SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUSNT 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 permitted
/X/ Definitive Proxy Statement 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 14-a
6(i) (2) or Item 22(a) (2) of Schedule 14 A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14-a6(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 calculaed 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 27, 1999
_____________________
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 Avenue, Rosemont, Illinois on
May 27, 1999 for the following purposes:
1. Election of Director. To elect one director to
hold office for a term of three years and until his
successor has 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 1999.
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 19, 1999 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, 1999
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 28, 1999
___________________
PROXY STATEMENT
___________________
ANNUAL MEETING OF STOCKHOLDERS
MAY 27, 1999
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 Avenue, Rosemont, Illinois on May 27, 1999 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, 1999. The Annual Report to Stockholders
(including financial statements for the year ended December 31,
1998) 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 on
April 19, 1999, (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 director of the nominee listed herein; (ii) for the
appointment of Ernst & Young LLP as the Company's independent
auditors for 1999; and (iii) as recommended by the Board of
Directors with regard to all other matters or if no such
recommendation is given, in their own discretion.
<PAGE>
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 DIRECTOR
The Board of Directors of the Company currently consists of
four persons elected by the holders of Common Stock ("Common
Directors") and three 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 term of office of one Common Director expires at the Annual
Meeting. The Board of Directors has nominated George L. Ruff for
re-election as a Common Director for a term of three years and
until his successor is duly elected and qualified.
In April 1999, the size of the Board of Directors was
reduced from nine to seven persons. Pursuant to an agreement
between the Company and the holder of the Series A Preferred
Stock, the number of Common Directors was reduced from five to
four persons and the number of Preferred Directors was reduced
from four to three persons. The purpose of such reductions is to
reduce corporate expenses relating to directors (i.e. fees,
travel expenses, etc.) In order to effect such reductions,
Joseph R. Cruse, M.D. and Bruce Spector resigned as directors.
It is the intention of the persons named as proxies to vote the
proxies for the election of Mr. Ruff as a Common Director unless
a stockholder directs otherwise in his proxy. The Board has no
reason to believe that Mr. Ruff will not serve if elected, but
if he 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.
Mr. Ruff will be elected as a Common Director if a quorum is
present and he receives 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 individual
who receives the largest number of votes cast is elected as a
director.
<PAGE>
The following information is submitted concerning the
nominee for Common Director and the Common and Preferred
Directors continuing in office:
NOMINEE:
GEORGE L. RUFF
Director Since: 1996
Age: 50
Mr. Ruff is the Chief Executive Officer of Trinity
Investment Trust, L.L.C., a company which he co-founded in
1995. Mr. Ruff is also 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. Mr. Ruff currently serves as a director of Amtrade.
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 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.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
ELECTION OF MR. RUFF AS A DIRECTOR.
DIRECTORS CONTINUING IN OFFICE:
(TERMS EXPIRING AT 2000 ANNUAL MEETING OF STOCKHOLDERS):
NEIL E. JENKINS, ESQ.
Director Since: 1994
Age: 49
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.
<PAGE>
(TERMS EXPIRING AT 2001 ANNUAL MEETING OF STOCKHOLDERS)
WILLIAM T. O'DONNELL, JR.
Director Since: 1984
Age: 50
Mr. O'Donnell is 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 and is an honorary board member of
the National Association of Children of Alcoholics (NACOA).
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: 54
Mr. Berger 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.
PREFERRED DIRECTORS
The holders of Series A Preferred Stock, as a class, are
entitled to elect three 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:
<PAGE>
LEE S. NEIBART
Director Since: 1996
Age: 48
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"), three 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: 46
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 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.
ALFRED C. TRIVILINO
Director Since: 1996
Age: 35
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.
<PAGE>
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 600,000 shares of Common
Stock for this purpose. In 1998, 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 1998 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' ATTENDANCE
In 1998, the Board of Directors of the Company met three (3)
times. There were three (3) regular meetings and no 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 1998.
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
Trivilino. It met two (2) times during 1998. 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.
<PAGE>
Audit Committee. The Audit Committee is currently comprised
of Messrs. Ruff (Chairman), Trivilino and Berger. It met one (1)
time in 1998. 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 with 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) and Jenkins. The
functions of the Nominating Committee are to screen, select and
recommend appropriate candidates for election as Common Directors
to the Company's Board of Directors. It did not meet in 1998.
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, 1999 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. 50 President, Chief Executive
Officer, Director*
Joseph A. DeNucci 46 General Manager, Miraval
Terry A. Stephens 43 Senior Managing Director,
Sierra Tucson
Loree Thompson 35 Principal Financial &
Accounting Officer
Bertha Kenny 50 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 5.
Joseph A. DeNucci. Mr. DeNucci became General Manager of Miraval
in February 1999. Prior to joining the Company, and since
January 1995, Mr. DeNucci was owner and President of DeNucci &
Associates, a behavioral healthcare consulting firm located in
Florida. In addition, during the same time frame, Mr. DeNucci
served as Chief Operating Officer of ProCare Health Management,
Inc., a company specializing in contract management and program
implementation arrangements with behavioral and med-surge
<PAGE>
companies. From 1992 to 1995, Mr. DeNucci served as Senior Vice
President of Operations for Comprehensive Addiction Programs
(CAP), a behavioral health and nursing home company on the east
coast. Mr. DeNucci received his Bachelor's degree from Sienna
College in Albany, New York.
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.
Before joining the Company, Ms. Kenny was part of the start-up
team for the Greater Tucson Economic Council. Prior to that, she
was employed 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, 1998 of (i) the Chief Executive Officer, Mr.
O'Donnell, and (ii) the only other Executive Officer of the
Company whose total compensation exceeded $100,000 (collectively,
the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Securities
All Other Underlying
Annual Option All Other
Fiscal Salary Bonus Compensation(1) Awards Compensation
Name/Principal Position Year ($) ($) ($) (#) ($)
- ----------------------- ------ ------ ----- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
William T. O'Donnell, Jr., 1998 -0- -0- -0- 8,500 70,500
President & Chief 1997 -0- -0- -0- 9,500 118,500
Executive Officer(2) 1996 -0- -0- -0- 8,500 141,000
Terry A. Stephens 1998 139,000 60,000 -0- 20,000 4,818
Senior Managing Director 1997 130,000 43,000 -0- -0- 4,502
Sierra Tucson(3) 1996 136,395 25,000 -0- 50,000 4,829
</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 is not a full-time employee of the Company.
He 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.
(3) Mr. Stephens has been the Senior Managing Director of
Sierra Tucson since May 1995. In 1998 the Company paid an
annual premium of $1,318 on a term life insurance policy for
Mr. Stephens and paid contributions of $3,500 to the Company's
401(k) Plan on behalf of Mr. Stephens.
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants in
1998 to the Named Executive Officers.
<TABLE>
<CAPTION>
Potential Realizable
Individual Value at Assumed
Grants Annual Rates of Stock
Percentage of Present Price Appreciation
Options Total Options Exercise for Option Term(4)
Name Granted Granted in Price Expiration
(#) Fiscal Year(3) ($/Share) Date 5% 10%
($) ($)
- ------------------ ------- ------------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
William T.
O'Donnell, Jr.(1) 8,500 4.82% $1.00 (1) $ 5,355 $13,515
Terry A. Stephens(2) 20,000 11.34% (2) (2) $18,900 $47,800
</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) Mr. Stephens was granted 10,000 options on May 21, 1998,
priced at $2.00 per share; on December 4, 1998, he received
10,000 options priced at $1.00 per share. All options
expire 10 years from the date of grant or 30 days after Mr.
Stephens ceases to be an employee of the Company, whichever
comes first.
(3) The Company granted options representing 176,300 shares to
employees and Named Executive Officers in fiscal 1998.
(4) 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,
1998. There were no option exercises by such officers in 1998.
<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) 91,250 18,750 $1,598 -0-
Terry A. Stephens 43,750 51,250 -0- $1,880
</TABLE>
(1) The number reflects options accumulated since October 1989.
(2) Fiscal year ended December 31, 1998. The closing price of
the Company's common stock on that day on The Nasdaq Stock
Market was $1.188.
(3) At December 31, 1998, Mr. O'Donnell held 35,000 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, 56,250 options were vested and
exercisable at 12/31/98.
<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 15 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. At this time,
executive officers do not include the Chief Executive Officer but
includes 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. 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 1998, did not implement a formal incentive compensation
plan for 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 (other than Mr. O'Donnell) also participate
in various other benefit plans, including medical and 401(k)
plans generally available to all employees of the Company. The
Compensation Committee anticipates that it will return to a more
formal executive compensation program as the operations of the
Company become more established.
<PAGE>
BASE SALARIES/ANNUAL CASH COMPENSATION
Historically, executive officer base salaries have been
reviewed and set annually by the Compensation Committee 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 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 1998.
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.
Alfred Trivilino*
*Mr. Trivilino became a member of the Compensation Committee
in April 1999.
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 12/31/93)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD NASDAQ
(FISCAL YEAR COVERED) NEXTHEALTH HEALTH SERVICES COMPOSITE (U.S.)
- --------------------- ---------- --------------- ----------------
<S> <C> <C> <C>
12/31/93 100.00 100.00 100.00
12/30/94 71.90 107.30 97.80
12/29/95 78.10 136.10 138.30
12/31/96 67.20 135.90 170.00
12/31/97 25.00 138.50 208.60
12/31/98 29.70 118.80 293.00
</TABLE>
<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
---- -------------------- ----------
<S> <C> <C>
Common Stock
------------
AP NH LLC(1) 5,777,075 42.0%
William T. O'Donnell, Jr.(2) 2,812,342 21.2
Richardson Greenshields Customer(3) 650,000 5.0
Neil E. Jenkins(4) 239,212 1.8
Loree Thompson(5) 68,500 *
Terry A. Stephens(6) 65,000 *
Dr. Joseph R. Cruse(7) 55,500 *
Joseph A. DeNucci(8) 50,000 *
George L. Ruff(9) 35,500 *
Stephen L. Berger(10) 32,500 *
Lee S. Neibart(11) 32,500 *
Bruce Spector(11) 32,500 *
Alfred C. Trivilino(11) 32,500 *
Michael L. Ashner(11) 25,000 *
Bertha Kenny(12) 7,000 *
All Named Executive Officers and
Directors as a Group(13) 3,488,054 25.3
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. Apollo's address is
c/o Apollo Real Estate Advisors, L.P., 1301 Avenue of the
Americas, 38th Floor, New York, New York 10019.
(2) Does not include 187,712 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
75,000 shares granted pursuant to the Company's 1992 Stock
Option Plan and 43,500 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,
Winnetka, Illinois 60093.
(3) As of the Record Date, the Company has not received a
Schedule 13G or 13D filing from Richardson Greenshields.
<PAGE>
(4) Includes options, which are exercisable within the next
sixty (60) days, to purchase 51,500 shares granted to Mr.
Jenkins pursuant to the Company's 1993 Non-Employee
Directors Stock Option Plan. Also includes 187,712 shares
held in a trust, of which Mr. Jenkins is trustee, for the
benefit of Mr. O'Donnell's children.
(5) Includes options, which are exercisable within the next
sixty (60) days, to purchase 68,500 shares granted to Ms.
Thompson pursuant to the Company's 1990 and 1992 Stock
Option Plans.
(6) Includes options, which are exercisable within the next
sixty (60) days, to purchase 65,000 shares granted to Mr.
Stephens pursuant to the Company's 1990 and 1992 Stock
Option Plans.
(7) Includes options to purchase 55,500 shares granted to Dr.
Cruse pursuant to the Company's 1993 Non-Employee Directors
Stock Option Plan.
(8) Includes options, which are exercisable within the next
sixty (60) days, to purchase 50,000 shares granted to Mr.
DeNucci pursuant to the Company's 1992 Stock Option Plan.
(9) Includes options to purchase 35,500 shares granted to Mr.
Ruff pursuant to the Company's 1993 Non-Employee Directors
Stock Option Plan.
(10) Includes options to purchase 32,500 shares granted to Mr.
Berger pursuant to the Company's 1993 Non-Employee Directors
Stock Option Plan.
(11) Includes options to purchase 32,500 shares granted to
Messrs. Neibart, Spector and Trivilino and 25,000 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 7,000 shares granted to Ms.
Kenny pursuant to the Company's 1990 and 1992 Stock Option
Plans.
(13) Includes options, which are exercisable within the next
sixty (60) days, to purchase 606,500 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 (as amended by agreement between the Company and
the holder of the Series A Preferred Stock), the Preferred
Directors (Messrs. Neibart, Ashner 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. On August 11,
1998, the Apollo loan was repaid as part of a $14 million debt
refinancing loan agreement with Lehman Brothers Holdings Inc.
("Lehman Loan"). The Lehman Loan was made to the Company's two
principal subsidiary entities and is partially guaranteed (to the
extent of liability arising by reason of certain exclusions to
the non-recourse provisions of the loan) by the Company and to a
more limited extent by Apollo Real Estate Investment Fund II,
L.P. ("Apollo"). Apollo, an affiliate of APNH, received a fee in
the amount of $140,000 in consideration of its guarantee. The
terms of the Apollo Loan and the Lehman Loan are described in
more detail in the Notes to Consolidated Financial Statements
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
$84,000 in fees pursuant to this Agreement in 1998.
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, 1999. 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 1998 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.
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 1998 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 2000 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 2000
Annual Meeting, by December 31, 1999.
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, 1998.
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 28, 1999
<PAGE>
(FRONT OF CARD)
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 Avenue, Rosemont,
Illinois on Thursday, May 27, 1999 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 DIRECTOR
/ / FOR the nominee, George L. Ruff
/ / WITHHOLD AUTHORITY to vote for the nominee, George L. Ruff
2. PROPOSAL TO APPROVE THE SELECTION OF ERNST & YOUNG LLP AS
THE INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR
ENDING DECEMBER 31, 1999
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 STOCKHOLDER. IF NO DIRECTION
IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS (1), (2), AND (3).
(Please Sign and Date the Other Side)
(BACK OF CARD)
Dated: , 1999
------------------------------------------------
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.]
