<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:
[_]Confidential, for Use of the
[_] Preliminary Proxy Statement Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-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), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[LOGO OF SIERRA HEALTH SERVICES, INC.(R)]
P.O. Box 15645
Las Vegas, Nevada 89114-5645
March 28, 1996
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Sierra Health Services, Inc., which will be held on Thursday, May 9, 1996, at
2:00 p.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,
/s/ Anthony M. Marlon
Anthony M. Marlon, M.D.
Chairman of the Board and
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 THURSDAY, MAY 9, 1996
----------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Sierra
Health Services, Inc., a Nevada corporation (the "Company"), will be held at
2:00 p.m., local time, Thursday, May 9, 1996, at the Sierra Health Services
corporate complex, 2720 North Tenaya Way, Las Vegas, Nevada for the following
purposes:
1. To elect three directors for a two-year term and until their successors
are duly elected and qualified.
2. To ratify the appointment of Deloitte & Touche LLP as the Company's
auditors for 1996.
3. 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 11, 1996 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: Erin E. MacDonald, William J. Raggio
and Charles L. Ruthe.
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,
/s/ Frank E. Collins
Frank E. Collins
Secretary
Las Vegas, Nevada
March 28, 1996
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 THURSDAY, MAY 9, 1996
----------------
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 1996
Annual Meeting of Stockholders of the Company to be held at 2:00 p.m., local
time, on Thursday, May 9, 1996, 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 are first being sent to the Company's stockholders is
March 28, 1996.
VOTING OF PROXY; REVOCATION
A proxy in the accompanying form that is properly executed, duly returned
and not subsequently revoked will be voted in accordance with instructions
contained thereon. If no instructions are given with respect to the matters to
be acted on, proxies will be voted as follows: (i) for the election of the
three nominees described herein, (ii) for the ratification of the appointment
of auditors and (iii) otherwise in accordance with the best judgment of the
person or persons voting the proxy on any other matter properly brought before
the meeting. Any stockholder who signs and returns the proxy may revoke it at
any time before it is exercised 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 later dated proxy or (iii) by appearing in
person at the 1996 Annual Meeting and expressing a desire to vote his or her
shares in person.
EXPENSES OF SOLICITATION
The expenses of the preparation of proxy materials and the solicitation of
proxies for the 1996 Annual Meeting will be borne by the Company. In addition
to solicitation by mail, proxies may be solicited in person, by telephone,
telecopy or other means, or by directors, officers and regular employees of
the Company who will not receive additional compensation for such
solicitations. Beacon Hill Partners, Inc. has been engaged by the Company to
assist in the solicitation of proxies for a fee of $1,500 plus out-of-pocket
costs and expenses. 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).
VOTING SECURITIES
Holders of the Company's Common Stock, par value $.005 per share, (the
"Common Stock") as of the close of business on March 11, 1996 will be entitled
to notice of and to vote at the 1996 Annual Meeting or any adjournments
thereof. On that date, there were 17,645,331 shares of Common Stock
outstanding (excluding treasury shares), each of which is entitled to one vote
with respect to each matter to be voted on at the 1996 Annual Meeting, except
as described below for the election of directors. 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 1996
Annual Meeting.
Stockholders are entitled to vote cumulatively for the election of directors
if any stockholder gives written notice to the President or Secretary of the
Company not less than 48 hours before the 1996 Annual Meeting that
1
<PAGE>
the stockholder desires the voting for the election of directors be
cumulative. If cumulative voting is so invoked, each stockholder is entitled
to the number of votes equal to the number of shares held by such stockholder
multiplied by the number of directors to be elected (three), and may cast all
such 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.
Assuming that a quorum is present at the 1996 Annual Meeting, directors will
be elected by a plurality of the votes cast at the 1996 Annual Meeting by
holders of shares present in person or represented by proxy. Approval of other
items at the 1996 Annual 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 1996 Annual 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 11, 1996 (except as
otherwise noted in the footnotes below) by (1) each of the executives named in
the Summary Compensation Table set forth under "Compensation of Executive
Officers," (2) each director and nominee of the Company, (3) all directors,
nominees 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 COMMON STOCK
------------------------ ---------- -------------
<S> <C> <C>
Anthony M. Marlon, M.D.......................... 2,484,390(1) 14.1%
Erin E. MacDonald............................... 21,903(2) *
Jerry D. Reeves, M.D............................ 11,554(3) *
Laurence S. Howard.............................. 10,408(4) *
Frank E. Collins................................ 17,580(5) *
Thomas Y. Hartley............................... 5,600(6) *
Charles L. Ruthe................................ 7,100(7) *
William J. Raggio............................... 21,350(8) *
All Directors and Executive Officers as a Group
(12 persons)................................... 2,650,346(9) 14.9%
Putnam Investments, Inc......................... 1,243,080(10) 7.0%
First Manhattan Co.............................. 960,475(11) 5.4%
</TABLE>
- --------
* Indicates beneficial ownership of less than 1% of the outstanding Common
Stock.
(1) Includes 5,000 shares that can be acquired within 60 days of March 11,
1996 upon the exercise of stock options, 644,538 shares held indirectly
through the Marlon Family Trust ("Family Trust"), 1,833,852 shares held
indirectly through a total of twelve other trusts (the "Twelve Trusts"),
and 1,000 shares held indirectly through a limited partnership (the
"Partnership") 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
2
<PAGE>
shares. Dr. Marlon may be deemed to have or share voting power and/or
dispositive power over the shares held by the Twelve Trusts and,
therefore, to have beneficial ownership with respect to such shares.
Dr. Marlon disclaims beneficial ownership as to the shares held by the
Twelve Trusts and 500 of the shares held by the Partnership.
(2) Includes 11,000 shares that can be acquired within 60 days of March 11,
1996 upon the exercise of stock options.
(3) Includes 30 shares that can be acquired within 60 days of March 11, 1996
upon the exercise of stock options held by Dr. Reeves' wife.
(4) Includes 9,300 shares that can be acquired within 60 days of March 11,
1996 upon the exercise of stock options.
(5) Includes 7,500 shares that can be acquired within 60 days of March 11,
1996 upon the exercise of stock options.
(6) Includes 3,600 shares that can be acquired within 60 days of March 11,
1996 upon the exercise of stock options.
(7) Includes 5,200 shares that can be acquired within 60 days of March 11,
1996 upon the exercise of stock options.
(8) Includes 10,000 shares that can be acquired within 60 days of March 11,
1996 upon the exercise of stock options.
(9) Includes 84,830 shares that can be acquired within 60 days of March 11,
1996 upon the exercise of stock options.
(10) 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) 1,072,635 shares of Common Stock beneficially owned by its wholly-
owned subsidiary, Putnam Investment Management, Inc. ("PIM"), and (b)
170,445 shares of Common Stock beneficially owned by its wholly-owned
subsidiary, The Putnam Advisory Company, Inc. ("PAC"). PIM and PAC are
registered investment advisors 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 134,850 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 134,850 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 this stockholder's
Schedule 13G dated January 15, 1996.
(11) The business address of this stockholder is 437 Madison Avenue, New York,
New York 10022. First Manhattan Co. ("FMC") beneficially owns 960,475
shares of Common Stock. FMC is a registered investment advisor whose
securities holdings set forth above include securities beneficially owned
by its 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. FMC is also a broker or
dealer registered under Section 15 of the Securities Exchange Act of
1934, as amended. FMC has sole voting power and dispositive power with
respect to 28,525 shares beneficially owned by it. FMC has shared voting
power with respect to 891,150 shares beneficially owned by it and shared
dispositive power with respect to 931,950 shares beneficially owned by
it. The number of shares beneficially owned by FMC includes 2,000 shares
owned by family members of General Partners of FMC. FMC disclaims
beneficial ownership as to the 2,000 shares owned by family members of
General Partners of FMC. All of the foregoing information is based on
this stockholder's Schedule 13G dated February 9, 1996.
3
<PAGE>
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
1996 Annual Meeting of Stockholders, the terms of Erin E. MacDonald, William
J. Raggio and Charles L. Ruthe will expire and three directors shall be
elected to serve for a term of two years expiring at the 1998 Annual Meeting
of Stockholders and until their successors are duly elected and qualified. The
two remaining directors' terms will continue until the 1997 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 three nominees listed
below in favor of the three nominees, and if cumulative voting is invoked, to
distribute, in such proportion as they see fit, the three votes represented by
each such share among the three nominees named below. Proxies cannot be voted
for a greater number of persons than the number of nominees named.
The Board of Directors of the Company is currently considering whether to
increase the number of directors from five to seven and to create a new third
class of directors. Following such a change, which could be effected by an
amendment to the Company's Bylaws not requiring stockholder approval, each
class of directors would be elected for three year terms. No final
determination has been made by the Board, and the persons who would be
appointed by the Board to serve as directors in any newly created class of
directors have not been selected.
The Company's Board of Directors has nominated Erin E. MacDonald, William J.
Raggio and Charles L. Ruthe for reelection to the Board. Each of the nominees
is presently a member of the Board of Directors and has 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 shall
become unable to stand for election as a director at the meeting, an event not
now anticipated by the Board of Directors, the proxy may be voted for a
substitute designated by the Board of Directors. The identity and a brief
biography of each nominee for director and each continuing director is set
forth below.
NOMINEES FOR ELECTION AS DIRECTORS FOR A TERM OF TWO YEARS
ERIN E. MACDONALD, 48, has been a Director of the Company since 1992 and a
director of CII Financial, Inc. ("CII"), a wholly-owned subsidiary of the
Company, since 1995. She was Senior Vice President of Operations of the
Company from the end of 1992 until 1994 at which time she assumed her present
position as President and Chief Operating Officer. Ms. MacDonald has also
served the Company in other capacities including Vice President of HMO
Operations from 1984 to 1990, when her title was changed to Vice President of
HMO and Insurance Operations, which title she held until 1992; President of
the Company's HMO from 1985 to 1992; President of Sierra Health and Life
Insurance Company, Inc., the Company's insurance subsidiary, from 1990 until
1992; and Director of the Company's northern Nevada HMO from 1983 to 1984.
From 1980 to 1983, Ms. MacDonald was the Operations Manager of the Company's
predecessor physician group.
WILLIAM J. RAGGIO, 69, has been a Director of the Company since 1984. He has
been a State Senator of Nevada since 1972 and is currently Executive Vice
President, General Counsel and a director of Santa Fe Gaming Corporation, a
corporation which operates two Nevada hotel/casinos. Since 1991 he has been a
senior partner in the law firm of Vargas & Bartlett. He previously served as
Washoe County, Nevada District Attorney from 1958 to 1970 and was a senior
partner in the law firm of Raggio, Wooster & Lindell, Ltd. from 1970 to 1991.
CHARLES L. RUTHE, 61, has been a Director of the Company and Chairman of the
Board of Directors of one of the Company's HMO subsidiaries, 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 since 1975 of
Charles L. Ruthe and Associates, Inc., a real estate brokerage firm in Las
Vegas, Nevada and served as its
4
<PAGE>
President until 1988 at which time he assumed the position of Chairman of the
Board. Mr. Ruthe has been President and a director of The Boyd Gaming
Corporation, a corporation which operates several Nevada hotel/casinos, since
1983. Since 1995, he has served as President and a director of Boyd
Development Corporation, a subsidiary of The Boyd Gaming Corporation. He was a
director of First Interstate Bank of Nevada from 1979 to 1983, 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, and was President of
the Nevada State Chamber of Commerce in 1977.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE FOR
THE ELECTION OF ERIN E. MACDONALD, WILLIAM J. RAGGIO AND CHARLES L. RUTHE AS
DIRECTORS OF THE COMPANY.
CONTINUING DIRECTORS WHOSE TERMS EXPIRE IN 1997
ANTHONY M. MARLON, M.D., 53, 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 1994 and 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 and 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 States of Nevada and Arizona as well as the Medical Board of
California, which had no impact on the Company's operations or Dr. Marlon's
medical licenses.
THOMAS Y. HARTLEY, 62, has been a Director of the Company since June 1992.
He has been President and Chief Operating Officer of Colbert Golf Design and
Development, Inc. in Las Vegas, Nevada since 1991. Mr. Hartley has also served
on the Boards of Directors of Rio Suite Hotel & Casino, Inc. since 1990, and
Southwest Gas Corporation since 1991. Mr. Hartley served in various capacities
for Jim Colbert Golf, Inc. in Las Vegas from 1988 to 1991, and for Deloitte
Haskins & Sells (currently Deloitte & Touche LLP) from 1959 until his
retirement in 1988 from his position 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
also active in many Las Vegas civic and charitable organizations.
5
<PAGE>
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
During the fiscal year ended December 31, 1995, the Board of Directors of
the Company held nine meetings.
The Company's Audit Committee held four meetings during the fiscal year
ended December 31, 1995, 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 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, 1995, 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, the 1995 Long-Term
Incentive Plan and other bonus and incentive plans.
The Company's Stock Plan Committee held five meetings during the fiscal year
ended December 31, 1995, four of which were held 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," the
"Administrative Committee" and the "Stock Plan Committee" under the 1986 Stock
Option Plan, the Capital Accumulation Plan, the 1985 Employee Stock Purchase
Plan and the 1995 Long Term Incentive Plan, respectively. Also, the Stock Plan
Committee has assumed the responsibility of administering stock option plans
of CII assumed by the Company in the acquisition of CII.
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 1997 should be submitted in writing to the
Secretary at the Company's principal executive offices no later than November
28, 1996.
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...... 51 Vice President, Administrative Services
Laurence S. Howard...... 40 Vice President, HMO and Insurance Operations
Michael A. Montalvo..... 51 Vice President, Marketing, Sales and Underwriting Operations
Jerry D. Reeves, M.D.... 51 Senior Vice President, Health Care Operations
Marie H. Soldo.......... 55 Vice President, Government Affairs and Special Projects
James L. Starr.......... 32 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 1979 from the University of
Missouri at Kansas City School of Law and is a member of the Missouri Bar
Association. From 1981 to 1986, Mr. Collins was employed by Blue Cross and
Blue Shield of
6
<PAGE>
Kansas City, originally as Staff Legal Counsel and in early 1986 as Associate
General Counsel. Mr. Collins also served as counsel for the Missouri Division
of Insurance from 1979 to 1981, where he was responsible for providing legal
advice on insurance-and HMO-related regulatory issues.
William R. Godfrey currently serves as Vice President of Administrative
Services and is responsible for directing the Company's facilities, personnel
management, purchasing, and print shop activities. He previously served as
Vice President, Health Delivery Finance from 1984 to 1985 and was the
Controller of the Company's predecessor physician group from 1974 to 1984.
Laurence S. Howard was appointed Vice President of HMO and Insurance
Operations in 1992, and 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. at that time. From 1990 to 1992, he served as
Assistant Vice President, HMO and Insurance Operations, for the Company. Prior
to that he was the Vice President and Chief Operating Officer of both the
Company's HMO and insurance subsidiaries and served in this capacity for the
Company's HMO from 1987 to 1990. Mr. Howard also served as Director of
Operations for the Company's Las Vegas HMO operation from 1986 to 1987, and
was an HMO Project Manager for the Company in 1986.
Michael A. Montalvo was appointed Vice President of Marketing and Sales in
1993. In 1994, he also assumed responsibility for the Company's underwriting
department. Prior to joining the Company, he held several positions including
Sales Director for The Travelers, an insurance company in southern California,
from 1991 to 1993, and Senior Vice President for Managed Health Network, an
employee assistance program and managed care mental health company, from 1990
to 1991. From 1986 to 1990, he was employed by Equicor, Inc., an employee
benefits company, where he was in charge of the California sales and marketing
efforts with respect to managed care indemnity, preferred provider
organization and HMO products. From 1963 to 1986, Mr. Montalvo also 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, Southwest Medical Associates
("SMA"), in 1988, has been the Chairman of the Board of SMA since 1989, and
served as its President and Chief Executive Officer from 1989 to 1995. In
1993, he also assumed the title of Vice President of Medical Affairs of the
Company; his title was changed to Vice President of Health Care Operations in
1994 and he became Senior Vice President of Health Care Operations in 1996.
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 1984 as Vice President of Planning and
Development. She was appointed Vice President of Government Affairs and
Special Projects in 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.
7
<PAGE>
James L. Starr was appointed Vice President of Finance, Chief Financial
Officer and Treasurer of the Company effective in 1994. Prior to that he had
served as Assistant Vice President-Controller beginning in November 1993, and
as Director of Finance and Corporate Controller from the time he joined the
Company in 1989. Prior to joining the Company, Mr. Starr was a Senior
Accountant at Deloitte & Touche LLP (formerly Deloitte Haskins & Sells) in Las
Vegas from 1987 to 1989, and 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
11 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.
The fundamental objectives of the Company's executive compensation programs
are: 1) to attract and retain superior individuals critical to the long-term
success of the Company; 2) to support the achievement of the Company's annual
and long-term strategic goals; 3) to reward performance; and 4) to tie the
executives' interest to the success of the Company and thus to an increase in
stockholder value.
To meet these objectives, the Company's executive compensation program is
structured to include base salary, annual bonus, long-term incentive
compensation in the form of a stock option plan and various other benefits
that are generally available to all employees of the Company, including
medical, pension, and employee stock purchase plans.
The Company's compensation policies, plans and programs for 1995 generally
were unaffected by Section 162(m) of the Internal Revenue Code, which
generally disallows a public company's tax deduction for compensation paid to
the chief executive officer and the four other most highly compensated
executive officers in excess of $1,000,000 in any tax year. "Performance-based
compensation" is excluded from the $1,000,000 deductibility cap, and therefore
remains fully deductible. 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 "performance-based compensation." If they did not so
qualify, the total compensation paid could exceed the $1,000,000 limitation,
resulting in a corresponding limitation on the deductibility for income tax
purposes of such payments. There can be no assurance, however, that in the
future all compensation in excess of $1,000,000 paid to any such executive
officer will qualify as "performance-based compensation." In addition, the
Committee (or the Board of Directors) may conclude in fiscal 1996 or future
years that compliance with Section 162(m) imposes burdens or costs that
outweigh the benefits to the Company of preserving such deductions.
CASH COMPENSATION
Base salaries for the executive officers are generally somewhat below
average for the health care industry. 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 the amount for the following year by considering competitive compensation
data, the Committee's assessment of the CEO's past
8
<PAGE>
performance, based on the same factors considered by the Committee when
determining the CEO's bonus, which are discussed below, and the Committee's
expectation of 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 within
those parameters based on each officer's individual performance and
achievement of both company and individual goals.
The annual incentive bonus payment for the CEO and the other executive
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 executive officers because it
was deemed appropriate that a higher percentage of his compensation 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 bonus potential of 100% of base salary; Category II, for Senior
Management, has a bonus potential of 50% of base salary; Category III, for
corporate vice presidents and subsidiary presidents, has a bonus potential of
30% of base salary; and Category IV, for all other eligible employees in the
bonus pool, has a bonus potential of 20% of base salary. Other than the CEO
who is in Category I, all of the executive officers named in the Summary
Compensation Table are in Category II. At the December 14, 1995 meeting of the
Committee, the Committee approved an amendment to the Corporation's Protocol
for Cash Bonus Awards, granting the CEO and/or the President, and in the case
of the CEO, the Committee, the authority to recommend bonuses in excess of the
ranges set forth in the Bonus Plan for those employees who have demonstrated a
high level of service for extraordinary projects which result in non-budgeted
profitable top line growth. For 1995, an individual's bonus amount, including
the CEO's, was determined primarily 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; and
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 Committee determines the bonus amount awarded 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 executive officers named
in the Summary Compensation Table, based primarily on the foregoing formula
established by the Committee.
STOCK-BASED COMPENSATION
The long-term stock-based incentive plans offered by the Company are
designed to tie the officers' interests directly to those of the stockholders.
To continue the focus on compensation tied to enhanced stockholder value, the
Board adopted and the stockholders approved the 1995 Long-Term Incentive Plan
(the "1995 Plan"). Awards were granted under the 1995 Plan to executive
officers in 1995. Upon approval of the 1995 Plan, the Board of Directors
determined to terminate authority to make further awards under the Company's
1986 Stock Option Plan and Capital Accumulation Plan. The 1995 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 1995 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. The size of
the awards granted to each executive officer is based upon the individual's
past and current performance and upon other subjective factors.
9
<PAGE>
During 1995, the Stock Plan Committee adopted a policy of requiring an
optionee to forfeit certain stock options and after tax gains from the
exercise of such options realized during a specified period if the optionee,
during employment or the one-year period following employment, engages in any
activity in competition with the Company, misuses proprietary information of
the Company, or fails to assist the Company in connection with legal actions
("optionee obligations"). This policy is not to become effective until April
1, 1996 but it does effect previously granted stock options. In December 1995,
the Committee offered to grant stock options to certain optionees subject to
the condition that the optionee agree to amend his or her prior stock award
agreements to provide that the optionee obligations will apply to all unvested
options.
During 1994, the Committee approved an Executive Stock Ownership Plan
requiring that certain stock ownership levels be reached and maintained by
executive officers of the Company over a three-year period starting in 1995.
Except for the CEO and the President, such ownership levels are determined by
multiplying the executive's 1995 base salary times one. Such executives are
then incrementally required over the three-year period to acquire stock or
hold vested stock options equaling their 1995 base salary. The CEO and the
President are required to maintain investments equal to four times and two
times their 1995 base salary, respectively. Starting in 1996, the Committee
will annually assess the degree to which each executive has accomplished his
or her interim ownership requirements. If the executive fails to meet the
established target, the Committee can consider such fact when determining
future merit increases, bonuses, stock option grants, and other discretionary
compensation awards.
CEO COMPENSATION
In December 1994, the Committee voted to set Dr. Marlon's 1995 base salary
at $425,000. In December 1995, they set his 1996 base salary at $437,750, 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 December 1995, Dr.
Marlon was also granted a 1995 bonus of $500,000, or 118% of his 1995 base
salary. The Committee felt this bonus amount was appropriate based, in part,
on the Company's financial performance in 1995 when earnings per share
increased by 17% over the previous year and net income increased by 33%. In
addition, the return on average assets was 12% and the return on average
equity was 20%. The Committee also weighed Dr. Marlon's pivotal role in the
Company's 1995 expansion into the California workers compensation marketplace.
Finally, the Committee subjectively assessed Dr. Marlon's contributions to the
Company's accomplishments, both in the 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.
Dr. Marlon received another $12,750 during 1995 as part of a Company-wide
bonus program available to all employees, which is solely based upon the
Company's meeting pre-established performance goals. The Committee also
believes that a significant portion of Dr. Marlon's compensation should be
tied to the Company's future performance. In keeping with this philosophy and
based upon subjective factors, he was granted 100,000 options on May 16, 1995
and 25,000 options on December 14, 1995 under the 1995 Plan. The December
grant was issued on a conditional basis as previously discussed in this report
in the section entitled "Stock-Based Compensation."
During 1995, the Company engaged the services of a compensation consulting
firm, Compensation Resource Group, Inc. to review its executive compensation
guidelines and objectives and to survey, for comparative purposes, the
industry, other comparable health care companies 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 the health care industry.
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, a group of peer companies over the
same period (the "1995 Peer Group") and a group of peer companies used for
comparative purposes in the Company's 1994 Proxy Statement (the "1994 Peer
Group") (assuming the investment of $100 in the Company's Common Stock, the S&P
Composite Index, and the peer company index on December 31, 1990, and
reinvestment of all dividends).
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG SIERRA HEALTH SERVICES, INC., THE S & P 500 INDEX AND A PEER GROUP
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
Measurement Period SIERRA HEALTH S&P 1994 1995
(Fiscal Year Covered) SERVICES, INC. 500 INDEX Peer Group Peer Group
- --------------------- -------------- --------- ---------- ----------
<S> <C> <C> <C>
Measurement Pt- 12/31/1990 $100 $100 $100 $100
FYE 12/31/1991 $135 $130 $225 $225
FYE 12/31/1992 $315 $140 $368 $368
FYE 12/31/1993 $322 $155 $457 $457
FYE 12/31/1994 $460 $157 $554 $547
FYE 12/31/1995 $462 $215 $746 $725
</TABLE>
* $100 INVESTED ON 12/31/90 IN STOCK OR INDEX - INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
- --------
The 1995 Peer Group is comprised of the following companies: Foundation
Health Corp., Coventry Corp., FHP International Corp., U.S. Healthcare, Inc.,
United Healthcare Corp., Oxford Health Plans, Inc., Pacificare Health Systems,
Inc., Healthsource, Inc., Physician Corp. of America and Healthwise of America
Inc. The 1995 Peer Group is comprised of the same companies as the 1994 Peer
Group except that HMO America, Inc., Ramsay-HMO, Inc. and Intergroup Healthcare
Corporation were (i) removed because they are no longer publicly traded and
(ii) replaced by two comparable companies, Physician Corp. of America and
Healthwise of America Inc.
11
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the annual and long-
term compensation for services in all capacities to the Company for the fiscal
years ended December 31, 1995, 1994 and 1993, of (a) the Chief Executive
Officer during the 1995 fiscal year, and (b) each of the four most highly
compensated executive officers, other than the Chief Executive Officer, for
the 1995 fiscal year (hereinafter collectively referred to as the "named
executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
---------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------- ------------ --------
SECURITIES
UNDERLYING LTIP
NAME AND SALARY OTHER ANNUAL OPTIONS/SARS PAYOUTS ALL OTHER
PRINCIPAL POSITION YEAR ($)(/1/) BONUS($) COMPENSATION($) (#)(/3/) ($)(/4/) COMPENSATION($)(/5/)
------------------ ---- -------- -------- --------------- ------------ -------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Anthony M. Marlon, M.D. 1995 425,000 512,750 125,000 171,250 7,620
Chief Executive 1994 412,000 312,360 5,000 171,250 7,620
Officer 1993 400,000 200,000 50,000 171,250 9,214
Erin E. MacDonald 1995 283,250 175,498 115,000 171,250 7,620
President, Chief 1994 275,000 145,750 55,000 171,250 7,620
Operating Officer 1993 198,269 68,000 1,958(/2/) 50,000 171,250 9,214
Jerry D. Reeves, M.D. 1995 209,814 90,295 10,000 34,250 7,219
Senior Vice President, 1994 203,700 98,761 6,000 34,250 7,620
Health Care 1993 179,611 63,000 25,000 34,250 9,214
Operations
Laurence S. Howard 1995 180,000 85,400 95,000 -0- 7,620
Vice President, 1994 137,800 59,259 6,000 -0- 7,620
HMO & Ins. Operations 1993 125,708 50,000 25,000 -0- 8,407
Frank E. Collins 1995 150,000 91,500 110,000 85,625 7,620
Secretary and 1994 136,475 65,062 5,000 85,625 7,620
General Counsel 1993 134,306 39,000 25,000 85,625 9,214
</TABLE>
- --------
(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) 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.
(3) 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.
(4) "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.
(5) 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.
12
<PAGE>
STOCK OPTIONS
The following table contains information concerning the grants of stock
options to the named executives during fiscal year 1995:
OPTION GRANTS IN FISCAL YEAR 1995
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
---------------------------------------------------- -------------------
% OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#)(/1/) 1995 ($/SH)(/4/) DATE 5%($) 10%($)
- ---- --------------- ------------ ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Anthony M. Marlon, M.D. 100,000(/2/) 11.72% $25.125 05/16/00 $694,157 $1,533,906
Chief Executive Officer 25,000(/3/) 2.93% 31.750 12/14/01 269,951 612,427
Erin E. MacDonald 100,000(/2/) 11.72% 25.125 05/16/00 694,157 1,533,906
President, Chief 15,000(/3/) 1.76% 31.750 12/14/01 161,971 367,456
Operating Officer
Jerry D. Reeves, M.D. 10,000(/3/) 1.17% 31.750 12/14/01 107,980 244,971
Senior Vice President,
Health Care Operations
Laurence S. Howard 90,000(/2/) 10.55% 25.125 05/16/00 624,742 1,380,516
Vice President, 5,000(/3/) .59% 31.750 12/14/01 53,990 122,485
HMO & Ins. Operations
Frank E. Collins 100,000(/2/) 11.72% 25.125 05/16/00 694,157 1,533,906
Secretary and General 10,000(/3/) 1.17% 31.750 12/14/01 107,980 244,971
Counsel
</TABLE>
- --------
(1) All awards were non-qualified stock options granted pursuant to the
Company's 1995 Long Term Incentive Plan (the "95 LTIP"). No stock
appreciation rights were granted with the above awards. The options expire
not more than ten years from the date of grant. Upon a change of control
of the Company, as defined in the 95 LTIP, the vesting of the options
shall be automatically accelerated, so that the options outstanding at the
time of such change of control will be immediately exercisable; provided,
however, that the Stock Plan Committee administering the 95 LTIP 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 certain post-termination exercise periods
are permitted in the case of death, disability, or other involuntary
termination except for a termination for "cause." The options together
with certain gains realized upon exercise of the options during a
specified period will be subject to forfeiture if the optionee engages in
certain acts in competition with the Company, misuses proprietary
information of the Company, or fails to assist the Company in litigation.
Cashless withholding to satisfy tax obligations may be permitted by the
Stock Plan Committee.
(2) Options granted on May 16, 1995. These options vest and are exercisable at
the rate of 25% per year starting with the first anniversary date of the
grant.
(3) Options granted on December 14, 1995. These options vest and are
exercisable at the rate of 20% per year starting with the first
anniversary date of the grant.
(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.
13
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table provides information, with respect to the named
executives, concerning the exercise of options during fiscal 1995 and
unexercised options held as of December 31, 1995.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN FISCAL 1995
AND YEAR-END OPTION VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-
UNEXERCISED THE-MONEY
OPTIONS/SARS OPTIONS/SARS
SHARES AT FY-END(#) AT FY-END($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($)(/1/) UNEXERCISABLE UNEXERCISABLE(/2/)
- ---- ----------- ---------------- -------------- ------------------
<S> <C> <C> <C> <C>
Anthony M. Marlon, M.D. 130,000 $2,251,725 3,000/167,000 $24,625/$1,263,500
Chief Executive Officer
Erin E. MacDonald 10,800 175,063 25,000/193,000 263,938/1,414,875
President, Chief
Operating Officer
Jerry D. Reeves, M.D. 2,500 54,713 6,700/31,600 86,000/273,225
Senior Vice President,
Health Care Operations
Laurence S. Howard 1,000 26,775 8,900/116,600 125,825/869,475
Vice President, HMO &
Ins. Operations
Frank E. Collins 1,400 37,913 8,500/132,000 117,188/958,500
Secretary and General
Counsel
</TABLE>
- --------
(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
29, 1995, which was $31.75, minus the exercise price of the option. There
is no guarantee that if and when these options are exercised they will
have this value.
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 Officer, President, and Vice President of
Administrative Services and two or three year employment agreements with its
other executive officers, including the other named executives. 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.
As described in footnote 1 to the table entitled Option Grants In Fiscal
Year 1995, 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.
14
<PAGE>
Mr. Raggio is a senior partner of Vargas & Bartlett, a Nevada law firm which
during 1995 rendered legal services to the Company.
Mr. Ruthe is the Chairman of the Board and the 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 at a price of approximately $2.4
million. Scott J. Ruthe, President of the brokerage firm and son of Mr. Ruthe,
conducted the negotiations of this transaction which closed on December 7,
1995. A brokerage commission of approximately $93,000 was paid by the City of
Las Vegas to Mr. Ruthe's firm.
DIRECTOR COMPENSATION
In 1995, 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. This policy applies to Messrs. Raggio, Ruthe and
Hartley. Beginning in 1996, the annual retainer fee of $10,000 was increased
to $18,000.
The 1995 Non-Employee Directors' Plan (the "Directors' Plan") provides for
an automatic grant to each non-employee Director of an option to purchase
3,000 shares of Common Stock. Such grants are made automatically on the date
on which a person is first elected to the Board of Directors and on each
January 20 thereafter (unless the initial grant occurred within the previous
six months). The options' exercise price per share is equal to the fair market
value of a share on the date of grant. Such options become exercisable as to
20% of the underlying shares on the first five anniversaries of the date of
grant, or immediately if the Director ceases to serve due to death or
disability at any time or upon a change of control more than six months after
grant. The options expire at the earliest of ten years after grant, one year
after the optionee ceases to serve as a Director due to death or disability,
or six months after the optionee ceases to serve as a Director for any other
reason (the post-termination period is extended for up to one year if the
optionee dies during the period). Options not exercisable at the time a
Director ceases to be a Director are cancelled. The Directors' Plan also
permits a non-employee Director to elect to forego cash fees that are
otherwise payable and receive instead the equivalent value in shares of Common
Stock or credits of "deferred stock" that will be settled at a future date by
issuance of Common Stock.
During 1995, Mr. Ruthe also received $5,600 as director's fees for his
service as Chairman of the Board of Health Plan of Nevada, Inc., an HMO
subsidiary of the Company.
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."
ITEM NO. 2--RATIFICATION OF APPOINTMENT OF AUDITORS
APPOINTMENT OF AUDITORS
The Board of Directors has appointed the firm of Deloitte & Touche LLP,
independent certified public accountants, as auditors of the Company for the
year ending December 31, 1996. 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 LLP are expected to be present at the
1996 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 LLP TO BE WELL-QUALIFIED
AND RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR RATIFICATION.
15
<PAGE>
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors knows of no
other matters which may come before the 1996 Annual Meeting. However, if any
further business should properly come before the 1996 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 1997, 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 November 28, 1996 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.
ANNUAL REPORT TO STOCKHOLDERS
The Company's 1995 Annual Report to Stockholders, which includes financial
statements for the fiscal year ended December 31, 1995, 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,
/s/ Frank E. Collins
Frank E. Collins
Secretary
Dated: March 28, 1996
16
<PAGE>
- --------------------------------------------------------------------------------
SIERRA HEALTH SERVICES, INC. [LOGO SIERRA
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS HEALTH SERVICE
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON MAY 9, 1996 INC.(R)]
The undersigned holder of shares of Common Stock of SIERRA HEALTH SERVICES,
INC. (the "Company") hereby appoints Anthony M. Marlon and Thomas Y. Hartley 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 9, 1996 and at any adjournments or
postponements thereof.
1. Election of Directors
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees
contrary below) [_] listed below [_]
Erin E. MacDonald, William J. Raggio, Charles L. Ruthe
(INSTRUCTION: To withhold authority to vote for any individual nominee strike a
line through the nominee's name in the list above.)
2. To ratify the appointment of Deloitte & Touche as the Company's auditors for
1996.
[_] FOR [_] AGAINST [_] ABSTAIN
3. To transact such other business as may properly come before the meeting or
any adjournments thereof.
(Continued and to be signed on reverse side)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 AND 2. THE PROXIES WILL VOTE IN ACCORDANCE WITH THEIR BEST
JUDGMENT WITH RESPECT TO ANY MATTERS REFERRED TO IN ITEM 3.
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 _________________________
- --------------------------------------------------------------------------------
