<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 (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] No Fee Required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(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
April 29, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Sierra Health Services, Inc., which will be held on Friday, May 30, 1997, 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,
/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 FRIDAY, MAY 30, 1997
----------------
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, Friday, May 30, 1997, 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 ratify the appointment of Deloitte & Touche LLP as the Company's
auditors for 1997.
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 April 18, 1997 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,
/s/ Frank E. Collins
Frank E. Collins
Secretary
Las Vegas, Nevada
April 29, 1997
IMPORTANT
IN ORDER TO ENSURE THAT A QUORUM WILL BE REPRESENTED AT THE ANNUAL MEETING,
STOCKHOLDERS ARE URGED TO COMPLETE, SIGN, DATE AND RETURN 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 FRIDAY, MAY 30, 1997
----------------
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 (the "Company"), for use at the 1997 Annual Meeting of
Stockholders of the Company (the "1997 Annual Meeting") to be held at 10:00
a.m., local time, on Friday, May 30, 1997, 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 April 29, 1997.
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 two
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 1997 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 1997 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 April 18, 1997 will be
entitled to notice of, and to vote at, the 1997 Annual Meeting or any
adjournments thereof. On that date, there were 18,005,963 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 1997 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 1997 Annual Meeting.
1
<PAGE>
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 1997 Annual Meeting that 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 (two), and may cast all such votes for one
nominee or distribute them among the nominees. Discretionary authority is
being sought by the proxy holders 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 1997 Annual Meeting, directors will
be elected by a plurality of the votes cast at the 1997 Annual Meeting by
holders of shares present in person or represented by proxy. Approval of other
items at the 1997 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 1997 Annual Meeting.
Withholding authority to vote for directors and broker non-votes will not
affect the election of directors. Abstentions will have the same effect as
votes cast against any other proposal, but broker non-votes will not effect
the outcome of the vote 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 April 18, 1997 (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 current
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.......................... 1,746,464(1) 9.7%
Erin E. MacDonald............................... 206,271(2) 1.1%
Jerry D. Reeves, M.D............................ 10,376(3) *
Laurence S. Howard.............................. 68,973(4) *
Frank E. Collins................................ 82,236(5) *
Thomas Y. Hartley............................... 7,800(6) *
Charles L. Ruthe................................ 9,300(7) *
William J. Raggio............................... 22,485(8) *
All current Directors and Executive Officers as
a Group (12 persons)........................... 2,373,490(9) 12.9%
First Manhattan Co.............................. 1,567,855(10) 8.7%
FMR Corp........................................ 1,300,175(11) 7.2%
Neuberger & Berman LLC.......................... 933,900(12) 5.2%
</TABLE>
- --------
* Indicates beneficial ownership of less than 1% of the outstanding Common
Stock.
(1) Includes 1,745,464 shares held indirectly through ten trusts established
by Dr. Marlon and his wife, and 1,000 shares held indirectly through a
limited partnership (the "Partnership"). Dr. Marlon may be deemed to have
or share voting power and/or dispositive power over the shares held by
the trusts and, therefore, to have beneficial ownership with respect to
such shares. Dr. Marlon, as managing general partner of the Partnership,
has sole voting and dispositive power over the shares held by the
Partnership. Dr. Marlon disclaims beneficial ownership as to the shares
held by the trusts, other than 349,750 shares held by the
2
<PAGE>
Marlon Family Trust (a revocable trust of which he is a trustee). Dr.
Marlon's beneficial ownership does not include 97,577 shares held in two
trusts for the benefit of family members, the trustee of which is Erin E.
MacDonald (see Note 2 below). Dr. Marlon's beneficial ownership also does
not include 635,099 shares held by the AMM and RM Family Limited
Partnership ("ARFLP"), the general partner of which is a trust for the
benefit of a family member; the trustees of that trust are Ms. MacDonald,
William Godfrey, and Jeannine M. Zeller (daughter of Dr. Marlon).
(2) Includes 97,000 shares that can be acquired within 60 days of April 18,
1997 upon the exercise of stock options, and 97,577 shares held in two
trusts for the benefit of Dr. Marlon's family members of which
Ms. MacDonald is the trustee. Ms. MacDonald's beneficial ownership does
not include 2,030,813 shares held in ten trusts established by Dr. Marlon
and his wife, as to which Ms. MacDonald serves as a trustee (1,395,714 of
such shares are included and 635,099 of such shares are not included in
Dr. Marlon's beneficial ownership; see Note 1 above).
(3) Includes 852 shares held by Dr. Reeves' wife.
(4) Includes 66,600 shares that can be acquired within 60 days of April 18,
1997 upon the exercise of stock options.
(5) Includes 72,000 shares that can be acquired within 60 days of April 18,
1997 upon the exercise of stock options.
(6) Includes 5,800 shares that can be acquired within 60 days of April 18,
1997 upon the exercise of stock options.
(7) Includes 5,000 shares that can be acquired within 60 days of April 18,
1997 upon the exercise of stock options.
(8) Includes 6,200 shares that can be acquired within 60 days of April 18,
1997 upon the exercise of stock options.
(9) Includes 442,300 shares that can be acquired within 60 days of April 18,
1997 upon the exercise of stock options.
(10) The business address of this stockholder is 437 Madison Avenue, New York,
New York 10022. First Manhattan Co. ("FMC") is a registered broker-dealer
and investment advisor. FMC has sole voting power and dispositive power
with respect to 2,775 shares, shared voting power with respect to
1,413,600 shares, and shared dispositive power with respect to 1,565,080
shares. The number of shares beneficially owned by FMC includes 7,300
shares owned by family members of General Partners of FMC, as to which FMC
disclaims beneficial ownership. This beneficial ownership information is
as of December 31, 1996, and is set forth in a Schedule 13G filed by FMC
with the Securities and Exchange Commission ("SEC") on February 5, 1997.
(11) The business address of this stockholder is 82 Devonshire Street, Boston,
Massachusetts 02109. FMR Corp. ("FMR") is a parent holding company to (1)
a registered investment advisor to various Fidelity mutual funds and (2) a
bank which serves as investment manager of certain institutional accounts.
FMR has sole voting power over 62,175 shares and sole dispositive power
over 1,300,175 shares. Edward C. Johnson, 3rd, and Abigail Johnson, as
directors and/or officers and principal shareholders of FMR, together with
other family members and trusts for their benefit which own voting
securities of FMR, may constitute a controlling group with respect to FMR.
Mr. Johnson and Ms. Johnson each are also beneficial owners of 1,300,175
of the shares beneficially owned by FMR, each having sole dispositive
power over such shares. This beneficial ownership information is as of
December 31, 1996, and is set forth in a Schedule 13G filed by FMR, Mr.
Johnson and Ms. Johnson with the SEC on February 13, 1997.
(12) The business address of this stockholder is 605 Third Avenue, New York,
New York 10158. Neuberger & Berman LLC ("Neuberger") is a registered
broker-dealer and investment advisor which serves as subadviser to various
Neuberger & Berman mutual funds. Neuberger has sole voting power over
32,200 shares, shared voting power over 866,400 shares, and shared
dispositive power over 933,900 shares. Neuberger & Berman Management Inc.,
an investment manager, is also a beneficial owner of 866,400 of
3
<PAGE>
the shares beneficially owned by Neuberger, having shared dispositive
power over such shares. This beneficial ownership information is as of
December 31, 1996, and is set forth in a Schedule 13G filed by Neuberger
with the SEC on February 11, 1997.
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
1997 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 1999 Annual Meeting of Stockholders and
until their successors are duly elected and qualified. The three remaining
directors' terms will continue until the 1998 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 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 Anthony M. Marlon, M.D. and
Thomas Y. Hartley 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
ANTHONY M. MARLON, M.D., 54, 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
4
<PAGE>
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, 63, 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,
Southwest Gas Corporation since 1991 and Ameritrade Holdings Corporation since
November 1996. He served on the Board of Primerit, a subsidiary of Southwest
Gas Corporation from 1991 to August, 1996. 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.
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 1998
ERIN E. MACDONALD, 49, 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, 70, 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, 62, 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 President until 1988 at which time he assumed
the position of Chairman of the Board. Mr. Ruthe has held the
5
<PAGE>
position of Consultant to Boyd Gaming Corporation, a corporation which
operates several Nevada hotel/casinos, since January 1, 1997. From 1983 to
December 31, 1996, he served as President and a director of Boyd Gaming
Corporation. From 1995 to December 31, 1996, he 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.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
During the fiscal year ended December 31, 1996, the Board of Directors of
the Company held thirteen meetings and acted by unanimous written consent
without a meeting seven times.
The Company's Audit Committee held four meetings during the fiscal year
ended December 31, 1996, all 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, 1996, 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 two meetings during the fiscal year
ended December 31, 1996, contemporaneously with meetings of the Board of
Directors. It also acted by unanimous written consent without a meeting three
times. 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 including the 1986 Stock Option
Plan, the 1985 Employee Stock Purchase Plan and the 1995 Long Term Incentive
Plan. In addition, the Stock Plan Committee administers the stock option plans
of CII assumed by the Company in its 1995 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 1998 should be submitted in writing to the
Secretary at the Company's principal executive offices no later than December
30, 1997.
6
<PAGE>
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 current
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>
Jonathon W. Bunker...... 38 Vice President, HMO and Insurance Operations
Frank E. Collins........ 43 Secretary and General Counsel
William R. Godfrey...... 52 Vice President, Administrative Services
Laurence S. Howard...... 41 Senior Vice President, HMO and Insurance Operations
Michael A. Montalvo..... 52 Vice President, Marketing, Sales and Underwriting Operations
Marie H. Soldo.......... 56 Vice President, Government Affairs and Special Projects
James L. Starr.......... 33 Vice President, Chief Financial Officer and Treasurer
</TABLE>
Jonathon W. Bunker joined the Company on May 20, 1996 as Vice President, HMO
and Insurance Operations and serves as President of the Company's HMO, Health
Plan of Nevada, Inc.; its insurance subsidiary, Sierra Health and Life
Insurance Company, Inc.; and its administrative service subsidiary, Sierra
Healthcare Options, Inc. In January 1997, as the result of an acquisition made
by the Company, Mr. Bunker became President of Prime Holdings, Inc., as well
as President of its four subsidiaries: MedOne Health Plan; M.E.G.A., Inc.;
Prime Health, Inc.; and Elias F. Ghanem, LTD. Prior to joining the Company, he
served as Vice President of John Alden Horizon Health from 1989 to 1996 and
Vice President of Prime Health from 1988 to 1989. From 1984 to 1988, Mr.
Bunker was Vice President of Sierra Health and Life Insurance Company, Inc.
From 1982 to 1984, he was a Staff Accountant with Deloitte & Touche LLP
(formerly Deloitte Haskins & Sells). Mr. Bunker received his degree in
Accounting in 1982 from Utah State University.
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 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. In addition, Mr. Godfrey is
responsible for overseeing all property development and construction as well
as all commercial leasing for the Company and its subsidiaries. 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 has served as Senior Vice President HMO and Insurance
Operations since May 1996. He 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,
7
<PAGE>
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.
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.
James L. Starr was appointed Vice President of Finance, Chief Financial
Officer and Treasurer of the Company 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 regarding the incorporation by
reference of future filings--including this Proxy Statement, in whole or in
part--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"),
the following report and the Comparative Stock Performance Graph on page 12
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"),
which is composed entirely of non-employee directors, 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 three non-employee
directors who serve on the Committee also serve as the Company's Stock Plan
Committee, which 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 promote the achievement of the Company's annual
and long-term strategic goals; 3) to reward performance; and 4) to tie
executives' interests to the success of the Company to further encourage their
efforts to increase value to stockholders.
To meet these objectives, the Company's executive compensation program
currently is structured to include base salary, annual bonus, long-term
incentive compensation in the form of stock options, and various other
benefits that are generally available to all employees of the Company,
including medical, retirement, and employee stock purchase plans.
The Company's compensation policies, plans, and programs for 1996 generally
were unaffected by Section 162(m) of the Internal Revenue Code. Section 162(m)
disallows a public company's tax deduction for certain compensation paid to
the chief executive officer and the four other most highly compensated
executive officers in excess of $1 million in any tax year. Compensation that
qualifies as "performance-based
8
<PAGE>
compensation" is excluded from the $1 million deductibility cap, and therefore
remains fully deductible. The Committee believes that, at current levels, non-
deferred cash compensation generally should not exceed $1 million for a given
executive in a given year, so the effort and expense to conform the annual
bonus program to the requirements of Treasury Regulations to qualify bonuses
as "performance-based compensation" is currently unnecessary. Although the
amount of compensation that may be realized upon exercise of options and the
timing of exercises cannot be predicted, the Committee intends that option
exercises generally should not result in a loss of deductibility under Section
162(m). To this end, options have been and will be granted with an exercise
price per share at least equal to 100% of fair market value of a share of
underlying stock at the date of grant, thereby meeting one of the requirements
to qualify as "performance-based compensation." Other requirements must be met
for compensation to so qualify, so there can be no assurance that compensation
in excess of $1 million paid in the future to any such executive officer will
in all cases qualify as "performance-based compensation." In addition, the
Committee (or the Board of Directors) may conclude that compliance with
Section 162(m) in connection with a given compensation program interferes with
more important objectives of the Company and imposes burdens or costs which
outweigh the benefit of preserving full tax deductibility under Section
162(m).
TOTAL COMPENSATION LEVELS
The Committee intends that an executive officer's targeted compensation
represents above-average compensation as compared to organizations that
compete with the Company for executive talent. In this way, the Company's
executive compensation program can promote long-term service by executives,
reduce the risk that talented and experienced executives will be recruited
away from the Company, and reward outstanding performance. To accomplish this,
the Committee intends that targeted annual cash compensation will closely
approximate average compensation payable by comparable companies, with long-
term incentive compensation providing potentially above-average compensation
based primarily on growth in the value of shares of the Company's stock.
The Company has engaged the services of a compensation consulting firm,
Compensation Resource Group, Inc. ("CRG") to review its executive compensation
guidelines and objectives and to survey comparable healthcare companies and
published industry averages to help the Committee assess the implementation of
its policies. In reviewing the compensation set for 1996, the Committee
reviewed a survey and report prepared by CRG. The companies selected for
purposes of that survey included 16 publicly held healthcare organizations,
three of which are included in the "peer group" shown in the chart under the
caption "Comparative Stock Performance." The differences in the comparator
group as compared to the "peer group" were based on the Committee's and CRG's
judgment that the comparator group better reflected the marketplace for
management talent for the Company. This study showed that the Company's cash
compensation package for named executives in 1995 approximated averages in
effect for the healthcare industry.
For 1997, the Committee has engaged CRG to provide a new report for purposes
of assessing compensation policies and arrangements.
CASH COMPENSATION
Executive officers' base salaries for 1996 were intended to approximate the
average for the healthcare industry. In December of each year, the Committee
reviews the CEO's base salary and sets the amount for the following year by
considering competitive compensation data, the Committee's subjective
assessment of the CEO's past performance, 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. For all executives, the Committee also
considered the Company's general policy for employees under which annual
salary increases range from zero to three percent.
9
<PAGE>
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. For
1996, the Committee determined that annual incentive bonuses would be payable
based on achievement of a targeted level of earnings per share. Achievement of
such targeted level was necessary in order to fund the bonus pool, from which
annual incentive bonuses would be paid out. Based on job position, eligible
employees are placed into specific categories, each of which is entitled to a
payout from the bonus pool up to a maximum amount (expressed as a percentage
of base salary). The Committee has set the annual incentive target for the CEO
at a higher percentage than for the other executive officers, in line with
industry practice and consistent with the Committee's view that Company
performance more closely reflects his individual performance. The following
bonus categories applied in 1996: 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.
The Committee has retained authority to grant bonuses apart from the annual
incentive bonus program described above. With respect to executives other than
the CEO, the Committee has authorized the CEO and/or the President to make
recommendations regarding such bonuses. In the case of unallocated amounts in
the bonus pool resulting from outstanding performance well in excess of
targeted levels, such bonuses may be paid to those employees who have
demonstrated a high level of service, particularly in extraordinary projects
which result in non-budgeted profitable top line growth.
In 1996, the Company's earnings per share did not reach the targeted level
necessary to fund the annual incentive pool, so no annual incentive bonuses
were paid to executive officers under the bonus program. The Committee
authorized one-time bonus payments to two executive officers in recognition of
substantial efforts and inconvenience required of them in connection with a
proposed corporate transaction.
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.
As stated above, the Committee intends that such plans will provide
compensation opportunities, resulting from growth in share value, that are
potentially above industry averages. For 1996, such long-term incentives were
provided under the 1995 Long-Term Incentive Plan (the "1995 Plan"), approved
by stockholders in 1995. Although the 1995 Plan authorizes the Stock Plan
Committee to use a range of long-term incentive devices to motivate, attract,
and retain high quality executive talent, for 1996 the Stock Plan Committee
adhered to the practice of granting stock options based on the conclusion that
options directly link compensation to appreciation in share value from the
date of grant onward and do so at lower cost than other types of awards. In
determining the size of the 1996 awards, the Stock Plan Committee considered
the individual's past and current performance, compliance with stock ownership
requirements under the Executive Stock Ownership Plan, and subjective factors;
the Stock Plan Committee did not assign any particular weighting to these
considerations.
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 became effective April 1, 1996 and
affects 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.
10
<PAGE>
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. Each executive is then
incrementally required over the three-year period to acquire stock or hold
vested stock options equal in value to his or her 1995 base salary. The CEO
and the President are required to maintain stock ownership (determined on the
same basis) equal in value to four times and two times such executive's 1995
base salary, respectively. Starting in 1996, the Committee began annual
assessments of the degree to which each executive has met 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 1995, the Committee voted to set Dr. Marlon's 1996 base salary
at $437,750, a 3% increase over the prior year. In December 1996, the
Committee set his 1997 base salary at $450,883, a 3% increase. These increases
were in line with the increase granted to other executive officers of the
Company, and within the Company-wide range of salary increases (as discussed
above). As described above, the annual incentive bonus pool for 1996 was to be
funded upon reaching a specified target level of earnings per share, which
target was not met. Accordingly, no annual incentive bonus was paid to Dr.
Marlon. Finally, in keeping with the Committee's view that a significant
portion of compensation should be tied to the Company's future performance, a
component of compensation which should offer above-average compensation
opportunities tied to growth in share value, Dr. Marlon was granted 25,000
options in December 1996 under the 1995 Plan. Such options have a stated term
of five years, and an exercise price per share equal to 100% of the fair
market value per share on the date of grant. As stated above, this grant was
made by the Stock Plan Committee based on its consideration of Dr. Marlon's
past and current performance and demands upon him, and subjective factors,
without assigning a particular weighting to these considerations.
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
11
<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 (the "1996 Peer Group") (assuming the investment of $100 in the
Company's Common Stock, the S&P Composite Index, and the 1996 Peer Group on
December 31, 1991, 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
(Fiscal Year Covered) SERVICES, INC. Peer Group 500 INDEX
- --------------------- -------------- ---------- ---------
<S> <C> <C> <C>
Measurement Pt- 12/91 $100 $100 $100
FYE 12/92 $234 $162 $108
FYE 12/93 $239 $206 $118
FYE 12/94 $342 $246 $120
FYE 12/95 $343 $347 $165
FYE 12/96 $266 $279 $203
</TABLE>
* $100 INVESTED ON 12/31/91 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
- --------
The 1996 Peer Group is comprised of the following companies: Foundation
Health Corp., Coventry Corp., FHP International Corp., United Healthcare Corp.,
Oxford Health Plans, Inc., Pacificare Health Systems, Inc., Healthsource, Inc.,
and Physician Corporation of America. The 1996 Peer Group is comprised of the
same companies as the 1995 Peer Group except that U.S. Healthcare Inc. and
Healthwise of America, Inc. were removed because they were acquired by Aetna
U.S. Healthcare and United Healthcare Corp., respectively.
12
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the annual and long-
term compensation for services in all capacities to the Company for the fiscal
years ended December 31, 1996, 1995 and 1994, of (a) the Chief Executive
Officer during the 1996 fiscal year, and (b) each of the four most highly
compensated executive officers, other than the Chief Executive Officer, for
the 1996 fiscal year (hereinafter collectively referred to as the "named
executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
---------------------
ANNUAL
COMPENSATION AWARDS PAYOUTS
----------------- ------------ --------
SECURITIES
UNDERLYING LTIP
NAME AND SALARY OPTIONS/SARS PAYOUTS ALL OTHER
PRINCIPAL POSITION YEAR ($) /(1)/ BONUS($) (#) /(2)/ ($) /(3)/ COMPENSATION($) /(4)/
------------------ ---- --------- -------- ------------ -------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Anthony M. Marlon,
M.D. .................. 1996 437,750 -0- 25,000 -0- 7,750
Chief Executive Officer 1995 425,000 512,750 125,000 171,250 7,620
1994 412,000 312,360 5,000 171,250 7,620
Erin E. MacDonald....... 1996 291,748 -0- 20,000 -0- 7,750
President, Chief 1995 283,250 175,498 115,000 171,250 7,620
Operating Officer 1994 275,000 145,750 55,000 171,250 7,620
Jerry D. Reeves,
M.D./(5)/.............. 1996 224,000 -0- 15,250 -0- 7,750
Senior Vice President, 1995 209,814 90,295 10,000 34,250 7,219
Health Care Operations 1994 203,700 98,761 6,000 34,250 7,620
Laurence S. Howard...... 1996 185,400 10,038 8,500 -0- 26,177/(6)/
Senior Vice President, 1995 180,000 85,400 95,000 -0- 7,620
HMO & Ins. Operations 1994 137,800 59,259 6,000 -0- 7,620
Frank E. Collins........ 1996 154,510 -0- 15,000 -0- 7,750
Secretary and General 1995 150,000 91,500 110,000 85,625 7,620
Counsel 1994 136,475 65,062 5,000 85,625 7,620
</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) The numbers represent shares underlying options. No stock appreciation
rights ("SARs") were granted or outstanding during the periods covered by
the table.
(3) "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.
(4) 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.
(5) Dr. Reeves resigned from the Company effective February 10, 1997.
(6) This amount includes reimbursement of $18,427 for costs relating to Mr.
Howard's relocation at the request of the Company.
13
<PAGE>
STOCK OPTIONS
The following table contains information concerning the grants of stock
options to the named executives during fiscal year 1996:
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN FISCAL YEAR 1996
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
--------------------------------------------------------- ---------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#)/(1)/ 1996 ($/SH)/(2)/ DATE 5%($) 10%($)
- ---- --------------- ------------ ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Anthony M. Marlon,
M.D. .................. 25,000/(3)/ 8.42 25.00 12/10/01 172,676 381,569
Erin E. MacDonald....... 20,000/(3)/ 6.73 25.00 12/10/01 138,141 305,255
Jerry D. Reeves, M.D.... 5,000/(4)//(5)/ 1.68 35.00 05/09/02 59,517 135,023
10,000/(3)//(5)/ 3.36 25.00 12/10/01 69,070 152,627
Laurence S. Howard...... 8,500/(3)/ 2.86 25.00 12/10/01 58,710 129,733
Frank E. Collins........ 15,000/(3)/ 5.05 25.00 12/10/01 103,606 228,941
</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. 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) 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.
(3) Options granted on December 10, 1996. These options vest and are
exercisable at the rate of 25% per year starting with the first
anniversary date of the grant, and expire not later than five years after
grant.
(4) Options granted on May 9, 1996. These options vest and are exercisable at
the rate of 20% per year starting with the first anniversary date of the
grant, and expire not later than six years after grant.
(5) These options were canceled upon Dr. Reeves' resignation from the Company
on February 10, 1997.
14
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to the named
executives concerning the exercise of options during fiscal 1996 and
unexercised options held as of December 31, 1996.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1996
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-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. .................. -0- -0- -0-/195,000 -0-/325,125
Erin E. MacDonald....... 15,000 286,250 61,000/162,000 86,125/182,563
Jerry D. Reeves, M.D.... 12,600 155,725 3,200/37,500/(3)/ -0-/89,888/(3)/
Laurence S. Howard...... 800 15,350 38,700/94,500 100,900/89,888
Frank E. Collins........ 2,000 45,625 41,000/112,500 89,750/98,250
</TABLE>
- --------
(1) Represents market price at exercise date less exercise price.
(2) Based on the closing price of the Common Stock of the Company on December
31, 1996, which was $24.625, 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) All of the unexercisable options have been canceled following Dr. Reeves'
resignation from the Company on February 10, 1997.
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 and President. The Company also entered into
employment agreements which range from one to five years 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, comparison to other companies in the healthcare
industry, 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/SAR Grants In Fiscal
Year 1996, under certain circumstances the exerciseability 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 1996 rendered legal services to the Company.
15
<PAGE>
On October 17, 1996, the Company entered into an agreement to purchase
approximately 3.93 acres of real estate from two individuals not affiliated
with the Company (the "Sellers") for approximately $1,970,000. Charles L.
Ruthe and Associates, Inc., a real estate brokerage firm wholly owned by
Charles L. Ruthe, represented the Sellers in this transaction. The Sellers
paid Charles L. Ruthe and Associates, Inc. approximately $118,000 as a
commission for its services in connection with the transaction.
DIRECTOR COMPENSATION
In 1996, directors who are not officers of the Company were paid $18,000 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.
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 canceled. 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 1996, Mr. Ruthe also received $7,100 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."
In addition, on September 27, 1996, the Company purchased real estate,
buildings and furnishings in Park City, Utah, from Anthony M. Marlon, M.D.,
Trustee, and Renee M. Marlon, Trustee, of the Marlon Family Trust, for total
consideration of $891,184. The real estate, buildings and furnishings were
purchased to provide entertainment and a meeting environment for significant
current and prospective clients, brokers and others who assist in the
Company's marketing efforts. The purchase price was reviewed and approved
unanimously by the Company's Board of Directors, with the exception of Dr.
Marlon who abstained from voting, and was based on an evaluation by Mulcock
Appraising ("Mulcock") an independent appraiser. In conducting its independent
appraisal, Mulcock employed two alternative valuation methods: (i) a cost
approach, which analyzed amounts required to purchase the land and reconstruct
the residence based on current local costs; and (ii) a market approach, which
analyzed the recent sales value of comparable local properties.
In late 1996, in anticipation of the closing of a corporate transaction by
March 31, 1997, the Company asked Mr. Laurence S. Howard, its Senior Vice
President, to relocate with his family to Florida. Consequently, Mr. Howard
purchased a home with a shared equity arrangement wherein the Company paid the
20% down payment, plus closing costs, totaling $144,896. The Company also
agreed to reimburse him for certain improvements made during the first year.
Mr. Howard's contribution was a note of $488,000 given to a mortgage lender
plus a commitment to make mortgage payments. The equity was shared between the
parties in proportion to their financial contribution. The parties have agreed
that because the transaction did not close, the Company will acquire Mr.
Howard's interest and hold him harmless from all obligations under the
mortgage note.
16
<PAGE>
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, 1997. 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
1997 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.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 1934 Act requires the Company's directors and executive
officers, and persons who beneficially own more than 10% of the Company's
outstanding Common Stock, to file with the SEC initial reports of beneficial
ownership and reports of changes in beneficial ownership of equity securities
of the Company on Forms 3, 4 and 5. Directors, executive officers, and
greater-than-10% shareholders are required by SEC regulations to furnish the
Company with copies of all Section 16(a) reports they file. Based solely upon
a review of copies of such reports furnished to the Company during and with
respect to the year ended December 31, 1996, and written representations
furnished to the Company by such reporting persons, the Company believes that
Jonathon W. Bunker, Vice President, HMO and Insurance Operations, was late in
filing a Form 4 and a Form 5 to report a single transaction.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors knows of no
other matters which may come before the 1997 Annual Meeting. However, if any
further business should properly come before the 1997 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 1998 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 30, 1997 for inclusion in the
Company's Proxy Statement and proxy for that meeting and must be otherwise in
compliance with applicable SEC regulations. Use of certified mail is
suggested.
ANNUAL REPORT TO STOCKHOLDERS
The Company's 1996 Annual Report to Stockholders, which includes financial
statements for the fiscal year ended December 31, 1996, accompanies this Proxy
Statement. The Annual Report does not constitute a part of the proxy
materials.
17
<PAGE>
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: April 29, 1997
18
<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 30, 1997 INC.(R)]
The undersigned holder of shares of Common Stock of SIERRA HEALTH SERVICES,
INC. (the "Company") hereby appoints Erin E. MacDonald and William J. Raggio,
or either of them acting singly in the absence of the other, with full power of
substitution, the Proxies of the undersigned to represent the undersigned and
vote all of the shares of said Common Stock held of record by the undersigned
at April 18, 1997, or which the undersigned otherwise would be entitled to vote
at the Annual Meeting of Stockholders of the Company to be held May 30, 1997
and at any adjournments or postponements thereof.
1. Election of Directors FOR all nominees listed WITHHOLD AUTHORITY
below (except as marked to vote for all nominees
to the contrary listed below [_]
below) [_]
Anthony M. Marlon, M.D., 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.)
2. To ratify the appointment of Deloitte & Touche as the Company's auditors for
1997.
[_] 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. THIS PROXY REVOKES
ALL PRIOR PROXIES RELATING TO THE ANNUAL MEETING.
NOTE: Please sign exactly as
your name or names appear
herein. Joint owners must
each sign. 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 _________________________
- --------------------------------------------------------------------------------
