SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential for Use of
the Commission Only (as
/x/ Definitive Proxy Statement permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c)or sec.240.14a-12
</TABLE>
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 14-a6(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>
NEXTHEALTH, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1998
_____________________
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 21, 1998 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 1998.
3. Approval of Amendment to Non-Employee Directors Stock Option Plan.
To act upon an amendment increasing the number of shares of Common
Stock available for issuance from the Company's Non-Employee
Directors Stock Option Plan.
4. 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 20, 1998 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 24, 1998
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.
<PAGE>
NextHealth, Inc.
16600 N. Lago Del Oro Parkway
Tucson, Arizona 85739
April 24, 1998
-------------------------------
PROXY STATEMENT
-------------------------------
ANNUAL MEETING OF STOCKHOLDERS
MAY 21, 1998
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 21, 1998
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 24, 1998. The
Annual Report to Stockholders (including financial statements for the year
ended December 31, 1997) 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 20, 1998,
(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 (i) for
the election as directors of the nominees listed herein; (ii) for the
appointment of Ernst & Young LLP as the Company's independent auditors for
1998; (iii) for the proposed amendment to the Company's Non-Employee Directors
Stock Option Plan; and, (iv) as
<PAGE>
recommended by the Board of Directors with regard to all other matters or if
no such recommendation is given, in their own discretion.
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 as "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 holder 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 William T. O'Donnell, Jr.,
and Stephen L. Berger, 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 Messrs. O'Donnell and Berger as Common Directors unless
the stockholders direct otherwise in their proxies. The Board has no reason
to believe that either Mr. O'Donnell or Mr. Berger 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.
Messrs. O'Donnell and Berger 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.
<PAGE>
The following information is submitted concerning the nominees for
Common Director and the Common and Preferred Directors continuing in office:
NOMINEES:
WILLIAM T. O'DONNELL, JR.
Director Since: 1984
Age: 49
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 Management degree
from the Kellogg Graduate School of Management at Northwestern
University in 1978.
STEPHEN L. BERGER, ESQ.
Director Since: 1996
Age: 53
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.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
THE ELECTION OF MESSRS. O'DONNELL AND BERGER AS DIRECTORS.
<PAGE>
DIRECTORS CONTINUING IN OFFICE:
(TERM EXPIRING AT 1999 ANNUAL MEETING OF STOCKHOLDERS):
GEORGE L. RUFF
Director Since: 1996
Age: 49
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
to which he advanced during his 10 years with the firm. Mr. Ruff is a
cum laude graduate of DePaul University, and is a Certified Public
Accountant.
(TERMS EXPIRING AT 2000 ANNUAL MEETING OF STOCKHOLDERS):
JOSEPH R. CRUSE, M.D.
Director Since: 1991
Age: 68
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 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.
<PAGE>
NEIL E. JENKINS, ESQ.
Director Since: 1994
Age: 48
Mr. Jenkins is a business consultant and operates a golf tour and travel
business in Chicago. 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.
PREFERRED DIRECTORS
The holder of Series A Preferred Stock, as a class, is 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: 47
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 Fund ("Apollo Real Estate") and the Apollo Investment Fund
("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.
MICHAEL L. ASHNER
Director Since: 1997
Age: 45
Mr. Ashner became a director in October, 1997 to fill the vacancy created
by the resignation of W. Edward Scheetz. Since 1995, Mr. Ashner has been
President and CEO of Winthrop Financial Associates, a real estate
investment banking firm affiliated with Apollo Real Estate. From 1984
to 1995, Mr. Ashner was President and a Principal of National Property
Investors, a real estate investment banking firm also affiliated with
<PAGE>
Apollo Real Estate. Mr. Ashner is a director of NBTY, Inc. Mr. Ashner
has an AB in philosophy and government from Cornell University and a JD
from the University of Miami School of Law.
BRUCE SPECTOR
Director Since: 1996
Age: 55
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 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 Real Estate and the Apollo
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 the firm's executive
committee. 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: 34
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. In addition, a Non-Employee Directors 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; although the
shareholders are being asked to approve a 300,000 share increase in the
number of shares reserved for this purpose (See "Approval of Amendment
<PAGE>
to Non-Employee Directors Stock Option Plan"). In 1997, 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 1997 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.
Directors who are also full-time employees of the Company receive no
additional compensation for their services as Directors.
DIRECTORS' ATTENDANCE
In 1997, the Board of Directors of the Company met five (5) times.
There were three (3) regular meetings and two (2) 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 met one (1) time in 1997. 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 one
(1) time during 1997. 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.
Audit Committee. The Audit Committee is currently comprised of Messrs.
Ruff (Chairman), Trivilino and Berger. It met two (2) times in 1997. 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
<PAGE>
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 with the internal audit department of
the Company, 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 did not meet in 1997.
The Nominating Committee will consider nominees recommended by stockholders
of the Company if the names and qualifications of such nominees are submitted
in writing by November 30, 1998 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. 49 President, Chief Executive Officer, Director*
Robert E. Schrader 45 General Manager, Miraval
Terry A. Stephens 42 Senior Managing Director, Sierra Tucson
Loree Thompson 34 Principal Financial & Accounting Officer
Bertha Kenny 49 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 and Consulting Agreements").
William T. O'Donnell, Jr. See Directors' biographical material on Page 4.
Robert E. 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 organizational
development and strategic planning. Mr. Schrader received a Bachelor's
Degree in marketing from Southern Illinois University in 1975.
<PAGE>
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.
Loree Thompson. Ms. Thompson was the Chief Financial Officer of the
Company from November 1996 to May 1997. She rejoined the Company on a part-
time consulting basis in July, 1997. She first joined the Company in October
1992 and 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.
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.
<PAGE>
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, 1997 of (i) the Chief
Executive Officer, Mr. O'Donnell, and (ii) the only other Executive Officer
of the Company whose total compensation exceeded $100,000 (collectively, the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------- ------------
Securities
All Other Underlying
Annual Option All Other
Fiscal Salary Bonus Compensation(1) Awards Compensation
Name and Principal Position Year ($) ($) ($) (#) ($)
- --------------------------- ------ ------ ----- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
William T. O'Donnell, Jr., 1997 -0- -0- -0- 9,500 179,000
President & Chief 1996 -0- -0- -0- 8,500 168,000
Executive Officer(2) 1995 -0- -0- -0- 83,500 -0-
Terry A. Stephens 1997 130,000 43,000 -0- -0- 4,502
Senior Managing Director 1996 136,395 25,000 -0- 50,000 4,829
Sierra Tucson(3) 1995 69,850 5,000 -0- 25,000 35,752
</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) Mr. O'Donnell became the Chief Executive Officer in November 1996,
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. Pursuant to the Consulting Agreement,
$141,000 and $153,000 was paid to ODE, LLC in 1996 and 1997, respectively.
(3) Mr. Stephens has been the Senior Managing Director of Sierra Tucson
since May 1995. Mr. Stephens' 1996 Bonus was paid in 1997. In 1997 the
Company paid an annual premium of $851 on a term life insurance policy
for Mr. Stephens and paid contributions of $3,651 to the Company's 401(k)
Plan on behalf of Mr. Stephens.
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants in 1997 to the
Named Executive Officers.
<TABLE>
<CAPTION>
Individual Potential Realizable
Grants Value at Assumed
Percentage of Present Annual Rates of Stock
Total Options Exercise Price Appreciation
Options Granted to Price Expiration for Option Term(3)
Name Granted Employees in ($/Share) Date
(#) Fiscal Year(2) 5% 10%
($) ($)
- ------------------ ------- -------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
William T. O'Donnell, Jr.(1) 9,500 6.57% $2.63 (1) 16,435 41,610
Terry A. Stephens -0- -0- -0- -0- -0- -0-
</TABLE>
(1) Mr. O'Donnell received options pursuant to the Company's Non-Employee
Directors 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) The Company granted options representing 144,500 shares to employees and
Named Executive Officers in fiscal 1997.
(3) 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, 1997. There were no
option exercises by such officers in 1997.
<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) 64,000 37,500 -0- -0-
Terry A. Stephens 25,000 50,000 -0- -0-
</TABLE>
(1) The number reflects options accumulated since October 1989.
(2) Fiscal year ended December 31, 1997. The closing price of the Company's
common stock on that day on The Nasdaq Stock Market was $1.00. At that price
no unexercised options, whether exercisable or unexercisable, were in-the-
money.
(3) At December 31, 1997, Mr. O'Donnell held 26,500 options granted to him
pursuant to the Company's Non-Employee Directors Stock Option Plan. Under the
terms of that plan, such options are fully vested at the time of grant. He
also held 75,000 options granted to him on January 20, 1995 pursuant to the
Company's 1992 Stock Option Plan. Under the terms of that plan, 37,500
options were vested and exercisable at 12/31/97.
<PAGE>
EMPLOYMENT AND CONSULTING AGREEMENTS
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 Mr. O'Donnell. ODE
receives $1,000 per day for Mr. O'Donnell's services plus reimbursement
of expenses. Because he is serving as a consultant on a part-time basis and
is not an employee, Mr. O'Donnell receives compensation as a director and
participates in the Non-Employee Directors Stock Option Plan (See
"Compensation of Directors"). The Agreement is cancellable 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 16 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
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 and to administer the Company's 1990 and 1992
Stock Option Plans.
DUTIES AND RESPONSIBILITIES
The specific responsibilities of the Compensation Committee consist of:
- 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.
<PAGE>
- The formulation and approval of comprehensive compensation programs for
the executive officers based upon a review of competitive industry practices
and the Compensation Committee's compensation philosophies and policies.
- 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, gross revenues and
attainment of budget projections. 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. In the past, 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 have generally been
set at the average of the peer group. The number of options granted to the
executive officers of the Company has generally been 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.
The Compensation Committee believes that the Company has been in
transition in the development of its new line of business and, for 1997, did
not implement a formal incentive compensation plan for the Chief Executive
Officer or any Named Executive Officer.
COMPONENTS OF COMPENSATION
The Company's executive compensation program has generally consisted 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.
<PAGE>
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.
For the reason discussed above, no executive incentive compensation
program was established for 1997.
LONG-TERM INCENTIVES
The Company's long-term incentive compensation has typically taken 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.
CHIEF EXECUTIVE OFFICER
Because Mr. O'Donnell is serving as Chief Executive Officer pursuant to
a consulting agreement with ODE, LLC, the Compensation Committee has not
considered long or short-term incentive compensation for him (see "Employment
and Consulting Agreements).
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 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.
<PAGE>
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
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 12/31/92)
<TABLE>
<CAPTION>
TOTAL RETURN ANALYSIS
12/31/92 12/31/93 12/30/94 12/29/95 12/31/96 12/31/97
<S> <C> <C> <C> <C> <C> <C>
NextHealth, Inc. $100.00 $ 86.48 $ 62.16 $ 67.55 $ 58.11 $ 21.62
Nasdaq Health
Services $100.00 $115.37 $123.78 $157.23 $157.44 $160.48
Nasdaq Composite
(US) $100.00 $114.79 $112.21 $158.68 $195.19 $239.52
</TABLE>
Source: Carl Thompson Associates www.ctaonline.com (303)494-5472. Data from
Bloomberg Financial Markets.
<PAGE>
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>
AP NH LLC(1) 5,206,500 37.8%
William T. O'Donnell, Jr.(2) 2,288,591 17.4
RH McKee Trust(3) 959,150 7.3
Richardson Greenshields Customer(4) 650,000 5.0
Neil E. Jenkins(5) 193,638 1.5
Dr. Joseph R. Cruse(6) 48,000 *
Loree Thompson(7) 38,500 *
Terry A. Stephens(8) 37,500 *
George L. Ruff(9) 27,000 *
Stephen L. Berger(10) 25,000 *
Lee S. Neibart(11) 25,000 *
Bruce Spector(11) 25,000 *
Alfred C. Trivilino(11) 25,000 *
Michael L. Ashner(11) 17,500 *
Robert Schrader(12) 6,250 *
Bertha Kenny(13) 6,250 *
All Named Executive Officers and
Directors as a Group(14) 2,763,229 20.9
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 warrants held by AP NH
and an affiliate to purchase 600,000 shares of Common Stock.
(2) Does not include 146,638 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 56,250 shares granted
pursuant to the Company's 1992 Stock Option Plan and 35,000 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, Winnetka, Illinois
60093.
(3) As of March 9, 1998, the address of the RH McKee Trust is 24 Biltmore
Estates, Phoenix, Arizona 85016. This information is based on a Schedule 13G
filing with the Securities and Exchange Commission dated March 9, 1998.
(4) As of the Record Date, the Company has received no 13G or 13D filing for
Richardson Greenshields.
<PAGE>
(5) Includes options to purchase 43,000 shares granted to Mr. Jenkins
pursuant to the Company's 1993 Non-Employee Directors Stock Option Plan. Also
includes 146,638 shares held in a trust, of which Mr. Jenkins is trustee,
for the benefit of Mr. O'Donnell's children.
(6) Includes options to purchase 48,000 shares granted to Dr. Cruse pursuant
to the Company's 1993 Non-Employee Directors Stock Option Plan.
(7) Includes options, which are exercisable within the next sixty (60) days,
to purchase 38,500 shares granted to Ms. Thompson pursuant to the Company's
1990 and 1992 Stock Option Plans.
(8) Includes options, which are exercisable within the next sixty (60) days,
to purchase 37,500 shares granted to Mr. Stephens pursuant to the Company's
1990 and 1992 Stock Option Plans.
(9) Includes options to purchase 27,000 shares granted to Mr. Ruff pursuant
to the Company's 1993 Non-Employee Directors Stock Option Plan.
(10) Includes options to purchase 25,000 shares granted to Mr.Berger pursuant
to the Company's 1993 Non-Employee Directors Stock Option Plan.
(11) Includes options to purchase 25,000 shares granted to Messrs. Neibart,
Spector and Trivilino and 17,500 shares granted to Mr. Ashner 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 warrants held by AP NH as to which each of them disclaims any
beneficial interest.
(12) Includes options, which are exercisable within the next sixty (60) days,
to purchase 6,250 shares granted to Mr. Schrader pursuant to the Company's
1992 Stock Option Plan.
(13) Includes options, which are exercisable within the next sixty (60) days,
to purchase 6,250 shares granted to Ms. Kenny pursuant to the Company's 1990
and 1992 Stock Option Plans.
(14) Includes options, which are exercisable within the next sixty (60) days,
to purchase 415,250 shares granted to members of this group pursuant to the
Company's 1990 and 1992 and Non-Employee Directors Stock Option Plans.
CERTAIN TRANSACTIONS
In December 1994 the Company engaged in a business transaction with ODE,
LLC, a 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, Ashner, 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. As of
December 31, 1997, $2.8 million had been drawn under the standby loan
commitment. The terms of the Apollo Loan are described in more detail in the
Notes to Consolidated Financial Statements
<PAGE>
entitled "Long-term Debt and Financing Obligation", included in the Annual
Report which accompanies this Proxy Statement.
In 1997, the Company entered into an Asset Management Agreement with Fall
Creek Partners ("Fall Creek") pursuant to which Fall Creek provided and
continues to provide asset management and certain financial services for the
Company's health and leisure resort, "Miraval". Fall Creek is principally
owned by George L. Ruff, a Company director. Fall Creek was paid
$72,000 in fees pursuant to this Agreement in 1997.
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, 1998. 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 1997 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, tax filings 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.
The enclosed form of Proxy provides a means for stockholders to vote for
the approval of the appointment of Ernst & Young LLP or to abstain from
voting with regard to the approval of the appointment of Ernst & Young LLP.
Each properly executed Proxy received in time for the meeting will be voted
as specified therein. If a shareholder executes and returns a Proxy but does
not specify otherwise, the shares represented by such shareholder's Proxy
will be counted for approval of the appointment of Ernst & Young LLP.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS
THE COMPANY'S INDEPENDENT AUDITORS.
<PAGE>
APPROVAL OF AMENDMENT TO NON-EMPLOYEE
DIRECTORS STOCK OPTION PLAN
The Board of Directors has approved an amendment (the "Plan Amendment")
to the Company's Non-Employee Directors Stock Option Plan (the "Plan")
pursuant to which the number of shares subject to option grants under the
Plan was increased by 300,000 (the "Additional Shares") from 300,000 to
600,000. Shareholder approval for any amendment that materially increases the
number of shares subject to option grants is required pursuant to Rule 16b-3
promulgated under the Securities Exchange Act of 1934 (the "1934 Act"). The
Plan Amendment was adopted in order to allow the Company to issue additional
options pursuant to the Plan, thereby furthering the best interests of the
Company and its stockholders by allowing the Company to continue attracting
and retaining non-employee directors. The proposed Plan Amendment is attached
hereto as Exhibit "A" and included herein by reference, and the summary of
the Plan Amendment is qualified in its entirety by the full text of the Plan
Amendment.
Issuance of options under the Plan has certain tax consequences for both
the Company and individuals who are granted options. Options granted under
the Plan will constitute nonstatutory stock options for purposes of the
Internal Revenue Code. The granting of a nonstatutory stock option
does not result in taxable income to the optionee. However, upon the exercise
of a nonstatutory stock option or, if applicable, the date on which the
restrictions imposed by Section 16(b) of the 1934 Act are deemed to lapse,
the holder of nonstatutory options will recognize taxable ordinary
income equal to the excess of the fair market value of the shares at the time
of exercise (or the date Section 16(b) restrictions lapse, if applicable)
over the exercise price. Optionees subject to Section 16(b) may elect under
Section 83(b) of the Code to include as ordinary income in the year of
exercise of the nonstatutory option an amount equal to the difference between
the fair market value of the purchased shares on the date of exercise
(assuming no restriction) and the option price paid for the shares. If the
Section 83(b) election is made, the optionee will not recognize any additional
income as and when the Section 16(b) restrictions lapse. The Company is
entitled to take an income tax deduction to the extent an optionee recognizes
ordinary income. Persons selling shares of Common Stock acquired through
exercise of nonstatutory options will recognize capital gain to the extent
that the sales price for the shares exceeds the fair market value of the
shares that was utilized to determine gain at the time the options were
exercised. The preceding discussion is based on federal tax laws and
regulations in effect as of the date hereof and does not purport to be a
complete description of the federal income tax aspects of the Plan. No
information is provided herein with respect to the estate, inheritance, state
or local tax laws, although there may be certain consequences upon the
receipt or exercise of an option the disposition of the acquired shares under
those laws.
The enclosed form of Proxy provides a means for stockholders to vote for
the approval of the Amendment or to abstain from voting with regard to the
Plan Amendment. Each properly executed Proxy received in time for the
meeting will be voted as specified therein. If a shareholder executes and
returns a Proxy but does not specify otherwise, the shares represented by such
shareholder's Proxy will be counted for approval of the Plan Amendment.
<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU
VOTE "FOR" THE APPROVAL OF THE AMENDMENT TO THE PLAN.
Votes Required
- --------------
Ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors for fiscal year 1998 and approval of the Plan Amendment
will require the affirmative vote of at least 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) represented in person or
by proxy and entitled to vote at the Annual Meeting, as well as the
affirmative vote of the holder of the Series A Preferred Stock.
For this purpose, a stockholder voting through a proxy who abstains with
respect to approval of Ernst & Young LLP or the Plan Amendment 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 not
give authority to a proxy to vote, or withholds authority to vote, on the
approval of Ernst & Young LLP or the Plan Amendment shall not be considered
present and entitled to vote on such proposal.
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 The Nasdaq Stock Market. Officers, 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 1997 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
<PAGE>
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
1999 Annual Meeting of Stockholders must be received by the Secretary of the
Company, for inclusion in the Company's Proxy and Notice of Annual Meeting
relating to the 1999 Annual Meeting, by December 31, 1998.
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, 1997. 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) 792-5800
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 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 24, 1998
<PAGE>
EXHIBIT "A"
FIRST AMENDMENT TO THE
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
OF
NEXTHEALTH, INC.
1. Background.
NextHealth, Inc. (the "Company") has previously established a Non-
Employee Directors Stock Option Plan (the "Plan") for the purpose of
advancing the interests of the Company by attracting and retaining non-
employee directors by providing them with a propriety interest in the success
of the Company. Section 6(b) of the Plan provides that the aggregate number
of shares of the Company's common stock that may be issued upon the exercise
of all options which may be granted under the Plan will not exceed 300,000.
The Company believes that it is in its best interests to increase the
maximum number of shares issuable upon the exercise of all options that may
be granted under the Plan by 300,000 shares to a total of 600,000 shares.
Pursuant to Section 13 of the Plan, the Board of Directors of the Company has
approved the amendments to the Plan set forth herein.
2. Amendment of Section 6 of the Plan.
Section 6(b) of the Plan is hereby amended to increase the aggregate
number of shares of the Company's common stock that may be issued upon the
exercise of all options which may be granted under the Plan by 300,000 shares
(the "Additional Shares") to an aggregate amount of 600,000.
3. Continued Effect of Plan.
Except as otherwise amended hereby, the Plan shall remain in full
force and effect.
4. Effective Date of Amendment.
This Amendment becomes effective upon its approval by the
stockholders of the Company in accordance with applicable state law.
IN WITNESS WHEREOF, the Company has caused this Amendment to be
executed by its duly authorized officers effective as of the Effective Date.
NEXTHEALTH, INC., a Delaware
corporation
By:________________________
Its: President and Chief
Executive Officer
ATTEST:
By:___________________________
Its: Secretary
<PAGE>
[FRONT OF CARD]
PROXY
NEXTHEALTH, INC.
16600 N. Lago Del Oro Parkway
Tucson, Arizona 85739
The undersigned hereby appoints Neil E. Jenkins and Alfred C. Trivilino, 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 Bryn Mawr, Rosemont, Illinois on
Thursday, May 21, 1998 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), (3) AND (4)
1. ELECTION OF DIRECTORS
/ / FOR the nominee listed below / /WITHHOLD AUTHORITY to vote for the
nominees listed below
NOMINEES: WILLIAM T. O'DONNNELL, JR. STEPHEN L. BERGER
(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, 1998
FOR AGAINST ABSTAIN
3. PROPOSAL TO APPROVE THE AMENDMENT TO THE NON-EMPLOYEE DIRECTORS STOCK
OPTION PLAN
FOR AGAINST ABSTAIN
4. 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 STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSALS (1), (2), (3) AND (4)
(Please Sign and Date the Other Side)
[BACK OF CARD]
Dated:___________________, 1998 ____________________________
Signature
____________________________
Signataure if held jointly
Please sign exactly as the 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.]
