<PAGE>
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:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
SUN HEALTHCARE GROUP, 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.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
101 SUN AVENUE, N.E.
ALBUQUERQUE, NEW MEXICO 87109
June 22, 1998
Dear Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of Sun Healthcare Group, Inc. The meeting will be held on Wednesday, July 22,
1998 at the Company's Rev. Dr. Kay M. Glaesner, Jr. Training Center, 101 Sun
Avenue, N.E., Albuquerque, New Mexico 87109, at 9:00 a.m., local time.
The business to be conducted at the meeting is outlined in the attached
Notice of Annual Meeting and Proxy Statement.
Whether or not you plan to attend the meeting in person, your shares should
be represented and voted at the meeting. Accordingly, after reading the enclosed
Proxy Statement, kindly complete, sign, date and promptly return the proxy in
the enclosed self-addressed envelope. No postage is required if it is mailed in
the United States. If you later decide to attend the meeting and wish to vote
your shares personally, you may revoke your proxy at any time before it is
exercised.
We look forward to seeing you on July 22nd.
Sincerely,
[SIG]
Andrew L. Turner
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
<PAGE>
SUN HEALTHCARE GROUP, INC.
101 SUN AVENUE, N.E.
ALBUQUERQUE, NEW MEXICO 87109
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 22, 1998
------------------------
TO THE STOCKHOLDERS OF SUN HEALTHCARE GROUP, INC.:
The 1998 Annual Meeting of Stockholders of Sun Healthcare Group, Inc., a
Delaware corporation (the "Company"), will be held at the Company's Rev. Dr. Kay
M. Glaesner, Jr. Training Center, 101 Sun Avenue, N.E., Albuquerque, New Mexico
87109, on Wednesday, July 22, 1998, at 9:00 a.m., local time, to consider and
vote on the following matters described in the attached proxy statement:
1. To elect four directors to hold office for three-year terms;
2. To ratify the appointment of Arthur Andersen LLP as independent public
accountants of the Company for the fiscal year ending December 31, 1998;
and
3. To transact such other business as may properly come before the
Company's Annual Meeting, or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on May 28, 1998 as
the record date for determining stockholders entitled to receive notice of and
to vote at the meeting and at any adjournment or postponement thereof. All
stockholders are cordially invited to attend the meeting in person. Whether or
not you plan to attend the Annual Meeting, you are urged to mark, date and sign
the enclosed proxy card and return it at your earliest convenience in the
enclosed envelope. If you attend the Annual Meeting and wish to vote your own
shares in person, you may withdraw your proxy at that time.
For the Board of Directors,
[SIG]
Robert F. Murphy
SECRETARY
June 22, 1998
<PAGE>
SUN HEALTHCARE GROUP, INC.
101 SUN AVENUE, N.E.
ALBUQUERQUE, NM 87109
------------------------
PROXY STATEMENT
---------------------
INTRODUCTION
This Proxy Statement is furnished by the Board of Directors of Sun
Healthcare Group, Inc., a Delaware corporation (the "Company"), in connection
with its solicitation of proxies for use at the Annual Meeting of Stockholders
(the "Annual Meeting") to be held on Wednesday, July 22, 1998, at 9:00 a.m.,
local time, at the Company's Rev. Dr. Kay M. Glaesner, Jr. Training Center, 101
Sun Avenue, N.E., Albuquerque, New Mexico 87109, and at any and all adjournments
or postponements thereof. This Proxy Statement, the attached Notice of Annual
Meeting and the accompanying proxy card are first being mailed to the Company's
stockholders on or about June 22, 1998.
PROXY PROCEDURES
The persons named to serve as proxy holders were selected by the Board of
Directors of the Company. If a proxy card is properly executed and returned
before the Annual Meeting, and not revoked, all shares represented thereby will
be voted at the Annual Meeting, including any adjournments thereof. If a proxy
card specifies the manner in which shares are to be voted, the shares will be
voted in accordance with such specifications. If no such specification is made
on a proxy card which is signed and returned, such shares will be voted as
recommended in this Proxy Statement by the Board of Directors. As to any other
business which may properly come before the meeting, the persons named in the
accompanying proxy card will vote the shares in accordance with their best
judgment. The Company does not presently know of any other business to come
before the meeting.
Execution of a proxy card will not in any way affect a stockholder's right
to attend the meeting and vote in person, and any person giving a proxy has the
right to revoke it at any time before it is exercised by filing with the
Secretary of the Company an instrument revoking it or a duly executed proxy
bearing a later date or by attending the meeting and voting in person.
The cost of solicitation of proxies will be paid by the Company. In
addition, the Company may reimburse banks, brokerage houses and other
custodians, nominees and fiduciaries for expenses incurred in forwarding
solicitation materials to the beneficial holders of stock held of record by such
persons. The Company has not yet determined whether it will retain an outside
company to assist in the distribution and solicitation of proxies. If the
Company decides to do so, it will not spend more than $5,000 plus reimbursement
of customary out-of-pocket expenses. Although it is contemplated that proxies
will be solicited primarily through the mail, the Company may use its directors,
officers and employees, without additional compensation, to conduct solicitation
by telephone, telecopier and other means.
OUTSTANDING SHARES AND VOTING RIGHTS
At the close of business on May 28, 1998, there were outstanding 49,735,426
shares of the Company's common stock, par value $.01 per share (the "Common
Stock"). Only the holders of Common Stock and eligible participants in certain
of the Company's stock based benefit plans on May 28, 1998, the record date for
stockholders entitled to notice of and to vote at the Annual Meeting, are
entitled to vote at the Annual Meeting. Each share of Common Stock is entitled
to one vote on each matter to be voted upon. A majority
1
<PAGE>
of the shares of Common Stock entitled to vote will constitute a quorum for the
transaction of business at the meeting.
Votes cast by proxy or in person at the Annual Meeting will be counted by
the persons appointed by the Company to act as election inspectors for the
Annual Meeting. The election inspectors will treat shares represented by proxies
that reflect abstentions and "broker non-votes" as shares that are present and
entitled to vote for purposes of determining the presence of a quorum. A "broker
non-vote" occurs when a broker votes on some matters on a proxy card but not on
others because the broker does not have discretionary power to vote on a
particular matter. Abstentions and broker non-votes, however, do not constitute
votes "for" or "against" any matter and thus will be disregarded and have no
effect in the calculation of "votes cast" and, accordingly, will not affect the
outcome of the vote.
Directors will be elected by a plurality of the votes cast. Each other
matter to be submitted to a vote of the stockholders at the Annual Meeting must
receive an affirmative vote by a majority of the votes cast to be approved.
Eligible participants in certain of the Company's stock-based benefit plans
are entitled to instruct the trustee of the Sun Healthcare Group, Inc. Grantor
Stock Trust (the "GSOP Trust") on how to vote a designated percentage of the
shares of Common Stock held by the GSOP Trust. The percentage allocated to each
eligible participant is solely for the purpose of voting the shares owned by the
GSOP Trust. Such participants will receive proxy cards to direct the trustee, on
a confidential basis, to vote the shares. If the trustee receives a proxy card
on a timely basis from a participant, it will vote the participant's allocated
shares as the participant instructs. If a participant signs and timely returns a
proxy card without indicating a vote, the trustee will vote that participant's
allocated shares in accordance with the recommendations of the Board of
Directors. Allocations are based on the number of eligible participants who
provide voting instructions to the trustee on a timely basis. All shares held by
the GSOP Trust will be voted by the trustee based on the instructions received
from eligible participants.
2
<PAGE>
BENEFICIAL OWNERSHIP OF COMPANY SHARES
EQUITY OWNERSHIP OF MANAGEMENT
The following table and footnotes set forth certain information regarding
the beneficial ownership of Common Stock as of May 28, 1998 by (i) each
director, (ii) the Named Executive Officers (as defined below) and (iii) all
directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
SHARES PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) CLASS(1)(%)
- ------------------------------------------------------- ----------------------- -------------
<S> <C> <C>
Andrew L. Turner....................................... 6,898,712(2)(3) 13.8%
William R. Anixter..................................... 2,000 *
John E. Bingaman....................................... 185,354(3)(4) *
Zev Karkomi............................................ 86,704(3)(5) *
Robert A. Levin........................................ 180,727(3)(6) *
Martin G. Mand......................................... 5,354(3)(7) *
Robert F. Murphy....................................... 48,742(3) *
Lois E. Silverman...................................... 6,954(3)(8) *
James R. Tolbert, III.................................. 10,814(3)(8) *
Mark G. Wimer.......................................... 162,600(3)(9) *
Robert D. Woltil....................................... 76,944(3)(10) *
R. James Woolsey....................................... 5,250(3)(11) *
All directors and executive officers as a group (20 7,859,831(12)
persons, including those named above)................ 15.6%
</TABLE>
- ------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. Shares of Common Stock subject to options currently exercisable,
or exercisable within 60 days of May 28, 1998, are deemed outstanding for
computing the percentage of the person holding such option but are not
deemed outstanding for computing the percentage of any other person. Except
as indicated in the footnotes to this table and pursuant to applicable
community property laws, the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock beneficially
owned.
(2) Includes 153,000 shares of Common Stock owned by the Turner Children's
Trust, 26,024 shares of Common Stock held by the Andrew and Nora Turner
Trust and 263,645 shares of Common Stock owned by the Turner Family
Foundation (Mr. Turner disclaims beneficial ownership of these shares). Also
includes currently exercisable options to purchase 200,000 shares of Common
Stock.
(3) Includes restricted shares awarded under the Company's 1997 Stock Incentive
Plan and 1997 Non-Employee Directors' Plan which may be subject to a
substantial risk of forfeiture. The number of restricted shares included for
each person listed above as having restricted shares is as follows: Mr.
Turner--200,800; Mr. Bingaman--2,151; Mr. Karkomi--2,151; Mr. Levin--73,200;
Mr. Mand-- 2,151; Mr. Murphy--35,400; Mr. Schelling--34,800; Ms.
Silverman--2,176; Mr. Tolbert--2,141; Mr. Wimer--74,400; Mr. Woltil--39,600;
and Mr. Woolsey--2,000.
(4) Includes currently exercisable options to purchase 42,750 shares of Common
Stock.
(5) Includes 200 shares owned by Mr. Karkomi's grandson. Mr. Karkomi disclaims
beneficial ownership of these shares. Also includes currently exercisable
options to purchase 42,750 shares of Common Stock.
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<PAGE>
(6) Includes 3,000 shares owned by Mr. Levin and his wife, as to which Mr.
Levin has shared voting and investment power. Also includes currently
exercisable options to purchase 58,000 shares of Common Stock.
(7) Includes currently exercisable options to purchase 2,750 shares of Common
Stock.
(8) Includes currently exercisable options to purchase 3,250 shares of Common
Stock.
(9) Includes currently exercisable options to purchase 58,000 shares of Common
Stock.
(10) Includes 5,000 shares owned by Mr. Woltil and his wife, as to which Mr.
Woltil has shared voting and investment power. Also includes currently
exercisable options to purchase 16,667 shares of Common Stock.
(11) Includes currently exercisable options to purchase 3,250 shares of Common
Stock.
(12) Includes an aggregate of 508,169 shares of Common Stock issuable upon the
exercise of options that are currently exercisable or subject to vesting
within 60 days of May 28, 1998. Also includes an aggregate of 512,970
restricted shares awarded under the 1997 Stock Incentive Plan and 1997 Non-
Employee Directors' Plan which may be subject to a substantial risk of
forfeiture.
EQUITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
The following table and footnotes set forth certain information with respect
to each person believed by the Company to be the beneficial owner of more than
five percent of Common Stock as of May 28, 1998:
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) CLASS(1)(%)
- ------------------------------------------------------------- ----------------- -------------
<S> <C> <C>
Andrew L. Turner ............................................ 6,898,712(2) 13.8%
Sun Healthcare Group, Inc.
101 Sun Avenue, N.E.
Albuquerque, New Mexico 87109
Tweedy, Browne Company LLC .................................. 2,996,649(3) 6.0%
52 Vanderbilt Avenue
New York, New York 10017
The Crabbe Huson Group, Inc. ................................ 2,707,900(4) 5.4%
121 SW Morrison, Suite 1400
Portland, Oregon 97204
</TABLE>
- ------------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. Shares of Common Stock subject to options currently exercisable,
or exercisable within 60 days of May 28, 1998, are deemed outstanding for
computing the percentage of the person holding such option but are not
deemed outstanding for computing the percentage of any other person. Except
as indicated in the footnotes to this table and pursuant to applicable
community property laws, the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock beneficially
owned.
(2) Includes 153,000 shares of Common Stock owned by the Turner Children's
Trust, 26,024 shares of Common Stock held by the Andrew and Nora Turner
Trust and 263,645 shares of Common Stock owned by the Turner Family
Foundation (Mr. Turner disclaims beneficial ownership of these shares). Also
includes 200,800 restricted shares awarded under the Stock Incentive Plan
which may be subject to a substantial risk of forfeiture and currently
exercisable options to purchase 200,000 shares of Common Stock.
4
<PAGE>
(3) Based on a Form 13F filed with the Commission in May, 1998.
(4) Based on a Form 13F filed with the Commission in May, 1998.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
The Bylaws of the Company provide that the Board of Directors shall be
classified into three classes as nearly equal in number as possible, such that
approximately one-third of the members of the Board shall be elected at each
annual meeting of stockholders and each director shall serve for a three-year
term.
The Board of Directors currently is comprised of ten members and there are
four director positions in the class whose term of office expires in 1998. The
Board of Directors has designated John E. Bingaman, Martin G. Mand, James R.
Tolbert, III and R. James Woolsey as nominees for election to three-year terms
expiring in 2001 and until their successors are elected and qualified. Each
nominee has consented to being named in this Proxy Statement and to serve as a
director if elected. There are no family relationships among any directors,
executive officers or nominees. Each of the nominees for election is currently
serving as a director of the Company.
The Board of Directors knows of no reason why any nominee may be unable to
serve as a director. If any nominee is unable to serve, the shares represented
by all valid proxies received may be voted for a substitute nominee designated
by the Board or the Board may reduce the number of directors. If any director
resigns, dies or is otherwise unable to serve out his or her term, or the number
of directors is increased by the Board, any vacancy so arising may be filled by
the Board. A director elected to fill a vacancy shall serve for the remainder of
the full term of the class of directors in which the vacancy occurred or the new
directorship was created.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
ELECTION OF ALL NOMINEES FOR DIRECTOR.
Biographical information follows for each person nominated and each person
whose term of office as a director will continue after the Annual Meeting.
Directors' ages are as of the date of the Annual Meeting.
NOMINATIONS FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2001 ANNUAL
MEETING
JOHN E. BINGAMAN, age 52, became a director of the Company in 1993. Mr.
Bingaman also served as a consultant to the Company from 1994 to 1996. Since
1993, Mr. Bingaman has been Vice President of BKS Properties. From 1993 to 1994,
Mr. Bingaman was the President of Four Seasons Healthcare Management, Inc.,
which was the Company's subsidiary that managed certain long-term care
facilities through management contracts. Between 1984 and July 1993, Mr.
Bingaman was Chief Executive Officer of Honorcare Corporation ("Honorcare"), a
provider of long-term care services, responsible for the overall management and
strategic planning of Honorcare. Mr. Bingaman has over 25 years of experience in
the long-term care industry.
MARTIN G. MAND, age 61, became a director of the Company in 1996. Since
1995, Mr. Mand has been Chairman, President and Chief Executive Officer of Mand
Associates, Limited, a financial consulting, speaking and writing firm. Mr. Mand
was previously Executive Vice President and Chief Financial Officer of Northern
Telecom, Ltd., a global manufacturer of telecommunications equipment, from 1990
to 1994. Mr. Mand also previously served as Vice President and Treasurer of E.I.
du Pont de Nemours & Co., a chemical, allied products and energy company. Mr.
Mand also serves on the Board of Directors of the Fuji Bank and Trust Company.
JAMES R. TOLBERT, III, age 63, became a director of the Company in 1995 and
was appointed Lead Independent Director of the Board of Directors in 1998. Mr.
Tolbert has served as the Chairman,
5
<PAGE>
President, Chief Executive Officer and Treasurer of First Oklahoma Corporation,
a holding company, since 1986. Mr. Tolbert has over 15 years of experience in
the nursing home industry. In addition, Mr. Tolbert is a member of the Board of
Directors of Bonray Drilling Corporation, a corporation engaged in domestic
onshore contract drilling of oil and gas wells.
R. JAMES WOOLSEY, age 56, became a director of the Company in 1995. Mr.
Woolsey has been a partner in the law firm of Shea & Gardner since 1995, where
he previously had been a partner from 1980 to 1989 and from 1991 to 1993. From
1993 to 1995, Mr. Woolsey served as the Director of Central Intelligence for the
United States government. From 1989 to 1991, Mr. Woolsey was the Ambassador and
U.S. Representative to the Negotiation on Conventional Armed Forces in Europe.
In addition, Mr. Woolsey is a member of the Board of Directors of Fibersense
Technology Corporation, a fiberoptics sensor company.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1999 ANNUAL MEETING
ZEV KARKOMI, age 74, became a director of the Company in 1993. Mr. Karkomi
has over 25 years of experience in the real estate business, with a primary
emphasis on properties owned and leased to long-term healthcare operators. He
has served as President of Karell Capital Ventures, Inc., a corporation involved
in the acquisition, sale, leasing and management of long-term care facilities,
since 1980. Mr. Karkomi also serves as the President of Zevco Enterprises, Inc.
and Executive Vice President and Chairman of the Board of Progressive Health
Group, Inc., real estate investment companies.
LOIS E. SILVERMAN, age 57, became a director of the Company in 1995. Ms.
Silverman is a director of CONCENTRA Managed Care, Inc., a publicly owned
provider of services to reduce the costs of workers' compensation, automobile,
disability and health insurance claims. Ms. Silverman was a co-founder, served
as the Chairman of the Board of CRA Management Care, Inc. from 1994 to September
1997 and as its Chief Executive Officer from 1988 to 1995. Ms. Silverman is the
President of the Commonwealth Institute, a nonprofit organization she
established in 1997 for the advancement of women entrepeneurs. Ms. Silverman is
also a director of CareGroup and Immunetics, a member of the Dean's Council of
the Harvard School of Public Health, an overseer of Tufts University Medical
School and a Trustee at the Hebrew Rehabilitation Center for the Aged at Simmous
College.
MARK G. WIMER, age 45, became a director of the Company in 1993. Mr. Wimer
became the President and Chief Operating Officer in September 1997. Mr. Wimer
had previously served as Senior Vice President for Inpatient Services from 1996
until September 1997. Mr. Wimer previously served as the President of SunRise
Healthcare Corporation ("SunRise"), from 1993 until 1995. From 1988 to 1993, Mr.
Wimer was President and Chief Executive Officer of Franciscan Eldercare
Corporation, a non-profit organization that developed and managed long-term care
facilities. From 1984 through 1988, Mr. Wimer was Regional Vice President of
Operations for The Hillhaven Corporation ("Hillhaven") and had responsibility
for management of long-term care facilities for Hillhaven in Washington, Oregon,
Idaho and Montana.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2000 ANNUAL MEETING
ANDREW L. TURNER, age 51, is Chairman of the Board of Directors and Chief
Executive Officer of the Company. Mr. Turner has served in each of these
capacities for the Company since its formation and served as President of the
Company from the Company's formation until September 1997. Mr. Turner is also
the founder of the Company and has overseen the development of the Company's
business since its inception in 1989. Mr. Turner was also a founder and
previously served as Chief Operating Officer of Horizon Healthcare Corporation,
a healthcare services provider, from 1986 to 1989. Prior to 1986, Mr. Turner
served as a Senior Vice President of Operations of Hillhaven. Mr. Turner has
over 20 years of experience in the long-term care industry. Mr. Turner is also a
member of the Board of Directors of Watson Pharmaceuticals, Inc., a
pharmaceutical products company, and of The Sports Club Company, Inc., an
operator of sports and fitness clubs.
6
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WILLIAM R. ANIXTER, age 74, became a director of the Company in April 1998
to fill the vacancy on the Board created when Robert A. Levin stepped down as a
director. Mr. Anixter has been the President of Chama Resources, Inc., a
privately held real estate management company, since 1989. He was co-founder and
vice chairman of Anixter Bros., Inc., a publicly owned international distributor
of wire, cable, fiber optics and related networking products, which was sold to
an investor group in 1986. Mr. Anixter also serves on the boards of Anicom,
Inc., a publicly owned distributor of communications-related equipment, the
United World College and the Boys Club of Albuquerque.
ROBERT D. WOLTIL, age 43, became a director of the Company in 1996. Mr.
Woltil became the Chief Financial Officer of the Company in 1996. From 1982 to
1996, Mr. Woltil served in various capacities for Beverly Enterprises, Inc.
("Beverly"), a healthcare services provider. From 1995 until 1996, Mr. Woltil
was President and Chief Executive Officer of Pharmacy Corporation of America, a
subsidiary of Beverly. From 1992 to May 1995, Mr. Woltil was the Chief Financial
Officer of Beverly, and from 1990 to 1992, Mr. Woltil was the Vice
President--Financial Planning and Control for Beverly. Mr. Woltil is also a
certified public accountant.
COMMITTEES OF THE BOARD AND BOARD ATTENDANCE
COMMITTEES OF THE BOARD
To assist in the discharge of its responsibilities, the Board of Directors
has established an Audit Committee, a Compensation Committee and a Nominating
Committee. The members of these standing committees are elected by the Board of
Directors and serve at the pleasure of the Board.
AUDIT COMMITTEE. The Audit Committee has the responsibility of making
recommendations to the Board concerning the engagement of the Company's
independent public accountants, reviewing the overall scope and results of the
annual audit and performing such functions as may be prescribed by the Board.
The Audit Committee also reviews proposed audit fees, fiscal year-end audit
results and the internal financial controls of the Company. In 1997, the Audit
Committee was comprised of James R. Tolbert, III, Zev Karkomi, Lois E.
Silverman, Martin G. Mand and John E. Bingaman. None of these members were
employees of the Company. The Audit Committee met eight times during 1997, and
each member of the Audit Committee attended all Audit Committee meetings.
COMPENSATION COMMITTEE. The Compensation Committee is authorized to review
the compensation of the senior officers of the Company and to determine
salaries, bonuses, stock options and any other forms of equity-based
compensation, to review recommendations to the Board concerning the compensation
of the directors and to perform such other functions as the Board may direct.
The Compensation Committee also administers the Company's stock option plans for
employees. In 1997, the Compensation Committee was initially comprised of Lois
E. Silverman and Messrs. Mand and Woolsey. In June 1997, Mr. Woolsey was
replaced by James R. Tolbert, III. None of these members were employees of the
Company. In 1997, the Compensation Committee held seven meetings, and each
member of the Compensation Committee as of the date of such meetings attended
the meetings with one exception.
NOMINATING COMMITTEE. The Nominating Committee was formed by the Board of
Directors in September, 1997, however it did not meet during 1997. In April,
1998 the Committee met to consider the candidacy and recommend the nomination of
Messrs. Anixter, Bingaman, Mand, Tolbert and Woolsey. The Nominating Committee,
among other things, recommends to the Board of Directors (i) candidates to be
nominees for election to the Board of Directors at annual meetings of
stockholders and to fill any newly created directorships or vacancies on the
Board of Directors and (ii) candidates for appointment to the committees of the
Board of Directors. The Nominating Committee will consider nominating a director
candidate recommended by a stockholder upon the submission of a recommendation
in accordance with Article I, Section 13 of the Company's Bylaws. See
"Stockholder Proposals." The Nominating Committee
7
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is currently comprised of Andrew L. Turner, Zev Karkomi and Lois Silverman.
Following the 1998 Annual Meeting, the Nominating Committee will be composed
solely of non-employee directors.
ATTENDANCE AT BOARD MEETINGS
During 1997, the Board of Directors held 12 meetings by conference call or
in person and took two actions by written consent. No director attended fewer
than 75% of the total meetings of the Board of Directors.
NON-EMPLOYEE DIRECTOR COMPENSATION
Non-employee directors of the Company are entitled to receive an annual fee
of $24,000, which is payable in four equal quarterly installments. In addition,
each Chairperson of a committee of the Board of Directors is entitled to receive
an additional annual fee of $4,000, payable in four equal quarterly
installments. The Lead Independent Director of the Board of Directors is
entitled to an annual fee of $12,000, which is payable in four equal quarterly
installments. Effective April 11, 1997, non-employee directors and Committee
Chairpersons have the election of receiving (i) the entire annual retainer and
Committee Chairpersons fees, if applicable, in cash, or (ii) one-half of the
retainer and Committee Chairperson fees, if applicable, in cash and the
remaining one-half in the form of restricted common stock awards. If restricted
stock is elected, for every dollar of cash given up, the recipient will receive
restricted stock worth $1.10.
Prior to April 11, 1997, non-employee directors were also entitled to
receive fees of $1,200 for each Board of Directors meeting attended in person,
$500 for each Board of Directors meeting attended by telephone and $500 for each
Committee meeting of the Board of Directors attended in person or by telephone,
plus reimbursement of out-of-pocket expenses for attendance at such meetings.
Effective April 11, 1997, the fee for the first Board of Directors meeting or
Committee meeting attended in person by a non-employee director in a single day
was increased to $1,750. Directors are entitled to an additional $500 for each
subsequent meeting attended that same day. The fees for any meetings that are
attended by telephone are $500. In addition, pursuant to the 1997 Non-Employee
Directors' Stock Plan, (i) non-employee directors already serving on the Board
are awarded annually 2,000 shares of restricted common stock and non-qualified
stock options to purchase 4,000 shares of common stock and (ii) non-employee
directors who are elected to the Board for the first time or after a period of
not serving on the Board are entitled to one-time awards of 5,000 shares of
restricted common stock and non-qualified stock options to purchase 10,000
shares of common stock.
8
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides information concerning the annual and long-term
compensation for services in all capacities to the Company and its subsidiaries
for the fiscal years shown of those persons ("Named Executive Officers") who
were, during the latest fiscal year, (i) the chief executive officer and (ii)
the other four most highly compensated executive officers of the Company:
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
-------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
---------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARDS($)(1) OPTIONS(#) COMPENSATION($)
- ------------------------------------ --------- ---------- ---------- ------------ ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Andrew L. Turner ................... 1997 $ 537,312 $ 550,000 $5,409,625 -- $ 5,771(2)
Chief Executive Officer 1996 500,000 250,000 -- -- 3,795
1995 500,000 -- -- 100,000 2,321
Mark G. Wimer ...................... 1997 367,387 255,000 2,712,500 -- 1,503(3)
President and Chief Operating 1996 322,516 125,000 -- 15,000 1,770
Officer 1995 281,261 125,000 -- 15,000 720
Robert D. Woltil ................... 1997 374,428 240,000 1,443,750 -- 870(4)
Chief Financial Officer 1996 296,164(5) 125,000 -- 25,000 503
Robert A. Levin .................... 1997 341,193 138,000 2,668,750 -- 1,503(6)
Senior Vice President- 1996 330,202 -- -- 15,000 1,554
Rehabilitation Services 1995 281,261 125,000 -- 15,000 1,556
Robert F. Murphy ................... 1997 267,469 108,000 1,299,625 -- 685(7)
Senior Vice President, General 1996 260,000 100,000 -- -- 457
Counsel and Secretary 1995 35,000(8) -- -- 10,000 --
</TABLE>
- ------------------------
(1) Restricted stock awards are valued at the Company's closing stock price on
the date of grant. Dividends, if any, would be paid on restricted shares at
the same rate paid to all stockholders. The Named Executive Officers held
the following shares of restricted stock valued at December 31, 1997 at a
closing price of $19.375 per share:
<TABLE>
<CAPTION>
NUMBER OF MARKET VALUE
SHARES AT 12/31/97
----------- ------------
<S> <C> <C>
Mr. Turner......................................................... 251,000 $4,863,125
Mr. Wimer.......................................................... 99,200 1,922,000
Mr. Woltil......................................................... 52,800 1,023,000
Mr. Levin.......................................................... 97,600 1,891,000
Mr. Murphy......................................................... 47,200 914,500
</TABLE>
(2) Consists of $236 of matching contributions under the Company's 401(k) Plan
and the payment of $5,535 of life insurance premiums.
(3) Consists of $236 of matching contributions under the Company's 401(k) Plan
and the payment of $1,267 of life insurance premiums.
(4) Consists of $236 of matching contributions under the Company's 401(k) Plan
and the payment of $634 of life insurance premiums.
(5) Salary for 1996 represents amounts paid to Mr. Woltil in 1996 after the
commencement of his employment by the Company in February 1996. Mr. Woltil's
annualized salary for 1996 would have been $350,000.
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<PAGE>
(6) Consists of $236 of matching contributions under the Company's 401(k) Plan
and the payment of $1,267 of life insurance premiums.
(7) Consists of $236 of matching contributions under the Company's 401(k) Plan
and the payment of $449 of life insurance premiums.
(8) Salary for 1995 represents amounts paid to Mr. Murphy in 1995 after the
commencement of his employment by Sun in November 1995. Mr. Murphy's
annualized salary for 1995 would have been $260,000.
OPTION GRANTS IN LAST FISCAL YEAR
None of the Named Executive Officers were granted stock options during the
year ended December 31, 1997.
FISCAL YEAR-END OPTION VALUES
Set forth in the table below is information concerning the value of stock
options held as of December 31, 1997 by each of the Named Executive Officers.
None of the Named Executive Officers exercised any stock options during the year
ended December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS-AT-YEAR-END-(#) AT-YEAR-END-($)(1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Andrew L. Turner.......................................... 100,000 100,000 $ -- $ --
Mark G. Wimer............................................. 38,000 25,000 240,625 62,500
Robert D. Woltil.......................................... 8,334 16,666 58,338 116,662
Robert A. Levin........................................... 38,000 25,000 240,625 62,500
Robert F. Murphy.......................................... -- 10,000 -- 98,750
</TABLE>
- ------------------------
(1) Based on the closing price of the Common Stock, as reported on the New York
Stock Exchange, at December 31, 1997, which was $19.375 per share.
EMPLOYMENT AGREEMENT
Mr. Turner had a five-year Employment Agreement with the Company which
expired on June 2, 1998. Mr. Turner and the Company are currently in the process
of preparing a new five-year Employment Agreement. The Employment Agreement will
provide for an annual salary of $700,000 effective as of April 1, 1998, with an
increase of $150,000 on each of April 1, 1999 and 2000.
SEVERANCE AGREEMENTS
The Company has entered into severance agreements (the "Severance
Agreements") with certain executive officers, including the Named Executive
Officers. Each Severance Agreement provides that in the event of the
"involuntary termination" of the executive, he or she will be entitled to
receive any accrued but unpaid salary plus a pro rata portion of annual bonus.
An "involuntary termination" is defined as a termination by the Company for
reasons other than an executive's disability that do not constitute "cause" or
an executive's resignation for "good reason." In addition, the executive will be
entitled to a severance payment equal to two times salary at the rate in effect
at the time of the executive's involuntary termination, or, in the event that
such termination occurs within two years following a change in control of the
Company (as defined below), a severance payment equal to three times salary at
the rate then in effect. The executive will continue to receive health and other
benefits for a period of two years following his or her involuntary termination
(or for a period of three years in the event that such termination occurs
following a change in control of the Company). The Severance Agreements also
provide for a gross-up
10
<PAGE>
payment to be made to the executives, if necessary to eliminate the effects of
the imposition of the excise tax under Section 280G of the Code on the payments
made thereunder. The Severance Agreements contain noncompetition and
nondisclosure covenants.
For purposes of the Severance Agreements, "change in control" is generally
defined as (i) the acquisition by a person or group of beneficial ownership
representing 33 1/3% of the Company's then outstanding voting stock, (ii)
stockholder approval of a merger or consolidation of the Company other than a
merger or consolidation in which the voting securities of the Company
outstanding immediately prior thereto continues to represent at least 66 2/3% of
the combined voting power of the surviving entity's outstanding voting
securities, (iii) under certain conditions, a change in the majority of the
Board of Directors of the Company, or (iv) stockholder approval of a
reorganization of the Company or a sale of substantially all of the Company's
assets.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act and the rules promulgated thereunder
require the Company's directors and executive officers and persons who own more
than ten percent of the Company's Common Stock to report their ownership and
changes in their ownership of Common Stock to the Securities and Exchange
Commission (the "Commission") and the New York Stock Exchange. Copies of the
reports must also be furnished to the Company. Specific due dates for the
reports have been established by the Commission and the Company is required to
report in this Proxy Statement any failure of its directors, executive officers
and more than ten percent stockholders to file by these dates.
Based solely on a review of the copies of such forms received by it and the
Commission, written representations from certain reporting persons that no Forms
5 were required for those persons, the Company believes that during 1997 all
Section 16(a) filing requirements applicable to its directors, executive
officers and greater than ten percent beneficial owners were met with the
exception of (i) Andrew P. Masetti whose Form 3 was filed one week late due to
an oversight and (ii) Thomas Hamilton who reported one transaction reportable on
Form 4 one month late due to an oversight.
RELATED PARTY TRANSACTIONS
Mr. Turner, the Chief Executive Officer of the Company, guarantees the
Company's obligations under a lease for a nursing home in Connecticut. Mr.
Turner is the guarantor of subleases on three facilities in Illinois, the
sublessor of which is a company co-owned by Mr. Karkomi, a member of the
Company's Board of Directors. Mr. Karkomi's company, in turn, is the guarantor
of the master lease. Mr. Turner also guarantees the Company's obligations under
one facility lease in Washington.
From time to time, the Company incurred costs on behalf of and engaged in
various transactions with Mr. Turner with respect to personal automobiles and
home furnishings, resulting in indebtedness totaling $140,991. In 1997, Mr.
Turner repaid such amount in full, together with interest at an average rate of
6.4%.
Kenneth C. Noonan, Senior Vice President--Business Development, is indebted
to the Company in the amount of $380,000 at an interest rate of 8%. The Company
entered into a short-term loan with Mr. Noonan for this amount in connection
with his relocation in 1997 to the Company's headquarters in Albuquerque.
11
<PAGE>
Mr. Woolsey, in his capacity as a partner in the law firm of Shea & Gardner,
provided certain legal services to the Company in 1997. The total amount paid to
Shea & Gardner in 1997 for such services was approximately $24,000.
As of December 31, 1997, the Company's nursing home subsidiary, SunRise, was
a lessee or sublessee of 57 facilities from partnerships or corporations in
which Mr. Karkomi was a general partner, stockholder or director. These
arrangements were entered into from February 1989 to June 1997, with varying
lease terms. Approximately 50% of the facilities are under ten-year terms. The
aggregate lease payments, including base rents, contingent rents and other
miscellaneous payments in connection with these leases, totaled approximately
$18.3 million in 1997.
As of December 31, 1997, SunRise was a lessee or assignee of seven
facilities from partnerships in which Mr. Bingaman had an equity interest of
greater than ten percent. Each of these lease arrangements was entered into
prior to the closing of the acquisition of Honorcare. All of the leases
commenced on July 13, 1993 and terminate in 2001. The aggregate lease payments,
including base rents, contingent rents and other miscellaneous payments in
connection with these leases, totaled approximately $2.2 million in 1997. In
January and February 1998, Mr. Bingaman sold his partnership interests that
leased five of these facilities.
The Company believes the terms of all of the foregoing transactions are as
favorable to the Company as those that could have been obtained from
non-affiliated parties in arm's-length transactions. However, the Company's
contractual relationship with entities affiliated with members of the Board of
Directors creates the potential for conflicts of interest.
COMPENSATION COMMITTEE REPORT
This report sets forth information on the compensation and benefits provided
to the Chief Executive Officer and other executive officers of the Company
during 1997 and has been prepared by the Compensation Committee (the
"Committee") of the Board of Directors.
At the beginning of 1997, the Committee was comprised of three members, Lois
E. Silverman, R. James Woolsey and Martin G. Mand, all non-employee directors of
the Company. In June 1997, Mr. Woolsey was replaced by James R. Tolbert, III,
also a non-employee director of the Company. The basis for the changes in
committee membership was to ensure that the Committee is composed solely of
"outside directors" for purposes of Section 162(m) of the Code. Under Section
162(m), persons who are remunerated by the Company, either directly or
indirectly, in any capacity other than as a director do not qualify as "outside
directors." See "Compensation Committee Interlocks and Insider Participation in
Compensation Decisions."
COMPENSATION OBJECTIVES
The Company has pursued and intends to continue to pursue a long-term
operating strategy of growth through (i) selective acquisitions of long-term and
subacute care facility operations, (ii) increased facility profitability through
active marketing and by offering rehabilitation therapy, subacute care,
institutional pharmaceutical services and other specialized services, and (iii)
expansion of rehabilitation therapy, institutional pharmaceutical services and
other ancillary services provided to non-affiliated long-term and subacute care
facilities. The objectives of the compensation program for executives of the
Company are to attract and retain the highest quality senior management team
possible, to motivate exceptional performance, and to inspire teamwork among the
executives and loyalty to the Company's objectives.
In 1996 the Committee engaged Deloitte & Touche LLP ("Deloitte & Touche") as
compensation consultants to review the total compensation provided to the
Company's senior executives, to compare such compensation to the compensation
provided to executives in a selected peer group of companies and to determine
whether the Company's then current compensation structure was appropriate to
achieve the
12
<PAGE>
Company's objectives. Deloitte & Touche found that the base salaries and annual
incentive bonuses paid to the Company's senior executives were below the market
midpoint and the senior executives' long-term incentive compensation was
significantly below the market midpoint. Deloitte & Touche recommended that the
base salaries and potential annual incentive bonuses of the Company's executives
be within 90% of the market midpoint for each position, and that more emphasis
be placed on long-term performance based incentives. The Committee acted on the
Deloitte & Touche recommendations in making its decisions with respect to 1997
salaries, bonuses and long-term incentive compensation.
During the course of 1997, the Company underwent substantial growth in the
complexity of its businesses and its geographic reach. Several significant
acquisitions were accomplished and annual revenues increased 54% to in excess of
$2.0 billion. In addition, the Company's net earnings increased over 1996 from
$21.5 million to $34.8 million and diluted earnings per share increased from
$.46 to $.74. This significant growth led to the Committee's decision to conduct
another competitive analysis of the Company's executive compensation programs.
In November 1997, the Committee engaged The Hay Group ("Hay"), as an executive
compensation consultant, to perform an analysis of the total compensation
package of the Company's senior executives, its mid-level corporate executives
and its senior operations executives. Hay completed its review in February 1998
and the Compensation Committee acted on the Hay recommendations in approving
annual bonuses for 1997.
COMPENSATION PROGRAMS
In reviewing the compensation of the senior executives, the Committee
considers four factors: (i) base salary; (ii) annual incentive bonus; (iii)
long-term incentive compensation; and (iv) benefits, including retirement
programs and perquisites.
BASE SALARIES
In March of each year the Committee reviews the base salary of each
executive officer of the Company to determine whether adjustments are
appropriate. With respect to senior executives other than the Chief Executive
Officer, the Committee considers the recommendations of Mr. Turner in
determining salary adjustments. The base salary of the Chief Executive Officer
is set by the Committee.
CHIEF EXECUTIVE OFFICER. Effective April 1, 1997, the Committee increased
Mr. Turner's annual salary by $50,000 to $550,000. This represented the first
increase in Mr. Turner's salary since 1994. The Committee's determination to
increase Mr. Turner's salary for 1997 was based on the findings from the
Deloitte & Touche study which showed that Mr. Turner's salary was below the
market midpoint for his position and the Company's progress in achieving growth
despite the cloud of an ongoing regulatory investigation.
OTHER EXECUTIVE OFFICERS. The April 1, 1997 salary adjustments for the
Company's executive officers (including the Named Executive Officers) were
established by the Committee based upon a review of the market midpoint base
salaries provided by Deloitte & Touche. In establishing these salaries, the
Committee also evaluated the responsibilities of the position held by and the
experience of each officer, and the performance of each officer in achieving
individual and organizational goals during the preceding year. In September
1997, Mr. Wimer and Mr. Woltil received promotions resulting in increased
responsibilities. At that time, the Committee approved increases in their base
salaries.
ANNUAL INCENTIVE BONUS
The Company's annual incentive bonus program for executive officers is
designed to motivate exceptional operational performance which results in the
attainment of the Company's annual financial, strategic and quality goals. At
the recommendation of the Chief Executive Officer, the annual bonus plan for
Senior Vice Presidents for 1997 provided for bonuses of up to 40% of the base
salary of each executive
13
<PAGE>
involved, based upon a combination of objective and qualitative factors
including the Company's achievement of preestablished earnings objectives. With
respect to executives other than the Chief Executive Officer, the Committee
considered the recommendations of Mr. Turner in determining actual bonus
payouts. In its study, Deloitte & Touche recommended that the annual incentive
plan include all members of the executive management team and that targeted
incentives be developed with a system of tiers using system-wide performance
criteria.
The substantial growth in the Company's business during 1997 and the
promotions received and additional responsibilities taken on by Mr. Wimer and
Mr. Woltil during the course of the year prompted a review of the compensation
which they received. This analysis was completed as a part of the Hay study in
February 1998 and resulted in an increase in the 1997 bonuses paid to these
individuals to 60% of their base salary rates at the end of 1997.
CHIEF EXECUTIVE OFFICER. Mr. Turner was awarded a bonus of $550,000 for
1997. In determining Mr. Turner's bonus the Committee considered several
factors, including Mr. Turner's success in strengthening the Company's senior
management team and leading and achieving continued growth in revenue in each of
the Company's major lines of business. The Committee also took into
consideration the results of the Hay analysis which showed that the average
target bonus for CEOs was 75% and the average maximum bonus was 130% of salary.
OTHER NAMED EXECUTIVE OFFICERS. Based on their success in achieving their
objectives for 1997, the Committee approved bonuses of $255,000 to Mr. Wimer,
$240,000 to Mr. Woltil, $138,000 to Mr. Levin and $108,000 to Mr. Murphy.
LONG TERM INCENTIVE COMPENSATION
In its 1996 study, Deloitte & Touche determined that the Company's long term
incentive compensation was not competitive with peer group organizations and
recommended that actions be taken to align the Company's long term incentive
opportunity for each executive with the targeted market midpoint. Specifically,
Deloitte & Touche recommended that a one-time restricted stock award be made to
certain executive officers to create immediate equity ownership among the
executive team that was competitive with the long term incentives earned by
their counterparts within the peer group studied by Deloitte & Touche. The
Committee approved this recommendation.
CHIEF EXECUTIVE OFFICER. Based on the recommendation of Deloitte & Touche
in January 1997, the Committee made a one-time award to Mr. Turner of 251,000
shares of restricted stock. The shares vest in five equal annual installments
beginning on the first anniversary of the date of grant. Non-vested shares are
subject to forfeiture if Mr. Turner's employment terminates prior to the last
vesting date.
OTHER NAMED EXECUTIVE OFFICERS. Based on the recommendations of Deloitte &
Touche, the Committee made a one-time award of the following numbers of
restricted shares to the other Named Executive Officers: Mr. Wimer, 124,000
shares; Mr. Woltil, 66,000 shares; Mr. Levin, 122,000 shares; and Mr. Murphy,
59,000 shares. One fifth of these shares were vested immediately because these
executives had been promised a new long-term equity incentive benefit for over a
year. The remaining shares vest in four equal annual installments beginning on
the first anniversary of the date of award. Non-vested shares are subject to
forfeiture if the Named Executive Officers' employment terminates prior to the
last vesting date.
None of the Named Executive Officers received stock option awards during
1997.
BENEFITS
The Company's executives receive the retirement, health and welfare benefits
which are available to all the Company employees. Executives are eligible for
participation in the Company's 401(k) Retirement
14
<PAGE>
Savings Plan, consistent with annually-determined limits for highly compensated
employees and Federal contribution limits. A non-qualified, voluntary Executive
Deferred Compensation Plan is also available for the Company's senior managers,
with no matching provision. Beginning in February 1998, the executive officers
are eligible to participate in the Company's non-qualified Employee Stock
Purchase Plan. Other benefits, or perquisites which are approved by the
Committee, such as a company automobile, may be provided at the discretion of
the Chief Executive Officer with approval of the Committee.
POLICY ON DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Under Section 162(m) of the Code, the Company is generally precluded from
deducting compensation in excess of $1 million per year for its Chief Executive
Officer and any of its four highest-paid executive officers, unless the payments
are made under qualifying performance-based plans. As discussed above, the
composition of the Committee changed during 1997 in order to ensure that Section
162(m)'s requirements for deductibility will be met with respect to certain
compensation paid to the executive officers of the Company.
While it is the Committee's intention to maximize the deductibility of
compensation paid to executive officers, deductibility will be only one among a
number of factors used by the Committee in ascertaining appropriate levels or
modes of compensation. The Committee intends to maintain the flexibility to
compensate executive officers based upon an overall determination of what it
believes to be in the best interests of the Company and its stockholders.
Lois E. Silverman, Chairperson
Martin G. Mand
James R. Tolbert III
15
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The following graph and chart compare the cumulative total stockholder
return for the period from July 2, 1993 through December 31, 1997 on an
investment of $100 in (i) the Company's Common Stock, (ii) the New York Stock
Exchange market index and (iii) the Media General Health Institutional Services
Industry Group Index ("MG Group Index," which consists of 283 institutional
health services companies). Cumulative total stockholder return assumes the
reinvestment of all dividends. Stock price performances shown in the graph are
not necessarily indicative of future price performances.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SUN HEALTHCARE GROUP, INC. MG GROUP INDEX NYSE MARKET INDEX
<S> <C> <C> <C>
7/2/93 $100.00 $100.00 $100.00
12/31/93 $136.73 $121.72 $107.39
12/30/94 $207.14 $135.10 $105.31
12/29/95 $110.20 $169.09 $136.55
12/31/96 $110.20 $168.18 $164.48
12/31/97 $158.16 $173.50 $216.39
</TABLE>
16
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION IN COMPENSATION DECISIONS
At the beginning of the 1997 fiscal year, the Compensation Committee was
comprised of three members, Lois E. Silverman, Martin G. Mand and R. James
Woolsey, all non-employee members of the Board of Directors. In June 1997, Mr.
Woolsey was replaced by James R. Tolbert, III, also a non-employee member of the
Board of Directors. None of these directors were employees of the Company.
Mr. Woolsey, in his capacity as a partner in the law firm of Shea & Gardner,
provided certain legal services to the Company in 1997. The Company believes the
terms of such relationship are as favorable to the Company as that which could
have been obtained from a non-affiliated party in an arm's-length relationship.
However, the Company's contractual relationship with a member of the Board of
Directors creates the potential for a conflict of interest.
No executive officer of the Company during the last fiscal year served as a
member of a compensation committee or director of another entity in a situation
in which an executive officer of such other entity served as a member of the
Company's Compensation Committee.
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
(PROPOSAL NO. 2)
The Board of Directors recommends that the stockholders ratify the selection
of Arthur Andersen LLP as independent public accountants to audit the accounts
of the Company and its subsidiaries for 1998.
A representative of Arthur Andersen LLP is expected to attend the Annual
Meeting. The representative will have the opportunity to make a statement if he
or she desires to do so, and is expected to be available to answer appropriate
questions.
The ratification of the selection of Arthur Andersen LLP is being submitted
to the stockholders because the Board of Directors believes that such action
follows sound corporate practice and is in the best interests of the
stockholders. If the stockholders do not ratify the selection of independent
public accountants, the Board will consider it a directive to consider selecting
other public accountants for the subsequent year. Even if the stockholders
ratify the selection, the Board of Directors, in its discretion, may still
direct the appointment of new independent public accountants at any time during
the year if the Board believes that such a change would be in the best interests
of the Company and its stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" RATIFICATION OF THE SELECTION OF ARTHUR ANDERSEN LLP AS INDEPENDENT PUBLIC
ACCOUNTANTS FOR 1998.
ANNUAL REPORT TO STOCKHOLDERS
The Company's Annual Report to Stockholders of the Company for the fiscal
year ended December 31, 1997 (the "Annual Report"), which includes financial
statements for the year ended December 31, 1997, has been distributed to
stockholders prior to the date of delivery of this Proxy Statement.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1997, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, MAY BE
OBTAINED WITHOUT CHARGE BY WRITING TO INVESTOR RELATIONS, SUN HEALTHCARE GROUP,
INC., 101 SUN AVENUE, N.E., ALBUQUERQUE, NEW MEXICO 87109, OR BY TELEPHONE
REQUEST TO (505) 821-3355.
APPRAISAL AND DISSENTERS' RIGHTS
Under Delaware law, holders of Common Stock are not entitled to appraisal or
dissenters' rights with respect to the matters to be considered at the Annual
Meeting.
17
<PAGE>
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors knows of no
matters which will be presented for consideration at the Annual Meeting other
than as described in this Proxy Statement. If any other matter properly comes
before the Annual Meeting or any adjournment or postponement thereof and is
voted upon, it is the intention of the persons named in the accompanying proxies
to vote such proxies in accordance with the judgment of the Board of Directors.
STOCKHOLDER PROPOSALS
Proposals of stockholders submitted pursuant to Rule 14a-8 of the Commission
for inclusion in the proxy statement for the 1999 annual meeting of stockholders
must be received by the Company at its principal executive offices at 101 Sun
Avenue, N.E., Albuquerque, New Mexico 87109 on or before February 23, 1999.
Under the Company's bylaws, stockholders desiring to nominate persons for
election as directors or bring other business before the stockholders at an
annual meeting must notify the Secretary of the Company in writing not less than
60 days before the annual meeting if such meeting is to be held on a day which
is within 30 days preceding the anniversary of the previous year's annual
meeting, or not less than 90 days before the annual meeting if such meeting is
to be held on or after the anniversary of the previous year's annual meeting.
Stockholders' notices must contain the specific information set forth in the
bylaws. Stockholders will be furnished a copy of the Company's bylaws without
charge upon written request to the Secretary of the Company.
18
