of control" is defined as the occurrence of one or more of the
following events: (i) any "person," together with all associates of such
person, becomes the beneficial owner of 30% or more of the outstanding Common
Stock, except where such person is bound by the terms of a standstill agreement
under which the parties cannot acquire more than 30% of the outstanding Common
Stock or (ii) during any two-year period, directors serving at the beginning of
such period cease for any reason to constitute a majority of the directors
serving, unless the election of at least 75% of the new directors was approved
by at least 75% of the directors in office at the time of election.
5
<PAGE> 9
OPTION, GRANTS AND EXERCISES AND YEAR-END VALUE TABLE -- The
table set forth below contains information with respect to the exercise of
stock options granted under the Stock Option Plan during fiscal year 1996 and
unexercised stock options held at the end of fiscal year 1996 for the executive
officers named in the Summary Compensation Table.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED SEPTEMBER 30, 1996 SEPTEMBER 30, 1996(1)
ON VALUE ---------------------------- -----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Edward L. Kuntz -- -- 77,675 108,375 637,593 174,769
Leroy D. Williams -- -- 35,875 64,625 297,543 84,300
William R. Korslin -- -- 2,000 31,750 --- 2,812
Keith Krein, M.D. -- -- 17.400 15,650 152,820 40,567
Susan Thomas Whittle -- -- 13,800 19,450 48,000 33,687
</TABLE>
- ---------------
(1) Option value is based on fair market value on the closing price of the
Common Stock ($25) on the New York Stock Exchange Composite Tape on
September 30, 1996.
EMPLOYMENT AGREEMENTS -- The Company has ratified and
extended the employment agreements previously entered into with Messrs. Kuntz
and Williams. As ratified and extended, each of these employment agreements
provides (i) for a term set to expire on January 1, 2000, with a provision for
annual one-year extensions upon agreement thereto by the employee and the Board
of Directors of the Company, and (ii) that, upon a "change of control" of the
Company, followed by either (a) involuntary termination by the Company or (b)
voluntary termination for good cause (as defined in the employment agreements),
the employee is entitled to receive a lump sum payment equal to three times (1)
his annual compensation and (2) his average bonus calculated over the then last
three years. A "change of control" is defined in the agreements as either (A)
the acquisition of beneficial ownership by any person or entity of 30% or more
of the Common Stock (except where the terms of a standstill agreement limit
such acquisition to 30% of the Common Stock) or (B) a change in the majority
composition of the Board of Directors during any two year period unless the
election of at least 75% of the new directors was approved in advance by at
least 75% of the previous directors. In addition, the Company has entered into
an employment agreement with each of Mr. Korslin, Dr. Krein and Ms. Whittle
providing for an indeterminate period of employment and providing for a
severance payment of up to 24 months of salary plus certain benefits, such as
continued group medical and life insurance coverage, upon termination for any
reason other than "good and sufficient cause" (as defined in the employment
agreement). During 1996, the agreements with Messrs. Kuntz, Williams,
Korslin, Dr. Krein and Ms. Whittle provide for services at an annual base
salary of $500,000, $372,000, $225,000, $205,000 and $165,000, respectively.
See "Compensation Committee Report on Executive Compensation".
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION --
The Board of Directors of the Company currently has a Compensation Committee
and a Stock Option Committee composed entirely of nonemployee directors. The
Compensation Committee approves, or in some cases recommends to the Board,
remuneration and compensation arrangements involving the Company's directors,
executive officers and other key employees. The Compensation Committee also
administers the granting of incentives under the Company's management incentive
bonus plan. The Compensation Committee is composed of Messrs. Rogers, Frank
and Hurlbut and Dr. Bulger. Eddy J. Rogers, Jr. is a partner of Mayor, Day,
Caldwell & Keeton, L.L.P., a law firm that the Company has retained with
respect to certain corporate and employee benefit matters. The Stock Option
Committee administers the Stock Option Plan and the DRIP and is composed of
Messrs. Frank, Hurlbut and Dr. Bulger.
6
<PAGE> 10
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors of the
Company (the "Committee") has furnished the following report on the Company's
executive compensation program. The report describes the Committee's
compensation policies applicable to the Company's executive officers and the
basis on which compensation is determined for the Chief Executive Officer and
the other executive officers of the Company. The report includes a discussion
of the specific relationship of corporate performance to executive compensation
for fiscal 1996. The report also discusses the Committee's bases for the Chief
Executive Officer's compensation for fiscal 1996 and corresponding criteria for
such compensation.
I. COMPENSATION POLICIES
The Committee's duties include (i) establishing the
compensation program for the Chief Executive Officer, (ii) reviewing and
approving recommendations made by the Chief Executive Officer regarding the
compensation program for other executive officers and the Company's key
employees, (iii) approving changes to the base salary and incentive or bonus
payments for the Chief Executive Officer and other executive officers. The
Stock Option Committee administers the Stock Option Plan and the DRIP.
The objectives of the Company's executive compensation
policies are to provide its executives with a competitive total compensation
package and link compensation to the achievement of the long-term business
objectives of the Company and the enhancement of stockholder value. The
Committee also considers subjective factors in its evaluation of the
performance of the Chief Executive Officer and executive officers, such as
leadership and motivational qualities that are considered critical to the
success of the Company. Each year, the Committee reviews the performance of
the Company and compares such performance to specified internal and external
performance standards. The Committee has developed the following compensation
guidelines as the principles upon which compensation decisions are made:
o Provide incentives to increase corporate performance
and stockholder value relative to those of other
companies in the industry.
o Provide a competitive total compensation package that
enables the Company to attract, motivate and retain
key executives. In general, the Committee seeks to
maintain compensation at least at the median
compensation provided by its peer group competitors.
o Provide variable compensation rewards that are linked
to the financial performance of the Company and that
align executive compensation with the interests of
stockholders. Particular attention is paid to
achievements within each executive officer's control;
the Committee generally avoids penalizing such
officers for factors that could not have been
controlled by such persons. Significantly, however,
the failure to achieve accounts receivable collection
goals is considered in the calculation and could
result in a reduction in the amount of variable
compensation for officers.
II. EXECUTIVE COMPENSATION COMPONENTS
The Company's executive compensation program is composed of
fixed and performance-based compensation. The fixed component is the executive
officer's base salary, and the performance-based component is comprised of
productivity bonuses and, to a lesser extent, awards of stock options. After
surveying the executive compensation levels of the Company, the Committee
concluded that the overall compensation for its chief executive officer was
slightly below that offered by the median of the companies surveyed and was at
the median for other executive officers.
7
<PAGE> 11
BASE SALARY. Base salaries for the Company's executive
officers are approved annually on a calendar year basis with the objective that
the salaries be generally consistent with median salary rates for comparable
positions in companies of similar size within the long-term care industry. The
companies included in the peer index in the stock performance table below
generally are included in this salary survey data. In determining competitive
compensation levels, the Committee obtains information such as compensation
data from a salary survey performed by an independent compensation consultant.
An evaluation of competitive base salary levels must take into account the
extent to which compensation paid by various companies is weighted between base
salary and incentive compensation. The Compensation Committee believes that
the relationship between base salary and incentive compensation opportunities
for the Company's executive officers is in a range typical of those companies
with which it considers itself comparable. Individual performance over time is
also taken into account in determining base salaries. The Chief Executive
Officer's base salary rate is set by the Compensation Committee and the base
salary rate of the Company's other executive officers are reviewed and approved
by the Compensation Committee based on recommendations made by the Chief
Executive Officer and on supporting salary information. The base salary rate
of the Chief Executive Officer was increased from $420,000 to $500,000 on
January 1, 1996 based in part on an assessment of competitive salary data for
comparable positions and also on the Compensation Committee's positive
assessment of his performance.
PRODUCTIVITY BONUS. Under the Company's management incentive
bonus plan, cash bonuses may be provided to officers and management personnel
in recognition of achievement during the fiscal year. Bonuses are awarded
under the plan based on the attainment of predetermined financial and
nonfinancial goals. Potential awards vary with an individual's salary grade up
to a maximum of approximately 60% of the midpoint of the individual salary
within the grade. Approximately 70% of an executive officer's bonus is based
on the achievement of certain financial goals (including attainment and
surpassing of operating income and accounts receivable targets) and
approximately 30% of such bonus is based on the attainment of nonfinancial
objectives (including, but not limited to, attainment of strategic goals
concerning census development, implementation of specialty care programs,
acquisitions and divestitures and quality operational standards). In some
instances the Compensation Committee has in the past made additional awards of
smaller bonus amounts to reward special effort or to correct minor salary or
bonus disparities that become apparent throughout the year; however, no such
bonus amounts were made during the year. The Committee recommended awarding
bonuses to the executive officers of the Company after thoroughly reviewing
their performances. In light of the fact that the Company failed to meet its
internally generated plan, bonuses to the Company's executive officers and
other members of management were reduced from 1995 levels.
STOCK OPTIONS. The Stock Option Committee periodically grants
the Chief Executive Officer and executive officers stock options under the
Stock Option Plan. The options are granted based on the achievement of certain
Company financial objectives relative to year over year performance. In fiscal
1996, the Company granted stock options to the Chief Executive Officer,
executive officers and other key employees substantially in accord with past
practices. The options were priced at fair market value and vest in 20%
increments each year from the grant date.
OTHER PLANS AND BENEFITS. The Company's executive officers
participate in several other compensation plans and benefit programs. The
programs provide benefits generally related to salary levels and length of
service (as in the case of savings plan benefits, disability benefits and death
benefit coverage), or are independent of salary levels (such as medical
coverage). There is no specific performance-based relationship between
benefits under these plans and corporate performance (except that savings plan
contributions are in the form of Common Stock).
III. SUMMARY
The Compensation Committee and Stock Option Committee believe
that the Company's executive compensation program is competitive with
compensation programs of similarly situated companies and provides the
Company's Chief Executive Officer and other executive officers with the
appropriate incentives to achieve the
8
<PAGE> 12
Company's long-term goals. The Committee believes that compensation increases
for the Chief Executive Officer and other executive officers are supportable by
the Company's performance, especially in light of the compensation arrangements
of the Company's competitors.
COMPENSATION COMMITTEE
Roger J. Bulger, MD
Anthony M. Frank
Robert H. Hurlbut
Eddy J. Rogers, Jr., Chairman
STOCK OPTION COMMITTEE
Roger J. Bulger, MD
Anthony M. Frank
Robert H. Hurlbut
9
<PAGE> 13
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
The line graph set forth below represents a comparison of the
yearly percentage change in the cumulative total stockholder return on the
Common Stock with the total return of the S&P 500 Index and an industry peer
group index (consisting of Beverly Enterprises, Horizon/CMS Health Care
Corporation, Genesis Health Ventures, Inc., Integrated Health Services, Inc.,
Health Care and Retirement Corporation, Manor Care, Inc., and GranCare, Inc.)
for the period commencing February 20, 1992 (the date of closing of the
Company's initial public offering) and ending September 30, 1996. The line
graph is based on the assumption that the value of the investment in Common
Stock, the S&P 500 Index and the industry peer group index was $100 on February
20, 1992, and that all dividends were reinvested. The peer group index used
in previous Company proxy statement stockholder return performance graphs
included Hillhaven Corporation as a component. Vencor Incorporated acquired
Hillhaven effective September 29, 1995 and as such is no longer traded. As a
result, Hillhaven is no longer a component of the peer group index.
[COMPARISON OF LIVING CENTERS OF AMERICA STOCK PERFORMANCE GRAPH]
The graph above was plotted using the following data:
<TABLE>
<CAPTION>
2/20/92 9/30/92 9/30/93 9/30/94 9/30/95 9/30/96
<S> <C> <C> <C> <C> <C> <C>
Living Centers $100 106 144 218 229 172
S&P 500 100 103 117 121 157 189
Industry Peer Group 100 112 139 195 204 193
</TABLE>
PURSUANT TO SEC RULES, THE COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION AND THE STOCKHOLDER RETURN PERFORMANCE PRESENTATION ARE NOT DEEMED
"FILED" WITH THE SEC AND ARE NOT INCORPORATED BY REFERENCE INTO THE COMPANY'S
ANNUAL REPORT ON FORM 10-K.
10
<PAGE> 14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows, as of December 10, 1996, the
information concerning beneficial ownership of shares of Common Stock by
directors and nominees, each of the executive officers named in the summary
compensation table above, and all directors and executive officers of the
Company, as a group. The holders listed below have sole voting power and
investment power over the shares beneficially owned by them, except as noted.
As of December 10, 1996, there was no person known to the Company to be the
beneficial owner of more than 5% of the Common Stock outstanding, except as
noted below.
<TABLE>
<CAPTION>
NUMBER OF SHARES(1)
--------------------------------------- PERCENT
NAME OF BENEFICIAL OWNER OWNED OPTIONS(2) TOTAL OF CLASS
<S> <C> <C> <C> <C>
OFFICERS AND DIRECTORS:
Edward L. Kuntz 40,755 111,630 152,385 *
Leroy D. Williams 19,470 53,725 73,195 *
William R. Korslin 1,000 7,000 8,000 *
Keith Krein, M.D. 3,547 23,560 27,107 *
Susan Thomas Whittle 1,000 16,000 17,000 *
Donald C. Beaver(3) 3,579,482 5,000 3,584,482 18.0%
Eddy J. Rogers, Jr. 3,000 5,400 8,400 *
Anthony M. Frank 1,000 5,400 6,400 *
Dr. Roger J. Bulger 620 5,400 6,020 *
Robert H. Hurlbut(4) 421,877 3,800 425,677 2.1%
Executive Officers and Directors as a group
(10 persons) 4,071,751 236,915 4,308,666 21.6%
FIVE PERCENT OWNERS(5):
Jurika & Voyles(6) 1,234,000 1,234,000 6.2%
</TABLE>
- --------------------------
* Less than 1%.
(1) Includes shares owned indirectly or through participation in the Company's
401(k), Employee Stock Purchase Plan or Deferred Retirement Income Plan.
(2) Includes options to purchase Common Stock granted pursuant to the Stock
Option Plan which will vest as of February 21, 1997.
(3) 148 Spyglass Lane, Jupiter, Florida 33477.
(4) 91,000 of the shares owned by Mr. Hurlbut are held in escrow in accordance
with a certain Escrow Agreement dated as of July 25, 1993 to which Mr.
Hurlbut is a party.
(5) Based on Technimetrics, Inc. data provided through Bloomberg L.P. as of
December 11, 1996.
(6) 1999 Harrison, Suite 700, Oakland, California 94612.
11
<PAGE> 15
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 Annual 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 Annual Meeting is the holders of a
majority of the Common Stock issued and outstanding being present in person or
represented by proxy at the Annual Meeting.
CERTAIN TRANSACTIONS
Following Donald C. Beaver's exercise of an initial demand
registration right granted under a Registration Rights Agreement dated as of
July 31, 1995 between the Company and Mr. Beaver, the Company filed a
Registration Statement on Form S-3 with the Securities and Exchange Commission,
and Mr. Beaver sold 2,900,000 shares of Common Stock of the Company. In
connection therewith, Mr. Beaver repaid the Company approximately $2.7 million
of debt that existed at the time of the mergers of Brian Center Corporation and
16 related corporations, substantially all of which were wholly owned by Mr.
Beaver, with and into Living Centers/Brian Care Company, a wholly-owned
subsidiary of the Company, and certain related transactions pursuant to an
Amended and Restated Agreement and Plan of Merger dated as of March 27, 1995
and amended as of June 15, 1995.
Eddy J. Rogers, Jr. is a partner of Mayor, Day, Caldwell &
Keeton, L.L.P., a law firm that the Company has retained with respect to
certain corporate and employee benefit matters.
GENERAL INFORMATION
PROXIES
All duly executed proxies received prior to the Annual Meeting
will be voted in accordance with the choices specified thereon. As to any
matter for which no choice has been specified in a duly executed proxy, the
shares represented thereby will be voted for the election as directors of the
nominees listed herein and in the direction of the persons named in the proxy
in connection with any other business that may properly come before the Annual
Meeting. A stockholder giving a proxy may revoke it at any time before it is
voted at the Annual Meeting by filing with the Secretary of the Company an
instrument revoking it, or by a duly executed proxy bearing a later date, or by
appearing at the Annual Meeting and voting in person.
COUNTING OF VOTES
All matters specified in this Proxy Statement that are to be
voted on at the Annual Meeting will be by written ballot. Either one or three
inspectors of election will be appointed, among other things, to determine the
number of shares outstanding and the voting power of each, the shares
represented at the Annual Meeting, the existence of a quorum and the
authenticity, validity and effect of proxies, to receive votes or ballots, to
hear and determine all challenges and questions in any way arising in
connection with the right to vote, to count and tabulate all votes and to
determine the result. Directors will be elected by a plurality of the votes
cast by stockholders at the Annual Meeting. The inspectors of election will
treat shares represented by proxies that reflect abstentions as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum and for purposes of determining the outcome of any matter submitted to
the stockholders for a vote. Abstentions, however, do not constitute a vote
"for" or "against" any matter and thus will be disregarded in the calculation
of a plurality or of "votes cast." Thus, abstentions will not affect the
outcome of the election of directors.
12
<PAGE> 16
The inspectors of election will treat shares referred to as
"broker non-votes" (i.e., shares held by brokers or nominees as to which
instructions have not been received from the beneficial owners or persons
entitled to vote that the broker or nominee does not have discretionary power
to vote on a particular matter) as shares that are present and entitled to vote
for purposes of determining the presence of a quorum. However, for purposes of
determining the outcome of any matter as to which the broker has physically
indicated on the proxy that it does not have discretionary authority to vote,
those shares will be treated as not present and not entitled to vote with
respect to that matter (even though those shares are considered entitled to
vote for quorum purposes and may be entitled to vote on other matters). Thus,
broker non-votes will not affect the outcome of the election of directors. The
New York Stock Exchange determines whether brokers have discretionary authority
to vote on a given proposal.
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.
STOCKHOLDER PROPOSALS AND NOMINATIONS
FOR THE 1998 ANNUAL MEETING
A stockholder desiring to submit an otherwise eligible
proposal for inclusion in the Company's Proxy Statement for the 1998 annual
meeting of stockholders of the Company must deliver the proposal so that it is
received by the Company no later than August 29, 1997. The Company requests
that all such proposals be addressed to Susan Thomas Whittle, Vice President,
General Counsel and Secretary, Living Centers of America, Inc., 15415 Katy
Freeway, Suite 800, Houston, Texas 77094, and mailed by certified mail, return
receipt requested. In addition, the Company's By-Laws require that notice of
stockholder nominations for directors and related information be received by
the Secretary of the Company not less than 30 nor more than 60 days before the
annual meeting of stockholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP audited the financial statements of the
Company for the years ended September 30, 1996 and 1995. The accountant's
reports on the financial statements for the two fiscal years ended September
30, 1996 did not contain an adverse opinion or a disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope or accounting
principles. In connection with the audits of the Company's financial
statements for each of the two fiscal years ended September 30, 1996, there
were no disagreements with Ernst & Young LLP on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope and
procedures which disagreements, if not resolved to the satisfaction of Ernst &
Young LLP, would have caused Ernst & Young LLP to make reference to the subject
matter of the disagreement in their report. A partner of Ernst & Young LLP
will attend the Annual Meeting and will have an opportunity to make a statement
if he desires and will be available to respond to appropriate questions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the federal securities laws, the Company's directors and
executive officers, and any persons holding more than 10% of the Common Stock
outstanding, are required to report their initial ownership of Common Stock and
any subsequent changes in that ownership to the Securities and Exchange
Commission and the New York Stock Exchange. Specific due dates for these
reports have been established and the Company is required to disclose in this
Proxy Statement any failure to file by these dates during the Company's most
recent fiscal year. To the Company's knowledge, all of these filing
requirements were satisfied. In making these disclosures, the Company has
13
<PAGE> 17
relied solely on its review of copies of the reports that have submitted to the
Company with respect to its most recent fiscal year.
REPORTS TO STOCKHOLDERS
The Company has mailed this Proxy Statement and a copy of its
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 fiscal year ended September 30, 1996. The 1996 Annual Report is not a part
of the proxy solicitation material.
A copy of the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1996, including the financial statements and
the financial statement schedules, as filed with the Securities and Exchange
Commission is included in the enclosed 1996 Annual Report. Supplemental copies
of the Company's Annual Report on Form 10-K may be obtained by stockholders
without charge by sending a written request to Susan Thomas Whittle, Vice
President, General Counsel and Secretary, Living Centers of America, Inc.,
15415 Katy Freeway, Suite 800, Houston, Texas 77094.
By Order of the Board of Directors,
/s/ SUSAN THOMAS WHITTLE
Susan Thomas Whittle
Secretary
Houston, Texas
December 27, 1996
14
<PAGE> 18
PROXY
LIVING CENTERS OF AMERICA, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD FEBRUARY 6, 1997
The undersigned holder of Common Stock of Living Centers of America,
Inc. (The "Company") hereby appoints Edward L. Kuntz and Susan Thomas Whittle,
jointly and severally, his or her proxies, with full power of substitution and
resubstitution and with discretionary authority, to represent and to vote, in
accordance with the instructions set forth on both sides of this proxy card,
all shares of Common Stock which the undersigned is entitled to vote at the
Annual Meeting of Stockholders of the Company to be held on February 6, 1997 at
10:00 a.m., Houston time, at the Holiday Inn Select, 14703 Park Row, Houston,
Texas, and at any adjournment thereof
(CONTINUED AND TO BE SIGNED AND DATED ON OTHER SIDE)
* FOLD AND DETACH HERE *
<PAGE> 19
PLEASE MARK [X]
YOUR VOTE AS
INDICATED IN
THIS EXAMPLE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL THE PROPOSALS.
1. Reelection of directors-Nominees are Anthony M. Frank and Leroy D. Williams.
FOR all WITHHOLD authority
nominees to vote for the
listed above foregoing nominees
[ ] [ ]
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, DRAW A
LINE THROUGH OR STRIKE OUT THAT NOMINEE'S NAME AS SET FORTH ABOVE.
2. To consider and take action, in accordance with their best judgement, any
other matter that may properly come before the meeting or any adjournment
thereof.
The foregoing proposals are more particularly described in the Proxy
Statement dated December 27, 1996 relating to such meeting, receipt of
which is hereby acknowledged.
This proxy will be voted in the manner directed herein by the
undersigned stockholder. If no direction is made, the Proxy will be
voted FOR the nominee listed in Proposal 1.
Please sign exactly as name appears hereon. When shares are held by
joint tenants, both should sign. When signing as attorney, as
executor, administrator, trustee or guardian, please give full title
as such. If a corporation, please sign in full corporate name by
President or other authorized officer. If a partnership, please sign
in partnership name by authorized person.
Dated:___________________________, 199__
________________________________________
Signature
________________________________________
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE
* FOLD AND DETACH HERE *
