SunLink Health Systems DEF 14A 2007
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
Check the appropriate box:
SunLink Health Systems, 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)(4) and 0-11.
¨ Fee paid previously with preliminary materials.
SUNLINK HEALTH SYSTEMS, INC.
900 Circle 75 Parkway, Suite 1120
Atlanta, Georgia 30339
September 28, 2007
You are cordially invited to attend the Annual Meeting of Shareholders which will be held at 10:00 a.m., local time, on Monday, November 12, 2007, at the Renaissance Waverly Hotel, 2450 Galleria Parkway, Atlanta, Georgia 30339.
The accompanying Notice of the Annual Meeting and Proxy Statement contain detailed information concerning the matters to be considered and acted upon at the meeting. The Companys 2007 Annual Report to Shareholders is also enclosed.
We hope you will be able to attend the meeting.
Whether or not you plan to attend the meeting, please execute and return the enclosed proxy card at your earliest convenience to ensure representation at the meeting or vote via telephone or the Internet. If you later find you can attend the meeting, you may then withdraw your proxy and vote in person.
SUNLINK HEALTH SYSTEMS, INC.
900 Circle 75 Parkway, Suite 1120
Atlanta, Georgia 30339
NOTICE OF 2007 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 12, 2007
To the Shareholders of
SUNLINK HEALTH SYSTEMS, INC.:
The Annual Meeting of Shareholders of SUNLINK HEALTH SYSTEMS, INC. will be held at 10:00 a.m., local time, on Monday, November 12, 2007, at the Renaissance Waverly Hotel, 2450 Galleria Parkway, Atlanta, Georgia 30339, for the purpose of considering and voting upon:
Holders of the common shares of SunLink of record at the close of business on September 18, 2007, will be entitled to notice of and to vote at the meeting. You may vote by mail, telephone or the Internet from and to the extent described in the Companys proxy statement. Internet and telephone voting will conclude on the Sunday prior to the meeting.
Whether or not you expect to be present, please mark, sign, date and return the enclosed proxy promptly in the envelope provided or vote via telephone or the Internet. Giving the proxy will not affect your right to vote in person if you attend the meeting.
TABLE OF CONTENTS
SUNLINK HEALTH SYSTEMS, INC.
900 Circle 75 Parkway, Suite 1120
Atlanta, Georgia 30339
FOR 2007 ANNUAL MEETING OF SHAREHOLDERS
We are providing these proxy materials to you in connection with the solicitation of proxies by the board of directors of SunLink Health Systems, Inc. for the 2007 Annual Meeting of Shareholders and for any adjournment or postponement of the annual meeting. In this Proxy Statement, we refer to SunLink Health Systems, Inc. as SunLink, the Company, we or us.
We are holding the annual meeting at 10:00 a.m. local time, on Monday, November 12, 2007, at the Renaissance Waverly Hotel, 2450 Galleria Parkway, Atlanta, Georgia 30339, and invite you to attend in person.
We intend to mail this proxy statement and a proxy card to shareholders starting on or about September 28, 2007.
ABOUT THE MEETING
At our annual meeting, our shareholders will act upon the sole matter outlined in the accompanying notice of meeting, the election of directors. In addition, our management will report on our performance during the 2007 year and respond to questions from shareholders.
All shares represented by properly executed proxies received by the board of directors pursuant to this solicitation will be voted in accordance with the shareholders directions specified on the proxy. If no directions have been specified by marking the appropriate places on the accompanying proxy card, the shares will be voted in accordance with the boards recommendations which are:
A shareholder signing and returning the accompanying proxy has power to revoke it at any time prior to its exercise by delivering to the Company a later dated proxy or by giving notice to the Company in writing or at the meeting, but without affecting any vote previously taken.
You may vote all shares that you owned as of September 18, 2007, which is the record date for the annual meeting. On September 18, 2007, we had 7,514,784 common shares outstanding. Each common share is entitled to one (1) vote on each matter properly brought before the meeting.
Ownership Of Shares
If your shares are registered directly in your name, you are the holder of record of these shares and we are sending these proxy materials directly to you. As the holder of record, you have the right to give your proxy directly to us, give your voting instructions by telephone or by the Internet, or vote in person at the annual meeting. If you hold your shares in a brokerage account or through a bank or other holder of record, you hold the shares in street name, and your broker, bank or other holder of record is sending these proxy materials to you. As a holder in street name, you have the right to direct your broker, bank or other holder of record how to vote by filling out a voting instruction form that accompanies your proxy materials. Regardless of how you hold your shares, we invite you to attend the annual meeting.
Beginning next year, we intend to deliver annual meeting materials electronically; however, you will be able to elect to receive printed copies of such materials. We anticipate polling our shareholders on their delivery preferences later this year. If your shares are currently registered directly in your name with American Stock Transfer & Trust Company, our share registrar and transfer agent, you can affirmatively elect now to receive and access future annual meeting materials electronically by going to the website www.amstock.com and clicking on Stockholder Services or by following the instructions provided when voting via the Internet. If your shares of Company stock are held in a brokerage account, please refer to the information provided by your bank, broker or nominee for instructions on how to affirmatively elect now to view future annual meeting materials over the internet.
How To Vote
Your Vote Is Important. We encourage you to vote promptly. Internet and telephone voting is available through 11:59 p.m. Eastern time on Sunday, November 11, 2007 for all shares. You may vote in one of the following ways:
By Telephone: If you are located in the U.S., you can vote your shares by calling the toll-free telephone number on your proxy card or, if you are an owner in street name, in the instructions that accompany your proxy materials. You may vote by telephone 24 hours a day. The telephone voting system has easy-to-follow instructions and allows you to confirm that the system has properly recorded your votes. If you vote by telephone, you do not need to return your proxy card.
By Internet: You can also vote your shares by using the Internet. Your proxy card indicates the website you may access for Internet voting. You may vote on the Internet 24 hours a day. As with telephone voting, you will be able to confirm that the system has properly recorded your votes. If you are an owner in street name, please follow the Internet voting instructions that accompany your proxy materials. You may incur telephone and Internet access charges if you vote on the Internet.
By Mail: If you are a holder of record, you can vote by marking, dating and signing your proxy card and returning it by mail in the enclosed postage-paid envelope. If you hold your shares in street name, please complete and mail the voting instruction card.
At The Annual Meeting: If you vote your shares now, it will not limit your right to change your vote at the annual meeting if you attend in person. If you hold your shares in street name, you must obtain a proxy, executed in your favor, from the holder of record if you wish to vote your shares at the meeting.
All shares that have been properly voted and not revoked will be voted at the meeting. If you sign and return your proxy card without any voting instructions, your shares will be voted as the board of directors recommends.
Revocation Of Proxies: You can revoke your proxy at any time before your shares are voted if you: (1) submit a written revocation to our Secretary; (2) submit a later-dated proxy (or voting instructions if you hold shares in street name); (3) provide subsequent telephone or internet voting instructions; or (4) vote in person at the meeting.
Quorum And Required Vote
Quorum: We will have a quorum and will be able to conduct the business of the annual meeting if the holders of a majority of the shares that are entitled to vote are present at the Meeting, either in person or by proxy.
Votes Required For Proposal: To elect directors the proportion of votes required is a plurality of the votes cast.
Routine And Non-Routine Proposals: American Stock Exchange rules determine whether proposals presented at the shareholder meetings are routine or not routine. If a proposal is routine, a broker or other entity holding shares for an owner in street name may vote for the proposal without voting instructions from the owner. The election of the 2007 slate of directors is considered a routine item.
How We Count Votes: In determining whether we have a quorum, we count abstentions and broker non-votes as present and entitled to vote.
In counting votes on the proposal:
Our business is managed by the Companys employees under the direction and oversight of the board of directors. Except for Mr. Thornton, none of our board members is an employee of the Company. The board limits membership on the audit committee and executive compensation committee (referred to in this proxy statement as the compensation committee) to independent non-management directors. We keep board members informed of our business through discussions with management, materials we provide to them, visits to our offices and hospitals and their participation in board and board committee meetings.
The board of directors has adopted charters for the standing board committees, resolutions governing the process for identification and nomination of candidates for the board, and the Companys code of ethics (the SunLink Health Systems, Inc. Code of Conduct) for employees, including our principal executive officer and principal financial officer. These documents, together with the Companys Articles of Incorporation and Code of Regulations, provide the framework for the governance of the Company.
A complete copy of the charters of the board committees, the resolutions governing the process for identification and nomination of candidates for the board and the Code of Conduct for employees may be found on the Companys website at www.sunlinkhealth.com. Copies of these materials are also available to shareholders without charge upon written request to the Secretary of the Company.
Summary of the Corporate Governance Principles
A majority of the board of directors is required to consist of independent, non-management directors who meet the criteria for independence required by the American Stock Exchange. Under such rules, a director is
independent if he or she does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
The board of directors has determined that as of September 18, 2007, six (6) of the Companys eight (8) incumbent directors are independent under these guidelines: Ms. Brenner and Messrs. Baileys, Burleson, Ford, Hall, and Turner. Mr. Thornton, as a management director, also participates in the boards activities and provides valuable insights and advice.
The non-management directors meet periodically in executive session without the management director present.
The executive sessions of non-management directors are presided over by the director who is the chairman of the committee responsible for the issue being discussed. General discussions, such as the review of the Companys overall performance, are presided over by the chairman or a director elected by a majority of the non-management directors.
In the event SunLink receives any formal written offer(s) to purchase more than 20% of SunLinks outstanding common stock, such proposal is required to be evaluated by the board of directors, who may delegate the evaluation of such offer to a committee of the board of directors (which may be its executive committee), so long as such committee is comprised of a majority of independent directors. Such committee may be empowered to retain such legal and financial advisors as it may deem necessary to advise it and the board in respect of such offer(s).
In the event of any proposed business combination involving SunLink, the compensation committee is authorized to retain an independent financial advisor to evaluate and make recommendations to the compensation committee concerning any severance package proposed for any of SunLinks officers or directors in connection with any proposed business combination, in addition to outstanding contract terms, and the financial effect thereof.
Director Share Ownership
The Company believes that each director should have a personal investment in the Company. Each outside director (or future outside director, as the case may be) is required to own at least one thousand (1,000) shares of SunLink common stock. Each outside director (or future outside director, as the case may be) must maintain ownership of such number of common shares until such outside director ceases to serve as a member of the board.
Annual Meeting Attendance
The board of directors encourages all its members to attend the annual meeting of shareholders. In November 2006, all director nominees and all continuing directors were present at the annual meeting of shareholders, except Mr. Mills, who did not become a director until July 2007.
Communications by and with Directors
In connection with the proper discharge of their duties our non-management directors have access to individual members of management or to other employees of the Company on a confidential basis. Likewise, in connection with the discharge of their duties, non-management directors as authorized by the board or a committee thereof also have access to Company records and files, and our directors may contact other directors without informing Company management of the purpose or even the fact of such contact.
The board of directors has provided a means by which shareholders, employees or other interested persons may send communications to the board or to individual members of the board. Such communications, whether by letter, e-mail or telephone, should be directed to the Secretary of the Company who will forward them to the intended recipients. However, unsolicited advertisements or invitations to conferences or promotional material, in the discretion of the Secretary or his designee, may not be forwarded to the directors.
If a shareholder wishes to communicate to the chairman of the audit committee about a concern relating to the Companys financial statements, accounting practices or internal controls, the concern should be submitted in writing to the chairman of the audit committee in care of the Companys Secretary at our headquarters address. If the concern relates to the Companys governance practices, business ethics or corporate conduct, the concern likewise should be submitted in writing to the chairman of the audit committee in care of the Companys Secretary at our headquarters address. If the shareholder is unsure as to which category his or her concern relates, he or she may communicate it to any one of the independent directors in care of the Companys Secretary.
The Companys whistleblower policy prohibits the Company or any of its employees from retaliating or taking any adverse action against anyone for raising a concern. If a shareholder or employee nonetheless prefers to raise his or her concern in a confidential or anonymous manner, the concern may be directed to the Office of Technical and Compliance Services at the Companys headquarters or by telephone at 1-866-244-5952. The Vice President for such services or his designee will refer the concern to the compliance committee, or if appropriate, the chairman of the audit committee who will assure that the matter is properly investigated.
Related Party Transactions
The Company is subject to a variety of prohibitions on, or approval procedures with respect to, related party transactions.
First, the Company is subject to certain American Stock Exchange requirements which require shareholder approval of certain related party transactions.
Second, the Companys Corporate Code of Conduct prohibits related party transactions which could give rise to a conflict of interest. Related party transaction must be approved by the Companys compliance committee, or, in the case of a member of the board of directors and/or an executive officer such related party transaction must be approved by the Companys audit committee.
Common Shares Owned By Management and Certain Beneficial Owners
The following table sets forth, as of September 18, 2007 (unless otherwise indicated in the footnotes), certain information with respect to our common stock owned beneficially by each director, by each nominee for election as a director, by each executive officer, by all executive officers and directors as a group and by each person known by us to be a beneficial owner of more than 5% of our outstanding common stock. Except as noted in the footnotes, each of the persons listed has sole investment and voting power with respect to the shares of common stock included in the table.
Item 1Election of Directors
The Companys board of directors is presently comprised of eight members. One class of directors is normally elected at each annual meeting of shareholders for a term of two years. At the 2007 annual meeting, shareholders will elect four directors who will hold office until the annual meeting of shareholders in 2009. The board of directors has nominated Robert M. Thornton, Jr., Dr. Steven J. Baileys, Michael W. Hall and Gene E. Burleson, who are presently directors of the Company, for election to terms of office of two years.
It is the intention of the proxy agents named in the proxy, unless otherwise directed, to vote such proxies for the election of Robert M. Thornton, Jr., Dr. Steven J. Baileys, Michael W. Hall and Gene E. Burleson. Should any of such nominees be unable to accept the office of director, an eventuality which is not anticipated, proxies may be voted with discretionary authority for a substitute nominee or nominees designated by the board of directors.
Identification of Directors
The following table sets forth certain information about the nominees for election and the directors whose terms of office will continue after the meeting.
Certain information concerning each person listed in the above table, including his or her principal occupation for at least the last five years, is set forth below.
Robert M. Thornton, Jr., 58, has been Chairman and Chief Executive Officer of the Company since September 10, 1998, President since July 16, 1996 and was the Chief Financial Officer from July 18, 1997 through August 31, 2002. From October 1994 to the present, Mr. Thornton has been a private investor and, since March 1995, Chairman and Chief Executive Officer of CareVest Capital, LLC, a private investment and management services firm. Mr. Thornton was a director of and held various executive offices with Hallmark Healthcare Corporation from October 1989 until Hallmarks merger with Community Health Systems, Inc. in October 1994.
Dr. Steven J. Baileys, 53, is a private investor and was Chairman of the Board of Directors of SafeGuard Health Enterprises, Inc., a public dental care benefits company, from July 1995 to June 2004. Dr. Baileys was Chief Executive Officer of SafeGuard from April 1995 to February 2000, its President from December 1981 until May 1997, and its Chief Operating Officer from December 1981 until April 1995. Dr. Baileys is licensed to practice dentistry in the State of California.
Michael W. Hall, 58, is a private investor and was Chairman and Chief Executive Officer of Pyramed Health System, Inc., a healthcare consulting firm, from August 1996 through March 2001. From April 1991 to August 1996, Mr. Hall was Chief Operating Officer and Executive Vice President of Southern Health Management Corporation, a healthcare management company specializing in rural healthcare. Prior to its sale to NetCare Health Systems, Inc., in 1996, Southern Health Management Corporation owned three of SunLinks seven hospitals.
Gene E. Burleson, 66, is a private investor and was a director of HealthMont Inc., a Tennessee corporation, from its inception in September 2000 until its acquisition by SunLink in October 2003. Mr. Burleson served as the Chairman of the Board of Directors of Mariner Post-Acute Network, Inc., a diversified provider of long-term and specialty health care services, from February 2000 to June 2002. Mr. Burleson served as the Chief Executive Officer and as a director of Vitalink Pharmacy Services, Inc. from February 1997 to August 1997. He served as
Chairman of the Board of Directors of GranCare, Inc., a provider of long-term and specialty health care services, which subsequently became a part of Mariner Post-Acute Network, Inc., from January 1994 to November 1997, and served as its Chief Executive Officer from December 1990 to February 1997. His previous experience also includes serving as the President and Chief Operating Officer of American Medical International, Inc., an acute-care hospital company and a predecessor to Tenet Healthcare Corporation. Mr. Burleson currently serves as the Chief Executive Officer and Chairman of the Board of Directors for Echo Healthcare Acquisition Corp., a blank check company formed to acquire domestic or international operating businesses in the healthcare industry. Mr. Burleson also serves on the Board of Directors of Prospect Medical Holdings, Inc., a provider of management services to independent physician associations, Deckers Outdoor Corporation, a shoe manufacturer, and various other privately-held companies.
Karen B. Brenner, 55, has been President of Fortuna Asset Management, LLC, an investment advisory firm located in Newport Beach, California, since 2000. Fortuna Asset Management, LLC succeeded to the business of Fortuna Advisors, Inc., which Ms. Brenner formed and operated from 1993 to 2000.
C. Michael Ford, 68, has been the owner and Chairman of the Board of Directors of Montpelier Corporation, a venture capital and real estate holding company, since October 1990. Mr. Ford has served as Chief Executive Officer since November 2003 and Chief Financial Officer of Newtown Macon, Inc. from October 2002 to November 2003. Mr. Ford was Chairman of the Board of In Home Health, Inc. from February 2000 to December 2000. Mr. Ford served as Vice President of Development of Columbia/HCA Healthcare Corporation from September 1994 to September 1997, and was Vice President of Marketing of Meditrust Corp. from October 1993 to September 1994.
Howard E. Turner, 65, has been a partner in the law firm of Smith, Gambrell & Russell, LLP, since 1971, where he is a member of the firms executive committee. Mr. Turner has served as a director of Avlease, Ltd., a lessor of large commercial aircraft, and currently serves as an officer and director of Historic Motorsports Holdings, Ltd. Mr. Turner provides legal services to the Company through the law firm, Smith, Gambrell & Russell, LLP, as requested by the Company.
Christopher H. B. Mills, 55, is a Director and the Chief Investment Officer of J.O. Hambro Capital Management and has served in such capacity since January 1993. Mr. Mills also serves as the Managing Director/Investment Manager of North Atlantic Smaller Companies Investment Trust plc and Trident North Atlantic, positions he has held since 1998. From 1984 to 1993 Mr. Mills served as a Director of MIM Management Limited.
The board of directors held 10 meetings and took zero actions by unanimous written consent during fiscal 2007. The board has three (3) standing committees: an executive committee, an audit committee and a compensation committee. During the fiscal year, the Company also had a special committee. All directors attended 75% or more of the meetings of the board and board committees on which they served in our fiscal year ended June 30, 2007.
Membership On Board Committees
This table lists the four board committees in existence during our last fiscal year, the directors who currently serve on them, or, in the case of the special committee most recently served on it and the number of committee meetings held in the fiscal year ended June 30, 2007:
The audit committees primary function is to assist the board of directors in fulfilling its oversight responsibilities by reviewing:
All three members of the audit committee are independent as defined in Section 121(A) of the American Stock Exchanges listing standards and Rule 10A-3 of the Securities Exchange Act of 1934. The board has also determined that Mr. Ford meets the requirements for being an audit committee financial expert as defined by SEC regulations adopted in January 2003. Our audit committee charter is attached to this proxy statement as Exhibit A.
Composition; Independence; Compensation Committee Interlocks and Insider Participation
As set forth in the table above, our compensation committee currently consists of Karen B. Brenner, Gene E. Burleson and Dr. Steven J. Baileys. The compensation committee is composed entirely of independent members of the board of directors. All three members of the compensation committee are independent, as defined in
Section 121(A) of the American Stock Exchanges listing standards. At least two members of the compensation committee are also required to qualify as outside directors (as such term is defined under Section 162(m) of the Internal Revenue Code and the regulations thereunder) if any award or payment under any compensation or benefit plan administered by the compensation committee would be subject to the deduction limitation under Section 162(m) of the Internal Revenue Code. Each member of the compensation committee qualifies as an outside director for such purpose. Our compensation committee charter is attached to this proxy statement as Appendix B. No member of the committee is a current or former employee or officer of the Company or any of its affiliates.
Compensation Review Process; Management Participation in Compensation Determinations
The compensation of our executive officers is determined by the compensation committee of our board of directors on an annual basis with the exception of the compensation of our chief executive officer and chief operating officer which currently is set in multi-year employment agreements. Our compensation committee considers all elements of compensation in making its determinations. With respect to those executive officers who do not serve on our board of directors, our compensation committee also considers the recommendations of our chairman of the board and chief executive officer. The committee meets at various times during the year, and it also considers and takes action by written consent. The committee chair reports on committee actions and recommendations at board meetings.
The compensation committee has the power and authority of the board to perform and shall perform the following duties and responsibilities:
The executive committee is empowered to exercise all of the authority of the board of directors except as to matters not delegable to a committee under the General Corporation Law of Ohio.
This special committee was organized in 2005 to consider certain proposals to acquire the Company as well as various other strategic alternatives available to the Company. The committees tenure concluded in December 2006 when it recommended that the Company not pursue the offers to purchase the Company, but instead continue to vigorously pursue its business plan emphasizing internal growth and growth through acquisitions.
Nomination Procedures and Shareholder Nominations
The board does not have a nominating committee but has adopted a nominating resolution which provides that the Company believes it to be in its best interest and the best interest of its shareholders to authorize the entire board to identify and nominate directors to serve on the Companys board so long as, pursuant to American Stock Exchange rules, director nominees so selected are approved by a majority of the independent directors and, when vacancies occur on the Board, the board shall actively seek individuals qualified to become board members based on business experience, professional expertise, industry experience and geographic representation. Shareholders who wish to submit nominees for election at an annual or special meeting of shareholders should follow the procedure generally described in Requirements, Including Deadlines, For Submission Of Proxy Proposals, Nomination Of Directors And Other Business Of Shareholders on page 35 of this proxy statement and more particularly, in the Companys Code of Regulations. The board of directors applies the same standards in considering candidates submitted by shareholders as it does in evaluating candidates submitted by members of the board of directors. The board does not have a separate policy with regard to the consideration of candidates recommended by shareholders other than the process provided in the nominating resolution.
We do not pay directors who are also our employees any additional compensation for serving as a director, other than customary reimbursement of expenses.
The Company believes that each director should have a personal investment in the Company and each outside director (or future outside director, as the case may be) is required to own at least one thousand (1,000) shares of SunLink common stock. Each outside director (or future outside director, as the case may be) must maintain ownership of such number of common shares until such outside director ceases to serve as a member of the board.
The following chart discloses the compensation of each non-management director for the fiscal year ended June 30, 2007:
The following chart discloses certain information with respect to stock awards and option awards held by each non-management director:
Our executive officers, as of September 18, 2007, their positions with the Company or our subsidiaries and the ages of such executive officers are as follows:
All of our executive officers hold office for an indefinite term, subject to the discretion of the board of directors.
Biographical information for our non-director executive officers is set forth below:
Current Executive Officers
Mark J. Stockslager has been SunLinks Chief Financial Officer since July 1, 2007. He was interim Chief Financial Officer from November 6, 2006 till June 30, 2007. He has been the Principal Accounting Officer since March 11, 1998 and was Corporate Controller from November 6, 1996 to June 4, 2007. He has been associated continuously with our accounting and finance operations since June 1988 and has held various positions, including Manager of U.S. Accounting, from June 1993 until November 1996. From June 1982 through May 1988, Mr. Stockslager was employed by Price Waterhouse & Co.
Harry R. Alvis has been Chief Operating Officer of SunLink Health Systems, Inc. since September 1, 2002, and Senior Vice President of Operations of SunLink Healthcare LLC since February 1, 2001. Mr. Alvis provided turn-around operational consulting services for New American Healthcare Corp. from March 2000 through January 2001. From August 1997 through August 1999, Mr. Alvis was Chief Executive Officer of River Region Health Systems in Vicksburg, Mississippi, a healthcare facility owned by Quorum Health Group, Inc. From August 1995 through August 1997, Mr. Alvis was the Chief Executive Officer of Greenview Hospital in Bowling Green, Kentucky, a healthcare facility owned by Hospital Corporation of America. Mr. Alvis was the Chief Executive Officer of Pinelake Medical Center in Mayfield, Kentucky from November 1987 through August 1995. Pinelake was a healthcare facility owned by HealthTrust, Inc.
Jerome D. Orth has been Vice President, Technical & Compliance Services for the Company since February 1, 2001. From January 1995 through January 2001, Mr. Orth was Vice President of Hospital Financial Operations for ValueMark Healthcare Systems, Inc., a privately-held owner-operator of psychiatric hospitals. From February 1987 through October 1994, Mr. Orth held various positions with Hallmark Healthcare Corporation, including Executive Director, Hospital Financial Management and Executive Director, Management Information Systems. Prior to 1987, Mr. Orth spent 12 years in various accounting, third party reimbursement and management positions with Hospital Corporation of America.
Jack M. Spurr, Jr. has been the Vice President, Hospital Financial Operations for the Company since October 1, 2002. From February 1, 2001 until September 30, 2002, Mr. Spurr performed several interim financial
roles for the Company. From 1978 to 2000, Mr. Spurr held financial positions with Hospital Corporation of America, Columbia Healthcare, Inc., Quorum Health Group, Inc., HealthTrust, Inc. and National Healthcare Inc.
Former Executive Officers
Joseph T. Morris was the Chief Financial Officer of SunLink Health Systems, Inc. from September 1, 2002, and President and Chief Financial Officer of SunLink Healthcare, LLC (f/k/a SunLink Healthcare Corp.) from February 1, 2001 until November 6, 2006, with his retirement becoming effective on December 31, 2006. Mr. Morris provided turn-around operational and financial consulting services for several healthcare companies, including Cambio Health Solutions and New American Healthcare Corporation, from June 1999 through January 2001. From January 1997 through May 1999, Mr. Morris was Executive Vice President and Chief Financial Officer of ValueMark HealthCare Systems, Inc., a privately-held owner-operator of psychiatric hospitals. From August 1993 through December 1996, Mr. Morris was President of Affiliated Health Management, Inc., and from February 1990 to July 1993, was Senior Vice President, Hospital Financial Operations, for Hallmark Healthcare Corporation.
Compensation Disclosure and Analysis
Objectives and Goals
The objectives of the compensation committee has been to adopt a compensation approach that is basically simple, internally equitable and externally competitive, and that attracts, motivates and retains qualified people capable of contributing to the growth, success and profitability of the Company, thereby contributing to long-term stockholder value.
Major Compensation Components
The principal components of compensation for our executive officers historically have been base salary, short-term incentives, generally in the form of cash bonus programs, and long-term incentives, generally in the form of equity-based awards such as stock awards and stock options. Historically, we have believed that the Companys goals are best met by utilizing an approach to compensation with these three distinct elements.
During the fiscal year ended June 30, 2007, the CEO, Mr. Thornton, was employed under an employment agreement which provided for an annual base salary of $335,000. The compensation committee, believes, based in part on consultation with a compensation consulting firm at the end of fiscal year 2005, Mr. Thorntons salary continues to be on the low end of salaries for CEOs of regional hospital management companies and also below that of CEOs for healthcare companies with similar revenues.
Our targets typically have had a threshold which must be achieved before any payments are made and a maximum performance target beyond which no additional bonus amounts will be paid. It is not presumed that thresholds necessarily can be achieved.
The Executive Bonus Plan for the fiscal year ended June 30, 2007 provided that bonuses would be payable based on two factors: (1) the net income of the Company from continuing operations during fiscal 2007 and (2) the achievement of certain unweighted discretionary criteria.
The net income goal was set forth in the budget adopted by the board in June 2006 for the 2007 fiscal year and represented a decrease over the net income from continuing operations for fiscal 2006 due partially to higher depreciation expected in fiscal year 2007. The Companys net income from continuing operations did not achieve the goal set forth in the 2007 budget. Based on this result and the compensation committees evaluation of each executives performance against his discretionary criteria, the executive officers of the Company were not paid bonuses for the 2007 fiscal year as reflected in the Summary Compensation Table on page 24.
During the fiscal year ended June 30, 2007, Mr. Thornton was granted the opportunity to earn a bonus equal to seventy percent of his 2007 annual salary if certain criteria established by the compensation committee, after consultation with him, were met (a more complete description of Mr. Thorntons employment agreement is contained on page 28 under the heading Employment Contracts, Termination of Employment and Change-in-Control Agreements). In the opinion of the compensation committee Mr. Thorntons cash bonus opportunity (which is calculated as a percentage of his salary) is somewhat on the low side for comparable positions for healthcare companies with similar revenues and below the market median for healthcare companies with similar revenues.
Under the Executive Bonus Plan for fiscal 2007, Mr. Thorntons bonus opportunity for fiscal 2007 was weighted as follows: (1) 50% was based on the Companys net income from continuing operations for fiscal 2007 and (2) 50% was based on certain un-weighted discretionary criteria. As explained above, the Company did not achieve the net earnings from continuing operations goal set for fiscal 2007 so no bonus was paid to Mr. Thornton based on this factor nor did the compensation committee grant Mr. Thornton a bonus based on the un-weighted discretionary criteria. The un-weighted discretionary criteria chosen to evaluate Mr. Thorntons performance were the same as in fiscal 2006: (i) maintaining an active acquisition program which capitalizes on suitable opportunities and (ii), maintaining an active program of investor relations and major shareholder contacts. Historically, the compensation committee has considered adjustments where sound business practices
favor the implementation of business actions or practices which may have a temporary or short-term negative impact on profitability or expenses or for factors substantially independent of managements practical control. Examples of historical or potential adjustments include adjustments for force majeure type events, such as weather related impacts and changes in government reimbursement levels.
The potential incentive award, as a percentage of base salary, was higher for our principal executive officer reflecting his greater responsibility for and greater ability to influence the achievement of targets.
Mr. Thornton was not awarded any new equity compensation in fiscal 2007. Mr. Thornton previously was granted 38,500 options for Company common stock on November 11, 2005. These options vested one third on November 11, 2006 and will vest one third each on November 11, 2007 and 2008.
The following table sets forth for each named executive officer, the bonus percentage potentially attributable to performance targets and the percentage attributable to the committees discretion. The committee has the authority to adjust, waive or reset targets. The following table also sets forth information regarding the annual cash incentive awards made to the named executive officers for 2007:
Equity Awards in 2007
In 2007, no stock options and no shares of restricted stock were granted to the executive officers of the Company.
Equity Award Timing
Our current policy with respect to annual equity awards to key employees, including our executive officers (but excluding grants to newly hired employees) is that equity awards occur at the time of the board of directors meeting to be effective as of a specified date no sooner than 48 hours after earnings are released.
Use of Employment and Severance Agreements
In the past, the committee has determined that competitive considerations merit the use of employment contracts or severance agreements for certain members of senior management. Currently, Messrs. Thornton and Alvis are employed pursuant to employment contracts, while Messrs. Stockslager, Orth and Spurr are employed pursuant to employment letters. Messrs. Thornton, Alvis and Stockslagers agreements include severance benefits (severance benefits). Compensation criteria for officers employed pursuant to an employment agreement may be more difficult to adjust on an annual basis. The Companys severance benefits with Messrs. Thornton, Alvis and Stockslager take effect with severance in connection with a change of control and for severance other than for death, disability or cause. We have designed these severance benefits to help keep employees focused on their jobs, especially during the uncertainty that accompanies a change of control, to preserve benefits after a change in control transaction, and to help us attract and retain key talent. For more information on employment or severance contracts please refer to Employment Agreements and Change of Control Arrangements beginning on page 28 of these proxy materials.
Change of Control Compensation
Provisions for additional or continued compensation in connection with a change of control of the Company are located in two areas: in, as discussed above, the Companys employment agreements with Messrs. Thornton,
Alvis and Stockslager; as well as, more generally, in the Companys equity incentive plans and/or award agreements thereunder, whereby the committee administering such plans and awards has the power to accelerate the vesting of such awards upon a change of control or where such plans or awards provide for automatic vesting in the event of such change, whether merely upon the occurrence of such event or upon the occurrence of such event and an adverse occurrence for the participant, such as termination of employment.
The Change of Control provisions set forth in the Companys employment agreements employ several approaches to cause a triggering event. Change of Control benefits are payable in the ordinary course upon the occurrence of the event. Payment of benefits is not restricted only to situations involving the involuntary termination of the officer afforded such Change of Control protection. Instead, benefits are payable not only in the case of involuntary terminations but also where the executive, in connection with or within one year of the transaction, elects to terminate his employment. The committee believes this approach helps to ensure the continued availability of the services of the executive during the times of uncertainty inherent with any change of control, including especially in the post event period under new ownership and/or management, while at the same time limiting windfall benefits by making the benefits payable only after a termination of employment. By providing post-event coverage, the executive is encouraged to remain in the employ of the Company without the need to be concerned about a post-event restructuring which may result in a material diminishment of the executives duties or post-event management or ownership with respect to which the executive may have concerns or reservations.
In connection with providing severance benefits to the Companys other executive officers, the committee has evaluated, and expects to continue to examine, the amounts which could be realized by persons granted such rights upon a Change of Control.
Recapture and Forfeiture Policies
Historically the Company has not had formal policies with respect to the adjustment or recapture of performance based awards where the financial measures on which such awards are based, or to be based, are adjusted for changes in reported results such as, but not limited to, instances where the Companys financial statements are restated. The committee does not believe that repayment should be required where the Plan participant has acted in good faith and the errors are not attributable to the participants gross negligence or willful misconduct. In such later situations, the committee believes the Company has or will have available negotiated or legal remedies. However, the committee may elect to take into account factors such as the timing and amount of any financial restatement or adjustment, the amounts of benefits received and the clarity of accounting requirements lending to any restatement in fixing of future compensation.
Deductibility of Compensation and Related Tax Considerations
As one of the factors in its review of compensation matters, the committee considers the anticipated tax treatment to the Company and to the executives of various payments and benefits.
Although the Companys stock option plans generally have been structured with the goal of complying with the requirements of Section 162(m), and the compensation committee believes stock options awarded thereunder should qualify as performance-based compensation exempt from limitations on deductibility under Section 162(m), the deductibility of any compensation has not been a condition to any compensation decision. Based on current compensation levels, the Company does not expect its ability to deduct executive compensation to be limited by operation of Section 162(m). However, due to interpretations and changes in the tax laws, some types of compensation payments and their deductibility depend on the timing of an executives vesting or exercise of previously granted rights and other factors beyond the compensation committees control which could affect the deductibility of compensation.
The compensation committee will continue to consider the impact of Section 162(m) when designing compensation programs, and in making compensation decisions affecting the Companys Section 162(m) covered executives. We fully expect the majority of future stock awards will be excludable from the Section 162(m) $1 million limit on deductibility, since vesting of any such awards will likely be tied to performance-based criteria, or be part of compensation packages which are less than $1 million. Nonetheless, the compensation committee believes that in certain circumstances factors other than tax deductibility are more important in determining the forms and levels of executive compensation most appropriate and in the best interests of the Company and its shareholders. Accordingly, it may award compensation in excess of the deductibility limit, with or without requiring a detailed analysis of the estimated tax cost of non-deductible awards to the Company. Given our dynamic and rapidly changing industry and business, as well as the competitive market for outstanding leadership talent, the compensation committee believes it is important to retain the flexibility to design compensation programs consistent with its compensation philosophy for the Company, even if some executive compensation is not fully deductible.
Future Executive Compensation
The compensation committee has not yet set executive compensation for fiscal 2008 other than base salaries. The committee is currently reviewing the Companys executive compensation arrangements in light of the Companys performance and the current healthcare environment. The committee expects to engage the services of a compensation consultant in connection with such review and expects to establish fiscal 2008 short and long term incentive arrangements for the Companys executive officers.
Chief Executive Officer Compensation
The compensation policies described above apply equally to the compensation of the Chief Executive Officer.
Attracting and retaining talented and motivated management and employees is essential to create long-term shareholder value. Offering a competitive, performance-based compensation program with a large equity
component helps to achieve this objective by aligning the interests of the Companys executive officers with those of shareholders. The committee believes that SunLinks 2007 compensation program met these objectives. Likewise, based on our review, the committee finds the total compensation (and, in the case of the severance and change-in-control scenarios, the potential payouts) to the Companys named executive officers in the aggregate to be reasonable and not excessive.
Compensation Committee Report
The compensation committee has reviewed the above Compensation Disclosure and Analysis with the Companys Chief Executive Officer and Chief Financial Officer. Based on a review of this Compensation Disclosure and Analysis and discussion with the compensation committee, the Companys Chief Executive Officer and Chief Financial Officer have approved the inclusion of the Compensation Disclosure and Analysis in this proxy statement.
This report has been submitted by the compensation committee:
OTHER EXECUTIVE COMPENSATION INFORMATION
The following sections of this Proxy Statement set forth compensation information relating to the Chief Executive Officer, Chief Financial Officer and the three most highly compensated executive officers of the Company, other than the Chief Executive Officer and Chief Financial Officer whose compensation exceeds $100,000 per year (if any) and the compensation of a former executive officer required to be reported by applicable SEC rules (collectively, the named executive officers), for the fiscal year ended June 30, 2007.
The following table shows the compensation awarded or paid by SunLink for services rendered for the fiscal year ended June 30, 2007 to the named executive officers.
SUMMARY COMPENSATION TABLE
GRANTS OF PLAN BASED AWARDS IN LAST FISCAL YEAR
The following table shows information about plan based awards during fiscal 2007 for the named executive officers.
Grants of Plan-Based Awards
Outstanding Equity Awards at Fiscal Year-End
The following table provides information with respect to the common stock that may be issued upon the exercise of options and other awards under the Companys existing equity compensation plans as of June 30, 2007.
Options Exercised and Stock Vested
The following table provides information with respect to common shares which were issued upon exercise between July 1, 2006 and June 30, 2007:
Long-Term Incentive Plan Awards
The Company did not grant any awards to named executive officers during the fiscal year ended June 30, 2007 under any long-term incentive plan, as defined under applicable SEC Rules.
Pension Plan Benefits
Effective February 28, 1997, SunLink amended its domestic retirement plan to freeze participant benefits and close the plan to new participants. Accordingly, compensation earned after February 28, 1997 is not used in determining a participants accrued benefit. Mr. Thornton and Mr. Stockslager are participants in the plan. The estimated monthly benefits to be received by them at age 65 are $159.94 and $601.24, respectively.
Nonqualified Deferred Compensation
The Company does not generally offer nonqualified deferred compensation to its officers, and none of its named executive officers currently participate or have participated in any nonqualified deferred compensation plan during the past fiscal year.
Employment Contracts, Termination of Employment and Change-In-Control Arrangements
Robert M. Thornton, Jr. Mr. Thornton, Chairman, President and Chief Executive Officer, is currently employed by the Company under the terms of an Employment Agreement effective July 1, 2005, as amended to date, for a term ending June 30, 2008 with automatic renewal periods of eighteen months. Mr. Thorntons current Employment Agreement provides for a base salary at a rate of not less than $335,000 per annum effective July 1, 2005 and thereafter plus any increases that may be granted at least annually by the Company. Mr. Thornton will be eligible to participate in the Companys 2005 Equity Incentive Plan if the board decides to grant him additional options. Mr. Thornton is also eligible to receive an annual bonus of up to seventy percent of his annual base salary if certain criteria established by the compensation committee (in consultation with him) are met. Mr. Thornton is eligible to participate in the Companys medical, dental, life and disability programs.
Mr. Thorntons Employment Agreement also provides for severance payments in the event Mr. Thornton ceases to be employed by the Company. If Mr. Thornton is terminated for death, disability or cause, he is entitled to the accrued compensation under the Agreement, including a pro rata share of any annual bonus. If Mr. Thornton is terminated other than for death, disability or cause, he shall receive severance payments equal to thirty months salary, a pro rata portion of any annual bonus for which goals have been proportionately met and continuation of certain benefits for and during the thirty months following termination.
Mark J. Stockslager. Mr. Stockslager, Chief Financial Officer, is currently employed by the Company under the terms of an Employment Letter effective January 1, 2001. Mr. Stockslagers current Employment Letter provides for a salary of $7,333 per month or $88,000 on an annualized basis, which will be reevaluated at least annually to determine if any adjustments should be made. Currently, Mr. Stockslagers salary is $12,500 per month or $150,000 on an annualized basis. Additionally, Mr. Stockslager is also eligible to receive an annual bonus of up to forty percent of his annual base salary if certain criteria established by the compensation committee are met. Mr. Stockslager is eligible to participate in the Companys stock option program, as well as the Companys medical, dental, life and disability programs. Mr. Stockslager will be entitled to severance pay by continuation of his base salary for nine months if he is terminated other than for cause, as determined by the board of directors in its sole discretion.
Harry R. Alvis. Mr. Alvis, Chief Operating Officer, is currently employed by the Company under the terms of an Employment Agreement effective July 1, 2005, as amended to date for a term ending June 30, 2007 with an automatic renewal period of twelve months. Mr. Alvis Employment Agreement provides for a salary of not less than $244,000 per annum effective July 1, 2005 and thereafter, plus any increases that may be granted at least annually by the Company. Under his Employment Agreement, Mr. Alvis will be eligible to participate in the Companys 2005 Equity Incentive Plan if the board decides to grant him additional options under this Plan. Mr. Alvis is also eligible to receive an annual bonus of up to sixty percent of his annual base salary if certain criteria established by the compensation committee are met. Mr. Alvis is also eligible to participate in the Companys medical, dental, life and disability programs.
Mr. Alvis Employment Agreement also provides for severance payments in the event Mr. Alvis ceases to be employed by the Company. If Mr. Alvis is terminated for death, disability or cause, he is entitled to the accrued compensation under the Agreement, including a pro rata share of any annual bonus. If Mr. Alvis is terminated other than for death, disability or cause, he is entitled to receive severance payments equal to fifteen months salary, a pro rata portion of any annual bonus for which goals have been proportionately met and continuation of certain benefits for and during 60 days following termination.
Jerome D. Orth. Mr. Orth, Vice President, Technical and Compliance Services, is currently employed by the Company under the terms of an Employment Letter effective February 1, 2001. Mr. Orths current Employment Letter provides for a salary of $10,833 per month or $130,000 on an annualized basis, which will be reevaluated at least annually to determine if any adjustments should be made. Currently, Mr. Orths salary is $12,875 per
month or $154,500 on an annualized basis. Additionally, Mr. Orth is eligible to receive an annual bonus of up to forty percent of his base salary if certain criteria established by the compensation committee are met. Mr. Orth is eligible to participate in the Companys stock option program, as well as the Companys medical, dental, life and disability programs.
Jack M. Spurr, Jr. Mr. Spurr, Vice President, Hospital Financial Operations, is currently employed by the Company under the terms of an Employment Letter effective October 1, 2002. Mr. Spurrs current Employment Letter provides for a salary of $8,333 per month or $100,000 on an annualized basis, which will be reevaluated at least annually to determine if any adjustments should be made. Currently, Mr. Spurrs salary is $12,604 per month or $155,000 on an annualized basis. Additionally, Mr. Spurr is eligible to receive an annual bonus of up to forty percent of his base salary if certain criteria established by the compensation committee are met. Ms. Spurr is eligible to participate in the Companys stock option program, as well as the Companys medical, dental, life and disability programs.
Change in Control Arrangements
A Change in Control will be deemed to have occurred in the event that any of the following events shall have occurred:
Upon a change of control of the Company (as defined), if Mr. Thorntons employment is thereafter terminated for any reason other than cause or if he terminates his employment within one year of the change of control, he is entitled to (a) thirty months of base pay, to be paid in accordance with the Companys payroll practices; (b) accrued compensation, including a pro rata portion of any bonus for which goals have been proportionately met; (c) health and certain ancillary benefits for twenty-four months following termination; and (d) full vesting of any then unvested stock options.
Upon a change in control of the Company, if Mr. Alvis employment is thereafter terminated for any reason other than cause or if he terminates his employment within one year of the change in control, he is entitled to (a) fifteen months of base pay, to be paid in accordance with the Companys payroll practices; (b) accrued compensation, including a pro rata portion of any bonus for which goals have been proportionately met; (c) health and certain ancillary benefits for ninety days following termination; and (d) full vesting of any then unvested stock options.
The following table sets forth certain potential benefits which would have been realized in connection with a Change of Control and termination of employment for the Companys principal executive officer, principal financial officer and three other most highly compensated executive officers assuming the Change of Control and termination occurred as of the last day of the most recently completed fiscal year.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Cherry, Bekaert & Holland, L.L.P. was engaged to perform the Companys annual audit for the fiscal year ended June 30, 2007 and is expected to continue to provide audit services to the Company for fiscal 2008. It is anticipated that representatives of Cherry, Bekaert & Holland, L.L.P. will be present at the annual meeting of shareholders to respond to appropriate questions and to make a statement if such representatives so desire.
The board of directors of the Company annually appoints the independent registered public accounting firm for the Company after receiving the recommendation of its audit committee.
Report Of The Audit Committee
The authority, duties and responsibilities of the audit committee of the board of directors of the Company are set forth in detail in the written audit committee charter, which was adopted by the board of directors of the Company and which complies with the applicable rules of the American Stock Exchange. The audit committee has three members, each of whom is independent under the applicable rules of the American Stock Exchange. In accordance with section 407 of the Sarbanes-Oxley Act of 2002, Mr. Ford has been identified as Audit Committee Financial Experts.
The audit committee reviews and assesses the adequacy of its charter on an annual basis.
The audit committee is responsible for overseeing the Companys financial reporting process on behalf of the board of directors. Management of the Company has the primary responsibility for the Companys financial reporting process, principles and internal controls as well as preparation of its financial statements in accordance with generally accepted accounting principles. The Companys independent auditors are responsible for performing an audit of the Companys financial statements and expressing an opinion as to the conformity of such financial statements with generally accepted accounting principles in the United States.
The audit committee has reviewed and discussed the Companys audited financial statements as of and for the year ended June 30, 2007, with management and the independent auditors. The audit committee has discussed with the independent auditors the matters required to be discussed under Standards of the Public Company Accounting Board (United States), including those matters set forth in Statement on Auditing Standards No. 61 (Communication with Audit Committees), as amended by Statement on Accounting Standards 90 (Audit and other Communications) as amended (AICPA, Professional Standards, Vol. 1 AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. The independent auditors have provided to the audit committee the written disclosures and the letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), as currently in effect, and the audit committee has also considered whether the independent auditors provision of information technology and other non-audit services to the Company is compatible with maintaining the auditors independence. The audit committee has concluded that the independent auditors are independent from the Company and its management.
The audit committee met four times during the 2007 fiscal year. In addition, the members of the committee reviewed, and the chairman of the committee discussed with management and the Companys independent auditors, the interim financial information contained in each quarterly earnings release prior to the release of such information to the public.
The audit committee discussed with the Companys independent auditors the overall scope and plans for their respective audits. In addition, the audit committee met with the Chief Executive Officer and Chief Financial Officer of the Company to discuss the processes that they have undertaken to evaluate the accuracy and fair presentation of the Companys financial statements and the effectiveness of the Companys system of disclosure controls and procedures.
In fulfilling its oversight responsibilities and as part of its review of the Companys 2007 Annual Report, the audit committee met with the Companys independent auditors, with and without management present, to discuss their evaluations of the Companys internal controls as well as the overall quality of its financial reporting.
The fees paid to the Companys auditors, Cherry, Bekaert & Holland, L.L.P., as well as the policy on pre-approval of audit and non-audit services are set forth elsewhere in this proxy statement.
As a result of the reviews and discussions with management and Cherry, Bekaert & Holland, L.L.P. referred to above, the audit committee recommended to the board and the board has approved that the audited financial statements of the Company be included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2007 for filing with the Securities and Exchange Commission.
This report has been submitted by the audit committee:
The foregoing report shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933.
Policy On Pre-Approval Of Services Provided By Independent Registered Public Accounting Firms
Pursuant to the requirements of the Sarbanes-Oxley Act of 2002, the terms of the engagement of Cherry, Bekaert & Holland, L.L.P. are subject to the specific pre-approval of the audit committee. All audit and permitted non-audit services to be performed by Cherry, Bekaert & Holland, L.L.P. require pre-approval by the audit committee in accordance with pre-approved procedures established by the audit committee. The procedures require all proposed engagements of Cherry, Bekaert & Holland, L.L.P. for services of any kind to be directed to the Companys Principal Accounting Officer and then submitted for approval to the audit committee prior to the beginning of any services.
In fiscal 2007, 100% of the audit fees, audit related fees and tax fees paid to Cherry Bekaert & Holland, L.L.P. were approved either by the audit committee or its designee. The audit committee has considered whether the provision of non-audit services by the Companys independent registered public accounting firm is compatible with maintaining auditor independence and believes that the provision of such services is compatible.
Independent Registered Public Accounting Firm Fees
The following tables show the type of services and the aggregate fees billed to the Company for such services during the fiscal years ended June 30, 2007 and 2006 by SunLinks independent registered public accounting firm, Cherry, Bekaert & Holland, L.L.P. and its former independent registered accounting firm Deloitte & Touche, LLP. Descriptions of the service types follow the table.
The aggregate fees billed by Cherry Bekaert & Holland, L.L.P. for each of the last two fiscal years include fees for professional services rendered for the audit of the Companys annual financial statements, review of financial statements included in the Companys Quarterly Reports on Form 10-Q and services that were provided in connection with statutory and regulatory audits, filings or engagements and other attest services and the issuance of comfort letters and consents.
Audit-related fees may include fees for assurance and related services that are reasonably related to the performance of the audit or review of the Companys financial statements. The nature of the services performed for these fees may include, among other things, employee benefit plan audits, internal control reviews, attest services not required by statute or regulation and consultations concerning financial accounting and reporting matters not classified as an audit.
The aggregate fees billed by Cherry Bekaert & Holland, L.L.P. in each of the last two fiscal years include fees for professional services rendered for tax compliance, including assisting the Company with tax audits.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires directors and certain officers of the Company and owners of more than 10% of the Companys common shares to file an initial ownership report with the Securities and Exchange Commission and a monthly or annual report listing any subsequent change in their ownership of any of the Companys equity securities. The Company believes, based on information provided to the Company by the persons required to file such reports, that all filing requirements applicable to such persons during the period from July 1, 2006 through June 30, 2007 have been met, except that Mr. Burleson filed one Form 4 late.
The board and our management have not received notice of, and are not aware of, any business to come before the annual meeting other than the items we refer to in this Proxy Statement. The board of directors currently does not intend to present any other business at the meeting. However, if any other matters are properly brought before the meeting, it is intended that the holders of proxies in the enclosed form will vote thereon in their discretion.
COST OF SOLICITATION
The cost of solicitation of proxies will be borne by the Company. In addition to the use of the mails, proxy solicitations may be made by directors, officers and employees of the Company, personally or by telephone or other means of communication, without receiving additional compensation. It is also anticipated that banks, brokerage houses and other custodians, nominees and fiduciaries will be requested to forward soliciting material to their principals and to obtain authorization for the execution of proxies. The Company will reimburse banks, brokerage houses and other custodians, nominees and fiduciaries for their out-of-pocket expenses.
NOMINATION OF DIRECTORS AND OTHER BUSINESS OF SHAREHOLDERS
We plan to hold our 2008 annual meeting of stockholders during the month of November. Any proposal of a shareholder intended to be presented at the 2008 annual meeting of shareholders must be received by us for inclusion in the proxy statement and form of proxy for that meeting no later than May 31, 2008, 120 days before the anniversary of the date of this proxy statement. If any proposal is submitted after that date, we are not required to include it in our proxy materials. Proposals should be submitted to the following address:
SunLink Health Systems, Inc.
900 Circle 75 Parkway, Suite 1120
Atlanta, Georgia 30339
A notice of a proposed item of business should include a description of, and the reasons for, bringing the proposed business to the meeting, any material interest of the shareholder in the business, and certain other information about the shareholder.
Under our Code of Regulations, and as SEC rules permit, shareholders must follow certain procedures to nominate a person for election as a Director at an annual or special meeting. Under these procedures, shareholders must submit the proposed nominee or item of business by delivering a notice to the Secretary of the Company at our principal executive offices. Normally, we must receive notice of a shareholders intention to introduce a nomination or proposed item of business for an annual meeting not less than 50 days nor more than 75 days before the first anniversary of the prior years meeting. Assuming that our 2007 Annual Meeting is held on schedule, we must receive notice pertaining to the 2008 Annual Meeting no earlier than August 30, 2008 and no later than September 24, 2008. However, if we give less than 60 days notice or public announcement of the annual meeting date, we must receive the notice no later than the close of business ten days after the earlier of the date we first provide notice of the meeting to shareholders or announce it publicly.
If we hold a special meeting to elect directors which is on less than sixty days notice, the effect of our Code of Regulations will be that we must receive a shareholders notice of intention to introduce a nomination no later than the close of business ten days after the earlier of the date we first provide notice of the meeting to shareholders or announce it publicly.
A notice of a proposed nomination must include certain information about the shareholder and the nominee, as well as a written consent of the proposed nominee to serve if elected.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have mailed our 2007 Annual Report to Shareholders in connection with this proxy solicitation. IF YOU WOULD LIKE A COPY OF OUR 2007 FORM 10-K, EXCLUDING CERTAIN EXHIBITS, PLEASE CONTACT, SUNLINK HEALTH SYSTEMS, INC. 900 CIRCLE 75 PARKWAY, SUITE 1120, ATLANTA, GEORGIA 30339.
Admission To Meeting
All shareholders as of the record date, or their duly appointed proxies, may attend the meeting. Seating, however, may be limited. Admission to the meeting will be on a first-come, first-served basis. Please note that if you hold your shares in street name (that is, through a broker or other nominee), you will need to bring a copy of a brokerage statement reflecting your stock ownership as of the record date. Only shareholders as of the record date may attend the meeting. Each shareholder may be asked to present valid picture identification, such as a drivers license or passport. Cameras, recording devices, cellular telephones, beepers and other electronic devices will not be permitted at the meeting.
Action on Other Matters at the Annual Meeting
At this time, we do not know of any other matters to be presented for action at the annual meeting other than those mentioned in the Notice of annual meeting of shareholders and referred to in this proxy statement. If any other matter comes before the meeting, it is intended that the proxies will be voted in respect thereof in accordance with the judgment of the persons voting the proxies.
Shareholders are urged to date, sign and return promptly the enclosed proxy in the accompanying envelope, which requires no postage if mailed in the United States, or to vote their shares via telephone or the Internet. Your cooperation will be appreciated. Your proxy will be voted, with respect to the matters identified thereon, in accordance with any specifications on the proxy.
SUNLINK HEALTH SYSTEMS, INC.
AUDIT COMMITTEE CHARTER
(ADOPTED ON SEPTEMBER 20, 2004)
The primary function of the Audit Committee is to assist the board of directors in fulfilling its oversight responsibilities by reviewing: the integrity of the financial statements and other financial information provided by the Company to the Companys shareholders, the general public and the Securities and Exchange Commission (SEC); the Companys systems of internal controls regarding finance, accounting, legal and compliance that management and the board have established; the Companys auditing, accounting and financial reporting processes generally; and the independence and performance of the Companys external auditors.
The Audit Committee shall be comprised of at least three directors as determined by the Board, who shall meet the independence and audit committee composition requirements under any rules and regulations of the American Stock Exchange, Section 121A and Rule 10A-3 of the Securities Exchange Act of 1934 (the Exchange Act) and the rules and regulations of the SEC, as in effect from time to time. Each Audit Committee member shall be independent and free from any relationship that would interfere with the exercise of his or her independent judgment as a member of the Audit Committee. All members of the Committee shall be able to read and understand fundamental financial statements, including a companys balance sheet, income statement, and cash flow statement and shall have working familiarity with basic finance and accounting practices. The Committee shall include at least one member who has past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the members financial sophistication satisfying the applicable requirements of the American Stock Exchange, the Exchange Act and the rules and regulations of the SEC.
The members of the Committee shall be elected by the Board. Unless a Chair is elected by the full Board, the members of the Committee shall designate a Chair by majority vote of the full Committee membership.
The Committee shall meet quarterly, or more frequently as circumstances dictate. As part of its job to foster open communication, the Committee shall meet at least annually with the management and the independent auditors in separate executive sessions to discuss any matters that the Committee or either group believes should be discussed privately.
IV. RESPONSIBILITIES AND DUTIES
The Audit Committee is vested with all responsibilities and authority required by Rule 10A-3 under the Exchange Act. The Audit Committees primary duties and responsibilities are to:
To fulfill its responsibilities and duties the Committee shall:
Financial Reporting Processes
Related Party and Legal Compliance
The Company shall provide the Audit Committee adequate funds to achieve its purpose, including any funding the Audit Committee reasonably deems appropriate, to engage the independent auditors, independent counsel or other advisers as it determines necessary to carry out its duties.
VI. LIMITATIONS ON RESPONSIBILITIES AND DUTIES
Management is responsible for the Companys financial reporting process including its system of internal control, and for the preparation of consolidated financial statements in accordance with generally accepted accounting principles. The Companys independent auditors are responsible for auditing those financial statements. The Audit Committees responsibility is to monitor and review these processes. It is not the Audit Committees duty or responsibility to conduct auditing or accounting reviews or procedures. Members of the Audit Committee do not represent themselves to be or to serve as, accountants or auditors by profession.
Therefore, the Audit Committee expects to and will rely, without independent verification, on managements representations that the financial statements have been prepared with integrity and objectivity and in conformity with generally accepted accounting principles and on the representations of the independent auditors included in their report on the Companys financial statements. The Audit Committees oversight does not provide its members with an independent basis to determine that management has maintained appropriate accounting and financial reporting principles or policies, or appropriate internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Further, the Audit Committees considerations and discussions with management and the independent auditors do not assure that the Companys financial statements are presented in accordance with generally accepted accounting principles or, that the audit of the Companys financial statements has been carried out in accordance with generally accepted auditing standards.
SUNLINK HEALTH SYSTEMS, INC.
COMPENSATION COMMITTEE CHARTER
(ADOPTED ON SEPTEMBER 20, 2004)
The primary purpose of the Compensation Committee of the board of directors is: (i) to assist the board in discharging its responsibilities with respect to compensation of the Companys executive officers; (ii) to produce a report on executive compensation for inclusion in the Companys annual proxy statement; (iii) to provide recommendations regarding management successors; and (iv) to administer the Companys stock option and other incentive plans (in the absence of a separate Stock Option Committee).
The Compensation Committee shall consist of three or more directors, each of whom shall satisfy the applicable independence requirements of the American Stock Exchange and any other regulatory requirements. The Committee may form and delegate authority to subcommittees when appropriate.
Committee members shall be elected by resolution of the board and shall serve until their successors shall be duly elected and qualified. The Committees chairperson shall be designated by the full board if it elects to do so. Alternatively, if the board does not designate a chairperson, the Committee members shall elect a chairperson by vote of a majority of the full Committee.
The Committees chairperson shall (i) chair all meetings of the Committee; (ii) coordinate the evaluation of the performance of the Chief Executive Officer; and (iii) perform other activities requested by the other directors or as circumstances dictate.
III. STRUCTURE AND MEETINGS
The chairperson of the Compensation Committee will preside at each Committee meeting and, in consultation with the other Committee members, shall set the frequency of meetings and the agenda for each meeting. The chairperson will ensure that the agenda for each meeting is circulated in advance of the applicable meeting.
The Committee shall inform the board of the actions taken or issues discussed at its meetings at the next meeting of the full board following a committee meeting.
IV. GOALS AND RESPONSIBILITIES
The Compensation Committee shall have the power and authority of the board to perform and shall perform the following duties and responsibilities:
V. COMMITTEE RESOURCES
The Compensation Committee shall have the authority to obtain advice and seek assistance from internal and external legal, accounting, consulting and other advisors. The Committee shall determine the extent of funding necessary for the payment of fees to any consultant retained to advise the Committee.
The Committee shall have sole authority to retain and terminate any compensation consultant used to assist in the development and/or analysis of the Companys compensation philosophy, or the evaluation of a director, the Chief Executive Officer or other senior executive and shall have sole authority to approve such firms fees and other retention terms.
VI. DISCLOSURE OF CHARTER
This Charter will be made available on the Companys website.
SUNLINK HEALTH SYSTEMS, INC.
900 Circle 75 Parkway, Suite 1120
Atlanta, Georgia 30339
THERE ARE THREE WAYS TO VOTE YOUR PROXY
TO VOTE BY MAIL, PLEASE DETACH PROXY CARD HERE
TO VOTE BY MAIL, PLEASE DETACH PROXY CARD HERE