<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 / /
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / 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 sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
NextHealth, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ No fee required
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
NEXTHEALTH, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 22, 1997
---------------------
Notice is hereby given that the Annual Meeting of Stockholders of
NextHealth, Inc., a Delaware corporation (the "Company") will be held at 10:00
a.m. Central Time at the Hyatt Regency O'Hare, 9300 W. Bryn Mawr, Rosemont,
Illinois on May 22, 1997 for the following purposes:
1. Election of Directors. To elect two directors to hold office
for terms of three years each and until their successors have
been elected and qualified.
2. Appointment of Independent Auditors. To act upon the
recommendation of the Board of Directors on the appointment of
Ernst & Young LLP as the Company's independent auditors for
1997.
3. Other Matters. To act upon such other matters as may properly
come before the meeting or any postponements or adjournments
thereof.
Holders of Common and Series A Preferred Stock of record at the close
of business on April 24, 1997 shall be entitled to notice of and to vote at the
meeting or any postponements or adjournments thereof. Only stockholders of
record and guests of the Company shall be entitled to attend the Annual Meeting.
By Order of the Board of Directors,
/s/ Bertha B. Kenny
-------------------
Bertha B. Kenny
Secretary
April 28, 1997
Tucson, Arizona
PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE
ENCLOSED PROXY CARD IN THE POSTAGE PREPAID,
ENCLOSED ENVELOPE. IF YOU ATTEND THE ANNUAL MEETING,
YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY CARD.
1
<PAGE> 3
NEXTHEALTH, INC.
16600 N. Lago Del Oro Parkway
Tucson, Arizona 85739
April 28, 1997
-------------------
PROXY STATEMENT
-------------------
ANNUAL MEETING OF STOCKHOLDERS
MAY 22, 1997
This Proxy Statement is furnished in connection with the solicitation
of proxies on behalf of the Board of Directors of NextHealth, Inc., a Delaware
corporation (the "Company"), for use at the Annual Meeting of Stockholders (the
"Annual Meeting") to be held at 10:00 a.m., Central Time at the Hyatt Regency
O'Hare, 9300 W. Bryn Mawr, Rosemont, Illinois on May 22, 1997 or at any and all
postponements or adjournments thereof, for the purposes set forth in the
accompanying Notice of Meeting.
This Proxy Statement, the Notice of Meeting and the accompanying Proxy
Card are first being mailed to stockholders on or about April 28, 1997. The
Annual Report to Stockholders (including financial statements for the year ended
December 31, 1996) which is not part of this proxy solicitation material, is
being mailed simultaneously to all stockholders of record.
GENERAL INFORMATION
Only stockholders of record at the close of business April 24, 1997,
(the "Record Date"), will be entitled to notice of and to vote the shares of
common stock of the Company, par value $.01 per share ("Common Stock") or
Convertible Preferred Stock, Series A, par value $.01 per share ("Series A
Preferred Stock"), held by them on such date at the Annual Meeting or any and
all postponements or adjournments thereof. On the Record Date, 8,554,938 shares
of Common Stock and 46,065 shares of Series A Preferred Stock were outstanding
and entitled to vote at the Annual Meeting.
Each share of Common Stock entitles the holder thereof to cast one (1)
vote and each share of Series A Preferred Stock entitles the holder to cast
one-hundred (100) votes on the matters to be voted upon at the Annual Meeting.
If the accompanying proxy card is properly signed and returned to the
Company and not revoked, it will be voted in accordance with the instructions
contained therein. Unless contrary instructions are given, the persons
designated as proxy holders in the accompanying proxy card will vote for the
election as directors of the nominees listed herein; for the appointment of
Ernst & Young LLP as the Company's independent auditors for 1997; and, as
recommended by the Board of Directors with regard to all other matters or if no
such recommendation is given, in their own discretion.
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<PAGE> 4
The tabulation of proxies and the votes cast at the meeting will be
conducted and certified to by an independent inspector of elections.
Each proxy granted may be revoked by the stockholder giving such proxy
at any time before it is exercised by filing with the Secretary of the Company a
revoking instrument or a duly executed proxy bearing a later date. The powers of
the proxy holders will be suspended if the person executing the proxy attends
the Annual Meeting in person and so requests in writing. Attendance at the
Annual Meeting will not, in itself, constitute revocation of the proxy.
The presence at the Annual Meeting, in person or by Proxy, of a
majority of the shares of Common Stock (including shares of Common Stock
represented by the Series A Preferred Stock on an "as converted" basis)
outstanding on the Record Date, will constitute a quorum for the conduct of
business.
ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of five
persons elected by the holders of Common Stock ("Common Directors") and four
persons elected by the holders of the Series A Preferred Stock ("Preferred
Directors"). The Common Directors serve staggered three-year terms in such a way
that approximately one-third of the total number of directors is elected each
year. The terms of office of two Common Directors expire at the Annual Meeting.
The Board of Directors has nominated Joseph R. Cruse, M.D., and Neil E. Jenkins,
Esq., for re-election as Common Directors for terms of three years and until
their respective successors are duly elected and qualified.
It is the intention of the persons named as proxies to vote the proxies
for the election of Dr. Cruse and Mr. Jenkins as Common Directors unless the
stockholders direct otherwise in their proxies. The Board has no reason to
believe that either Dr. Cruse or Mr. Jenkins will not serve if elected, but if
either should become unavailable to serve as a director, and if the Board shall
designate a substitute nominee, the persons named as proxies intend to vote for
the substitute nominee designated by the Board of Directors.
The following information is submitted concerning the nominees for
Common Director and the Common and Preferred Directors continuing in office:
NOMINEES:
JOSEPH R. CRUSE, M.D.
Director Since: 1991
Age: 67
Dr. Cruse is currently a consultant in addiction medicine. From 1988 to
1992, he was the Clinical Director of ONSITE Training and Consulting,
Inc. He also maintained a private
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<PAGE> 5
consulting practice in the treatment of alcoholism and other drug
dependencies. He is a certified addictionologist. From 1985 to 1988,
Dr. Cruse was the Medical Director of the R.J. CARON Foundation. He was
also the founding Medical Director of The Betty Ford Center. Dr. Cruse
is the author and co-author of numerous books regarding addictions and
dependencies. He received his Doctor of Medicine degree in 1957 from
the University of Colorado and his Bachelor of Science and Master of
Science degrees from the University of Denver in 1952 and 1953,
respectively.
NEIL E. JENKINS, ESQ.
Director Since: 1994
Age: 47
Mr. Jenkins is a golf tour and travel consultant. From 1993 to 1996,
Mr. Jenkins was Executive Vice President and Secretary and a member of
the Board of Bally Gaming International, Inc. Mr. Jenkins served as
Vice President, Secretary and General Counsel of Bally Manufacturing
Corporation from 1985 through 1992. Mr. Jenkins graduated from Brown
University and the Loyola University School of Law in 1971 and 1980,
respectively. Mr. Jenkins was appointed to the Board of the Company in
December, 1994 to conclude the unfinished directorship term of Mr. A.
Steven Crown, who resigned.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION
OF DR. CRUSE AND MR. JENKINS AS DIRECTORS.
DIRECTORS CONTINUING IN OFFICE:
(TERMS EXPIRING AT 1998 ANNUAL MEETING OF STOCKHOLDERS)
WILLIAM T. O'DONNELL, JR.
Director Since: 1984
Age: 48
Mr. O'Donnell is the Chairman of the Board and Chief Executive Officer
of the Company. He has been the Chairman of the Board since 1984 and
was, until year end 1994, also the Company's Chief Executive Officer.
He became Chief Executive Officer again in November, 1996 following the
resignation of John H. Schmitz. From February 1984 until February 1993,
Mr. O'Donnell held and he currently holds the title of President. Mr.
O'Donnell is the Managing Director of ODE, LLC, of Chicago, Illinois an
investment and development company. Previously, Mr. O'Donnell was
employed by Bally Manufacturing Corporation from 1971 to 1983 in
various marketing and corporate positions. He served as President of
two major divisions and was a corporate Vice President of Bally. Mr.
O'Donnell is a member of the Committee to Advance the Center for
Alcohol and Addiction Studies at Brown University. He also serves on
the National Board of Directors of Boy's Hope. Mr. O'Donnell received
his Bachelor of Arts degree from Brown University in 1971 and a Master
of
4
<PAGE> 6
Management degree from the Kellogg Graduate School of Management at
Northwestern University in 1978.
STEPHEN L. BERGER, ESQ.
Director Since: 1996
Age: 52
Mr. Berger became a director in November, 1996 to fill the vacancy
created by the resignation and remaining term of John H. Schmitz. He is
a partner with the Chicago law firm of Neal, Gerber & Eisenberg. From
1985 to 1989, Mr. Berger was a Senior Vice President in the hotel group
at VMS Realty Partners, a Chicago investment firm. During such time, he
was actively engaged in the acquisition and operation of 10 hotel and
resort properties. Mr. Berger specializes in real estate matters and,
in particular, hotels and resorts. Prior to 1985, Mr. Berger was a
partner in the Chicago law firm of Friedman & Koven in the real estate
practice area. Mr. Berger received a B.A. in history from the
University of Illinois and a JD from Chicago Kent College of Law.
(TERMS EXPIRING AT 1999 ANNUAL MEETING OF STOCKHOLDERS)
GEORGE L. RUFF
Director Since: 1996
Age: 48
Mr. Ruff is currently Chairman and Chief Executive Officer of Fall
Creek Partners, Inc., of Chicago, Illinois, a company founded by him in
1993 providing investment advisory and asset management services to the
hospitality industry. Prior to 1993, Mr. Ruff's investment activities
included the acquisition and reorganization of Amtrade International
Bank, a former subsidiary of First American Bank. Amtrade, of which Mr.
Ruff is co-chairman, specializes in trade finance with a concentration
in Central and South America. During the period from 1990-1992, Mr.
Ruff was a Partner and Executive Vice President-Real Estate for the
Ritz Carlton Hotel Company, during which time he was responsible for
determining and implementing Ritz's national and international
expansion strategy. During his tenure, Ritz grew from 14 to 25 hotels.
In 1987, Mr. Ruff co-founded Ruff, Callaghan & Hemmeter Company, a
Chicago based partnership formed to acquire, develop, finance,
renovate, asset manage and dispose of major hotel properties in the
United States and abroad. In 1983, Mr. Ruff co-founded the VMS Hotel
Division, an autonomous partnership within VMS which acquired some 54
hotels and resorts prior to his founding Ruff, Callaghan & Hemmeter in
1987. Prior to 1983, Mr. Ruff had been Executive Vice President of and
Director of Operations for Seymour N. Logan Associates, Inc., a
position which he advanced to during his 10 years with the firm. Mr.
Ruff is a cum laude graduate of DePaul University, and is a Certified
Public Accountant.
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<PAGE> 7
PREFERRED DIRECTORS
The holders of Series A Preferred Stock, as a class, are entitled to
elect four directors to the Company's Board of Directors who serve at the will
of the holder of Series A Preferred Stock. The Series A Preferred Stock is
currently held by an affiliate of Apollo Real Estate Advisors ("Apollo").
The following are the Preferred Directors of the Company:
LEE S. NEIBART
Director Since: 1996
Age: 46
Mr. Neibart has been employed by Apollo since 1993 and a partner since
1994. Apollo acts as managing general partner of The Apollo Real Estate
Investment Funds ("Apollo Investment"), two private investment funds
with investment parameters ranging from direct and indirect real
property interests, to public and private debt securities and bank and
mortgage debt and to public and private equity investments. Prior to
1993, Mr. Neibart was Executive Vice President and Chief Operating
Officer of the Robert Martin Company, a private real estate
development/management firm based in Westchester County, New York. Mr.
Neibart is a director of Roland International, Inc., and Koger Equity,
Inc. Mr. Neibart holds a BA in Real Estate from the University of
Wisconsin and an MBA from New York University. He is also the past
President of the New York Chapter of the NAIOP.
W. EDWARD SCHEETZ
Director Since: 1996
Age: 32
Mr. Scheetz has been a partner of Apollo since 1993 and has directed
the investment activities for The Apollo Real Estate Investment Funds
since that time. Prior to 1993, Mr. Scheetz was a principal of Trammell
Crow Ventures, a national real estate firm. Mr. Scheetz is a director
of Koger Equity, Inc., Koll Management Services, Inc., Capital
Apartment Properties, Inc., Roland International, Inc., Allright Corp.,
and Western Pacific Housing, Inc. Mr. Scheetz holds an A.B. in
Economics, Magna Cum Laude, from Princeton University.
BRUCE SPECTOR
Director Since: 1996
Age: 54
Since 1995, Mr. Spector has been a partner of the Apollo organization,
a group of entities which direct the investment activities of the
Apollo Real Estate Investment Funds and the Apollo Investment Funds
which are engaged in corporate investment activities. From 1993 to
1995, Mr. Spector served as a senior consultant to the Apollo
Investment and Real Estate Investment Funds. Prior to 1993, Mr. Spector
was a member of the law firm of Stutman, Treister and Glatt, spending a
substantial amount of that time as a senior partner and head of
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<PAGE> 8
the firm's executive committee. Mr. Spector has specialized in
restructurings, insolvency reorganizations and related bankruptcy
matters, serving as lead debtor counsel in a number of major
reorganizations including the Wickes Companies and Storage Technology,
Inc. Mr. Spector is a director of United International Holdings, Inc.,
Telemundo Group, Inc., Vail Associates, Inc and Metropolis Real Estate
Investment Trust. Mr. Spector holds a BA in Economics, Phi Beta Kappa,
from the University of Southern California and a JD from the UCLA
School of Law.
ALFRED C. TRIVILINO
Director Since: 1996
Age: 33
Mr. Trivilino has been associated with Apollo since 1995, most recently
in the acquisitions group and prior to that as a Vice President of
Winthrop Financial Associates, L.P., a Boston based real estate
investor, property manager and owner. Prior to 1995, Mr. Trivilino
specialized in mergers and acquisitions at Victor Capital Group, a New
York based real estate merchant banking firm. From 1988 to 1993, Mr.
Trivilino was Manager of Treasury Services at Pearson, Inc., the U.S.
holding company for Pearson plc, a major multi-national British
company. Mr. Trivilino began his career at Lazard Freres & Co., a New
York based investment bank. Mr. Trivilino holds a BS in Finance from
St. Johns University and has completed graduate level coursework at
Fordham University.
COMPENSATION OF DIRECTORS
Directors (Common and Preferred) who are not employees of the Company
("Outside Directors"), other than the Chairman, each receive a fee of $12,500
per year and $1,000 per meeting (Board or Committee) day attended, plus
reimbursement of reasonable expenses. The Chairman of the Board receives a fee
of $20,000 per year. The Preferred Directors received a pro-rata portion of the
annual director's fee based upon their length of service in 1996. In addition, a
Non-Employee Director Stock Option Plan (the "Plan") provides for the automatic
granting of options to acquire shares of the Company's Common Stock to Outside
Directors. The Company has reserved 300,000 shares of Common Stock for this
purpose. In 1996, each Outside Director received, pursuant to this Plan an
option to purchase 7,500 shares of Common Stock for his service on the Board of
Directors plus an additional grant of options totaling 1,000 multiplied by the
number of "Applicable Committees" of which such Outside Director is the
Chairman. The Applicable Committees for purposes of the Plan in 1996 were the
Company's Executive, Audit and Compensation Committees.
Each Outside Director receives options to purchase a like sum of shares
of Common Stock on the first business day of each fiscal year of the Company. In
addition, upon an Outside Director's initial election to the Board of Directors,
such Outside Director receives the grant of an option to purchase 10,000 shares
of Common Stock. All options granted pursuant to the Plan are fully vested at
the time of grant and expire one-year after a Director leaves office.
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<PAGE> 9
Directors who are also full-time employees of the Company receive no
additional compensation for their services as Directors.
DIRECTORS' ATTENDANCE
In 1996, the Board of Directors of the Company met twelve (12) times.
There were four (4) regular meetings and eight (8) special meetings. No current
member of the Board failed to attend or was unexcused from any meetings of the
Board or of any Committee on which such member served.
COMMITTEES OF THE BOARD
The standing committees of the Board of Directors consist of the
following:
Executive Committee. The Executive Committee is currently comprised of
Messrs. O'Donnell (Chairman), Jenkins, Neibart and Trivilino. The Executive
Committee did not meet in 1996. The Executive Committee possesses all of the
powers of the Board except the power to: (1) issue stock; (2) approve mergers
with non-affiliated corporations; (3) declare dividends; and (4) exercise
certain other powers specifically reserved by Delaware law to the Board.
Compensation Committee. The Compensation Committee is currently
comprised of Messrs. Jenkins (Chairman), O'Donnell, and Spector. It met three
(3) times during 1996. The functions and duties of the Compensation Committee
include the establishment of compensation plans, guidelines and performance
criteria for the executive officers of the company who include the Chief
Executive Officer ("CEO") and those executive officers who report directly to
the CEO. In February 1996, the Compensation Committee assumed the overall
responsibility and authority previously held by the Stock Option Committee which
administered the Company's 1990 and 1992 Employee Stock Option Plans.
Audit Committee. The Audit Committee is currently comprised of Messrs.
Ruff (Chairman), Trivilino and Berger. It met one (1) time in 1996. The
functions of the Audit Committee are to select and recommend to the Board of
Directors a firm of independent certified public accountants to audit annually
the financial statements of the Company; to review and discuss the scope of such
audit; to receive and review the audit reports and recommendations; to transmit
recommendations, if any, of the Audit Committee to the Board of Directors; to
review, from time to time, the accounting and internal control procedures of the
Company and make recommendations to the Board of Directors for any changes
deemed necessary in such procedures; and to perform such other functions as the
Board of Directors from time to time shall delegate to that Committee.
Nominating Committee. The Nominating Committee is currently comprised
of Messrs. O'Donnell (Chairman) Spector and Jenkins. The functions of the
Nominating Committee are to screen, select and recommend appropriate candidates
for election to the Company's Board of Directors. It met twice in 1996. The
Nominating Committee will consider nominees recommended by stockholders of the
Company if the names and qualifications of such nominees are submitted in
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<PAGE> 10
writing by November 30, 1997 to the Secretary of the Company, 16600 N. Lago Del
Oro Parkway, Tucson, Arizona 85739, who will then forward the recommendation to
the Chairman of the Nominating Committee.
OFFICERS AND PRINCIPAL EXECUTIVES OF THE REGISTRANT
Listed below are the names and ages as of the Record Date of each of
the officers and principal executives of the Company together with the principal
positions and offices with the Company (or its subsidiaries) held by each:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
William T. O'Donnell, Jr. 48 President, Chief Executive Officer, Director*
Livingston Platt 49 Executive Vice President, Marketing/Strategic Planning
Loree Thompson 33 Chief Financial Officer
Robert Schrader 44 General Manager, Miraval
Terry A. Stephens 41 Senior Managing Director, Sierra Tucson
Bertha Kenny 48 Secretary
</TABLE>
* Mr. O'Donnell is serving as the Company's Chief Executive Officer pursuant to
a Consulting Agreement with ODE, LLC, an Illinois limited liability company
controlled by Mr. O'Donnell. (See "Employment Agreements").
William T. O'Donnell, Jr. See Directors' biographical material on Page
4.
Livingston Platt. Mr. Platt, Executive Vice President of
Marketing/Strategic Planning, joined the Company in January 1996. Prior to
joining the Company, Mr. Platt was Executive Vice President, Creative Director,
at The Martin Agency, Inc., a division of Interpublic. Previously, he was
President of National Direct Marketing Corporation, Executive Creative Director
for Wunderman Worldwide, and Senior Vice President at Eastern Exclusives, Inc.
His career includes extensive experience in strategic planning and development,
advertising and marketing. Mr. Platt received a Bachelors degree from
Northwestern University in 1969.
Loree Thompson. Ms. Thompson has been the Chief Financial Officer of
the Company since November 1996. She joined the Company in October 1992 and has
held various positions including Controller and Director of MIS. Prior to
joining the Company she was employed by Community Care Network in various
financial and systems management roles. Previously, Ms. Thompson worked for
Ernst & Young in Phoenix, Arizona. Ms. Thompson is a Certified Public Accountant
and received her Bachelor of Science degree as a Cum Laude graduate in
Accounting and Management Information Systems in 1987 from the University of
Arizona.
Robert Schrader. Mr. Schrader joined Miraval in September 1996 as its
General Manager. His extensive background in the hotel industry, spanning
twenty-two years, includes his having worked for both the Ritz-Carlton and the
Four Seasons hotels. He also has a background in
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<PAGE> 11
organizational development and strategic planning. Mr. Schrader received a
Bachelor's Degree in marketing from Southern Illinois University in 1975.
Terry A. Stephens. Mr. Stephens has been the Senior Managing Director
of Sierra Tucson since May 1995. Prior to joining the Company, Mr. Stephens was
the Chief Executive Officer of CPC St. John's River Hospital, a psychiatric
hospital in Jacksonville, Florida. From 1990 to 1994, Mr. Stephens was Chief
Executive Officer at Charter Retreat, Decatur, Alabama and Charter by the Sea,
St. Simons Island, Georgia. Previously, Mr. Stephens worked in various director
and administrative positions at The Psychiatric Institute of Richmond, Richmond,
Virginia. Mr. Stephens received his Master of Business Administration degree
from Virginia Commonwealth University, Richmond, Virginia, in 1989, and his
Bachelor of Arts degree from Marshall University, Huntington, West Virginia.
Bertha Kenny. Ms. Kenny has been the Corporate Secretary of the Company
since May, 1996. In addition to her Corporate Secretary duties, Ms. Kenny also
serves as Director of Administration. She joined the Company in December, 1990
and has held various positions including Assistant to the President. From 1989
to 1990, Ms. Kenny was part of the start-up team for the Greater Tucson Economic
Council. Prior to that, from 1983 to 1989, she worked as an Administration
Analyst for the IBM Corporation in Tucson. She attended Pima Community College
and Northern Arizona University.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual and
long term compensation for services rendered in all capacities to the Company
during the three fiscal years ended December 31, 1996 of (i) those persons
serving as the Chief Executive Officer during 1996, (ii) the four other most
highly compensated Executive Officers of the Company and (iii) the two
individuals whose total compensation exceeded $100,000 who were not serving as
Executive Officers at the end of 1996 (collectively, the "Named Executive
Officers"):
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<PAGE> 12
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------
------------------- SECURITIES
ALL OTHER UNDERLYING
ANNUAL OPTION ALL OTHER
FISCAL SALARY BONUS COMPENSATION(1) AWARDS COMPENSATION(2)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- --------------------------- ---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
William T. O'Donnell, Jr., 1996 -0- -0- -0- 8,500 -0-
President & Chief 1995 -0- -0- -0- 83,500 -0-
Executive Officer(3) 1994 160,417 -0- -0- -0- 2,411
John H. Schmitz, 1996 257,827 -0- -0- -0- 308,613
former President & Chief 1995 247,515 -0- -0- 100,000 8,652
Executive Officer(3) 1994 220,000 -0- -0- 100,000 4,993
Terry A. Stephens, 1996 136,395 -0- -0- 50,000 4,829
Senior Managing Director 1995 69,850 5,000 -0- 25,000 35,752
Sierra Tucson(4)
Livingston Platt, 1996 213,042 18,750 -0- 100,000 66,121
Executive Vice President of
Marketing/Strategic Planning(5)
Sigi Brauer, 1996 141,022 37,500 -0- 50,000 -0-
Former President of the
Miraval Resort Group(6)
Wayne Morrison, 1996 151,696 -0- -0- -0- 20,325
former Vice President, Chief 1995 18,247 -0- -0- 50,000 10,417
Financial Officer, Treasurer(7)
Kenneth J. Whitaker, 1996 88,761 15,000 -0- 40,000 34,243(8)
former Vice President(8) 1995 105,000 15,000 -0- 29,500 4,222
1994 103,958 25,000 -0- 28,000 1,554
</TABLE>
(1) This column includes information relating to other annual compensation
not included under the columns labeled "Salary" and "Bonus" to the
extent that it exceeds $50,000 or 10% of the sum of such columns.
(2) In 1996 the Company paid annual premiums of $2,376 and $494, on term
life insurance policies for Messrs. Schmitz and Stephens and paid
contributions of $4,583 and $4,235 to the Company's 401(k) plan on
behalf of Messrs. Schmitz and Stephens. This column also includes
medical reimbursements of $1,654 for Mr. Schmitz. Mr. Schmitz will be
paid a $300,000 severance fee in 1997 pursuant to the term of his
Separation Agreement and Mutual Release with the Company.
(3) Mr. Schmitz resigned as the Chief Executive Officer of the Company
effective November 15, 1996. Mr. O'Donnell became the Chief Executive
Officer pursuant to a Consulting Agreement between the Company and ODE,
LLC, an Illinois limited liability company controlled by Mr. O'Donnell.
Mr. O'Donnell had been the Chief Executive Officer of the Company from
the formation of the Company until January 1, 1995.
(4) Mr. Stephens has been the Senior Managing Director of Sierra Tucson
since May 1995.
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<PAGE> 13
(5) Mr. Platt became the Company's Executive Vice President of
Marketing/Strategic Planning in January 1996. He received $66,121 in
relocation expense in 1996.
(6) Mr. Brauer became President of the Miraval Resort Group on April 16,
1996. He resigned that position as of December 31, 1996 and is
currently a consultant to the Company.
(7) Mr. Morrison resigned as Chief Financial Officer in August, 1996. He
received $20,325 in relocation expense.
(8) Mr. Whitaker resigned as a full-time employee and became a consultant
to the Company in October, 1996. He received the equivalent of eight
months base salary as a severance payment. He received a $4,040
contribution to the Company's 401(k) plan in 1996 and $3,952 in 1995.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants in fiscal
1996 to the Named Executive Officers.
<TABLE>
<CAPTION>
Individual Potential Realizable
Grants Value at Assumed
Percentage of Present Annual Rates of Stock
Total Options Exercise Price Appreciation
Options Granted to Price Expiration for Option Term(6)
Name Granted Employees in ($/Share) Date
(#) Fiscal Year(5) 5% 10%
($) ($)
- ---------------------------- --------- -------------- --------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
William T. O'Donnell, Jr.(1) 8,500 -0-% $3.25 (1) $17,340 $ 44,030
John H. Schmitz(2) -0- -0- -0- -0- -0- -0-
Terry A. Stephens(3) 25,000 14 3.25 02/02/2006 51,000 129,500
25,000 4.88 02/02/2006 10,250 88,750
Livingston Platt(3) 33,334 28 3.00 01/19/2006 63,001 159,337
33,333 4.50 01/19/2006 13,000 109,332
33,333 5.25 01/19/2006 -0- 84,332
Sigi Brauer(3) 50,000 14 3.00 04/17/2006 94,500 239,000
Wayne Morrison(4) -0- -0- -0- -0- -0- -0-
Kenneth J. Whitaker 20,000 11.2 3.25 02/02/2006 40,800 103,600
20,000 4.88 02/02/2006 8,200 71,000
</TABLE>
(1) Mr. O'Donnell received options pursuant to the Company's non-employee
director Stock Option Plan. Under the terms of that plan, such options
are fully vested at the time of grant and expire one-year following the
date on which Mr. O'Donnell ceases to be a Director.
(2) Pursuant to the terms of the Separation Agreement and Mutual Release
between Mr. Schmitz and the Company, all existing options held by Mr.
Schmitz (300,000 shares) became fully vested and will expire on their
original expiration date.
(3) The options granted to Messrs. Stephens, Platt, and Brauer in 1996 vest
as follows: If employed by the Company at the time, one-fourth of the
options are exercisable after one year from the grant date of the
option, an additional one-fourth are exercisable after two years from
the grant date of the option, an additional one-fourth are exercisable
after three years from the grant date of option, and the balance
becomes exercisable four years after the grant date. In 1994, the
Compensation
12
<PAGE> 14
Committee adopted a policy that would result in the acceleration of the
options of all employees in the event of a change of control of the
Company.
(4) Mr. Morrison resigned as Chief Financial Officer in August, 1996.
(5) The Company granted options representing 359,500 shares to employees in
fiscal 1996.
(6) The assumed rates of appreciation in this table were set by the SEC and
are not intended to predict appreciation of the Company's common stock
prices. If the stock price does not increase above the exercise price,
the options will be valueless.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides information on the value of the named
executive officers' unexercised options at December 31, 1996. There were no
option exercises by such officers in 1996.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options In-the-Money Options
At Fiscal Year End (#)(1) At Fiscal Year End(2)
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William T. O'Donnell, Jr.(3) 35,750 56,250 -0- -0-
John H. Schmitz(4) 300,000 -0- -0- -0-
Terry A. Stephens 6,250 68,750 -0- -0-
Livingston Platt -0- 100,000 -0- -0-
Sigi Brauer -0- 50,000 -0- -0-
Wayne Morrison -0- -0- -0- -0-
Kenneth J. Whitaker 46,625 68,375 -0- -0-
</TABLE>
(1) The number reflects options accumulated since October 1989.
(2) Fiscal year ended December 31, 1996. The closing price of the Company's
Common stock on that day on the NASDAQ National Market System was
$2.687. At that price no unexercised options, whether exercisable or
unexercisable, were in-the-money.
(3) See footnote 1 on previous chart.
(4) See footnote 2 on previous chart.
EMPLOYMENT AND CONSULTING AGREEMENTS
On November 15, 1996 ("Effective Date"), the Company's former Chief
Executive Officer, John H. Schmitz resigned as an officer and director of the
Company and entered into a Separation Agreement and Mutual Release ("Separation
Agreement") with the Company. Pursuant to the Separation Agreement, Mr. Schmitz'
Employment Agreement with the Company was terminated and, in lieu of other
payments contemplated by Mr. Schmitz' Employment Agreement, the Company agreed
to pay a severance payment in the amount of $300,000; payable in installments
during 1997. In addition, Mr. Schmitz agreed to serve as a consultant to the
Company for the six month period following the Effective Date for a consulting
fee in the amount of $60,000 payable in monthly installments of $10,000 each
commencing one month from the Effective Date. On the Effective Date, the options
to purchase a total of 300,000 shares of Common Stock held by Mr. Schmitz vested
and became immediately exercisable and will expire ten years from the original
issue date thereof.
William T. O'Donnell, Jr., became the Company's Chief Executive Officer
on November 15, 1996. He is currently serving in that capacity on a part-time
basis pursuant to a Consulting Agreement between the Company and ODE, LLC, an
Illinois limited liability company controlled by
13
<PAGE> 15
Mr. O'Donnell. Mr. O'Donnell served without compensation from November 15, 1996
to December 31, 1996. Pursuant to the agreement with ODE, LLC, from January 1 to
April 30, 1997, ODE will have received $15,000 per month for Mr. O'Donnell's
services. Effective May 1, 1997, ODE will receive $1,000 per day plus expenses
for each service day not to exceed six per month. The Agreement is cancelable by
either party on thirty days prior written notice.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934 that might incorporate future filings, including this Proxy
Statement, in whole or in part, the following report and the Performance Graph
on Page 18 shall not be incorporated by reference into any such filings.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD
OF DIRECTORS OF NEXTHEALTH, INC.
Decisions relating to compensation of the Company's executive officers
are made by the Compensation Committee of the Board of Directors. The
Compensation Committee's executive compensation policies are designed to clearly
articulate and define the Board's philosophy with respect to executive
compensation (including the Named Executive Officers). The Board's objectives
are to provide direct linkage between the total compensation program and the
accomplishment of the Company's business strategies and Company performance.
Furthermore, the compensation program has been designed to enable the Company to
attract, retain, and reward executive officers who contribute to the long-term
success of the Company.
Since February, 1993, the composition of the Compensation Committee has
consisted entirely of Outside Directors. The Compensation Committee is empowered
to provide oversight, set compensation and help formulate and approve
compensation programs. In February, 1996, the Compensation Committee assumed
responsibility for the oversight and administration of the Company's 1990 and
1992 Stock Option Plans formerly administered by the Stock Option Committee.
DUTIES AND RESPONSIBILITIES
Historically, the specific responsibilities of the Compensation
Committee have included:
- The development and approval of compensation policies and guidelines
for the Company's executive officers. Executive officers include the Chief
Executive Officer and the other executive officers of the Company as that term
is described in the rules of the Securities and Exchange Commission.
- The formulation and approval of compensation plans for the executive
officers based upon a review of competitive industry practices and the
Compensation Committee's compensation philosophies and policies.
14
<PAGE> 16
- The review of the performance of the executive officers against
specified annual corporate and individual objectives and the making of any
annual base salary adjustments or annual or long-term incentive awards. Overall,
the intent is to have more significant emphasis on variable compensation
components and less on fixed cost components. The Committee believes this
philosophy and program structure are in the best interests of the stockholders.
COMPENSATION PHILOSOPHIES
The Compensation Committee has developed additional policies,
guidelines, and programs relating to executive compensation which have included
an alignment of the specific incentive components of compensation with
measurable indicators of Company financial and strategically oriented
performance indicators including earnings per share and gross revenues. Other
factors considered in making compensation decisions include individual
performance and position accountabilities. In establishing total executive
compensation, the Compensation Committee seeks to be competitive with other
companies in the Company's industry peer group. Historically, the Compensation
Committee has relied upon an independent compensation consulting firm to assist
it in analyzing peer-group compensation and in developing comprehensive,
performance-based policies and guidelines for use in structuring compensation
plans for the Company's executive officers. Base salaries are generally set at
the average of the peer group. The number of options granted to the executive
officers of the Company is generally determined on a basis comparable to other
publicly held companies in the health care industry; although the Company does
not adhere to any firmly established formula or schedule for the issuance of
options.
COMPONENTS OF COMPENSATION
The Company's executive compensation program generally consists of
three components: base salary, an annual incentive (bonus) payment, and
long-term incentives (which consist of stock options). Executives also
participate in various other benefit plans, including medical and 401(k) plans
generally available to all employees of the Company.
BASE SALARIES/ANNUAL CASH COMPENSATION
Historically, executive officer base salaries have been reviewed and
set annually by the Compensation Committee based on recommendations developed by
the Committee's independent compensation consultant. Salary levels are based on
such factors as the individual officer's level of responsibility, comparisons to
similar companies in the industry, and the performance of the Company and
individual executives.
ANNUAL INCENTIVE COMPENSATION
In the past the Compensation Committee has developed, with its
compensation consultant, an annual incentive compensation plan for senior
executives that was based upon the accomplishment of specific qualitative
criteria and the achievement of established performance goals.
15
<PAGE> 17
The performance goals for 1996 were based upon gross revenues and
earnings per share of the Company. Eligible executive officers could have earned
incentive compensation determined as a sliding scale percentage of their
respective base salaries conditioned and based upon the attainment of the
performance goals. The potential percentage award varied among the eligible
executive officers depending upon their respective base salaries.
Because the 1996 performance goals were not achieved, no incentive
compensation was paid to any Named Executive Officer other than two executives
whose contracts specifically provided for the payment of bonuses for 1996 and
one executive who performed exemplary services.
LONG-TERM INCENTIVES
The Company's long-term incentive compensation takes the form of stock
option grants. The Compensation Committee's position is that stock ownership by
senior management is beneficial in aligning management's and stockholders'
interests in the enhancement of share value. The awards made to Named Executive
Officers in 1996 are set forth in the accompanying tables on pages 12 and 13.
CURRENT YEAR
The Compensation Committee recognizes that 1997 has been and will
continue to be a year of transition and change making it difficult to establish
objective performance guidelines for executive officers. Consequently the
Compensation Committee has not developed a compensation program for the current
year and it will delay doing so until such time as it has developed
performance-based policies reflective of the attainment of the Company's goals
and objectives.
CHIEF EXECUTIVE OFFICER
As indicated under the heading "Employment and Consulting Agreements",
Mr. Schmitz resigned as the Company's Chief Executive Officer on November 15,
1996. The terms of the Separation Agreement were negotiated by the Compensation
Committee and approved by the Board of Directors.
Mr. Schmitz was eligible to earn incentive compensation of up to
twenty-five percent (25%) of his base salary for 1996 depending upon the
attainment of performance criteria based upon the gross revenues and earnings
per share of the Company; however, because those criteria were not achieved, no
incentive compensation was paid. Mr. Schmitz was not granted any new options in
1996; although the expiration dates of the options held by him were extended as
part of the Separation Agreement.
Section 162(m) of the Internal Revenue Code of 1986 as amended (the
"Code"), adopted as part of the Revenue Reconciliation Act of 1993, generally
limits to $1,000,000 the deduction that can be claimed by any publicly-held
corporation for compensation paid to any "covered employee" in any
16
<PAGE> 18
taxable year beginning after December 31, 1993. Performance-based compensation
is outside the scope of the $1,000,000 limitation and, hence, generally can be
deducted by a publicly-held corporation without regard to amount; provided that,
among other requirements, stockholder approval is obtained. The Compensation
Committee believes that at the present time it is unlikely that the compensation
paid to any Named Executive Officers in a taxable year which is subject to the
deduction limit will exceed $1,000,000.
In general, it is the intent of the Compensation Committee to assure
the deductibility to the Company of executive compensation whenever possible and
consistent with operational policies.
Compensation Committee
Neil E. Jenkins, Chairman
William T. O'Donnell, Jr.
Bruce Spector
17
<PAGE> 19
COMPARISON CUMULATIVE PERFORMANCE GRAPH
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total
stockholder return on the Company's Common Stock, based on the market price of
the Common Stock with the total return index of the NASDAQ Stock Market and the
total return index of NASDAQ Health Services Companies.
TOTAL RETURN TO STOCKHOLDERS
(ASSUMES $100 INVESTMENT ON 12/31/91)
[LINE GRAPH]
TOTAL RETURN ANALYSIS
<TABLE>
<CAPTION>
12/31/91 12/31/92 12/31/93 12/30/94 12/29/95 12/31/96
<S> <C> <C> <C> <C> <C> <C>
NEXTHEALTH INC. $100.00 $ 28.91 $ 25.00 $ 17.97 $ 19.53 $ 16.80
NASDAQ HEALTH SERVICES $100.00 $103.60 $119.52 $128.24 $162.89 $163.11
NASDAQ COMPOSITE (US) $100.00 $116.38 $133.59 $130.59 $184.67 $227.16
</TABLE>
18
<PAGE> 20
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT
The following table sets forth, as of the Record Date, certain
information with respect to the beneficial ownership of the Company's voting
securities by (i) each person known by the Company to be the beneficial owner of
more than five percent (5%) of the Company's outstanding voting securities, (ii)
each director (and nominee for director) of the Company, (iii) the Named
Executive Officers, and (iv) all directors and executive officers of the Company
as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME BENEFICIAL OWNERSHIP CLASS
COMMON STOCK
<S> <C> <C> <C>
AP NH LLC(1) 5,206,500 37.8%
William T. O'Donnell, Jr.(2) 2,279,490 17.2
BIL (Far East Holdings) (3) 842,900 6.4
Richardson Greenshields Customer(4) 650,000 5.0
Oppenheimer & Co. (Steven Kolow)(5) 605,000 4.6
John H. Schmitz (6) 596,684 4.4
Dimensional Fund Advisors, Inc.(7) 526,500 4.0
Neil E. Jenkins (8) 166,989 1.2
Livingston Platt (9) 125,000 *
Dr. Joseph R. Cruse(10) 40,500 *
Terry A. Stephens (11) 25,000 *
George L. Ruff (12) 18,500 *
Stephen L. Berger(13) 17,500 *
Lee S. Neibart (14) 17,500 *
W. Edward Scheetz (14) 17,500 *
Bruce Spector (14) 17,500 *
Alfred C. Trivilino (14) 17,500 *
Kenneth J. Whitaker(15) 46,625 *
All Named Executive Officers and
Directors as a Group(16) 3,386,288 22.5
SERIES A. PREFERRED STOCK
AP NH LLC 46,065 100%
</TABLE>
*Represents less than one percent (1%) of the Company's outstanding voting
stock.
(1) Represents shares issuable upon the conversion of Series A Preferred
Stock into Common Stock in accordance with the Preferred Stock Series
Designation (4,606,500) and upon exercise of options held by AP NH and
an affiliate to purchase 600,000 shares of Common Stock.
(2) Does not include 128,489 shares held in a trust the trustee of which is
Mr. Jenkins, for the benefit of Mr. O'Donnell's children, and as to
which Mr. O'Donnell disclaims any beneficial interest. Includes options
which are exercisable within the next sixty (60) days to purchase
37,500 shares granted pursuant to the Company's 1992 Stock Option Plan
and 26,500 shares granted pursuant to the Company's 1993 Non-Employee
Directors Stock Option Plan. Mr. O'Donnell's address is c/o ODE, LLC,
144 Green Bay Road, Winnetka, Illinois 60093.
(3) As of December 31, 1993, the address of BIL (Far East Holdings) Ltd. is
2801 Three Exchange Square, Central Hong Kong. This information is
based upon a Schedule 13G filing with the Securities and Exchange
Commission dated January 22, 1993. The Company has not received copies
of any more recent filings from BIL (Far East Holdings) Ltd.
19
<PAGE> 21
(4) As of the Record Date, the Company has received no 13G or 13D filing
for Richardson Greenshields.
(5) As of April 2, 1996, Mr. Kolow's address is c/o Michael S. Ross, Esq.,
Stroock & Stroock & Lavan, 100 Federal Street, Boston, Massachusetts
02110. This information is based upon a Schedule 13D filing as of April
2, 1996.
(6) Includes options to purchase 300,000 shares granted to Mr. Schmitz
pursuant to the Company's 1990 and 1992 Stock Option Plans.
(7) As of February 5, 1997, the address of Dimensional Fund Advisors, Inc.,
is 1299 Ocean Ave., 11th Fl. Santa Monica, CA 90401. This information
is based upon a Schedule 13G filing with the Securities and Exchange
Commission.
(8) Includes options to purchase 34,500 shares granted to Mr. Jenkins
pursuant to the Company's 1993 Non-Employee Directors Stock Option
Plan. Also includes 128,489 shares held in a trust, of which Mr.
Jenkins is trustee, for the benefit of Mr. O'Donnell's children.
(9) Includes options which are exercisable within the next sixty (60) days,
to purchase 125,000 shares granted to Mr. Platt pursuant to the
Company's 1992 Stock Option Plan.
(10) Includes options to purchase 40,500 shares granted to Dr. Cruse
pursuant to the Company's 1993 Non-Employee Directors Stock Option
Plan.
(11) Includes options, which are exercisable within the next sixty (60)
days, to purchase 25,000 shares granted to Mr. Stephens pursuant to the
Company's 1990 and 1992 Stock Option Plans.
(12) Includes options to purchase 18,500 shares granted to Mr. Ruff pursuant
to the Company's 1993 Non-Employee Directors Stock Option Plan.
(13) Includes options to purchase 17,500 shares granted to Mr. Berger
pursuant to the Company' s 1993 Non-Employee Directors Stock Option
Plan.
(14) Includes options to purchase 17,500 shares each granted to Messrs.
Neibart, Scheetz, Spector and Trivilino pursuant to the Company's 1993
Non-Employee Directors Stock Option Plan. Does not include 4,606,500
shares of Common Stock represented by the 46,065 shares of Series A
Preferred Stock held by AP NH or the 600,000 shares of Common Stock
represented by options held by AP NH as to which each of them disclaims
any beneficial interest.
(15) Includes options, which are exercisable within the next sixty (60) days
to purchase, 46,625 shares granted to Mr. Whitaker pursuant to the
Company's 1990 and 1992 Stock Option Plans.
(16) Includes options, which are exercisable within the next sixty (60)
days, to purchase 741,625 shares granted to members of this group
pursuant to the Company's 1990, 1992 and Non-Employee Directors Stock
Option Plans.
CERTAIN TRANSACTIONS
In December 1994 the Company engaged in a business transaction with
ODE, LLC, an Illinois limited liability company (the "Related LLC") owned by the
Chairman of the Company's Board of Directors, then Chief Executive Officer and
more than five percent (5%) stockholder, Mr. O'Donnell. The Company sold to and
leased back from the Related LLC its closed Adolescent Center. Under these
agreements, the Company sold its Adolescent Center to the Related LLC for the
appraised and book value of $1 million and simultaneously leased the buildings
back from the Related LLC for seven years at an annual cost of $150,000 payable
in quarterly installments. The lease agreement grants the Company the option to
both repurchase the buildings for fair market value and to renew the lease for
an additional ten-year period.
In accordance with the series designation for the Series A Preferred
Stock, the Preferred Directors (Messrs. Neibart, Scheetz, Spector and Trivilino)
are appointed by AP NH, LLC, a Delaware limited liability company ("APNH") as
the holder of the outstanding Series A Preferred Stock. APNH is affiliated with
AP LOM, LLC, a Delaware limited liability company ("Apollo Lender") which, on
November 15, 1996, loaned the Company $8,090,000 ("Apollo Loan") at the same
time as and as part of the related transaction by which APNH acquired its Series
A Preferred Stock. In addition, the Company received a $5,000,000 standby
commitment from the Apollo Lender subject to the Apollo Lender's good faith
discretion and certain other conditions. The terms
20
<PAGE> 22
of the Apollo Loan are described in more detail in footnote 10 of the financial
statements entitled "Long-term Debt and Financing Obligation", included in the
Annual Report which accompanies this Proxy Statement.
The Company does not engage in any transactions with its officers,
directors, or five percent (5%) stockholders or their affiliates unless the
transaction is approved by a majority of the disinterested and independent
directors of the Company after full disclosure or is on terms no less favorable
to the Company than would be available from an unaffiliated third party.
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has recommended the appointment of Ernst & Young
LLP as the Company's independent auditors for the fiscal year ending December
31, 1997. Ernst & Young LLP has served as the Company's independent auditors
since 1988.
Services provided to the Company and its subsidiaries by Ernst & Young
LLP with respect to 1996 included the audit of the Company's consolidated
financial statements and the 401(k) Plan, services related to filings with the
Securities and Exchange Commission, and consultations on various tax,
acquisition due diligence, and information systems matters.
In the event stockholders do not ratify the appointment of Ernst &
Young LLP as the Company's independent auditors for the current fiscal year,
such appointment will be reconsidered by the Audit Committee and the Board of
Directors.
Representatives of Ernst & Young LLP will be present at the Annual
Meeting to respond to appropriate questions and to make such statements as they
may desire.
Ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors for fiscal year 1997 will require the affirmative vote of
at least a majority of the shares of common Stock represented in person or by
proxy and entitled to vote at the Annual Meeting.
Dr. Cruse and Mr. Jenkins will be elected as Common Directors if a
quorum is present and they receive the affirmative vote of a plurality of the
outstanding shares of the Common Stock of the Company (including shares of
Common Stock represented by the Series A Preferred Stock on an "as converted"
basis) present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. "Plurality" means that the two individuals
who receive the largest number of votes cast are elected as directors.
For this purpose, a stockholder voting through a proxy who abstains
with respect to approval of Ernst & Young LLP is considered to be present and
entitled to vote on such approval at the meeting, and is in effect a negative
vote, but a stockholder (including a broker) who does
21
<PAGE> 23
not give authority to a proxy to vote, or withholds authority to vote, on the
approval of Ernst &Young LLP shall not be considered present and entitled to
vote on such proposal.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS.
OTHER MATTERS
Compliance with Section 16(a) of the Securities Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten-percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and NASDAQ. Offices, directors and greater than ten-percent stockholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
The Company has adopted procedures to assist its officers and directors
in complying with Section 16(a) of the Exchange Act, which includes assisting
the officer or director in preparing forms for filing. Based solely on its
review of the copies of such forms received by the Company, or written
representations from certain reporting persons that no Form 5's were required
for those persons, the Company believes that all filing requirements applicable
to its officers, directors, and greater than ten-percent beneficial owners were
complied with for the 1996 fiscal year.
OTHER BUSINESS
As of the date of this Proxy Statement, the Company knows of no
business that will be presented for consideration at the Annual Meeting other
than that which has been referred to above. As to other business, if any, that
may come before the Annual Meeting, it is intended that proxies in the enclosed
form will be voted in respect thereof in accordance with the recommendation of
the Board of Directors or if no such recommendation is given in the judgment of
the person or persons voting the proxies.
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Any proposal of a stockholder intended to be presented at the Company's
1998 Annual Meeting of Stockholders must be received by the Secretary of the
Company by December 31, 1997, for inclusion in the Company's Proxy and Notice of
Annual Meeting relating to the 1998 Annual Meeting.
22
<PAGE> 24
AVAILABILITY OF 10-K REPORT
The Company has filed its Form 10-K with the Securities and Exchange
Commission for the year ended December 31, 1996. Portions of this report are
being sent as part of the Annual Report to Stockholders which accompanies this
Proxy Statement. A complete copy of the report is available free of charge to
any stockholder by contacting:
Bertha B. Kenny
Corporate Secretary
NextHealth, Inc.
16600 N. Lago Del Oro Parkway
Tucson, Arizona 85739
(520) 792-5811
ADDITIONAL INFORMATION
The cost of preparing, assembling, mailing and all other expenses of
soliciting proxies in the enclosed form will be borne by the Company. In
addition, directors, officers and regular employees of the Company may, but
without compensation other than their regular compensation, solicit proxies by
further mailing, personal conversations, or by telephone or fax. The Company has
employed Corporate Investor Communications, Inc., a proxy solicitation firm, to
solicit proxies from brokers and banks at a cost of approximately $3,500 plus
reasonable disbursements. The Company will, upon request, reimburse brokerage
firms and others for their reasonable expenses in forwarding solicitation
material to the beneficial owners of stock.
By order to the Board of Directors
/s/ Bertha B. Kenny
-------------------
Bertha B. Kenny
Secretary
April 28, 1997
23
<PAGE> 25
PROXY
NEXTHEALTH, INC.
16600 N. LAGO DEL ORO PARKWAY
TUCSON, ARIZONA 85739
The undersigned hereby appoints William T. O'Donnell, Jr. and Stephen L. Berger,
and each of them, with power of substitution, to represent and to vote on behalf
of the undersigned all of the shares of NextHealth, Inc. Common Stock which the
undersigned is entitled to vote at the Annual Meeting of Stockholders to be held
at the Hyatt Regency O'Hare, 9300 W. Bryn Mawr, Rosemont, Illinois on Wednesday,
May 22, 1997 at 10:00 a.m. Central Daylight Time, and at any adjournment or
adjournments thereof, hereby revoking all proxies heretofore given with respect
to such stock, upon the following proposals as more fully described in the
notice of and proxy statement for the meeting (receipt whereof is hereby
acknowledged).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR (1), (2) AND (3)
1. ELECTION OF DIRECTORS
FOR the nominees listed below ___ WITHHOLD AUTHORITY to vote for the
nominees listed below ___
NOMINEES: JOSEPH R. CRUSE, M.D. NEIL E. JENKINS
(INSTRUCTIONS: To grant authority to vote for the nominees named above check the
"FOR" line; to withhold authority for one of the nominees strike through such
nominee's name).
2. PROPOSAL TO APPROVE THE SELECTION OF ERNST & YOUNG LLP AS THE
INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING
DECEMBER 31, 1997
FOR ___ AGAINST ___ ABSTAIN ___
3. OTHER MATTERS
FOR ___ AGAINST ___ ABSTAIN ___
In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER, IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS (1), (2), AND (3).
(Please Sign and Date the Other Side)
<PAGE> 26
Dated: __________, 1997 ________________________________________
Signature
________________________________________
Signature if held jointly
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When signing
as attorney, 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.
[Please return in the enclosed postage-paid envelope. I will ____ will not ____
attend the meeting.]
