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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-8865
SIERRA HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of
incorporation or organization)
88-0200415
(I.R.S. Employer
Identification No.)
2724 NORTH TENAYA WAY
LAS VEGAS, NV
(Address of principal executive offices)
89128
(Zip Code)
(702) 242-7000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of July 31, 1997 there were 18,079,000 shares of common stock outstanding.
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<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I - FINANCIAL INFORMATION
Item l. Financial Statements
Condensed Consolidated Balance Sheets --
June 30, 1997, and December 31, 1996............... 3
Condensed Consolidated Statements of Operations--
Three and six months ended June 30, 1997
and June 30, 1996.................................. 4
Condensed Consolidated Statements of Cash Flows--
Six months ended June 30, 1997
and June 30, 1996.................................. 5
Notes to Condensed Consolidated Financial
Statements......................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...... 7
Item 3. Quantitative and Qualitative Disclosures
About Market Risk ................................. 13
Part II - OTHER INFORMATION
Item l. Legal Proceedings.................................... 14
Item 2. Changes in Securities................................ 14
Item 3. Defaults upon Senior Securities...................... 14
Item 4. Submission of Matters to a Vote
of Security Holders.................................. 14
Item 5. Other Information.................................... 15
Item 6. Exhibits and Reports on Form 8-K..................... 15
Signature.............................................................. 17
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31
1997 1996
CURRENT ASSETS:
<S> <C> <C>
Cash and Cash Equivalents..................................................... $ 59,396,000 $103,587,000
Short-term Investments........................................................ 70,310,000 83,688,000
Accounts Receivable (Less: Allowance for Doubtful
Accounts: 1997 - $7,318,000; 1996 - $7,324,000 ............................ 33,012,000 31,849,000
Prepaid Expenses and Other Assets............................................. 54,354,000 33,811,000
Total Current Assets....................................................... 217,072,000 252,935,000
LAND, BUILDING AND EQUIPMENT..................................................... 162,019,000 140,130,000
Less: Accumulated Depreciation................................................ 45,526,000 40,326,000
Land, Building and Equipment - Net......................................... 116,493,000 99,804,000
LONG-TERM INVESTMENTS ........................................................... 212,224,000 160,482,000
RESTRICTED CASH AND INVESTMENTS ................................................. 14,572,000 13,648,000
REINSURANCE RECOVERABLE,
NET OF CURRENT PORTION........................................................ 16,705,000 14,721,000
GOODWILL ........................................................... 43,726,000 44,602,000
OTHER ASSETS..................................................................... 39,670,000 43,270,000
TOTAL ASSETS..................................................................... $660,462,000 $629,462,000
CURRENT LIABILITIES:
Accounts Payable and Other Accrued Liabilities................................ $ 55,990,000 $ 50,153,000
Medical Claims Payable........................................................ 53,090,000 46,969,000
Current Portion of Reserves for Losses and
Loss Adjustment Expense ................................................... 62,861,000 52,878,000
Unearned Premium Revenue...................................................... 15,523,000 24,210,000
Current Portion of Long-term Debt............................................. 4,206,000 2,195,000
Total Current Liabilities.................................................. 191,670,000 176,405,000
RESERVES FOR LOSSES AND LOSS
ADJUSTMENT EXPENSE (Less Current Portion) ................................... 130,895,000 134,898,000
LONG-TERM DEBT (Less Current Portion)............................................ 79,949,000 66,189,000
OTHER LIABILITIES ............................................................... 9,653,000 17,488,000
TOTAL LIABILITIES................................................................ 412,167,000 394,980,000
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 Par Value, 1,000,000 Shares
Authorized, None Issued
Common Stock, $.005 Par Value, 40,000,000 Shares Authorized;
Shares Issued: 1997 - 18,013,000; 1996 - 17,910,000;....................... 90,000 89,000
Additional Paid-in Capital.................................................... 160,576,000 152,035,000
Treasury Stock: 1997 - 284,500; 1996 - 100,200 Common Shares.................. (5,601,000) (130,000)
Unrealized Holding (Loss) Gain on
Available-for-Sale Investments............................................. (730,000) 487,000
Retained Earnings............................................................. 93,960,000 82,001,000
Total Stockholders' Equity................................................. 248,295,000 234,482,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................................... $660,462,000 $629,462,000
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 3
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
OPERATING REVENUES:
<S> <C> <C> <C> <C>
Medical Premiums.................................... $125,250,000 $ 93,431,000 $247,589,000 $184,036,000
Specialty Product Revenues.......................... 37,079,000 33,348,000 71,792,000 64,287,000
Professional Fees................................... 7,538,000 7,723,000 15,059,000 15,295,000
Investment and Other Revenues....................... 6,454,000 6,860,000 12,459,000 13,756,000
Total ............................................ 176,321,000 141,362,000 346,899,000 277,374,000
OPERATING EXPENSES:
Medical Expenses.................................... 101,813,000 75,866,000 201,489,000 149,817,000
Specialty Product Expenses.......................... 36,348,000 33,660,000 70,999,000 64,183,000
General, Administrative and
Marketing Expenses ............................... 23,057,000 17,316,000 45,066,000 34,479,000
Merger and Related Expenses ........................ 11,000,000
Total ............................................ 161,218,000 126,842,000 328,554,000 248,479,000
OPERATING INCOME...................................... 15,103,000 14,520,000 18,345,000 28,895,000
INTEREST EXPENSE AND OTHER, NET ..................... (1,207,000) (832,000) (2,609,000) (1,641,000)
INCOME BEFORE INCOME TAXES ........................... 13,896,000 13,688,000 15,736,000 27,254,000
PROVISION FOR INCOME TAXES............................ 3,335,000 3,477,000 3,777,000 6,879,000
NET INCOME ........................................... $10,561,000 $10,211,000 $11,959,000 $20,375,000
EARNINGS PER COMMON SHARE............................. $.59 $.58 $.67 $1.15
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING........................... 17,970,000 17,706,000 17,909,000 17,667,000
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 4
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30 June 30
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income.............................................................. $ 11,959,000 $ 20,375,000
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization..................................... 6,602,000 5,022,000
Provision for Doubtful Accounts................................... 2,198,000 1,251,000
Changes in Assets and Liabilities ...................................... (3,358,000) (11,934,000)
Net Cash Provided by Operating Activities ........................... 17,401,000 14,714,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures, Net of Equipment Dispositions..................... (22,003,000) (6,977,000)
Decrease in Short-term Investments...................................... 13,356,000 9,929,000
(Increase) Decrease in Long-term Investments............................ (52,832,000) 10,349,000
Increase in Restricted Cash and Investments............................. (1,063,000) (166,000)
Loan to Third Party..................................................... (16,750,000)
Net Cash (Used for) Provided by Investing Activities................. (79,292,000) 13,135,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Borrowings................................................ 17,000,000 500,000
Payments on Debt and Capital Leases..................................... (1,229,000) (8,035,000)
Exercise of Stock in Connection with Stock Plans........................ 7,400,000 2,400,000
Purchase of Treasury Stock ............................................. (5,471,000)
Net Cash Provided by (Used for) Financing Activities................. 17,700,000 (5,135,000)
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS.................................................... (44,191,000) 22,714,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............................ 103,587,000 57,044,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 59,396,000 $ 79,758,000
Six Months Ended
Supplemental Condensed Consolidated June 30 June 30
Statements of Cash Flows Information: 1997 1996
Cash paid during the period for interest
(net of amount capitalized)............................................. $ 2,217,000 $2,806,000
Cash paid during the period for income taxes.............................. 4,989,000 6,887,000
Non-cash Investing and Financing Activities:
Tax benefits of stock issued for exercise of options ................... 1,142,000 1,009,000
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 5
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited financial statements include the
consolidated accounts of Sierra Health Services, Inc. ("Sierra", a
holding company, together with its subsidiaries, collectively referred
to herein as the "Company"). All material intercompany balances and
transactions have been eliminated. These statements have been prepared
in conformity with the generally accepted accounting principles used
in preparing the Company's annual audited consolidated financial
statements but do not contain all of the information and disclosures
that would be required in a complete set of audited financial
statements. They should, therefore, be read in conjunction with the
Company's annual audited consolidated financial statements and related
notes thereto for the years ended December 31, 1996 and 1995. In the
opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting
only of normal recurring adjustments, necessary for a fair
presentation of the financial results for the interim periods
presented.
2. In the second quarter of 1997, the line of credit agreement the
("Credit Agreement"), among Sierra, Bank of America National Trust
and Savings Association as Agent, and other lenders, was amended and
increased to $100 million. In March 1997, the Company borrowed $17.0
million on its line of credit for general corporate purposes.
Currently the interest rate is 6.3%. The amount owed on the line of
credit is included in long-term debt at June 30, 1997. The remaining
line of credit may be used for additional working capital, if
necessary.
3. During the first quarter of 1997, the Company recorded $11.0 million,
$8.4 million after taxes, for certain estimated costs and expenses
incurred in association with a merger agreement with Physician
Corporation of America ("PCA"), such agreement was terminated on
March 18, 1997, as disclosed in the Company's Annual Report filed on
Form 10-K for the fiscal year ended December 31, 1996.
4. During 1997 the Financial Accounting Standards Board ("FASB") issued
the following statements of financial accounting standards ("FAS"):
FAS No. 128, "Earnings per Share", FAS No. 129, "Disclosure of
Information about Capital Structure", FAS No. 130, "Reporting
Comprehensive Income", and FAS No. 131, "Disclosure About Segments of
an Enterprise and Related Information".
FAS No. 128 and FAS No. 129 are effective for periods ending after
December 15, 1997, and establish standards for computing and
presenting earnings per share ("EPS"), and for disclosing information
about an entity's capital structure, respectively. Management
believes that these standards will not have a significant impact on
its EPS or financial statement disclosure. FAS No. 130 and FAS No.
131 are effective for periods beginning after December 15, 1997. FAS
No. 130 requires companies to classify items of other comprehensive
income by their nature in a financial statement. Management does not
believe this statement will have a material impact on the Company's
financial statements. FAS No. 131 establishes additional standards
for segment disclosures in the financial statements. Management has
not determined the effect of this statement on its financial
statement disclosure.
5. In the second quarter of 1997, the Company's Board of Directors
authorized a stock repurchase program of up to one million shares of
the Company's outstanding stock. As of June 30, 1997, the Company had
repurchased 184,300 shares for $5.5 million.
6. Amounts in the accompanying Condensed Consolidated Financial
Statements for the three months and six months ended June 30, 1996
have been reclassified to conform with the current period
presentation.
Page 6
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis provides information which management
believes is relevant for assessment and understanding of the Company's
consolidated financial condition and results of operations. The discussion
should be read in conjunction with the Condensed Consolidated Financial
Statements and Related Notes thereto. Any forward-looking information contained
in this Management's Discussion and Analysis of Financial Condition and Results
of Operations should be considered in connection with certain cautionary
statements contained in the Company's Current Report on Form 8-K filing dated
March 28, 1997. Such cautionary statements are made pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995 and
identify important risk factors that could cause the Company's actual results to
differ from those expressed in any projected, estimated or forward-looking
statements relating to the Company.
Results of Operations, three months ended June 30, 1997, compared to three
months ended June 30, 1996.
The Company's total operating revenues for the three months ended June 30, 1997
increased 24.7% to $176.3 from $141.4 million for the three months ended June
30, 1996. The increase was primarily due to medical premium revenue increases of
$31.8 million, or 34.1%, from the Company's HMO and managed indemnity insurance
subsidiaries. Such additional premium revenue resulted principally from a 30.3%
increase in member months (the number of months of each period that an
individual is enrolled in a plan). The Company's HMO and insurance subsidiaries'
premium rates increased approximately 3.8% primarily due to an increase in its
capitation rate for its Medicare members as established by the Health Care
Financing Administration ("HCFA"). The increase was due in part to the Company's
participation in HCFA's social HMO program. The Company realized 1% to 3% rate
increases for its existing HMO subsidiaries' commercial groups and the managed
indemnity subsidiary. However, these increases were offset in part by lower
rates realized by MedOne Health Plan, an HMO acquired on December 31, 1996.
Specialty product revenue increased $3.7 million, or 11.2%, for the three months
ended June 30, 1997 compared to the same three-month period in the prior year.
The increase was due to specialty product revenue growth in the workers'
compensation insurance market of $1.9 million and an increase in administrative
services of $1.8 million due primarily to the acquisition of Prime Health, Inc.
at the end of 1996. Some of this increase in administrative services revenue may
be offset in the future by the loss of a portion of the State of Nevada's
self-insured business. Professional fee revenue decreased slightly from the
comparable period in the prior year. Investment and other revenue decreased due
to certain investment gains recognized in the second quarter of 1996.
Total medical expenses increased $25.9 million over the same three-month period
last year. This 34.2% increase resulted primarily from the consolidated member
month growth discussed previously. Medical expenses as a percentage of medical
premiums and professional fees ("Medical Loss Ratio") increased from 75.0% to
76.7% due primarily to member growth and expansion in areas with higher medical
expenses, such as northern Nevada and Texas. In addition, MedOne Health Plan has
a higher Medical Loss Ratio, which further contributed to the increase in the
Company's overall Medical Loss Ratio. Specialty product expenses increased $2.7
million, or 8.0%, due primarily to the 11.2% increase in specialty product
revenue discussed previously. Specialty product revenue and expense is primarily
related to the workers' compensation insurance business.
Page 7
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Results of Operations, three months ended June 30, 1997, compared to three
months ended June 30, 1996 (continued).
The combined ratio for the workers' compensation insurance business was 101.7%
compared to 105.1% for the comparable prior year period. The reduction was
primarily due to a 4.7 percentage point decrease in the loss ratio which was
partially offset by a 1.3 percentage point increase in the expense ratio.
Incurred losses for the current accident year were reduced as a result of the
Company's ability to overlay and implement managed care techniques to the
workers' compensation claims as well as net favorable loss development on prior
accident years totaling $2.6 million compared to net favorable loss development
of $3.1 million for the comparable prior year period. The losses and loss
adjustment expense ratio for the three months ended June 30, 1997 reflects the
Company's current projection of the ultimate costs of claims occurring in the
current as well as prior accident years. Workers' compensation claims are paid
over several years. Until payment is made, the Company invests the monies,
earning a yield on the invested balance.
General, administrative and marketing ("G&A") costs increased $5.7 million, or
33.2%, compared to the second quarter of 1996. As a percentage of revenues, G&A
costs for the second quarter of 1997 increased to 13.1% from 12.2% during the
comparable period in 1996. Of the $5.7 million increase in G&A, $2.2 million
consisted of increased compensation expense resulting primarily from additional
employees supporting expanded services. Broker, third-party administration, and
premium tax expenses increased approximately $2.1 million due to increased
membership. Amortization increased approximately $400,000. The remaining G&A
increase is due to additional expenses in several areas including data
processing maintenance. The Company markets its products primarily to employer
groups, labor unions and individuals enrolled in Medicare, through its internal
sales personnel and independent insurance brokers. Such brokers receive
commissions based on the premiums received from each group. The Company's
agreements with its member groups are usually for twelve months and are subject
to annual renewal. For the quarter ended June 30, 1997, the Company's ten
largest commercial HMO employer groups were, in the aggregate, responsible for
less than 15% of its total revenues. Although none of such employer groups
accounted for more than 3% of total revenues for that period, the loss of one or
more of the larger employer groups could, if not replaced with similar
membership, have a material adverse effect on the Company's business.
Interest expense and other increased approximately $400,000 over the same period
in the prior year primarily due to the almost $600,000 benefit for minority
interests recorded in 1996, offset in part by an increase in capitalized
interest related to various construction projects in 1997. In November 1996, the
Company acquired complete ownership of a Texas HMO in which it had previously
held a 50% interest. That HMO began business in March 1995 and experienced
losses in both three-month periods. In the prior period, these losses resulted
in a benefit from minority interests.
The decrease in the effective tax rate for the second quarter of 1997 from 25.4%
to 24.0% resulted from the Company's investment in tax-preferred investments and
the change in the deferred tax valuation allowance, which is due primarily to
the ability to use a portion of net operating loss carryovers.
Net income for the three months ended June 30, 1997 increased $400,000 to $10.6
million over the comparable prior year period. The increase in earnings was
primarily due to increased operating revenues offset by a higher Medical Loss
Ratio and increased G&A expenses as a percentage of revenues. In addition, as
discussed previously, the Company recorded approximately $600,000 in minority
interest in the prior year period. Excluding the effects of the prior period
benefit related to minority interests income before income taxes increased
approximately $800,000.
Page 8
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Results of Operations, six months ended June 30, 1997, compared to six months
ended June 30, 1996.
The Company's total operating revenues for the six months ended June 30, 1997
increased 25.1% to $346.9 million, from $277.4 million, for the six months ended
June 30, 1996. The increase was primarily due to medical premium revenue
increases of approximately $63.6 million, or 34.5%, from the Company's HMO and
managed indemnity insurance subsidiaries. Such additional premium revenue
resulted principally from a 31.2% increase in member months. The Company's HMO
and insurance subsidiaries' premium rates increased approximately 3.4% overall,
primarily due to an increase in its capitation rate for its Medicare members as
established by HCFA. The increase was due in part to the Company's participation
in HCFA's social HMO program. The Company realized 1% to 3% rate increases for
its existing HMO subsidiaries' commercial groups and the managed indemnity
subsidiary. However, these increases were offset in part by lower rates realized
by MedOne Health Plan, an HMO acquired on December 31, 1996. Specialty product
revenue increased $7.5 million, or 11.7%, in the six months ended June 30, 1997
compared to the same six-month period in the prior year. The increase was due to
specialty product revenue growth of $4.3 million in the workers' compensation
insurance market and an increase in administrative services of $3.2 million due
primarily to the acquisition of Prime Health, Inc. at the end of 1996. Some of
this increase in administrative services revenue may be offset in the future by
the loss of a portion of the State of Nevada's self-insured business.
Professional fee revenue decreased slightly from the comparable period in the
prior year. Investment and other revenue decreased $1.3 million, or 9.4%, due to
certain investment gains recognized in the first six months of 1996.
Total medical expenses increased by $51.7 million over the same six-month period
last year. This 34.5% increase resulted primarily from the consolidated member
month growth discussed previously. The Medical Loss Ratio increased from 75.2%
to 76.7% due primarily to member growth and expansion in areas with higher
medical expenses, such as northern Nevada and Texas. In addition, MedOne Health
Plan has a higher Medical Loss Ratio, which further contributed to the increase
in the Company's overall Medical Loss Ratio. Specialty product expenses
increased $6.8 million, or 10.6%, due primarily to the 11.7% increase in
specialty product revenue discussed previously. Specialty product revenue and
expense is primarily related to the workers' compensation insurance business.
The combined ratio for the workers' compensation insurance business was 103.1%
compared to 104.9% for the comparable prior year period. The reduction was
primarily due to a 1.1 percentage point decrease in the loss ratio along with a
0.7 percentage point decrease in the expense ratio. Compared to the prior year
period, incurred losses for the current accident year were reduced as a result
of the Company's ability to overlay and implement managed care techniques to the
workers' compensation claims. In addition, the Company had net favorable loss
development totalling $4.4 million compared to net favorable loss development of
$7.1 million for the comparable prior year period. There can be no assurances
that favorable development, or the magnitude thereof, will continue in the
future. The losses and loss adjustment expense ratio for the six months ended
June 30, 1997 reflects the Company's current projection of the ultimate costs of
claims occurring in the current as well as prior accident years. Such
projections are subject to change and any change would be reflected in the
income statement.
Page 9
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Results of Operations, six months ended June 30, 1997, compared to six months
ended June 30, 1996 (continued).
G&A costs increased $10.6 million, or 30.7%, compared to the first six months of
1996. As a percentage of revenues, G&A costs for the first six months of 1997
increased to 13.0% from 12.4% during the comparable period in 1996. Of the $10.6
million increase in G&A, $3.4 million consisted of compensation expense
resulting primarily from additional employees supporting expanded services.
Broker, third-party administration, and premium tax expenses increased
approximately $4.6 million due to increased membership. Amortization increased
$700,000. The remaining G&A increase is due to additional expenses in several
areas including data processing maintenance. The Company markets its products
primarily to employer groups and labor unions through its internal sales
personnel and independent insurance brokers. Such brokers receive commissions
based on the premiums received from each group. The Company's agreements with
its member groups are usually for twelve months and are subject to annual
renewal. For the six months ended June 30, 1997, the Company's ten largest
commercial HMO employer groups were, in the aggregate, responsible for less than
15% of its total revenues. Although none of such employer groups accounted for
more than 3% of total revenues for that period, the loss of one or more of the
larger employer groups could, if not replaced with similar membership, have a
material adverse effect on the Company's business.
In the first quarter of 1997, the Company recorded estimated expenses of $11.0
million, $8.4 million after tax, for merger-related costs. On March 18, 1997,
the Company announced it had terminated its merger agreement with PCA. The
original agreement had been entered into in November 1996. On March 18, 1997,
prior to termination of the merger agreement, PCA filed a lawsuit against the
Company in the United States District Court for the Southern District of Florida
(the "District Court"), seeking, among other things, specific performance of the
merger agreement and monetary damages. Although the Company believes the PCA
lawsuit is without merit, there can be no assurance as to the outcome of the PCA
lawsuit. The Company has filed a motion in the District Court seeking a
dismissal of the PCA lawsuit. The Company has also initiated a lawsuit in the
Court of Chancery of the State of Delaware seeking a declaratory judgment as
well as other remedies. The Company intends to vigorously pursue all remedies
available to it; however, there can be no assurance that the Company will
prevail in such litigation or that PCA will have sufficient funds to pay any
damages that the Company may be awarded.
Interest expense and other increased approximately $1.0 million from the
comparable prior year period primarily due to the almost $1.0 million benefit
for minority interests recorded in 1996. In November 1996, the Company acquired
complete ownership of a Texas HMO in which it had previously held a 50%
interest. That HMO began business in March 1995 and experienced losses in both
six-month periods. In the prior period, these losses resulted in a benefit from
minority interests.
The decrease in the effective tax rate for the first six months of 1997 to 24.0%
from 25.2% in the first six months of 1996 resulted from the Company's
investment in tax-preferred investments and the change in the deferred tax
valuation allowance, which is due primarily to the ability to use a portion of
net operating loss carryovers.
Excluding the effect of the merger-related costs, the gains on sales of
securities, and the prior period benefit related to minority interests, income
before income taxes increased approximately $1.5 million from the comparable
prior year period. Net income for the six months ended June 30, 1997 was
consistent with the prior year period.
Page 10
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources
The Company's cash flow from operating activities during the six months ended
June 30, 1997 resulted primarily from $12.0 million of net income, $6.6 million
in depreciation and amortization and $2.2 million in provision for doubtful
accounts offset by a $3.4 million net change in assets and liabilities,
excluding cash and cash equivalents. The decrease in cash which resulted from
the change in assets and liabilities was primarily due to a decrease in unearned
premium revenue resulting from early receipt of the subsequent month's HCFA
Medicare capitation payment as of December 31, 1996, as well as increases in
accounts receivable and other assets, offset in part by increases in medical
claims payable, the reserve for losses and loss adjustment expense and accrued
and other liabilities.
The $61.6 million used for investing and financing activities since December 31,
1996 primarily consisted of a $40.5 million net increase in investments, and
$22.0 million in net capital expenditures including construction costs
associated with office and medical facilities, computer and medical equipment,
and other capital needs to support the Company's growth. Additionally, the
Company used $5.5 million to purchase treasury stock on the open market and $1.2
million for the reduction of debt. On January 10, 1997, the Company and PCA
entered into a credit and share pledge agreement (the "PCA Loan") pursuant to
which the Company made a demand loan to PCA in the amount of $16.8 million with
an 8.25% fixed rate of interest. There can be no assurance that PCA will have
sufficient funds to pay the PCA Loan in full. However, during the second quarter
of 1997 PCA announced that it had entered into an agreement to be acquired by
Humana, Inc., a company with substantial assets. A special meeting of PCA's
shareholders is scheduled to vote on the proposed merger with Humana on
September 8, 1997. These uses of cash were offset in part by $7.4 million
received in connection with the sale of stock through the Company's stock plans.
In the second quarter of 1997 the Credit Agreement was amended and increased to
$100 million. In March 1997, the Company borrowed $17.0 million on its line of
credit for general corporate purposes. The remaining line of credit may be used
for additional working capital, if necessary. Also in the second quarter of
1997, the Company's Board of Directors authorized a $3.0 million line of credit
from the Company to the Company's Chief Executive Officer ("CEO") at a market
interest rate tied to the Company's borrowing rate. The line of credit will be
collateralized by certain amounts of the CEO's Sierra stock and stock options
and will be due and payable no later than June 30, 1998.
The holding company may receive dividends from its HMO and insurance
subsidiaries which generally must be approved by certain state insurance
departments. The Company's HMO and insurance subsidiaries are required by state
regulatory agencies to maintain certain deposits and must also meet certain net
worth and reserve requirements. The HMO and insurance subsidiaries had
restricted assets on deposit in various states totaling $14.6 million as of June
30, 1997. The HMO and insurance subsidiaries must also meet requirements to
maintain minimum stockholder's equity, on a statutory basis, ranging from
$200,000 to $5.2 million. Of the cash and cash equivalents held at June 30,
1997, $45.5 million is designated for use only by the regulated subsidiaries.
Such amounts are available for transfer to the holding company from the HMO and
insurance subsidiaries only to the extent that they can be remitted in
accordance with terms of existing management agreements and by dividends.
Remaining amounts are available on an unrestricted basis. The holding company
will not receive dividends from its regulated subsidiaries if such dividend
payment would cause violation of statutory net worth and reserve requirements.
Page 11
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
The Company has submitted a proposal as the prime contractor to the Office of
the Civilian Health and Medical Program of the Uniformed Services ("CHAMPUS") to
provide managed health care coverage to CHAMPUS eligible beneficiaries in Region
1. This region includes more than 600,000 individuals in Connecticut, Delaware,
Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York,
Pennsylvania, Rhode Island, Vermont, northern Virginia and Washington, D.C. The
Company expects to incur expenses of approximately $12.0 to $15.0 million during
the Region 1 contract proposal process. The Company submitted its final bid on
July 17, 1997 and anticipates learning of the result of its bid by October 1,
1997. The contract, if awarded to the Company, will result in approximately $1.8
billion in estimated revenues over the five-year term of the contract. The
expenses incurred in connection with the contract are being deferred. If the
Company is not awarded the contract, the costs will be expensed in the period
that notification is received.
CII Financial, Inc., a California workers' compensation company that the Company
acquired in 1995, has convertible subordinated debentures (the "Debentures") due
September 15, 2001 and bearing interest at 7 1/2% which is due semi-annually on
March 15 and September 15. Each $1,000 in principal is convertible into 16.921
shares of the Company's common stock at a conversion price of $59.097 per share.
The Debentures are general unsecured obligations of CII and are not guaranteed
by Sierra. During the six months ended June 30, 1997 Sierra purchased $30,000 of
the Debentures on the open market.
The Company has a 1997 capital budget of approximately $45.0 million, primarily
for the construction of a new 59,000 square-foot medical facility, a six-story
180,000 square foot corporate headquarters building and accompanying parking
structure, computer hardware and software, furniture and equipment, and other
requirements needed for the Company's projected growth and expansion. Completion
of the medical facility is expected in the fourth quarter of 1997 at an
estimated total cost of $7.3 million. Completion of the additional building at
the corporate headquarters complex is expected in the fourth quarter of 1997 at
a total cost of $35.0 million. The Company believes that existing working
capital, operating cash flow and, if necessary, mortgage financing and equipment
leasing, and additional amounts available under its credit facility will be
sufficient to fund its capital expenditures, debt service and any expansion
activities during the next 12 months. Additionally, subject to unanticipated
cash requirements, the Company believes that its existing working capital and
operating cash flow and, if necessary, its access to new credit facilities, will
enable it to meet its liquidity needs on a longer term basis.
The Company's liquidity needs over the next 12 months will primarily be for
capital items to support growing membership, the Company's stock repurchase
program, as well as debt service and expansion of the Company's operations,
including potential acquisitions.
Page 12
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
The Company's membership at June 30, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
Number of Members at Period Ended
June 30, 1997 June 30, 1996
HMO
<S> <C> <C>
Commercial................................................... 155,900 123,200
Medicare..................................................... 32,500 27,400
Managed Indemnity.............................................. 47,300 33,200
Medicare Supplement............................................ 24,800 19,200
Administrative Services........................................ 512,200 306,700
Total Members.................................................. 772,700 509,700
</TABLE>
Health Care Reform
Numerous proposals relating to health care and insurance reform have been and
may continue to be introduced in the United States Congress and in state
legislatures. At this time, the Company cannot determine which legislation, if
any, will be enacted or what effect such legislation may have on the Company.
Inflation
Health care costs generally continue to rise at a rate faster than the Consumer
Price Index. The Company has been able to somewhat lessen the impact of such
inflation by managing medical costs. There can be no assurance, however, that in
the future the Company's ability to manage medical costs will not be negatively
impacted by items such as technological advances, utilization changes and
catastrophic items, which could, in turn, result in medical cost increases
continuing to equal or exceed premium increases.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to the General Instructions to Rule 305 of Regulation S-K, the
quantitative and qualitative disclosures called for by this Item 3 and by Rule
305 of Regulation S-K are inapplicable to the Company at this time.
Page 13
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 18, 1997, the Company announced it had terminated its
merger agreement with PCA. The original agreement had been
entered into in November 1996. On March 18, 1997, prior to
termination of the merger agreement, PCA filed a lawsuit against
the Company in the District Court, seeking, among other things,
specific performance of the merger agreement and monetary
damages. Although the Company believes the PCA lawsuit is without
merit, there can be no assurance as to the outcome of the PCA
lawsuit. The Company has filed a motion in the District Court
seeking a dismissal of the PCA lawsuit. The Company has also
initiated a lawsuit in the Court of Chancery of the State of
Delaware seeking a declaratory judgment as well as other
remedies. The Company intends to vigorously pursue all remedies
available to it; however, there can be no assurance that the
Company will prevail in such litigation or that PCA will have
sufficient funds to pay any damages that the Company may be
awarded.
The Company is subject to various other claims and litigation in
the ordinary course of business. Such litigation includes claims
of medical malpractice, claims for coverage or payment for
medical services rendered to HMO members and claims by providers
for payment for medical services rendered to HMO members. Also
included in such litigation are claims for workers' compensation
and claims by providers for payment for medical services rendered
to injured workers. In the opinion of the Company's management,
the ultimate resolution of these claims and legal proceedings
should not have a material adverse effect on the Company's
financial condition.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Sierra held its Annual Meeting of Stockholders on May 30, 1997 in
Las Vegas, Nevada.
The following persons were elected directors for a two-year term
ending in 1999 based on the voting results below:
<TABLE>
<CAPTION>
Broker
Name For Withheld Abstain Non-votes
<S> <C> <C> <C> <C>
Anthony M. Marlon, M.D. 15,413,874 628,586 0 0
Thomas Y. Hartley 15,409,863 632,597 0 0
</TABLE>
The following persons' terms as directors continued after the
meeting and end in 1998.
Charles L. Ruthe
William J. Raggio
Erin E. MacDonald
Page 14
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (continued)
The stockholders also ratified the appointment of Deloitte &
Touche LLP as the Company's independent auditors for the year
ending 1997. The voting results were as follows:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-votes
<S> <C> <C> <C> <C>
16,029,984 6,702 5,774 0
</TABLE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(10.1) First Amendment, dated as of May 31, 1997, to Credit
Agreement and Waiver among Sierra Health Services, Inc., as
Borrower, Bank of America National Trust and Savings
Association, as Agent and Issuing Bank and the Other
Financial Institutions Party Hereto, originally dated as of
April 11, 1996 and filed as Exhibit 10 to the Registrant's
Quarterly Report on Form 10-Q for the three-month period
ended March 31, 1996.
(10.2) Draft of Split Dollar Life Insurance Agreement effective as
of July 1, 1997, by and between Sierra Health Services,
Inc., and Jonathon W. Bunker, Ria Marie Carlson, Frank E.
Collins, William R. Godfrey, Laurence S. Howard, Erin E.
MacDonald, Anthony M. Marlon, M.D., Kathleen M. Marlon,
Michael A. Montalvo, John A. Nanson, M.D., Marie H. Soldo,
and James L. Starr.
(10.3) Sierra Health Services, Inc. Deferred Compensation Plan
Effective May 1, 1996 as Amended and Restated Effective July
1, 1997, dated as of July 1, 1997.
(10.4) Sierra Health Services, Inc. Supplemental Executive
Retirement Plan Effective as of July 1, 1997, dated as of
July 7, 1997.
(10.5) Employment Agreement with Jonathon W. Bunker dated May 20,
1996, as amended.
(10.6) Amendment dated May 1, 1997 to Employment Agreement with
Frank E. Collins. The original employment agreement was
filed as Exhibit 10(3) to the Registrant's Quarterly Report
on Form 10-Q for the period ended September 30, 1996.
(10.7) Amendment dated May 1, 1997 to Employment Agreement with
William R. Godfrey. The original employment agreement was
filed as Exhibit 10(4) to the Registrant's Quarterly Report
on Form 10-Q for the period ended September 30, 1996.
Page 15
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
(10.8) Amendment dated May 1, 1997 to Employment Agreement with
Laurence S. Howard. The original employment agreement was
filed as Exhibit 10(5) to the Registrant's Quarterly Report
on Form 10-Q for the period ended September 30, 1996.
(10.9) Employment Agreement with Erin E. MacDonald dated May 1,
1997.
(10.10) Employment Agreement with Anthony M. Marlon, M.D. dated May
1, 1997.
(10.11) Amendment dated May 1, 1997 to Employment Agreement with
Michael A. Montalvo. The original employment agreement was
filed as Exhibit 10(6) to the Registrant's Quarterly Report
on Form 10-Q for the period ended September 30, 1996.
(10.12) Amendment dated May 1, 1997 to Employment Agreement with
Marie H. Soldo. The original employment agreement was filed
as Exhibit 10(8) to the Registrant's Quarterly Report on
Form 10-Q for the period ended September 30, 1996.
(10.13) Amendment dated May 1, 1997 to Employment Agreement with
James L. Starr. The original employment agreement was filed
as Exhibit 10(9) to the Registrant's Quarterly Report on
Form 10-Q for the period ended September 30, 1996.
(11) Computation of earnings per share.
(27) Financial Data Schedule
(b) Reports on Form 8-K
None
Page 16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIERRA HEALTH SERVICES, INC.
(Registrant)
Date August 14, 1997 JAMES L. STARR
James L. Starr
Vice President of Finance
Chief Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
Page 17
SIERRA HEALTH SERVICES INC AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 11
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE JUNE JUNE JUNE
1997 1996 1997 1996
<S> <C> <C> <C> <C>
NET INCOME...................................... $10,561,000 $10,211,000 11,959,000 $20,375,000
EARNINGS PER COMMON SHARE....................... $.59 $.58 $.67 $1.15
Weighted Average Number
of Common Shares Outstanding................... 17,970,000 17,706,000 17,909,000 17,667,000
.......................................................................................................................
PRIMARY EARNINGS PER COMMON
AND COMMON SHARE
EQUIVALENTS.................................... $.58 $.56 $.66 $1.12
Weighted Average Number of
Common and Common
Equivalent Shares Outstanding.................. 18,242,000 18,203,000 18,200,000 18,175,000
.......................................................................................................................
FULLY DILUTED EARNINGS PER
COMMON AND COMMON SHARE
EQUIVALENTS................................... $.58 $.56 $.65 $1.12
Weighted Average Number of Common
and Common Equivalent Shares Outstanding
Assuming Full Dilution.......................... 18,316,000 18,204,000 18,304,000 18,176,000
</TABLE>
Note: Common Equivalent Shares represent the incremental effect of
outstanding stock options and stock appreciation rights.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE STATEMENTS OF CONSOLIDATED OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 59,396,000
<SECURITIES> 297,106,000
<RECEIVABLES> 40,330,000
<ALLOWANCES> 7,318,000
<INVENTORY> 0
<CURRENT-ASSETS> 217,072,000
<PP&E> 162,019,000
<DEPRECIATION> 45,526,000
<TOTAL-ASSETS> 660,462,000
<CURRENT-LIABILITIES> 191,670,000
<BONDS> 79,949,000
0
0
<COMMON> 90,000
<OTHER-SE> 248,205,000
<TOTAL-LIABILITY-AND-EQUITY> 660,462,000
<SALES> 0
<TOTAL-REVENUES> 346,899,000
<CGS> 0
<TOTAL-COSTS> 317,554,000
<OTHER-EXPENSES> 11,000,000<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,609,000
<INCOME-PRETAX> 15,736,000
<INCOME-TAX> 3,777,000
<INCOME-CONTINUING> 11,959,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,959,000
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.00
<FN>
<F1>Merger and Related Expenses
</FN>
</TABLE>
EXHIBIT 10.1
FIRST AMENDMENT TO
CREDIT AGREEMENT AND WAIVER
THIS FIRST AMENDMENT TO CREDIT AGREEMENT AND WAIVER (this
"AMENDMENT")is made and dated as of May 31, 1997 among SIERRA HEALTH SERVICES,
INC., a Nevada corporation (the "COMPANY"), the Banks party to the Credit
Agreement referred to below, and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, a national banking association, as Agent (the "AGENT"), and amends
that certain Credit Agreement dated as of April 11, 1996 (the "CREDIT
AGREEMENT").
RECITALS
WHEREAS, the Company has requested the Agent and the Banks to amend
certain provisions of the Credit Agreement, and the Agent and the Banks are
willing to do so, on the terms and conditions specified herein;
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. TERMS. All terms used herein shall have the same meanings as in
the Credit Agreement unless otherwise defined herein.
2. AMENDMENT. The Credit Agreement is hereby amended as follows:
2.1 AMENDED AND RESTATED DEFINITIONS.
(a) The definitions of the terms "Commitment", "L/C
Borrowing", "L/C Commitment" and "Revolving Loan" in Section
1.1 of the Credit Agreement are hereby amended and restated to
read in their entirety as follows:
"Commitment", as to each Bank, means the Tranche A
Commitment and the Tranche B Commitment.
"L/C Borrowing" means an extension of credit
resulting from a drawing under any Letter of Credit which
shall not have been reimbursed on the date when made nor
converted into a Borrowing of Tranche A Revolving Loans under
subsection 3.03(b).
"L/C Commitment" means the commitment of the Issuing
Bank to Issue, and the commitment of the Banks severally to
participate in, Letters of Credit from time to time Issued or
outstanding under Article III, in an aggregate amount not to
exceed on any date the amount of $40,000,000, as the same
shall be reduced as a result of a reduction in the L/C
Commitment pursuant to Section 2.06; PROVIDED that the L/C
Commitment is a part of the combined Tranche A Commitments,
rather than a separate, independent commitment.
39176203.6 81397 151P 96246459
-1-
<PAGE>
"Revolving Loans" means the Tranche A Revolving Loans
and the Tranche B Revolving Loans.
(b) Clause (iii) of the definition of Interest Period is hereby amended and
restated to read in its entirety as follows:
(iii) no Interest Period for any Tranche A Revolving
Loan shall extend beyond the Tranche A Revolving Termination
Date and no Interest Period for any Tranche B Revolving Loan
shall extend beyond the Tranche B Revolving Termination Date.
2.2 ADDITION OF NEW DEFINITIONS. Section 1.1 of the Credit Agreement is
further amended by adding the following definitions thereto in appropriate
alphabetic order:
"Tranche A Commitment", as to each Bank, has the meaning specified in
Section 2.01(a).
"Tranche A Revolving Loan" has the meaning specified in Section 2.01(a),
and may be a Base Rate Loan or a LIBOR Rate Loan (each, a "TYPE" of Revolving
Loan).
"Tranche A Revolving Termination Date" means the earlier to occur of:
(a) the fifth (5th) anniversary of the Closing Date (as such date may be
extended pursuant to Section 2.16); and
(b) the date on which the Tranche A Commitments
terminate in accordance with the provisions of this Agreement.
"Tranche B Commitment", as to each Bank, has the meaning specified in
Section 2.01(b).
"Tranche B Revolving Loan" has the meaning specified in
Section 2.01, and may be a Base Rate Loan or a LIBOR Rate Loan (each, a
"TYPE" of Revolving Loan).
"Tranche B Revolving Termination Date" means the earlier to occur of:
(a) May 30, 1998; and
(b) the date on which the Tranche B Commitments
terminate in accordance with the provisions of this Agreement.
2.3 DELETION OF DEFINITION. Section 1.1 of the Credit
Agreement is further amended by deleting the definition of Revolving Termination
Date. "Tranche A Revolving Termination Date" shall be substituted for "Revolving
Termination Date" in each place in which the latter term appears in the Loan
Documents.
2.4 AMENDMENT AND RESTATEMENT OF SECTION 2.01. Section 2.01 of the Credit
Agreement is hereby amended and restated to read in its entirety as follows:
39176203.6 81397 151P 96246459
-2-
<PAGE>
2.01 AMOUNTS AND TERMS OF COMMITMENTS.
(a) Each Bank severally agrees, on the terms and
conditions set forth herein, to make loans to the Company
(each such loan, a "TRANCHE A REVOLVING LOAN") from time to
time on any Business Day during the period from the Closing
Date to the Tranche A Revolving Termination Date, in an
aggregate amount not to exceed at any time outstanding the
amount set forth on SCHEDULE 2.01 (such amount as the same may
be reduced under Section 2.05 or as a result of one or more
assignments under Section 11.08, the Bank's "TRANCHE A
COMMITMENT"); PROVIDED, HOWEVER that after giving effect to
any Borrowing of Tranche A Revolving Loans, (i) the Effective
Amount of all outstanding Tranche A Revolving Loans and the
Effective Amount of all L/C Obligations shall not at any time
exceed the combined Tranche A Commitments and (ii) the
Effective Amount of all outstanding Tranche A Revolving Loans
of any Bank plus the participation of such Bank in the
Effective Amount of all L/C Obligations shall not at any time
exceed such Bank's Tranche A Commitments. Within the limits of
each Bank's Tranche A Commitment, and subject to the other
terms and conditions hereof, the Company may borrow under this
Section 2.01, prepay under Section 2.06 and reborrow under
this Section 2.01.
(b) Each Bank severally agrees, on the terms and
conditions set forth herein, to make loans to the Company
(each such loan, a "TRANCHE B REVOLVING LOAN") from time to
time on any Business Day during the period from April 30, 1997
to the Tranche A Revolving Termination Date, in an aggregate
amount not to exceed at any time outstanding the amount set
forth on SCHEDULE 2.01 (such amount as the same may be reduced
under Section 2.05 or as a result of one or more assignments
under Section 10.08, the Bank's "TRANCHE B COMMITMENT");
PROVIDED, HOWEVER, that after giving effect to any Borrowing
of Tranche B Revolving Loans, (i) the Effective Amount of all
outstanding Tranche B Revolving Loans shall not at any time
exceed the combined Tranche B Commitments and (ii) the
Effective Amount of the Tranche B Revolving Loans of any Bank
shall not at any time exceed such Bank's Tranche B Commitment.
Within the limits of each Bank's Tranche B Commitment, and
subject to the other terms and conditions hereof, the Company
may borrow under this Section 2.01, prepay under Section 2.06
and reborrow under this Section 2.01.
2.5 AMENDMENT AND RESTATEMENT OF SECTION 3.01(A). Section 3.01(a) of the
Credit Agreement is hereby amended and restated to read in its entirety as
follows:
(a) On the terms and conditions set forth herein (i)
the Issuing Bank agrees, (A) from time to time on any Business
Day during the period from the Closing Date to the Tranche A
Revolving Termination Date to issue Letters of Credit for the
account of the Company, and to amend or renew Letters of
Credit previously issued by it, in accordance with subsections
3.02(c) and 3.02(d), and (B) to honor drafts under the Letters
of Credit; and (ii) the Banks severally agree to participate
in Letters of Credit Issued for the account of the Company;
PROVIDED, that the Issuing Bank shall not be obligated to
Issue, and no Bank shall be obligated to participate in, any
Letter of Credit if as of the date of Issuance of such Letter
of Credit (the "ISSUANCE DATE") (1) the Effective Amount of
all L/C Obligations plus the Effective Amount of all Tranche A
Revolving Loans exceeds the combined Tranche A Commitments,
(2) the participation of any Bank in the Effective Amount of
all L/C Obligations plus the Effective Amount of the Tranche A
Revolving Loans of such Bank exceeds such Bank's Tranche A
Commitment, or (3) the Effective Amount of L/C Obligations
exceeds the L/C
39176203.6 81397 151P 96246459
-3-
<PAGE>
Commitment. Within the foregoing limits, and subject to the
other terms and conditions hereof, the Company's ability to
obtain Letters of Credit shall be fully revolving, and,
accordingly, the Company may, during the foregoing period,
obtain Letters of Credit to replace Letters of Credit which
have expired or which have been drawn upon and reimbursed. All
Letters of Credit shall be issued under the Tranche A
Commitment.
2.6 AMENDMENT OF ARTICLE III. In Article III (The Letters of
Credit), each reference to "Revolving Loans" shall be deleted and the term
"Tranche A Revolving Loans" substituted therefor.
2.7 AMENDMENT AND RESTATEMENT OF SECTION 2.08. Section 2.08 of the Credit
Agreement is hereby amended and restated to read in its entirety as follows:
2.08 REPAYMENT.
(a) The Company shall repay to the Banks on the
Tranche A Revolving Termination Date the aggregate principal
amount of Tranche A Loans outstanding on such date.
(b) The Company shall repay to the Banks on the
Tranche B Revolving Termination Date the aggregate principal
amount of Tranche B Loans outstanding on such date.
2.8 AMENDMENT AND RESTATEMENT OF SECTION 6.12(B). Section 6.12(b) of the
Credit Agreement is hereby amended and restated to read in its entirety as
follows:
(b) Since December 31, 1996, (i) there has been no
Material Adverse Effect and (ii) there has been no development
in any of the matters disclosed in Schedule 6.05 which would
reasonably be expected to have a Material Adverse Effect.
2.9 AMENDMENT AND RESTATEMENT OF SECTION 8.10(A)(II). Section 8.10(a)(ii)
of the Credit Agreement is hereby amended and restated in its entirety as
follows:
(ii) either (A) after giving effect to such
Restricted Payment, the aggregate amount of all Restricted
Payments made from the Closing Date to the date of such
Restricted Payment shall not exceed the sum of (x) 25% of net
income (or minus 100% of consolidated net income in the case
of a loss) of the Company and its Subsidiaries arising after
the Closing Date and computed on a cumulative consolidated
basis plus (y) 50% of the net cash proceeds of any issuance of
capital stock of the Company subsequent to the Closing Date,
exclusive of any such issuance made in connection with a
merger or Acquisition; or (B) with respect to any purchase,
redemption or other acquisition of any shares of the Company's
capital stock by the Company ("STOCK BUYBACK"), after giving
effect to such Stock Buyback, the aggregate amount of all
Stock Buybacks made from the Closing Date to the date of such
Stock Buyback shall not exceed $25,000,000.
2.10 AMENDMENT AND RESTATEMENT OF SCHEDULE 2.01 AND SCHEDULE
6.05. Schedule 2.01 of the Credit Agreement is hereby amended and restated to
read in its entirety as set forth in Schedule 2.01 attached hereto. Schedule
6.05 of the Credit Agreement is hereby amended and restated to read in its
entirety as set forth in Schedule 6.05 attached hereto.
39176203.6 81397 151P 96246459
-4-
<PAGE>
3. WAIVER. The Agent and the Banks hereby waive compliance with Section
8.14(c) of the Credit Agreement for the fiscal quarter ended March 31, 1997,
provided that the Fixed Charges Coverage Ratio is at least 2.225 to 1.00 as of
such date.
4. RELEASE OF COLLATERAL AND COVENANT TO REPLEDGE. The parties hereto
acknowledge that due to changes to California Insurance Code Section 1215.5, it
may be necessary to obtain the consent of the Insurance Commissioner of the
State of California (the "COMMISSIONER") in order for California Indemnity
Insurance Company ("CIIC") to maintain the pledge of 10,000 shares of the common
stock of Commercial Casualty Insurance Company pursuant to the Pledge Agreement
dated as of April 11, 1996 by CIIC in favor of the Agent (the "PLEDGE
AGREEMENT"). Accordingly, the Agent hereby releases the Collateral (as defined
in the Pledge Agreement) to the Company and the Company hereby agrees to use its
best efforts to obtain the consent of the Commissioner to the pledge of the
Collateral by not later than 90 days after the date of this Amendment. Promptly
upon obtaining any such consent, the Company shall cause CIIC to deliver the
Collateral to the Agent to be pledged pursuant to the Pledge Agreement. For
avoidance of doubt, the parties hereto acknowledge that the shares described
above remain subject to the negative pledge of Section 8.01 of the Credit
Agreement
5. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to
the Agent and the Banks that, on and as of the date hereof, and after giving
effect to this Amendment:
5.1 AUTHORIZATION. The execution, delivery and performance by
the Company of this Amendment has been duly authorized by all necessary
corporate action, and this Amendment has been duly executed and delivered by the
Company.
5.2 BINDING OBLIGATION. This Amendment constitutes the legal,
valid and binding obligations of the Company, enforceable against it in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws affecting the enforcement of creditors'
rights generally or by equitable principles relating to enforceability.
5.3 NO LEGAL OBSTACLE TO AMENDMENT. The execution, delivery
and performance of this Amendment will not (a) contravene the Organization
Documents of the Company; (b) constitute a breach or default under any
contractual restriction or violate or contravene any law or governmental
regulation or court decree or order binding on or affecting the Company; or (c)
result in, or require the creation or imposition of, any Lien on any of the
Company's properties. Except as set forth on Schedule 6.03 of the Credit
Agreement, no approval or authorization of any governmental authority is
required to permit the execution, delivery or performance by the Company of this
Amendment, or the transactions contemplated hereby.
5.4 INCORPORATION OF CERTAIN REPRESENTATIONS. The
representations and warranties of the Company set forth in Article VI of the
Credit Agreement are true and correct in all respects on and as of the date
hereof as though made on and as of the date hereof, except as to such
representations made as of an earlier specified date.
5.5 DEFAULT. After giving effect to this Amendment, no Default or Event of
Default under the Credit Agreement has occurred and is continuing.
6. CONDITIONS TO EFFECTIVENESS. This Amendment shall become
effective as of the date first written above, provided that the Agent shall have
received all of the following by such date and dated as of such date, in form
and substance satisfactory to the Agent and the Banks:
6.1 A counterpart hereof executed by a duly authorized officer of the
Company;
39176203.6 81397 151P 96246459
-5-
<PAGE>
6.2 an acknowledgement from each Pledgor Subsidiary that it
consents to this Amendment and that its respective Pledge Agreement is in full
force and effect and that the Secured Obligations as defined therein includes
all Obligations after giving effect to this Amendment;
6.3 Certified copies of the charter and bylaws of the Company
or, in lieu thereof, a certificate from the Secretary or an Assistant Secretary
of the Company certifying that such documents previously delivered to the Agent
are true, correct and complete as of the date hereof;
6.4 A certificate from the Secretary or an Assistant Secretary
of the Company in respect of all corporation action taken by the Company in
approving the execution, delivery and performance of this Amendment and stating
that the resolutions previously adopted which authorized and approved the
execution, delivery and performance of the Loan Documents are in full force and
effect and have not been amended, rescinded or otherwise modified;
6.5 A certificate of the Secretary or an Assistant Secretary
of the Company which shall certify the names and offices of the officers of the
Company who are authorized to sign this Amendment, together with the true
signatures of such officers;
6.6 A good standing certificate with respect to the Company,
as of a recent date prior to the effective date of this Amendment, from the
Secretary of State of Nevada; and
6.7 An opinion of counsel to the Company substantially in the form of
Exhibit A hereto.
7. MISCELLANEOUS.
7.1 EFFECT OF AMENDMENT. It is hereby agreed that all terms
and conditions of the Loan Documents are to remain in full force and effect
unless otherwise specifically amended, waived or changed pursuant to the terms
of this Amendment and are hereby ratified and confirmed in all respects on and
as of the date hereof. The Loan Documents shall, where the context so requires,
be read and construed throughout so as to incorporate this Amendment.
7.2 WAIVERS. This Amendment is limited solely to the matters
expressly set forth herein and is specific in time and in intent and does not
constitute, nor should it be construed as, a waiver or amendment of any other
term or condition, right, power or privilege under the Credit Agreement or under
any agreement, contract, indenture, document or instrument mentioned therein;
nor does it preclude or prejudice any rights of the Agent or the Banks
thereunder, or any exercise thereof or the exercise of any other right, power or
privilege, nor shall it require the Banks to agree to an amendment, waiver or
consent for a similar transaction or on a future occasion, nor shall any future
waiver of any right, power, privilege or default hereunder, or under any
agreement, contract, indenture, document or instrument mentioned in the Credit
Agreement, constitute a waiver of any other right, power, privilege or default
of the same or of any other term or provision.
7.3 COUNTERPARTS. This Amendment may be executed in any number of
counterparts, and all of such counterparts taken together shall be deemed to
constitute one and the same instrument.
7.4 GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of California.
39176203.6 81397 151P 96246459
-6-
<PAGE>
7.5 CONSENT AND INSTRUCTIONS. Each of the Banks by signing
this Amendment hereby (i) consents to the execution and delivery of this
Amendment and (ii) instructs the Agent to execute and deliver this Amendment.
39176203.6 81397 151P 96246459
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the date first written above.
SIERRA HEALTH SERVICES, INC.
By: /S/ JAMES L. STARR
Name: JAMES L. STARR
Title: VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND
TREASURER
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Agent
By: /S/ EDWARD S. HAN
Name: EDWARD S. HAN
Title: VICE PRESIDENT
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Issuing Bank
By: /S/ EDWARD S. HAN
Name: EDWARD S. HAN
Title: VICE PRESIDENT
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as a Bank
By: /S/ EDWARD S. HAN
Name: EDWARD S. HAN
Title: VICE PRESIDENT
<PAGE>
SCHEDULE 2.01
COMMITMENTS AND PRO RATA SHARES
Tranche A Commitments
<TABLE>
<CAPTION>
BANK COMMITMENT PRO RATA SHARE
Bank of America National Trust
<S> <C> <C>
and Savings Association $50,000,000 100%
TOTAL $50,000,000 100%
Tranche B Commitments
BANK COMMITMENT PRO RATA SHARE
Bank of America National Trust
and Savings Association $50,000,000 100%
TOTAL $50,000,000 100%
</TABLE>
39176203.6 81397 151P 96246459
<PAGE>
SCHEDULE 6.05
LITIGATION
As disclosed in the Company's Report on Form 10-K for the year ended 12/31/96
and Report on Form 8-K, each filed with the SEC on March 28, 1997.
<PAGE>
DRAFT EXHIBIT 10.2
SPLIT DOLLAR LIFE INSURANCE AGREEMENT
This Split Dollar Life Insurance Agreement ("Agreement") is
made, as of ____________, 199__, by and between Sierra Health Services, Inc., a
Nevada corporation (the "Company"), _______________(the "Executive"), and any
other person, in his or her capacity as trustee of a trust designated by the
Executive, as may from time to time agree to be bound by this Agreement.
RECITALS
The Executive desires to insure his or her life for the
benefit and protection of his or her family or designated beneficiary under the
Policy (as defined below);
The Company desires to help the Executive provide certain
insurance for the benefit and protection of his or her family or designated
beneficiary by providing funds from time to time to pay the premiums due on the
Policy, subject to reimbursement; and
The Executive desires the Executive or a trust designated by
Executive to become the owner of the Policy and to assign certain rights and
interests in the Policy to the Company, to the extent provided herein, as
security for reimbursement of certain funds provided by the Company for the
acquisition and/or maintenance of the Policy.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, and the
mutual agreements and covenants set forth below, the parties to this Agreement
agree as follows:
1. DEFINITIONS. For purposes of this Agreement, unless otherwise clearly
apparent from the context, the following phrases or terms shall have the
following indicated meanings:
(a) "Aggregate Premiums Paid" shall mean, at any
time, an amount equal to (i) the cumulative premiums paid by the
Company on the Policy, less (ii) any policy loans to the Company and
accrued and unpaid interest thereon (excluding any loan under Section
6(e)(ii)), and less (iii) any amounts received by the Company from the
Executive for life insurance coverage provided under this Agreement.
Despite the foregoing, Aggregate Premiums Paid shall not include extra
benefit riders or agreements, other than those providing additional
life insurance coverage on the insured, and shall not include premiums
waived pursuant to the terms of any disability waiver of a premium
rider. In addition, no interest shall be deemed to be accrued on and no
present value adjustment to the cumulative premiums paid by the Company
shall be made in calculating Aggregate Premiums Paid.
(b) "Base Annual Compensation" shall mean the
Executive's annual salary plus an amount of annual incentive
compensation payable by the Company and its subsidiaries equal to 50%
of such annual salary for employment services in a specified year,
before reduction for compensation deferred pursuant to all qualified,
non-qualified and Code Section 125 plans of the Company. Base Annual
Compensation excludes amounts payable in connection with long-term
incentive awards (including compensation resulting from option
exercises), perquisites, other annual compensation not properly
categorized as salary or annual incentive compensation, reimbursement
of expenses, and employee benefits. For purposes of determining the
Executive's Base Annual Compensation as of the Benefit Measurement Date
or any other date, the Executive's Base Annual Compensation as of the
most recent preceding July 1 will be used (which means that the
Executive's Base Annual Compensation will be increased or decreased
under this Agreement only once a year).
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Sierra Health Services, Inc. DRAFT
Split Dollar Life Insurance Agreement
(c) "Benefit Measurement Date" shall mean the date on which the first of
any of the following events occurs:
(i) The Executive's Termination of Employment;
(ii) Termination of this Agreement in accordance with ` Section 9 below;
(iii) The Executive's Retirement; or
(iv) The Executive's death.
(d) "Cash Surrender Value" shall mean an amount that
equals, at any specified time, the cash surrender value of the Policy
as determined under the terms of the Policy.
(e) "Change in Control" shall mean the earliest
transaction or event occurring after the effective date of the Plan in
which (i) the Company shall merge or consolidate with any other
corporation and shall not be the surviving corporation; (ii) the
Company shall transfer all or substantially all of its assets to any
other person; or (iii) any person shall have become the beneficial
owner of more than 50% of the voting power of outstanding voting
securities of the Company.
(f) "Code" means the Internal Revenue Code of 1986,
as amended from time to time, including regulations thereunder and
successor provisions and regulations.
(g) "Collateral Assignment" shall mean an assignment
of the Policy made by the Executive or a trust designated by the
Executive, as owner of the Policy, in favor of the Company in a form
mutually agreed to by the Company and the Executive and any trust
designated by the Executive and accepted by the Insurer.
(h) "Collateral Interest" shall mean the Company's rights and interests in
the Policy, as set forth in Section 6 below.
(i) "Executive's Death Benefit" shall mean (i), in
the event of the Executive's death while employed by the Company or a
subsidiary, an amount that is equal to the Executive's Base Annual
Compensation, determined as of the date of his or her death, multiplied
by three, less (A) the amount of death benefits payable to
beneficiaries of the Executive under any group life insurance policy or
program of the Company or a subsidiary (other than this Plan), and less
(B) the Benefit Reduction Amount (but in no event shall these
reductions result in a negative number), and (ii), in the event of the
Executive's death at a time the Executive is no longer employed by the
Company or a subsidiary but not later than the Rollout Date, an amount
that is equal to the Executive's Base Annual Compensation, determined
as of the Benefit Measurement Date, multiplied by 1.5, less (A) the
amount of death benefits payable to beneficiaries of the Executive
under any group life insurance policy or program of the Company or a
subsidiary (other than this Plan), and less (B) the Benefit Reduction
Amount (but in no event shall these reductions result in a negative
number). For purposes of this definition, the "Benefit Reduction
Amount" shall mean the amount by which the Aggregate Premiums Paid plus
Executive's Death Benefit, calculated without regard to the Benefit
Reduction Amount, exceeds the death proceeds payable under the Policy
assuming the maximum cumulative increases in the death proceeds under
the Policy permitted by the Insurer, over and above the death proceeds
initially payable under the Policy, without requiring new evidence of
insurability of the Executive. The foregoing notwithstanding, the death
proceeds initially payable under the Policy shall be sufficient such
that the Benefit Reduction Amount in the initial year that this
Agreement is in effect shall be zero.
(j) "Insurer" shall mean Metropolitan Life Insurance Company.
2
<PAGE>
Sierra Health Services, Inc. DRAFT
Split Dollar Life Insurance Agreement
(k) "Minimum Retirement Cash Value" shall mean, on
the Rollout Date, the amount of Cash Surrender Value of the Policy
payable to the Executive (I.E., exclusive of portions payable to the
Company under Section 6(a)) equal to (i) the amount sufficient to
maintain a death benefit that is equal to 1.5 multiplied by the
Executive's Base Annual Compensation, determined on the Benefit
Measurement Date, assuming that the Policy will be held without
surrender, withdrawal or loan by the Executive for 20 years following
the Benefit Measurement Date and using the Insurer's then-current
interest rate and expense loads under the Policy as of the Rollout
Date, multiplied by (ii) 1.6667.
(l) "Permanently Disabled" shall mean the Executive
is unable to perform the usual assigned duties of his or her position
(i) due to a disability which qualifies the Executive for disability
benefits under the Company's long-term disability plan, (ii) if the
Executive does not participate in such a plan, due to a disability
which would have qualified the Executive for disability benefits under
such a plan had the Executive been a participant in such a plan, or
(iii), if the Company does not sponsor a long-term disability plan, due
to a physical or mental disease, injury or infirmity, of long duration,
as determined by the Committee in its sole discretion.
(m) "Plan" shall mean the plan described in Section 8(a) below.
(n) "Policy" shall mean the following policy or policies on the life of the
Executive that are issued by the Insurer:
POLICY NUMBER TYPE OF POLICY
------------ ---------------
------------ ---------------
(o) "Retirement" or "Retire" shall mean severance
from employment from the Company for any reason other than an
authorized leave of absence or death on or after the earlier of the
attainment of (i) age 65 ("Normal Retirement") or (ii) age 55 and ten
Years of Service ("Early Retirement"). In addition, a person who is
Permanently Disabled (regardless of his or her employment status with
the Company) and who reaches age 55 shall be treated as having reached
Retirement under this Agreement. For purposes of the foregoing, "Years
of Service" shall mean the total number of full years in which the
Executive has been employed by the Company. For purposes of this
definition, a year of employment shall be a 365-day period (or 366-day
period in the case of a leap year) commencing on the date of hiring and
each anniversary thereof (subject to adjustment to reflect unpaid
leaves of absence of more than 90 days). A Participant's paid leave of
absence or unpaid leave of absence for 90 days or less shall constitute
employment for purposes of this definition, but a Participant's unpaid
leave of absence for more than 90 days shall not constitute employment
for purposes of this definition.
(p) "Rollout Date" shall mean the later of the
Benefit Measurement Date or the fifteenth anniversary of the date of
this Agreement, but in no event later than the death of the Executive;
provided, however, that the Company may accelerate the Rollout Date to
a date specified by the Company, but in no event earlier than the
Benefit Measurement Date, and only if at such Rollout Date the Cash
Surrender Value equals or exceeds the Minimum Retirement Cash Value.
(q) "Tax Limitation Date" shall mean the date on
which the Policy will no longer be subject to those provisions of
Section 7702(f)(7) of the Code that would cause any distribution or
surrender from or under the Policy to be taxed under that Section (or
Section 72 of the Code by reason of that Section).
(r) "Termination of Employment" shall mean the
ceasing of Executive's employment with the Company for any reason other
than Retirement, death, a Permanent Disability, or an authorized leave
of absence.
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Sierra Health Services, Inc. DRAFT
Split Dollar Life Insurance Agreement
2. ACQUISITION OF POLICY; OWNERSHIP OF INSURANCE.
(a) Cooperation With Respect to the Policy. The parties to this Agreement
shall cooperate in applying for, obtaining, and maintaining the Policy, and in
obtaining any increase in coverage of the Policy.
(b) Ownership of the Policy. The Policy shall be
issued to the Executive or to a trust designated by the Executive in
accordance with this Section 2(b). If the Policy is originally issued
to the Executive, the Executive may transfer the Policy to a trust
designated by the Executive, if such transfer is approved by the
Company. The trustee, on behalf of a trust to which the Policy is
issued or transferred, must execute a copy of this Agreement and agree
to be bound by the terms hereof. The Executive or the trustee, on
behalf of such a designated trust, as the case may be, shall be the
sole and exclusive owner of the Policy, subject to the rights and
interests granted to the Company, as provided in this Agreement and the
Collateral Assignment. The Executive and any such trustee acknowledge
and agree that the Company and its agents have not provided advice with
respect to Executive's estate planning.
3. PREMIUM PAYMENTS ON POLICY.
(a) Payments and Reimbursements. Prior to the
occurrence of the Rollout Date, the Company shall pay to the Insurer,
on or before each applicable premium due date, all applicable premiums
for the Policy. In the event that the Company fails to make any such
payment, the Executive or any trust which then owns the Policy may make
(but is not required to make) any such payment, and the Company shall
immediately reimburse the Executive or such trust for any amount so
paid. All such premium payments made by the Company under this
Agreement shall constitute advances by the Company to the Executive for
which the Executive or any trust then owning the policy shall be
responsible for reimbursement in accordance with the terms of this
Agreement, but only up to an amount equal to the Company's Collateral
Interest. The Company does not guarantee the Policy or the payment of
any death benefit or other amount thereunder to the Executive or his or
her Beneficiaries, nor is the Company otherwise obligated to pay or
provide any benefit to the Executive by virtue of this Agreement except
for the payment of premiums on the terms and subject to reimbursement
as specified in this Agreement.
(b) Prefunding Upon a Change in Control. In the event
of a Change in Control, the Company shall, not later than 45 days after
such event, pay to the Insurer an amount sufficient to prepay all
premiums for the Policy through the earlier of the date on which
Executive will be eligible for Normal Retirement or the date one year
after the Change in Control. The Company will arrange for the Insurer
to apply such prefunding payments to premiums or hold such prefunding
payments in a premium reserve account, which shall be non-refundable
(without regard to whether Executive's employment terminates prior to
the end of the period covered by such prefunding).
(c) Additional Compensation. Each calendar year, the
Executive shall be considered to have taxable compensation income for
that portion of the premiums paid by the Company that is equal in
amount to the value of the "economic benefit" derived by the Executive
from the Policy's life insurance protection, as determined for Federal
income tax purposes under Revenue Rulings 64-328 and 66-110, and may
have other taxable income under other applicable tax regulations and
authorities. The Company shall withhold from the Executive's Base
Annual Compensation, or other compensation paid to the Executive, in a
manner determined by the Company, the Executive's share of FICA and
other employment and income taxes required to be withheld under
applicable tax regulations and authorities.
4. COMPANY'S RIGHTS.
(a) Generally. The Company's rights and interests in and to the Policy
shall be
4
<PAGE>
Sierra Health Services, Inc. DRAFT
Split Dollar Life Insurance Agreement
specifically limited to (i) the right to be paid its Collateral
Interest in accordance with Section 6 below, (ii) the rights specified
in the Collateral Assignment, (iii) the Company's rights under Section
4(b) and (iv) the right to obtain one or more loans or advances on the
Policy, provided, however, that any such loans shall not, in the
aggregate, result in the Aggregate Premiums Paid becoming a negative
amount at any specified date without the written consent of the
Executive, and provided further, that prior to any Rollout date the
Company shall repay any such loans, including accrued interest thereon,
to the extent necessary so that the Aggregate Premiums Paid shall not
be a negative amount at the Rollout Date.
(b) Investment Decisions. Until such time as the
Company's Collateral Interest has been settled under Section 6(b), the
Company shall have the exclusive right to exercise the investment
discretion, if any, under the Policy that the Policy may confer upon
the Executive or any other person. After settlement of the Company's
Collateral Interest, the Executive or any other owner of the Policy
shall have the right to exercise such investment discretion (if any),
without consultation with or participation by the Company.
5. EXECUTIVE'S RIGHTS AND RIGHTS OF TRUSTEE AS OWNER OF
POLICY. Subject to the terms of this Agreement and the Collateral Assignment
(and any agreement or deed of trust between the Executive and any trustee which
may become the owner of the Policy in trust), the Executive or the trustee of a
trust designated under Section 2(b) shall be the owner of the Policy, and shall
be entitled to exercise all rights in the Policy while the Collateral Assignment
is in effect, except for the following, which may be exercised only in
accordance with Section 6:
(a) To borrow against or pledge the Policy;
(b) To surrender, cancel or assign the Policy;
(c) To take a distribution or withdrawal from the Policy; or
(d) To exercise investment discretion under the Policy, except as provided
in Section 4(b).
6. COLLATERAL INTEREST.
(a) On the Rollout Date, the Company's interest in
the Policy (the "Collateral Interest") shall be determined in the
following manner:
(i) If the Benefit Measurement Date occurred
due to the Executive's Retirement or due to a termination of
this Agreement by the Company subject to Section 9(b)(i) and
the Rollout Date did not occur due to Executive's death, the
Company shall be entitled to receive from the Policy's Cash
Surrender Value (or otherwise, as specified in Section 6(b))
at the Rollout Date an amount equal to the lesser of (i) the
Aggregate Premiums Paid or (ii) the Cash Surrender Value minus
the Minimum Retirement Cash Value (if this calculation results
in a negative number, the Company's Collateral Interest shall
be zero).
(ii) If the Benefit Measurement Date
occurred due to the Executive's Termination of Employment or
the termination of this Agreement by either party subject to
Section 9(b)(ii) below and the Rollout Date did not occur due
to Executive's death, the Company shall be entitled to receive
from the Policy's Cash Surrender Value (or otherwise, as
specified in Section 6(b)) at the Benefit Measurement Date an
amount equal to that portion of the Policy's Cash Surrender
Value up to but not exceeding the Aggregate Premiums Paid.
(iii) If the Benefit Measurement Date or
Rollout Date occurred due to the death of the Executive, the
Company shall be entitled to that portion of the Policy's
death proceeds that exceeds the Executive's Death Benefit,
except as provided in Section 6(a)(iv)
5
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Sierra Health Services, Inc. DRAFT
Split Dollar Life Insurance Agreement
below.
(iv) If the Benefit Measurement Date or
Rollout Date occurred due to the suicide of the Executive, and
the death proceeds from the Policy are limited by either a
suicide or contestability provision under the Policy such that
the amount payable to the Company under Section 6(a)(iii)
would be less than the Aggregate Premiums Paid with respect to
the Policy or the portion thereof so limited, the Company
shall be entitled to that portion of the Cash Surrender Value
and/or death proceeds resulting from the Policy or portion
thereof so limited that does not exceed the Aggregate Premiums
Paid with respect to the Policy or portion thereof so limited.
(b) If the Benefit Measurement Date and Rollout Date
are each on a date other than the date of the Executive's death, the
Company's Collateral Interest in the Policy, as determined in Section
6(a)(i) and (ii) above, shall be paid to the Company in one of the
following ways, as elected by the Executive or the trustee then owning
the Policy in trust (if the power to make this election has been
transferred to such owner by the Executive), in writing within 30 days
after the date the Company first notifies the Executive or such trustee
in writing of the occurrence of the Rollout Date, if the Collateral
Interest is determined under Section 6(a)(i), or the Benefit
Measurement Date, if the Collateral Interest is determined under
Section 6(a)(ii):
(i) By the Executive's or such trustee's
surrender or partial surrender of, or withdrawal from, the
Policy in an amount equal to the Company's Collateral
Interest, and the payment of the cash proceeds thereof to the
Company;
(ii) By the Executive or such trustee taking
a loan out on the Policy in an amount equal to the Company's
Collateral Interest, and payment of the loan proceeds to the
Company, provided that the Company shall not be responsible
for repayment of any principal of or interest accruing on such
loan;
(iii) By the Executive's or such trustee's
payment to the Company, from other funds available to the
Executive or such trustee, an amount equal to the Company's
Collateral Interest; or
(iv) By the Executive's or such trustee's
transfer of the ownership of the Policy, and all rights
thereunder, to the Company, provided that the Cash Surrender
Value of the Policy is at least equal to the Company's
Collateral Interest at the time of the transfer.
The Company's Collateral Interest in the Policy shall be paid to the
Company as soon as is reasonably practical after the Rollout Date.
(c) If the Benefit Measurement Date or Rollout Date
is the date of the Executive's death, the Company's Collateral Interest
in the Policy, as determined in Section 6(a)(iii) above, shall be paid
to the Company from the Policy's proceeds as soon as is reasonably
practicable after the Executive's death.
(d) Despite Section 6(b) above and Section 6(e)
below, if, at the time the Company's Collateral Interest is determined,
the Tax Limitation Date has not occurred, (i) the Company shall have
the right, in its sole discretion, to require the Executive or the
trustee then owning the Policy in trust to elect to pay the Company's
Collateral Interest in accordance with Section 6(b)(ii) above, and (ii)
the Company's rights under Section 6(e) shall be limited to taking a
loan in accordance with Section 6(e)(ii) below.
(e) If the Executive or the trustee then owning the
Policy in trust fails to exercise any of the options under Section 6(b)
above, by delivering written notice of such election to the Company no
later than 30 days after the date the Company first notifies the
Executive or such trustee in writing of
6
<PAGE>
Sierra Health Services, Inc. DRAFT
Split Dollar Life Insurance Agreement
the occurrence of an event whereby the Company's Collateral Interest
has been determined, the Company shall be entitled to: (i) exercise the
right to surrender the Policy and to receive the Policy's Cash
Surrender Value, to the extent of the Company's Collateral Interest, or
(ii) take out a loan on the Policy in an amount equal to the Company's
Collateral Interest, with the loan proceeds paid to the Company and the
Company not responsible for repayment of principal of or interest
accruing on such loan, or (iii) transfer the ownership of and
beneficial interest in the Policy to the Company. In the case of (i) or
(iii) above, the Company shall pay to the Executive, if he or she then
owns the Policy, or to the trustee of the trust then owning the Policy
in trust, the Cash Surrender Value or death proceeds that remain after
the Company has been paid its Collateral Interest.
(f) The Company agrees to keep records of its premium
payments and to furnish the Insurer with a statement of its Collateral
Interest (with a copy to the Executive and to the trustee then owning
the Policy in trust) whenever the Insurer requires such statement.
(g) Concurrent with the signing of this Agreement,
the Executive or the trustee which owns or will own the Policy in
trust, will collaterally assign the Policy to the Company, in the form
of the Collateral Assignment, as security for the payment of the
Collateral Interest, which assignment shall not be altered or changed
without the written consent of the Company, the Executive, and any such
trustee.
(h) Promptly following the Executive's death, the
Company and the Executive's designated beneficiary under the Policy
shall take all steps necessary to collect the death proceeds of the
Policy by submitting the proper claims forms to the Insurer. The
Company shall notify the Insurer of the amount of the Executive's Death
Benefit (subject to adjustment if the Policy's proceeds are limited
because of the Executive's death by suicide) and the Company's
Collateral Interest in the Policy at the time of such death. Such
amounts shall be paid, respectively, by the Insurer to the Executive's
designated beneficiary and the Company.
(i) If the Executive or the trustee of a trust then
owning the Policy elects to retain the Policy in accordance with
Section 6(b) above, the Company shall (i) assign its Collateral
Interest in the Policy to the Executive or such trustee, as the case
may be, (ii) execute and file with the Insurer an appropriate release
of the Company's Collateral Interest in the Policy and (iii) have no
further interest in the Policy; provided that, in all instances, the
Company receives payment in full for its Collateral Interest in the
Policy. Further, the Executive hereby acknowledges, understands and
agrees that, upon the release of the Company's Collateral Interest, the
Company shall not have any responsibility for the future performance of
the Policy and shall have no obligation to make any additional premium
payments.
(j) If the Executive or the trustee of a trust then
owning the Policy elects to transfer the Policy to the Company, or the
Company makes such an election in accordance with Section 6(e)(iii)
above, the Executive or such trustee shall sign all documents necessary
to transfer the Policy to the Company, and the Executive, such trustee,
and any beneficiary designated by Executive or beneficiary of such
trust or other party (other than the Company) with a right or interest
in the Policy from or through the Executive or such trust shall have no
further right or interest in and to the Policy.
(k) Upon payment to the Company of its Collateral
Interest in accordance with this Section 6, this Agreement, and the
Executive's participation in the Plan, shall terminate, and no party
shall have any further rights or obligations under the Agreement or the
Plan.
7. INSURER.
(a) The Insurer is not a party to this Agreement,
shall in no way be bound by or charged with notice of its terms, and is
expressly authorized to act only in accordance with the terms of the
Policy.
7
<PAGE>
Sierra Health Services, Inc. DRAFT
Split Dollar Life Insurance Agreement
(b) The signature(s) required for the Insurer to
recognize the exercise of a right under the Policy shall be specified
in the Collateral Assignment.
8. PLAN; NAMED FIDUCIARY; CLAIMS PROCEDURE.
(a) This Agreement is part of the Company's
Split-Dollar Life Insurance Plan, which consists of all Company's
Split-Dollar Life Insurance Agreements that so reference their
association with the Plan.
(b) The Company is the named fiduciary of the Plan
for purposes of this Agreement. The Plan is administered by a Plan
Administrator which consists of the Compensation Committee of the
Company's Board of Directors or such committee as the Board shall
appoint.
(c) The following claims procedure shall be followed
in handling any benefit claim under this Agreement and the Plan:
(i) The Executive, the trustee of the trust
then owning the Policy, or any beneficiary of Executive if
Executive is dead (the "Claimant"), may deliver to the Plan
Administrator a written claim for a determination with respect
to the benefits distributable to such Claimant hereunder. If
such a claim relates to the contents of a notice received by
the Claimant, the claim must be made within 60 days after such
notice was received by the Claimant. The claim must state with
particularity the determination desired by the Claimant. All
other claims must be made within 180 days of the date on which
the event that caused the claim to arise occurred. The claim
must state with particularity the determination desired by the
Claimant.
(ii) The Plan Administrator shall consider a
Claimant's claim within a reasonable time, and shall notify
the Claimant in writing:
(A) that the Claimant's requested determination has been made, and that the
claim has been allowed in full; or
(B) that the Plan Administrator has
reached a conclusion contrary, in whole or in part,
to the Claimant's requested determination, and such
notice must set forth in a manner calculated to be
understood by the Claimant:
(1) the specific reason(s) for the denial of the claim, or any part of it;
(2) specific reference(s) to pertinent provisions of the Plan upon which
such denial was based;
(3) a description of any additional material or information necessary for
the Claimant to perfect the claim, and an explanation of why such material or
information is necessary; and
(4) an explanation of the claim review procedure set forth below.
(iii) Within 60 days after receiving a notice from the Plan Administrator
that a claim has been denied, in whole or in part, a Claimant (or the Claimant's
duly authorized representative) may file with the Plan Administrator a written
request for a review of the denial of the claim. Thereafter, but not later than
30 days after the review procedure began, the Claimant (or the Claimant's duly
authorized representative):
8
<PAGE>
Sierra Health Services, Inc. DRAFT
Split Dollar Life Insurance Agreement
(A) may review pertinent documents;
(B) may submit written comments or other documents; and/or
(C) may request a hearing, which the Plan Administrator, in its sole
discretion, may grant.
(iv) The Plan Administrator shall render its decision on review promptly,
and not later than 60 days after the filing of a written request for review of
the denial, unless a hearing is held or other special circumstances require
additional time, in which case the Plan Administrator's decision must be
rendered within 120 days after such date. Such decision must be written in a
manner calculated to be understood by the Claimant, and it must contain:
(A) specific reasons for the decision;
(B) specific reference(s) to the pertinent Plan provisions upon which the
decision was based; and
(C) such other matters as the Plan Administrator deems relevant.
(v) A Claimant's compliance with the foregoing provisions of this Section
8(c) is a mandatory prerequisite to a Claimant's right to commence any legal
action with respect to any claim for benefits under this Agreement.
(d) In no event shall the Company's liability under this Agreement exceed
the amount of proceeds from the Policy.
9. AMENDMENT OF AGREEMENT; TERMINATION.
(a) This Agreement shall not be modified or amended
except by a writing signed by the Company, the Executive, and, if any
rights or obligations of the trustee of a trust then owning the Policy
are affected, by such trustee.
(b) The Company or Executive may terminate this
Agreement, and Executive's participation in the Plan, at any time,
subject to the requirement that each such party fully perform its or
his or her obligations under the Agreement, and subject to the
following:
(i) If the Company terminates the Agreement
at a time that the Executive's termination of employment would
qualify as a "Retirement," the Company's Collateral Interest
shall be determined under Section 6(a)(i); and
(ii) If the Company terminates the Agreement
in circumstances other than those described in (i) above or if
the Executive terminates the Agreement, the Company's
Collateral Interest shall be determined under Section
6(a)(ii).
10. BINDING AGREEMENT; ASSIGNS. This Agreement shall be
binding upon the heirs, administrators, executors and permitted successors and
assigns of each party to this Agreement. The Executive and any trustee of a
trust then owning the Policy shall not assign his or her rights or obligations
under this Agreement without the prior written consent of the Company.
11. GOVERNING LAW. This Agreement shall be subject to and be construed and
interpreted according to the internal laws of the State of Nevada without regard
to its conflicts of laws principles.
12. VALIDITY. In case any provision of this Agreement shall be illegal or
invalid for any
9
<PAGE>
Sierra Health Services, Inc. DRAFT
Split Dollar Life Insurance Agreement
reason, said illegality or invalidity shall not affect the remaining parts of
this Agreement, but this Agreement shall be construed and enforced as if such
illegal or invalid provision had never been inserted herein.
13. NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of
this Agreement shall not be deemed to constitute a contract of employment
between the Company and the Executive. Such employment is hereby acknowledged to
be an "at will" employment relationship that can be terminated at any time for
any reason, with or without cause, unless expressly provided in a separate
written employment agreement. Nothing in this Agreement shall be deemed to give
the Executive the right to be retained in the service of the Company or to
interfere with the right of the Company to discipline or discharge the Executive
at any time.
14. NOTICE. Any notice or filing required or permitted to be given under
this Agreement to shall be sufficient if in writing and hand-delivered, or sent
by registered or certified mail, to the address below:
: Sierra Health Services, Inc.
2724 North Tenaya Way
Las Vegas, Nevada 89128
Attn.: Office of General Counsel
or to such other address as may furnished to the Executive in writing in
accordance with this notice provision. Any notice or filing required or
permitted to be given to the Executive or the Executive's beneficiary under this
Agreement shall be sufficient if in writing and hand-delivered, or sent by mail,
to the last known address of the Executive. Any notice under this Agreement
shall be deemed given as of the date of delivery or, if delivery is made by
mail, as of the date shown on the postmark on the receipt for registration or
certification.
15. ENTIRE AGREEMENT. This Agreement together with the
Collateral Assignment constitutes the entire agreement between the parties
hereto with regard to the subject matter of this Agreement and supersedes all
previous negotiations, agreements and commitments in respect thereto. No oral
explanation or oral information by either of the parties to this Agreement shall
alter the meaning or interpretation of this Agreement.
10
<PAGE>
Sierra Health Services, Inc. DRAFT
Split Dollar Life Insurance Agreement
IN WITNESS WHEREOF, the parties hereto have signed this
Agreement as of the date first written above.
The "Company"
Sierra Health Services, Inc.
a Nevada corporation
By:
Its:
The "Executive"
Trustee of a trust designated by the Executive under Section 2(b)
11
<PAGE>
Sierra Health Services, Inc. DRAFT
Split Dollar Life Insurance Agreement
COLLATERAL ASSIGNMENT
This Collateral Assignment (this "Assignment") is made and
entered into as of _________, 199__, by and between _________________ (the
"Executive"), the insured under [a life insurance policy, No. _______] [life
insurance policies, Nos. and ] (the "Policy"), issued by ____________ (the
"Insurer"), Sierra Health Services, Inc., a Nevada corporation (the "Company"),
and, if this Assignment has been executed by the trustee of a trust which has
become the owner of the Policy, such trustee (the "Trustee"). Executive or the
Trustee, as the owner of the Policy, is referred to herein as "Owner."
RECITALS
The Executive desires to insure his or her life for the
benefit and protection of his or her family or designated beneficiary under the
Policy (as defined below);
The Company desires to help the Executive provide certain
insurance for the benefit and protection of his or her family or designated
beneficiary by providing funds from time to time to pay the premiums due on the
Policy, subject to reimbursement, as more specifically provided for in that
certain Split Dollar Life Insurance Agreement entered into between the
Executive, the Trustee (if any) and the Company as of the date hereof (the
"Agreement"); and
In consideration of the Company agreeing to provide such funds
in accordance with the terms and conditions of the Agreement, the Executive and
Trustee (if any) have agreed to grant to the Company a security interest in the
Policy, to provide security for the payment of the Company's Collateral Interest
(as defined below).
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, and the
mutual agreements and covenants set forth below, the parties to this Assignment
agree as follows:
1. ASSIGNMENT. The Owner hereby assigns, transfers and sets
over to the Company, and its permitted successors, those certain rights and
interests described in the Agreement that are to be assigned to the Company in
accordance with the Agreement. Furthermore, this Assignment is made, and the
Policy is to be held as collateral security for, any and all liabilities of the
Owner to the Company, either now existing, or that may hereafter arise, pursuant
to the terms of the Agreement.
2. SIGNATURES. To facilitate the operation of this Assignment, the parties
agree that the Insurer is hereby notified that the following signatures are
sufficient, without the signature or consent of the other party, to exercise the
following rights under the Policy while the Assignment is in effect:
(a) The Company may sign a request to take a loan or partial withdrawal
without the Executive's or Trustee's signature or consent;
(b) The Company may sign a request to (i) surrender
or partially surrender the Policy or (ii) change the owner and
beneficiary of the Policy without the Executive's or Trustee's
signature or consent, provided that the Company simultaneously delivers
to the Insurer (with a copy to the Executive and Trustee, if any) an
affidavit stating that the Company is exercising its rights in
accordance with Section 6(e) of the Agreement;
(c) The Executive or the Trustee (if any), as
authorized under the Policy, may sign a request to change the
beneficiary under the Policy without the signature or consent of the
Company;
1
<PAGE>
Sierra Health Services, Inc. DRAFT
Split Dollar Life Insurance Agreement
(d) The Company may sign any election or other document whereby an
investment election is exercised under the Policy; and
(e) The exercise of any other right under the Policy
not specifically set forth above shall be exercised with the signature
of the Company and either Executive or the Trustee (if any), in
accordance with the terms of the Policy.
3. POLICY PROCEEDS. Any amount payable from the Policy during
the Executive's life or at death shall first be paid to the Company to the
extent of its Collateral Interest (as defined in the Agreement). Any balance
will be paid to the Owner during the Executive's lifetime, or, at the
Executive's death, to the beneficiary designated under the Policy. A settlement
option may be elected by the recipient of the proceeds. For purposes of this
Assignment, the amount of the Collateral Interest shall be determined by the
Company and set forth in an affidavit signed by the Company and delivered to the
Insurer (with a copy to the Executive and the Trustee, if any), and the Insurer
shall be entitled to rely on the statements set forth in such affidavit.
4. CUSTODY; ENDORSEMENT. The Company shall hold the Policy
while this Assignment is operative and, upon request, forward the Policy to the
Insurer, without unreasonable delay, for endorsement of any designation or
change of beneficiary, any election of optional mode of settlement, or the
exercise of any other right reserved by the Executive or Trustee (if any) under
the Agreement or this Assignment.
5. INSURER. The Insurer is hereby authorized to recognize the
Company's claims to rights hereunder without investigating the reason for any
action taken by the Company, the validity or amount of any of the liabilities of
the Executive or Trustee (if any) to the Company under the Agreement, the
existence of any default therein, the giving of any notice required herein, or
the application to be made by the Company of any amounts to be paid to the
Company or the transfer of the Policy to the Company. The Insurer shall not be
responsible for the sufficiency or validity of this Assignment and is not a
party to the Agreement (or any other similar split-dollar or other agreement)
among the Company, the Executive and the Trustee (if any).
6. REASSIGNMENT. Upon the full payment of the Company's
Collateral Interest in accordance with the terms and conditions of this
Assignment and the Agreement, the Company shall reassign to the Owner, if the
Owner retains the Policy in accordance with the Agreement, the Policy and all
specific rights included in this Assignment.
7. AMENDMENT OF ASSIGNMENT; TERMINATION. This Assignment shall
not be modified, amended or terminated, except by a writing signed by the
Company, the Executive and the Trustee (if any); provided, however, that this
Assignment may be terminated by the Company or the Executive if that Party
terminates the Agreement in accordance with Section 9 of the Agreement and the
obligations of the party terminating the Agreement are performed in full under
the Agreement.
8. BINDING AGREEMENT; ASSIGNS. This Assignment shall be
binding upon the heirs, administrators, executors and permitted successors and
assigns of each party to this Assignment. The Executive and/or the Trustee (if
any) shall not assign his or her rights or obligations under this Assignment
without the prior written consent of the Company.
9. GOVERNING LAW. This Assignment shall be subject to and construed and
interpreted under the internal laws of the State of Nevada without regard to its
conflicts of laws principles.
10. VALIDITY. In case any provision of this Assignment shall
be illegal or invalid for any reason, said illegality or invalidity shall not
affect the remaining parts of this Assignment, but this Assignment shall be
construed and enforced as if such illegal or invalid provision had never been
inserted herein.
IN WITNESS WHEREOF, the Executive and the Company have signed
this Assignment as of the date first written above.
2
<PAGE>
Sierra Health Services, Inc. DRAFT
Split Dollar Life Insurance Agreement
The "Company"
Sierra Health Services, Inc.
a Nevada corporation
By: /S/ ERIN E. MACDONALD
Its: PRESIDENT AND CHIEF OPERATING OFFICER
The "Executive"
Trustee of a trust designated by the Executive to become the Owner of the
Policy
Filed with the Insurer:
Date:
Insurer:
By:
Its:
3
EXHIBIT 10.3
SIERRA HEALTH SERVICES, INC.
DEFERRED COMPENSATION PLAN
Effective May 1, 1996, as Amended
and Restated July 1, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
Purpose ................................................................... 1
ARTICLE 1 Definitions.............................................. 1
ARTICLE 2 Selection, Enrollment, Eligibility....................... 8
2.1 Selection by Committee................................... 8
2.2 Enrollment Requirements.................................. 8
2.3 Eligibility; Commencement of Participation............... 8
2.4 Termination of Participation and/or Deferrals............ 8
ARTICLE 3 Deferral Commitments/Company Matching/Crediting/Taxes.... 9
3.1 Minimum Deferral......................................... 9
3.2 Maximum Deferral......................................... 9
3.3 Election to Defer; Effect of Election Form............... 10
3.4 Withholding of Annual Deferral Amounts................... 10
3.5 Annual Company Matching Amount........................... 10
3.6 Annual Company Restoration Amount........................ 11
3.7 Vested Company Matching Account, Vested Company
Restoration Account, and Deferral Account....... 11
3.8 Crediting/Debiting of Account Balances................... 12
3.9 FICA, Withholding and Other Taxes........................ 14
3.10 Rollovers From Prior Deferred Compensation Plan.......... 14
ARTICLE 4 Short-Term Payout; Unforeseeable Financial Emergencies;
Withdrawal Election............................. 14
4.1 Short-Term Payout........................................ 15
4.2 Other Benefits Take Precedence Over Short-Term Payout.... 15
4.3 Withdrawal Payout/Suspensions for Unforeseeable
Financial Emergencies............................... 15
4.4 Withdrawal Election...................................... 15
ARTICLE 5 Retirement Benefit....................................... 16
5.1 Retirement Benefit....................................... 16
5.2 Payment of Retirement Benefit............................ 16
5.3 Death Prior to Completion of Retirement Benefit.......... 16
<PAGE>
ARTICLE 6 Pre-Retirement Survivor Benefit.......................... 16
6.1 Pre-Retirement Survivor Benefit.......................... 16
6.2 Payment of Pre-Retirement Survivor Benefit............... 16
ARTICLE 7 Termination Benefit...................................... 17
7.1 Termination Benefit...................................... 17
7.2 Payment of Termination Benefit........................... 17
ARTICLE 8 Disability Waiver and Benefit............................ 17
8.1 Disability Waiver........................................ 17
8.2 Continued Eligibility; Disability Benefit................ 17
ARTICLE 9 Beneficiary Designation.................................. 18
9.1 Beneficiary.............................................. 18
9.2 Beneficiary Designation; Change; Spousal Consent.......... 18
9.3 Acknowledgment........................................... 18
9.4 No Beneficiary Designation............................... 19
9.5 Doubt as to Beneficiary.................................. 19
9.6 Discharge of Obligations................................. 19
ARTICLE 10 Leave of Absence......................................... 19
10.1 Paid Leave of Absence.................................... 19
10.2 Unpaid Leave of Absence.................................. 19
ARTICLE 11 Termination, Amendment or Modification................... 19
11.1 Termination.............................................. 19
11.2 Amendment................................................ 20
11.3 Plan Agreement........................................... 20
11.4 Effect of Payment........................................ 20
ARTICLE 12 Administration........................................... 21
12.1 Committee Duties......................................... 21
12.2 Agents.................................................... 21
12.3 Binding Effect of Decisions.............................. 21
12.4 Indemnity of Committee................................... 21
12.5 Employer Information..................................... 21
<PAGE>
ARTICLE 13 Other Benefits and Agreements............................ 21
13.1 Coordination with Other Benefits......................... 21
ARTICLE 14 Claims Procedures........................................ 22
14.1 Presentation of Claim.................................... 22
14.2 Notification of Decision................................. 22
14.3 Review of a Denied Claim................................. 22
14.4 Decision on Review....................................... 23
14.5 Legal Action............................................. 23
ARTICLE 15 Trust.................................................... 23
15.1 Establishment of the Trust............................... 23
15.2 Interrelationship of the Plan and the Trust.............. 23
15.3 Distributions From the Trust............................. 23
ARTICLE 16 Miscellaneous............................................ 24
16.1 Unsecured General Creditor............................... 24
16.2 Employer's Liability..................................... 24
16.3 Nonassignability......................................... 24
16.4 Not a Contract of Employment............................. 24
16.5 Furnishing Information.................................. 24
16.6 Terms.................................................... 24
16.7 Captions................................................. 25
16.8 Governing Law............................................ 25
16.9 Notice................................................... 25
16.10 Successors............................................... 25
16.11 Spouse's Interest........................................ 25
16.12 Validity................................................. 25
16.13 Incompetent.............................................. 26
16.14 Court Order.............................................. 26
16.15 Distribution in the Event of Taxation.................... 26
16.16 Legal Fees To Enforce Rights After Change in Control..... 26
<PAGE>
SIERRA HEALTH SERVICES, INC.
DEFERRED COMPENSATION PLAN
Effective May 1, 1996, as Amended
and Restated July 1, 1997
Purpose
The purpose of this Plan is to provide specified benefits to a
select group of management or highly compensated Employees who contribute
materially to the continued growth, development and future business success of
the Sierra Health Services, Inc., a Nevada corporation, and its subsidiaries
(including lower-tier subsidiaries), if any, that sponsor this Plan. This Plan
shall be unfunded for tax purposes and for purposes of Title I of ERISA.
ARTICLE 1
Definitions
For purposes hereof, unless otherwise clearly apparent from
the context, the following phrases or terms shall have the following indicated
meanings:
1.1 "Account Balance" shall mean, with respect to a Participant, the sum of
(i) the Deferral Account plus (ii) the Vested Company Matching Account
plus (iii) the Vested Company Restoration Account. This account shall
be a bookkeeping entry only and shall be utilized solely as a device
for the measurement and determination of the amounts to be paid to a
Participant pursuant to this Plan.
1.2 "Annual Bonus" shall mean any annual cash compensation in addition to
Base Annual Salary relating to services performed during any calendar
year, whether or not paid in such calendar year or included on the
Federal Income Tax Form W-2 for such calendar year, payable to a
Participant as an Employee under any Employer's annual bonus and
incentive plans, including any such bonuses payable to physician
employees.
1.3 "Annual Company Matching Amount" for any one Plan Year shall be the
amount determined in accordance with Section 3.5.
1.4 "Annual Company Restoration Amount" for any one Plan Year shall be the
amount determined in accordance with Section 3.6.
1.5 "Annual Deferral Amount" shall mean that portion of a Participant's
Base Annual Salary and/or Annual Bonus that a Participant elects to
have, and is, deferred in accordance with Article 3, for any one Plan
Year. In the event of a Participant's Retirement, Disability (if
deferrals cease in accordance with Section 8.1), death or a Termination
of Employment prior to the end of a Plan Year, such year's Annual
Deferral Amount shall be the actual amount withheld prior to such
event.
1.6 "Base Annual Salary" shall mean the annual cash compensation relating
to services performed during any calendar year, whether or not paid in
such calendar year or included on the Federal Income Tax Form W-2 for
such calendar year including bonuses (other than the Annual Bonus),
commissions, and overtime, but excluding relocation expenses, incentive
payments, non-monetary awards, fringe benefits, retainers, directors
fees and other fees, severance allowances, pay in lieu of vacations,
insurance premiums paid by an Employer, insurance
<PAGE>
SIERRA HEALTH SERVICES, INC.
Deferred Compensation Plan
benefits paid to the Participant or his or her beneficiary, Employer
contributions to qualified or nonqualified plans and automobile and
other allowances paid to a Participant for employment services rendered
(whether or not such allowances are included in the Employee's gross
income). Base Annual Salary shall be calculated before reduction for
compensation voluntarily deferred or contributed by the Participant
pursuant to all qualified or non-qualified plans and shall be
calculated to include amounts not otherwise included in the
Participant's gross income under Code Sections 125, 402(e)(3), or
402(h) pursuant to plans established by any Employer; provided however
that all such amounts will be included in compensation only to the
extent that, had there been no such plan, the amount would have been
payable in cash to the Employee.
1.7 "Beneficiary" shall mean one or more persons, trusts, estates or other
entities, designated in accordance with Article 9, that are entitled to
receive benefits under this Plan upon the death of a Participant.
1.8 "Beneficiary Designation Form" shall mean the form, established from
time to time by the Committee, that a Participant completes, signs and
returns to the Committee to designate one or more Beneficiaries.
1.9 "Board" shall mean the board of directors of the Company.
1.10 "Change in Control" shall mean a transaction or event in which, after
the effective date of the Plan, (i) the Company shall merge or
consolidate with any other corporation and shall not be the surviving
corporation; (ii) the Company shall transfer all or substantially all
of its assets to any other person; or (iii) any person shall have
become the beneficial owner of more than 50% of the voting power of
outstanding voting securities of the Company.
1.11 "Claimant" shall have the meaning set forth in Section 14.1.
1.12 "Code" shall mean the Internal Revenue Code of 1986, as it may be
amended from time to time.
1.13 "Committee" shall mean the committee described in Article 12.
1.14 "Company" shall mean Sierra Health Services, Inc., a Nevada
corporation.
1.15 "Company Matching Account" shall mean the sum of all of a
Participant's Annual Company Matching Amounts plus amounts credited and debited
in accordance with all the applicable crediting provisions of this Plan, less
all distributions made to the Participant or his or her Beneficiary pursuant to
this Plan that relate to his or her Company Matching Account. This account shall
be a bookkeeping entry only and shall be utilized solely as a device for the
measurement and determination of the amounts to be paid to the Participant
pursuant to this Plan.
2
<PAGE>
SIERRA HEALTH SERVICES, INC.
Deferred Compensation Plan
1.16 "Company Restoration Account" shall mean the sum of all of a
Participant's Annual Company Restoration Amounts plus amounts credited
and debited in accordance with all the applicable provisions of the
Plan, less all distributions made to the Participant or his or her
Beneficiary pursuant to the Plan that relate to his or her Company
Restoration Account. This account shall be a bookkeeping entry only and
shall be utilized solely as a device for the measurement and
determination of the amounts to be paid to the Participant pursuant to
this Plan.
1.17 "Deferral Account" shall mean the sum of all of a Participant's Annual
Deferral Amounts, plus amounts credited and debited in accordance with
all the applicable provisions of the Plan, less all distributions made
to the Participant or his or her Beneficiary pursuant to the Plan that
relate to his or her Deferral Account. This account shall be a
bookkeeping entry only and shall be utilized solely as a device for the
measurement and determination of the amounts to be paid to the
Participant pursuant to this Plan.
1.18 "Deduction Limitation" shall mean the following described limitation on
a benefit that may otherwise be distributable pursuant to the
provisions of this Plan. Except as otherwise provided, this limitation
shall be applied to all distributions that are "subject to the
Deduction Limitation" under this Plan. If an Employer determines in
good faith prior to a Change in Control that there is a reasonable
likelihood that any compensation paid to a Participant for a taxable
year of the Employer would not be deductible by the Employer solely by
reason of the limitation under Code Section 162(m), then to the extent
deemed necessary by the Employer to ensure that the entire amount of
any distribution to the Participant pursuant to this Plan prior to the
Change in Control is deductible, the Employer may defer all or any
portion of a distribution under this Plan. Any amounts deferred
pursuant to this limitation shall be credited and debited with
additional amounts in accordance with Section 3.8 below, even if such
amount is being paid out in installments. The amounts so deferred
adjusted to reflect amounts credited and debited thereon shall be
distributed to the Participant or his or her Beneficiary (in the event
of the Participant's death) at the earliest possible date, as
determined by the Employer in good faith, on which the deductibility of
compensation paid or payable to the Participant for the taxable year of
the Employer during which the distribution is made will not be limited
by Section 162(m), or if earlier, the effective date of a Change in
Control. Notwithstanding anything to the contrary in this Plan, the
Deduction Limitation shall not apply to any distributions made after a
Change in Control.
1.19 "Disability" shall mean a period of disability during which a
Participant qualifies for disability benefits under the Participant's
Employer's long-term disability plan, or, if a Participant does not
participate in such a plan, a period of disability during which the
Participant would have qualified for disability benefits under such a
plan had the Participant been a participant in such a plan, as
determined in the sole discretion of the Committee. If the
Participant's Employer does not sponsor such a plan, or discontinues to
sponsor such a plan, Disability shall be determined by the Committee in
its sole discretion.
1.20 "Disability Benefit" shall mean the benefit set forth in Article 8.
1.21 "Election Form" shall mean the form established from time to time by
the Committee that a Participant completes, signs and returns to the
Committee to make an election under the Plan.
1.22 "Employee" shall mean a person who is an employee of any Employer.
3
<PAGE>
SIERRA HEALTH SERVICES, INC.
Deferred Compensation Plan
1.23 "Employer(s)" shall mean the Company and/or any of its subsidiaries
(now in existence or hereafter formed or acquired) that have been
selected by the Board to participate in the Plan and have adopted the
Plan.
1.24 "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
1.25 "401(k) Plan" shall be that certain Sierra Health Services, Inc. Profit
Sharing/401(k) Plan & Trust, dated January 1, 1989 and adopted by the
Company.
1.26 "Monthly Installment Method" shall be an installment payment method
over the duration selected by the Participant in accordance with this Plan,
calculated as follows: The Participant's Account Balance, as of the date of the
Participant's Retirement, death, Disability or Termination of Employment, shall
be multiplied by a fraction, the numerator of which is 1 and the denominator of
which is the number of periods over which the installment payments shall be
paid. The result of this multiplication shall be the amount of each installment
payment for the Plan Year in which the Participant Retired, died, suffered a
Disability or experienced a Termination of Employment and this amount shall be
paid starting on the first day of the month following the Participant's
Retirement, death, Disability or Termination of Employment and shall continue to
be paid on the first day of each month thereafter during that Plan Year. For
each subsequent Plan Year during the installment payment period, the
Participant's Account Balance shall be determined as of January 1 of that Plan
Year, in accordance with Section 3.8, after taking into account all previous
installment payments, and such balance shall be multiplied by the fraction
described above, except that the denominator shall be the number of remaining
periods over which the installment payments are to be paid. The resulting amount
shall be the amount of each installment payment for the Plan Year, which amount
shall be paid on the first day of each month during the Plan Year. If a
Participant has a positive Account Balance after the end of the elected
installment payment period, the remaining Account Balance shall be paid in a
lump sum on the first day of the month following the month in which the
installment period ends. If any installment, if paid, would reduce the
Participant's Account Balance to zero or below, that installment payment shall
be reduced so that the Participant's Account Balance does not go below zero and
all future installment payments shall cease.
1.27 "Participant" shall mean any Employee (i) who is selected to
participate in the Plan, (ii) who elects to participate in the Plan,
(iii) who signs a Plan Agreement, an Election Form and a Beneficiary
Designation Form, (iv) whose signed Plan Agreement, Election Form and
Beneficiary Designation Form are accepted by the Committee, (v) who
commences participation in the Plan, and (vi) whose Plan Agreement has
not terminated. A spouse or former spouse of a Participant shall not be
treated as a Participant in the Plan, even if he or she has an interest
in the Participant's benefits under the Plan under applicable law or as
a result of property settlements resulting from legal separation or
divorce.
1.28 "Plan" shall mean the Company's Deferred Compensation Plan, which shall
be evidenced by this instrument and by each Plan Agreement, as they may
be amended from time to time.
1.29 "Plan Agreement" shall mean a written agreement, as may be amended from
time to time, which is entered into by and between an Employer and a
Participant. The terms of any Plan Agreement may vary any of the terms
set forth in this Plan and such changes shall be binding
4
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SIERRA HEALTH SERVICES, INC.
Deferred Compensation Plan
on the Employer and the Participant if the Plan Agreement is signed by
the Participant and accepted by the Employer. The Plan Agreement
executed by a Participant and accepted by the Employer shall provide
for the entire benefit to which such Participant is entitled under the
Plan; should there be more than one Plan Agreement, the Plan Agreement
bearing the latest date of acceptance by the Employer shall supersede
all previous Plan Agreements in their entirety and shall govern the
agreement between the parties.
1.30 "Plan Year" shall, for the first Plan Year, begin on May 1, 1996 and
end on December 31, 1996. For each Plan Year thereafter, the Plan Year
shall begin on January 1 of each year and continue through December 31.
1.31 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in
Article 6.
1.32 "Retirement," "Retire(s)" or "Retired" shall mean, with respect to an
Employee, severance from employment from all Employers for any reason
other than a leave of absence, death or Disability on or after age
sixty-five (65) or on or after age fifty-five (55) with ten (10) Years
of Service.
1.33 "Retirement Benefit" shall mean the benefit set forth in Article 5.
1.34 "Short-Term Payout" shall mean the payout set forth in Section 4.1.
1.35 "Termination Benefit" shall mean the benefit set forth in Article 7.
1.36 "Termination of Employment" shall mean the ceasing of employment with
all Employers, voluntarily or involuntarily, for any reason other than
Retirement, Disability, death or an authorized leave of absence.
1.37 "Trust" shall mean the trust established pursuant to that certain
Master Trust Agreement, dated as of May 1, 1996 between the Company and
the trustee named therein, as amended from time to time.
1.38 "Unforeseeable Financial Emergency" shall mean an unanticipated
emergency that is caused by an event beyond the control of the
Participant that would result in severe financial hardship to the
Participant resulting from (i) a sudden and unexpected illness or
accident of the Participant or a dependent of the Participant, (ii) a
loss of the Participant's property due to casualty, or (iii) such other
extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the Participant, all as determined in the
sole discretion of the Committee.
1.39 "Unvested Accrued Amounts" shall mean the part of a Participant's
Company Matching Account and Company Restoration Account which is not
vested under Section 3.7.
1.40 "Vested Company Matching Account" shall have the meaning set forth in
Section 3.7.
1.41 "Vested Company Restoration Account" shall have the meaning set forth
in Section 3.7.
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SIERRA HEALTH SERVICES, INC.
Deferred Compensation Plan
1.42 "Years of Service" shall mean the total number of full years in which a
Participant has been employed by one or more Employers. For purposes of
this definition, a year of employment shall be a 365 day period (or 366
day period in the case of a leap year) that, for the first year of
employment, commences on the Employee's date of hiring and that, for
any subsequent year, commences on an anniversary of that hiring date.
Any partial year of employment shall not be counted.
ARTICLE 2
Selection, Enrollment, Eligibility
2.1 SELECTION BY COMMITTEE. Participation in the Plan shall be limited to a
select group of management or highly compensated Employees of the
Employers, as determined by the Committee in its sole discretion. From
that group, the Committee shall select, in its sole discretion,
Employees to participate in the Plan.
2.2 ENROLLMENT REQUIREMENTS. As a condition to participation, each selected
Employee shall complete, execute and return to the Committee, within 30
days of selection, a Plan Agreement, an Election Form and a Beneficiary
Designation Form. In addition, the Committee shall establish from time
to time such other enrollment requirements as it determines in its sole
discretion are necessary.
2.3 ELIGIBILITY; COMMENCEMENT OF PARTICIPATION. Provided an Employee
selected to participate in the Plan has met all enrollment requirements
set forth in this Plan and required by the Committee, including
returning all required documents to the Committee within 30 days of
selection, that Employee shall commence participation in the Plan (i)
in the case of Participants meeting all enrollment requirements by
April 30 of the first Plan Year, as of May 1, 1996; and (ii) in all
other cases, on the January 1 or July 1 following the month in which
the Employee completes all enrollment requirements. If an Employee
fails to meet all such requirements within the required 30 day period,
that Employee shall not be eligible to participate in the Plan until
the first day of the Plan Year following the delivery to and acceptance
by the Committee of the required documents.
2.4 TERMINATION OF PARTICIPATION AND/OR DEFERRALS. If the Committee
determines in good faith that a Participant no longer qualifies as a
member of a select group of management or highly compensated employees,
as membership in such group is determined in accordance with Sections
201(2), 301(a)(3) and 401(a)(1) of ERISA, the Committee shall have the
right, in its sole discretion, to (i) terminate any deferral election
the Participant has made for the Plan Year in which the Participant's
membership status changes, (ii) prevent the Participant from making
future deferral elections and/or (iii) immediately distribute the
Participant's then Account Balance, determined as if there has occurred
a Termination of Employment and terminate the Participant's
participation in the Plan. If the Committee chooses to terminate the
Participant's participation in the Plan, the Committee may, in its sole
discretion, reinstate the Participant to full Plan participation at
such time in the future as the Participant again becomes a member of
the select group described above.
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SIERRA HEALTH SERVICES, INC.
Deferred Compensation Plan
ARTICLE 3
Deferral Commitments/Company Matching/Crediting/Taxes
3.1 MINIMUM DEFERRAL.
(a) MINIMUM. For each Plan Year, a Participant may elect to defer,
as his or her Annual Deferral Amount, a minimum of $2,000 from
either his or her Base Annual Salary or Annual Bonus. If an
election is made for less than the stated minimum amount, or
if no election is made, the amount deferred shall be zero.
(b) SHORT PLAN YEAR. If a Participant first becomes a Participant
after the first day of a Plan Year, or in the case of the
first Plan Year of the Plan itself, the minimum deferral shall
be an amount equal to the minimum set forth above, multiplied
by a fraction, the numerator of which is the number of
complete months remaining in the Plan Year and the denominator
of which is 12.
3.2 MAXIMUM DEFERRAL.
(a) MAXIMUM. For each Plan Year, a Participant may elect to defer,
as his or her Annual Deferral Amount, Base Annual Salary
and/or Annual Bonus up to the following maximum percentages
for each deferral elected:
Maximum
Deferral Amount
Base Annual Salary 90%
Annual Bonus 90%
(b) SHORT PLAN YEAR. If a Participant first becomes a Participant
after the first day of a Plan Year, or in the case of the
first Plan Year itself, for such Plan Year only, a Participant
may elect to defer, as his or her Annual Deferral Amount, Base
Annual Salary and/or Annual Bonus that accrue after the date
of entry into the Plan, a dollar amount up to an amount equal
to the limits set forth in Section 3.2(a) above multiplied by
such Participant's total amount of Base Annual Salary and/or
Annual Bonus for the entire Plan Year.
3.3 ELECTION TO DEFER; EFFECT OF ELECTION FORM.
(a) FIRST PLAN YEAR. In connection with a Participant's
commencement of participation in the Plan, the Participant
shall make an irrevocable deferral election for the Plan Year
in which the Participant commences participation in the Plan,
along with such other elections as the Committee deems
necessary or desirable under the Plan. For these elections to
be valid, the Election Form must be completed and signed by
the Participant, timely delivered to the Committee (in
accordance with Section 2.3 above), and accepted by the
Committee.
(b) SUBSEQUENT PLAN YEARS. For each succeeding Plan Year, an irrevocable
deferral election for that Plan Year, and such other elections as the Committee
deems
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SIERRA HEALTH SERVICES, INC.
Deferred Compensation Plan
necessary or desirable under the Plan, shall be made by timely
delivering to the Committee, in accordance with its rules and
procedures, before the end of the Plan Year preceding the Plan
Year for which the election is made, a new Election Form. If
no Election Form is timely delivered for a Plan Year, no
Annual Deferral Amount shall be withheld for that Plan Year.
3.4 WITHHOLDING OF ANNUAL DEFERRAL AMOUNTS. For each Plan Year, the Base
Annual Salary portion of the Annual Deferral Amount shall be withheld
in equal amounts from each regularly scheduled Base Annual Salary
payroll. The Annual Bonus portion of the Annual Deferral Amount shall
be withheld at the time the Annual Bonus is or otherwise would be paid
to the Participant, whether or not this occurs during the Plan Year
itself.
3.5 ANNUAL COMPANY MATCHING AMOUNT. If, and only if, a Participant
participates in the 401(k) Plan ------------------------------ to the maximum
extent possible under the limits applicable to the Plan for the Plan Year, the
Participant's Annual Company Matching Amount for such Plan Year shall be equal
to 50% of the Participant's Annual Deferral Amount for such Plan Year, up to an
amount that does not exceed the lesser of 5% of the Participant's Base Annual
Salary or 50% of the IRC 402(g)(i) limit in the effect for the Plan Year,
reduced by the amount of any Company matching contributions made to the 401(k)
Plan on his or her behalf for the plan year of the 401(k) Plan that corresponds
to the Plan Year. The Annual Company Matching Amount shall be credited to the
Participant's Company Matching Account as of the first day of February of the
Plan Year following the Plan Year to which it relates. Notwithstanding the
above, if a Participant is not employed by an Employer as of the last day of a
Plan Year other than by reason of his or her Retirement, Disability or death,
the Annual Company Matching Amount for such Plan Year shall be zero. In the
event of Retirement, Disability or death, a Participant shall be credited with
the Annual Company Matching Amount for the Plan Year in which he or she Retires,
dies or becomes disabled.
3.6 ANNUAL COMPANY RESTORATION AMOUNT. The Participant's Annual Company
Restoration Amount for each Plan Year beginning on or after January 1,
1997 shall be equal to the amount of employer contributions other than
matching contributions under the 401(k) Plan which would have been made
on the Participant's behalf and allocated to the Participant's account
on or after July 1, 1997 for such Plan Year but for one or more
limitations imposed by the 401(k) Plan pursuant to the Code, including
but not limited to any such amounts resulting from the application of
the compensation limitations contained in Code Section 401(a)(17) or
the limitations contained in Code Section 415. For purposes of this
Section 3.6, employer contributions under the 401(k) Plan exclude
contributions resulting from the cash or deferred arrangement under the
401(k) Plan but include contributions resulting from the reallocation
of prior employer contributions (other than matching contributions)
forfeited by other 401(k) Plan participants. The Annual Company
Restoration Amount shall be credited to the Participant's Company
Restoration Account as of the date or dates such amounts would have
been allocated to the Participant's account(s) under the 401(k) Plan if
such amounts had in fact been allocated under the 401(k) Plan. The
foregoing notwithstanding the above, if a Participant is not employed
by an Employer as of the last day of a Plan Year other than by reason
of his or her Retirement, Disability or death, the Annual Company
Restoration Amount for such Plan Year shall be zero. In the event of
Retirement, Disability or death, a Participant shall be credited with
the Annual Company Restoration Amount for the Plan Year in which he or
she
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<PAGE>
SIERRA HEALTH SERVICES, INC.
Deferred Compensation Plan
Retires, dies or becomes disabled. The Participant's Annual Company
Restoration Amount for each Plan Year prior to the Plan Year beginning
January 1, 1997 shall be zero.
3.7 VESTED COMPANY MATCHING ACCOUNT, VESTED COMPANY RESTORATION ACCOUNT AND
DEFERRAL ACCOUNT. With respect to all benefits under this Plan other
than the Termination Benefit, a Participant's Vested Company Matching
Account shall equal 100% of such Participant's Company Matching Account
and a Participant's Vested Company Restoration Account shall equal 100%
of such Participant's Company Restoration Account. With respect to the
Termination Benefit, a Participant's Company Matching Account and
Company Restoration Account shall vest on the basis of the
Participant's Years of Service at the time the Participant experiences
a Termination of Employment, in accordance with the following schedule:
<TABLE>
<CAPTION>
Vested Percentage of
Years of Service at Date of Company Matching Account and
TERMINATION OF EMPLOYMENT COMPANY RESTORATION ACCOUNT
<S> <C> <C>
Less than 2 years 0%
2 years or more, but less than 3 20%
3 years or more, but less than 4 40%
4 years or more, but less than 5 60%
5 years or more, but less than 6 80%
6 years or more 100%
</TABLE>
Notwithstanding the above, after a Change in Control, a Participant's
Vested Company Matching Account shall equal 100% of such Participant's
Company Matching Account and a Participant's Vested Company Restoration
Account shall equal 100% of such Participant's Company Restoration
Account. A Participant's Deferral Account shall always be 100% vested.
3.8 CREDITING/DEBITING OF ACCOUNT BALANCES. In accordance with, and subject
to, the rules and procedures that are established from time to time by
the Committee, in its sole discretion, amounts shall be credited or
debited to a Participant's Account Balance (and to the Participant's
Unvested Accrued Amounts) in accordance with the following rules:
(a) ELECTION OF MEASUREMENT FUNDS. A Participant, in connection with his or
her initial ----------------------------- deferral election in accordance with
Section 3.3(a) above, shall elect, on the Election Form, one or more Measurement
Fund(s) (as described in Section 3.8(c) below) to be used to determine the
additional amounts to be credited or debited to his or her Account Balance (and
Unvested Accrued Amounts) from the date on which the Participant commences
participation in the Plan and continuing thereafter, unless changed in
accordance with the next sentence. Commencing with the January 1 or July 1
("Investment Election Date") that follows the Participant's commencement of
participation in the Plan and on each subsequent Investment Election Date during
which the Participant participates in the Plan, no later than the day before an
Investment Election Date, the Participant may (but is not required to) elect, by
submitting an Election Form to the Committee that is accepted by the Committee,
to add or delete one or more Measurement Fund(s) to be used to determine the
amounts to be credited or debited to his or her Account Balance (and Unvested
Accrued Amounts), or to change the portion of his or her Account Balance (and
Unvested
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<PAGE>
SIERRA HEALTH SERVICES, INC.
Deferred Compensation Plan
Accrued Amounts) allocated to each previously or newly elected
Measurement Fund. If an election is made in accordance with
the previous sentence, it shall apply to the next Investment
Election Date and continue thereafter, unless changed in
accordance with the previous sentence. Notwithstanding the
foregoing, the maximum transfer that may be made from the
Declared Rate Measurement Fund to another Measurement Fund in
any one Plan Year cannot exceed 20% of the maximum balance in
the Participant's account in the Declared Rate Measurement
Fund in the current Plan Year and the four prior Plan Years.
(b) PROPORTIONATE ALLOCATION. In making any election described in
Section 3.8(a) above, the Participant shall specify on the
Election Form, in whole percentage points (1%), the percentage
of his or her Account Balance (and Unvested Accrued Amounts)
to be allocated to a Measurement Fund (as if the Participant
was making an investment in that Measurement Fund with that
portion of his or her Account Balance and Unvested Accrued
Amounts).
(c) MEASUREMENT FUNDS. The Participant may elect one or more measurement
funds, ----------------- based on certain mutual funds (the "Measurement
Funds"), for the purpose of crediting or debiting amounts to his or her Account
Balance (and Unvested Accrued Amounts). The Committee shall select the mutual
funds that are to be used as Measurement Funds. As necessary, the Committee may,
in its sole discretion, discontinue, substitute or add a Measurement Fund at any
time. Each such action will take effect as of the first day of the calendar
quarter that follows by thirty (30) days the day on which the Committee gives
Participants advance written notice of such change. In addition, a Declared Rate
Measurement Fund shall be maintained under which interest shall be credited at a
rate as specified by the Company on the November 1 of the year prior to the Plan
Year for which the amount of interest is being determined. In the first Plan
Year, the rate of interest on the Declared Rate Measurement Fund shall be equal
to 8.75%.
(d) CREDITING OR DEBITING METHOD. The performance of each selected
Measurement Fund ---------------------------- (either positive or negative) will
be determined by the Committee in its sole discretion based on the performance
of the Measurement Funds themselves or, in the case of the Declared Rate
Measurement Fund, based on the amount of accrued interest credited to the fund.
A Participant's Account Balance (and Unvested Accrued Amounts) shall be credited
or debited based on such performance of the Measurement Funds as determined by
the Committee in its sole discretion. As of each Investment Election Date, the
Committee shall distribute to the Participants a statement of their respective
Account Balances (and Unvested Accrued Amounts). Furthermore, in the event of a
Participant's termination of employment or any other event requiring a
determination of the Participant's Benefit or the value of a Participant's
Account Balance, the Account Balance shall be determined based on the
performance of the relevant Measurement Fund(s) through the last date of the pay
period during which the event occurs and shall not be further adjusted
thereafter.
(e) NO ACTUAL INVESTMENT. Notwithstanding any other provision of this Plan
that may be interpreted to the contrary, the Measurement Funds are to be used
for measurement purposes only, and a Participant's election of any such
Measurement Fund, the
10
<PAGE>
SIERRA HEALTH SERVICES, INC.
Deferred Compensation Plan
allocation to his or her Account Balance (and Unvested Accrued
Amounts) thereto, the calculation of additional amounts and
the crediting or debiting of such amounts to a Participant's
Account Balance (and Unvested Accrued Amounts) shall not be
considered or construed in any manner as an actual investment
of his or her Account Balance (or Unvested Accrued Amounts) in
any such Measurement Fund. In the event that the Company or
the Trustee (as that term is defined in the Trust), in its own
discretion, decides to invest funds in any or all of the
Measurement Funds, no Participant shall have any rights in or
to such investments themselves. Without limiting the
foregoing, a Participant's Account Balance (and Unvested
Accrued Amounts) shall at all times be a bookkeeping entry
only and shall not represent any investment made on his or her
behalf by the Company or the Trust; the Participant shall at
all times remain an unsecured creditor of the Company.
3.9 FICA, WITHHOLDING AND OTHER TAXES. For each Plan Year in which an
Annual Deferral Amount is being withheld or an Annual Company Matching
Amount or Annual Company Restoration Amount is credited to a
Participant, the Participant's Employer(s) shall withhold from that
portion of the Participant's Base Annual Salary and/or Annual Bonus
that is not being deferred, in a manner determined by the Employer(s),
the Participant's share of FICA and other employment taxes. If
necessary, the Committee shall reduce the Annual Deferral Amount in
order to comply with this Section 3.9. In addition, the Participant's
Employer(s) or the Trust, shall withhold from any payments made to a
Participant under this Plan all federal, state and local income,
employment and other taxes required to be withheld in connection with
such payments, in amounts and in a manner to be determined in the sole
discretion of the Employer(s) or the Trust.
3.10 ROLLOVERS FROM PRIOR DEFERRED COMPENSATION PLAN. A Participant who
participated in the Company's prior nonqualified deferred compensation
plan shall have the right, under such rules and at such times as are
prescribed by the Committee, to roll over the benefit that the
Participant is entitled to receive pursuant to such prior nonqualified
deferred compensation plan so that such amount shall be held and
administered pursuant to the terms of this Plan and shall be received
at the same time that benefits are received pursuant to this Plan.
ARTICLE 4
Short-Term Payout; Unforeseeable Financial Emergencies;
Withdrawal Election
4.1 SHORT-TERM PAYOUT. In connection with each election to defer an Annual
Deferral Amount, a Participant may elect to receive a future
"Short-Term Payout" from the Plan with respect to that Annual Deferral
Amount. Subject to the Deduction Limitation, the Short-Term Payout
shall be a lump sum payment in an amount that is equal to the Annual
Deferral Amount plus amounts credited or debited in the manner provided
in Section 3.8 above on that amount, determined at the time of the
Short-Term Payout becomes payable. Subject to the other terms and
conditions of this Plan, each Short-Term Payout elected shall be paid,
subject to the Deduction Limitation, within 60 days of the first day of
the Plan Year that is at least four years after the last day of the
Plan Year in which the Annual Deferral Amount is actually deferred. By
way of example, if a Short-Term Payout is elected for amounts that are
deferred in the Plan Year commencing January 1, 1997, the Short-Term
Payout becomes payable within 60 days of January 1, 2002.
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SIERRA HEALTH SERVICES, INC.
Deferred Compensation Plan
4.2 OTHER BENEFITS TAKE PRECEDENCE OVER SHORT-TERM PAYOUT. Should an event
occur that triggers a benefit under Articles 5, 6, 7 or 8, any Annual
Deferral Amount, plus amounts credited or debited thereon, that is
subject to a Short-Term Payout election under Section 4.1 shall not be
paid in accordance with Section 4.1 but shall be paid in accordance
with the other applicable Article.
4.3 WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE FINANCIAL EMERGENCIES.
If the Participant
- ---------------------------------------------------------------------
experiences an Unforeseeable Financial Emergency, the Participant may petition
the Committee to (i) suspend any deferrals required to be made by a Participant
and/or (ii) receive a partial or full payout from the Plan. The payout shall not
exceed the lesser of the Participant's Account Balance, calculated as if such
Participant were receiving a Termination Benefit, or the amount reasonably
needed to satisfy the Unforeseeable Financial Emergency. If, subject to the sole
discretion of the Committee, the petition for a suspension and/or payout is
approved, suspension shall take effect upon the date of approval and any payout
shall be made within 60 days of the date of approval. The payment of any amount
under this Section 4.3 shall not be subject to the Deduction Limitation.
4.4 WITHDRAWAL ELECTION. A Participant may elect, at any time, to withdraw
all of his or her Account Balance, less a withdrawal penalty equal to 10% of
such amount (the net amount shall be referred to as the "Withdrawal Amount").
This election can be made at any time, before or after Retirement, Disability,
death or Termination of Employment, and whether or not the Participant (or
Beneficiary) is in the process of being paid pursuant to an installment payment
schedule. If made before Retirement, Disability or death, a Participant's
Withdrawal Amount shall be his or her Account Balance calculated as if there had
occurred a Termination of Employment as of the day of the election. No partial
withdrawals of the Withdrawal Amount shall be allowed. The Participant shall
make this election by giving the Committee advance written notice of the
election in a form determined from time to time by the Committee. The
Participant shall be paid the Withdrawal Amount within 60 days of his or her
election. Once the Withdrawal Amount is paid, the Participant's participation in
the Plan shall terminate, the Participant's Unvested Accrued Amounts will be
forfeited and the Participant shall not be eligible to participate in the Plan
in the future. The payment of this Withdrawal Amount shall not be subject to the
Deduction Limitation.
ARTICLE 5
Retirement Benefit
5.1 RETIREMENT BENEFIT. Subject to the Deduction Limitation, a Participant
who Retires shall receive, as a Retirement Benefit, his or her Account Balance.
5.2 PAYMENT OF RETIREMENT BENEFIT. A Participant, in connection with his or
her commencement of participation in the Plan, shall elect on an
Election Form to receive the Retirement Benefit in a lump sum or
pursuant to a Monthly Installment Method of 60, 120 or 180 months. The
Participant may annually change his or her election to an allowable
alternative payout period by submitting a new Election Form to the
Committee, provided that any such Election Form is submitted at least 2
years prior to the Participant's Retirement and is accepted by the
Committee in its sole discretion. The Election Form most recently
accepted by the Committee shall govern the payout of the Retirement
Benefit. If a Participant does not make any election with respect to
the payment of the Retirement Benefit, such benefit shall be payable in
a lump
12
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SIERRA HEALTH SERVICES, INC.
Deferred Compensation Plan
sum. The lump sum payment shall be made, or installment payments shall
commence, no later than 60 days after the date the Participant Retires.
Notwithstanding the foregoing, if the Company enters into a consulting
arrangement with a Participant following the Participant's Retirement,
the payment of the Retirement Benefit shall be delayed and shall
commence no later than 60 days after the date the consulting
arrangement terminates. Any payment made shall be subject to the
Deduction Limitation.
5.3 DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFIT. If a Participant dies
after Retirement but before the Retirement Benefit is paid in full, the
Participant's unpaid Retirement Benefit payments shall continue and
shall be paid to the Participant's Beneficiary (a) over the remaining
number of months and in the same amounts as that benefit would have
been paid to the Participant had the Participant survived, or (b) in a
lump sum, if requested by the Beneficiary and allowed in the sole
discretion of the Committee, that is equal to the Participant's unpaid
remaining Account Balance.
ARTICLE 6
Pre-Retirement Survivor Benefit
6.1 PRE-RETIREMENT SURVIVOR BENEFIT. Subject to the Deduction Limitation,
the Participant's Beneficiary shall receive a Pre-Retirement Survivor
Benefit equal to the Participant's Account Balance if the Participant
dies before he or she Retires, experiences a Termination of Employment
or suffers a Disability.
6.2 PAYMENT OF PRE-RETIREMENT SURVIVOR BENEFIT. The Pre-Retirement Survivor
Benefit shall be paid in the same manner and at the same time as specified in
the election made by the Participant pursuant to Section 5.2.
ARTICLE 7
Termination Benefit
7.1 TERMINATION BENEFIT. Subject to the Deduction Limitation, the
Participant shall receive a Termination Benefit, which shall be equal
to the Participant's Account Balance (i.e., determined based on Vested
Company Matching Contributions and Vested Company Restoration
Contributions) if a Participant experiences a Termination of Employment
prior to his or her Retirement, death or Disability.
7.2 PAYMENT OF TERMINATION BENEFIT. The Termination Benefit shall be paid
in a lump sum within 60 days of the Termination of Employment.
Notwithstanding the foregoing, a Participant may elect either (i) upon
his election to participate in the Plan or (ii) at any time at least
two years prior to Termination of Employment to receive the Termination
Benefit in three annual installments.
Any payment made shall be subject to the Deduction Limitation.
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SIERRA HEALTH SERVICES, INC.
Deferred Compensation Plan
ARTICLE 8
Disability Waiver and Benefit
8.1 DISABILITY WAIVER.
(a) WAIVER OF DEFERRAL. A Participant who is determined by the Committee to
be suffering ------------------ from a Disability shall be excused from
fulfilling that portion of the Annual Deferral Amount commitment that would
otherwise have been withheld from a Participant's Base Annual Salary and/or
Annual Bonus for the Plan Year during which the Participant first suffers a
Disability. During the period of Disability, the Participant shall not be
allowed to make any additional deferral elections, but will continue to be
considered a Participant for all other purposes of this Plan. Notwithstanding
the foregoing, if the Disability is determined by the Committee to be expected
to be of a short term duration, the Annual Deferral Amount shall continue to be
withheld from a Participant's Base Annual Salary and/or Annual Bonus.
(b) RETURN TO WORK. If a Participant returns to employment with an
Employer, after a Disability ceases, the Participant may elect
to defer an Annual Deferral Amount for the Plan Year following
his or her return to employment or service and for every Plan
Year thereafter while a Participant in the Plan; provided such
deferral elections are otherwise allowed and an Election Form
is delivered to and accepted by the Committee for each such
election in accordance with Section 3.3 above.
8.2 CONTINUED ELIGIBILITY; DISABILITY BENEFIT. A Participant suffering a
Disability shall, for benefit purposes under this Plan, continue to be
considered to be employed, and shall be eligible for the benefits
provided for in Articles 4, 5, 6 or 7 in accordance with the provisions
of those Articles. Notwithstanding the above, the Committee shall have
the right to, in its sole and absolute discretion and for purposes of
this Plan only, and must in the case of a Participant who is otherwise
eligible to Retire, deem the Participant to have experienced a
Termination of Employment, or in the case of a Participant who is
eligible to Retire, to have Retired, at any time (or in the case of a
Participant who is eligible to Retire, as soon as practicable) after
such Participant is determined to be permanently disabled (i) under the
Participant Employer's long-term disability plan (or would have been
determined to be permanently disabled had he or she participated in
that plan), or (ii) if such a plan does not exist, by the Committee in
its sole discretion, in which case the Participant shall receive a
Disability Benefit equal to his or her Account Balance at the time the
Committee's determination. The Disability Benefit shall be paid in the
same manner and at the same time as specified in the election made by
the Participant pursuant to Section 5.2, unless the Committee in its
sole discretion elects at any time to pay such amount or any remaining
amount in a lump sum payment. Any payment made shall be subject to the
Deduction Limitation.
ARTICLE 9
Beneficiary Designation
9.1 BENEFICIARY. Each Participant shall have the right, at any time, to
designate his or her Beneficiary(ies) (both primary as well as contingent) to
receive any benefits payable under the Plan to a beneficiary upon the death of a
Participant. The Beneficiary designated under this
14
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SIERRA HEALTH SERVICES, INC. Deferred Compensation Plan
Plan may be the same as or different from the Beneficiary designation
under any other plan of an Employer in which the Participant
participates.
9.2 BENEFICIARY DESIGNATION; CHANGE; SPOUSAL CONSENT. A Participant shall
designate his or her Beneficiary by completing and signing the
Beneficiary Designation Form, and returning it to the Committee or its
designated agent. A Participant shall have the right to change a
Beneficiary by completing, signing and otherwise complying with the
terms of the Beneficiary Designation Form and the Committee's rules and
procedures, as in effect from time to time. If the Participant names
someone other than his or her spouse as a Beneficiary for more than 50%
of the Participant's benefits, a spousal consent, in the form
designated by the Committee, must be signed by that Participant's
spouse and returned to the Committee. Upon the acceptance by the
Committee of a new Beneficiary Designation Form, all Beneficiary
designations previously filed shall be cancelled. The Committee shall
be entitled to rely on the last Beneficiary Designation Form filed by
the Participant and accepted by the Committee prior to his or her
death.
9.3 ACKNOWLEDGMENT. No designation or change in designation of a
Beneficiary shall be effective until received, accepted and
acknowledged in writing by the Committee or its designated agent.
9.4 NO BENEFICIARY DESIGNATION. If a Participant fails to designate a
Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or, if all
designated Beneficiaries predecease the Participant or die prior to
complete distribution of the Participant's benefits, then the
Participant's designated Beneficiary shall be deemed to be his or her
surviving spouse. If the Participant has no surviving spouse, the
benefits remaining under the Plan to be paid to a Beneficiary shall be
payable to the executor or personal representative of the Participant's
estate.
9.5 DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to the
proper Beneficiary to receive payments pursuant to this Plan, the
Committee shall have the right, exercisable in its discretion, to cause
the Participant's Employer to withhold such payments until this matter
is resolved to the Committee's satisfaction.
9.6 DISCHARGE OF OBLIGATIONS. The payment of benefits under the Plan to a
Beneficiary shall fully and completely discharge the Company, all
Employers and the Committee from all further obligations under this
Plan with respect to the Participant, and that Participant's Plan
Agreement shall terminate upon such full payment of benefits.
ARTICLE 10
Leave of Absence
10.1 PAID LEAVE OF ABSENCE. If a Participant is authorized by the
Participant's Employer for any reason to take a paid leave of absence
from the employment of the Employer, the Participant shall continue to
be considered employed by the Employer and the Annual Deferral Amount
shall continue to be withheld during such paid leave of absence in
accordance with Section 3.3.
10.2 UNPAID LEAVE OF ABSENCE. If a Participant is authorized by the
Participant's Employer for any reason to take an unpaid leave of
absence from the employment of the Employer, the Participant shall
continue to be considered employed by the Employer and the Participant
shall be excused from making deferrals until the earlier of the date
the leave of absence expires or
15
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SIERRA HEALTH SERVICES, INC.
Deferred Compensation Plan
the Participant returns to a paid employment status. Upon such
expiration or return, deferrals shall resume for the remaining portion
of the Plan Year in which the expiration or return occurs, based on the
deferral election, if any, made for that Plan Year. If no election was
made for that Plan Year, no deferral shall be withheld.
ARTICLE 11
Termination, Amendment or Modification
11.1 TERMINATION. Each Employer reserves the right to terminate the Plan at
any time with respect to any or all of its participating Employees by
the actions of its board of directors. Upon the termination of the Plan
with respect to any Employer, the Plan Agreements of the affected
Participants who are employed by that Employer shall terminate and
their Account Balance, determined as if they had experienced a
Termination of Employment on the date of Plan termination or, if Plan
termination occurs after the date upon which a Participant was eligible
to Retire, then with respect to that Participant as if he or she had
Retired on the date of Plan termination, shall be paid to the
Participants as follows: Prior to a Change in Control, if the Plan is
terminated with respect to all of its Participants, an Employer shall
have the right, in its sole discretion, and notwithstanding any
elections made by the Participant, to pay such benefits in a lump sum
or pursuant to a Monthly Installment Method of up to 15 years, with
amounts credited and debited during the installment period as provided
herein. If the Plan is terminated with respect to less than all of its
Participants, an Employer shall be required to pay such benefits in a
lump sum. After a Change in Control, the Employer shall be required to
pay such benefits in a lump sum. The termination of the Plan shall not
adversely affect any Participant or Beneficiary who has become entitled
to the payment of any benefits under the Plan as of the date of
termination; provided however, that the Employer shall have the right
to accelerate installment payments by paying the Account Balance in a
lump sum or pursuant to a Monthly Installment Method using fewer
months.
11.2 AMENDMENT. Any Employer may, at any time, amend or modify the Plan in
whole or in part with respect to that Employer by the actions of its
board of directors; provided, however, that no amendment or
modification shall be effective to decrease or restrict the value of a
Participant's Account Balance in existence at the time the amendment or
modification is made, calculated as if the Participant had experienced
a Termination of Employment as of the effective date of the amendment
or modification, or, if the amendment or modification occurs after the
date upon which the Participant was eligible to Retire, the Participant
had Retired as of the effective date of the amendment or modification.
The amendment or modification of the Plan shall not affect any
Participant or Beneficiary who has become entitled to the payment of
benefits under the Plan as of the date of the amendment or
modification; provided, however, that the Employer shall have the right
to accelerate installment payments by paying the Account Balance in a
lump sum or pursuant to a Monthly Installment Method using fewer
months.
11.3 PLAN AGREEMENT. Despite the provisions of Sections 11.1 and 11.2 above,
if a Participant's Plan Agreement contains benefits or limitations that
are not in this Plan document, the Employer may only amend or terminate
such provisions with the consent of the Participant.
11.4 EFFECT OF PAYMENT. The full payment of the applicable benefit under
Section 4.4 or Articles 5, 6, 7 or 8 of the Plan shall completely
discharge all obligations to a Participant and his or her designated
Beneficiaries under this Plan and the Participant's Plan Agreement
shall terminate.
16
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SIERRA HEALTH SERVICES, INC.
Deferred Compensation Plan
ARTICLE 12
Administration
12.1 COMMITTEE DUTIES. This Plan shall be administered by a Committee which
shall consist of the Board, or such committee as the Board shall
appoint. Members of the Committee may be Participants under this Plan.
The Committee shall also have the discretion and authority to (i) make,
amend, interpret, and enforce all appropriate rules and regulations for
the administration of this Plan and (ii) decide or resolve any and all
questions including interpretations of this Plan, as may arise in
connection with the Plan.
12.2 AGENTS. In the administration of this Plan, the Committee may, from
time to time, employ agents and delegate to them such administrative
duties as it sees fit (including acting through a duly appointed
representative) and may from time to time consult with counsel who may
be counsel to any Employer.
12.3 BINDING EFFECT OF DECISIONS. The decision or action of the Committee
with respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the
rules and regulations promulgated hereunder shall be final and
conclusive and binding upon all persons having any interest in the
Plan.
12.4 INDEMNITY OF COMMITTEE. All Employers shall indemnify and hold harmless
the members of the Committee against any and all claims, losses,
damages, expenses or liabilities arising from any action or failure to
act with respect to this Plan, except in the case of willful misconduct
by the Committee or any of its members.
12.5 EMPLOYER INFORMATION. To enable the Committee to perform its functions,
each Employer shall supply full and timely information to the Committee
on all matters relating to the compensation of its Participants, the
date and circumstances of the Retirement, Disability, death or
Termination of Employment of its Participants, and such other pertinent
information as the Committee may reasonably require.
ARTICLE 13
Other Benefits and Agreements
13.1 COORDINATION WITH OTHER BENEFITS. The benefits provided for a
Participant and Participant's Beneficiary under the Plan are in
addition to any other benefits available to such Participant under any
other plan or program for employees of the Participant's Employer. The
Plan shall supplement and shall not supersede, modify or amend any
other such plan or program except as may otherwise be expressly
provided.
ARTICLE 14
Claims Procedures
14.1 PRESENTATION OF CLAIM. Any Participant or Beneficiary of a deceased
Participant (such Participant or Beneficiary being referred to below as
a "Claimant") may deliver to the Committee a written claim for a
determination with respect to the amounts distributable to such
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SIERRA HEALTH SERVICES, INC.
Deferred Compensation Plan
Claimant from the Plan. If such a claim relates to the contents of a
notice received by the Claimant, the claim must be made within 60 days
after such notice was received by the Claimant. All other claims must
be made within 180 days of the date on which the event that caused the
claim to arise occurred. The claim must state with particularity the
determination desired by the Claimant.
14.2 NOTIFICATION OF DECISION. The Committee shall consider a Claimant's
claim within a reasonable time, and shall notify the Claimant in writing:
(a) that the Claimant's requested determination has been made, and that the
claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary, in whole
or in part, to the Claimant's requested determination, and
such notice must set forth in a manner calculated to be
understood by the Claimant:
(i) the specific reason(s) for the denial of the claim, or any part of it;
(ii) specific reference(s) to pertinent provisions of the Plan upon which
such denial was based;
(iii) a description of any additional material or
information necessary for the Claimant to perfect the
claim, and an explanation of why such material or
information is necessary; and (iv) an explanation of
the claim review procedure set forth in Section 14.3
below.
14.3 REVIEW OF A DENIED CLAIM. Within 60 days after receiving a notice from
the Committee that a claim has been denied, in whole or in part, a
Claimant (or the Claimant's duly authorized representative) may file
with the Committee a written request for a review of the denial of the
claim. Thereafter, but not later than 30 days after the review
procedure began, the Claimant (or the Claimant's duly authorized
representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its sole discretion, may
grant.
14.4 DECISION ON REVIEW. The Committee shall render its decision on review
promptly, and not later than 60 days after the filing of a written
request for review of the denial, unless a hearing is held or other
special circumstances require additional time, in which case the
Committee's decision must be rendered within 120 days after such date.
Such decision must be written in a manner calculated to be understood
by the Claimant, and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon which the
decision was based; and
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SIERRA HEALTH SERVICES, INC.
Deferred Compensation Plan
(c) such other matters as the Committee deems relevant.
14.5 LEGAL ACTION. A Claimant's compliance with the foregoing provisions of
this Article 14 is a mandatory prerequisite to a Claimant's right to
commence any legal action with respect to any claim for benefits under
this Plan.
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SIERRA HEALTH SERVICES, INC.
Deferred Compensation Plan
ARTICLE 15
Trust
15.1 ESTABLISHMENT OF THE TRUST. The Company shall establish the Trust, and
the each Employer shall at least annually transfer over to the Trust
such assets as the Employer determines are necessary to provide, on a
present value basis, for its future liabilities created with respect to
all Annual Deferral Amounts, Company Matching Amounts and Company
Restoration Amounts for such Employer's Participants for all periods
prior to the transfer, as well as the credits and debits to the
Participants' Account Balance (and Unvested Accrued Amounts) for all
periods prior to the transfer, taking into consideration the value of
the assets in the trust at the time of the transfer.
15.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the Plan
and the Plan Agreement shall govern the rights of a Participant to
receive distributions pursuant to the Plan. The provisions of the Trust
shall govern the rights of the Employers, Participants and the
creditors of the Employers to the assets transferred to the Trust. Each
Employer shall at all times remain liable to carry out its obligations
under the Plan.
15.3 DISTRIBUTIONS FROM THE TRUST. Each Employer's obligations under the
Plan may be satisfied with Trust assets distributed pursuant to the
terms of the Trust, and any such distribution shall reduce the
Employer's obligations under this Plan.
ARTICLE 16
Miscellaneous
16.1 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries,
heirs, successors and assigns shall have no legal or equitable rights,
interests or claims in any property or assets of an Employer. For
purposes of the payment of benefits under this Plan, any and all of an
Employer's assets shall be, and remain, the general, unpledged
unrestricted assets of the Employer. An Employer's obligation under the
Plan shall be merely that of an unfunded and unsecured promise to pay
money in the future.
16.2 EMPLOYER'S LIABILITY. An Employer's liability for the payment of
benefits shall be defined only by the Plan and the Plan Agreement, as
entered into between the Employer and a Participant. An Employer shall
have no obligation to a Participant under the Plan except as expressly
provided in the Plan and his or her Plan Agreement.
16.3 NONASSIGNABILITY. Neither a Participant nor any other person shall have
any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage or otherwise encumber, transfer, hypothecate, alienate or
convey in advance of actual receipt, the amounts, if any, payable
hereunder, or any part thereof, which are, and all rights to which are
expressly declared to be, unassignable and non-transferable, except
that the foregoing shall not apply to any family support obligations
set forth in a court order. No part of the amounts payable shall, prior
to actual payment, be subject to seizure, attachment, garnishment or
sequestration for the payment of any debts, judgments, alimony or
separate maintenance owed by a Participant or any other person, nor be
transferable by operation of law in the event of a Participant's or any
other person's bankruptcy or insolvency.
20
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SIERRA HEALTH SERVICES, INC.
Deferred Compensation Plan
16.4 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan
shall not be deemed to ---------------------------- constitute a contract of
employment between the Company or any Employer and the Participant. Such
employment is hereby acknowledged to be an "at will" employment relationship
that can be terminated at any time for any reason, or no reason, with or without
cause, and with or without notice, unless expressly provided in a written
employment agreement. Nothing in this Plan shall be deemed to give a Participant
the right to be retained in the service of the Company or any Employer or to
interfere with the right of the Company or any Employer to discipline or
discharge the Participant at any time.
16.5 FURNISHING INFORMATION. A Participant or his or her Beneficiary will
cooperate with the Committee by furnishing any and all information
requested by the Committee and take such other actions as may be
requested in order to facilitate the administration of the Plan and the
payments of benefits hereunder, including but not limited to taking
such physical examinations as the Committee may deem necessary.
16.6 TERMS. Whenever any words are used herein in the masculine, they shall
be construed as though they were in the feminine in all cases where
they would so apply; and whenever any words are used herein in the
singular or in the plural, they shall be construed as though they were
used in the plural or the singular, as the case may be, in all cases
where they would so apply.
16.7 CAPTIONS. The captions of the articles, sections and paragraphs of this
Plan are for convenience only and shall not control or affect the
meaning or construction of any of its provisions.
16.8 GOVERNING LAW. Subject to ERISA, the provisions of this Plan shall be
construed and interpreted according to the internal laws of the State of Nevada
without regard to its conflicts of laws principles.
16.9 NOTICE. Any notice or filing required or permitted to be given to the
Committee under this Plan shall be sufficient if in writing and
hand-delivered, or sent by registered or certified mail, to the address
below:
Sierra Health Services Deferred
Compensation Plan Committee
P.O. Box 15645
Las Vegas, Nevada 89114-5645
Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
Any notice or filing required or permitted to be given to a Participant
under this Plan shall be sufficient if in writing and hand-delivered,
or sent by mail, to the last known address of the Participant.
16.10 SUCCESSORS. The provisions of this Plan shall bind and inure to the
benefit of the Participant's Employer and its successors and assigns
and the Participant and the Participant's designated Beneficiaries.
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SIERRA HEALTH SERVICES, INC.
Deferred Compensation Plan
16.11 SPOUSE'S INTEREST. The interest in the benefits hereunder of a spouse
of a Participant who has predeceased the Participant shall
automatically pass to the Participant and shall not be transferable by
such spouse in any manner, including but not limited to such spouse's
will, nor shall such interest pass under the laws of intestate
succession.
16.12 VALIDITY. In case any provision of this Plan shall be illegal or
invalid for any reason, said illegality or invalidly shall not affect
the remaining parts hereof, but this Plan shall be construed and
enforced as if such illegal or invalid provision had never been
inserted herein.
16.13 INCOMPETENT. If the Committee determines in its discretion that a
benefit under this Plan is to be paid to a minor, a person declared
incompetent or to a person incapable of handling the disposition of
that person's property, the Committee may direct payment of such
benefit to the guardian, legal representative or person having the care
and custody of such minor, incompetent or incapable person. The
Committee may require proof of minority, incompetency, incapacity or
guardianship, as it may deem appropriate prior to distribution of the
benefit. Any payment of a benefit shall be a payment for the account of
the Participant and the Participant's Beneficiary, as the case may be,
and shall be a complete discharge of any liability under the Plan for
such payment amount.
16.14 COURT ORDER. The Committee is authorized to make any payments directed
by court order in any action in which the Plan or the Committee has
been named as a party. In addition, if a court determines that a spouse
or former spouse of a Participant has an interest in the Plan as the
result of a property settlement or otherwise, the Committee, in its
sole discretion, shall have the right, notwithstanding any election
made by a Participant, to immediately distribute the spouse's or former
spouse's interest in the Plan to that spouse or former spouse.
16.15 DISTRIBUTION IN THE EVENT OF TAXATION.
(a) IN GENERAL. If, for any reason, all or any portion of a Participant's
benefit under this ---------- Plan becomes taxable to the Participant prior to
receipt, a Participant may petition the Committee before a Change in Control, or
the trustee of the Trust after a Change in Control, for a distribution of that
portion of his or her benefit that has become taxable. Upon the grant of such a
petition, which grant shall not be unreasonably withheld (and, after a Change in
Control, shall be granted), a Participant's Employer shall distribute to the
Participant immediately available funds in an amount equal to the taxable
portion of his or her benefit (which amount shall not exceed a Participant's
Account Balance under the Plan). If the petition is granted, the tax liability
distribution shall be made within 90 days of the date when the Participant's
petition is granted. Such a distribution shall affect and reduce the benefits to
be paid under this Plan.
(b) TRUST. If the Trust terminates in accordance with Section
3.7(e) of the Trust and benefits are distributed from the
Trust to a Participant in accordance with that Section, the
Participant's benefits under this Plan shall be reduced to the
extent of such distributions.
16.16 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL. The Company and
each Employer is aware that upon the occurrence of a Change in Control, the
Board or the board of directors of the Employer (which might then be composed of
new members) or a shareholder of the
22
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SIERRA HEALTH SERVICES, INC.
Deferred Compensation Plan
Company or the Employer, or of any successor corporation might then
cause or attempt to cause the Company, the Employer or such successor
to refuse to comply with its obligations under the Plan and might cause
or attempt to cause the Company or the Employer to institute, or may
institute, litigation seeking to deny Participants the benefits
intended under the Plan. In these circumstances, the purpose of the
Plan could be frustrated. Accordingly, if, following a Change in
Control, it should appear to any Participant that the Company, its
Employer or any successor corporation has failed to comply with any of
its obligations under the Plan or any agreement thereunder or, if the
Company, such Employer or any other person takes any action to declare
the Plan void or unenforceable or institutes any litigation or other
legal action designed to deny, diminish or to recover from any
Participant the benefits intended to be provided, then the Company and
the Employer irrevocably authorize such Participant to retain counsel
of his or her choice at the expense of the Company and the Employer
(who shall be jointly and severally liable) to represent such
Participant in connection with the initiation or defense of any
litigation or other legal action, whether by or against the Company,
the Employer or any director, officer, shareholder or other person
affiliated with the Company, the Employer or any successor thereto in
any jurisdiction.
23
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SIERRA HEALTH SERVICES, INC.
Deferred Compensation Plan
IN WITNESS WHEREOF, the Company has signed this Plan document as of July 1,
1997.
SIERRA HEALTH SERVICES, INC.,
a Nevada corporation
By: /S/ ERIN E. MACDONALD
Title:PRESIDENT AND CHIEF OPERATING OFFICER
24
<PAGE>
EXHIBIT 10.4
SIERRA HEALTH SERVICES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
TABLE OF CONTENTS
PAGE
Purpose................................................................ 1
ARTICLE 1 Definitions.................................................. 1
ARTICLE 2 Eligibility.................................................. 6
2.1 Selection for Participation....................... 6
2.2 Enrollment Requirements........................... 6
2.3 Commencement of Participation..................... 6
ARTICLE 3 Vesting; Additional Years of Service......................... 6
3.1 Vesting........................................... 6
3.2 Crediting of Additional Years of Service.......... 7
ARTICLE 4 Benefits..................................................... 7
4.1 Eligibility for Benefits.......................... 7
4.2 Reemployment of Participant Who Has
Received Benefits................................. 8
4.3 Alternative Payouts............................... 9
4.4 Withholding and Payroll Taxes..................... 9
ARTICLE 5 Termination or Amendment of Plan or Agreements............... 9
5.1 Termination....................................... 9
5.2 Amendment......................................... 10
5.3 Termination of Plan Agreement...................... 10
ARTICLE 6 Other Benefits and Agreements................................. 10
ARTICLE 7 Administration of the Plan.................................... 10
7.1 Plan Administrator Duties.......................... 10
7.2 Agents............................................. 10
7.3 Binding Effect of Decisions........................ 10
7.4 Indemnity of Plan Administrator.................... 11
7.5 Employer Information............................... 11
ARTICLE 8 Claims Procedures............................................. 11
8.1 Presentation of Claim.............................. 11
8.2 Notification of Decision........................... 11
8.3 Review of a Denied Claim........................... 12
8.4 Decision on Review................................. 12
8.5 Legal Action....................................... 12
ARTICLE 9 Beneficiary Designation....................................... 13
9.1 Beneficiary....................................... 13
9.2 Beneficiary Designation; Change; Spousal Consent... 13
9.3 Acknowledgment..................................... 13
9.4 No Beneficiary Designation......................... 13
9.5 Doubt as to Beneficiary.............................13
9.6 Discharge of Obligations........................... 13
<PAGE>
ARTICLE 10 Trust........................................................ 14
10.1 Establishment of the Trust......................... 14
10.2 Interrelationship of the Plan and the Trust........ 14
ARTICLE 11 Miscellaneous................................................ 14
11.1 Unsecured General Creditor......................... 14
11.2 Employer's Liability............................... 14
11.3 Nonassignability................................... 14
11.4 Not a Contract of Employment....................... 14
11.5 Furnishing Information............................. 15
11.6 Terms.............................................. 15
11.7 Captions........................................... 15
11.8 Governing Law...................................... 15
11.9 Validity........................................... 15
11.10 Notice............................................. 15
11.11 Successors......................................... 16
11.12 Spouse's Interest.................................. 16
11.13 Incompetent........................................ 16
11.14 Court Order........................................ 16
11.15 Distribution in the Event of Taxation.............. 16
<PAGE>
SIERRA HEALTH SERVICES, INC.
Supplemental Executive Retirement Plan
SIERRA HEALTH SERVICES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
EFFECTIVE JULY 1, 1997
PURPOSE
The purpose of this Plan is to provide specified benefits to a
select group of management and highly compensated employees of Sierra Health
Services, Inc., a Nevada corporation, and its subsidiaries, if any, that sponsor
this Plan. This Plan shall be unfunded for tax purposes and for purposes of
Title I of ERISA.
ARTICLE 1
DEFINITIONS
For purposes hereof, unless otherwise clearly apparent from the
context, the following phrases or terms shall have the following indicated
meanings:
1.1 "Assumed Interest Rate" means an interest rate of seven percent
(7%) per annum, compounded annually; provided, however, that if the
Plan Administrator deems it necessary or appropriate, such Assumed
Interest Rate may be adjusted from time to time. No Participant
shall be deemed to have any right, vested or nonvested, regarding
the continued use of any previously adopted Assumed Interest Rate.
1.2 "Beneficiary" means the individual designated, in accordance with
Article 9, that is entitled to receive benefits under this Plan upon the death
of a Participant.
1.3 "Beneficiary Designation Form" means the form established from time to
time by the Plan Administrator that a Participant completes, signs and returns
to the Plan Administrator to designate a Beneficiary.
1.4 "Board" means the board of directors of the Company.
1.5 "Cause" means:
(i) the Executive's willful and material breach of the Executive's
agreement to refrain from competition with Employers;
(ii) the Executive, while an employee, is convicted of, or pleads guilty or
NOLO CONTENDERE to, a felony;
(iii) The Executive's commission of a fraud or misappropriation which
causes material and demonstrable injury to any Employer; or
(iv) The Executive commits a willful act of dishonesty,
including but not limited to embezzlement, resulting or
intended to result, directly or indirectly, in material
personal gain or enrichment at the expense of any
Employer.
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SIERRA HEALTH SERVICES, INC.
Supplemental Executive Retirement Plan
For purposes of this definition, an act or failure to act on the
Executive's part shall be considered "willful" if it was done or
omitted to be done by the Executive intentionally and not in good
faith, and shall not include any act or failure to act resulting
from any incapacity of the Executive.
1.6 "Claimant" shall have the meaning set forth in Section 8.1.
1.7 "Change in Control" shall mean the earliest transaction or event
occurring after the effective date of the Plan in which (i) the Company shall
merge or consolidate with any other corporation and shall not be the surviving
corporation; (ii) the Company shall transfer all or substantially all of its
assets to any other person; or (iii) any person shall have become the beneficial
owner of more than 50% of the voting power of outstanding voting securities of
the Company.
1.8 "Code" means the Internal Revenue Code of 1986, as amended from
time to time, including regulations thereunder and successor
provisions and regulations thereto.
1.9 "Company" means Sierra Health Services, Inc., a Nevada corporation.
1.10 "Disability" means a period of disability during which a
Participant qualifies for benefits under the Participant's
Employer's long-term disability plan or, if a Participant does not
participate in such a plan, a period of disability during which the
Participant would have qualified for benefits under such a plan had
the Participant been a participant in such a plan, as determined in
the sole discretion of the Plan Administrator. If the Participant's
Employer does not sponsor such a plan or discontinues to sponsor
such a plan, Disability shall be determined by the Plan
Administrator in its sole discretion.
1.11 "Early Retirement" means a Participant ceasing to be an employee of
all Employers on or after his or her attainment of both age 55 and
ten Years of Service for any reason other than a leave of absence,
Normal Retirement, death, or Disability.
1.12 "Employer(s)" means the Company and any subsidiaries of the Company
that have been selected by the Board and have agreed to participate
in the Plan.
1.13 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
1.14 "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, including rules thereunder and successor
provisions and rules thereto.
1.15 "Final Average Compensation" means the average of a Participant's
Compensation for the three years in which such Compensation was
highest out of the last five calendar years of the Participant's
employment(including the annualized Compensation for the calendar
year in which the event that entitled the Participant to a
distribution of benefits under this Plan occurred), except as
provided in Section 4.2. For purposes of the preceding definition,
"Compensation" means the amounts earned by a Participant in respect
of a given year as salary and bonus within the meaning of Item
402(b)(2)(iii)(A) and (B) of Regulation S-K under the Exchange Act,
including amounts of salary and bonus (including the cash value of
any non-cash amount) deferred pursuant to Instruction 3 thereto on
a mandatory or elective basis; provided, however, that the amount
of bonus deemed earned for the calendar year in which the event
that entitled the Participant to a distribution of benefits under
this Plan occurred shall be not less than the target amount of
bonus specified as potentially earnable by the Participant for that
year, regardless of the amount of such bonus actually paid.
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SIERRA HEALTH SERVICES, INC.
Supplemental Executive Retirement Plan
1.16 "Employer Contributions" means, with respect to a Participant, the
sum of the actual balances, as of a specified date, in (i) the
Participant's account(s) holding allocated and vested employer
matching contributions, other employer contributions, and earnings
thereon under the Company's Profit-Sharing/401(k) Plan, as it may
be amended from time to time, and the Participant's account(s)
credited with vested employer matching contributions, "restoration"
contributions, and other employer contributions, and earnings
thereon under the Company's Deferred Compensation Plan, as it may
be amended from time to time.
1.17 "Normal Retirement" means a Participant ceasing to be an employee
of all Employers on or after the attainment of age sixty-five (65)
for any reason other than a leave of absence, death, or Disability.
1.18 "Participant" means any employee (i) who is selected to participate
in the Plan, (ii) who elects to participate in the Plan by signing
a Plan Agreement and a Beneficiary Designation Form, (iii) whose
signed Plan Agreement Form and Beneficiary Designation Form are
accepted by the Plan Administrator, and (iv) whose Plan Agreement
has not terminated. If a Participant has a Termination of
Employment and thereafter becomes reemployed by an Employer, he or
she must be reselected to participate and again meet the other
requirements of this definition in order to accrue benefits under
the Plan beyond the Participant's Vested SERP Benefit prior to such
reemployment.
1.19 "Plan" means this Supplemental Executive Retirement Plan of the
Company, as amended from time to time.
1.20 "Plan Administrator" means the plan administrator described in Article
7.
1.21 "Plan Agreement" means a written agreement, as may be amended from
time to time, which is entered into by and between an Employer and
a Participant. Each Plan Agreement executed by a Participant shall
provide for the entire benefit to which such Participant is
entitled under the Plan, and the Plan Agreement bearing the latest
date of acceptance by the Plan Administrator shall govern such
entitlement.
1.22 "Present Value" means the present value at a specified date of a
Participant's Vested SERP Benefit calculated using the Assumed
Interest Rate (i) in the case of a Participant (or beneficiary) to
whom payments have already begun, based on the period over which
such SERP Benefit remains payable assuming the payment of the SERP
Benefit will continue in quarterly installments, and (ii) in the
case of a Participant (or beneficiary) to whom payments have not
already begun, based on the payment of such SERP Benefit in
quarterly installments for a 15- year period assuming such
quarterly installments begin on the later of the first day of the
next calendar quarter which begins at least 30 days after such
specified date or the first day of the calendar quarter which
begins immediately at or after the Participant's completion of ten
Years of Service.
1.23 "Preretirement Survivor Benefit" means, in the case of a
Participant who dies prior to a Termination of Employment and not
during a Disability, the Participant's SERP Benefit as of the date
of death (which becomes Vested upon death) that is payable to such
Participant's Beneficiary, in accordance with Section 4.1(c).
1.24 "Retirement" or "Retires" means, in each instance, Early Retirement or
Normal Retirement, as the case may be.
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SIERRA HEALTH SERVICES, INC.
Supplemental Executive Retirement Plan
1.25 "SERP Benefit" means an amount payable each year in quarterly
installments over a period of 15 years to a Participant and,
following Participant's death, his or her Beneficiary(ies), which
amount is equal to the following:
(i) the product of 0.0375 multiplied by the Participant's Final Average
Compensation multiplied by his or her Years of Service (not to exceed 20); LESS
(ii) the amount, calculated as of the date of the Participant's
Termination of Employment, of annual payments that would
be payable assuming the Participant's Employer
Contributions were to be paid out in quarterly
installments at the same dates as the SERP Benefit is to
be paid over a period of 15 years, and assuming the
earnings on such Employer Contributions (less amounts
assumed to be paid out over the 15-year period) continued
to accrue at the Assumed Interest Rate; less
(iii) in the case of Participant who has received payments of his or her
SERP Benefit prior to a later Termination of Employment that gives rise to a new
calculation of a SERP Benefit, the amount, calculated as of the date of such
later Termination of Employment, of annual payments that would be payable
assuming the amount equal to the present value of all such prior payments of the
Participant's SERP Benefit (calculated based on the Assumed Interest Rate(s) in
effect during the period since such prior payments were made) to the Participant
were to be paid out in quarterly installments at the same dates as the SERP
Benefit is to be paid over a period of 15 years, and assuming the earnings on
such amount (less amounts assumed to be paid out over the 15-year period)
continued to accrue at the Assumed Interest Rate.
1.26 "Termination of Employment" means a Participant ceasing to be an
employee of all Employers, voluntarily or involuntarily, for any
reason (including due to death or Disability).
1.27 "Trust" means the trust established pursuant to that certain Master
Trust Agreement, dated as of May 1, 1996, between the Company and
Imperial Trust Company (and any successor trustee), as it may be
amended from time to time.
1.28 "Vested" means that portion of a Participant's SERP Benefits under
this Plan in which the Participant has a nonforfeitable right and
vested interest, as determined in accordance with Article 3 below.
1.29 "Years of Service" at a specified date means:
(i) in the case of a Participant named on Exhibit A hereto,
the total number of full years during which the
Participant has been employed by one or more Employers
through such date plus any additional Years of Service
credited to such Participant under Section 3.2;
(ii) in the case of a Participant not named on Exhibit A
hereto, the total number of full years in which the
Participant has been employed by one or more Employers
from the date the Participant commenced participation in
the Plan plus any additional Years of Service credited to
such Participant under Section 3.2;
provided, however, that a Participant who has ceased to be
designated for participation for purposes of further accruals of
benefits upon reemployment shall not be credited with additional
Years of Service upon such reemployment. For purposes of this
definition, a year of "Service" shall be a 365-day period (or
366-day period in the case of a leap year) commencing on the date
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SIERRA HEALTH SERVICES, INC.
Supplemental Executive Retirement Plan
of hiring and each anniversary thereof (subject to adjustment to
reflect leaves of absence), in the case of a Participant named on
Exhibit A, or the date of initial participation in the Plan and on
each anniversary thereof (subject to adjustment to reflect leaves
of absence), in the case of other Participants. In the case of a
Participant who has suffered a Disability but thereafter returns to
service or becomes reemployed by an Employer promptly after the
Disability ended, the period(s) of such Disability in the year in
which the Disability began and the year in which the Disability
ended will be counted as employment solely for purposes of this
definition, but any other period (I.E. full years) of Disability
shall not count as employment and therefore shall not be treated as
Years of Service. In the case of a Participant who has a
Termination of Employment for any reason other than death or
Disability following a Change in Control, (i) if the Participant
was not employed for a full 365- (or 366-) day period that includes
the date of the Change in Control, such Participant shall be deemed
to have completed a full Year of Service in respect of that period
which includes the Change in Control, and (ii), if the Participant
qualifies for payment of his or her SERP Benefit under Section
4.1(b) or under Section 4.1(a) within six years after the Change in
Control, such Participant shall be credited with an additional Year
of Service as of the date immediately prior to his or her
Termination of Employment. Except as provided in this definition,
no partial year of employment shall be counted as a Year of
Service. A Participant's paid leave of absence or unpaid leave of
absence for 90 days or less shall constitute employment for
purposes of this definition, but a Participant's unpaid leave of
absence for more than 90 days shall not constitute employment for
purposes of this definition.
ARTICLE 2
ELIGIBILITY
2.1 SELECTION FOR PARTICIPATION. Participation in the Plan shall be
limited to a select group of management and highly compensated
employees of the Employers. An employee from that group shall
become Participant only if the employee has been previously
nominated by the Plan Administrator and approved for participation
by the Compensation Committee of the Board of Directors.
2.2 ENROLLMENT REQUIREMENTS. As a condition to participation, each selected
employee shall ----------------------- complete, execute and return to the Plan
Administrator a Plan Agreement and a Beneficiary Designation Form. In addition,
the Plan Administrator shall establish from time to time such other enrollment
requirements as it determines in its sole discretion are necessary.
2.3 COMMENCEMENT OF PARTICIPATION. Provided an employee selected to
participate in the Plan has met all enrollment requirements set
forth in this Plan and required by the Plan Administrator at the
times required by the Plan Administrator, that employee shall
commence participation in the Plan on the date specified by the
Plan Administrator.
ARTICLE 3
VESTING; ADDITIONAL YEARS OF SERVICE
3.1 VESTING. Each Participant shall become Vested in his or her SERP
Benefit beginning at the earlier of the time such Participant has
five Years of Service, the termination of such Participant's
employment with all Employers due to death or upon the occurrence
of a Disability or a Change in Control.
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SIERRA HEALTH SERVICES, INC.
Supplemental Executive Retirement Plan
3.2 CREDITING OF ADDITIONAL YEARS OF SERVICE. Prior to commencement of
payment of a Participant's Vested SERP Benefit, a Participant may
be credited with additional "deemed" Years of Service, if
recommended by the Plan Administrator and approved by the
Compensation Committee. In no event may the number of such
additional "deemed" Years of Service exceed five for any one
Participant.
ARTICLE 4
BENEFITS
4.1 ELIGIBILITY FOR BENEFITS.
(a) BENEFIT UPON RETIREMENT OR DISABILITY. If a Participant
Retires or suffers a Disability, the Participant shall be
entitled to payment of his or her Vested SERP Benefit in
quarterly installments to the Participant and, following
Participant's death, to his or her Beneficiary(ies), for a
period of 15 years. Payment of benefits under this Section
4.1(a) shall commence on the first day of the next
calendar quarter that begins at least 30 days after such
Retirement or 30 days after the Plan Administrator's
receipt of written proof or determination of such
Participant's Disability.
(b) BENEFIT UPON TERMINATION FOLLOWING A CHANGE IN CONTROL. If
a Participant has a Termination of Employment within six
years following a Change in Control, other than a
Retirement or termination due to death or Disability, he
or she shall be paid, as a lump-sum cash payment, the
Present Value of his or her Vested SERP Benefit within 15
days after such Termination of Employment, in full
settlement of the Participant's rights under the Plan..
(c) SURVIVORS' BENEFIT. If a Participant dies prior to his or her
Termination of Employment ------------------ and not while Participant is
receiving benefits under Section 4.1(a) due to a Disability, the Participant's
Beneficiary shall be entitled to receive the Participant's Vested SERP Benefit
in the form of a Preretirement Survivor Benefit, payable in quarterly
installments for a period of 15 years. Payments of benefits under this Section
4.1(c) shall commence on the first day of the next calendar quarter that begins
at least 60 days after the Plan Administrator has received written proof of such
Participant's death. The foregoing notwithstanding, a Beneficiary then entitled
to receive a SERP Benefit may petition the Plan Administrator in writing
requesting payment of such SERP Benefit in a lump-sum due to the financial
hardship of the Beneficiary or his or her dependents, stating with particularity
the reasons giving rise to constituting such hardship. The Plan Administrator
may approve or disapprove such request, in its sole discretion. If approved,
such Beneficiary shall be paid, as a lump-sum cash payment, the Present Value of
such SERP Benefit as of the payment date specified by the Plan Administrator, in
full settlement of the Beneficiary's rights under the Plan.
(d) BENEFIT UPON OTHER TERMINATION OF EMPLOYMENT. If a Participant has a
Termination -------------------------------------------- of Employment which
does not give rise to payment of benefits under Section 4.1(a) or (b) and which
is not due to death and is not a termination by the Company for Cause, the
Participant shall be entitled to payment of his or her Vested SERP Benefit in
quarterly installments to the Participant and, following Participant's death, to
his or her Beneficiary(ies), for a period of 15 years. Payment of benefits under
this Section 4.1(d) shall commence on the later of the first day of the next
calendar quarter that begins at least 90 days after such Termination of
Employment or the next calendar quarter that begins at or after Participant's
completion of ten Years of Service; provided, however,
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SIERRA HEALTH SERVICES, INC.
Supplemental Executive Retirement Plan
that the Plan Administrator may elect to pay to the
Participant (or, following his or her death, to the
Participant's Beneficiary(ies)) a lump-sum cash payment,
the Present Value of such Vested SERP Benefit determined
as of the date of Termination of Employment, in full
settlement of the Participant's (and such
Beneficiary's(ies') rights under the Plan. Such lump-sum
cash payment shall be made on the first day of the next
calendar quarter that begins at least 90 days after such
Termination of Employment.
(e) CIRCUMSTANCES IN WHICH NO BENEFIT IS PAYABLE. Upon a Participant's
Termination of -------------------------------------------- Employment, the
Participant (including his or her Beneficiaries) will forfeit all rights to a
SERP Benefit if such SERP Benefit did not become Vested prior to or as a result
of such Termination of Employment. In addition, in the event of a Participant's
Termination of Employment by the Company for Cause which both is prior to a
Change in Control and does not qualify as a Retirement, the Participant
(including his or her Beneficiaries) will forfeit all rights to a SERP Benefit
whether or not such SERP Benefit had become Vested.
4.2 REEMPLOYMENT OF PARTICIPANT WHO HAS RECEIVED BENEFITS. Other provisions
of the Plan notwithstanding, if a Participant who has received payments of his
or her SERP Benefit thereafter becomes reemployed by any Employer (I.E.,
following the end of a Disability or as a result of being rehired), payments of
such SERP Benefit will be suspended for so long as the Participant is thereafter
employed by any Employer. Upon a subsequent Termination of Employment or
Disability, if the Participant did not accrue further benefits under the Plan
following such reemployment or if such subsequent Termination of Employment does
not give rise to payment of benefits under the Plan, the payment of the
Participant's previous Vested SERP Benefit shall resume in accordance with its
original terms (for the remaining period such Vested SERP Benefit is payable).
Upon a subsequent Termination of Employment or Disability, if the Participant
accrued further benefits under the Plan following such reemployment and if such
subsequent Termination of Employment or Disability gives rise to benefits under
Section 4.1, the Participant's SERP Benefit shall become payable in accordance
with Section 4.1; provided, however, that such Participant's Final Average
Compensation for purposes of calculating such SERP Benefit shall be the higher
of his or her Final Average Compensation at the date of the latest Termination
of Employment or the Final Average Compensation as previously calculated in
determining his or her previously paid SERP Benefit.
4.3 ALTERNATIVE PAYOUTS.
(a) LUMP SUM. If a Participant's Vested SERP Benefit under
this Plan at the time he or she, or his or her Beneficiary
(whether primary or contingent), becomes eligible to
receive a distribution under this Plan, when expressed on
a Present Value basis as a lump sum, is less than $25,000,
the Plan Administrator, in its sole discretion, may pay
that benefit in a lump sum at the time that benefit
payments would otherwise commence.
(b) WITHDRAWAL ELECTION. A Participant or his or her Beneficiary, as the
case may be, may ------------------- elect, at any time after he or she
commences to receive benefits payments under this Plan, to receive those
payments in a lump sum, based on the Present Value of his or her remaining
Vested SERP Benefits less a 10% penalty (as described below) (the net amount
shall be referred to as the "Benefit Amount"). No election to partially
accelerate benefits shall be allowed. The Participant shall make this election
by giving the Plan Administrator advance written notice of the election in a
form determined from time to time by the Plan Administrator. The penalty shall
be equal to 10% of the Participant's remaining Vested SERP Benefits, determined
on a Present Value basis. The Participant
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SIERRA HEALTH SERVICES, INC.
Supplemental Executive Retirement Plan
shall be paid the Benefit Amount within 60 days after his
or her election. Once the Benefit Amount is paid, the
Participant's participation in the Plan shall terminate
and the Participant shall not be eligible to participate
in the Plan in the future.
4.4 WITHHOLDING AND PAYROLL TAXES. The Employers shall withhold from any
and all benefits paid ----------------------------- under this Article 4 all
federal, state and local income, employment and other taxes required to be
withheld by the Employers in connection with the benefits hereunder, in amounts
to be determined in the sole discretion of the Employers.
ARTICLE 5
TERMINATION, AMENDMENT OR MODIFICATION OF THE PLAN
5.1 TERMINATION. Each Employer reserves the right to terminate the Plan
at any time with respect to its participating employees by the
action of its board of directors. A termination of the Plan shall
have the effect of terminating further accruals of Years of Service
that would accrue (assuming the Participant's continued employment)
more than six months after the termination of the Plan. A
termination of the Plan shall not otherwise materially adversely
affect the a - Participant's SERP Benefit or rights under the Plan
or, in the case of a Beneficiary who has become entitled to the
payment of benefits under the Plan as of the date of termination,
the rights of such Beneficiary under the Plan.
5.2 AMENDMENT. Any Employer may, at any time, amend or modify the Plan
in whole or in part with respect to its participating employees and
former employees by the actions of its board of directors;
provided, however, that no amendment or modification shall be
effective to decrease or materially adversely affect a
Participant's SERP Benefit or rights under the Plan or, in the case
of a Beneficiary who has become entitled to the payment of benefits
under the Plan as of the date of termination, the rights of such
Beneficiary under the Plan.
5.3 TERMINATION OF PLAN AGREEMENT. Absent the earlier termination,
modification or amendment of the Plan, the Plan Agreement of any Participant
shall terminate upon the full payment of the applicable Vested SERP Benefit as
provided under Article 4.
ARTICLE 6
OTHER BENEFITS AND AGREEMENTS
The benefits provided for a Participant under this Plan are in
addition to any other benefits available to such Participant under any other
plan or program for employees of the Employers. The Plan shall supplement and
shall not supersede, modify or amend any other such plan or program except as
may otherwise be expressly provided.
ARTICLE 7
ADMINISTRATION OF THE PLAN
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SIERRA HEALTH SERVICES, INC.
Supplemental Executive Retirement Plan
7.1 PLAN ADMINISTRATOR DUTIES. This Plan shall be administered by a
Plan Administrator which shall consist of the Compensation
Committee of the Board or such committee as the Board or the
Compensation Committee shall appoint. Members of the Plan
Administrator may be Participants under this Plan. The Plan
Administrator shall also have the discretion and authority to (i)
make, amend, interpret and enforce all appropriate rules and
regulations for the administration of this Plan and (ii) decide or
resolve any and all questions including interpretations of this
Plan, as may arise in connection with the Plan.
7.2 AGENTS. In the administration of this Plan, the Plan Administrator
may employ agents and delegate to them such administrative duties
as it sees fit, (including acting through a duly appointed
representative), and may from time to time consult with counsel,
who may be counsel to any Employer, or a compensation consultant,
who may be a consultant to any Employer.
7.3 BINDING EFFECT OF DECISIONS. The decision or action of the Plan
Administrator with respect to any question arising out of or in
connection with the administration, interpretation, and application
of the Plan and the rules and regulations promulgated hereunder
shall be final and conclusive and binding upon all persons having
any interest in the Plan.
7.4 INDEMNITY OF PLAN ADMINISTRATOR. All Employers shall indemnify and hold
harmless the ------------------------------- members of the Plan Administrator
against any and all claims, losses, damages, expenses or liabilities arising
from any action or failure to act with respect to this Plan, except in the case
of willful misconduct by the Plan Administrator or any of its members.
7.5 EMPLOYER INFORMATION. To enable the Plan Administrator to perform
its functions, each Employer shall supply full and timely
information to the Plan Administrator on all matters relating to
the compensation of its Participants, the date and circumstances of
the retirement, Disability, death or other Termination of
Employment of its Participants, and such other pertinent
information as the Plan Administrator may reasonably require.
ARTICLE 8
CLAIMS PROCEDURES
8.1 PRESENTATION OF CLAIM. Any Participant or Beneficiary of a deceased
Participant (such Participant or Beneficiary being referred to
below as a "Claimant") may deliver to the Plan Administrator a
written claim for a determination with respect to the amounts
distributable to such Claimant from the Plan. If such a claim
relates to the contents of a notice received by the Claimant, the
claim must be made within 60 days after such notice was received by
the Claimant. The claim must state with particularity the
determination desired by the Claimant. All other claims must be
made within 180 days of the date on which the event that caused the
claim to arise occurred. The claim must state with particularity
the determination desired by the Claimant.
8.2 NOTIFICATION OF DECISION. The Plan Administrator shall consider a
Claimant's claim within a ------------------------ reasonable time, and shall
notify the Claimant in writing:
(i) that the Claimant's requested determination has been made, and that the
claim has been allowed in full; or
(ii) that the Plan Administrator has reached a
conclusion contrary, in whole or in part, to the
Claimant's requested determination, and such
notice must set forth in a manner calculated to be
understood by the Claimant:
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SIERRA HEALTH SERVICES, INC.
Supplemental Executive Retirement Plan
(1) the specific reason(s) for the denial of the claim, or any part of it;
(2) specific reference(s) to pertinent provisions of the Plan upon which
such denial was based;
(3) a description of any additional material or information necessary for
the Claimant to perfect the claim, and an explanation of why such material or
information is necessary; and
(4) an explanation of the claim review procedure set forth in Section 8.3
below.
8.3 REVIEW OF A DENIED CLAIM. Within 60 days after receiving a notice
from the Plan Administrator that a claim has been denied, in whole
or in part, a Claimant (or the Claimant's duly authorized
representative) may file with the Plan Administrator a written
request for a review of the denial of the claim. Thereafter, but
not later than 30 days after the review procedure began, the
Claimant (or the Claimant's duly authorized representative):
(i) may review pertinent documents;
(ii) may submit written comments or other documents; and/or
(iii) may request a hearing, which the Plan Administrator, in its sole
discretion, may grant.
8.4 DECISION ON REVIEW. The Plan Administrator shall render its decision on
review promptly, and ------------------ not later than 60 days after the filing
of a written request for review of the denial, unless a hearing is held or other
special circumstances require additional time, in which case the Plan
Administrator's decision must be rendered within 120 days after such date. Such
decision must be written in a manner calculated to be understood by the
Claimant, and it must contain:
(i) specific reasons for the decision;
(ii) specific reference(s) to the pertinent Plan provisions upon which the
decision was based; and
(iii) such other matters as the Plan Administrator deems relevant.
8.5 LEGAL ACTION. A Claimant's compliance with the foregoing provisions
of this Article 8 is a mandatory prerequisite to a Claimant's right
to commence any legal action with respect to any claim for benefits
under this Plan. Except to the extent otherwise required by law,
any dispute or controversy arising under the Plan or in connection
with any Plan Agreement shall be settled exclusively by arbitration
in Las Vegas, Nevada, in accordance with the rules of the American
Arbitration Association in effect at the time of submission to
arbitration. Judgment may be entered on the arbitrators' award in
any court having jurisdiction.
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SIERRA HEALTH SERVICES, INC.
Supplemental Executive Retirement Plan
ARTICLE 9
BENEFICIARY DESIGNATION
9.1 BENEFICIARY. Each Participant shall have the right, at any time, to
designate his or her Beneficiary(ies) (both primary as well as
contingent) to receive any benefits payable under the Plan to a
beneficiary upon the death of a Participant. The Beneficiary
designated under this Plan may be the same as or different from the
Beneficiary designation under any other plan of an Employer in
which the Participant participates.
9.2 BENEFICIARY DESIGNATION; CHANGE; SPOUSAL CONSENT. A Participant shall
designate his or her ------------------------------------------------
Beneficiary by completing and signing the Beneficiary Designation Form, and
returning it to the Plan Administrator or its designated agent. A Participant
shall have the right to change a Beneficiary by completing, signing and
otherwise complying with the terms of the Beneficiary Designation Form and the
Plan Administrator's rules and procedures, as in effect from time to time. If
the Participant names someone other than his or her spouse as a Beneficiary, a
spousal consent, in the form designated by the Plan Administrator, must be
signed by that Participant's spouse and returned to the Plan Administrator. Upon
the acceptance by the Plan Administrator of a new Beneficiary Designation Form
filed by the Participant, all Beneficiary designations previously filed by the
Participant shall be cancelled. The Plan Administrator shall be entitled to rely
on the last Beneficiary Designation Form filed by the Participant and accepted
by the Plan Administrator prior to the Participant's death.
9.3 ACKNOWLEDGMENT. No designation or change in designation of a
Beneficiary shall be effective -------------- until received, accepted and
acknowledged in writing by the Plan Administrator or its designated agent.
9.4 NO BENEFICIARY DESIGNATION. If a Participant fails to designate a
Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or, if
all designated Beneficiaries predecease the Participant or die
prior to complete distribution of the Participant's benefits, then
the Participant's spouse and children shall be the designated
Beneficiary.
9.5 DOUBT AS TO BENEFICIARY. If the Plan Administrator has any doubt as to
the proper Beneficiary ----------------------- to receive payments pursuant to
this Plan, the Plan Administrator shall have the right, exercisable in its
discretion, to cause the Participant's Employer to withhold such payments until
this matter is resolved to the Plan Administrator's satisfaction.
9.6 DISCHARGE OF OBLIGATIONS. The payment of benefits under the Plan to
a Beneficiary shall fully and completely discharge all Employers
and the Plan Administrator from all further obligations under this
Plan with respect to the Participant, and that Participant's Plan
Agreement shall terminate upon such full payment of benefits.
11
<PAGE>
SIERRA HEALTH SERVICES, INC.
Supplemental Executive Retirement Plan
ARTICLE 10
TRUST
10.1 ESTABLISHMENT OF THE TRUST. The Company shall have established and
shall maintain the Trust. The Employers shall transfer over to the
Trust such assets, if any, as the Employers determine, in their
sole discretion.
10.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the
Plan and the Plan Agreement shall govern the rights of a
Participant to receive distributions pursuant to the Plan. The
provisions of the Trust shall govern the rights of the Employers,
Participants and the creditors of the Employers to the assets
transferred to the Trust. Each Employer shall at all times remain
liable to carry out its obligations under the Plan. Each Employer's
obligations under the Plan may be satisfied with Trust assets
distributed pursuant to the terms of the Trust, and any such
distribution shall reduce the Employer's obligations under this
Agreement.
ARTICLE 11
MISCELLANEOUS
11.1 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries
successors and assigns shall have no legal or equitable rights,
interests or claims in any property or assets of an Employer. Any
and all of an Employer's assets shall be, and remain, the general,
unpledged, unrestricted assets of the Employer. An Employer's
obligation under the Plan shall be merely that of an unfunded and
unsecured promise to pay money in the future.
11.2 EMPLOYER'S LIABILITY. An Employer's liability for the payment of
benefits shall be defined only by the Plan and the Plan Agreement,
as entered into between the Employer and a Participant. An Employer
shall have no obligation to a Participant under the Plan except as
expressly provided in the Plan and his or her Plan Agreement.
11.3 NONASSIGNABILITY. Neither a Participant nor any other person shall
have any right to commute, sell, assign, transfer, pledge,
anticipate, mortgage or otherwise encumber, transfer, hypothecate
or convey in advance of actual receipt, the amounts, if any,
payable hereunder, or any part thereof, which are, and all rights
to which are, expressly declared to be, unassignable and
non-transferable. No part of the amounts payable shall, prior to
actual payment, be subject to seizure or sequestration for the
payment of any debts, judgments, alimony or separate maintenance
owed by a Participant or any other person, nor be transferable by
operation of law in the event of a Participant's or any other
person's bankruptcy or insolvency.
11.4 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan
shall not be deemed to constitute a contract of employment between
any Employer and the Participant. Such employment is hereby
acknowledged to be an "at will" employment relationship that can be
terminated at any time for any reason, with or without cause,
unless otherwise expressly provided in a written employment
agreement. Nothing in this Plan shall be deemed to give a
Participant the right to be retained in the service of any Employer
or to interfere with the right of any Employer to discipline or
discharge the Participant at any time.
11.5 FURNISHING INFORMATION. A Participant or his or her Beneficiary will
cooperate with the Plan Administrator by furnishing any and all information
requested by the Plan Administrator and take such other actions as may be
requested in order to facilitate the administration of the Plan and
12
<PAGE>
SIERRA HEALTH SERVICES, INC.
Supplemental Executive Retirement Plan
the payments of benefits hereunder, including but not limited to
taking such physical examinations as the Plan Administrator may
deem necessary.
11.6 TERMS. Whenever any words are used herein in the masculine, they
shall be construed as though they were in the feminine in all cases
where they would so apply; and wherever any words are used herein
in the singular or in the plural, they shall be construed as though
they were used in the plural or the singular, as the case may be,
in all cases where they would so apply.
11.7 CAPTIONS. The captions of the articles, sections and paragraphs of
this Plan are for convenience only and shall not control or affect
the meaning or construction of any of its provisions.
11.8 GOVERNING LAW. Subject to ERISA, the provisions of this Plan shall be
construed and interpreted according to the internal laws of the State of Nevada
without regard to its conflict of laws principles.
11.9 VALIDITY. In case any provision of this Plan shall be illegal or
invalid for any reason, said illegality or invalidity shall not
affect the remaining parts hereof, but this Plan shall be construed
and enforced as if such illegal and invalid provision had never
been inserted herein.
11.10 NOTICE. Any notice or filing required or permitted to be given to
the Plan Administrator under this Plan shall be sufficient if in
writing and hand-delivered, or sent by registered or certified
mail, to the address below:
Sierra Health Services, Inc.
2724 North Tenaya Way
Las Vegas, Nevada 89128
Attn.: Office of General Counsel
Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on
the receipt for registration or certification.
Any notice or filing required or permitted to be given to a
Participant under this Plan shall be sufficient if in writing and
hand-delivered, or sent by mail, to the last known address of the
Participant.
11.11 SUCCESSORS. The provisions of this Plan shall bind and inure to the
benefit of the Participant's Employer and its successors and
assigns and the Participant and the Participant's Beneficiary(ies).
11.12 SPOUSE'S INTEREST. The interest in the benefits hereunder of a
spouse of a Participant who has predeceased the Participant shall
automatically pass to the Participant and shall not be transferable
by such spouse in any manner, including but not limited to such
spouse's will, nor shall such interest pass under the laws of
intestate succession.
11.13 INCOMPETENT. If the Plan Administrator determines in its discretion
that a benefit under this Plan is to be paid to a minor, a person
declared incompetent or to a person incapable of handling the
disposition of that person's property, the Plan Administrator may
direct payment of such benefit to the guardian, legal
representative or person having the care and custody of such minor,
incompetent or incapable person. The Plan Administrator may require
proof of minority, incompetency, incapacity or guardianship, as it
may deem appropriate prior to distribution of the
13
<PAGE>
SIERRA HEALTH SERVICES, INC.
Supplemental Executive Retirement Plan
benefit. Any payment of a benefit shall be a payment for the
account of the Participant and the Participant's Beneficiary, as
the case may be, and shall be a complete discharge of any liability
under the Plan for such payment amount.
11.14 COURT ORDER. The Plan Administrator is authorized to make any
payments directed by court order in any action in which the Plan or Plan
Administrator has been named as a party.
11.15 DISTRIBUTION IN THE EVENT OF TAXATION. If, for any reason, all or
any portion of a Participant's benefit under this Plan becomes
taxable to the Participant prior to receipt, a Participant may
petition the Plan Administrator for a distribution of that portion
of his or her benefit that has become taxable. Upon the grant of
such a petition, which grant shall not be unreasonably withheld, a
Participant's Employer shall distribute to the Participant
immediately available funds in an amount equal to the taxable
portion of his or her benefit (which amount shall not exceed a
Participant's unpaid Account Balance under the Plan). If the
petition is granted, the tax liability distribution shall be made
within 90 days of the date when the Participant's petition is
granted. Such a distribution shall affect and reduce the benefits
to be paid under this Plan.
14
<PAGE>
SIERRA HEALTH SERVICES, INC.
Supplemental Executive Retirement Plan
IN WITNESS WHEREOF, Sierra Health Services, Inc. has signed this Plan
document on ______________, 1997.
SIERRA HEALTH SERVICES, INC.
a Nevada corporation
By: /S/ ERIN E. MACDONALD
Title: PRESIDENT AND CHIEF
OPERATING OFFICER
15
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This Agreement is made this 1st day of , by and between SIERRA
HEALTH SERVICES, Inc., a Nevada Corporation, of Las Vegas, Nevada (hereinafter
referred to as "Employer"), AND JONATHON W. BUNKER , (hereinafter referred to as
"Employee").
WITNESSETH
WHEREAS, Employer is a publicly traded company engaged in the
business of providing managed health care services through subsidiary companies;
WHEREAS, Employee has expertise and experience in providing
Managed Health Care Services; and, WHEREAS, the Employee has
made and is expected to continue to make a major contribution
to the
profitability, growth and financial strength of the Employer;
NOW, THEREFORE, in consideration of the mutual promises and
agreements hereinafter set forth, Employer and Employee agree as follows:
ARTICLE I
EMPLOYMENT/DUTIES AND POWERS
1. Employer hereby employs, engages and hires Employee as VICE
PRESIDENT, HMO INSURANCE OPERATIONS FOR SIERRA HEALTH SERVICES; PRESIDENT OF
HEALTH PLAN OF NEVADA, INC.; PRESIDENT OF SIERRA HEALTH AND LIFE INSURANCE
COMPANY, INC.; PRESIDENT OF SIERRA HEALTHCARE OPTIONS, INC., and Employee hereby
accepts and agrees to such hiring, engagement and employment, subject to the
general supervision and direction of Employer.
2. Employee shall perform such duties as are assigned by the President
of Employer or his/her designee, and shall at all times faithfully and to the
best of his/her ability, perform all the duties that may be required of Employee
to the reasonable satisfaction of Employer. Employee shall exercise only those
powers for signing contracts and conveyances in the ordinary course of business
as are expressly authorized by the Employer's President or the appropriate Board
of Directors. Employee further agrees to participate in and assist in the
development of quality improvement programs offered by the Employer.
ARTICLE II TERM OF EMPLOYMENT 1. The term of this Agreement shall be for a
TWO (2) year period starting MAY 20, 1996 and terminating MAY 19, 1998 subject,
however, to prior termination as hereinafter provided in Article VII.
ARTICLE III COMPENSATION AND REVIEW 1. Employer shall pay Employee and
Employee shall accept from Employer as full payment for Employee's services
hereunder, compensation in the amount as set forth in Attachment A of this
Agreement, payable at such times as are deemed appropriate by Employer, but not
less than twice a month. 2. (a) Employer shall reimburse Employee for all
necessary and reasonable business expenses incurred by Employee while performing
services pursuant to Employer's direction. (b) The Employee agrees to maintain
adequate records of expenses, in such detail as the Employer may reasonably
request. 3. (a) Employee shall also be eligible for those Employee fringe
benefit programs, bonus plans, and stock option plans as are made available to
other employees of the corporation at the same organizational level, and as
approved by the Board of Directors. (b) It is expressly understood that Employer
may, at any time and at its sole discretion, amend any fringe benefit programs,
bonus programs, or stock option programs without prior notice to the Employee
even though such an amendment may decrease the benefits available under said
programs. 4. Employee's performance shall be reviewed at least annually based on
established job duties, goals and objectives and other reasonable standards as
deemed necessary and appropriate by the Employer.
ARTICLE IV
OTHER EMPLOYMENT
Employee shall devote all of his time, attention, knowledge, and skills
solely to the business and interest of Employer, unless otherwise authorized by
the Employer, and Employer shall be entitled to all of the income, benefits, or
profits arising from or incident to all work, work associations, services, or
advice of Employee, unless otherwise authorized in writing by the Employer.
Employee shall not, during the term hereof, be interested in any manner, as
partner, officer, director, advisor, employee or in any other capacity in any
other business similar to Employer's business or any allied trade, or obtain any
interest adverse to Employer; provided, however, that Employee may provide
advice and consultation to other entities with the written approval of Employer,
and further provided, however, that nothing herein contained shall be deemed to
prevent or limit the right of Employee to invest any of his/her surplus funds in
the capital stock or other securities of any corporation whose stock or
securities are publicly owned or are regularly traded on any public exchange,
nor shall anything herein contained be deemed to prevent Employee from investing
or limit Employee's right to invest his/her surplus funds in real estate.
Employee shall complete a Conflict of Interest form by February 15 of each
calendar year and submit it to the Employer for review. All conflicts of
interest or any potential conflicts of interest which arise during the year must
be immediately reported to the Employer. All conflict of interest concerns must
be resolved to the reasonable satisfaction of the Employer as a condition of
continuation of employment.
ARTICLE V
BUSINESS SECRETS
1. Employee shall not at any time or in any manner, either directly or
indirectly, divulge, disclose or communicate to any person, firm or corporation,
in any manner whatsoever, any proprietary or confidential information concerning
any matter affecting or relating to the business of Employer or its
subsidiaries, including without limiting the generality of the foregoing, any of
their customers, the prices they obtain from providers or have obtained from the
sale of, or at which they sell or have sold, its services, or any other
information concerning the business of Employer or its subsidiaries, their
manner of operation, or their plans, if such a disclosure would be detrimental
to the business interests of the Employer or its subsidiaries.
2. If this Agreement is terminated by either party at any time
hereafter, then the Employee agrees to turn over to the Employer all papers,
documents, working papers, correspondence, memos and any and all other documents
in Employee's possession relating to or concerning any matter affecting or
relating to the business of the Employer or its subsidiaries.
ARTICLE VI
NONCOMPETITION AGREEMENT
1. The Employee acknowledges that in Employee's employment hereunder,
Employee will have continual contacts with the groups, members, and providers
who are covered by or associated with the managed health care programs offered
by the Employer or its subsidiaries in Nevada and other states. In all of
Employee's activities, the Employee, through the nature of Employee's work, will
have access to and will acquire confidential information related to the business
and operations of the Employer and its subsidiaries, including, without limiting
the generality of the foregoing, member and group lists, and confidential
information relating to processes, plans, methods of doing business and special
needs of doctors, hospitals, members, groups, pharmacies, or other health care
providers who contract with the Employer or its subsidiaries. The Employee
acknowledges that all such information is the property of the Employer or its
subsidiaries solely and constitutes confidential information of such parties;
that the disclosure thereof would cause substantial loss to the goodwill of the
Employer and its subsidiaries; that disclosure thereof to the Employee is being
made only because of the position of trust and confidence which Employee will
occupy and because of Employee's agreement to the restrictions herein contained;
that his knowledge of these matters would enable him, on termination of this
Agreement, to compete with the Employer or its subsidiaries in a manner likely
to cause the Employer and its subsidiaries irreparable harm, and disclosure of
such matters would, likewise, cause such harm; and that the restrictions imposed
upon the Employee herein would not prohibit the Employee in earning a living.
2. It is understood and agreed by the Employee and the Employer that
the essence of this Employment Agreement is the mutual covenants of the parties
herein made that the present and future members and groups of the Employer or
its subsidiaries will remain the Employer's or its subsidiaries' members and
groups during the term of this Agreement and in the event of its termination for
any reason by either party. In consideration for the employment and continued
employment of the Employee by the Employer, and also for the amount received by
the Employee as compensation, the Employee hereby irrevocably warrants,
covenants, and agrees as follows:
(a) during the term of Employee's employment and after leaving
the employment of the Employer for any reason, whether involuntary or voluntary,
the Employee will not take any action whatsoever which may or might disturb any
existing business relationship of the Employer or its subsidiaries with any
doctors, groups, members, hospitals, pharmacies or other health care providers
in Nevada who contract with the Employer or its subsidiaries;
(b) for a period of one (1) year after leaving the employment
of the Employer, Employee will not solicit business from the members or groups
of the Employer or its subsidiaries in Nevada, or in any manner disrupt any
business relationship the Employer or its subsidiaries has with any contracted
health care provider in Nevada with whom Employee came in contact as an employee
of the Employer.
(c) for a period of one (1) year after leaving the employment
of the Employer, Employee will not, either directly or indirectly, work for any
present or future competitors of Employer operating in the state of Nevada who
in any manner offer any managed health care programs, insurance coverage, or
administer health care claims for employers. Such competitors shall include, but
are not limited to, HMOs, PPOs, insurance companies, utilization management
companies, or third party administrators.
3. The one (1) year period specified in this Article will be tolled
during any period of breach of any of the terms of Article VII by the Employee.
4. The Employee agrees that in the event of a breach of any term of
this Agreement, and more particularly, in the event of a breach of any of the
terms and provisions of Article VII, the Employer shall be entitled to secure an
order in any suit brought for that purpose to enjoin the Employee from violating
any of the provisions of the Agreement and that, pending the hearing and the
decision on the application for such order, the Employer shall be entitled to a
temporary restraining order without prejudice to any other remedy available to
the Employer, all at the expense of the Employee should the Employer prevail in
such action. The Employee understands that the covenants of this Article are the
essence of this Employment Agreement, and without which no Employment Agreement
with the Employee would be entered into by the Employer.
5. The provisions of Article VII shall in no event be construed to be
an exclusive remedy and such remedy shall be held and construed to be cumulative
and not exclusive of any rights or remedies, whether in law or equity, otherwise
available under the terms of this Agreement or under the laws of the United
States or the state of Nevada.
6. The covenants and agreements made by the Employee in this Article
VII shall be construed as an agreement independent of any other provision in the
Agreement and the existence of any claim or cause of action by the Employee
against the Employer, whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by the Employer, by injunctive
relief or otherwise, of the provisions of Article VII. The invalidity of all or
any part of any section or paragraph of this Article VII shall not render
invalid the remainder of this Article or any section hereof.
7. No failure or failures on the part of the Employer to enforce any
violation by the Employee of this Noncompetition agreement, shall constitute a
waiver of the Employer's rights thereafter to enforce all of the terms,
covenants, provisions and agreements herein contained.
ARTICLE VII
TERMINATION OF EMPLOYMENT
1. Termination of employment by either Employer or Employee shall
follow established Sierra Health Services Policies and Procedures including
appropriate notice, except as otherwise specifically set forth in this Article.
2. The Employee may terminate this Agreement and employment hereunder
with sixty (60) days prior written notice. If Employee shall voluntarily
terminate the Agreement all eligible separation compensation and benefits as are
routinely made available to other employees of the Employer at the same
organizational level, shall be paid or made available to the Employee.
3. If Employer shall terminate this Agreement without cause, except as
otherwise set forth in Paragraph 7 of this Article, Employee shall be entitled
to SIX (6) MONTH'S salary and all other separation compensation and benefits as
are routinely made available to other employees of the Employer at the same
organizational level.
4. Notwithstanding any other provision in this Agreement to the
contrary, Employee hereby agrees that any separation compensation due to the
Employee, other than accrued vacation, shall be paid out 25% after the first 90
days, 37 1/2% after the first 180 days, and the remaining 37 1/2% at the end of
365 days. Payment of such amounts shall fully release the Employer from any and
all liability of the Employer relating to this Agreement or the employment
hereunder.
5. If Employer shall terminate the Agreement for Employee conduct that
is materially detrimental to the Company's reputation, business relationships,
or for misappropriation of Employer's funds, Employee shall be eligible for four
(4) weeks' salary and any other separation compensation and benefits as are
routinely made available to other employees of the Employer at the same
organizational level, as full and final payment under this Agreement. Payment of
such amounts shall fully release the Employer from any and all liability of the
Employer relating to this Agreement or the employment hereunder. 6. (a) If the
Employee is unable to perform Employee's duties hereunder, by reason of illness
or incapacity of any kind, for a period of more than THREE (3) MONTHS in excess
of accrued sick leave, this Agreement, and the employment hereunder may be
terminated by the Employer at its absolute discretion with one week of prior
written notice. (b) If the Employee's illness or incapacity shall have ended,
and the Employee shall have assumed Employee's duties hereunder, prior to the
date specified in the notice of termination, Employee shall be entitled to
resume Employee's employment hereunder as if such notice had not been given.
(c) In the event of the death of the Employee during the term
of this Agreement, the Employer shall be required to pay the Employee's personal
representative or the executor or administrator of the Employee's estate, THREE
(3) MONTHS of the Employee's total prior year's annual compensation including
both salary and bonus. Such payment shall be in addition to any other payment to
which the Employee or their estate is otherwise eligible for under the terms of
this Agreement.
7. In the event of a change in control of the Employer, whereby any
"person" (as such term is used in Sections 3(a)(9) and 13(d)(3) of the
Securities Exchange Act of 1934) is or becomes the beneficial owner, directly or
indirectly, of securities of Employer representing 51% or more of the combined
voting power of the then outstanding securities of Employer, and such change in
control was not approved by a majority of the Board of Directors of Employer,
Employee, at his/her sole option, shall be entitled to terminate this Agreement
and will be entitled to TWELVE (12) MONTH'S salary and any other separation
compensation and benefits as are routinely made available to other employees of
the Employer at the same organizational level. Payment of such amounts shall
fully release the Employer from any and all liability of the Employer relating
to this Agreement or the employment hereunder.
8. In the event of a change in control of the Employer, whereby any
"person" (as such term is used in Sections 3(a)(9) and 13(d)(3) of the
Securities Exchange Act of 1934) is or becomes the beneficial owner, directly or
indirectly, of securities of Employer representing 51% or more of the combined
voting power of the then outstanding securities of Employer, and such change in
control is approved by a majority of the Board of Directors of Employer,
Employee, at his/her sole option, shall be entitled to terminate this Agreement
and will be entitled to one (l) year's salary and any other separation
compensation and benefits as are routinely made available to other employees of
the Employer at the same organizational level if, within one (l) year after the
effective date of the change in control the Employee's principal duties or
compensation, including salary and bonus, is materially changed. It is expressly
understood that a change in who the Employee reports to shall not constitute a
material change in duties. In addition, if the Employee's employment hereunder
is terminated for reasons other than those set forth in Paragraph 4 of this
Article within one year after the effective date of a change in control which
was approved by a majority of the Employer's Board of Directors, Employee shall
be entitled to TWELVE (12) MONTH'S salary and all other separation compensation
and benefits as are routinely made available to other employees of the Employer
at the same organizational level. Payment of such amounts shall fully release
the Employer from any and all liability of the Employer relating to this
Agreement or the employment hereunder.
9. Anything contained herein to the contrary notwithstanding in the
event that Employer shall discontinue operation of Employer other than as a
result of a merger, consolidation or acquisition, then this Agreement shall
terminate as of the last day of the month in which Employer ceases operation
with the same force and effect as if such last day of the month were originally
set as the termination date hereof.
ARTICLE VIII
EFFECT OF WAIVER
The waiver by either party of a breach of any provision of this
agreement shall not operate or be construed as a waiver of any subsequent breach
thereof.
ARTICLE IX
ACTUAL ATTORNEY'S FEES EXPENDED
Employer and Employee agree that all attorneys fees expended by either
party in any dispute, arbitration or litigation concerning this Agreement will
be paid by the losing party in that dispute, arbitration or litigation.
ARTICLE X
NOTICE
Any and all notices referred to herein shall be sufficient if furnished
in writing, sent by registered mail to the representative parties at the
addresses subscribed below their signatures to this Agreement.
ARTICLE XI
ASSIGNMENT
The rights, benefits and obligations of the Employee under this
Agreement shall be assignable, and all covenants and agreements hereunder shall
inure to the benefit of and be enforceable by or against the Employer's
successors or assigns.
ARTICLE XII
ENTIRE AGREEMENT
This Agreement contains the entire Agreement between the parties, and
the parties hereby agree that no other oral representations or agreements have
been entered into in connection with this transaction.
ARTICLE XIII
AMENDMENT
No amendment or modification of this Agreement shall be deemed
effective, unless or until, it is executed in writing by the parties hereto.
ARTICLE XIV
VALIDITY
This Agreement, having been executed and delivered in the State of
Nevada, its validity, interpretation, performance and enforcement will be
governed by the laws of that state.
ARTICLE XV
SEVERABILITY
It is mutually agreed that all of the terms, covenants, provisions, and
agreements contained herein are severable and that, in the event any of them
shall be held to be invalid by any competent court, this Agreement shall be
interpreted as if such invalid term, covenant, provision, or agreement were not
contained herein.
ARTICLE XVI
FORUM
The parties hereto consent and agree that any action to enforce this
Agreement or any provision therein or any rights hereunder or any action
relating to the employment of the Employee with the Employer shall be brought in
the State of Nevada.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement at
Las Vegas, Nevada, on the day of , 19 .
SIERRA HEALTH SERVICES, INC.
By:
Chief Executive Officer
P. O. Box 15645
Las Vegas, NV 89114-5645
EMPLOYEE
By:
Jonathon W. Bunker
<PAGE>
ATTACHMENT A
<PAGE>
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 (the "Amendment") to Employment Agreement is hereby
made and entered into as of this 1st day of May, 1997, by and between Sierra
Health Services, Inc., a Nevada corporation (hereinafter referred to as
"Employer") and JONATHON W. BUNKER (hereinafter referred to as "Employee").
WHEREAS, the Employer and Employee are parties to that certain Employment
Agreement dated as of JULY 1, 1996 ; and
WHEREAS, the parties hereto desire to amend certain terms thereof on the
terms and conditions hereinafter set forth; and
WHEREAS, the Compensation Committee of the Board of Directors of
Employer have reviewed and approved this Amendment.
NOW, THEREFORE, in consideration of the foregoing premises, and for
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. SENTENCE 1 OF PARAGRAPH 7 OF ARTICLE VII, TERMINATION OF EMPLOYMENT, IS
HEREBY AMENDED TO READ AS FOLLOWS:
In the event of a change in control of the Employer, whereby
any "person" (as such term is used in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934) is or becomes
the beneficial owner, directly or indirectly, of securities of
Employer representing 51% or more of the combined voting power
of the then outstanding securities of Employer, and such
change in control was not approved by a majority of the Board
of Directors of Employer, Employee, at his/her sole option,
shall be entitled to terminate this Agreement and will be
entitled to twelve (12) months salary, WHICH SHALL BE GROSSED
UP FOR TAXES IN AN AMOUNT NOT TO EXCEED FIFTY PERCENT (50%) OF
THE TWELVE (12) MONTHS SALARY, and any other separation
compensation and benefits as are routinely made available to
other employees of the Employer at the same organizational
level.
2. SENTENCE 1 OF PARAGRAPH 8 OF ARTICLE VII, TERMINATION OF EMPLOYMENT,
IS HEREBY AMENDED TO READ AS FOLLOWS:
In the event of a change in control of the Employer, whereby
any "person" (as such term is used in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934) is or becomes
the beneficial owner, directly or indirectly, of securities of
Employer representing 51% or more of the combined voting power
of the then outstanding securities of Employer, and such
change in control is approved by a majority of the Board of
Directors of Employer, Employee, at his/her sole option, shall
be entitled to terminate this Agreement and will be entitled
to twelve (12) months salary, WHICH SHALL BE GROSSED UP FOR
TAXES IN AN AMOUNT NOT TO EXCEED FIFTY PERCENT (50%) OF THE
TWELVE (12) MONTHS SALARY, and any other separation
compensation and benefits as are routinely made available to
other employees of the Employer at the same organizational
level if, within one (l) year after the effective date of the
change in control the Employee's principal duties or
compensation, including salary and bonus, is materially
changed.
3. SENTENCE 3 OF PARAGRAPH 8 OF ARTICLE VII, TERMINATION OF EMPLOYMENT, IS
HEREBY AMENDED TO READ
- -------------------------------------------------------------------------------
AS FOLLOWS: ----------
In addition, if the Employee's employment hereunder is
terminated for reasons other than those set forth in Paragraph
4 of this Article within one year after the effective date of
a change in control which was approved by a majority of the
Employer's Board of Directors, Employee shall be entitled to
twelve (12) months salary, WHICH SHALL BE GROSSED UP FOR TAXES
IN AN AMOUNT NOT TO EXCEED FIFTY PERCENT (50%) OF THE TWELVE
(12) MONTHS SALARY, and all other separation compensation and
benefits as are routinely made available to other employees of
the Employer at the same organizational level.
4. EFFECTIVE DATE. This Amendment shall be effective as of May 1, 1997.
5. CONTINUED EFFECT. Except as otherwise modified hereby, the Agreement
shall continue in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date first above written.
SIERRA HEALTH SERVICES, INC.
BY:________________________________
Erin E. MacDonald, President
EMPLOYEE
BY: /S/ JONATHON W. BUNKER
EXHIBIT 10.6
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 (the "Amendment") to Employment Agreement is
hereby made and entered into as of this 1st day of May, 1997, by and between
Sierra Health Services, Inc., a Nevada corporation (hereinafter referred to as
"Employer") and FRANK COLLINS (hereinafter referred to as "Employee").
WHEREAS, the Employer and Employee are parties to that certain Employment
Agreement dated as of JULY 1, 1996 ; and
WHEREAS, the parties hereto desire to amend certain terms thereof on
the terms and conditions hereinafter set forth; and
WHEREAS, the Compensation Committee of the Board of Directors of
Employer have reviewed and approved this Amendment.
NOW, THEREFORE, in consideration of the foregoing premises, and for
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. SENTENCE 1 OF PARAGRAPH 7 OF ARTICLE VII, TERMINATION OF
EMPLOYMENT, IS HEREBY AMENDED TO READ
-----------------------------------------------------------------------------
AS FOLLOWS:
----------
In the event of a change in control of the Employer, whereby
any "person" (as such term is used in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934) is or becomes
the beneficial owner, directly or indirectly, of securities of
Employer representing 51% or more of the combined voting power
of the then outstanding securities of Employer, and such
change in control was not approved by a majority of the Board
of Directors of Employer, Employee, at his/her sole option,
shall be entitled to terminate this Agreement and will be
entitled to twelve (12) months salary, WHICH SHALL BE GROSSED
UP FOR TAXES IN AN AMOUNT NOT TO EXCEED FIFTY PERCENT (50%) OF
THE TWELVE (12) MONTHS SALARY, and any other separation
compensation and benefits as are routinely made available to
other employees of the Employer at the same organizational
level.
2. SENTENCE 1 OF PARAGRAPH 8 OF ARTICLE VII, TERMINATION OF
EMPLOYMENT, IS HEREBY AMENDED TO READ ---------------------
AS FOLLOWS:
----------
In the event of a change in control of the Employer, whereby
any "person" (as such term is used in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934) is or becomes
the beneficial owner, directly or indirectly, of securities of
Employer representing 51% or more of the combined voting power
of the then outstanding securities of Employer, and such
change in control is approved by a majority of the Board of
Directors of Employer, Employee, at his/her sole option, shall
be entitled to terminate this Agreement and will be entitled
to twelve (12) months salary, WHICH SHALL BE GROSSED UP FOR
TAXES IN AN AMOUNT NOT TO EXCEED FIFTY PERCENT (50%) OF THE
TWELVE (12) MONTHS SALARY, and any other separation
compensation and benefits as are routinely made available to
other employees of the Employer at the same organizational
level if, within one (l) year after the effective date of the
change in control the Employee's principal duties or
compensation, including salary and bonus, is materially
changed.
3. SENTENCE 3 OF PARAGRAPH 8 OF ARTICLE VII, TERMINATION OF EMPLOYMENT, IS
HEREBY AMENDED TO READ AS FOLLOWS:
In addition, if the Employee's employment hereunder is
terminated for reasons other than those set forth in Paragraph
4 of this Article within one year after the effective date of
a change in control which was approved by a majority of the
Employer's Board of Directors, Employee shall be entitled to
twelve (12) months salary, WHICH SHALL BE GROSSED UP FOR TAXES
IN AN AMOUNT NOT TO EXCEED FIFTY PERCENT (50%) OF THE TWELVE
(12) MONTHS SALARY, and all other separation compensation and
benefits as are routinely made available to other employees of
the Employer at the same organizational level.
4. EFFECTIVE DATE. This Amendment shall be effective as of May 1, 1997.
5. CONTINUED EFFECT. Except as otherwise modified hereby, the Agreement
shall continue in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date first above written.
SIERRA HEALTH SERVICES, INC.
BY: /S/ ERIN E. MACDONALD
Erin E. MacDonald, President
EMPLOYEE
BY: /S/ FRANK E. COLLINS
EXHIBIT 10.7
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 (the "Amendment") to Employment Agreement is
hereby made and entered into as of this 1st day of May, 1997, by and between
Sierra Health Services, Inc., a Nevada corporation (hereinafter referred to as
"Employer") and WILLIAM R. GODFREY (hereinafter referred to as "Employee").
WHEREAS, the Employer and Employee are parties to that certain Employment
Agreement dated as of JULY 1, 1994 ; and
WHEREAS, the parties hereto desire to amend certain terms thereof on
the terms and conditions hereinafter set forth; and
WHEREAS, the Compensation Committee of the Board of Directors of
Employer have reviewed and approved this Amendment.
NOW, THEREFORE, in consideration of the foregoing premises, and for
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. SENTENCE 1 OF PARAGRAPH 7 OF ARTICLE VII, TERMINATION OF EMPLOYMENT, IS
HEREBY AMENDED TO READ
- ------------------------------------------------------------------------------
AS FOLLOWS: ----------
In the event of a change in control of the Employer, whereby
any "person" (as such term is used in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934) is or becomes
the beneficial owner, directly or indirectly, of securities of
Employer representing 51% or more of the combined voting power
of the then outstanding securities of Employer, and such
change in control was not approved by a majority of the Board
of Directors of Employer, Employee, at his/her sole option,
shall be entitled to terminate this Agreement and will be
entitled to twelve (12) months salary, WHICH SHALL BE GROSSED
UP FOR TAXES IN AN AMOUNT NOT TO EXCEED FIFTY PERCENT (50%) OF
THE TWELVE (12) MONTHS SALARY, and any other separation
compensation and benefits as are routinely made available to
other employees of the Employer at the same organizational
level.
2. SENTENCE 1 OF PARAGRAPH 8 OF ARTICLE VII, TERMINATION OF EMPLOYMENT, IS
HEREBY AMENDED TO READ
- -----------------------------------------------------------------------------
AS FOLLOWS:
In the event of a change in control of the Employer, whereby
any "person" (as such term is used in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934) is or becomes
the beneficial owner, directly or indirectly, of securities of
Employer representing 51% or more of the combined voting power
of the then outstanding securities of Employer, and such
change in control is approved by a majority of the Board of
Directors of Employer, Employee, at his/her sole option, shall
be entitled to terminate this Agreement and will be entitled
to twelve (12) months salary, WHICH SHALL BE GROSSED UP FOR
TAXES IN AN AMOUNT NOT TO EXCEED FIFTY PERCENT (50%) OF THE
TWELVE (12) MONTHS SALARY, and any other separation
compensation and benefits as are routinely made available to
other employees of the Employer at the same organizational
level if, within one (l) year after the effective date of the
change in control the Employee's principal duties or
compensation, including salary and bonus, is materially
changed.
3. SENTENCE 3 OF PARAGRAPH 8 OF ARTICLE VII, TERMINATION OF EMPLOYMENT, IS
HEREBY AMENDED TO READ AS FOLLOWS:
In addition, if the Employee's employment hereunder is
terminated for reasons other than those set forth in Paragraph
4 of this Article within one year after the effective date of
a change in control which was approved by a majority of the
Employer's Board of Directors, Employee shall be entitled to
twelve (12) months salary, WHICH SHALL BE GROSSED UP FOR TAXES
IN AN AMOUNT NOT TO EXCEED FIFTY PERCENT (50%) OF THE TWELVE
(12) MONTHS SALARY, and all other separation compensation and
benefits as are routinely made available to other employees of
the Employer at the same organizational level.
4. EFFECTIVE DATE. This Amendment shall be effective as of May 1, 1997.
5. CONTINUED EFFECT. Except as otherwise modified hereby, the Agreement
shall continue in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date first above written.
SIERRA HEALTH SERVICES, INC.
BY:________________________________
Erin E. MacDonald, President
EMPLOYEE
BY: /S/ WILLIAM R. GODFREY
EXHIBIT 10.8
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 (the "Amendment") to Employment Agreement is
hereby made and entered into as of this 1st day of May, 1997, by and between
Sierra Health Services, Inc., a Nevada corporation (hereinafter referred to as
"Employer") and LAURENCE S. HOWARD (hereinafter referred to as "Employee").
WHEREAS, the Employer and Employee are parties to that certain Employment
Agreement dated as of JULY 1, 1996 ; and
WHEREAS, the parties hereto desire to amend certain terms thereof on
the terms and conditions hereinafter set forth; and
WHEREAS, the Compensation Committee of the Board of Directors of
Employer have reviewed and approved this Amendment.
NOW, THEREFORE, in consideration of the foregoing premises, and for
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. SENTENCE 1 OF PARAGRAPH 7 OF ARTICLE VII, TERMINATION OF EMPLOYMENT, IS
HEREBY AMENDED TO READ
- ------------------------------------------------------------------------------
AS FOLLOWS: ----------
In the event of a change in control of the Employer, whereby
any "person" (as such term is used in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934) is or becomes
the beneficial owner, directly or indirectly, of securities of
Employer representing 51% or more of the combined voting power
of the then outstanding securities of Employer, and such
change in control was not approved by a majority of the Board
of Directors of Employer, Employee, at his/her sole option,
shall be entitled to terminate this Agreement and will be
entitled to twelve (12) months salary, WHICH SHALL BE GROSSED
UP FOR TAXES IN AN AMOUNT NOT TO EXCEED FIFTY PERCENT (50%) OF
THE TWELVE (12) MONTHS SALARY, and any other separation
compensation and benefits as are routinely made available to
other employees of the Employer at the same organizational
level.
2. SENTENCE 1 OF PARAGRAPH 8 OF ARTICLE VII, TERMINATION OF EMPLOYMENT, IS
HEREBY AMENDED TO READ
- ------------------------------------------------------------- AS FOLLOWS:
- ----------
In the event of a change in control of the Employer, whereby
any "person" (as such term is used in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934) is or becomes
the beneficial owner, directly or indirectly, of securities of
Employer representing 51% or more of the combined voting power
of the then outstanding securities of Employer, and such
change in control is approved by a majority of the Board of
Directors of Employer, Employee, at his/her sole option, shall
be entitled to terminate this Agreement and will be entitled
to twelve (12) months salary, WHICH SHALL BE GROSSED UP FOR
TAXES IN AN AMOUNT NOT TO EXCEED FIFTY PERCENT (50%) OF THE
TWELVE (12) MONTHS SALARY, and any other separation
compensation and benefits as are routinely made available to
other employees of the Employer at the same organizational
level if, within one (l) year after the effective date of the
change in control the Employee's principal duties or
compensation, including salary and bonus, is materially
changed.
3. SENTENCE 3 OF PARAGRAPH 8 OF ARTICLE VII, TERMINATION OF EMPLOYMENT, IS
HEREBY AMENDED TO READ AS FOLLOWS:
In addition, if the Employee's employment hereunder is
terminated for reasons other than those set forth in Paragraph
4 of this Article within one year after the effective date of
a change in control which was approved by a majority of the
Employer's Board of Directors, Employee shall be entitled to
twelve (12) months salary, WHICH SHALL BE GROSSED UP FOR TAXES
IN AN AMOUNT NOT TO EXCEED FIFTY PERCENT (50%) OF THE TWELVE
(12) MONTHS SALARY, and all other separation compensation and
benefits as are routinely made available to other employees of
the Employer at the same organizational level.
4. EFFECTIVE DATE. This Amendment shall be effective as of May 1, 1997.
5. CONTINUED EFFECT. Except as otherwise modified hereby, the Agreement
shall continue in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date first above written.
SIERRA HEALTH SERVICES, INC.
BY:________________________________
Erin E. MacDonald, President
EMPLOYEE
BY: /S/ LAURENCE S. HOWARD
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This Agreement is made this 1st day of May, 1997 by and
between SIERRA HEALTH SERVICES, Inc., a Nevada Corporation, of Las Vegas, Nevada
(hereinafter referred to as "Employer"), and ERIN E. MACDONALD, (hereinafter
referred to as "Employee").
WITNESSETH
WHEREAS, Employer is a publicly-traded company engaged in the
business of providing managed health care services through subsidiary companies;
WHEREAS, Employee has expertise and experience in providing
Managed Health Care Services; and, WHEREAS, the Employee has
made and is expected to continue to make a major contribution
to the
profitability, growth and financial strength of the Employer;
NOW, THEREFORE, in consideration of the mutual promises and
agreements hereinafter set forth, Employer and Employee agree as follows:
ARTICLE I
EMPLOYMENT/DUTIES AND POWERS
1. Employer hereby employs, engages and hires Employee as PRESIDENT ,
and Employee hereby accepts and agrees to such hiring, engagement and
employment, subject to the general supervision and direction of Employer.
2. Employee shall perform such duties as are assigned by the CEO of
Employer or his designee, and shall at all times faithfully and to the best of
her ability, perform all the duties that may be required of Employee to the
reasonable satisfaction of Employer. Employee shall exercise only those powers
for signing contracts and conveyances in the ordinary course of business as are
expressly authorized by the Employer's CEO or the appropriate Board of
Directors. Employee further agrees to participate in and assist in the
development of quality improvement programs offered by the Employer.
ARTICLE II
TERM OF EMPLOYMENT
1. The term of this Agreement shall be for a FIVE (5) year period starting
MAY 1, 1997 and terminating APRIL 30, 2002 subject, however, to prior
termination as hereinafter provided in Article VII.
ARTICLE III COMPENSATION AND REVIEW 1. Employer shall pay Employee and
Employee shall accept from Employer as full payment for Employee's services
hereunder, compensation in the amount as set forth in Attachment A of this
Agreement, payable at such times as are deemed appropriate by Employer, but not
less than twice a month. 2. (a) Employer shall reimburse Employee for all
necessary and reasonable business expenses incurred by Employee while performing
services pursuant to Employer's direction. (b) The Employee agrees to maintain
adequate records of expenses, in such detail as the Employer may reasonably
request. 3. (a) Employee shall also be eligible for those Employee fringe
benefit programs, bonus plans, and stock option plans as are made available to
other employees of the corporation at the same organizational level, and as
approved by the Board of Directors. (b) It is expressly understood that Employer
may, at any time and at its sole discretion, amend any fringe benefit programs,
bonus programs, or stock option programs without prior notice to the Employee
even though such an amendment may decrease the benefits available under said
programs. 4. Employee's performance shall be reviewed at least annually based on
established job duties, goals and objectives and other reasonable standards as
deemed necessary and appropriate by the Employer.
ARTICLE IV
OTHER EMPLOYMENT
Employee shall devote all of her time, attention, knowledge, and skills
solely to the business and interest of Employer, unless otherwise authorized by
the Employer, and Employer shall be entitled to all of the income, benefits, or
profits arising from or incident to all work, work associations, services, or
advice of Employee, unless otherwise authorized in writing by the Employer.
Employee shall not, during the term hereof, be interested in any manner, as
partner, officer, director, advisor, employee or in any other capacity in any
other business similar to Employer's business or any allied trade, or obtain any
interest adverse to Employer; provided, however, that Employee may provide
advice and consultation to other entities with the written approval of Employer,
and further provided, however, that nothing herein contained shall be deemed to
prevent or limit the right of Employee to invest any of her surplus funds in the
capital stock or other securities of any corporation whose stock or securities
are publicly owned or are regularly traded on any public exchange, nor shall
anything herein contained be deemed to prevent Employee from investing or limit
Employee's right to invest her surplus funds in real estate. Employee shall
complete a Conflict of Interest form by February 15 of each calendar year and
submit it to the Employer for review. All conflicts of interest or any potential
conflicts of interest which arise during the year must be immediately reported
to the Employer. All conflict of interest concerns must be resolved to the
reasonable satisfaction of the Employer as a condition of continuation of
employment.
ARTICLE V
BUSINESS SECRETS
1. Employee shall not at any time or in any manner, either directly or
indirectly, divulge, disclose or communicate to any person, firm or corporation,
in any manner whatsoever, any proprietary or confidential information concerning
any matter affecting or relating to the business of Employer or its
subsidiaries, including without limiting the generality of the foregoing, any of
their customers, the prices they obtain from providers or have obtained from the
sale of, or at which they sell or have sold, its services, or any other
information concerning the business of Employer or its subsidiaries, their
manner of operation, or their plans, if such a disclosure would be detrimental
to the business interests of the Employer or its subsidiaries.
2. If this Agreement is terminated by either party at any time hereafter,
then the Employee agrees to turn over to the Employer all papers, documents,
working papers, correspondence, memos and any and all other documents in
Employee's possession relating to or concerning any matter affecting or relating
to the business of the Employer or its subsidiaries.
ARTICLE VI
NONCOMPETITION AGREEMENT
1. The Employee acknowledges that in Employee's employment hereunder,
Employee will have continual contacts with the groups, members, and providers
who are covered by or associated with the managed health care programs offered
by the Employer or its subsidiaries in Nevada and other states. In all of
Employee's activities, the Employee, through the nature of Employee's work, will
have access to and will acquire confidential information related to the business
and operations of the Employer and its subsidiaries, including, without limiting
the generality of the foregoing, member and group lists, and confidential
information relating to processes, plans, methods of doing business and special
needs of doctors, hospitals, members, groups, pharmacies, or other health care
providers who contract with the Employer or its subsidiaries. The Employee
acknowledges that all such information is the property of the Employer or its
subsidiaries solely and constitutes confidential information of such parties;
that the disclosure thereof would cause substantial loss to the goodwill of the
Employer and its subsidiaries; that disclosure thereof to the Employee is being
made only because of the position of trust and confidence which Employee will
occupy and because of Employee's agreement to the restrictions herein contained;
that her knowledge of these matters would enable her, on termination of this
Agreement, to compete with the Employer or its subsidiaries in a manner likely
to cause the Employer and its subsidiaries irreparable harm, and disclosure of
such matters would, likewise, cause such harm; and that the restrictions imposed
upon the Employee herein would not prohibit the Employee in earning a living.
2. It is understood and agreed by the Employee and the Employer that the
essence of this Employment Agreement is the mutual covenants of the parties
herein made that the present and future members and groups of the Employer or
its subsidiaries will remain the Employer's or its subsidiaries' members and
groups during the term of this Agreement and in the event of its termination for
any reason by either party. In consideration for the employment and continued
employment of the Employee by the Employer, and also for the amount received by
the Employee as compensation, the Employee hereby irrevocably warrants,
covenants, and agrees as follows:
(a) during the term of Employee's employment and after leaving
the employment of the Employer for any reason, whether involuntary or voluntary,
the Employee will not take any action whatsoever which may or might disturb any
existing business relationship of the Employer or its subsidiaries with any
doctors, groups, members, hospitals, pharmacies or other health care providers
in Nevada who contract with the Employer or its subsidiaries;
(b) for a period of one (1) year after leaving the employment of
the Employer, Employee will not solicit business from the members or groups of
the Employer or its subsidiaries in Nevada, or in any manner disrupt any
business relationship the Employer or its subsidiaries has with any contracted
health care provider in Nevada with whom Employee came in contact as an employee
of the Employer.
(c) for a period of one (1) year after leaving the employment of
the Employer, Employee will not, either directly or indirectly, work for any
present or future competitors of Employer operating in the state of Nevada who
in any manner offer any managed health care programs, insurance coverage, or
administer health care claims for employers. Such competitors shall include, but
are not limited to, HMOs, PPOs, insurance companies, utilization management
companies, or third party administrators.
3. The one (1) year period specified in this Article will be tolled during
any period of breach of any of the terms of Article VII by the Employee.
4. The Employee agrees that in the event of a breach of any term of this
Agreement, and more particularly, in the event of a breach of any of the terms
and provisions of Article VII, the Employer shall be entitled to secure an order
in any suit brought for that purpose to enjoin the Employee from violating any
of the provisions of the Agreement and that, pending the hearing and the
decision on the application for such order, the Employer shall be entitled to a
temporary restraining order without prejudice to any other remedy available to
the Employer, all at the expense of the Employee should the Employer prevail in
such action. The Employee understands that the covenants of this Article are the
essence of this Employment Agreement, and without which no Employment Agreement
with the Employee would be entered into by the Employer.
5. The provisions of Article VII shall in no event be construed to be an
exclusive remedy and such remedy shall be held and construed to be cumulative
and not exclusive of any rights or remedies, whether in law or equity, otherwise
available under the terms of this Agreement or under the laws of the United
States or the state of Nevada.
6. The covenants and agreements made by the Employee in this Article VI
shall be construed as an agreement independent of any other provision in the
Agreement and the existence of any claim or cause of action by the Employee
against the Employer, whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by the Employer, by injunctive
relief or otherwise, of the provisions of Article VII. The invalidity of all or
any part of any section or paragraph of this Article VI shall not render invalid
the remainder of this Article or any section hereof.
7. No failure or failures on the part of the Employer to enforce any
violation by the Employee of this Noncompetition agreement, shall constitute a
waiver of the Employer's rights thereafter to enforce all of the terms,
covenants, provisions and agreements herein contained.
ARTICLE VII
TERMINATION OF EMPLOYMENT
1. Termination of employment by either Employer or Employee shall follow
established Sierra Health Services Policies and Procedures including appropriate
notice, except as otherwise specifically set forth in this Article.
2. The Employee may terminate this Agreement and employment hereunder with
sixty (60) days prior written notice. If Employee shall voluntarily terminate
the Agreement all eligible separation compensation and benefits as are routinely
made available to other employees of the Employer at the same organizational
level, shall be paid or made available to the Employee.
3. If Employer shall terminate this Agreement without cause, except as
otherwise set forth in Paragraph 7 of this Article, Employee shall be entitled
to EIGHTEEN (18) MONTHS salary and all other separation compensation and
benefits as are routinely made available to other employees of the Employer at
the same organizational level.
4. Notwithstanding any other provision in this Agreement to the contrary,
Employee hereby agrees that any separation compensation due to the Employee,
other than accrued vacation, shall be paid out 25% after the first 90 days, 37
1/2% after the first 180 days, and the remaining 37 1/2% at the end of 365 days.
Payment of such amounts shall fully release the Employer from any and all
liability of the Employer relating to this Agreement or the employment
hereunder.
5. If Employer shall terminate the Agreement for Employee conduct that is
materially detrimental to the Company's reputation, business relationships, or
for misappropriation of Employer's funds, Employee shall be eligible for FOUR
(4) WEEKS salary and any other separation compensation and benefits as are
routinely made available to other employees of the Employer at the same
organizational level, as full and final payment under this Agreement. Payment of
such amounts shall fully release the Employer from any and all liability of the
Employer relating to this Agreement or the employment hereunder.
6. (a) If the Employee is unable to perform Employee's duties hereunder,
by reason of illness or incapacity of any kind, for a period of more than TWELVE
(12) MONTHS in excess of accrued sick leave, this Agreement, and the employment
hereunder may be terminated by the Employer at its absolute discretion with one
week of prior written notice.
(b) If the Employee's illness or incapacity shall have ended, and
the Employee shall have assumed Employee's duties hereunder, prior to the date
specified in the notice of termination, Employee shall be entitled to resume
Employee's employment hereunder as if such notice had not been given.
(c) In the event of the death of the Employee during the term of
this Agreement, the Employer shall be required to pay the Employee's personal
representative or the executor or administrator of the Employee's estate,
EIGHTEEN (18) MONTHS of the Employee's total prior year's annual compensation
including both salary and bonus. Such payment shall be in addition to any other
payment to which the Employee or their estate is otherwise eligible for under
the terms of this Agreement.
7. In the event of a change in control of the Employer, whereby any
"person" (as such term is used in Sections 3(a)(9) and 13(d)(3) of the
Securities Exchange Act of 1934) is or becomes the beneficial owner, directly or
indirectly, of securities of Employer representing 51% or more of the combined
voting power of the then outstanding securities of Employer, and such change in
control was not approved by a majority of the Board of Directors of Employer,
Employee, at her sole option, shall be entitled to terminate this Agreement and
will be entitled to EIGHTEEN (18) MONTHS salary, which shall be grossed up for
taxes in an amount not to exceed fifty percent (50%) of the eighteen (18) months
salary, and any other separation compensation and benefits as are routinely made
available to other employees of the Employer at the same organizational level.
Payment of such amounts shall fully release the Employer from any and all
liability of the Employer relating to this Agreement or the employment
hereunder.
8. In the event of a change in control of the Employer, whereby any
"person" (as such term is used in Sections 3(a)(9) and 13(d)(3) of the
Securities Exchange Act of 1934) is or becomes the beneficial owner, directly or
indirectly, of securities of Employer representing 51% or more of the combined
voting power of the then outstanding securities of Employer, and such change in
control is approved by a majority of the Board of Directors of Employer,
Employee, at her sole option, shall be entitled to terminate this Agreement and
will be entitled to EIGHTEEN (18) MONTHS salary, which shall be grossed up for
taxes in an amount not to exceed fifty percent (50%) of the eighteen (18) months
salary, and any other separation compensation and benefits as are routinely made
available to other employees of the Employer at the same organizational level
if, within one (l) year after the effective date of the change in control the
Employee's principal duties or compensation, including salary and bonus, is
materially changed. It is expressly understood that a change in who the Employee
reports to shall not constitute a material change in duties. In addition, if the
Employee's employment hereunder is terminated for reasons other than those set
forth in Paragraph 4 of this Article within one year after the effective date of
a change in control which was approved by a majority of the Employer's Board of
Directors, Employee shall be entitled to EIGHTEEN (18) MONTHS salary, which
shall be grossed up for taxes in an amount not to exceed fifty percent (50%) of
the eighteen (18) months salary, and all other separation compensation and
benefits as are routinely made available to other employees of the Employer at
the same organizational level. Payment of such amounts shall fully release the
Employer from any and all liability of the Employer relating to this Agreement
or the employment hereunder.
9. Anything contained herein to the contrary notwithstanding in the event
that Employer shall discontinue operation of Employer other than as a result of
a merger, consolidation or acquisition, then this Agreement shall terminate as
of the last day of the month in which Employer ceases operation with the same
force and effect as if such last day of the month were originally set as the
termination date hereof.
ARTICLE VIII
EFFECT OF WAIVER
The waiver by either party of a breach of any provision of this agreement
shall not operate or be construed as a waiver of any subsequent breach thereof.
ARTICLE IX
ACTUAL ATTORNEY'S FEES EXPENDED
Employer and Employee agree that all attorneys fees expended by either
party in any dispute, arbitration or litigation concerning this Agreement will
be paid by the losing party in that dispute, arbitration or litigation.
ARTICLE X
NOTICE
Any and all notices referred to herein shall be sufficient if furnished in
writing, sent by registered mail to the representative parties at the addresses
subscribed below their signatures to this Agreement.
ARTICLE XI
ASSIGNMENT
The rights, benefits and obligations of the Employee under this Agreement
shall be assignable, and all covenants and agreements hereunder shall inure to
the benefit of and be enforceable by or against the Employer's successors or
assigns.
ARTICLE XII
ENTIRE AGREEMENT
This Agreement contains the entire Agreement between the parties, and the
parties hereby agree that no other oral representations or agreements have been
entered into in connection with this transaction.
ARTICLE XIII
AMENDMENT
No amendment or modification of this Agreement shall be deemed effective,
unless or until, it is executed in writing by the parties hereto.
ARTICLE XIV
VALIDITY
This Agreement, having been executed and delivered in the State of Nevada,
its validity, interpretation, performance and enforcement will be governed by
the laws of that state.
ARTICLE XV
SEVERABILITY
It is mutually agreed that all of the terms, covenants, provisions, and
agreements contained herein are severable and that, in the event any of them
shall be held to be invalid by any competent court, this Agreement shall be
interpreted as if such invalid term, covenant, provision, or agreement were not
contained herein.
<PAGE>
ARTICLE XVI
FORUM
The parties hereto consent and agree that any action to enforce this
Agreement or any provision therein or any rights hereunder or any action
relating to the employment of the Employee with the Employer shall be brought in
the State of Nevada.
IN WITNESS WHEREOF, the parties have executed this Agreement at
Las Vegas, Nevada, on the day of , 19 .
SIERRA HEALTH SERVICES, INC.
By: /S/ ANTHONY M. MARLON, M.D.
Chief Executive Officer
P. O. Box 15645
Las Vegas, NV 89114-5645
EMPLOYEE
By:
ERIN E. MACDONALD
9400 LAGUNA NIGUEL, #103
LAS VEGAS, NV 89134
<PAGE>
ATTACHMENT A
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
This Agreement is made this 1st day of May, 1997, by and
between SIERRA HEALTH SERVICES, Inc., a Nevada Corporation, of Las Vegas, Nevada
(hereinafter referred to as "Employer"), and ANTHONY M. MARLON, M.D.,
(hereinafter referred to as "Employee").
WITNESSETH
WHEREAS, Employer is a publicly-traded company engaged in the
business of providing managed health care services through subsidiary companies;
WHEREAS, Employee has expertise and experience in providing
Managed Health Care Services; and, WHEREAS, the Employee has
made and is expected to continue to make a major contribution
to the
profitability, growth and financial strength of the Employer;
NOW, THEREFORE, in consideration of the mutual promises and
agreements hereinafter set forth, Employer and Employee agree as follows:
ARTICLE I
EMPLOYMENT/DUTIES AND POWERS
1. Employer hereby employs, engages and hires Employee as CHIEF
EXECUTIVE OFFICER , and Employee hereby accepts and agrees to such hiring,
engagement and employment, subject to the general supervision and direction of
Employer.
2. Employee shall perform such duties as are assigned by the Board of
Directors, and shall at all times faithfully and to the best of his/her ability,
perform all the duties that may be required of Employee to the reasonable
satisfaction of Employer. Employee shall exercise only those powers for signing
contracts and conveyances in the ordinary course of business as are expressly
authorized by the Board of Directors. Employee further agrees to participate in
and assist in the development of quality improvement programs offered by the
Employer.
ARTICLE II
TERM OF EMPLOYMENT
1. The term of this Agreement shall be for a FIVE (5) year period starting
MAY 1, 1997 and terminating APRIL 30, 2002 subject, however, to prior
termination as hereinafter provided in Article VII.
<PAGE>
ARTICLE III COMPENSATION AND REVIEW 1. Employer shall pay Employee and
Employee shall accept from Employer as full payment for Employee's services
hereunder, compensation in the amount as set forth in Attachment A of this
Agreement, payable at such times as are deemed appropriate by Employer, but not
less than twice a month.
2. (a) Employer shall reimburse Employee for all necessary and reasonable
business expenses incurred by Employee while performing services pursuant to
Employer's direction. (b) The Employee agrees to maintain adequate records of
expenses, in such detail as the Employer may reasonably request. 3. (a) Employee
shall also be eligible for those Employee fringe benefit programs, bonus plans,
and stock option plans as are made available to other employees of the
corporation at the same organizational level, and as approved by the Board of
Directors. (b) It is expressly understood that Employer may, at any time and at
its sole discretion, amend any fringe benefit programs, bonus programs, or stock
option programs without prior notice to the Employee even though such an
amendment may decrease the benefits available under said programs. 4. Employee's
performance shall be reviewed at least annually based on established job duties,
goals and objectives and other reasonable standards as deemed necessary and
appropriate by the Employer.
ARTICLE IV
OTHER EMPLOYMENT
Employee shall devote all of his time, attention, knowledge, and skills
solely to the business and interest of Employer, unless otherwise authorized by
the Employer, and Employer shall be entitled to all of the income, benefits, or
profits arising from or incident to all work, work associations, services, or
advice of Employee, unless otherwise authorized in writing by the Employer.
Employee shall not, during the term hereof, be interested in any manner, as
partner, officer, director, advisor, employee or in any other capacity in any
other business similar to Employer's business or any allied trade, or obtain any
interest adverse to Employer; provided, however, that Employee may provide
advice and consultation to other entities with the written approval of Employer,
and further provided, however, that nothing herein contained shall be deemed to
prevent or limit the right of Employee to invest any of his/her surplus funds in
the capital stock or other securities of any corporation whose stock or
securities are publicly owned or are regularly traded on any public exchange,
nor shall anything herein contained be deemed to prevent Employee from investing
or limit Employee's right to invest his/her surplus funds in real estate.
Employee shall complete a Conflict of Interest form by February 15 of each
calendar year and submit it to the Employer for review. All conflicts of
interest or any potential conflicts of interest which arise during the year must
be immediately reported to the Employer. All conflict of interest concerns must
be resolved to the reasonable satisfaction of the Employer as a condition of
continuation of employment.
ARTICLE V
BUSINESS SECRETS
1. Employee shall not at any time or in any manner, either directly or
indirectly, divulge, disclose or communicate to any person, firm or corporation,
in any manner whatsoever, any proprietary or confidential information concerning
any matter affecting or relating to the business of Employer or its
subsidiaries, including without limiting the generality of the foregoing, any of
their customers, the prices they obtain from providers or have obtained from the
sale of, or at which they sell or have sold, its services, or any other
information concerning the business of Employer or its subsidiaries, their
manner of operation, or their plans, if such a disclosure would be detrimental
to the business interests of the Employer or its subsidiaries.
2. If this Agreement is terminated by either party at any time hereafter,
then the Employee agrees to turn over to the Employer all papers, documents,
working papers, correspondence, memos and any and all other documents in
Employee's possession relating to or concerning any matter affecting or relating
to the business of the Employer or its subsidiaries.
ARTICLE VI
NONCOMPETITION AGREEMENT
1. The Employee acknowledges that in Employee's employment hereunder,
Employee will have continual contacts with the groups, members, and providers
who are covered by or associated with the managed health care programs offered
by the Employer or its subsidiaries in Nevada and other states. In all of
Employee's activities, the Employee, through the nature of Employee's work, will
have access to and will acquire confidential information related to the business
and operations of the Employer and its subsidiaries, including, without limiting
the generality of the foregoing, member and group lists, and confidential
information relating to processes, plans, methods of doing business and special
needs of doctors, hospitals, members, groups, pharmacies, or other health care
providers who contract with the Employer or its subsidiaries. The Employee
acknowledges that all such information is the property of the Employer or its
subsidiaries solely and constitutes confidential information of such parties;
that the disclosure thereof would cause substantial loss to the goodwill of the
Employer and its subsidiaries; that disclosure thereof to the Employee is being
made only because of the position of trust and confidence which Employee will
occupy and because of Employee's agreement to the restrictions herein contained;
that his knowledge of these matters would enable him, on termination of this
Agreement, to compete with the Employer or its subsidiaries in a manner likely
to cause the Employer and its subsidiaries irreparable harm, and disclosure of
such matters would, likewise, cause such harm; and that the restrictions imposed
upon the Employee herein would not prohibit the Employee in earning a living.
2. It is understood and agreed by the Employee and the Employer that the
essence of this Employment Agreement is the mutual covenants of the parties
herein made that the present and future members and groups of the Employer or
its subsidiaries will remain the Employer's or its subsidiaries' members and
groups during the term of this Agreement and in the event of its termination for
any reason by either party. In consideration for the employment and continued
employment of the Employee by the Employer, and also for the amount received by
the Employee as compensation, the Employee hereby irrevocably warrants,
covenants, and agrees as follows:
(a) during the term of Employee's employment and after leaving
the employment of the Employer for any reason, whether involuntary or voluntary,
the Employee will not take any action whatsoever which may or might disturb any
existing business relationship of the Employer or its subsidiaries with any
doctors, groups, members, hospitals, pharmacies or other health care providers
in Nevada who contract with the Employer or its subsidiaries;
(b) for a period of one (1) year after leaving the employment of
the Employer, Employee will not solicit business from the members or groups of
the Employer or its subsidiaries in Nevada, or in any manner disrupt any
business relationship the Employer or its subsidiaries has with any contracted
health care provider in Nevada with whom Employee came in contact as an employee
of the Employer.
(c) for a period of one (1) year after leaving the employment of
the Employer, Employee will not, either directly or indirectly, work for any
present or future competitors of Employer operating in the state of Nevada who
in any manner offer any managed health care programs, insurance coverage, or
administer health care claims for employers. Such competitors shall include, but
are not limited to, HMOs, PPOs, insurance companies, utilization management
companies, or third party administrators.
3. The one (1) year period specified in this Article will be tolled during
any period of breach of any of the terms of Article VII by the Employee.
4. The Employee agrees that in the event of a breach of any term of this
Agreement, and more particularly, in the event of a breach of any of the terms
and provisions of Article VII, the Employer shall be entitled to secure an order
in any suit brought for that purpose to enjoin the Employee from violating any
of the provisions of the Agreement and that, pending the hearing and the
decision on the application for such order, the Employer shall be entitled to a
temporary restraining order without prejudice to any other remedy available to
the Employer, all at the expense of the Employee should the Employer prevail in
such action. The Employee understands that the covenants of this Article are the
essence of this Employment Agreement, and without which no Employment Agreement
with the Employee would be entered into by the Employer.
5. The provisions of Article VII shall in no event be construed to be an
exclusive remedy and such remedy shall be held and construed to be cumulative
and not exclusive of any rights or remedies, whether in law or equity, otherwise
available under the terms of this Agreement or under the laws of the United
States or the state of Nevada.
6. The covenants and agreements made by the Employee in this Article VI
shall be construed as an agreement independent of any other provision in the
Agreement and the existence of any claim or cause of action by the Employee
against the Employer, whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by the Employer, by injunctive
relief or otherwise, of the provisions of Article VII. The invalidity of all or
any part of any section or paragraph of this Article VI shall not render invalid
the remainder of this Article or any section hereof.
7. No failure or failures on the part of the Employer to enforce any
violation by the Employee of this Noncompetition agreement, shall constitute a
waiver of the Employer's rights thereafter to enforce all of the terms,
covenants, provisions and agreements herein contained.
ARTICLE VII
TERMINATION OF EMPLOYMENT
1. Termination of employment by either Employer or Employee shall follow
established Sierra Health Services Policies and Procedures including appropriate
notice, except as otherwise specifically set forth in this Article.
2. The Employee may terminate this Agreement and employment hereunder with
sixty (60) days prior written notice. If Employee shall voluntarily terminate
the Agreement all eligible separation compensation and benefits as are routinely
made available to other employees of the Employer at the same organizational
level, shall be paid or made available to the Employee.
3. If Employer shall terminate this Agreement without cause, except as
otherwise set forth in Paragraph 7 of this Article, Employee shall be entitled
to TWENTY-FOUR (24) MONTHS salary and all other separation compensation and
benefits as are routinely made available to other employees of the Employer at
the same organizational level.
4. Notwithstanding any other provision in this Agreement to the contrary,
Employee hereby agrees that any separation compensation due to the Employee,
other than accrued vacation, shall be paid out 25% after the first 90 days, 37
1/2% after the first 180 days, and the remaining 37 1/2% at the end of 365 days.
Payment of such amounts shall fully release the Employer from any and all
liability of the Employer relating to this Agreement or the employment
hereunder.
5. If Employer shall terminate the Agreement for Employee conduct that is
materially detrimental to the Company's reputation, business relationships, or
for misappropriation of Employer's funds, Employee shall be eligible for FOUR
(4) WEEKS salary and any other separation compensation and benefits as are
routinely made available to other employees of the Employer at the same
organizational level, as full and final payment under this Agreement. Payment of
such amounts shall fully release the Employer from any and all liability of the
Employer relating to this Agreement or the employment hereunder.
6. (a) If the Employee is unable to perform Employee's duties hereunder,
by reason of illness or incapacity of any kind, for a period of more than TWELVE
(12) MONTHS in excess of accrued sick leave, this Agreement, and the employment
hereunder may be terminated by the Employer at its absolute discretion with one
week of prior written notice.
(b) If the Employee's illness or incapacity shall have ended, and
the Employee shall have assumed Employee's duties hereunder, prior to the date
specified in the notice of termination, Employee shall be entitled to resume
Employee's employment hereunder as if such notice had not been given.
(c) In the event of the death of the Employee during the term of
this Agreement, the Employer shall be required to pay the Employee's personal
representative or the executor or administrator of the Employee's estate,
TWENTY-FOUR (24) MONTHS of the Employee's total prior year's annual compensation
including both salary and bonus. Such payment shall be in addition to any other
payment to which the Employee or their estate is otherwise eligible for under
the terms of this Agreement.
7. In the event of a change in control of the Employer, whereby any
"person" (as such term is used in Sections 3(a)(9) and 13(d)(3) of the
Securities Exchange Act of 1934) is or becomes the beneficial owner, directly or
indirectly, of securities of Employer representing 51% or more of the combined
voting power of the then outstanding securities of Employer, and such change in
control was not approved by a majority of the Board of Directors of Employer,
Employee, at his/her sole option, shall be entitled to terminate this Agreement
and will be entitled to TWENTY-FOUR (24) MONTHS salary, which shall be grossed
up for taxes in an amount not to exceed fifty percent (50%) of the twenty-four
(24) months salary, and any other separation compensation and benefits as are
routinely made available to other employees of the Employer at the same
organizational level. Payment of such amounts shall fully release the Employer
from any and all liability of the Employer relating to this Agreement or the
employment hereunder.
8. In the event of a change in control of the Employer, whereby any
"person" (as such term is used in Sections 3(a)(9) and 13(d)(3) of the
Securities Exchange Act of 1934) is or becomes the beneficial owner, directly or
indirectly, of securities of Employer representing 51% or more of the combined
voting power of the then outstanding securities of Employer, and such change in
control is approved by a majority of the Board of Directors of Employer,
Employee, at his/her sole option, shall be entitled to terminate this Agreement
and will be entitled to TWENTY-FOUR (24) MONTHS salary, which shall be grossed
up for taxes in an amount not to exceed fifty percent (50%) of the twenty-four
(24) months salary, and any other separation compensation and benefits as are
routinely made available to other employees of the Employer at the same
organizational level if, within one (l) year after the effective date of the
change in control the Employee's principal duties or compensation, including
salary and bonus, is materially changed. It is expressly understood that a
change in who the Employee reports to shall not constitute a material change in
duties. In addition, if the Employee's employment hereunder is terminated for
reasons other than those set forth in Paragraph 4 of this Article within one
year after the effective date of a change in control which was approved by a
majority of the Employer's Board of Directors, Employee shall be entitled to
TWENTY-FOUR (24) MONTHS salary, which shall be grossed up for taxes in an amount
not to exceed fifty percent (50%) of the twenty-four (24) months salary, and all
other separation compensation and benefits as are routinely made available to
other employees of the Employer at the same organizational level. Payment of
such amounts shall fully release the Employer from any and all liability of the
Employer relating to this Agreement or the employment hereunder.
9. Anything contained herein to the contrary notwithstanding in the event
that Employer shall discontinue operation of Employer other than as a result of
a merger, consolidation or acquisition, then this Agreement shall terminate as
of the last day of the month in which Employer ceases operation with the same
force and effect as if such last day of the month were originally set as the
termination date hereof.
ARTICLE VIII
EFFECT OF WAIVER
The waiver by either party of a breach of any provision of this agreement
shall not operate or be construed as a waiver of any subsequent breach thereof.
ARTICLE IX
ACTUAL ATTORNEY'S FEES EXPENDED
Employer and Employee agree that all attorneys fees expended by either
party in any dispute, arbitration or litigation concerning this Agreement will
be paid by the losing party in that dispute, arbitration or litigation.
ARTICLE X
NOTICE
Any and all notices referred to herein shall be sufficient if furnished in
writing, sent by registered mail to the representative parties at the addresses
subscribed below their signatures to this Agreement.
ARTICLE XI
ASSIGNMENT
The rights, benefits and obligations of the Employee under this Agreement
shall be assignable, and all covenants and agreements hereunder shall inure to
the benefit of and be enforceable by or against the Employer's successors or
assigns.
ARTICLE XII
ENTIRE AGREEMENT
This Agreement contains the entire Agreement between the parties, and the
parties hereby agree that no other oral representations or agreements have been
entered into in connection with this transaction.
ARTICLE XIII
AMENDMENT
No amendment or modification of this Agreement shall be deemed effective,
unless or until, it is executed in writing by the parties hereto.
ARTICLE XIV
VALIDITY
This Agreement, having been executed and delivered in the State of Nevada,
its validity, interpretation, performance and enforcement will be governed by
the laws of that state.
ARTICLE XV
SEVERABILITY
It is mutually agreed that all of the terms, covenants, provisions, and
agreements contained herein are severable and that, in the event any of them
shall be held to be invalid by any competent court, this Agreement shall be
interpreted as if such invalid term, covenant, provision, or agreement were not
contained herein.
ARTICLE XVI
FORUM
The parties hereto consent and agree that any action to enforce this
Agreement or any provision therein or any rights hereunder or any action
relating to the employment of the Employee with the Employer shall be brought in
the State of Nevada.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement at
Las Vegas, Nevada, on the day of , 19 .
SIERRA HEALTH SERVICES, INC.
By: ERIN E. MACDONALD
President
P. O. Box 15645
Las Vegas, NV 89114-5645
EMPLOYEE
By: /S/ ANTHONY M. MARLON
ANTHONY M. MARLON, M.D.
1909 CORTA BELLA
LAS VEGAS, NV 89134
<PAGE>
ATTACHMENT A
EXHIBIT 10.11
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 (the "Amendment") to Employment Agreement is
hereby made and entered into as of this 1st day of May, 1997, by and between
Sierra Health Services, Inc., a Nevada corporation (hereinafter referred to as
"Employer") and MICHAEL A. MONTALVO (hereinafter referred to as "Employee").
WHEREAS, the Employer and Employee are parties to that certain Employment
Agreement dated as of JULY 1, 1996 ; and
WHEREAS, the parties hereto desire to amend certain terms thereof on
the terms and conditions hereinafter set forth; and
WHEREAS, the Compensation Committee of the Board of Directors of
Employer have reviewed and approved this Amendment.
NOW, THEREFORE, in consideration of the foregoing premises, and for
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. SENTENCE 1 OF PARAGRAPH 7 OF ARTICLE VII, TERMINATION OF EMPLOYMENT, IS
HEREBY AMENDED TO READ
- -------------------------------------------------------------------------------
AS FOLLOWS: ----------
In the event of a change in control of the Employer, whereby
any "person" (as such term is used in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934) is or becomes
the beneficial owner, directly or indirectly, of securities of
Employer representing 51% or more of the combined voting power
of the then outstanding securities of Employer, and such
change in control was not approved by a majority of the Board
of Directors of Employer, Employee, at his/her sole option,
shall be entitled to terminate this Agreement and will be
entitled to twelve (12) months salary, WHICH SHALL BE GROSSED
UP FOR TAXES IN AN AMOUNT NOT TO EXCEED FIFTY PERCENT (50%) OF
THE TWELVE (12) MONTHS SALARY, and any other separation
compensation and benefits as are routinely made available to
other employees of the Employer at the same organizational
level.
2. SENTENCE 1 OF PARAGRAPH 8 OF ARTICLE VII, TERMINATION OF EMPLOYMENT, IS
HEREBY AMENDED TO READ
- -------------------------------------------------------------------------------
AS FOLLOWS: ----------
In the event of a change in control of the Employer, whereby
any "person" (as such term is used in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934) is or becomes
the beneficial owner, directly or indirectly, of securities of
Employer representing 51% or more of the combined voting power
of the then outstanding securities of Employer, and such
change in control is approved by a majority of the Board of
Directors of Employer, Employee, at his/her sole option, shall
be entitled to terminate this Agreement and will be entitled
to twelve (12) months salary, WHICH SHALL BE GROSSED UP FOR
TAXES IN AN AMOUNT NOT TO EXCEED FIFTY PERCENT (50%) OF THE
TWELVE (12) MONTHS SALARY, and any other separation
compensation and benefits as are routinely made available to
other employees of the Employer at the same organizational
level if, within one (l) year after the effective date of the
change in control the Employee's principal duties or
compensation, including salary and bonus, is materially
changed.
3. SENTENCE 3 OF PARAGRAPH 8 OF ARTICLE VII, TERMINATION OF EMPLOYMENT, IS
HEREBY AMENDED TO READ AS FOLLOWS:
In addition, if the Employee's employment hereunder is
terminated for reasons other than those set forth in Paragraph
4 of this Article within one year after the effective date of
a change in control which was approved by a majority of the
Employer's Board of Directors, Employee shall be entitled to
twelve (12) months salary, WHICH SHALL BE GROSSED UP FOR TAXES
IN AN AMOUNT NOT TO EXCEED FIFTY PERCENT (50%) OF THE TWELVE
(12) MONTHS SALARY, and all other separation compensation and
benefits as are routinely made available to other employees of
the Employer at the same organizational level.
4. EFFECTIVE DATE. This Amendment shall be effective as of May 1, 1997.
5. CONTINUED EFFECT. Except as otherwise modified hereby, the Agreement
shall continue in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date first above written.
SIERRA HEALTH SERVICES, INC.
BY:________________________________
Erin E. MacDonald, President
EMPLOYEE
BY: /S/ MICHAEL A. MONTALVO
EXHIBIT 10.12
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 (the "Amendment") to Employment Agreement is
hereby made and entered into as of this 1st day of May, 1997, by and between
Sierra Health Services, Inc., a Nevada corporation (hereinafter referred to as
"Employer") and MARIE H. SOLDO (hereinafter referred to as "Employee").
WHEREAS, the Employer and Employee are parties to that certain Employment
Agreement dated as of JULY 1, 1996 ; and
WHEREAS, the parties hereto desire to amend certain terms thereof on
the terms and conditions hereinafter set forth; and
WHEREAS, the Compensation Committee of the Board of Directors of
Employer have reviewed and approved this Amendment.
NOW, THEREFORE, in consideration of the foregoing premises, and for
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. SENTENCE 1 OF PARAGRAPH 7 OF ARTICLE VII, TERMINATION OF EMPLOYMENT, IS
HEREBY AMENDED TO READ
- ------------------------------------------------------------------------------
AS FOLLOWS: ----------
In the event of a change in control of the Employer, whereby
any "person" (as such term is used in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934) is or becomes
the beneficial owner, directly or indirectly, of securities of
Employer representing 51% or more of the combined voting power
of the then outstanding securities of Employer, and such
change in control was not approved by a majority of the Board
of Directors of Employer, Employee, at his/her sole option,
shall be entitled to terminate this Agreement and will be
entitled to twelve (12) months salary, WHICH SHALL BE GROSSED
UP FOR TAXES IN AN AMOUNT NOT TO EXCEED FIFTY PERCENT (50%) OF
THE TWELVE (12) MONTHS SALARY, and any other separation
compensation and benefits as are routinely made available to
other employees of the Employer at the same organizational
level.
2. SENTENCE 1 OF PARAGRAPH 8 OF ARTICLE VII, TERMINATION OF EMPLOYMENT, IS
HEREBY AMENDED TO READ
- ------------------------------------------------------------------------------
AS FOLLOWS: ----------
In the event of a change in control of the Employer, whereby
any "person" (as such term is used in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934) is or becomes
the beneficial owner, directly or indirectly, of securities of
Employer representing 51% or more of the combined voting power
of the then outstanding securities of Employer, and such
change in control is approved by a majority of the Board of
Directors of Employer, Employee, at his/her sole option, shall
be entitled to terminate this Agreement and will be entitled
to twelve (12) months salary, WHICH SHALL BE GROSSED UP FOR
TAXES IN AN AMOUNT NOT TO EXCEED FIFTY PERCENT (50%) OF THE
TWELVE (12) MONTHS SALARY, and any other separation
compensation and benefits as are routinely made available to
other employees of the Employer at the same organizational
level if, within one (l) year after the effective date of the
change in control the Employee's principal duties or
compensation, including salary and bonus, is materially
changed.
3. SENTENCE 3 OF PARAGRAPH 8 OF ARTICLE VII, TERMINATION OF EMPLOYMENT, IS
HEREBY AMENDED TO READ AS FOLLOWS:
In addition, if the Employee's employment hereunder is
terminated for reasons other than those set forth in Paragraph
4 of this Article within one year after the effective date of
a change in control which was approved by a majority of the
Employer's Board of Directors, Employee shall be entitled to
twelve (12) months salary, WHICH SHALL BE GROSSED UP FOR TAXES
IN AN AMOUNT NOT TO EXCEED FIFTY PERCENT (50%) OF THE TWELVE
(12) MONTHS SALARY, and all other separation compensation and
benefits as are routinely made available to other employees of
the Employer at the same organizational level.
4. EFFECTIVE DATE. This Amendment shall be effective as of May 1, 1997.
5. CONTINUED EFFECT. Except as otherwise modified hereby, the Agreement
shall continue in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date first above written.
SIERRA HEALTH SERVICES, INC.
BY:________________________________
Erin E. MacDonald, President
EMPLOYEE
BY: /S/ MARIE H. SOLDO
EXHIBIT 10.13
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 (the "Amendment") to Employment Agreement is
hereby made and entered into as of this 1st day of May, 1997, by and between
Sierra Health Services, Inc., a Nevada corporation (hereinafter referred to as
"Employer") and JAMES L. STARR (hereinafter referred to as "Employee").
WHEREAS, the Employer and Employee are parties to that certain Employment
Agreement dated as of JULY 1, 1996 ; and
WHEREAS, the parties hereto desire to amend certain terms thereof on
the terms and conditions hereinafter set forth; and
WHEREAS, the Compensation Committee of the Board of Directors of
Employer have reviewed and approved this Amendment.
NOW, THEREFORE, in consideration of the foregoing premises, and for
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. SENTENCE 1 OF PARAGRAPH 7 OF ARTICLE VII, TERMINATION OF EMPLOYMENT, IS
HEREBY AMENDED TO READ
- -------------------------------------------------------------------------------
AS FOLLOWS: ----------
In the event of a change in control of the Employer, whereby
any "person" (as such term is used in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934) is or becomes
the beneficial owner, directly or indirectly, of securities of
Employer representing 51% or more of the combined voting power
of the then outstanding securities of Employer, and such
change in control was not approved by a majority of the Board
of Directors of Employer, Employee, at his/her sole option,
shall be entitled to terminate this Agreement and will be
entitled to twelve (12) months salary, WHICH SHALL BE GROSSED
UP FOR TAXES IN AN AMOUNT NOT TO EXCEED FIFTY PERCENT (50%) OF
THE TWELVE (12) MONTHS SALARY, and any other separation
compensation and benefits as are routinely made available to
other employees of the Employer at the same organizational
level.
2. SENTENCE 1 OF PARAGRAPH 8 OF ARTICLE VII, TERMINATION OF EMPLOYMENT, IS
HEREBY AMENDED TO READ
- -------------------------------------------------------------------------------
AS FOLLOWS: ----------
In the event of a change in control of the Employer, whereby
any "person" (as such term is used in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934) is or becomes
the beneficial owner, directly or indirectly, of securities of
Employer representing 51% or more of the combined voting power
of the then outstanding securities of Employer, and such
change in control is approved by a majority of the Board of
Directors of Employer, Employee, at his/her sole option, shall
be entitled to terminate this Agreement and will be entitled
to twelve (12) months salary, WHICH SHALL BE GROSSED UP FOR
TAXES IN AN AMOUNT NOT TO EXCEED FIFTY PERCENT (50%) OF THE
TWELVE (12) MONTHS SALARY, and any other separation
compensation and benefits as are routinely made available to
other employees of the Employer at the same organizational
level if, within one (l) year after the effective date of the
change in control the Employee's principal duties or
compensation, including salary and bonus, is materially
changed.
3. SENTENCE 3 OF PARAGRAPH 8 OF ARTICLE VII, TERMINATION OF EMPLOYMENT, IS
HEREBY AMENDED TO READ AS FOLLOWS:
In addition, if the Employee's employment hereunder is
terminated for reasons other than those set forth in Paragraph
4 of this Article within one year after the effective date of
a change in control which was approved by a majority of the
Employer's Board of Directors, Employee shall be entitled to
twelve (12) months salary, WHICH SHALL BE GROSSED UP FOR TAXES
IN AN AMOUNT NOT TO EXCEED FIFTY PERCENT (50%) OF THE TWELVE
(12) MONTHS SALARY, and all other separation compensation and
benefits as are routinely made available to other employees of
the Employer at the same organizational level.
4. EFFECTIVE DATE. This Amendment shall be effective as of May 1, 1997.
5. CONTINUED EFFECT. Except as otherwise modified hereby, the Agreement
shall continue in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date first above written.
SIERRA HEALTH SERVICES, INC.
BY: /S/ ERIN E. MACDONALD
Erin E. MacDonald, President
EMPLOYEE
BY: /S/ JAMES L. STARR
