-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JGGNduw9XnxiIHfvsXB/fwH22d4WkVsWGAJ9FpYtvUxvABNafKsLWsPOXWmOJ4Wg o8U9GIec1HrBrhyH/s+gMw== 0000950150-98-000027.txt : 19980112 0000950150-98-000027.hdr.sgml : 19980112 ACCESSION NUMBER: 0000950150-98-000027 CONFORMED SUBMISSION TYPE: DEFR14A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19980109 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUMMIT CARE CORP CENTRAL INDEX KEY: 0000875192 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 953656297 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: DEFR14A SEC ACT: SEC FILE NUMBER: 000-19411 FILM NUMBER: 98503570 BUSINESS ADDRESS: STREET 1: 2600 W MAGNOLIA BLVD CITY: BURBANK STATE: CA ZIP: 91505-3031 BUSINESS PHONE: 8189724035 MAIL ADDRESS: STREET 1: 2600 W MAGNOLIA BLVD CITY: BURBANK STATE: CA ZIP: 91505-3031 DEFR14A 1 REVISED DEFINITIVE PROXY FOR SUMMIT CARE CORP. 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) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the 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)(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 previously paid. 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: --------------------------------------------------------------------- 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 January 12, 1998 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 12, 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 December 15, 1997, the outstanding shares of the Company entitled to vote consisted of 6,812,500 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. 4 The following table gives certain information as to each person nominated for election as a director:
NAME AGE DIRECTOR SINCE ----------------------------------------- --- -------------- William C. Scott......................... 60 1986 Donald J. Amaral......................... 45 1991 William J. Casey......................... 52 1993
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.
NAME AGE DIRECTOR SINCE ----------------------------------------- --- -------------- John A. Brende........................... 50 1993 Gary L. Massimino........................ 61 1995
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. 2 5 SHAREHOLDINGS The following table sets forth certain information as to the shares of Common Stock of the Company owned as of January 5, 1998, 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.
NAME OF BENEFICIAL OWNER NUMBER OF PERCENT OF OR IDENTITY OF GROUP(1) SHARES CLASS ------------------------------------------------------- --------- ---------- J.P. Morgan & Co., Incorporated(2)..................... 1,218,900 17.9 60 Wall Street New York, NY 10260 Franklin Resources, Inc.(3)............................ 1,050,800 15.4 777 Mariners Island Blvd. San Mateo, CA 94403 Baron Capital Group, Inc.(4)........................... 714,925 10.5 BAMCO, Inc. Baron Capital Management, Inc. Baron Capital, Inc. 767 Fifth Avenue, 24th Floor New York, NY 10153 William C. Scott(5).................................... 171,000 2.5 David G. Schumacher, Jr.(5)............................ 23,000 * Derwin L. Williams(5).................................. 36,500 * Michael H. Martel(5)................................... 21,000 * Donald J. Amaral(5).................................... 7,500 * John A. Brende(5)...................................... 9,500 * William J. Casey(5).................................... 10,500 * Gary L. Massimino...................................... 7,000 * All directors and executive officers as a group(5)..... 286,000 4.2
- --------------- * 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 Franklin Resources, Inc. ("Franklin") with the Commission on December 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. (4) Based on an amendment to a report on Schedule 13G filed by Baron Capital Group, Inc. ("Baron") with the Commission on July 9, 1997. Baron or its subsidiaries have sole power to vote and 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 10,000 shares are attributable to each of Messrs. Scott and Schumacher, 4,000 shares are attributable to Mr. Williams, 5,000 shares are attributable to Mr. Martel, 1,000 shares are attributable to each of Messrs. Amaral, Brende and Casey, and 32,000 shares are attributable to all directors and executive officers as a group. 3 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:
ANNUAL COMPENSATION LONG-TERM FISCAL ------------------- COMPENSATION ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTION AWARDS COMPENSATION - ------------------------------------------- ------ -------- -------- ------------- ------------ William C. Scott........................... 1997 $394,773 $ -- -- $ -- Chairman and Chief Executive Officer 1996 369,869 150,000 165,000 -- 1995 344,869 162,500 50,000 -- David G. Schumacher, Jr.(1)................ 1997 215,404 -- 15,000 -- President and Chief Operating Officer 1996 102,154 -- 50,000 -- 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 --
4 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
% 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) - ------------------------------- ------- -------------- ------------ ---------- --------- David G. Schumacher, Jr........ 15,000 13.4% $13.75 12/12/06 $103,800 Michael H. Martel.............. 10,000 8.9% 13.75 12/12/06 69,200 John L. Farber................. 10,000 8.9% 12.00 06/04/07 60,400
- --------------- (1) The options become exercisable in installments of 20% on each anniversary of the date of grant in the event that the Company attains specified earnings per share targets for the fiscal year preceding the date of vesting. Under the terms of the Company's Stock Option Plan, the Stock Option Committee retains discretion, subject to Plan limits, to modify the terms of outstanding options and to reprice the options. (2) The Company granted options representing a total of 112,000 shares in fiscal 1997. (3) The exercise price on the date of grant was equal to 100% of the fair market value of the underlying Common Stock on the date of grant. (4) As suggested by the Securities and Exchange Commission's new rules on executive compensation disclosure, the Company uses the Black-Scholes model of option valuation to determine grant date present value. The Company does not advocate or necessarily agree that the Black-Scholes model can properly determine the value of the option. The present value calculation for each of the Named Executive Officers is based on a ten year option term and assumes an interest rate of 6.4%, a dividend yield of 0% and volatility of 48.4%. 5 8 OPTION EXERCISES AND FISCAL YEAR END VALUES The following table provides certain information concerning the exercise of stock options by the Named Executive Officers in fiscal 1997 and shows the number of shares covered by both exercisable and nonexercisable stock options held as of the end of fiscal 1997. Also shown are the values for "in-the-money" options, which represent the positive difference between the exercise price of such options and the fiscal year end price of the Common Stock of the Company:
VALUE OF NUMBER OF UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS SHARES FY-END (#) AT FY-END ($) ACQUIRED ON ---------------- --------------- EXERCISE VALUE EXERCISABLE/ EXERCISABLE/ NAME (#) REALIZED UNEXERCISABLE UNEXERCISABLE - ----------------------------------- ----------- -------- ---------------- --------------- 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
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 6 9 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. 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
MEASUREMENT PERIOD (FISCAL YEAR COVERED) SUMMIT CARE NASDAQ U.S. NASDAQ HEALTH 1992 100 100 100 1993 203 126 115 1994 228 127 131 1995 231 169 143 1996 275 218 218 1997 169 265 201
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. 7 10 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. 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. 8 11 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. 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 9 12 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. 10 13 REVOCABLE PROXY SUMMIT CARE CORPORATION 2600 MAGNOLIA BOULEVARD BURBANK, CALIFORNIA 91505-3031 FOR ANNUAL MEETING OF SHAREHOLDERS JANUARY 29, 1998 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, January 29, 1998, 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 14 (Continued from reverse side) Please mark your votes as indicated in [X] 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 FOR DIRECTOR: Donald J. Amaral William J. Casey William C. Scott 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: _____________, 1998 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 -----END PRIVACY-ENHANCED MESSAGE-----