<PAGE>
SCHEDULE 14A INFORMATION
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:
/ / 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 Rule 14a-11(c) or
Rule 14a-12
SIERRA HEALTH SERVICES, 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/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
SIERRA HEALTH SERVICES, INC.
P.O. Box 15645
Las Vegas, Nevada 89114-5645
March 31, 1995
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Sierra Health Services, Inc., which will be held on Tuesday, May 16, 1995, at
10:00 a.m., local time, at the Sierra Health Services corporate complex, 2720
North Tenaya Way, Las Vegas, Nevada.
The following Notice of Annual Meeting of Stockholders and Proxy Statement
describes the items to be considered by the stockholders and contains certain
information about the Company's officers and directors.
Please sign and return the enclosed proxy card as soon as possible in the
envelope provided so that your shares can be voted at the Meeting in accordance
with your instructions. Even if you plan to attend the Meeting, we urge you to
sign and promptly return the enclosed proxy. You can revoke the proxy at any
time prior to voting, or vote your shares personally if you attend the Meeting.
We look forward to seeing you.
Sincerely,
[SIG]
Anthony M. Marlon, M.D.
CHIEF EXECUTIVE OFFICER
<PAGE>
SIERRA HEALTH SERVICES, INC.
P.O. Box 15645
Las Vegas, Nevada 89114-5645
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD TUESDAY, MAY 16, 1995
------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Sierra
Health Services, Inc., a Nevada corporation (the "Company"), will be held at
10:00 a.m., local time, Tuesday, May 16, 1995, at the Sierra Health Services
corporate complex, 2720 North Tenaya Way, Las Vegas, Nevada for the following
purposes:
1. To elect two directors for a two-year term and until their
successors are duly elected and qualified.
2. To approve the adoption of the Company's 1995 Long-Term Incentive
Plan.
3. To approve the adoption of the Company's 1995 Non-Employee
Directors' Stock Plan.
4. To ratify the appointment of Deloitte & Touche as the Company's
auditors for 1995.
5. To transact such other business as may properly come before the
Meeting or any adjournments thereof.
Only holders of record of the Company's Common Stock at the close of
business on March 17, 1995 will be entitled to notice of and to vote at the
Annual Meeting and at any adjournments thereof. As described in the attached
Proxy Statement, the Board of Directors' nominees for election at the Annual
Meeting as directors of the Company are: Anthony M. Marlon, M.D. and Thomas Y.
Hartley.
You are cordially invited to attend the Annual Meeting. Whether or not you
expect to attend the Annual Meeting in person, please fill out, sign, date and
return at your earliest convenience, in the envelope provided, the enclosed
proxy card which is being solicited on behalf of the Company's Board of
Directors. The proxy card shows the form in which your shares of Common Stock
are registered. Your signature must be in the same form. The return of the proxy
card does not affect your right to vote in person should you decide to attend
the Annual Meeting. We look forward to seeing you.
By Order of the Board of Directors,
[SIG]
Frank E. Collins
SECRETARY
Las Vegas, Nevada
March 31, 1995
IMPORTANT
IN ORDER TO ENSURE THAT A QUORUM WILL BE REPRESENTED AT THE ANNUAL MEETING,
STOCKHOLDERS ARE URGED TO SEND IN THEIR PROXY CARDS AS SOON AS POSSIBLE. A
PROMPT RESPONSE IS HELPFUL AND YOUR COOPERATION WILL BE APPRECIATED. THE GIVING
OF THIS PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON SHOULD YOU DECIDE TO
ATTEND THE ANNUAL MEETING.
<PAGE>
SIERRA HEALTH SERVICES, INC.
P.O. Box 15645
Las Vegas, Nevada 89114-5645
------------------------
PROXY STATEMENT
FOR THE
ANNUAL MEETING OF STOCKHOLDERS
ON TUESDAY, MAY 16, 1995
------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Sierra Health Services, Inc., a Nevada
corporation (hereinafter referred to as the "Company"), for use at the 1995
Annual Meeting of Stockholders of the Company to be held at 10:00 a.m., local
time, on Tuesday, May 16, 1995, at the Sierra Health Services corporate complex,
2720 North Tenaya Way, Las Vegas, Nevada, and at any adjournments thereof. The
approximate date on which this Proxy Statement and the accompanying proxy card
will first be sent to the Company's stockholders is March 31, 1995.
VOTING OF PROXY; REVOCATION
Any stockholder who signs and returns the proxy may revoke it at any time
before it has been voted by (i) delivering written notice to the Secretary of
the Company of its revocation, (ii) executing and delivering to the Secretary of
the Company a proxy bearing a later date, or (iii) attending the Meeting and
voting in person. All properly executed proxies, if received in time for voting
and not revoked, will be voted in accordance with the instructions specified,
or, if no instructions are specified, will be voted (i) for the election of the
two nominees described herein, (ii) for the approval of the adoption of the
Company's 1995 Long-Term Incentive Plan, (iii) for the approval of the adoption
of the Company's 1995 Non-Employee Directors' Stock Plan, (iv) ratification of
the appointment of auditors, and (v) as to other matters which may properly come
before the Meeting, in accordance with the best judgment of the proxy holders
named on the accompanying proxy card.
EXPENSES OF SOLICITATION
All expenses incurred in connection with this solicitation, including the
costs of preparing, assembling and mailing the proxy soliciting materials, will
be borne by the Company. Although there is no formal agreement to do so, the
Company will reimburse banks, brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in forwarding the proxy
soliciting materials to the beneficial owners of the Company's Common Stock (as
defined below). In addition to solicitation by mail, proxies may be solicited in
person, by telephone, or telecopy, by directors, officers and regular employees
of the Company who will not receive additional compensation for such
solicitations.
VOTING SECURITIES
The Board of Directors has fixed the close of business on March 17, 1995 as
the record date for the determination of holders of Common Stock entitled to
notice of and to vote at the Meeting or any adjournments thereof. On the record
date there were outstanding and entitled to vote 14,714,004 shares of Common
Stock, par value $.005 per share, of the Company (the "Common Stock"). The
presence in person or by proxy of the holders of record of shares representing a
majority of the total issued and outstanding Common Stock will constitute a
quorum at the Meeting.
1
<PAGE>
Stockholders are entitled to vote cumulatively for the election of directors
if any stockholder gives notice to the President or Secretary of the Company not
less than 48 hours before the Meeting that the stockholder desires that the
voting for the election of directors be cumulative. If cumulative voting is so
invoked, each stockholder is entitled to a number of votes for such election
equal to the number of shares held by such stockholder multiplied by the number
of directors to be elected (two), and may cast all votes for one nominee or
distribute them among the nominees. Discretionary authority is being sought by
the proxyholders to cumulate votes and distribute such votes among some or all
of the nominees in the event that cumulative voting is invoked by any
stockholder. On all other matters, each stockholder is entitled to one vote per
share of Common Stock held of record by such holder.
Assuming that a quorum is present at the Meeting, directors will be elected
by a plurality of the votes cast at the Meeting by holders of shares present in
person or represented by proxy, while approval of other items at the Meeting
requires the affirmative vote of stockholders who hold at least a majority of
the voting power present in person or represented by proxy and entitled to
voting power at the Meeting. Abstentions and broker non-votes will not affect
the election of directors. Abstentions will have the same effect as votes cast
against each of the other proposals, but broker non-votes will not be counted as
votes cast on such proposals.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of March 17, 1995 (except as
otherwise noted in the footnotes below) by (1) each of the "named executives" in
the Summary Compensation Table set forth under "Compensation of Executive
Officers," (2) each director of the Company, (3) all directors and executive
officers as a group, and (4) each person known by the Company to be the
beneficial owner of more than 5% of the Common Stock of the Company. Subject to
applicable community property and similar statutes and except as otherwise noted
in the footnotes below, each of the following persons has sole voting and
dispositive power with respect to the shares that he or she beneficially owns.
Except as noted below, the address of all stockholders, Directors, executive
officers and nominees identified in the table and accompanying footnotes below
is in care of the Company's principal executive offices.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENTAGE OF
BENEFICIAL OUTSTANDING
NAME OF BENEFICIAL OWNER OWNERSHIP (1) COMMON STOCK
- ------------------------------------------ ---------------------- -----------------
<S> <C> <C>
Anthony M. Marlon, M.D. 2,505,484(2) 17.0%
Erin E. MacDonald 29,878(3) *
Jerry D. Reeves, M.D. 14,724(4) *
Michael Montalvo 4,336(5) *
Robert A. Mayer 13,200(6) *
Frank E. Collins 15,051(7) *
Thomas Y. Hartley 4,000(8) *
Charles L. Ruthe 5,300(9) *
William J. Raggio 20,400(10) *
All Directors and Executive Officers as a 2,694,603(11) 18.3%
Group (12 persons)
Putnam Investments, Inc. 1,942,675(12) 13.2%
Waddell & Reed Investment Management 726,300(13) 5.0%
Company and Waddell & Reed Asset
Management Company
<FN>
- ------------------------
* Less than one percent
(1) All share amounts on this table have been adjusted to reflect a two-for-one
split of the Company's Common Stock distributed on or about January 11,
1993 to stockholders of record as of November 13, 1992.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
(2) Includes 30,000 shares that can be acquired within 60 days of March 17,
1995 upon the exercise of stock options, 825,484 shares held indirectly
through the Marlon Family Trust ("Family Trust"), 1,649,000 shares held
indirectly through a total of eight other trusts (the "Eight Trusts"), and
1,000 shares held indirectly through a limited partnership (the "Partner-
ship") in which Dr. Marlon and his wife are the only limited partners and
general partners. Dr. Marlon as managing general partner of the
Partnership, has sole voting and dispositive power over the shares held by
the Partnership. Dr. Marlon and his wife are co-trustees of the Family
Trust, and Dr. Marlon may be deemed to have voting and dispositive power
over the shares held by the Family Trust and, therefore, to have beneficial
ownership with respect to such shares. Erin E. MacDonald, President, Chief
Operating Officer and a director of the Company is the trustee or, together
with Dr. Marlon, a co-trustee of each of the Eight Trusts. Although the
trustee/co-trustees of each of the Eight Trusts have express power to vote
and dispose of the shares held in the respective trusts, either of Dr.
Marlon or Ms. MacDonald may be deemed to have or share voting power and/or
dispositive power over the shares held by the Eight Trusts and, therefore,
to have beneficial ownership with respect to such shares. Dr. Marlon
disclaims beneficial ownership as to the shares held by the Eight Trusts
and 500 of the shares held by the Partnership.
(3) Includes 23,800 shares that can be acquired within 60 days of March 17,
1995 upon the exercise of stock options.
(4) Includes 5,000 shares that can be acquired within 60 days of March 17, 1995
upon the exercise of stock options.
(5) Includes 4,000 shares that can be acquired within 60 days of March 17, 1995
upon the exercise of stock options.
(6) Includes 13,200 shares that can be acquired within 60 days of March 17,
1995 upon the exercise of stock options.
(7) Includes 7,400 shares that can be acquired within 60 days of March 17, 1995
upon the exercise of stock options.
(8) Includes 2,000 shares that can be acquired within 60 days of March 17, 1995
upon the exercise of stock options.
(9) Includes 4,400 shares that can be acquired within 60 days of March 17, 1995
upon the exercise of stock options.
(10) Includes 11,200 shares that can be acquired within 60 days of March 17,
1995 upon the exercise of stock options.
(11) Includes 124,440 shares that can be acquired within 60 days of March 17,
1995 upon the exercise of stock options.
(12) The business address of this stockholder is One Post Office Square, Boston,
Massachusetts 02109. Putnam Investments, Inc. ("PI"), a wholly-owned
subsidiary of Marsh & McLennan Companies, Inc., beneficially owns (a)
1,518,575 shares of Common Stock beneficially owned by its wholly-owned
subsidiary, Putnam Investment Management, Inc. ("PIM"), and (b) 424,100
shares of Common Stock beneficially owned by its wholly-owned subsidiary,
The Putnam Advisory Company, Inc. ("PAC"). PIM and PAC are registered
investment advisers whose securities holdings set forth above include
securities beneficially owned by their clients, which may include
investment companies registered under the Investment Company Act and/or
employee benefit plans, pension funds, endowment funds or other
institutional clients. PIM has no voting power, but does have shared
dispositive power with respect to the shares beneficially owned by it. PAC
has shared voting power with respect to 309,800 of the shares beneficially
owned by it and shared dispositive power with respect to all of the shares
beneficially owned by it. PI has shared voting power with respect to
309,800 of the shares beneficially owned by it and shared dispositive power
with respect to all of the shares beneficially owned by it.
All of the foregoing information is based on the number of shares reported
as beneficially owned by this stockholder at December 31, 1994 and upon
information contained in this stockholder's Schedule 13G dated February 8,
1995.
(13) The business address of these stockholders is 6300 Lamar Avenue, Overland
Park, Kansas 66202-4200. Waddell & Reed Investment Management Company
("WRIMC") and Waddell & Reed Asset Management Company ("WRAMC") benefi-
cially owned 726,300 shares of Common Stock and are wholly-owned
subsidiaries of Waddell & Reed, Inc. WRIMC beneficially owns 715,200 shares
of Common Stock and WRAMC beneficially owns 11,100 shares of Common Stock.
Both WRIMC and WRAMC are registered investment advisers whose securities
holdings set forth above include securities beneficially owned by their
clients. WRIMC has sole voting power and sole dispositive power with
respect to all of the shares beneficially owned by it and WRAMC has shared
voting power and shares dispositive power with respect to all of the shares
beneficially owned by it.
All of the foregoing information is based on the number of shares reported
as beneficially owned by these stockholders at December 31, 1994 and upon
information provided by them, including information contained in their
Schedule 13G's dated February 14, 1995.
</TABLE>
ITEM NO. 1 -- ELECTION OF DIRECTORS
The Bylaws of the Company provide that the Board of Directors shall consist
of not less than three nor more than seven directors, with the exact number to
be fixed by the Board. At a meeting held on December 13, 1994, the Board of
Directors of the Company fixed the number of directors at five. The Bylaws of
the Company also provide for two classes of directors, as nearly equal in number
as possible, with each class serving for a term of two years. At the 1995 Annual
Meeting of Stockholders, the terms of Anthony M. Marlon, M.D and Thomas Y.
Hartley will expire and two directors shall be elected to serve for a term of
two years expiring at the 1997 Annual Meeting of Stockholders and until their
3
<PAGE>
successors are duly elected and qualified. The three remaining directors' terms
will continue until the 1996 Annual Meeting of Stockholders and until their
successors are duly elected and qualified. The proxy holders named on the
accompanying proxy card intend to vote the shares represented by each proxy
authorizing votes for the two nominees listed below in favor of the two
nominees, and if cumulative voting is invoked, to distribute, in such proportion
as they see fit, the two votes represented by each such share among the two
nominees named below. Proxies cannot be voted for a greater number of persons
than the number of nominees named.
The Company's Board of Directors has nominated Dr. Marlon and Mr. Hartley
for reelection to the Board. Both nominees are presently members of the Board of
Directors and have consented to being named herein and to serve if elected. The
Company does not know of anything that would preclude any nominee from serving
if elected. If any nominee for any reason should become unable or unwilling to
stand for election as a director, the proxies authorizing votes for such nominee
will be voted for the election of such nominee as the Board of Directors may
nominate. The identity of each nominee for Director and each continuing Director
of the Company, and certain information with respect to each of them, is set
forth below.
NOMINEES FOR ELECTION AS DIRECTORS FOR A TERM OF TWO YEARS
ANTHONY M. MARLON, M.D., 52, has been the Chief Executive Officer and a
Director of the Company since its inception in June 1984. Dr. Marlon also served
as President until August 10, 1994. Dr. Marlon held similar executive positions
with several of the Company's predecessors dating back to 1972, the year of
inception of the Company's predecessor physician group. In those capacities, he
organized and managed the Company's predecessor physician group, ambulatory
surgical facility, management company and HMO. Dr. Marlon has served as
Associate Professor of Medicine at the University of Nevada School of Medical
Sciences since 1975. Dr. Marlon has held positions as Chief, Division of
Cardiology, and Medical Director, Cardiac Rehabilitation, of University Medical
Center of Southern Nevada from 1972 to 1985, Clinical Associate of the
Department of Medicine at the University of Arizona from 1973 to 1979 and
Clinical Associate Professor, Department of Medicine, Tulane University, New
Orleans from 1973 to 1977. Dr. Marlon is a board-certified specialist in
internal medicine and cardiovascular diseases. In 1967, Dr. Marlon received his
M.D. from State University of New York and completed his internship, residency
and cardiology fellowship at Stanford University. In 1986, Dr. Marlon was
appointed to the Federal Task Force on Long Term Health Care Policies by Dr.
Otis R. Bowen, then Secretary of Health and Human Services. In July 1988, Dr.
Marlon was appointed to the Board of Trustees of the Nevada Development
Authority, a non-profit organization dedicated to the expansion and
diversification of the southern Nevada business community. On February 7, 1991,
in connection with the resolution of an investigation by the U.S. Attorney's
Office, Las Vegas, Nevada into allegations that officers and employees of the
Company provided false and misleading information to the Office of Personnel
Management ("OPM"), Dr. Marlon pled guilty to a misdemeanor offense for
knowingly providing to OPM a false certificate that the Company's health
maintenance organization ("HMO") was utilizing community rating in setting the
rates of the 1988 contract between the HMO and OPM. On May 24, 1991, Dr. Marlon
was sentenced to 24 months probation and was fined $25,000. In connection with
the OPM matter, Dr. Marlon also relinquished compensation for a period of six
months, and another officer of the Company relinquished compensation for two
months. As part of the resolution, the Company agreed to provide free medical
services having a value of $500,000 to indigent and uninsured residents in the
Las Vegas area. As a result of Dr. Marlon's guilty plea to a misdemeanor, Dr.
Marlon received a written letter of reprimand from the Board of Medical
Examiners of the State of Nevada which had no impact on the Company's operations
or Dr. Marlon's medical license.
THOMAS Y. HARTLEY, 61, has been a Director of the Company since June 1992.
He is President and Chief Operating Officer of Colbert Golf Design and
Development, Inc. in Las Vegas, Nevada, a position he has held since 1991. Prior
to that, from 1988 until 1991, Mr. Hartley held similar positions with Jim
Colbert Golf, Inc. in Las Vegas. From 1959 until his retirement in 1988, Mr.
Hartley worked in various
4
<PAGE>
capacities for Deloitte Haskins & Sells (currently Deloitte & Touche), retiring
as area managing partner in charge of Las Vegas, Reno, Phoenix, and Tucson. Mr.
Hartley, who obtained his degree in business from Ohio University in 1955, is a
Certified Public Accountant. He is active in many Las Vegas civic and charitable
organizations. Mr. Hartley has served on the Board of Directors of Rio Suite
Hotel & Casino, Inc. since 1990. He has served on the Boards of Directors of
Southwest Gas Corporation and Primerit Bank (the latter being a subsidiary of
Southwest Gas Corporation) since 1991.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE FOR
THE ELECTION OF ANTHONY M. MARLON, M.D. AND THOMAS Y. HARTLEY AS DIRECTORS OF
THE COMPANY.
CONTINUING DIRECTORS WHOSE TERMS EXPIRE IN 1996
CHARLES L. RUTHE, 60, has been a Director of the Company since September
1984, and Chairman of the Board of Directors of the Company's HMO subsidiary,
Health Plan of Nevada, Inc., since 1984. He was also a member of the Board of
Directors of one of the Company's predecessors. Mr. Ruthe has been the owner of
Charles L. Ruthe and Associates, Inc., a real estate brokerage firm in Las
Vegas, Nevada since 1975. From 1975 to September 1988, Mr. Ruthe served as
President of the real estate brokerage firm. In September 1988, Mr. Ruthe
relinquished that position to assume the position of Chairman of the Board of
the real estate brokerage firm. Mr. Ruthe is the President of The Boyd Gaming
Corporation, which operates several Nevada hotel/casinos. He has been with The
Boyd Gaming Corporation since 1983. He was a director of First Interstate Bank
of Nevada from 1979 to 1983 and Vice Chairman of the Board of Directors of First
Western Financial Corporation, the parent company of a savings and loan company,
from 1985 to 1991. Mr. Ruthe was President of the Nevada State Chamber of
Commerce in 1977.
WILLIAM J. RAGGIO, 68, has been a Director of the Company since September
1984. He has been a State Senator of Nevada since 1972 and was Washoe County,
Nevada District Attorney from 1958 to 1970. He was a senior partner in the law
firm of Raggio, Wooster & Lindell, Ltd. from 1970 until June 1991. Since July
1991, he has been a senior partner in the law firm of Vargas & Bartlett. Mr.
Raggio is currently Vice President, General Counsel and a director of Sahara
Gaming Corporation, a corporation which operates several Nevada hotel/casinos.
ERIN E. MACDONALD, 47, has been a Director of the Company since December 14,
1992. She was appointed President and Chief Operating Officer effective August
10, 1994 and had previously served as Senior Vice President of Operations since
December 31, 1992. From October 1984 until March 1990, Ms. MacDonald served as
Vice President of HMO Operations. On March 12, 1990, Ms. MacDonald's title was
changed to Vice President of HMO and Insurance Operations, which title she held
until December 31, 1992. She also served as President of the Company's HMO from
December 1985 to December 1992, as well as President of Sierra Health and Life
Insurance Company, Inc., the Company's insurance subsidiary, from April 1990
until December 1992. From 1983 to 1984, she was the Director of the Company's
northern Nevada HMO. From 1980 to 1983, Ms. MacDonald was the Operations Manager
of the Company's predecessor physician group. During 1980, Ms. MacDonald was
employed by Pfizer, Inc., a pharmaceutical company, monitoring drug research
projects at major medical centers.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
During the fiscal year ended December 31, 1994, the Board of Directors of
the Company held 11 meetings and acted by unanimous written consent 6 times.
The Company's Audit Committee held four meetings during the fiscal year
ended December 31, 1994, two of which were held contemporaneously with meetings
of the Board of Directors. The current members of the Audit Committee are
Messrs. Hartley, Raggio and Ruthe. The principal functions of
5
<PAGE>
the Audit Committee are to review with management and the Company's independent
public accountants the scope and results of the various audits conducted during
the year, to discuss with management and the Company's independent public
accountants the Company's annual financial statements, and to review fees paid
to, and the scope of services provided by, the Company's independent public
accountants. In addition, the Audit Committee reviews the scope of work and
findings of the Company's internal audit department.
The Company's Compensation Committee held two meetings during the fiscal
year ended December 31, 1994, contemporaneously with meetings of the Board of
Directors. The members of the Company's Compensation Committee are Messrs.
Hartley, Raggio and Ruthe. The principal function of the Compensation Committee
is to make recommendations concerning the Company's compensation programs,
including the Company's 1986 Stock Option Plan and other bonus and incentive
plans.
The Company's Stock Plan Committee held three meetings during the fiscal
year ended December 31, 1994, contemporaneously with meetings of the Board of
Directors. The members of the Company's Stock Plan Committee are Messrs.
Hartley, Raggio and Ruthe. The function of the Stock Plan Committee is to
administer the Company's stock-based incentive programs in its capacities as the
"Stock Option Plan Committee," "the Committee" and the "Administrative
Committee" under the 1986 Stock Option Plan, the Capital Accumulation Plan, and
the 1985 Employee Stock Purchase Plan, respectively.
The Board of Directors does not have a Nominating Committee. The Board will
consider nominees for election to the Board of Directors recommended by the
Company's stockholders. All such recommendations, which must include appropriate
biographical information, for the Company's next annual stockholders meeting in
May 1996 should be submitted in writing to the Secretary at the Company's
principal executive offices no later than December 2, 1995.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are appointed annually by the Board of
Directors of the Company and serve at the discretion of the Board. The executive
officers of the Company, other than Dr. Marlon and Ms. MacDonald, who are
described above, their respective ages and positions and certain other
information with respect to each of them are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
Frank E. Collins 41 Secretary and General Counsel
William R. Godfrey 50 Vice President, Administrative Services
Larry S. Howard 39 Vice President, HMO and Insurance Operations
Michael A. Montalvo 50 Vice President, Marketing, Sales and Underwriting Operations
Jerry D. Reeves, M.D. 50 Vice President, Health Care Operations
Marie H. Soldo 54 Vice President, Government Affairs and Special Projects
James L. Starr 31 Vice President, Chief Financial Officer and Treasurer
</TABLE>
Frank E. Collins joined the Company in June 1986 as General Counsel and
Secretary. He received his Juris Doctorate in May of 1979 from the University of
Missouri at Kansas City School of Law. He is a member of the Missouri Bar
Association. From 1981 to 1986, Mr. Collins was employed by Blue Cross and Blue
Shield of Kansas City. He originally served as Staff Legal Counsel until he
assumed the position of Associate General Counsel in early 1986. His
responsibilities included assisting in the development and implementation of a
federally qualified HMO and a preferred provider organization ("PPO"). From 1979
to 1981, he served as counsel for the Missouri Division of Insurance, where he
was responsible for providing legal advice on insurance- and HMO-related
regulatory issues.
William R. Godfrey was appointed Vice President, Health Delivery Finance in
October 1984. In September 1985, Mr. Godfrey's duties and title were changed to
Vice President of Administrative
6
<PAGE>
Services with responsibilities for directing the Company's facilities, personnel
management, purchasing, and print shop activities. From 1974 to 1984, Mr.
Godfrey was the Controller of the Company's predecessor physician group.
Larry S. Howard was appointed Vice President of HMO and Insurance Operations
on December 31, 1992. On that date, he also assumed the titles of President of
the Company's HMO, Health Plan of Nevada, Inc., and insurance subsidiary, Sierra
Health and Life Insurance Company, Inc. From February 1990 until December 31,
1992, he served as Assistant Vice President, HMO and Insurance Operations for
the Company. Prior to this promotion, he was the Vice President and Chief
Operating Officer of both the Company's HMO and insurance subsidiaries. Mr.
Howard served as Vice President/ Chief Operating Officer of the Company's HMO
from December 1987 to February 1990. From September 1986 to December 1987, he
was the Director of Operations for the Company's Las Vegas HMO operation. From
March 1986 to September 1986, he was an HMO Project Manager for the Company.
Michael A. Montalvo was appointed Vice President of Marketing and Sales in
April 1993. In August 1994, he also assumed responsibility for the Company's
underwriting department. Prior to joining the Company, he served as Sales
Director for The Travelers, an insurance company in southern California, from
November 1991 to April 1993. From 1990 to 1991, Mr. Montalvo served as Senior
Vice President for Managed Health Network, an employee assistance program and
managed care mental health company located in Los Angeles, California. From 1986
to 1990, he was in charge of the California sales and marketing efforts with
respect to managed care indemnity, PPO and HMO products for Equicor, Inc., an
employee benefits company. From 1963 to 1986, Mr. Montalvo held various
positions with The Equitable Life Insurance Company, ultimately becoming the
financial officer responsible for underwriting, contracts, proposals and
management information systems for the western and west-central regions.
Jerry D. Reeves, M.D. joined the Company as a pediatrician at the Company's
multi-specialty medical group subsidiary in September 1988. He was appointed
President of the multi-specialty medical group, Southwest Medical Associates, on
April 3, 1989. In January 1993, he also assumed the title of Vice President of
Medical Affairs of the Company; this title was changed to Vice President of
Health Care Operations in August 1994. Prior to his employment with the Company,
from 1986 to 1988, he was Chief of the Clinical Medicine Division at
Headquarters United States Air Forces in Europe with responsibilities for the
organization and quality of Medical Care Services in Air Force Medical
Facilities in Europe. From 1984 to 1986, Dr. Reeves was the Chairman of the
Department of Pediatrics, United States Air Forces Regional Medical Center,
Wiesbaden, Germany. Dr. Reeves received his medical doctorate from Baylor
College of Medicine in 1971. He is board certified in pediatrics and in
pediatric hematology/oncology and has held teaching positions with University of
California School of Medicine and Uniformed Services University of Health
Sciences. In addition to his twenty years of clinical practice, he has published
results of his clinical research in medical journals and has directed residency
training programs.
Marie H. Soldo joined the Company in September 1984 as Vice President of
Planning and Development. She was appointed Vice President of Government Affairs
and Special Projects on January 1, 1988. From 1981 to 1984, Ms. Soldo was a
Branch Chief in the Division of Qualification, Office of Health Maintenance
Organizations, U.S. Department of Health and Human Services in Rockville,
Maryland. Her responsibilities included evaluating applications for HMO
qualification and directing the development of qualification standards for HMO
and other health plans seeking contracts with the Health Care Financing
Administration. From 1978 to 1981, Ms. Soldo was a Regional HMO Program
Consultant for the U.S. Department of Health and Human Services in San
Francisco, California where she was responsible for promoting HMO development,
monitoring operations and funding developing HMOs in the region.
James L. Starr was appointed Vice President of Finance, Chief Financial
Officer and Treasurer of the Company effective August 31, 1994. Prior to that he
had served as Assistant Vice President-Controller since November 1993, and as
Director of Finance and Corporate Controller since he joined
7
<PAGE>
the Company in 1989. Prior to joining the Company, Mr. Starr was a Senior
Accountant at Deloitte & Touche (formerly Deloitte Haskins & Sells) in Las Vegas
from 1987 to 1989. Prior to that Mr. Starr was employed by Arthur Andersen &
Company in Los Angeles. Mr. Starr is a Certified Public Accountant and a member
of the American Institute of Certified Public Accountants and the Nevada State
Society of Certified Public Accountants.
Notwithstanding anything to the contrary in any of the Company's previous
filings under the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, (the "1934 Act") that might have incorporated future
filings, including this Proxy Statement, in whole or in part, the following
report and the Comparative Stock Performance Graph on page 13 shall not be
incorporated by reference into any such filings.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
composed entirely of outside directors and is responsible for developing and
making recommendations to the Board with respect to the Company's compensation
policies. In addition, the Committee has the authority to determine the annual
compensation to be paid to the Chief Executive Officer ("CEO") and the Company's
other executive officers. The same three outside directors also serve as the
Company's Stock Plan Committee, the committee that administers the Company's
stock-based incentive compensation plans.
During 1991, 1992 and 1994 the Committee used the services of a compensation
consultant from Deloitte & Touche to help develop internal compensation
guidelines and objectives and to survey, for comparative purposes, industry,
peer group, and national companies for director and officer compensation and
stock ownership data. The data substantiates that the Company's compensation
package is competitive with employers of comparable size in its industry.
The fundamental objectives of the Company's executive compensation programs
are:
1. To support the achievement of Company annual and longer-term
strategic goals;
2. To attract and retain superior individuals critical to the long-term
success of the Company;
3. To reward performance; and
4. To tie the executives' interests to the success of the Company and
thus to an increase in stockholder value.
As part of its desire to strengthen the last objective mentioned above, the
Company retained a compensation consultant during 1994 to survey stock ownership
requirements that have been adopted by other companies and to recommend
appropriate ownership requirements for the executive officers of the Company.
Based on these recommendations during 1994, the Committee approved a plan
requiring that certain stock ownership levels be reached and maintained by these
executive officers within designated time periods. Such ownership levels are
determined according to base salary.
The Company's compensation policies, plans and programs for 1994 generally
were unaffected by the adoption of new Section 162(m) of the Internal Revenue
Code, contained in the Omnibus Budget Reconciliation Act of 1993. Section 162(m)
generally disallows a public company's tax deduction for compensation to the
chief executive officer and the four other most highly compensated executive
officers in excess of $1,000,000 in any tax year beginning on or after January
1, 1994. Under Section 162(m), compensation that qualifies as "performance-based
compensation" is excluded from the $1,000,000 deductibility cap, and therefore
remains fully deductible even though such compensation may (together with other
compensation) exceed $1,000,000 in a given year. The Company has in the past and
intends in the future to grant stock options with an exercise price at least
equal to 100% of fair market value of the underlying stock at the date of grant.
Such options should qualify as
8
<PAGE>
"performance-based compensation." There can be no assurance, however, that in
the future all compensation in excess of $1,000,000 will qualify as
"performance-based compensation" that is fully deductible by the Company under
Section 162(m). In addition, the Committee (or the Board of Directors) may
conclude that compliance with Section 162(m) would impose burdens or costs that
outweigh the benefits to the Company of preserving such deductions.
The Company's executive compensation program is comprised of base salary,
annual bonus, long-term incentive compensation in the form of a stock option
plan and a capital accumulation or "phantom stock" plan, and various other
benefits that are generally available to all employees of the Company, including
medical, pension, and employee stock purchase plans.
Base salaries for the executive officers are, as a rule, set somewhat below
the industry average. This is done in order to link a greater percentage of the
officer's pay to long-term incentives which increase in value based on corporate
performance.
Once each year, in December, the Committee reviews the CEO's base salary and
sets its amount for the following year based on competitive compensation data,
such as the data included in the surveys referenced above, the Committee's
assessment of the CEO's past performance, based on factors such as those
considered by the Committee when determining the CEO's bonus, and the
Committee's expectation regarding the CEO's future contributions to the Company.
For the other executive officers, the Committee sets a permissible range of
increase in salary from the previous year and allows the CEO to set actual
salaries for the officers within those parameters based on each officer's
individual performance and achievement of goals.
The annual incentive bonus payment for the CEO and the other senior officers
is intended to reward key employee performance for assisting the Company in
achieving financial success and maximizing stockholder value. Based on the
Company's financial results for any given year, the Committee determines whether
or not to fund the bonus pool and at what level. Based on job position, eligible
employees are placed into specific categories. The Committee decided during 1994
that the incentive target for the CEO should be set at a higher percentage than
for the other senior officers because it was deemed appropriate that a higher
percentage of his compensation should be based upon his individual performance.
As a result, at its December 13, 1994 meeting, the Committee set the following
bonus categories: Category I, for the CEO, has a maximum bonus potential of 100%
of base salary; Category II, for Senior Management, has a maximum bonus
potential of 50% of base salary; Category III, for corporate vice presidents and
subsidiary presidents, has a maximum bonus potential of 30% of base salary; and
Category IV, for all other eligible employees in the bonus pool, has a maximum
bonus potential of 20% of base salary. Other than the CEO who is in Category I,
all the named executives are in Category II. For 1994, an individual's bonus
amount, including the CEO's, was determined by the following formula which was
established by the Committee:
50% of the bonus potential is based on Company performance units,
including the meeting of budgetary goals, departmental goals, management
practices goals, and productivity goals.
40% of the bonus potential is based on individual employee performance
based on an annual merit review conducted by the CEO relating to the
achievement of certain goals established by the CEO.
10% of the bonus is based on length of service, broken down as follows:
three to five years of service entitles the employee to a bonus
potential of up to 5%, six or more years of service entitles the
employee to the full 10% in this category.
The Compensation Committee determines the bonus amount granted to the CEO.
The CEO is, in turn, responsible for recommending the amounts to be allocated
from the bonus pool to all other eligible employees, including the named
executives, based on the foregoing formula established by the Compensation
Committee.
In December 1993, the Compensation Committee voted to set Dr. Marlon's 1994
base salary at $412,000. In December 1994, they set his 1995 base salary at
$425,000, a 3% increase. This percentage of increase was in line with the
increase granted to the rest of the executive officers of the Company. In
9
<PAGE>
December 1994, Dr. Marlon was also granted a 1994 bonus of $300,000, or 73% of
his 1994 base salary. Dr. Marlon received another $12,360 during 1994 as part of
a Company-wide bonus program available to all employees. The Committee felt this
bonus amount was justified, based, in part, because of the Company's financial
performance in 1994 when earnings per share increased by 20% over the previous
year and net income increased by 27%. In addition, the return on average assets,
excluding the offering proceeds, was 13.8% and the return on average equity,
excluding the offering proceeds, was 29.4%. The Committee also weighed Dr.
Marlon's pivotal role in the Company's successful 1994 expansion into the
Houston marketplace. It was further noted that the Company's success in its
recent public offering of stock was largely attributable to Dr. Marlon's overall
guidance of the Company and to his successful presentation of the Company's
current performance and future opportunities to the financial community.
Finally, the Committee subjectively assessed Dr. Marlon's contributions to the
Company's accomplishments, both past and present, and discussed how these
accomplishments were in large measure due to the vision and leadership he
provided. Based on these and other subjective factors, the Committee concluded
that Dr. Marlon's contributions to the Company's successful performance merited
the incentive payment he was being awarded which, the Committee noted, was in
line with like payments by other comparable companies.
The long-term stock-based incentive plans offered by the Company are
designed to tie the officers' interests directly to those of the shareholders.
The following types of awards have been granted to executive officers and other
key employees:
1986 Stock Option Plan -- a right to purchase shares of common stock
over a stated period at the fair market value per share as of the date
the option is granted. Stock options customarily vest 20% per year after
the first anniversary of the date of grant. During 1994, five of the six
named executives, with the exception of Mr. Mayer, were granted stock
options by the Stock Plan Committee at its December meeting (see Table,
Option Grants in Fiscal Year 1994). The number of options granted
reflects competitive industry practices as well as the Committee's
assessment of the individual's relative value to the Company based, in
part, upon each individual's evaluation by his or her supervisor; and
Capital Accumulation Plan -- a right to receive share units under a
phantom stock plan that entitles the recipients to benefits based upon
the increase, if any, in the fair market value of the Common Stock from
the date of the share unit award to the date of payout of benefits.
Effective March 19, 1991, the recipients of outstanding share unit
awards, which recipients include five of the six named executives, with
the exception of Mr. Montalvo, agreed to an amendment to such share unit
awards to provide that, for purposes of calculating the amount the
recipient is entitled to upon payout, the fair market value of the
Company's Common Stock on the date of the payout shall not exceed
$11.9375 per share (adjusted to reflect the Company's two-for-one stock
split.) The share unit awards, which vest 20% per year for five years
after the first anniversary of the grant, were awarded to such
recipients in 1990 at a grant price of $3.375 per share. (as adjusted
for the Company's two-for-one stock split.)
To continue the focus on compensation tied to enhanced stockholder value,
the Compensation Committee has proposed a 1995 Long-Term Incentive Plan for
stockholder approval. A copy of the plan document is attached as Exhibit A to
this Proxy Statement. The proposed plan provides authority for the Stock Plan
Committee to use a range of long-term incentive devices to motivate, attract and
retain high quality executive talent. In addition, the plan is flexible enough
to allow the Stock Plan Committee to make long-term incentive awards in a form
responsive to changes in legislation and regulations affecting taxation for the
Company. Upon approval of the plan by the stockholders, authority to make
further grants under the Company's 1986 Stock Option Plan and the Capital
Accumulation Plan will be terminated.
The tables which follow, and the accompanying narrative and footnotes,
reflect the decisions covered by the above discussion.
CHARLES L. RUTHE WILLIAM J. RAGGIO THOMAS Y. HARTLEY
10
<PAGE>
COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative total stockholder return on the
Common Stock of the Company for the last five fiscal years with the cumulative
total return on the S&P Composite Index and a group of peer companies over the
same period (assuming the investment of $100 in the Company's Common Stock, the
S&P Composite Index, and the peer company index on December 31, 1989, and
reinvestment of all dividends).
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
---------------------------------------
1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SIERRA HEALTH SVCS INC.................. 100 159 214 501 513 733
PEER GROUP.............................. 100 155 353 582 716 869
S & P 500............................... 100 97 126 136 150 152
</TABLE>
- ------------------------
The peer group is comprised of the following companies: Foundation Health
Corporation, HMO America, Coventry, FHP International Corporation, US
Healthcare, Inc., United Healthcare, Oxford Health Plans, Inc., Pacificare,
Ramsay-HMO, Inc., Healthsource, and Intergroup Healthcare Corporation.
11
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the annual and long
term compensation for services in all capacities to the Company for the fiscal
years ended December 31, 1994, 1993 and 1992, of (a) the Chief Executive Officer
during the 1994 fiscal year, (b) each of the four most highly compensated
executive officers, other than the Chief Executive Officer, for the 1994 fiscal
year, and (c) one former executive officer of the Company who resigned his
position as an executive officer in August 1994, (hereinafter collectively
referred to as the "named executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES PAYOUTS
-------------------------------------------- UNDERLYING -------------- ALL OTHER
NAME AND OTHER ANNUAL OPTIONS/SARS LTIP COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($)(1) BONUS ($) COMPENSATION ($) (#)(6)(7) PAYOUTS ($)(8) ($)(9)
- -------------------------------- ---- ------------- --------- ---------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Anthony M. Marlon, M.D. 1994 412,000 312,360 5,000 171,250 7,620
Chief Executive Officer 1993 400,000 200,000 50,000 171,250 9,214
1992 377,576 165,000 20,000 171,250 8,941
Erin E. MacDonald 1994 275,000 145,750 (5) 55,000 171,250 7,620
President, 1993 198,269 68,000 1,958 50,000 171,250 9,214
Chief Operating Officer 1992 156,153 66,000 10,022(5) 10,000 171,250 8,941
Jerry D. Reeves, M.D. 1994 203,700 93,761 6,000 34,250 7,620
Vice President, 1993 179,611 63,000 25,000 34,250 9,214
Health Care Operations 1992 169,533 42,000 4,500 34,250 8,941
Michael A. Montalvo(2) 1994 136,750 72,453 10,000 6,498
Vice President Marketing, Sales 1993 94,289 58,195(3) 10,000
and Underwriting Operations 1992
Robert A. Mayer(4) 1994 216,069 64,598(5) 50,000 171,250 7,620
Employee 1993 197,500 64,000 72,737(5) 10,000 171,250 9,214
1992 172,500 68,000 171,250 8,941
Frank E. Collins 1994 136,475 65,062 5,000 85,625 7,620
Secretary and 1993 134,306 39,000 25,000 85,625 9,214
General Counsel 1992 122,692 42,000 7,500 85,625 8,941
<FN>
- ------------------------------
(1) Amounts shown include cash compensation earned and received by the named
executives as well as amounts earned but deferred at the election of those
officers.
(2) Mr. Montalvo joined the Company in April 1993.
(3) The 1993 bonus amount for Mr. Montalvo includes a $33,195 sign-on bonus
granted at hire.
(4) Mr. Mayer was a member of the Board of Directors from June 1990 until
August 31, 1994. He was an executive officer of the Company from February
1989 until August 31, 1994, holding the offices of Senior Vice President,
Chief Financial Officer and Treasurer. On August 15, 1994 he resigned each
of these positions, as well as his positions on the boards of subsidiary
companies, effective August 31, 1994. Mr. Mayer will continue to be
employed by the Company through June 1995, but he is no longer an executive
officer of the Company.
(5) Money received from the exercise of tax equalization payments (TEPs)
granted in tandem with certain stock option awards under the Company's 1986
Stock Option Plan.
(6) In 1991, in order to limit the impact on earnings of charges for incentive
compensation, the Board of Directors eliminated all outstanding stock
appreciation rights (SARs). Such SARs had been granted in tandem with
certain option awards under the Company's 1986 Stock Option Plan.
(7) All numbers in this table relating to the number of option awards have been
adjusted to reflect a two-for-one split of the Company's Common Stock
distributed on or about January 11, 1993 to stockholders of record as of
November 13, 1992.
(8) "LTIP" means long-term incentive plan. The numbers reflect satisfaction of
the Company's payment obligation with respect to vested share units under
the Company's Capital Accumulation Plan.
(9) Represents contributions made by the Company to the Company's Profit
Sharing/401(k) Plan and Trust on behalf of the named executives. This plan
is the major retirement vehicle available to the Company's employees,
including the named executives.
</TABLE>
12
<PAGE>
STOCK OPTIONS
The following table contains information concerning the grants of stock
options to the named executives during fiscal year 1994:
OPTION GRANTS IN FISCAL YEAR 1994
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS RELIABLE VALUE AT
---------------------------------------------------------- ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED (#)(1) 1994 ($/SH)(4) DATE 5% ($) 10% ($)
- ----------------------------------- --------------- --------------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Anthony M. Marlon, M.D. 5,000(3) 3.23% $ 28.625 12/12/00 $ 48,676 $ 110,430
Chief Executive Officer
Erin E. MacDonald 50,000(2) 32.32% $ 26.375 08/09/00 $ 448,501 $1,017,496
President, 5,000(3) 3.23% $ 28.625 12/12/00 $ 48,676 $ 110,430
Chief Operating Officer
Jerry D. Reeves, M.D. 6,000(3) 3.88% $ 28.625 12/12/00 $ 58,411 $ 132,515
Vice President,
Health Care Operations
Michael A. Montalvo 10,000(3) 6.46% $ 28.625 12/12/00 $ 97,352 $ 220,859
Vice President, Marketing, Sales
and Underwriting Operations
Robert A. Mayer(5) 0 0 0 0 0
Employee
Frank Collins 5,000(3) 3.23% $ 28.625 12/12/00 $ 48,676 $ 110,430
Secretary and General Counsel
<FN>
- ------------------------------
(1) All grants were made pursuant to the Company's 1986 Stock Option Plan (the
"1986 Plan"). The 1986 Plan provides for the granting of (a) options for
the purchase of Common Stock of the Company, which may be "incentive stock
options" under Section 422 of the Internal Revenue Code of 1986 or
nonqualified stock options, (b) tandem stock appreciation rights ("SARs"),
and (c) tandem tax equalization payment rights ("TEPs"). No SARs or TEPs
were granted with the above awards. The options expire not more than ten
years from the date of grant, except that incentive stock options granted
to an optionee who owns more than 10% of the voting stock of the Company
expire five years from the date of grant. The options shown above vest and
are exercisable at the rate of 20% per year starting with the first
anniversary date of the grant. Upon a change of control of the Company, as
described in the 1986 Plan, the vesting of the options shall be
automatically accelerated, so that the options outstanding at the time of
such change of control will be exercisable immediately prior to the
effective date of such change of control; provided, however, that the Stock
Plan Committee administering the 1986 Plan may exclude a change of control
transaction from the foregoing provisions and permit the option to continue
to vest in accordance with its original terms. In addition, the options
shown above shall terminate and may no longer be exercised if the
respective optionee ceases to be an employee or director of the Company,
except for certain post-termination exercise terms in the case of
involuntary termination for any reason other than death, the death of the
optionee, and an optionee's leave of absence. In addition, the options
shown above will be deemed to have been terminated on the date on which the
optionee's employment or tenure as a director is terminated if such
termination is for "cause." All numbers and prices in this table have been
adjusted to reflect a two-for-one split of the Company's Common Stock
distributed on or about January 11, 1993 to stockholders of record as of
November 13, 1992.
(2) Options granted on August 10, 1994.
(3) Options granted on December 13, 1994.
(4) All options were granted at an exercise price equal to the fair market
value of the Company's Common Stock on the option grant date. The exercise
price may be paid by the optionee in cash or by check, except that the
Stock Plan Committee may, in its discretion, allow such payment to be by
surrender of unrestricted shares of the Company's Common Stock (at their
then fair market value on the date of exercise), or by a combination of
cash, check and unrestricted shares.
(5) Mr. Mayer was a member of the Board of Directors from June 1990 until
August 31, 1994. He was an executive officer of the Company from February
1989 until August 31, 1994, holding the offices of Senior Vice President,
Chief Financial Officer and Treasurer. On August 15, 1994 he resigned each
of these positions, as well as his positions on the boards of subsidiary
companies, effective August 31, 1994. Mr. Mayer will continue to be
employed by the Company through June 1995, but he is no longer an executive
officer of the Company.
</TABLE>
13
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table provides information, with respect to the named
executives, concerning the exercise of options during fiscal 1994 and
unexercised options held as of the end of such fiscal year.
AGGREGATED OPTION EXERCISES IN FISCAL 1994 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END (#) FY-END ($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($)(1) UNEXERCISABLE UNEXERCISABLE (2)
- ------------------------------------- ----------------- ------------------- -------------- -------------------
<S> <C> <C> <C> <C>
Anthony M. Marlon, M.D. 0 0 118,000/57,000 $2,247,500/$814,375
Chief Executive Officer
Erin E. MacDonald 71,268 $ 1,086,640 12,000/101,800 $173,750/$1,004,088(3)
President, Chief Operating Officer
Jerry D. Reeves, M.D. 12,967 $ 171,663 1,300/29,500 $28,288/$386,313
Vice President, Health Care
Operations
Michael A. Montalvo 0 0 2,000/18,000 $30,500/$152,000
Vice President, Marketing,
Sales and Underwriting Operations
Robert A. Mayer(4) 89,668 $ 1,377,726 1,400/46,800 $22,300/$726,588(3)
Employee
Frank Collins 38,167 $ 593,740 2,000/29,900 $39,813/$409,700
Secretary and General Counsel
<FN>
- ------------------------------
(1) Represents market price at exercise date less exercise price. The amount
does not include payments received from the exercise of TEPs granted in
tandem with certain options.
(2) Based on the closing price of the Common Stock of the Company on December
31, 1994, which was $31.625, minus the exercise price of the option. There
is no guarantee that if and when these options are exercised they will have
this value.
(3) Does not include amounts realizable through the exercise of TEPs granted in
tandem with certain options.
(4) Mr. Mayer was a member of the Board of Directors from June 1990 until
August 31, 1994. He was an executive officer of the Company from February
1989 until August 31, 1994, holding the offices of Senior Vice President,
Chief Financial Officer and Treasurer. On August 15, 1994 he resigned each
of these positions, as well as his positions on the boards of subsidiary
companies, effective August 31, 1994. Mr. Mayer will continue to be
employed by the Company through June 1995, but he is no longer an executive
officer of the Company.
</TABLE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
In August 1994, the Company entered into new five year employment agreements
with its Chief Executive Office, President, and Vice President of Administrative
Services and two or three year employment agreements with its other executive
officers, including the other named executives, except Mr. Mayer whose
employment contract was not renewed. These agreements are terminable by the
executive officers upon 60 days notice. These agreements provide that in the
event of (i) termination without cause, (ii) a change of control not approved by
the Board of Directors or (iii) a change of control approved by the Board of
Directors and a subsequent termination without cause or diminution of duties or
compensation, the Company will be obligated to provide scheduled payments to the
affected executive officer equivalent to salary for two years for the Chief
Executive Officer, eighteen months for the President and six months to one year
for the other executives. The employment agreements contemplate annual
adjustments in compensation based on performance, responsibilities, and changes
in the cost of living. Under these agreements, these named executives may not
engage in any business in the State of Nevada that is in direct competition with
the Company during a period of one year following termination of employment.
14
<PAGE>
As described in footnote 1 to the table entitled Option Grants in Fiscal
Year 1994, under certain circumstances the exercisability of options granted to
named executives is accelerated in the event of certain changes of control.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are the three non-employee
directors, Messrs. Hartley, Raggio and Ruthe.
Mr. Raggio is a senior partner of Vargas & Bartlett, a Nevada law firm which
during 1994 rendered legal services to the Company.
Mr. Ruthe is the Chairman of the Board, owner and former president of a real
estate brokerage firm. During 1994, the Company exercised an option to purchase
a parcel of property adjacent to its home office building and corporate
administrative headquarters, subject to receiving the approval of the City of
Las Vegas. If the sale is completed, a brokerage commission of approximately
$96,000 will be payable by the City of Las Vegas to Mr. Ruthe's firm.
DIRECTOR COMPENSATION
During 1994, directors who are not officers of the Company were paid $10,000
per annum, plus a $1,000 meeting fee for meetings attended, including committee
meetings of the Board. Mr. Raggio, Mr. Ruthe, and Mr. Hartley were paid, in the
aggregate, $31,000, $33,000, and $35,000, respectively. During 1994, Mr. Ruthe
received $6,900 as director's fees for his position as Chairman of the Board of
Health Plan of Nevada, Inc., the HMO subsidiary of the Company.
Effective March 16, 1992, the 1986 Stock Option Plan was amended to provide
for automatic annual grants to outside directors of six-year options, vesting at
20% per year starting with the first anniversary of the date of grant, to
purchase 1,000 shares (adjusted to 2,000 shares post-stock split) of Common
Stock at a per share exercise price equal to the fair market value of the Common
Stock on the date of grant. On January 20, 1994, options representing 2,000
shares of Common Stock at a per share exercise price of $27.00 were
automatically granted to Messrs. Raggio, Ruthe, and Hartley under the terms of
the 1986 Stock Option Plan. On January 20, 1995, Messrs. Raggio, Ruthe and
Hartley were each granted options representing 2,000 shares of Common Stock at a
per share exercise price of $30.875.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning Certain Related Transactions with respect to
Messrs. Raggio and Ruthe, Directors of the Company, please refer to
"Compensation Committee Interlocks and Insider Participation."
In March 1994, the Company purchased all of the outstanding stock of two
companies, North Medical Building, Inc. ("NMBI") and South Medical Building,
Inc. ("SMBI"), from which the Company's multi-specialty medical group leased
medical facilities. The two companies and their predecessor limited partnerships
were partially owned by affiliates and other stockholders of the Company,
including Dr. Marlon and Mr. Godfrey.
The purchase price for all of the outstanding stock of NMBI and SMBI was
approximately $11.4 million in the aggregate in cash and assumed liabilities.
The purchase price for each of the two companies was based on the appraised
value of the companies' land and medical facilities. The appraisals were
prepared by Shelli Lowe & Associates, Real Estate Appraisers and Consultants.
The purchase price for NMBI consisted of approximately $2.4 million in cash and
approximately $4.9 million in assumed liabilities. The purchase price for SMBI
consisted of approximately $1.6 million in cash and approximately $2.5 million
in assumed liabilities. The amounts paid to Dr. Marlon for his aggregate
interests in NMBI and SMBI were $737,739 and $262,763, respectively. Mr. Godfrey
received $104,834 for his interest in NMBI. Dr. Marlon's parents received
$246,555 for their interest in SMBI. Lease payments to the predecessor limited
partnerships of NMBI and SMBI were approximately $1.5 million, $1.6 million and
$1.7 million in 1991, 1992 and 1993, respectively.
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Dr. Marlon and Mr. Godfrey had direct interests in the purchase
transactions, as they had financial interests in both the Company and NMBI, and,
in the case of Dr. Marlon, also in SMBI. The transactions were approved by a
majority of disinterested directors of the Company.
ITEM NO. 2 -- APPROVAL OF THE 1995 LONG-TERM INCENTIVE PLAN
The Company's Board of Directors believes that attracting and retaining
executives and other key employees of high quality is essential to the Company's
growth and success. The Board also believes that important advantages to the
Company are gained by a comprehensive compensation program which may include
different types of incentives for motivating employees of the Company and
rewards for outstanding service. In this regard, stock options and other
stock-related awards have been and will continue to be an important element of
compensation for executives and other employees, because such awards enable
employees to acquire or increase their proprietary interest in the Company,
thereby promoting a closer identity of interests between employees and the
Company's stockholders. Such awards also provide to employees an increased
incentive to expend their maximum efforts for the success of the Company's
business.
Accordingly, on February 14, 1995 the Company's Stock Plan Committee (the
"Committee"), recommended and the Board of Directors adopted, subject to
stockholder approval, the 1995 Long-Term Incentive Plan (the "1995 Plan"). The
terms of the 1995 Plan will give the Committee which will administer the 1995
Plan, great flexibility and broad discretion to design awards to executives
involving stock, including options, stock appreciation rights ("SARs") and a
variety of other stock-related awards (collectively, "Awards"). This flexibility
will permit the Company to meet the rapidly changing requirements under the tax
laws, securities laws, and corporate law, provide for positive stockholder
relations, and most importantly achieve the purposes of such Awards to provide
substantial incentives to executives for excellent performance. Additionally,
the Committee may require achievement of pre-established performance targets as
a condition of Awards being granted, exercised or settled under the 1995 Plan,
or as a condition to accelerating the timing of such events.
At the Annual Meeting, the Company's stockholders will be asked to approve
the 1995 Plan, including the material terms of its performance goals for those
Awards that are intended to be performance-based. This approval is required,
among other reasons, to ensure that compensation earned by and paid to certain
executive officers of the Company pursuant to fair market value stock options
and SARs and performance-based awards granted under the 1995 Plan will be
deductible by the Company for federal income tax purposes. Since 1994, Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), has
limited deductions for publicly held companies with respect to compensation in
excess of $1,000,000 paid to certain of their executive officers. Assuming the
stockholders' approval is obtained, compensation payable under the 1995 Plan
attributable to fair market value stock options and SARs and certain
performance-based awards, which is otherwise deductible, should not be subject
to this limitation. (See "Compensation Committee Report on Executive
Compensation")
It is intended that the 1995 Plan will replace the Company's Second Amended
and Restated 1986 Stock Option Plan (the "1986 Plan") and the Company's Second
Restated Capital Accumulation Plan (the "CAP Plan"). Therefore, the Board of
Directors has determined to terminate authority to make further awards under the
1986 Plan and the CAP Plan upon stockholder approval of the 1995 Plan.
Outstanding awards under the 1986 Plan and the CAP Plan will remain in effect.
The following is a brief description of the material features of the 1995
Plan. Such description is qualified in its entirety by reference to the full
text of the 1995 Plan, a copy of which is attached to this Proxy Statement as
Exhibit A.
SHARES AVAILABLE AND AWARD LIMITATIONS. Under the 1995 Plan, the number of
shares of Common Stock reserved and available for Awards is 1,200,000 plus the
number of shares reserved for the grant of awards under the 1986 Plan and the
CAP Plan but which have not been and will not be issued under
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those Plans (approximately 15,000 shares and 400,000 shares, respectively).
Shares subject to forfeited or expired Awards or to an Award that is settled in
cash or is otherwise terminated without issuance of shares to the participant
and shares withheld by or surrendered to the Company to satisfy withholding tax
obligations or in payment of the exercise price of an Award will be deemed to
remain available for Awards under the 1995 Plan. Shares delivered under the 1995
Plan may be either newly issued or treasury shares.
In addition, the 1995 Plan includes a limitation on the amount of Awards
that may be granted to any one participant in a given calendar year in order to
qualify Awards as "performance-based compensation" not subject to the limitation
of Section 162(m) of the Code. Under this annual per-person limitation, no
participant may in any year be granted awards under the 1995 Plan with respect
to more than 200,000 shares of Common Stock.
Adjustments to the number and kind of shares subject to the share
limitations and annual per-person limitations under the 1995 Plan are authorized
in the event that a dividend or other distribution (whether in cash, shares, or
other property), recapitalization, reclassification, stock split,
reorganization, business combination, or other similar corporate transaction or
event affects the Common Stock. The Committee is also authorized to adjust
performance conditions and other terms of Awards in response to these kinds of
events or to changes in applicable laws, regulations, or accounting principles.
On March 14, 1995, the last reported sale price of the Company's Common
Stock on the composite tape for New York Stock Exchange-listed securities was
$30.375 per share.
ELIGIBILITY. Executive officers and other key employees of the Company and
its subsidiaries, including any director who is also an executive officer or
employee of the Company, are eligible to be granted awards under the 1995 Plan.
No member of the Committee will be eligible to be granted awards under the 1995
Plan. At present, approximately 90 persons would be eligible for Awards under
the 1995 Plan.
ADMINISTRATION. The 1995 Plan is administered by the Committee, the members
of which must each be a "disinterested person" as defined under Rule 16b-3 under
the Exchange Act. Subject to the terms and conditions of the 1995 Plan, the
Committee is authorized to designate participants, determine the type and number
of Awards to be granted and the number of shares to which Awards will relate,
specify times at which awards will be exercisable or settled (including
performance conditions that may be required as a condition thereof), set other
terms and conditions of such Awards, prescribe forms of Award agreements,
interpret and specify the 1995 Plan and the rules and regulations relating to
the 1995 Plan, and make all other determinations which may be necessary or
advisable for the administration of the 1995 Plan. The 1995 Plan provides that
Committee members shall not be personally liable, and shall be fully
indemnified, in connection with any action, determination, or interpretation
taken or made in good faith under the 1995 Plan.
STOCK OPTIONS AND SARS. The Committee is authorized to grant stock options,
including both incentive stock options ("ISOs"), which can result in potentially
favorable tax treatment to the participant, and non-qualified stock options, and
SARs entitling the participant to receive the excess of the fair market value of
a share on the date of exercise or other specified date over the grant price of
the SAR. The exercise price of an option and the grant price of an SAR is
determined by the Committee, but generally may not be less than the fair market
value of the stock on the date of grant (except as described below). The maximum
term of each option or SAR, the times at which each option or SAR will be
exercisable, and provisions requiring forfeiture of unexercised options at or
following termination of employment, generally are fixed by the Committee,
subject to a restriction that no ISO, or SAR in tandem therewith, may have a
term exceeding ten years. Options may be exercised by payment of the exercise
price in cash, stock or other property (possibly including notes or obligations
to make payment on a deferred basis) or by surrender of other outstanding
awards, having a fair market value equal to the exercise price. Reload stock
options, which automatically replace a portion of exercised options with new
options, are permitted to be granted under the 1995 Plan. Methods of
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exercise and settlement and other terms of SARs will be determined by the
Committee. SARs granted under the 1995 Plan may include "limited SARs"
exercisable for a stated period of time following a "change in control" of the
Company, as discussed below.
RESTRICTED AND DEFERRED STOCK. The Committee is authorized to make Awards
of restricted stock and deferred stock. Prior to the end of the restricted
period, shares received as restricted stock may not be sold or disposed of by
participants, and may be forfeited in the event of termination of employment.
The restricted period generally is established by the Committee, but Restricted
Stock must be forfeitable for at least three years in the event of the
termination of the participant's employment under certain circumstances if the
grant or lapse of restrictions is not conditioned upon achievement of a
performance objective. Such an Award would entitle the participant to all of the
rights of a stockholder of the Company, including the right to vote the shares
and the right to receive any dividends thereon, unless otherwise determined by
the Committee. Deferred stock gives participants the right to receive shares at
the end of a specified deferral period, subject to forfeiture of the Award in
the event of termination of employment under certain circumstances prior to the
end of a specified restricted period (which need not be the same as the deferral
period). Prior to settlement, deferred stock Awards carry no voting or dividend
rights or other rights associated with stock ownership, but dividend equivalents
may be paid on such deferred stock.
OTHER STOCK-BASED AWARDS, BONUS STOCK, AND AWARDS IN LIEU OF CASH
OBLIGATIONS. The 1995 Plan authorizes the Committee to grant Awards that are
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to Common Stock. The Committee will determine the
terms and conditions of such Awards, including the consideration to be paid to
exercise Awards in the nature of purchase rights, the periods during which
Awards will be outstanding, and any forfeiture conditions and restrictions on
Awards. In addition, the Committee is authorized to grant shares as a bonus free
of restrictions, or to grant shares or other Awards in lieu of the Company's
obligations under other plans or compensatory arrangements, subject to such
terms as the Committee may specify.
PERFORMANCE-BASED AWARDS. The Committee may require satisfaction of
pre-established performance goals, consisting of one or more business criteria
and a targeted performance level with respect to such criteria, as a condition
of Awards being granted or becoming exercisable or settleable under the 1995
Plan, or as a condition to accelerating the timing of such events. If so
determined by the Committee, in order to avoid the limitations of Section 162(m)
under the Code, the business criteria used by the Committee in establishing
performance goals applicable to awards to the chief executive officer and the
four other most highly compensated executive officers will be selected
exclusively from among the following: (i) the Company's annual return on equity,
(ii) its annual earnings per share, (iii) changes in its annual revenues and/or
(iv) strategic business criteria, consisting of one or more objectives based on
specified revenue, market penetration, geographic business expansion and cost
targets, and goals relating to acquisitions or divestitures as specified by the
Committee.
OTHER TERMS OF AWARDS. Awards may be settled in cash, stock, other Awards
or other property, in the discretion of the Committee. The Committee may require
or permit participants to defer the settlement of all or part of an Award in
accordance with such terms and conditions as the Committee may establish,
including payment or crediting of interest or dividend equivalents on any
deferred amounts. The Committee is authorized to place cash, shares or other
property in trusts or make other arrangements to provide for payment of the
Company's obligations under the 1995 Plan. The Committee may condition Awards on
the payment of taxes such as by withholding a portion of the stock or other
property to be distributed (or previously acquired stock or other property
surrendered by the participant) in order to satisfy tax obligations. Awards
granted under the 1995 Plan generally may not be pledged or otherwise encumbered
and are not transferable except by will or by the laws of descent and
distribution, or to a designated beneficiary upon the participant's death,
except that the Committee may in the future permit transfers if and to the
extent that the regulations of the Securities and Exchange Commission are
modified to allow transfers for estate planning purposes.
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Awards under the 1995 Plan will generally be granted in consideration solely
of services. The Committee may, however, grant awards alone or in addition to,
in tandem with or in substitution for any other Award under the 1995 Plan, other
awards under other Company plans, or other rights to payment from the Company.
Awards granted in addition to or in tandem with other awards may be granted
either at the same time or at different times. If an Award is granted in
substitution for another award, the participant must surrender such other award
in consideration for the grant of the new Award, and the exercise price, grant
price, or purchase price of the new Award may be adjusted downward to reflect
the "in-the-money" value of the surrendered award.
VESTING, FORFEITURES, AND ACCELERATION THEREOF. The Committee may, in its
discretion determine the vesting schedule of options and other Awards, the
circumstances that will result in forfeiture of the Awards, the post-termination
exercise periods of options and similar Awards, and the events that will result
in acceleration of the ability to exercise and the lapse of restrictions, or the
expiration of any deferral period, on any Award. In addition, the 1995 Plan
provides that in the event of a Change of Control of the Company, outstanding
Awards granted six months or more prior to such Change of Control will
immediately vest and be fully exercisable and any restrictions, deferral of
settlement and forfeiture conditions of such Awards will lapse. A Change of
Control means an event in which (i) the Company shall merge or consolidate with
any other corporation and shall not be the surviving corporation; (ii) the
Company shall transfer all or substantially all of its assets to any other
person; or (iii) any person shall have become the beneficial owner of more than
50% of the voting securities of the Company.
AMENDMENT AND TERMINATION OF THE 1995 PLAN. The Board of Directors may
amend, alter, suspend, discontinue, or terminate the 1995 Plan or the
Committee's authority to grant awards thereunder without stockholder approval
unless required by law, regulation, or stock exchange rules, or deemed
advisable. Thus, stockholder approval will not necessarily be required for
amendments which might increase the cost of the plan or broaden eligibility.
Unless earlier terminated, the 1995 Plan will terminate at such time that no
shares reserved under the 1995 Plan remain available and the Company has no
further obligation with respect to any outstanding award.
FEDERAL INCOME TAX IMPLICATIONS OF THE 1995 PLAN. The following is a brief
description of the federal income tax consequences generally arising with
respect to Awards that may be granted under the 1995 Plan. The grant of an
option or SAR (including a stock-based award in the nature of a purchase right)
will create no federal income tax consequences for the participant or the
Company. A participant will not have taxable income upon exercising an ISO
(unless the alternative minimum tax applies to the recipient). Upon exercising
an option other than an ISO (including a stock-based Award in the nature of a
purchase right), the participant must generally recognize ordinary income equal
to the difference between the exercise price and the fair market value of the
freely transferable and nonforfeitable stock acquired on the date of exercise.
Upon exercising an SAR, the participant must generally recognize ordinary income
equal to the cash or to the fair market value of the freely transferable and
nonforfeitable stock received.
Upon a disposition of shares acquired upon exercise of an ISO before the end
of the applicable ISO holding periods, the participant must generally recognize
ordinary income equal to the lesser of (i) the fair market value of the shares
at the date of exercise of the ISO minus the exercise price or (ii) the amount
realized upon the disposition of the ISO shares minus the exercise price.
Otherwise, a participant's disposition of shares acquired upon the exercise of
an option or SAR generally will result in short-term or long-term capital gain
or loss measured by the difference between the sale price and the participant's
tax basis in such shares (generally, the exercise price plus any amount
previously recognized as ordinary income in connection with the exercise of the
option or SAR).
The Company generally will be entitled to a tax deduction equal to the
amount recognized as ordinary income by the participant in connection with
options and SARs. The Company generally is
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not entitled to a tax deduction relating to amounts that represent a capital
gain to a participant. Accordingly, the Company will not be entitled to any tax
deduction with respect to an ISO if the participant holds the shares for the
applicable ISO holding periods prior to disposition of the shares.
With respect to other Awards granted under the 1995 Plan that may be settled
either in cash or in stock or other property that is either not restricted as to
transferability or not subject to a substantial risk of forfeiture, the
participant must generally recognize ordinary income equal to the cash or the
fair market value of stock or other property actually received. The Company will
be entitled to a deduction for the same amount. With respect to awards involving
stock or other property that is restricted as to transferability and subject to
a substantial risk of forfeiture, the participant must generally recognize
ordinary income equal to the fair market value of the shares or other property
received at the first time the shares or other property become transferable or
not subject to a substantial risk of forfeiture, whichever occurs earlier. The
Company will be entitled to a deduction in an amount equal to the ordinary
income recognized by the participant. A participant may elect to be taxed at the
time of receipt of shares or other property rather than upon lapse of
restrictions on transferability or the substantial risk of forfeiture, but if
the participant subsequently forfeits such shares or property he would not be
entitled to any tax deduction, including as a capital loss, for the value of the
shares or property on which he previously paid tax.
The foregoing provides only a general description of the application of
federal income tax laws to certain types of awards under the 1995 Plan. This
discussion is intended for the information of stockholders considering how to
vote at the Annual Meeting and not as tax guidance to participants in the 1995
Plan as the consequences may vary with the types of awards made, the identity of
the recipients and the method of payment or settlement. Different tax rules may
apply, including in the case of variations in transactions that are permitted
under the 1995 Plan (such as payment of the exercise price of an option by
surrender of previously acquired shares) and with respect to a participant who
is subject to Section 16 of the 1934 Act, when he or she acquires stock in a
transaction that would otherwise result in taxation within six months after the
Award is deemed granted under Section 16. The summary does not address the
effects of other federal taxes (including possible "golden parachute" excise
taxes) or taxes imposed under state, local, or foreign tax laws.
As discussed above, compensation that qualifies as "performance-based
compensation" is excluded from the $1,000,000 deductibility cap of Code Section
162(m), and therefore remains fully deductible by the company that pays it.
Under the 1995 Plan, options and SARs granted with an exercise price or grant
price at least equal to 100% of fair market value of the underlying stock at the
date of grant, and certain other Awards which are conditioned upon achievement
of performance goals are intended to qualify as such "performance-based
compensation." Final regulations under Section 162(m), which have not been
adopted yet by the Internal Revenue Service, may adversely affect the ability of
the Company to ensure that such options, SARs and other performance-based Awards
under the 1995 Plan will qualify as "performance-based compensation" that is
fully deductible. Other Awards under the 1995 Plan would not so qualify, with
the result that compensation paid to certain executives in connection with such
Awards may, to the extent it and other compensation subject to Section 162(m)'s
deductibility cap exceeds $1,000,000 in a given year, be subject to the
limitation of Section 162(m).
VOTE REQUIRED FOR APPROVAL. Approval of the 1995 Long-Term Incentive Plan
will require the affirmative vote of holders of a majority of the voting power
of the issued and outstanding voting securities present in person or represented
by proxy and entitled to vote. Anthony M. Marlon, a director and principal
stockholder of the Company, intends to cast his vote "FOR" approval of the 1995
Plan.
The Board of Directors considers the 1995 Plan to be in the best interests
of the Company and its stockholders and recommends that the stockholders vote
FOR approval.
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ITEM NO. 3 -- APPROVAL OF THE 1995 NON-EMPLOYEE DIRECTORS' STOCK PLAN
On February 14, 1995, the Board of Directors of the Company adopted, subject
to stockholder approval, the 1995 Non-Employee Directors' Stock Plan (the
"Directors' Plan"). The Directors' Plan is intended to promote ownership by
non-employee Directors of a greater proprietary interest in the Company, thereby
aligning such Directors' interests more closely with the interests of
stockholders of the Company, and to assist the Company in attracting and
retaining highly qualified persons to serve as Directors.
The Board of Directors adopted the Directors' Plan in connection with the
termination of the Company's 1986 Stock Option Plan (the "1986 Plan"). SEE
"APPROVAL OF THE 1995 LONG-TERM INCENTIVE PLAN." Since January 20, 1992, the
1986 Plan has provided for automatic annual grants, to each non-employee
director, of an option to purchase 2,000 shares of the Company's Common Stock.
The Directors' Plan provides for automatic annual grants and allows non-employee
directors to elect to receive their fees in the form of Common Stock.
The following is a brief description of the material terms of the Directors'
Plan. Such description is qualified in its entirety by reference to the full
text of the Directors' Plan, a copy of which is attached to this Proxy Statement
as Exhibit B.
The Directors' Plan generally provides for an annual grant to each Director
who is not an employee of the Company or any subsidiary of an option to purchase
3,000 shares of Common Stock. Such grants will be made automatically (i) on the
date on which a person is first elected to the Board of Directors, and (ii) on
January 20, 1996 and on each January 20 thereafter (except in the case of a
Director who received options upon election to the Board within six months prior
to any such January 20). Messrs. Hartley, Raggio and Ruthe would qualify as
non-employee Directors under the Directors' Plan.
Stock options granted under the Directors' Plan are non-qualified stock
options having an exercise price equal to 100% of the fair market value of the
Common Stock at the date of grant. Directors are not required to pay any cash
consideration at the time of grant of options. A Director may pay the exercise
price of an option in cash or by surrendering previously acquired shares of
Common Stock. On March 14, 1995, the reported closing price of the Company's
Common Stock in New York Stock Exchange Composite Transactions was $30.375 per
share.
One-fifth of the stock options granted under the Directors' Plan become
exercisable on each anniversary date of their grant, although such options will
become immediately exercisable if the optionee ceases serving as a Director due
to death or disability or, in the case of an Option granted six months or more
prior to a Change of Control, upon such Change of Control. A Change of Control
means an event in which (i) the Company shall merge or consolidate with any
other corporation and shall not be the surviving corporation; (ii) the Company
shall transfer all or substantially all of its assets to any other person; or
(iii) any person shall have become the beneficial owner of more than 50% of the
voting securities of the Company. Otherwise, such options may be exercised after
a Director ceases to serve as a member of the Board only to the extent that the
options were exercisable at the date the Director ceases to serve.
Such options will expire at the earliest of (i) ten years after the date of
grant, (ii) one year after the optionee ceases serving as a Director due to
death or disability, or (iii) six months after the optionee ceases serving as a
Director for any other reason, except that, if the optionee dies during the one
year or six month post termination period, such period shall be extended until
the date one year after the optionee's death (but in no event more than ten
years after the date of grant). Options generally will not be transferable
otherwise than by will or by the laws of descent and distribution or to a
designated beneficiary in the event of death, and are exercisable during the
Director's lifetime only by the Director, except that transfers of options for
estate planning purposes will be permitted if regulations are modified (as
currently proposed) to permit such transfers.
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The Directors' Plan also permits a non-employee Director to elect to receive
fees otherwise payable in cash in the form of Common Stock, or receive such fees
in the form of "deferred stock." A director may make such an election for up to
the full amount of the fees payable to him or her, including annual retainer
fees and fees for service on Board committees. (See "Director Compensation") If
a director elects to receive fees in the form of Common Stock, the Company will
issue a number of shares having an aggregate fair market value equal to the fees
that are payable. If a Director elects to receive fees in the form of deferred
stock, the Company will credit a deferral account established for the Director
with a number of shares of deferred stock equal in fair market value to the fees
payable at such date. If dividends are declared and paid on Common Stock,
dividend equivalents will be credited on the deferred stock then credited to a
Director's account, and such amounts generally will be deemed to be reinvested
in additional deferred stock. Deferred stock will be settled by delivery of an
equal number of shares of common stock to the Director at such time or times as
he or she elects. Shares of Common Stock and deferred stock so acquired under
the Directors' Plan are nonforfeitable.
A total of 60,000 shares of Common Stock are reserved and available for
issuance under the Directors' Plan. Such shares may be authorized and unissued
shares or treasury shares. If any stock option expires without having been
exercised in full, the shares subject to the unexercised portion of the option
will again be available for issuance under the Directors' Plan. The aggregate
number and kind of shares issuable under the Directors' Plan, the number and
kind of shares subject to each automatic annual option grant, the number and
kind of shares subject to outstanding options and the exercise price thereof,
the kind of shares to be issued in lieu of fees and the number and kind of
shares to be issued in settlement of deferred stock will be appropriately
adjusted in the event of a recapitalization, reorganization, merger,
consolidation, spin-off, combination, repurchase, exchange of shares or other
securities of the Company, stock split, stock dividend, certain other
extraordinary dividends, liquidation, dissolution, or other similar corporate
transaction or event affecting Common Stock, in order to prevent dilution or
enlargement of Directors' rights under the Directors' Plan.
The Directors' Plan will be administered by the Board of Directors, provided
that any action by the Board shall be taken only if approved by vote of a
majority of the Directors who are not then eligible to participate in the
Directors' Plan. The Directors' Plan may be amended, altered, suspended,
discontinued, or terminated by the Board without stockholder approval, unless
required by law or regulation or deemed advisable.
The Directors' Plan will become effective upon its approval by stockholders.
Unless earlier terminated by the Board, the Directors' Plan will terminate when
no shares under the Plan remain available and the Company and Directors have no
further rights and obligations under the Directors' Plan.
NEW PLAN BENEFITS TABLE. The following table sets forth the number of
options that would have been automatically granted to non-employee Directors as
a group under the Directors' Plan in 1994 had the Directors' Plan been in effect
during that year:
NEW PLAN BENEFITS
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
<TABLE>
<CAPTION>
NAME AND POSITION NUMBER OF OPTIONS
- ----------------------------------------------- -------------------
<S> <C>
Non-employee Directors (3 in number) 9,000
</TABLE>
It is not possible at present to predict the number of shares that will be
issuable under the Directors' Plan to non-employee Directors who receive fees in
the form of Common Stock or deferred stock.
FEDERAL INCOME TAX CONSEQUENCES. The following is a brief description of
the federal income tax consequences of options that may be granted and stock or
deferred stock issued in lieu of fees under
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the Directors' Plan. This discussion is intended for the information of
stockholders considering how to vote at the Annual Meeting and not as tax
guidance to Directors who participate in the Directors' Plan.
The grant of an option will create no tax consequences for the optionee or
the Company. Upon exercise of an option, the optionee must generally recognize
ordinary income equal to the fair market value of the Common Stock acquired on
the date of exercise minus the exercise price, and the Company will be entitled
to a deduction equal to the amount recognized as ordinary income by the
optionee. A sale of shares acquired upon the exercise of an option generally
will result in short-term or long-term capital gain or loss measured by the
difference between the sale price and the optionee's tax basis (generally, the
exercise price plus the amount recognized as ordinary income) in such shares.
There will be no tax consequences to the Company from a Director's sale of
option shares.
If a Director acquires Common Stock in lieu of fees, he or she will
recognize ordinary income equal to the fair market value of the Common Stock
acquired on the date of acquisition. If a Director is credited with deferred
stock in lieu of fees, he or she will recognize ordinary income when Common
Stock is issued to the Director in settlement of the deferred stock, in an
amount equal to the fair market value of the Common Stock acquired. The Company
will be entitled to a tax deduction equal to the amount recognized as ordinary
income by the Director.
VOTE REQUIRED FOR APPROVAL. Approval of the Directors' Plan will require
the affirmative vote of holders of a majority of the voting power of the issued
and outstanding voting securities present in person or represented by proxy and
entitled to vote. Anthony M. Marlon, a director and principal stockholder of the
Company, intends to cast his votes "FOR" approval of the Directors' Plan.
THE BOARD OF DIRECTORS CONSIDERS THE DIRECTORS' PLAN TO BE IN THE BEST
INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR APPROVAL.
ITEM NO. 4 -- RATIFICATION OF APPOINTMENT OF AUDITORS
APPOINTMENT OF AUDITORS
The Board of Directors has appointed the firm of Deloitte & Touche,
certified independent public accountants, as auditors of the Company for the
year ending December 31, 1995. Although not required to do so, the Board has
determined that it would be desirable to request ratification of this
appointment by the holders of Common Stock of the Company. If such ratification
is not received, the Board will reconsider the appointment. Representatives of
Deloitte & Touche are expected to be present at the Annual Meeting and available
for questions from stockholders. They will have the opportunity to make a
statement if they so desire.
THE BOARD OF DIRECTORS CONSIDERS DELOITTE & TOUCHE TO BE WELL-QUALIFIED AND
RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR RATIFICATION.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors knows of no
other matters which may come before the Annual Meeting. However, if any further
business should properly come before the Annual Meeting, the proxy holders named
on the accompanying proxy card, or their substitutes, will vote on such business
in accordance with their best judgment.
PROPOSALS OF STOCKHOLDERS
Proposals which stockholders intend to present at the next Annual Meeting of
Stockholders of the Company in May 1996 must be received by the Secretary of the
Company at its principal executive offices (P.O. Box 15645, Las Vegas, Nevada
89114-5645) no later than December 2, 1995 for inclusion in the Company's Proxy
Statement and proxy for that meeting and must be otherwise in compliance with
applicable Securities and Exchange Commission regulations. Use of certified mail
is suggested.
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ANNUAL REPORT TO STOCKHOLDERS
The Company's 1994 Annual Report to Stockholders, which includes financial
statements for the fiscal year ended December 31, 1994, accompanies this Proxy
Statement. The Annual Report does not constitute a part of the proxy materials.
It is important that proxies be returned promptly. Therefore, stockholders
are urged to fill in, date, sign and return the enclosed proxy card in the
enclosed stamped envelope.
By Order of the Board of Directors,
[SIG]
Frank E. Collins
SECRETARY
Dated: March 31, 1995
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EXHIBIT A
SIERRA HEALTH SERVICES, INC.
1995 LONG-TERM INCENTIVE PLAN
1. PURPOSE. The purpose of this 1995 Long-Term Incentive Plan (the "Plan")
of Sierra Health Services, Inc., a Nevada corporation (the "Company"), is to
advance the interests of the Company and its stockholders by providing a means
to attract, retain, and reward executive officers and other key employees of the
Company and its subsidiaries, to link compensation to measures of the Company's
performance in order to provide additional stock-based incentives to such
employees for the creation of stockholder value, and to enable such employees to
acquire or increase a proprietary interest in the Company in order to promote a
closer identity of interests between such employees and the Company's
stockholders.
2. DEFINITIONS. The definitions of awards under the Plan, including
Options, SARs (including Limited SARs), Restricted Stock, Deferred Stock, Stock
granted as a bonus or in lieu of other awards, and Other Stock-Based Awards are
set forth in Section 6 of the Plan. Such awards, together with any other right
or interest granted to a Participant under the Plan, are termed "Awards." The
definitions of terms relating to a Change of Control of the Company are set
forth in Section 8 of the Plan. In addition to such terms and the terms defined
in Section 1, the following terms shall be defined as set forth below:
(a) "Award Agreement" means any written agreement, contract, notice to a
Participant, or other instrument or document evidencing an Award.
(b) "Beneficiary" means the person, persons, trust, or trusts which have
been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under this Plan upon such Participant's death or to which Awards
or other rights are transferred if and to the extent permitted under Section
9(b). If, upon a Participant's death, there is no designated Beneficiary or
surviving designated Beneficiary, then the term Beneficiary means the
person, persons, trust, or trusts entitled by will or the laws of descent
and distribution to receive such benefits.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended from time
to time. References to any provision of the Code include regulations
thereunder and successor provisions and regulations thereto.
(e) "Committee" means the Stock Plan Committee of the Board, or such
other Board committee as may be designated by the Board to administer the
Plan; PROVIDED, HOWEVER, that the Committee shall at all times consist of
two or more directors each of whom is a "disinterested person" within the
meaning of Rule 16b-3 under the Exchange Act.
(f) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time. References to any provision of the Exchange Act include
rules thereunder and successor provisions and rules thereto.
(g) "Fair Market Value" means, with respect to Stock, Awards, or other
property, the fair market value of such Stock, Awards, or other property
determined by such methods or procedures as shall be established from time
to time by the Committee. Unless otherwise determined by the Committee, the
Fair Market Value of Stock as of any given date means the closing sale price
of a share of common stock reported in the table entitled "New York Stock
Exchange Composite Transactions" contained in THE WALL STREET JOURNAL (or an
equivalent successor table) for such date or, if no such closing price was
reported for such date, for the most recent trading day prior to such date
for which such closing price was reported.
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(h) "ISO" means any Option intended to be and designated as an incentive
stock option within the meaning of Section 422 of the Code.
(i) "Participant" means a person who, as an executive officer or key
employee of the Company or a subsidiary, has been granted an Award under the
Plan which remains outstanding.
(j) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(k) "Stock" means the Common Stock, $.005 par value, of the Company and
such other securities as may be substituted for Stock or such other
securities pursuant to Section 4.
3. ADMINISTRATION.
(a) AUTHORITY OF THE COMMITTEE. The Plan shall be administered by the
Committee. The Committee shall have full and final authority to take the
following actions, in each case subject to and consistent with the provisions of
the Plan:
(i) to select Participants to whom Awards may be granted;
(ii) to determine the type or types of Awards to be granted to each
Participant;
(iii) to determine the number of Awards to be granted, the number of
shares of Stock to which an Award will relate, the terms and conditions of
any Award granted under the Plan (including, but not limited to, any
exercise price, grant price, or purchase price, any restriction or
condition, any schedule or performance conditions for the lapse of
restrictions or conditions relating to transferability, forfeiture,
exercisability, or settlement of an Award, and waivers, accelerations, or
modifications thereof, based in each case on such considerations as the
Committee shall determine), and all other matters to be determined in
connection with an Award;
(iv) to determine whether, to what extent, and under what circumstances
an Award may be settled, or the exercise price of an Award may be paid, in
cash, Stock, other Awards, or other property, or an Award may be cancelled,
forfeited, or surrendered;
(v) to determine whether, to what extent, and under what circumstances
cash, Stock, other Awards, or other property payable with respect to an
Award will be deferred either automatically, at the election of the
Committee, or at the election of the Participant;
(vi) to prescribe the form of each Award Agreement, which need not be
identical for each Participant;
(vii) to adopt, amend, suspend, waive, and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;
(viii) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the Plan and any
Award, rules and regulations, Award Agreement, or other instrument
hereunder; and
(ix) to make all other decisions and determinations as may be required
under the terms of the Plan or as the Committee may deem necessary or
advisable for the administration of the Plan.
(b) MANNER OF EXERCISE OF COMMITTEE AUTHORITY. Unless authority is
specifically reserved to the Board under the terms of the Plan, the Company's
Certificate of Incorporation or Bylaws, or applicable law, the Committee shall
have sole discretion in exercising authority under the Plan. Any action of the
Committee with respect to the Plan shall be final, conclusive, and binding on
all persons, including the Company, subsidiaries of the Company, Participants,
any person claiming any rights under the Plan from or through any Participant,
and stockholders. The express grant of any specific power to the Committee, and
the taking of any action by the Committee, shall not be construed as limiting
any power or authority of the Committee. The Committee may delegate to officers
or managers of the
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Company or any subsidiary of the Company the authority, subject to such terms as
the Committee shall determine, to perform administrative functions and, with
respect to Participants not subject to Section 16 of the Exchange Act, to
perform such other functions of the Committee as the Committee may determine, to
the extent permitted under Rule 16b-3 and applicable law.
(c) LIMITATION OF LIABILITY. Each member of the Committee shall be
entitled to, in good faith, rely or act upon any report or other information
furnished to him by any officer or other employee of the Company or any
subsidiary, the Company's independent certified public accountants, or any
executive compensation consultant, legal counsel, or other professional retained
by the Company to assist in the administration of the Plan. No member of the
Committee, nor any officer or employee of the Company acting on behalf of the
Committee, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Committee and any officer or employee of the Company acting on
behalf of the Committee or members thereof shall, to the extent permitted by
law, be fully indemnified and protected by the Company with respect to any such
action, determination, or interpretation.
4. STOCK AVAILABLE UNDER PLAN; PER-PERSON AWARD LIMITATIONS; ADJUSTMENTS.
(a) STOCK RESERVED FOR AWARDS. Subject to adjustment as hereinafter
provided, the total number of shares of Stock reserved and available for
issuance to Participants in connection with Awards under the Plan shall be
1,200,000 plus the number of shares reserved for the grant of awards under the
Company's Second Amended and Restated 1986 Stock Option Plan and Second Restated
Capital Accumulation Plan but which have not been and will not be issued under
such plans (as determined at any time during the effectiveness of the Plan). No
Award may be granted if the number of shares to which such Award relates, when
added to the number of shares to which other then-outstanding Awards relate,
exceeds the number of shares then remaining available for issuance under this
Section 4. If all or any portion of an Award is forfeited, settled in cash, or
otherwise terminated without issuance of shares to the Participant, the shares
to which such Award or portion thereof related shall again be available for
Awards under the Plan; PROVIDED, HOWEVER, that shares withheld in payment of the
exercise price of any Option or withholding taxes relating to Awards and shares
equal to the number of Shares surrendered in payment of the exercise price of
any Option or withholding taxes relating to Awards shall, for purposes of this
provision, be deemed not to have been issued to the Participant in connection
with such Awards under the Plan, and PROVIDED FURTHER, that, if any such shares
could not again be available for Awards to a Participant who is subject to
Section 16 of the Exchange Act under applicable requirements of Rule 16b-3, such
shares shall be available exclusively for Awards to Participants who are not
subject to Section 16. The Committee may adopt procedures for the counting of
shares relating to any Award to ensure appropriate counting and avoid double
counting (in the case of tandem or substitute awards). Any shares of Stock
issued pursuant to an Award may consist, in whole or in part, of authorized and
unissued shares, treasury shares, or shares acquired in the market for the
account of the Participant (which treasury shares or acquired shares will be
deemed to have been "issued" pursuant to such Award).
(b) ANNUAL INDIVIDUAL LIMITATIONS. During any calendar year, no
Participant may be granted Options, SARs, and other Awards under the Plan with
respect to more than 200,000 shares of Stock, subject to adjustment as provided
in Section 4(c). For purposes of this Section 4(b), unless more restrictive
counting is required in order for Awards to comply with the requirements of Code
Section 162(m) and regulations thereunder, this provision will limit the maximum
number of shares that can be issued to a Participant under Awards (taking into
consideration the terms of the Awards, including tandem exercise provisions).
(c) ADJUSTMENTS. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Stock, or other
property), recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of Participants under the Plan,
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then the Committee shall, in such manner as it may deem equitable, adjust any or
all of (i) the number and kind of shares of Stock reserved and available for
Awards under Section 4(a), (ii) the number and kind of shares of outstanding
Restricted Stock or relating to any other outstanding Award in connection with
which shares have been issued, (iii) the number and kind of shares that may be
issued in respect of other outstanding Awards, (iv) the exercise price, grant
price, or purchase price relating to any Award (or, if deemed appropriate, the
Committee may make provision for a cash payment with respect to any outstanding
Award), and (v) the number of shares with respect to which Options, SARs, and
other Awards may be granted to a Participant in any calendar year, as set forth
in Section 4(b). In addition, the Committee is authorized to make adjustments in
the terms and conditions of, and the criteria included in, Awards in recognition
of unusual or nonrecurring events (including, without limitation, events
described in the preceding sentence) affecting the Company or any subsidiary or
the financial statements of the Company or any subsidiary, or in response to
changes in applicable laws, regulations, or accounting principles. The foregoing
notwithstanding, no adjustments shall be authorized under this Section 4(c) with
respect to ISOs or SARs in tandem therewith to the extent that such authority
would cause the Plan or such Awards to fail to comply with Section 422 of the
Code, and no such adjustment shall be authorized with respect to Options, SARs
or other Awards subject to Section 7(f) to the extent that such authority would
cause such Awards to fail to qualify as "qualified performance-based
compensation" under Section 162(m)(4)(C) of the Code and regulations thereunder.
5. ELIGIBILITY. Executive officers and other key employees of the Company
and its subsidiaries, including any director who is also an executive officer or
employee, are eligible to be granted Awards under the Plan. The foregoing
notwithstanding, no member of the Committee shall be eligible to be granted
Awards under the Plan.
6. SPECIFIC TERMS OF AWARDS.
(a) GENERAL. Awards may be granted on the terms and conditions set forth
in this Section 6. In addition, the Committee may impose on any Award or the
exercise thereof, at the date of grant or thereafter (subject to Section 9(e)),
such additional terms and conditions, not inconsistent with the provisions of
the Plan, as the Committee shall determine, including terms requiring forfeiture
of Awards in the event of termination of employment by the Participant or upon
the occurrence of other events. Awards will be granted under the Plan in order
to obtain for the Company and its subsidiaries the benefit of the services of
Participants; accordingly, except as provided in Sections 6(f), 6(g), or 7(a)
and to the extent required to comply with requirements of the Nevada General
Corporation Law that lawful consideration be paid for Stock, no other
consideration may be required in connection with the grant (but not the
exercise) of any Award.
(b) OPTIONS. The Committee is authorized to grant Options to Participants
(including "reload" options automatically granted to offset specified exercises
of options) on the following terms and conditions:
(i) EXERCISE PRICE. The exercise price per share of Stock purchasable
under an Option shall be determined by the Committee; PROVIDED, HOWEVER,
that, except as provided in Section 7(a), such exercise price shall be not
less than the Fair Market Value of a share on the date of grant of such
Option.
(ii) TIME AND METHOD OF EXERCISE. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part, the
methods by which such exercise price may be paid or deemed to be paid, the
form of such payment, including, without limitation, cash, Stock, other
Awards or awards granted under other Company plans, or other property
(including notes or other contractual obligations of Participants to make
payment on a deferred basis, such as through "cashless exercise"
arrangements, to the extent permitted by applicable law), and the methods by
which Stock will be delivered or deemed to be delivered to Participants.
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(iii) ISOS. The terms of any ISO granted under the Plan shall comply in
all respects with the provisions of Section 422 of the Code, including but
not limited to the requirement that no ISO shall be granted more than ten
years after the effective date of the Plan. Anything in the Plan to the
contrary notwithstanding, no term of the Plan relating to ISOs shall be
interpreted, amended, or altered, nor shall any discretion or authority
granted under the Plan be exercised, so as to disqualify either the Plan or
any ISO under Section 422 of the Code, unless the Participant has first
requested such disqualification.
(c) STOCK APPRECIATION RIGHTS. The Committee is authorized to grant SARs
to Participants on the following terms and conditions:
(i) RIGHT TO PAYMENT. An SAR shall confer on the Participant to whom it
is granted a right to receive, upon exercise thereof, the excess of (A) the
Fair Market Value of one share of Stock on the date of exercise (or, if the
Committee shall so determine in the case of any such right other than one
related to an ISO, the Fair Market Value of one share at any time during a
specified period before or after the date of exercise), over (B) the grant
price of the SAR as determined by the Committee as of the date of grant of
the SAR, which, except as provided in Section 7(a), shall be not less than
the Fair Market Value of one share of Stock on the date of grant.
(ii) OTHER TERMS. The Committee shall determine the time or times at
which an SAR may be exercised in whole or in part, the method of exercise,
method of settlement, form of consideration payable in settlement, method by
which Stock will be delivered or deemed to be delivered to Participants,
whether or not an SAR shall be in tandem with any other Award, and any other
terms and conditions of any SAR. Limited SARs that may only be exercised
upon the occurrence of a Change of Control (as such term is defined in
Section 8(b) or as otherwise defined by the Committee) may be granted on
such terms, not inconsistent with this Section 6(c), as the Committee may
determine. Such Limited SARs may be either freestanding or in tandem with
other Awards.
(d) RESTRICTED STOCK. The Committee is authorized to grant Restricted
Stock to Participants on the following terms and conditions:
(i) GRANT AND RESTRICTIONS. Restricted Stock shall be subject to such
restrictions on transferability and other restrictions, if any, as the
Committee may impose, which restrictions may lapse separately or in
combination at such times, under such circumstances, in such installments,
or otherwise as the Committee may determine; PROVIDED, HOWEVER, that
Restricted Stock the grant of which is not conditioned upon achievement of
any performance objective shall be subject to a restriction on
transferability and a risk of forfeiture for a period of not less than three
years after the date of grant (except that the Committee may accelerate the
lapse of such restrictions in the event of the Participant's termination of
employment due to death, disability, normal or approved early retirement, or
involuntary termination by the Company or a subsidiary without "cause," as
defined by the Committee). Except to the extent restricted under the terms
of the Plan and any Award Agreement relating to the Restricted Stock, a
Participant granted Restricted Stock shall have all of the rights of a
stockholder including, without limitation, the right to vote Restricted
Stock or the right to receive dividends thereon.
(ii) FORFEITURE. Except as otherwise determined by the Committee, upon
termination of employment during the applicable restriction period,
Restricted Stock that is at that time subject to restrictions shall be
forfeited and reacquired by the Company; PROVIDED, HOWEVER, that the
Committee may provide, by rule or regulation or in any Award Agreement, or
may determine in any individual case, that restrictions or forfeiture
conditions relating to Restricted Stock will be waived in whole or in part
in the event of terminations resulting from specified causes, except as
otherwise provided in Section 6(d)(i).
(iii) CERTIFICATES FOR STOCK. Restricted Stock granted under the Plan
may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are
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registered in the name of the Participant, such certificates shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such Restricted Stock, the Company shall retain physical
possession of the certificate, and the Participant shall have delivered a
stock power to the Company, endorsed in blank, relating to the Restricted
Stock.
(iv) DIVIDENDS AND DISTRIBUTIONS. Dividends paid on Restricted Stock
shall be either paid at the dividend payment date in cash or in shares of
unrestricted Stock having a Fair Market Value equal to the amount of such
dividends, or the payment of such dividends shall be deferred and/or the
amount or value thereof automatically reinvested in additional Restricted
Stock, other Awards, or other investment vehicles, as the Committee shall
determine or permit the Participant to elect. Stock distributed in
connection with a Stock split or Stock dividend, and other property
distributed as a dividend, shall be subject to restrictions and a risk of
forfeiture to the same extent as the Restricted Stock with respect to which
such Stock or other property is distributed.
(e) DEFERRED STOCK. The Committee is authorized to grant Deferred Stock to
Participants, subject to the following terms and conditions:
(i) AWARD AND RESTRICTIONS. Issuance of Stock will occur upon
expiration of the deferral period specified for an Award of Deferred Stock
by the Committee (or, if permitted by the Committee, as elected by the
Participant). In addition, Deferred Stock shall be subject to such
restrictions as the Committee may impose, if any, which restrictions may
lapse at the expiration of the deferral period or at earlier specified
times, separately or in combination, under such circumstances, in such
installments, or otherwise as the Committee may determine.
(ii) FORFEITURE. Except as otherwise determined by the Committee, upon
termination of employment during the applicable deferral period or portion
thereof to which forfeiture conditions apply (as provided in the Award
Agreement evidencing the Deferred Stock), all Deferred Stock that is at that
time subject to such risk of forfeiture shall be forfeited; PROVIDED,
HOWEVER, that the Committee may provide, by rule or regulation or in any
Award Agreement, or may determine in any individual case, that restrictions
or forfeiture conditions relating to Deferred Stock will be waived in whole
or in part in the event of terminations resulting from specified causes.
(iii) DIVIDEND EQUIVALENTS. The Committee may provide that payments in
the form of dividend equivalents will be credited in respect of Deferred
Stock, which amounts may be paid or distributed when accrued or deemed
reinvested in additional Deferred Stock.
(f) BONUS STOCK AND AWARDS IN LIEU OF CASH OBLIGATIONS. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in lieu
of Company obligations to pay cash under other plans or compensatory
arrangements; PROVIDED, HOWEVER, that, in the case of Participants subject to
Section 16 of the Exchange Act, the amount of such Stock or Awards shall be
determined by the Committee in a manner conforming to the disinterested
administration requirements of Rule 16b-3. Stock or Awards granted hereunder
shall be subject to such other terms as shall be determined by the Committee.
(g) OTHER STOCK-BASED AWARDS. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Stock and factors that may influence
the value of Stock, as deemed by the Committee to be consistent with the
purposes of the Plan, including, without limitation, convertible or exchangeable
debt securities, other rights convertible or exchangeable into Stock, purchase
rights for Stock, Awards with value and payment contingent upon performance of
the Company or any other factors designated by the Committee, and Awards valued
by reference to the book value of Stock or the value of securities of or the
performance of specified subsidiaries. The Committee shall determine the terms
and conditions of such Awards. Stock issued pursuant to an Award in the nature
of a purchase right granted under this Section 6(g) shall be purchased for such
consideration, paid for at such times, by such methods, and in
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such forms, including, without limitation, cash, Stock, other Awards, or other
property, as the Committee shall determine. Cash awards, as an element of or
supplement to any other Award under the Plan, may be granted pursuant to this
Section 6(g).
7. CERTAIN PROVISIONS APPLICABLE TO AWARDS.
(a) STAND-ALONE, ADDITIONAL, TANDEM, AND SUBSTITUTE AWARDS. Awards granted
under the Plan may, in the discretion of the Committee, be granted either alone
or in addition to, in tandem with, or in substitution for, any other Award
granted under the Plan or any award granted under any other plan of the Company,
any subsidiary, or any business entity to be acquired by the Company or a
subsidiary, or any other right of a Participant to receive payment from the
Company or any subsidiary. Awards granted in addition to or in tandem with other
Awards or awards may be granted either as of the same time as or a different
time from the grant of such other Awards or awards. The per share exercise price
of any Option, grant price of any SAR, or purchase price of any other Award
conferring a right to purchase Stock granted in substitution for an outstanding
Award or award may be adjusted to reflect the in-the-money value of the
surrendered Award or award.
(b) TERM OF AWARDS. The term of each Award shall be for such period as may
be determined by the Committee; PROVIDED, HOWEVER, that in no event shall the
term of any ISO or an SAR granted in tandem therewith exceed a period of ten
years from the date of its grant (or such shorter period as may be applicable
under Section 422 of the Code).
(c) FORM OF PAYMENT UNDER AWARDS. Subject to the terms of the Plan and any
applicable Award Agreement, payments to be made by the Company or a subsidiary
upon the grant or exercise of an Award may be made in such forms as the
Committee shall determine, including, without limitation, cash, Stock, other
Awards, or other property, and may be made in a single payment or transfer, in
installments, or on a deferred basis. Such payments may include, without
limitation, provisions for the payment or crediting of reasonable interest on
installment or deferred payments or the grant or crediting of dividend
equivalents in respect of installment or deferred payments denominated in Stock.
(d) RULE 16B-3 COMPLIANCE.
(i) SIX-MONTH HOLDING PERIOD. Unless a Participant could otherwise
dispose of or exercise a derivative security or dispose of Stock issued
under the Plan without incurring liability under Section 16(b) of the
Exchange Act, (i) at least six months shall elapse from the date of
acquisition of a derivative security under the Plan to the date of
disposition of the derivative security (other than upon exercise or
conversion) or its underlying equity security and (ii) Stock granted or
awarded under the Plan other than upon exercise or conversion of a
derivative security shall be held for at least six months from the date of
grant or award.
(ii) REFORMATION TO COMPLY WITH EXCHANGE ACT RULES. It is the intent of
the Company that this Plan comply in all respects with applicable provisions
of Rule 16b-3 or Rule 16a-1(c)(3) under the Exchange Act in connection with
any grant of Awards to or other transaction by a Participant who is subject
to Section 16 of the Exchange Act (except for transactions exempted under
alternative Exchange Act Rules or acknowledged in writing to be non-exempt
by such Participant). Accordingly, if any provision of this Plan or any
Award Agreement relating to an Award does not comply with the requirements
of Rule 16b-3 or Rule 16a-1(c)(3) as then applicable to any such
transaction, such provision will be construed or deemed amended to the
extent necessary to conform to the applicable requirements of Rule 16b-3 or
Rule 16a-1(c)(3) so that such Participant shall avoid liability under
Section 16(b). In addition, the exercise price of any Award carrying a right
to exercise granted to a Participant subject to Section 16 of the Exchange
Act shall be not less than 50% of the Fair Market Value of Stock as of the
date such Award is granted if such pricing limitation is required under Rule
16b-3 at the time of such grant.
(e) LOAN PROVISIONS. With the consent of the Committee, and subject at all
times to, and only to the extent, if any, permitted under and in accordance
with, laws and regulations and other binding
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obligations or provisions applicable to the Company, the Company may make,
guarantee, or arrange for a loan or loans to a Participant with respect to the
exercise of any Option or other payment in connection with any Award, including
the payment by a Participant of any or all federal, state, or local income or
other taxes due in connection with any Award. Subject to such limitations, the
Committee shall have full authority to decide whether to make a loan or loans
hereunder and to determine the amount, terms, and provisions of any such loan or
loans, including the interest rate to be charged in respect of any such loan or
loans, whether the loan or loans are to be with or without recourse against the
borrower, the terms on which the loan is to be repaid and conditions, if any,
under which the loan or loans may be forgiven.
(f) PERFORMANCE-BASED AWARDS. The Committee may, in its discretion,
designate any Award that is subject to the achievement of performance conditions
as a performance-based Award subject to this Section 7(f), in order to qualify
such Award as "qualified performance-based compensation" within the meaning of
Code Section 162(m) and regulations thereunder. The performance objectives for
an Award subject to this Section 7(f) shall consist of one or more business
criteria and a targeted level or levels of performance with respect to such
criteria, as specified by the Committee but subject to this Section 7(f). Such
performance objectives shall be objective and shall otherwise meet the
requirements of Section 162(m)(4)(C) of the Code and regulations thereunder.
Business criteria used by the Committee in establishing such performance
objectives shall be selected exclusively from among the following:
(1) Annual return on equity;
(2) Annual earnings per share;
(3) Changes in annual revenues; and/or
(4) Strategic business criteria, consisting of one or more objectives based
on meeting specified revenue, market penetration, geographic business
expansion goals, cost targets, and goals relating to acquisitions or
divestitures.
The levels of performance required with respect to such business criteria may be
expressed in absolute or relative levels. Achievement of performance objectives
with respect to such Awards shall be measured over a period of not less than one
year nor more than five years, as the Committee may specify. Performance
objectives may differ for such Awards to different Participants. The Committee
shall specify the weighting to be given to each performance objective for
purposes of determining the final amount payable with respect to any such Award.
The Committee may, in its discretion, reduce the amount of a payout otherwise to
be made in connection with an Award subject to this Section 7(f), but may not
exercise discretion to increase such amount, and the Committee may consider
other performance criteria in exercising such discretion. All determinations by
the Committee as to the achievement of performance objectives shall be in
writing. The Committee may not delegate any responsibility with respect to an
Award subject to this Section 7(f).
8. CHANGE OF CONTROL PROVISIONS.
(a) In the event of a "Change of Control," as defined in this Section, the
following acceleration provisions shall apply:
(i) any outstanding Award carrying a right to exercise which Award was
not previously exercisable and vested, shall become fully exercisable and
vested, subject only to the restrictions set forth in Sections 7(d)(i) and
9(a); and
(ii) The restrictions, deferral of settlement, and forfeiture conditions
applicable to any other outstanding Award granted six months or more before
the date of the Change of Control shall lapse and such Award shall be deemed
fully vested, and any performance conditions imposed with respect to any
such Award shall be deemed to be fully achieved, subject to the restrictions
set forth in Sections 7(d)(i) and 9(a).
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(b) For purposes of the Plan, a "Change of Control" means a transaction or
event in which, after the effective date of the Plan, (i) the Company shall
merge or consolidate with any other corporation and shall not be the surviving
corporation; (ii) the Company shall transfer all or substantially all of its
assets to any other person; or (iii) any person shall have become the beneficial
owner of more than 50% of the voting power of outstanding voting securities of
the Company.
9. GENERAL PROVISIONS.
(a) COMPLIANCE WITH LAWS AND OBLIGATIONS. The Company shall not be
obligated to issue or deliver Stock in connection with any Award or take any
other action under the Plan in a transaction subject to the registration
requirements of the Securities Act of 1933, as amended, or any other federal or
state securities law, any requirement under any listing agreement between the
Company and any national securities exchange or automated quotation system, or
any other law, regulation, or contractual obligation of the Company, until the
Company is satisfied that such laws, regulations, and other obligations of the
Company have been complied with in full. Certificates representing shares of
Stock issued under the Plan will be subject to such stop-transfer orders and
other restrictions as may be applicable under such laws, regulations, and other
obligations of the Company, including any requirement that a legend or legends
be placed thereon.
(b) LIMITATIONS ON TRANSFERABILITY. Awards and other rights under the
Plan, including any Award or right which constitutes a derivative security as
generally defined in Rule 16a-1(c) under the Exchange Act, will not be
transferable by a Participant except by will or the laws of descent and
distribution (or to a designated Beneficiary in the event of the Participant's
death), and, if exercisable, shall be exercisable during the lifetime of a
Participant only by such Participant or his guardian or legal
representative; PROVIDED, HOWEVER, that such Awards and other rights (other than
ISOs and SARs in tandem therewith) may be transferred to one or more
Beneficiaries during the lifetime of the Participant in connection with the
Participant's estate planning, and may be exercised by such transferees in
accordance with the terms of such Award, but only if and to the extent then
permitted under Rule 16b-3, consistent with the registration of the offer and
sale of Stock on Form S-8 or Form S-3 or such other registration form of the
Securities and Exchange Commission as may then be filed and effective with
respect to the Plan, and permitted by the Committee. Awards and other rights
under the Plan may not be pledged, mortgaged, hypothecated, or otherwise
encumbered, and shall not be subject to the claims of creditors.
(c) NO RIGHT TO CONTINUED EMPLOYMENT; LEAVES OF ABSENCE. Neither the Plan
nor any action taken hereunder shall be construed as giving any employee the
right to be retained in the employ of the Company or any of its subsidiaries,
nor shall it interfere in any way with the right of the Company or any of its
subsidiaries to terminate any employee's employment at any time. Unless
otherwise specified in the applicable Award Agreement, an approved leave of
absence shall not be considered a termination of employment for purposes of an
Award under the Plan.
(d) TAXES. The Company and any subsidiary is authorized to withhold from
any Award granted or to be settled, any delivery of Stock in connection with an
Award, any other payment relating to an Award, or any payroll or other payment
to a Participant amounts of withholding and other taxes due or potentially
payable in connection with any transaction involving an Award, and to take such
other action as the Committee may deem advisable to enable the Company and
Participants to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Participant's tax obligations.
(e) CHANGES TO THE PLAN AND AWARDS. The Board may amend, alter, suspend,
discontinue, or terminate the Plan or the Committee's authority to grant Awards
under the Plan without the consent of stockholders or Participants, except that
any amendment or alteration shall be subject to the approval of the Company's
stockholders at or before the next annual meeting of stockholders for which the
record date is after the date of such Board action if such stockholder approval
is required by any federal or state law or regulation or the rules of any stock
exchange or automated quotation
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system on which the Stock may then be listed or quoted, and the Board may
otherwise, in its discretion, determine to submit other such amendments or
alterations to stockholders for approval; PROVIDED, HOWEVER, that, without the
consent of an affected Participant, no such action may materially impair the
rights of such Participant under any Award theretofore granted to him. The
Committee may waive any conditions or rights under, or amend, alter, suspend,
discontinue, or terminate, any Award theretofore granted and any Award Agreement
relating thereto; PROVIDED, HOWEVER, that, without the consent of an affected
Participant, no such action may materially impair the rights of such Participant
under such Award.
(f) NO RIGHTS TO AWARDS; NO STOCKHOLDER RIGHTS. No Participant or employee
shall have any claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment of Participants and employees. No Award
shall confer on any Participant any of the rights of a stockholder of the
Company unless and until Stock is duly issued or transferred and delivered to
the Participant in accordance with the terms of the Award or, in the case of an
Option, the Option is duly exercised.
(g) UNFUNDED STATUS OF AWARDS; CREATION OF TRUSTS. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant pursuant to an Award,
nothing contained in the Plan or any Award shall give any such Participant any
rights that are greater than those of a general creditor of the Company;
PROVIDED, HOWEVER, that the Committee may authorize the creation of trusts or
make other arrangements to meet the Company's obligations under the Plan to
deliver cash, Stock, other Awards, or other property pursuant to any Award,
which trusts or other arrangements shall be consistent with the "unfunded"
status of the Plan unless the Committee otherwise determines with the consent of
each affected Participant.
(h) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the
Board nor its submission to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board to adopt such
other compensatory arrangements as it may deem desirable, including, without
limitation, the granting of awards otherwise than under the Plan, and such
arrangements may be either applicable generally or only in specific cases.
(i) NO FRACTIONAL SHARES. No fractional shares of Stock shall be issued or
delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards, or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.
(j) COMPLIANCE WITH CODE SECTION 162(M). It is the intent of the Company
that Options, SARs, and other Awards designated as Awards subject to Section
7(f) shall constitute "qualified performance-based compensation" within the
meaning of Code Section 162(m) and regulations thereunder (including Proposed
Regulation 1.162-27). Accordingly, if any provision of the Plan or any Award
Agreement relating to such an Award does not comply or is inconsistent with the
requirements of Code Section 162(m) or regulations thereunder, such provision
shall be construed or deemed amended to the extent necessary to conform to such
requirements, and no provision shall be deemed to confer upon the Committee or
any other person discretion to increase the amount of compensation otherwise
payable in connection with any such Award upon attainment of the applicable
performance objectives.
(k) GOVERNING LAW. The validity, construction, and effect of the Plan, any
rules and regulations under the Plan, and any Award Agreement will be determined
in accordance with the Nevada General Corporation Law and other laws (including
those governing contracts) of the State of Nevada, without giving effect to
principles of conflicts of laws, and applicable federal law.
(l) EFFECTIVE DATE, STOCKHOLDER APPROVAL, AND PLAN TERMINATION. The Plan
shall become effective if, and at such time as, the stockholders of the Company
have approved it by the affirmative votes of the holders of a majority of the
voting securities of the Company present, or represented, and entitled to vote
on the subject matter at a duly held meeting of stockholders. Unless earlier
terminated
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by action of the Board of Directors, the Plan will remain in effect until such
time as no Stock remains available for delivery under the Plan and the Company
has no further rights or obligations under the Plan with respect to outstanding
Awards under the Plan.
As recommended by the Stock Plan Committee
and adopted by the Board of Directors: February 14, 1995.
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EXHIBIT B
SIERRA HEALTH SERVICES, INC.
1995 NON-EMPLOYEE DIRECTORS' STOCK PLAN
1. PURPOSE. The purpose of this 1995 Non-Employee Directors' Stock Plan
(the "Plan") of Sierra Health Services, Inc. (the "Company") is to advance the
interests of the Company and its stockholders by providing a means to attract
and retain highly qualified persons to serve as non-employee directors of the
Company and to promote ownership by such directors of a greater proprietary
interest in the Company, thereby aligning such directors' interests more closely
with the interests of stockholders of the Company.
2. DEFINITIONS. In addition to terms defined elsewhere in the Plan, the
following terms are defined as set forth below:
(a) "Code" means the Internal Revenue Code of 1986, as amended from time
to time. References to any provision of the Code include regulations
thereunder and successor provisions and regulations thereto.
(b) "Change of Control" means a transaction or event in which, after the
effective date of the Plan, (i) the Company shall merge or consolidate with
any other corporation and shall not be the surviving corporation; (ii) the
Company shall transfer all or substantially all of its assets to any other
person; or (iii) any person shall have become the beneficial owner of more
than 50% of the voting power of outstanding voting securities of the
Company.
(c) "Deferred Stock" means the credits to a Participant's deferral
account under Section 7, each of which represents the right to receive one
share of Stock upon settlement of the deferral account. Deferral accounts,
and Deferred Stock credited thereto, are maintained solely as bookkeeping
entries by the Company evidencing unfunded obligations of the Company.
(d) "Exchange Act" means the Securities Exchange Act of 1934, as
amended. References to any provision of the Exchange Act include rules
thereunder and successor provisions and rules thereto.
(e) "Fair Market Value" of Stock means, as of any given date, the
closing sale price of a share of Stock reported in the table entitled "New
York Stock Exchange Composite Transactions" contained in THE WALL STREET
JOURNAL (or an equivalent successor table) for such date or, if no such
closing price was reported for such date, for the most recent trading day
prior to such date for which such closing price was reported.
(f) "Option" means the right, granted to a director under Section 6, to
purchase a specified number of shares of Stock at the specified exercise
price for a specified period of time under the Plan. All Options will be
non-qualified stock options.
(g) "Participant" means a director of the Company who is granted an
Option or who receives fees in the form of Stock or defers fees in the form
of Deferred Stock under the Plan.
(h) "Stock" means the Common Stock, $.005 par value, of the Company and
such other securities as may be substituted for Stock or such other
securities pursuant to Section 8.
3. SHARES AVAILABLE UNDER THE PLAN. Subject to adjustment as provided in
Section 8, the total number of shares of Stock reserved and available for
issuance under the Plan is 60,000. Such shares may be authorized but unissued
shares, treasury shares, or shares acquired in the market for the account of the
Participant. For purposes of the Plan, shares that may be purchased upon
exercise of an Option or delivered in settlement of Deferred Stock will not be
considered to be available after such Option has been granted or Deferred Stock
credited, except for purposes of issuance in connection
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with such Option or Deferred Stock; PROVIDED, HOWEVER, that, if an Option
expires for any reason without having been exercised in full, the shares subject
to the unexercised portion of such Option will again be available for issuance
under the Plan.
4. ADMINISTRATION OF THE PLAN. The Plan will be administered by the Board
of Directors of the Company; PROVIDED, HOWEVER, that any action by the Board or
such Committee relating to the Plan will be taken only if, in addition to any
other required vote, such action is approved by the affirmative vote of a
majority of the directors who are not then eligible to participate in the Plan.
5. ELIGIBILITY. Each director of the Company who, on any date on which an
Option is to be granted under Section 6 or on which fees are to be paid which
could be received in the form of Stock or deferred in the form of Deferred Stock
under Section 7, is not an employee of the Company or any subsidiary of the
Company will be eligible, at such date, to be granted an Option under Section 6
or receive fees in the form of Stock or defer fees in the form of Deferred Stock
under Section 7. No person other than those specified in this Section 5 will be
eligible to participate in the Plan.
6. OPTIONS. An Option to purchase 3,000 shares of Stock, subject to
adjustment as provided in Section 8, will be automatically granted (i) to a
person who is first elected or appointed to serve as a member of the Board of
Directors of the Company after the effective date of the Plan, on the date of
such election or appointment, if such director is eligible to be granted an
Option at that date, and (ii) to each member of the Board of Directors of the
Company on January 20, 1996 and on each January 20 thereafter if such director
is eligible to be granted an Option at that date and has not otherwise been
granted an Option under this Section 6 during the six-month period prior to and
including the date the Option would otherwise be granted hereunder. Options will
be subject to the following terms and conditions:
(a) EXERCISE PRICE. The exercise price per share of Stock purchasable
upon exercise of an Option will be equal to 100% of the Fair Market Value of
Stock on the date of grant of the Option.
(b) OPTION EXPIRATION. A Participant's Option will expire at the
earlier of (i) ten years after the date of grant, (ii) one year after the
date the Participant ceases to serve as a director of the Company due to
death or disability, or (iii) six months after the Participant ceases to
serve as a director of the Company for any other reason; PROVIDED, HOWEVER,
that, if the Participant dies during the one year after ceasing to serve as
a director due to disability or during the six months after ceasing to serve
as a director for reasons other than disability, the expiration shall be
delayed until the earlier of one year after the Participant's death or ten
years after the date of grant of the Option.
(c) EXERCISABILITY. Each Option will become cumulatively exercisable
as to 20% of the shares of Stock subject to such Option on each anniversary
of the date of grant; PROVIDED, HOWEVER, that a Participant's Option will
become immediately exercisable in full at the time the Participant ceases to
serve as a director due to death or disability or, in the case of an Option
granted six months or more prior to a Change of Control, upon such Change of
Control; and PROVIDED FURTHER, that a Participant's Option may be exercised
after the Participant ceases to serve as a director for any reason other
than death or disability only to the extent that the Option was exercisable
at the date he or she ceased to be a director.
(d) METHOD OF EXERCISE. A Participant may exercise an Option, in whole
or in part, at such time as it is exercisable and prior to its expiration,
by giving written notice of exercise to the Secretary of the Company,
specifying the Option to be exercised and the number of shares of Stock to
be purchased, and paying in full the exercise price in cash (including by
check) or by surrender of shares of Stock already owned by the Participant
(except for shares acquired from the Company by exercise of an option less
than six months before the date of surrender) having a Fair Market Value at
the time of exercise equal to the exercise price, or by a combination of
cash and Stock.
7. RECEIPT OF STOCK OR DEFERRED STOCK IN LIEU OF FEES. Each director of
the Company may, in lieu of receipt of fees in his or her capacity as a director
(including annual retainer fees for service on the
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Board, fees for service on a Board committee, fees for service as chairman of a
Board committee, and any other fees paid to directors) in cash, receive such
fees in the form of Stock or defer receipt of such fees in the form of Deferred
Stock in accordance with this Section 7; PROVIDED, HOWEVER, that such director
is eligible to do so under Section 5 at the date any such fee is otherwise
payable.
(a) ELECTIONS. Each director who elects to receive fees for a given
calendar year in the form of Stock or to defer fees in the form of Deferred
Stock for such year must file an irrevocable written election with the Secretary
of the Company no later than six months before the due date for the first fee
payment during such calendar year, and in no event later than December 31 of the
year preceding such calendar year; PROVIDED, HOWEVER, that, with respect to
1995, directors may file such election at any time prior to March 29, 1995; and
PROVIDED FURTHER, that any newly elected or appointed director may file an
election for any year not later than 30 days after the date such person first
became a director. An election by a director shall be deemed to be continuing
and therefore applicable to subsequent Plan years unless the director revokes or
changes such election by filing a new election form by the due date for such
form specified in this Section 7(a). The election must specify the following:
(i) A percentage of fees to be received in the form of Stock or deferred
in the form of Deferred Stock under the Plan; and
(ii) In the case of a deferral, the period or periods during which
settlement of Deferred Stock will be deferred (subject to such limitations
as may be specified by counsel to the Company).
Certain elections may not result in receipt of Stock or deferral of fees as
Deferred Stock for a six-month period, as provided in Section 7(g).
(b) PAYMENT OF FEES IN THE FORM OF STOCK. At any date on which fees are
payable to a Participant who has elected to receive such fees in the form of
Stock, the Company will issue to such Participant, or to an account maintained
by a third party and designated by such Participant, a number of shares of Stock
having an aggregate Fair Market Value at that date equal to the fees, or as
nearly as possible equal to the fees (but in no event greater than the fees),
that would have been payable at such date but for the Participant's election to
receive Stock in lieu thereof. If the Stock is to be credited to an account
maintained by the Participant and to the extent reasonably practicable without
requiring the actual issuance of fractional shares, the Company shall cause
fractional shares to be credited to the Participant's account. If fractional
shares are not so credited, any part of the Participant's fees not paid in the
form of whole shares of Stock will be payable in cash to the Participant (either
separately or included in a subsequent payment of fees, including a subsequent
payment of fees subject to an election under this Section 7).
(c) DEFERRAL OF FEES IN THE FORM OF DEFERRED STOCK. The Company will
establish a deferral account for each Participant who elects to defer fees in
the form of Deferred Stock under this Section 7. At any date on which fees are
payable to a Participant who has elected to defer fees in the form of Deferred
Stock, the Company will credit such Participant's deferral account with a number
of shares of Deferred Stock equal to the number of shares of Stock having an
aggregate Fair Market Value at that date equal to the fees that otherwise would
have been payable at such date but for the Participant's election to defer
receipt of such fees in the form of Deferred Stock. The amount of Deferred Stock
so credited shall include fractional shares calculated to at least three decimal
places.
(d) CREDITING OF DIVIDEND EQUIVALENTS. Whenever dividends are paid or
distributions made with respect to Stock, a Participant to whom Deferred Stock
is then credited in a deferral account shall be entitled to be receive, as
dividend equivalents, an amount equal in value to the amount of the dividend
paid or property distributed on a single share of Stock multiplied by the number
of shares of Deferred Stock (including any fractional share) credited to his or
her deferral account as of the record date for such dividend or distribution.
Such dividend equivalents shall be credited to the Participant's
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deferral account as a number of shares of Deferred Stock determined by dividing
the aggregate value of such dividend equivalents by the Fair Market Value of a
share of Stock at the payment date of the dividend or distribution.
(e) SETTLEMENT OF DEFERRAL STOCK. The Company will settle the
Participant's deferral account by delivering to the Participant (or his or her
beneficiary) a number of shares of Stock equal to the number of whole shares of
Deferred Stock then credited to his or her deferral account (or a specified
portion in the event of any partial settlement), together with cash in lieu of
any fractional share remaining at a time that less than one whole share of
Deferred Stock is credited to such deferral account. Such settlement shall be
made at the time or times specified in the Participant's election filed in
accordance with Section 7(a); PROVIDED, HOWEVER, that a Participant may further
defer settlement of Deferred Stock if counsel to the Company determines that
such further deferral likely would be effective under applicable federal income
tax laws and regulations.
(f) DESIGNATION OF BENEFICIARY. Each Participant may designate one or more
beneficiaries to receive the amounts distributable from the Participant's
deferral account under the Plan in the event of such Participant's death, and
the terms of any such distribution, on forms provided by the Company. The
Company may rely upon the beneficiary designation last filed in accordance with
this Section 7(f).
(g) DELAYED EFFECTIVENESS OF ELECTIONS IN ORDER TO COMPLY WITH RULE
16B-3. Other provisions of this Section 7 notwithstanding, if any payment of
fees in the form of Stock or deferral of fees in the form of Deferred Stock
would occur less than six months after the Participant filed the irrevocable
election which would result in such payment or deferral and at a time when the
Company's employee benefit plans are being operated in conformity with Rule
16b-3 under the Exchange Act as in effect on and after May 1, 1991, such fees
shall be paid in cash on a non-deferred basis.
(f) NONFORFEITABILITY. The interest of each Participant in any fees paid
in the form of Stock or Deferred Stock (and any deferral account relating
thereto) at all times will be nonforfeitable.
8. ADJUSTMENT PROVISIONS.
(a) CORPORATE TRANSACTIONS AND EVENTS. In the event any recapitalization,
reorganization, merger, consolidation, spin-off, combination, repurchase,
exchange of shares or other securities of the Company, stock split or reverse
split, stock dividend, other extraordinary dividend having a value in excess of
150% of the aggregate quarterly dividends paid during the 12-month period
preceding the record date therefor, liquidation, dissolution, or other similar
corporate transaction or event affects the Stock such that an adjustment is
appropriate in order to prevent dilution or enlargement of each Participant's
rights under the Plan, then an adjustment shall be made, in a manner that is
proportionate to the change to the Stock and otherwise equitable, in (i) the
number and kind of shares of Stock remaining available for issuance under the
Plan, (ii) the number and kind of shares of Stock to be subject to each
automatic grant of an Option under Section 6, (iii) the number and kind of
shares of Stock issuable upon exercise of outstanding Options, and/or the
exercise price per share thereof (provided that no fractional shares will be
issued upon exercise of any Option), (iv) the kind of shares of Stock to be
issued in lieu of fees under Section 7, and (v) the number and kind of shares of
Stock to be issued upon settlement of Deferred Stock under Section 7. The
foregoing notwithstanding, no adjustment may be made hereunder except as will be
necessary to maintain the proportionate interest of the Participant under the
Plan and to preserve, without exceeding, the value of outstanding Options and
potential grants of Options.
(b) INSUFFICIENT NUMBER OF SHARES. If at any date an insufficient number
of shares of Stock are available under the Plan for the automatic grant of
Options or the receipt of fees in the form of Stock or deferral of fees in the
form of Deferred Stock at that date, Options will first be automatically granted
proportionately to each eligible director, to the extent shares are then
available (provided that no fractional shares will be issued upon exercise of
any Option) and otherwise as provided under
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Section 6, and then, if any shares remain available, fees shall be paid in the
form of Stock or deferred in the form of Deferred Stock proportionately among
directors then eligible to participate to the extent shares are then available
and otherwise as provided under Section 7.
9. CHANGES TO THE PLAN. The Board of Directors may amend, alter, suspend,
discontinue, or terminate the Plan or authority to grant Options or pay fees in
the form of Stock or Deferred Stock under the Plan without the consent of
stockholders or Participants, except that any amendment or alteration will be
subject to the approval of the Company's stockholders at or before the next
annual meeting of stockholders for which the record date is after the date of
such Board action if such stockholder approval is required by any federal or
state law or regulation or the rules of any stock exchange or automated
quotation system, and the Board may otherwise determine to submit other such
amendments or alterations to stockholders for approval; PROVIDED, HOWEVER, that,
without the consent of an affected Participant, no such action may materially
impair the rights of such Participant with respect to any previously granted
Option or any previous payment of fees in the form of Stock or deferral of fees
in the form of Deferred Stock; and, PROVIDED FURTHER, that any Plan provision
that specifies the directors who may receive grants of Options, the amount and
price of shares of Stock that may be purchased upon the exercise of Options
granted to such directors, and the timing of such grants of Options to such
directors, or is otherwise a "plan provision" referred to in Rule
16b-3(c)(2)(ii)(B) under the Exchange Act, shall not be amended more than once
every six months, other than to comport with changes in the Code or the rules
thereunder.
10. GENERAL PROVISIONS.
(a) AGREEMENTS. Options, Deferred Stock, and any other right under the
Plan may be evidenced by agreements or other documents executed by the Company
and the Participant incorporating the terms and conditions set forth in the
Plan, together with such other terms and conditions not inconsistent with the
Plan, as the Board of Directors may from time to time approve.
(b) COMPLIANCE WITH LAWS AND OBLIGATIONS. The Company will not be
obligated to issue or deliver shares of Stock in connection with any Option, in
payment of any directors' fees, or in settlement of Deferred Stock in a
transaction subject to the registration requirements of the Securities Act of
1933, as amended, or any other federal or state securities law, any requirement
under any listing agreement between the Company and any stock exchange or
automated quotation system, or any other law, regulation, or contractual
obligation of the Company, until the Company is satisfied that such laws,
regulations, and other obligations of the Company have been complied with in
full. Certificates representing shares of Stock issued under the Plan will be
subject to such stop-transfer orders and other restrictions as may be applicable
under such laws, regulations, and other obligations of the Company, including
any requirement that a legend or legends be placed thereon.
(c) LIMITATIONS ON TRANSFERABILITY. Options, Deferred Stock, and any other
right under the Plan will not be transferable by a Participant except by will or
the laws of descent and distribution (or to a designated beneficiary in the
event of a Participant's death), and will be exercisable during the lifetime of
the Participant only by such Participant or his or her guardian or legal
representative; PROVIDED, HOWEVER, that Options and Deferred Stock (and rights
relating thereto) may be transferred to one or more trusts or other
beneficiaries during the lifetime of the Participant for purposes of the
Participant's estate planning, and may be exercised by such transferees in
accordance with the terms thereof, but only if and to the extent then permitted
under Rule 16b-3 under the Exchange Act and consistent with the registration of
the offer and sale of shares of Stock related thereto on Form S-8, Form S-3, or
such other registration form of the Securities and Exchange Commission as may
then be filed and effective with respect to the Plan. Options, Deferred Stock,
and other rights under the Plan may not be pledged, mortgaged, hypothecated, or
otherwise encumbered, and shall not be subject to the claims of creditors of any
Participant.
(d) COMPLIANCE WITH RULE 16B-3. It is the intent of the Company that this
Plan comply in all respects with applicable provisions of Rule 16b-3 under the
Exchange Act. Accordingly, if any provision of this Plan or any agreement
hereunder does not comply with the requirements of Rule 16b-3 as
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then applicable to a Participant, or would preclude a director of the Company
from being deemed a "disinterested person" within the meaning of Rule 16b-3,
such provision will be construed or deemed amended to the extent necessary to
conform to the applicable requirements with respect to such Participant and
ensure the director's status as a "disinterested person" is unaffected. In
addition, the Board of Directors will have no authority to make any amendment,
alteration, suspension, discontinuation, or termination of the Plan under
Section 9 and the Board of Directors will have no authority to make any
adjustment under Section 8, amend any agreement hereunder, or take any other
action if and to the extent such authority would cause a transaction under the
Plan by a Participant not to be exempt, or would preclude a director from being
deemed a "disinterested person," under Rule 16b-3.
(e) CONTINUED SERVICE AS AN EMPLOYEE. If a Participant ceases serving as a
director of the Company and, immediately thereafter, is employed by the Company
or any subsidiary of the Company, then, solely for purposes of Sections 6(b) and
(c), such Participant will not be deemed to have ceased service as a director at
that time and his or her continued employment by the Company or any subsidiary
will be deemed to be continued service as a director.
(f) NO RIGHT TO CONTINUE AS A DIRECTOR. Nothing contained in the Plan or
any agreement hereunder will confer upon any Participant any right to continue
to serve as a director of the Company.
(g) NO STOCKHOLDER RIGHTS CONFERRED. Nothing contained in the Plan or any
agreement hereunder will confer upon any Participant (or any person or entity
claiming rights by or through a Participant) any rights of a stockholder of the
Company unless and until shares of Stock are in fact issued to such Participant
(or person) or his or her account maintained by a third party or, in the case an
Option, such Option is validly exercised in accordance with Section 6.
(h) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the
Board of Directors nor its submission to the stockholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other compensatory arrangements for directors as it may deem
desirable.
(i) GOVERNING LAW. The validity, construction, and effect of the Plan and
any agreement hereunder will be determined in accordance with the Nevada General
Corporation Law and other laws (including those governing contracts) of the
State of Nevada, without giving effect to principles of conflicts of laws, and
applicable federal law.
11. STOCKHOLDER APPROVAL, EFFECTIVE DATE, AND PLAN TERMINATION. The Plan
will be effective if, and at such time as, the stockholders of the Company have
approved it by the affirmative votes of the holders of a majority of the voting
securities of the Company present, or represented, and entitled to vote on the
subject matter at a duly held meeting of stockholders, PROVIDED, HOWEVER, that
such approval is obtained not later than the final adjournment of the first
annual meeting of stockholders of the Company held after the date the Board of
Directors has adopted the Plan. Unless earlier terminated by action of the Board
of Directors, the Plan will remain in effect until such time as no shares of
Stock remain available for issuance under the Plan and the Company and
Participants have no further rights or obligations under the Plan.
Adopted by the Board of Directors: February 14, 1995
B-6
<PAGE>
SIERRA HEALTH SERVICES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON MAY 16, 1995
The undersigned holder of shares of Common Stock of SIERRA HEALTH SERVICES,
INC. (the "Company") hereby appoints William J. Raggio and Erin E. MacDonald or
either of them acting singly in the absence of the other, with full power of
substitution, the Proxies of the undersigned at the Annual Meeting of
Stockholders of the Company to be held May 16, 1995 and at any adjournments
thereof.
<TABLE>
<S> <C> <C> <C>
1. Election of Directors FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) / / to vote for all nominees listed below / /
</TABLE>
Anthony M. Marlon, M.D. and Thomas Y. Hartley
(INSTRUCTION: To withhold authority to vote for any individual nominee strike a
line through the nominee's name in the list above.)
<TABLE>
<S> <C> <C> <C>
2. To approve the adoption of the Company's 1995 Long-Term Incentive Plan.
</TABLE>
/ / FOR / / AGAINST / / ABSTAIN
<TABLE>
<S> <C> <C> <C>
3. To approve the adoption of the Company's 1995 Non-Employee Directors' Stock Plan
</TABLE>
/ / FOR / / AGAINST / / ABSTAIN
<TABLE>
<S> <C> <C> <C>
4. To ratify the appointment of Deloitte & Touche as the Company's auditors for 1995.
</TABLE>
/ / FOR / / AGAINST / / ABSTAIN
<TABLE>
<S> <C> <C> <C>
5. To transact such other business as may properly come before the meeting or any adjournments thereof.
</TABLE>
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED "FOR" ITEMS 1 THROUGH 4. THE PROXIES WILL VOTE IN ACCORDANCE WITH THEIR
BEST JUDGMENT WITH RESPECT TO ANY MATTERS REFERRED TO IN ITEM 5.
NOTE: Please sign exactly as your
name or names appear herein. When
signing as an executor,
administrator, corporation,
officer, attorney, agent, trustee
or guardian, etc., please add your
full title to your signature.
__________________________________
Signature
__________________________________
Signature
Date _____________________________
