<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF
1934
(AMENDMENT NO. )
Filed by the Registrant: [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
[X] Definitive Proxy Statement COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
SIERRA HEALTH SERVICES, INC.
-----------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[LOGO OF SIERRA HEALTH SERVICES, INC.(R)]
P.O. Box 15645
Las Vegas, Nevada 89114-5645
April 10, 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Sierra Health Services, Inc., which will be held on Tuesday, May 12, 1998, at
10:00 a.m., local time, in the President's Auditorium at the Sierra Health
Services corporate complex, 2716 North Tenaya Way, Las Vegas, Nevada.
The following Notice of Annual Meeting of Stockholders and Proxy Statement
describes the items to be considered by the stockholders and contains certain
information about the Company's officers and directors.
Please sign and return the enclosed proxy card as soon as possible in the
envelope provided so that your shares can be voted at the meeting in
accordance with your instructions. Even if you plan to attend the meeting, we
urge you to sign and promptly return the enclosed proxy. You can revoke the
proxy at any time prior to voting, or vote your shares personally if you
attend the meeting. We look forward to seeing you.
Sincerely,
/s/ Anthony M. Marlon
Anthony M. Marlon, M.D.
Chairman of the Board and
Chief Executive Officer
<PAGE>
SIERRA HEALTH SERVICES, INC.
P.O. BOX 15645
LAS VEGAS, NEVADA 89114-5645
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD TUESDAY, MAY 12, 1998
----------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Sierra
Health Services, Inc., a Nevada corporation (the "Company"), will be held at
10:00 a.m., local time, Tuesday, May 12, 1998, in the President's Auditorium
at the Sierra Health Services corporate complex, 2716 North Tenaya Way, Las
Vegas, Nevada for the following purposes:
1. To elect three directors for a two-year term and until their successors
are duly elected and qualified.
2. To amend the Company's 1995 Long-Term Incentive Plan, including for the
purpose of increasing by 900,000 the number of shares of Common Stock reserved
for issuance to participants and to authorize cash annual incentive awards
thereunder.
3. To ratify the appointment of Deloitte & Touche LLP as the Company's
auditors for 1998.
4. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only holders of record of the Company's Common Stock at the close of
business on April 2, 1998 will be entitled to notice of and to vote at the
Annual Meeting and at any adjournments thereof. As described in the attached
Proxy Statement, the Board of Directors' nominees for election at the Annual
Meeting as directors of the Company are: Erin E. MacDonald, William J. Raggio
and Charles L. Ruthe.
You are cordially invited to attend the Annual Meeting. Whether or not you
expect to attend the Annual Meeting in person, please fill out, sign, date and
return at your earliest convenience, in the envelope provided, the enclosed
proxy card which is being solicited on behalf of the Company's Board of
Directors. The proxy card shows the form in which your shares of Common Stock
are registered. Your signature must be in the same form. The return of the
proxy card does not affect your right to vote in person should you decide to
attend the Annual Meeting. We look forward to seeing you.
By Order of the Board of Directors,
/s/ Frank E. Collins
Frank E. Collins
Secretary
Las Vegas, Nevada
April 10, 1998
IMPORTANT
IN ORDER TO ENSURE THAT A QUORUM WILL BE REPRESENTED AT THE ANNUAL MEETING,
STOCKHOLDERS ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THEIR PROXY CARDS AS
SOON AS POSSIBLE. A PROMPT RESPONSE IS HELPFUL AND YOUR COOPERATION WILL BE
APPRECIATED. THE GIVING OF THIS PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN
PERSON SHOULD YOU DECIDE TO ATTEND THE ANNUAL MEETING.
<PAGE>
SIERRA HEALTH SERVICES, INC.
P.O. Box 15645
Las Vegas, Nevada 89114-5645
----------------
PROXY STATEMENT
FOR THE
ANNUAL MEETING OF STOCKHOLDERS
ON TUESDAY, MAY 12, 1998
----------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Sierra Health Services, Inc., a Nevada
corporation (the "Company"), for use at the 1998 Annual Meeting of
Stockholders of the Company (the "1998 Annual Meeting") to be held at 10:00
a.m., local time, on Tuesday, May 12, 1998, in the President's Auditorium at
the Sierra Health Services corporate complex, 2716 North Tenaya Way, Las
Vegas, Nevada, and at any adjournments thereof. The approximate date on which
this Proxy Statement and the accompanying proxy card are first being sent to
the Company's stockholders is April 10, 1998.
VOTING OF PROXY; REVOCATION
A proxy in the accompanying form that is properly executed, returned, and
not subsequently revoked will be voted in accordance with instructions
contained thereon. If no instructions are given with respect to the matters to
be acted on, proxies will be voted as follows: (i) for the election of the
three nominees described herein, (ii) for the amendment of the Company's 1995
Long-Term Incentive Plan as discussed herein, (iii) for the ratification of
the appointment of auditors and (iv) otherwise in accordance with the best
judgment of the person or persons voting the proxy on any other matter
properly brought before the 1998 Annual Meeting. Any stockholder who signs and
returns the proxy may revoke it at any time before it is exercised by (i)
delivering written notice to the Secretary of the Company of its revocation,
(ii) executing and delivering to the Secretary of the Company a later dated
proxy, or (iii) by appearing in person at the 1998 Annual Meeting and
expressing a desire to vote his or her shares in person.
EXPENSES OF SOLICITATION
The expenses of the preparation of proxy materials and the solicitation of
proxies for the 1998 Annual Meeting will be borne by the Company. In addition
to solicitation by mail, proxies may be solicited in person, by telephone,
telecopy or other means, or by directors, officers and regular employees of
the Company who will not receive additional compensation for such
solicitations. Beacon Hill Partners, Inc. has been engaged by the Company to
assist in the solicitation of proxies for a fee of $1,500 plus out-of-pocket
costs and expenses. Although there is no formal agreement to do so, the
Company will reimburse banks, brokerage firms and other custodians, nominees
and fiduciaries for reasonable expenses incurred by them in forwarding the
proxy soliciting materials to the beneficial owners of the Company's Common
Stock (as defined below).
VOTING SECURITIES
Holders of the Company's Common Stock, par value $.005 per share (the
"Common Stock"), as of the close of business on April 2, 1998 will be entitled
to notice of, and to vote at, the 1998 Annual Meeting or any adjournments
thereof. On that date, there were 18,346,832 shares of Common Stock
outstanding, each of which is entitled to one vote with respect to each matter
to be voted on at the 1998 Annual Meeting, except as described below for the
election of directors. The presence in person or by proxy (regardless of
whether the proxy has authority to vote on all matters) of the holders of
record of shares representing a majority of the total issued and outstanding
shares of Common Stock will constitute a quorum at the 1998 Annual Meeting.
1
<PAGE>
Stockholders are entitled to vote cumulatively for the election of directors
if any stockholder gives written notice to the President or Secretary of the
Company not less than 48 hours before the 1998 Annual Meeting that such
stockholder desires the voting for the election of directors be cumulative. If
cumulative voting is so invoked, each stockholder is entitled to the number of
votes equal to the number of shares held by such stockholder multiplied by the
number of directors to be elected (three), and may cast all such votes for one
nominee or distribute them among the nominees. Discretionary authority is
being sought by the proxy holders to cumulate votes and distribute such votes
among some or all of the nominees in the event that cumulative voting is
invoked.
Assuming that a quorum is present at the 1998 Annual Meeting, directors will
be elected by a plurality of the votes cast at the 1998 Annual Meeting by
holders of shares of Common Stock present in person or represented by proxy.
Approval of other items at the 1998 Annual Meeting requires that the number of
votes cast in favor of the action exceeds the number of votes cast in
opposition to the action. Withholding authority to vote for directors and
broker non-votes will not affect the election of directors, and abstentions
and broker non-votes will not affect the outcome of the vote on other
proposals.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of April 2, 1998 (except as
otherwise noted in the footnotes below) by (1) each of the executives named in
the Summary Compensation Table set forth under "Compensation of Executive
Officers," (2) each director and nominee of the Company, (3) all current
directors, nominees and executive officers as a group, and (4) each person
known by the Company to be the beneficial owner of more than 5% of the Common
Stock. Subject to applicable community property and similar statutes and
except as otherwise noted in the footnotes below, each of the following
persons has sole voting and dispositive power with respect to the shares that
he or she beneficially owns. Except as noted below, the address of all
stockholders, directors, executive officers and nominees identified in the
table and accompanying footnotes below is in care of the Company's principal
executive offices.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENTAGE OF
BENEFICIAL OUTSTANDING
NAME OF BENEFICIAL OWNER OWNERSHIP COMMON STOCK
------------------------ ---------- --------------
<S> <C> <C>
Anthony M. Marlon, M.D. ....................... 1,805,999(1) 9.8%
Erin E. MacDonald.............................. 200,965(2) 1.1
Laurence S. Howard............................. 100,910(3) *
Frank E. Collins............................... 94,841(4) *
James L. Starr................................. 23,106(5) *
Thomas Y. Hartley.............................. 8,600(6) *
Charles L. Ruthe............................... 10,625(7) *
William J. Raggio.............................. 23,790(8) *
All current Directors and Executive Officers as
a Group (12 persons).......................... 2,475,056(9) 13.0
Lazard Freres & Co. LLC........................ 1,108,785(10) 6.0
Neuberger & Berman, LLC........................ 1,062,200(11) 5.8
</TABLE>
- --------
*Indicates beneficial ownership of less than 1% of the outstanding Common
Stock.
(1) Includes 130,250 shares that can be acquired within 60 days of April 2,
1998 upon the exercise of stock options. Also includes 1,674,749 shares
held indirectly through six trusts established by Dr. Marlon and his wife,
and 1,000 shares held indirectly through a limited partnership (the
"Partnership"). Dr. Marlon may be deemed to have or share voting power
and/or dispositive power over the shares held by the trusts and,
therefore, to have beneficial ownership with respect to such shares. Dr.
Marlon, as managing general partner of the Partnership, has sole voting
and dispositive power over the shares held by the Partnership. Dr. Marlon
disclaims beneficial ownership as to the shares held by the trusts, other
than 478,660 shares held by the Marlon Family Trust (a revocable trust of
which he is a trustee). Dr. Marlon's beneficial
2
<PAGE>
ownership does not include 78,292 shares held in two trusts for the
benefit of family members, the trustee of which is Erin E. MacDonald (see
Note 2 below). Dr. Marlon's beneficial ownership also does not include
435,099 shares held by the AMM and RM Family Limited Partnership
("ARFLP"), the general partner of which is a trust for the benefit of a
family member; the trustees of that trust are Ms. MacDonald, William
Godfrey, and Jeannine M. Zeller (daughter of Dr. Marlon).
(2) Includes 110,000 shares that can be acquired within 60 days of April 2,
1998 upon the exercise of stock options, and 78,292 shares held in two
trusts for the benefit of Dr. Marlon's family members, of which
Ms. MacDonald is the trustee. Ms. MacDonald's beneficial ownership does
not include 1,631,188 shares held in six trusts established by Dr. Marlon
and his wife, as to which Ms. MacDonald serves as a trustee (1,196,089 of
such shares are included and 435,099 of such shares are not included in
Dr. Marlon's beneficial ownership; see Note 1 above).
(3) Includes 97,725 shares that can be acquired within 60 days of April 2,
1998 upon the exercise of stock options.
(4) Includes 91,250 shares that can be acquired within 60 days of April 2,
1998 upon the exercise of stock options.
(5) Includes 17,500 shares that can be acquired within 60 days of April 2,
1998 upon the exercise of stock options.
(6) Includes 6,600 shares that can be acquired within 60 days of April 2,
1998 upon the exercise of stock options.
(7) Includes 6,325 shares that can be acquired within 60 days of April 2,
1998 upon the exercise of stock options.
(8) Includes 6,600 shares that can be acquired within 60 days of April 2,
1998 upon the exercise of stock options.
(9) Includes 639,400 shares that can be acquired within 60 days of April 2,
1998 upon the exercise of stock options. Excludes 435,099 shares held by
the ARFLP (see Note 1 above).
(10) The business address of this stockholder is 30 Rockefeller Plaza, New
York, New York 10020. Lazard Freres & Co. LLC ("Lazard Freres") is a
registered broker-dealer and investment advisor. Lazard Freres has sole
voting power over 996,135 shares and sole dispositive power over
1,108,785 shares. This beneficial ownership information is as of December
31, 1997, and is set forth in a Schedule 13G filed by Lazard Freres with
the Securities and Exchange Commission ("SEC") on February 13, 1998.
(11) The business address of this stockholder is 605 Third Avenue, New York,
New York 10158. Neuberger & Berman, LLC ("Neuberger") is a registered
broker-dealer and investment advisor which serves as subadviser to
various Neuberger & Berman mutual funds. Neuberger has sole voting power
over 86,300 shares, shared voting power over 934,500 shares, and shared
dispositive power over 1,062,200 shares. Neuberger & Berman Management
Inc. ("Management"), an investment manager, is also a beneficial owner of
934,500 of the shares beneficially owned by Neuberger, having shared
dispositive power over such shares. Neuberger & Berman Focus Portfolio, a
registered investment company, is also a beneficial owner of 934,500 of
the shares beneficially owned by Neuberger and by Management, having
shared voting and shared dispositive power over such shares. This
beneficial ownership information is as of December 31, 1997, and is set
forth in a Schedule 13G filed by Neuberger with the SEC on February 17,
1998.
ITEM NO. 1--ELECTION OF DIRECTORS
The Bylaws of the Company provide that the Board of Directors shall consist
of not less than three nor more than seven directors, with the exact number to
be fixed by the Board. At a meeting held on December 13, 1994, the Board of
Directors of the Company fixed the number of directors at five. The Bylaws of
the Company also provide for two classes of directors, as nearly equal in
number as possible, with each class serving for a term of two years. At the
1998 Annual Meeting of Stockholders, the terms of Erin E. MacDonald,
3
<PAGE>
William J. Raggio and Charles L. Ruthe will expire and three directors shall
be elected to serve for a term of two years expiring at the 2000 Annual
Meeting of Stockholders and until their successors are duly elected and
qualified. The two remaining directors' terms will continue until the 1999
Annual Meeting of Stockholders and until their successors are duly elected and
qualified. The proxy holders named on the accompanying proxy card intend to
vote the shares represented by each proxy authorizing votes for the three
nominees listed below in favor of the three nominees, and if cumulative voting
is invoked, to distribute, in such proportion as they see fit, the three votes
represented by each such share among the three nominees named below. Proxies
cannot be voted for a greater number of persons than the number of nominees
named.
The Company's Board of Directors has nominated Erin E. MacDonald, William J.
Raggio and Charles L. Ruthe for re-election to the Board. Each of the nominees
is presently a member of the Board of Directors and has consented to being
named herein and to serve if elected. The Company does not know of anything
that would preclude any nominee from serving if elected. If any nominee shall
become unable to stand for election as a director at the meeting, an event not
now anticipated by the Board of Directors, the proxy may be voted for a
substitute designated by the Board of Directors. The identity and a brief
biography of each nominee for director and each continuing director is set
forth below.
NOMINEES FOR ELECTION AS DIRECTORS FOR A TERM OF TWO YEARS
ERIN E. MACDONALD, 50, has been a Director of the Company since 1992 and a
director of CII Financial, Inc. ("CII"), a wholly-owned subsidiary of the
Company, since 1995. She was Senior Vice President of Operations of the
Company from the end of 1992 until 1994 at which time she assumed her present
position as President and Chief Operating Officer. Ms. MacDonald has also
served the Company in other capacities including Vice President of HMO
Operations from 1984 to 1990, when her title was changed to Vice President of
HMO and Insurance Operations, which title she held until 1992; President of
one of the Company's HMO subsidiaries, Health Plan of Nevada, Inc. ("HPN")
from 1985 to 1992; President of Sierra Health and Life Insurance Company, Inc.
("SHL"), the Company's insurance subsidiary, from 1990 until 1992; and
Director of the Company's northern Nevada HMO from 1983 to 1984. From 1980 to
1983, Ms. MacDonald was the Operations Manager of the Company's predecessor
physician group.
WILLIAM J. RAGGIO, 71, has been a Director of the Company since 1984. He has
been a State Senator of Nevada since 1972 and is currently Executive Vice
President, General Counsel and a director of Santa Fe Gaming Corporation, a
corporation which operates two Nevada hotel/casinos. Since 1991, he has been a
senior partner in the law firm of Jones-Vargas (formerly Vargas & Bartlett).
He previously served as Washoe County, Nevada District Attorney from 1958 to
1970 and was a senior partner in the law firm of Raggio, Wooster & Lindell,
Ltd. from 1970 to 1991.
CHARLES L. RUTHE, 63, has been a Director of the Company and Chairman of the
Board of Directors of HPN since 1984. He was also a member of the Board of
Directors of one of the Company's predecessors. Mr. Ruthe has been the owner
since 1975 of Charles L. Ruthe and Associates, Inc., a real estate brokerage
firm in Las Vegas, Nevada, and served as its President until 1988 at which
time he assumed the position of Chairman of the Board. Mr. Ruthe has held the
position of Consultant to Boyd Gaming Corporation, a corporation which
operates several Nevada hotel/casinos, since January 1, 1997. From 1988 to
December 31, 1996, he served as President and a director of Boyd Gaming
Corporation. From 1995 to December 31, 1996, he served as President and a
director of Boyd Development Corporation, a subsidiary of The Boyd Gaming
Corporation. He was a director of First Interstate Bank of Nevada from 1979 to
1983, Vice Chairman of the Board of Directors of First Western Financial
Corporation, the parent company of a savings and loan company, from 1985 to
1991, and was President of the Nevada State Chamber of Commerce in 1977.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE FOR
THE ELECTION OF ERIN E. MACDONALD, WILLIAM J. RAGGIO AND CHARLES L. RUTHE AS
DIRECTORS OF THE COMPANY.
4
<PAGE>
CONTINUING DIRECTORS WHOSE TERMS EXPIRE IN 1999
ANTHONY M. MARLON, M.D., 55, has been the Chief Executive Officer and a
Director of the Company since its inception in June 1984. Dr. Marlon also
served as President until 1994 and held similar executive positions with
several of the Company's predecessors dating back to 1972, the year of
inception of the Company's predecessor physician group. In those capacities,
he organized and managed the Company's predecessor physician group, ambulatory
surgical facility, management company and HPN. Dr. Marlon has served as
Associate Professor of Medicine at the University of Nevada School of Medical
Sciences since 1975 and has held positions as Chief, Division of Cardiology,
and Medical Director, Cardiac Rehabilitation, of University Medical Center of
Southern Nevada from 1972 to 1985, Clinical Associate of the Department of
Medicine at the University of Arizona from 1973 to 1979 and Clinical Associate
Professor, Department of Medicine, Tulane University, New Orleans from 1973 to
1977. Dr. Marlon is a board-certified specialist in internal medicine and
cardiovascular diseases. In 1967, Dr. Marlon received his M.D. from State
University of New York and completed his internship, residency and cardiology
fellowship at Stanford University. In 1986, Dr. Marlon was appointed to the
Federal Task Force on Long Term Health Care Policies by Dr. Otis R. Bowen,
then Secretary of Health and Human Services. In July 1988, Dr. Marlon was
appointed to the Board of Trustees of the Nevada Development Authority, a non-
profit organization dedicated to the expansion and diversification of the
southern Nevada business community.
THOMAS Y. HARTLEY, 64, has been a Director of the Company since June 1992.
He has been President and Chief Operating Officer of Colbert Golf Design and
Development, Inc. in Las Vegas, Nevada since 1991. Mr. Hartley has also served
on the Boards of Directors of Rio Suite Hotel & Casino, Inc. since 1990,
Southwest Gas Corporation since 1991 and Ameritrade Holdings Corporation since
November 1996. In 1997, he was elected Chairman of the Board of Southwest Gas
Corporation. Mr. Hartley served in various capacities for Jim Colbert Golf,
Inc. in Las Vegas from 1988 to 1991, and for Deloitte Haskins & Sells
(currently Deloitte & Touche LLP) from 1959 until his retirement in 1988 from
his position as area managing partner in charge of Las Vegas, Reno, Phoenix,
and Tucson. Mr. Hartley, who obtained his degree in business from Ohio
University in 1955, is a Certified Public Accountant. He is also active in
many Las Vegas civic and charitable organizations.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
During the fiscal year ended December 31, 1997, the Board of Directors of
the Company held fifteen meetings and acted by unanimous written consent
without a meeting six times.
The Company's Audit Committee held four meetings during the fiscal year
ended December 31, 1997, two of which were held contemporaneously with
meetings of the Board of Directors. The current members of the Audit Committee
are Messrs. Hartley, Raggio and Ruthe. The principal functions of the Audit
Committee are to review with management and the Company's independent public
accountants the scope and results of the various audits conducted during the
year, to discuss with management and the Company's independent public
accountants the Company's annual financial statements, and to review fees paid
to, and the scope of services provided by, the Company's independent public
accountants. In addition, the Audit Committee reviews the scope of work and
findings of the Company's internal audit department.
The Company's Compensation Committee held five meetings during the fiscal
year ended December 31, 1997, all but one were held contemporaneously with
meetings of the Board of Directors. The members of the Company's Compensation
Committee are Messrs. Hartley and Raggio. The principal function of the
Compensation Committee is to make recommendations concerning the Company's
compensation programs, including the Company's 1986 Stock Option Plan, the
1995 Long-Term Incentive Plan and other bonus, benefit, and incentive plans.
The Company's Stock Plan Committee held two meetings during the fiscal year
ended December 31, 1997, contemporaneously with meetings of the Board of
Directors. It also acted by unanimous written consent without a meeting six
times. The members of the Company's Stock Plan Committee are Messrs. Hartley
and Raggio.
5
<PAGE>
The function of the Stock Plan Committee is to administer the Company's stock-
based incentive programs including the 1986 Stock Option Plan, the 1985
Employee Stock Purchase Plan, the 1995 Long-Term Incentive Plan and other
bonus and incentive plans.
The Board of Directors does not have a Nominating Committee. The Board will
consider nominees for election to the Board of Directors recommended by the
Company's stockholders. All such recommendations, which must include
appropriate biographical information, for the Company's next annual
stockholders meeting in May 1999 should be submitted in writing to the
Secretary at the Company's principal executive offices no later than December
12, 1998.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are appointed annually by the Board of
Directors of the Company and serve at the discretion of the Board. The current
executive officers of the Company, other than Dr. Marlon and Ms. MacDonald,
who are described above, their respective ages and positions, and certain
other information with respect to each of them, are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jonathon W. Bunker...... 39 Vice President, HMO and Insurance Operations
Frank E. Collins........ 44 Exec. Vice President, Secretary and General Counsel
William R. Godfrey...... 53 Exec. Vice President, Administrative Services
Laurence S. Howard...... 42 Senior Vice President, HMO and Insurance Operations
Michael A. Montalvo..... 53 Vice President, Marketing, Sales and Underwriting Operations
Marie H. Soldo.......... 57 Exec. Vice President, Government Affairs and Special Projects
James L. Starr.......... 34 Senior Vice President, Chief Financial Officer and Treasurer
</TABLE>
Jonathon W. Bunker joined the Company on May 20, 1996 as Vice President, HMO
and Insurance Operations and serves as President of HPN, SHL, and the
Company's administrative service subsidiary, Sierra Healthcare Options, Inc.
In January 1997, as the result of an acquisition made by the Company, Mr.
Bunker became President of Prime Holdings, Inc., as well as President of its
four subsidiaries: MedOne Health Plan; M.E.G.A., Inc.; Prime Health, Inc.; and
Elias F. Ghanem, Ltd. In 1998, Mr. Bunker became President of Family
Healthcare Services, Family Home Hospice, Inc., and Sierra Home Medical
Products, Inc. Prior to joining the Company, he served as Vice President of
John Alden Horizon Health from 1989 to 1996 and Vice President of Prime Health
from 1988 to 1989. From 1984 to 1988, Mr. Bunker was Vice President of SHL.
From 1982 to 1984, he was a Staff Accountant with Deloitte & Touche LLP
(formerly Deloitte Haskins & Sells). Mr. Bunker received his degree in
Accounting in 1982 from Utah State University.
Frank E. Collins joined the Company in June 1986 as General Counsel and
Secretary. In 1997 he was also appointed Executive Vice President. He received
his Juris Doctorate in 1979 from the University of Missouri at Kansas City
School of Law and is a member of the Missouri Bar Association. From 1981 to
1986, Mr. Collins was employed by Blue Cross and Blue Shield of Kansas City,
originally as Staff Legal Counsel and in early 1986 as Associate General
Counsel. Mr. Collins also served as counsel for the Missouri Division of
Insurance from 1979 to 1981, where he was responsible for providing legal
advice on insurance- and HMO-related regulatory issues.
William R. Godfrey currently serves as Executive Vice President of
Administrative Services and is responsible for directing the Company's
facilities, personnel management, purchasing, and print-shop activities. In
addition, Mr. Godfrey is responsible for overseeing all property development
and construction as well as all commercial leasing for the Company and its
subsidiaries. He previously served as Vice President, Health Delivery Finance
from 1984 to 1985 and was the Controller of the Company's predecessor
physician group from 1974 to 1984.
6
<PAGE>
Laurence S. Howard has served as Senior Vice President HMO and Insurance
Operations since May 1996. He was appointed Vice President of HMO and
Insurance Operations in 1992, and also assumed the titles of President of HPN
and SHL at that time. From 1990 to 1992, he served as Assistant Vice
President, HMO and Insurance Operations, for the Company. Prior to that, he
was the Vice President and Chief Operating Officer of HPN and SHL and served
in this capacity for HPN from 1987 to 1990. Mr. Howard also served as Director
of Operations for HPN from 1986 to 1987, and was an HMO Project Manager for
the Company in 1986.
Michael A. Montalvo was appointed Vice President of Marketing and Sales in
1993. In 1994, he also assumed responsibility for the Company's underwriting
department. Prior to joining the Company, he held several positions, including
Sales Director, for The Travelers, an insurance company in southern
California, from 1991 to 1993, and Senior Vice President for Managed Health
Network, an employee assistance program and managed care mental health
company, from 1990 to 1991. From 1986 to 1990, he was employed by Equicor,
Inc., an employee benefits company, where he was in charge of the California
sales and marketing efforts with respect to managed care indemnity, preferred
provider organization and HMO products. From 1963 to 1986, Mr. Montalvo also
held various positions with The Equitable Life Insurance Company, ultimately
becoming the financial officer responsible for underwriting, contracts,
proposals and management information systems for the western and west-central
regions.
Marie H. Soldo joined the Company in 1984 as Vice President of Planning and
Development. In 1988, she was appointed Vice President of Government Affairs
and Special Projects, and in 1997 she was appointed Executive Vice President
of Government Affairs and Special Projects. From 1981 to 1984, Ms. Soldo was a
Branch Chief in the Division of Qualification, Office of Health Maintenance
Organizations, U.S. Department of Health and Human Services in Rockville,
Maryland. Her responsibilities included evaluating applications for HMO
qualification and directing the development of qualification standards for HMO
and other health plans seeking contracts with the Health Care Financing
Administration. From 1978 to 1981, Ms. Soldo was a Regional HMO Program
Consultant for the U.S. Department of Health and Human Services in San
Francisco, California where she was responsible for promoting HMO development,
monitoring operations and funding developing HMOs in the region.
James L. Starr was appointed Senior Vice President, Chief Financial Officer
and Treasurer of the Company in 1997. Prior to that, he served as Vice
President of Finance, Chief Financial Officer and Treasurer since 1994, as
Assistant Vice President and Controller beginning in November 1993, and as
Director of Finance and Corporate Controller from the time he joined the
Company in 1989. Prior to joining the Company, Mr. Starr was a Senior
Accountant at Deloitte & Touche LLP (formerly Deloitte Haskins & Sells) in Las
Vegas from 1987 to 1989, and was employed by Arthur Andersen & Company in Los
Angeles from 1985 to 1987. Mr. Starr is a Certified Public Accountant and a
member of the American Institute of Certified Public Accountants and the
Nevada State Society of Certified Public Accountants. Mr. Starr tendered his
resignation from the Company in February and his last day of employment is
scheduled to be June 4, 1998.
Notwithstanding anything to the contrary regarding the incorporation by
reference of future filings--including this Proxy Statement, in whole or in
part--in any of the Company's previous filings under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), the following report and the Comparative Stock Performance Graph
on page 12 shall not be incorporated by reference into any such filings.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee"),
which is composed entirely of non-employee directors, is responsible for
developing and making recommendations to the Board with respect to the
Company's compensation policies. In addition, the Committee has the authority
to determine the annual compensation to be paid to the Chief Executive Officer
("CEO") and the Company's other executive officers. The two non-employee
directors who serve on the Committee also serve as the Company's Stock Plan
Committee, which administers the Company's stock-based incentive compensation
plans.
7
<PAGE>
The fundamental objectives of the Company's executive compensation programs
are: 1) to attract and retain superior individuals critical to the long-term
success of the Company; 2) to promote the achievement of the Company's annual
and long-term strategic goals; 3) to reward performance; and 4) to tie
executives' interests to the success of the Company to further encourage their
efforts to increase value to stockholders.
To meet these objectives, the Company's executive compensation program
currently is structured to include base salary, annual bonus, long-term
incentive compensation in the form of stock options, and certain retirement,
severance, and insurance benefits, as well as various other benefits that are
generally available to all employees of the Company, including medical,
retirement, and employee stock purchase plans.
In implementing the Company's compensation programs, the Committee's general
policy is to consider any significant effects of Section 162(m) of the
Internal Revenue Code. Section 162(m), under certain circumstances, disallows
a public company's tax deduction for certain compensation paid to the chief
executive officer and the four other most highly compensated executive
officers in excess of $1 million in any tax year. Compensation that qualifies
as "performance-based" compensation is excluded from the $1 million
deductibility cap, and therefore remains fully deductible. At the time the
Committee structured annual incentive compensation for 1997, it did not appear
likely that any executive would receive compensation subject to a loss of
deductibility under Section 162(m). The mid-year adjustment to Dr. Marlon's
base salary, as discussed below, together with the structure of the Company's
annual incentive program in place for 1997 and the strong performance of the
Company in 1997, resulted in a portion of Dr. Marlon's compensation being non-
deductible under Section 162(m). In response to this development, the Board of
Directors has amended the 1995 Long-Term Incentive Plan to authorize annual
incentive awards in 1998 and later years which should qualify as "performance-
based" compensation under Section 162(m) of the Code. This amendment is
subject to approval of the Company's stockholders at the 1998 Annual Meeting.
See "ITEM NO. 2--APPROVAL OF AMENDMENT TO THE 1995 LONG-TERM INCENTIVE PLAN."
In addition, since 1995, the Company has taken steps to ensure that stock
options should qualify as "performance-based" compensation not subject to a
loss of deductibility, because the amount and timing of compensation that may
be realized upon exercise of options cannot be predicted. To this end, options
have been and generally will be granted with an exercise price per share at
least equal to 100% of fair market value of a share of underlying stock at the
date of grant, thereby meeting one of the requirements to qualify as
"performance-based" compensation. In all cases, however, other technical
requirements must be met in order for compensation to qualify as "performance-
based," so there can be no assurance that compensation in excess of $1 million
paid in the future to any executive officer will be in all cases fully
deductible under Section 162(m). In addition, preserving deductibility under
Section 162(m) is only one of the Committee's considerations in implementing
the Company's executive compensation program, and generally is not the most
important consideration. The Committee (or the Board of Directors) may
conclude that compliance with Section 162(m) in connection with a given
compensation program interferes with more important objectives of the Company
and imposes burdens or costs which outweigh the benefit of preserving full tax
deductibility under Section 162(m).
TOTAL COMPENSATION LEVELS
The Committee intends that an executive officer's targeted compensation will
represent above-average compensation as compared to organizations that compete
with the Company for executive talent. In this way, the Company's executive
compensation program can promote long-term service by executives, reduce the
risk that talented and experienced executives will be recruited away from the
Company, and reward outstanding performance. To accomplish this, the Committee
intends that targeted annual cash compensation will approximate average
compensation payable by comparable companies, with long-term incentive
compensation providing potentially above-average compensation when performance
exceeds competitive levels, based primarily on growth in the value of shares
of the Company's stock. During 1997, the Company engaged the services of a
compensation consulting firm, Compensation Resource Group, Inc. ("CRG") to
review its executive compensation program and to survey comparable healthcare
companies and published industry averages to help the Committee assess the
implementation of its policies. As discussed below, CRG concluded, in a report
presented to the Committee in May 1997, that the Company's compensation
program, viewed in light
8
<PAGE>
of the Company's good performance, provided compensation and benefits at
below-average levels and below the levels necessary to conform to the
Committee's overall compensation policy as described above. The Committee
implemented a number of significant changes to the compensation program in
1997 in order to conform the program to the overall policy.
CASH COMPENSATION
In its May 1997 report, CRG concluded that, with few exceptions, base
salaries and annual incentives for executive officers were below competitive
ranges, taking into account the Company's profit margins and other measures of
performance in comparison to comparable companies. Accordingly, the Committee
concluded in May 1997 to make a substantial upward adjustment to salaries of
many executive officers. Because annual incentives are potentially payable in
amounts based on a percentage of salary, the May 1997 adjustment had the
effect of increasing the target annual incentive award for an executive whose
salary was raised. In December of each year, the Committee reviews the CEO's
base salary and sets the amount for the following year by considering
competitive compensation data, the Committee's subjective assessment of the
CEO's past performance, and the Committee's expectation of the CEO's future
contributions to the Company. For the other executive officers, the Committee
sets a permissible range of increase in salary from the previous year and
allows the CEO to set actual salaries within those parameters based on each
officer's individual performance and achievement of both company and
individual goals. For all executives, the Committee also considered the
Company's policy governing annual salary increases for employees generally.
Under this policy, most executives' salaries for 1997 were adjusted in
December 1996, and salaries for 1998 were adjusted in December 1997, in each
case in amounts of approximately three percent.
The annual incentive bonus payment for the CEO and the other executive
officers under the Company's Cash Bonus Program is intended to reward key
employee performance for assisting the Company in achieving financial success
and maximizing stockholder value. For 1997, the Committee determined that
annual incentive bonuses would be payable based on achievement of a targeted
level of earnings per share. This was in contrast to 1996, when the Committee
did not authorize payment under the Cash Bonus Program. Achievement of such
targeted level was necessary in order to fund the bonus pool, from which
annual incentive bonuses would be paid out. Based on job position, eligible
employees are placed into specific categories, each of which is entitled to a
payout from the bonus pool up to a maximum amount, expressed as a percentage
of base salary. The Committee set the target annual incentive for the CEO at a
higher percentage of base salary than for the other executive officers, in
line with industry practice and consistent with the Committee's view that
Company performance more closely reflects the CEO's individual performance.
The following bonus categories applied in 1997: Category I, for the CEO, has a
bonus potential of 100% of base salary; Category IA, for the President, which
was approved by the Board of Directors on November 12, 1997, has a bonus
potential of 75% of base salary, Category II, for Senior Management, has a
bonus potential of 50% of base salary; Category III, for corporate vice
presidents and subsidiary presidents, has a bonus potential of 30% of base
salary; and Category IV, for all other eligible employees in the bonus pool,
has a bonus potential of 20% of base salary. Other than the CEO who is in
Category I, and the President, who is in Category IA, all of the executive
officers named in the Summary Compensation Table are in Category II. In 1997,
the Company's earnings per share reached the targeted level necessary to fund
the annual incentive pool, so annual incentive bonuses were paid to executive
officers under the bonus program.
The Committee has retained authority to grant bonuses apart from the Cash
Bonus Program described above. With respect to executives other than the CEO,
the Committee has authorized the CEO and/or the President to make
recommendations regarding such bonuses. In the case of unallocated amounts in
the bonus pool resulting from outstanding performance well in excess of
targeted levels, such bonuses may be paid to those employees who have
demonstrated a high level of service, particularly in projects requiring
extraordinary efforts of management and projects which result in non-budgeted
profitable top-line growth. For 1997, the Committee authorized special one-
time project bonuses to certain executive officers in recognition of
extraordinary efforts of those executives on projects relating to possible
business combinations and in securing the CHAMPUS contract, which contract has
potential to contribute significantly to the profitable growth of the Company.
9
<PAGE>
STOCK-BASED COMPENSATION
The long-term stock-based incentive plans offered by the Company are
designed to tie the officers' interests directly to those of the stockholders.
As stated above, the Committee intends that such plans will provide
compensation opportunities, resulting from growth in share value, that are
potentially above industry averages. For 1997, such long-term incentives were
provided under the 1995 Long-Term Incentive Plan (the "1995 Plan"), approved
by stockholders in 1995. Although the 1995 Plan authorizes the Stock Plan
Committee to use a range of long-term incentive devices to motivate, attract,
and retain high quality executive talent, for 1997 the Stock Plan Committee
adhered to the practice of granting stock options based on the conclusion that
options directly link compensation to appreciation in share value from the
date of grant onward and do so at lower cost than other types of awards. In
determining the size of the 1997 awards, the Stock Plan Committee considered
the individual's past and current performance, compliance with stock ownership
requirements under the Executive Stock Ownership Plan, and subjective factors;
the Stock Plan Committee did not assign any particular weighting to these
considerations. The Executive Stock Ownership Plan requires that certain stock
ownership levels be reached and maintained by executive officers of the
Company over a three-year period starting in 1995. Executives other than the
CEO and the President are required to acquire stock or hold vested stock
options equal in value to the executive's 1995 base salary. The CEO and the
President are required to maintain stock ownership (determined on the same
basis) equal in value to four times and two times such executive's 1995 base
salary, respectively. Currently, the senior executives' ownership exceeds the
requirements of the Ownership Plan.
OTHER BENEFITS
As discussed above, the Committee determined in 1997 to bring the level of
Company benefits in line with those of other publicly traded companies which
are generally comparable. These changes in benefits, made available to the
executives named in the Summary Compensation Table and selected other
executives, include (i) participation in a new defined benefit program for
executives, as described below under the caption "Supplemental Executive
Retirement Plan" (ii) enhanced severance benefits under revised employment
agreements, as described below under the caption "Employment Contracts and
Termination of Employment and Change of Control Arrangements"; (iii) payment
to a defined contribution plan of two percent of annual compensation
(including compensation resulting from option exercises), to the extent such
contribution cannot be made under the Profit Sharing/401(k) Plan due to
limitations under federal tax laws, as an employer contribution under the
Company's Deferred Compensation Plan; and (iv) provision of benefits under
split-dollar life insurance policies. The Committee determined to revise
executive officers' employment agreements to promote stability in the ranks of
management, and in keeping with the effort to provide competitive types and
levels of benefits to executives. The split-dollar life insurance policies
provide a death benefit to an executive's beneficiary, in the case of the
executive's death while employed by the Company, equal to three times annual
compensation (defined as salary plus annual incentive equal to 50% of salary),
and a death benefit, in the case of death after the executive is no longer
employed by the Company, equal to 1.5 times such final annual compensation,
reduced, in each case, by an amount to be paid to the Company out of the
proceeds of the policy intended to equal the aggregate premiums paid on the
policy by the Company. Such policies are also designed to build a cash value,
over a period of approximately 15 years, which will provide a surrender value
(i) sufficient to repay the Company the aggregate premiums paid by the Company
plus (ii) an amount, payable to the executive, equal to 1.666 times the amount
needed to provide to the executive paid-up insurance providing the post-
termination death benefit for an additional period of 20 years.
CEO COMPENSATION
In December 1996, the Committee voted to set Dr. Marlon's 1997 base salary
at $450,883, a three percent increase over the prior year. In May, 1997, based
on a compensation survey and related information provided by CRG, the
Committee determined that a competitive adjustment of the CEO's salary was
appropriate, raising it to $600,000 per year. In December 1997, the Committee
set the CEO's 1998 base salary at $630,000, a five percent increase. The
annual incentive bonus pool for 1997 was funded upon reaching a specified
target level of earnings per share. Accordingly, an annual incentive bonus of
$600,000 was paid to Dr. Marlon, together with an
10
<PAGE>
additional merit bonus of $18,000. In addition, the Committee approved a
special one-time project bonus of $175,000 for the CEO, in recognition of his
leadership and extraordinary efforts on projects relating to possible business
combinations and in securing the CHAMPUS contract. Finally, in keeping with
the Committee's view that a significant portion of compensation should be tied
to the Company's future performance, a component of compensation which should
offer above-average compensation opportunities tied to growth in share value,
Dr. Marlon was granted 25,000 stock options in November 1997 under the 1995
Plan. Such options have a stated term of five years, and an exercise price per
share equal to 100% of the fair market value per share on the date of grant.
As stated above, this grant was made by the Stock Plan Committee based on its
consideration of Dr. Marlon's past and current performance and demands upon
him, and subjective factors, without assigning a particular weighting to these
considerations.
The tables which follow, and the accompanying narrative and footnotes,
reflect the decisions covered by the above discussion.
THOMAS Y. HARTLEY WILLIAM J. RAGGIO
11
<PAGE>
COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative total stockholder return on the
Common Stock of the Company for the last five fiscal years with the cumulative
total return on the S&P Composite Index and a group of peer companies over the
same period (the "1997 Peer Group") and a group of peer companies used for
comparative purposes in the Company's 1996 Proxy Statement (the "1996 Peer
Group") (assuming the investment of $100 in the Company's Common Stock, the
S&P Composite Index, the 1996 Peer Group and the 1997 Peer Group on December
31, 1992, and reinvestment of all dividends).
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG SIERRA HEALTH SERVICES, INC., THE S & P 500 INDEX,
THE 1997 PEER GROUP AND THE 1996 PEER GROUP
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
Measurement Period SIERRA HEALTH 1997 1996 S&P
(Fiscal Year Covered) SERVICES, INC. PEER GROUP PEER GROUP 500
- ------------------- ------------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Measurement Pt- 12/92 $100 $100 $100 $100
FYE 12/93 $102 $170 $129 $110
FYE 12/94 $146 $217 $160 $112
FYE 12/95 $147 $296 $230 $153
FYE 12/96 $114 $237 $194 $189
FYE 12/97 $155 $199 $155 $252
</TABLE>
* $100 INVESTED ON 12/31/92 IN STOCK OR INDEX--
INCLUDING REINVESTMENTS OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
- --------
The 1997 Peer Group is comprised of the following companies: Foundation
Health Corporation, Coventry Corp., United Healthcare Corporation, Oxford
Health Plans, Pacificare Health Systems, Inc., Maxicare Health Plans, Inc.,
Mid Atlantic Medical Services, Inc. and Humana, Inc. The 1997 Peer Group is
comprised of the same companies as the 1996 Peer Group except (i) FHP
International Corporation, Healthsource, Inc., and Physician Corporation of
America were removed because they were acquired by Pacificare, Cigna and
Humana, respectively, and (ii) to compensate for the subtraction of those
three companies, Maxicare Health Plans, Inc., Mid Atlantic Medical Services,
Inc., and Humana, Inc. were added to the 1997 Peer Group. The 1996 Peer Group
was comprised of the following companies: Foundation Health Corp., Coventry
Corp., FHP International Corp., United Healthcare Corp., Oxford Health Plans,
Inc., Pacificare Health Systems, Inc., Healthsource, Inc., and Physician
Corporation of America.
12
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the annual and long-
term compensation for services in all capacities to the Company for the fiscal
years ended December 31, 1997, 1996 and 1995, of (a) the Chief Executive
Officer during the 1997 fiscal year, and (b) each of the four most highly
compensated executive officers, other than the Chief Executive Officer, for
the 1997 fiscal year (hereinafter collectively referred to as the "named
executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
---------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------- ------------ --------
SECURITIES
OTHER ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION OPTIONS/SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($)(/1/) ($) ($) (#)(/2/) ($)(/3/) ($)(/4/)
------------------ ---- -------- ------- ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Anthony M. Marlon, M.D.. 1997 542,784 793,000 -0- 25,000 -0- 119,837(/5/)
Chairman, Chief 1996 437,750 -0- -0- 25,000 -0- 7,750
Executive Officer 1995 425,000 512,750 -0- 125,000 171,250 7,620
Erin E. MacDonald....... 1997 361,823 437,000 -0- 20,000 -0- 119,904(/6/)
President, Chief 1996 291,748 -0- -0- 20,000 -0- 7,750
Operating Officer 1995 283,250 175,498 -0- 115,000 171,250 7,620
Laurence S. Howard...... 1997 292,515 197,280 17,766(/8/) 10,000 -0- 90,587(/7/)
Senior Vice President, 1996 185,192 10,038 -0- 8,000 -0- 26,177
HMO & Ins. Operations 1995 174,222 85,400 -0- 95,000 -0- 7,620
Frank E. Collins........ 1997 201,790 206,600 -0- 15,000 -0- 39,001(/9/)
Exec. Vice President, 1996 154,327 -0- -0- 15,000 -0- 7,750
Secretary & Gen. 1995 151,715 91,500 -0- 110,000 85,625 7,620
Counsel
James L. Starr(/10/).... 1997 195,763 209,250 -0- 15,000 -0- 30,781(/11/)
Senior Vice President, 1996 144,038 11,880 -0- 15,000 -0- 7,750
Chief Financial Officer 1995 140,210 86,200 -0- 110,000 -0- 7,620
& Treasurer
</TABLE>
- --------
(1) Amounts shown include cash compensation earned and received by the named
executives as well as amounts earned but deferred at the election of those
officers.
(2) The numbers represent shares underlying options. No stock appreciation
rights ("SARs") were granted or outstanding during the periods covered by
the table.
(3) "LTIP" means long-term incentive plan. The numbers reflect satisfaction of
the Company's payment obligation with respect to vested share units under
the Company's Capital Accumulation Plan.
(4) The amounts reflected as compensation to executives resulting from split-
dollar insurance policies purchased in 1997 are calculated based on
regulations of the Securities and Exchange Commission. The regulations
require compensation to be calculated on the assumption that most of the
premiums paid by the Company represent a long-term, no-interest loan to
the executive. This assumption results in high compensation expense being
shown in early years of the expected life of each policy and lower expense
in later years, while in fact the cash surrender value of such a policy to
the executive is very low in the early years and higher only in the late
years. Moreover, the amounts reflected as compensation to the named
executives from such policies substantially exceed the Company's
compensation expense resulting from such policies, which for 1997 totaled
$22,180.
(5) This amount includes $7,950, which was contributed by the Company to the
Company's Profit Sharing/401(k) Plan and Trust (the "401(k) Plan") on
behalf of Dr. Marlon. The 401(k) Plan is the primary retirement vehicle
available to the Company's employees. Also included in this amount is
$23,851, which represents a defined contribution under the Deferred
Compensation Plan of 2% of annual compensation to the extent such
contribution cannot be made under the 401(k) Plan due to limitations under
federal tax laws (the "Restoration Contribution"). Also included is
$88,036, which represents compensation from a split-dollar life insurance
policy.
13
<PAGE>
(6) This amount includes $7,950, which was contributed by the Company to the
Company's 401(k) Plan on behalf of Ms. MacDonald; $21,790, which was a
Restoration Contribution; and $90,164, which represents compensation from
a split-dollar life insurance policy.
(7) This amount includes $7,950, which was contributed by the Company to the
Company's 401(k) Plan on behalf of Mr. Howard; $6,997, which was a
Restoration Contribution; $20,662, which represents compensation from a
split-dollar life insurance policy; and $54,978, which represents
relocation costs incurred by Mr. Howard at the request of the Company.
(8) This amount represents reimbursement for certain taxes and other expenses
associated with Mr. Howard's relocation at the request of the Company.
(9) This amount includes $7,950, which was contributed by the Company to the
Company's 401(k) Plan on behalf of Mr. Collins; $10,487, which was a
Restoration Contribution; and $20,564, which represents compensation from
a split-dollar life insurance policy.
(10) Mr. Starr has tendered his resignation from the Company. His last day of
employment is scheduled to be June 4, 1998.
(11) This amount includes $7,950, which was contributed by the Company to the
Company's 401(k) Plan on behalf of Mr. Starr; $5,955, which was a
Restoration Contribution; and $16,876, which represents compensation from
a split-dollar life insurance policy.
STOCK OPTIONS
The following table contains information concerning the grants of stock
options to the named executives during fiscal year 1997:
OPTION/SAR GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS/SARS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION --------------------
NAME GRANTED(#)(/1/) 1997 ($/SH)(/2/) DATE 5%($) 10%($)
- ---- --------------- ------------ ----------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Anthony M. Marlon,
M.D. .................. 25,000 8.72% 36.75 11/11/03 312,463 708,872
Erin E. MacDonald....... 20,000 6.97 36.75 11/11/03 249,970 567,097
Laurence S. Howard...... 10,000 3.49 36.75 11/11/03 124,985 283,549
Frank E. Collins........ 15,000 5.23 36.75 11/11/03 187,478 425,323
James L. Starr.......... 15,000(/3/) 5.23 36.75 11/11/03 187,478 425,323
</TABLE>
- --------
(1) All awards were non-qualified stock options granted pursuant to the
Company's 1995 Long Term Incentive Plan (the "1995 Plan"). No stock
appreciation rights were granted with the above awards. Upon a change of
control of the Company, as defined in the 1995 Plan, the vesting of the
options shall be automatically accelerated, so that the options
outstanding at the time of such change of control will be immediately
exercisable; provided, however, that the Stock Plan Committee
administering the 1995 Plan may exclude a change of control transaction
from the foregoing provisions and permit the option to continue to vest in
accordance with its original terms. In addition, the options shown above
shall terminate and may no longer be exercised if the respective optionee
ceases to be an employee or director of the Company, except certain post-
termination exercise periods are permitted in the case of death,
disability, or other involuntary termination except for a termination for
"cause." The options together with certain gains realized upon exercise of
the options during a specified period will be subject to forfeiture if the
optionee engages in certain acts in competition with the Company, misuses
proprietary information of the Company, or fails to assist the Company in
litigation. Cashless withholding to satisfy tax obligations may be
permitted by the Stock Plan Committee. These Options were granted on
November 12, 1997 and vest and are exercisable at the rate of 20% per year
starting with the first anniversary date of the grant and expire not later
than six years after grant.
(2) All options were granted at an exercise price equal to the fair market
value of the Company's Common Stock on the option grant date. The exercise
price may be paid by the optionee in cash or by check, except that the
Stock Plan Committee may, in its discretion, allow such payment to be by
surrender of unrestricted
14
<PAGE>
shares of the Company's Common Stock (at their fair market value on the
date of exercise), or by a combination of cash, check and unrestricted
shares.
(3) Mr. Starr has tendered his resignation from the Company. His last day of
employment is scheduled to be June 4, 1998. At that time, all of his
options which are not then exercisable will be canceled.
OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to the named
executives concerning the exercise of options during the fiscal year ended
December 31, 1997 and unexercised options held as of December 31, 1997:
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1997
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
SHARES AT FY-END(#) AT FY-END($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($)(/1/) UNEXERCISABLE UNEXERCISABLE(/2/)
---- ----------- ---------------- -------------- ------------------
<S> <C> <C> <C> <C>
Anthony M. Marlon,
M.D. .................. 4,000 99,563 95,250/120,750 933,406/797,344
Erin E. MacDonald....... 42,000 621,588 75,000/126,000 554,500/898,750
Laurence S. Howard...... 1,200 22,325 70,225/71,775 712,891/541,359
Frank E. Collins........ 18,000 325,063 61,250/89,250 486,156/629,531
James L. Starr.......... 22,900 390,225 38,850/67,450(/3/) 292,381/437,231(/3/)
</TABLE>
- --------
(1) Represents market price at exercise date less exercise price.
(2) Based on the closing price of the Common Stock on December 31, 1997, which
was $33.625, minus the exercise price of the option. There is no guarantee
that if and when these options are exercised they will have this value.
(3) Mr. Starr has tendered his resignation from the Company. His last day of
employment is scheduled to be June 4, 1998. At that time, all of his
options which are not then exercisable will be canceled.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
The Company entered into new employment agreements with its Chief Executive
Officer and other executive officers, effective in November 1997. The term of
employment covered by the agreements is five years for the CEO and the
President, and ranges from one to four years for other executive officers.
Under the agreements, an executive may voluntarily terminate employment upon
60 days' notice. The Company may terminate an executive's employment, with or
without cause, in accordance with the Company's usual policies and procedures.
The agreements provide that, in the event of a termination by the Company
without cause, a severance payment will be paid in the amount of 24 months'
salary to the CEO, 18 months' salary to the President, and amounts ranging up
to 12 months' salary to other executives. In addition, in the case of any
termination of employment other than for cause, the Company will provide
health care benefits for a period equal to the length of the executive's
service or until the executive is eligible for Medicare, whichever occurs
first. The agreements provide that, for senior executives, a disability must
continue for at least 12 months before the Company may terminate an
executive's employment. In the event of a change in control of the Company,
the CEO will be entitled to terminate employment and receive a payment equal
to four times his salary and target annual incentive. For executives other
than the CEO, if a change in control is not approved by the Board of
Directors, or if a change in control is approved by the Board but within two
years thereafter the executive is terminated without cause, demoted, provided
reduced compensation or required to relocate, the executive will be entitled
to receive a payment equal to a multiple of salary and target annual
incentive; such multiple will be four times in the case of the President,
approximately three times in the case of other senior executives, and lower
multiples for less senior executives. In addition, if "golden parachute"
excise taxes apply to compensation paid
15
<PAGE>
by the Company, the Company will provide a gross-up payment sufficient to
cause the after-tax value of the compensation and the gross-up payment to the
executive to be the same as if no such excise had applied. The employment
agreements contemplate annual adjustments in compensation based on job duties,
performance goals and objectives, and other reasonable standards deemed
appropriate by the Committee. The agreements restrict executives' use and
disclosure of confidential information, interference with the Company's
business relationships, and competition with the Company, including a
prohibition, for a one-year period following any termination of employment, on
the executive working for a competitor which operates in Nevada.
As described in footnote 1 to the table entitled Option/SAR Grants In Fiscal
Year 1997, under certain circumstances the exercisability of options granted
to named executives is accelerated in the event of certain changes in control
of the Company.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
In 1997, the Company's Board of Directors adopted the Supplemental Executive
Retirement Plan (the "Supplemental Plan"), which provides retirement benefits
for selected executive officers. Under the Supplemental Plan, each executive
selected for participation generally will be entitled to receive annual
payments, following retirement, disability, and certain other terminations of
employment, for a 15-year period, equal to 3.75% of his or her "final average
compensation" (as defined) for each year of service credited to the executive
up to 20 years, reduced by an amount equal to the annualized payout over a 15-
year period that would be payable to the executive as a result of Company
contributions under the 401(k) Plan and the Deferred Compensation Plan (but
not reduced for social security payments or other offsets). An executive's
right to benefits under the Supplemental Plan vests when five years of service
have been credited or earlier upon the executive's death or disability or upon
occurrence of a change in control (defined in the same way as under other
compensatory plans). Upon the death of the executive, benefits will be payable
for the 15-year period to the executive's beneficiary. Benefits will begin
after retirement at or after age 65, a termination at or after age 55 and ten
years of credited service, or a termination due to disability, and benefits
will begin, in the case of other terminations (except a termination for
"cause" (as defined)) prior to a change in control, at the later of
termination or the date the executive would have completed ten years of
service but for the termination.
The following table shows the approximate amounts of annual retirement
income that would be payable under the Supplemental Plan to executives covered
by it based on various assumptions as to final average compensation and years
of service, assuming benefits are paid out over 15 years:
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS BASED ON CREDITED
YEARS OF SERVICE OF
--------------------------------------------
FINAL AVERAGE
COMPENSATION 5 YEARS 10 YEARS 15 YEARS 20 YEARS 30 YEARS
------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 200,000 $ 34,875 $ 69,750 $104,625 $139,500 $139,500
400,000 67,500 135,000 202,500 270,000 270,000
600,000 101,250 202,500 303,750 405,000 405,000
800,000 135,000 270,000 405,000 540,000 540,000
1,000,000 163,125 326,250 489,375 652,500 652,500
1,200,000 195,750 391,500 587,250 783,000 783,000
</TABLE>
Final average compensation generally means the average of the three highest
years of compensation out of the last five years, with compensation being
generally the amounts reported as salary and bonus in the Summary Compensation
Table.
Each of the executives named in the Summary Compensation Table above has
been selected for participation in the Supplemental Plan. The credited years
of service for such named executives is as follows: Dr. Marlon, 20 years; Ms.
MacDonald, 20 years; Mr. Howard, 14 years; Mr. Collins, 15 years; Mr. Starr,
12 years. An additional year of service will be credited in the event of a
termination within six years after a change in control, and the year of
service for the year of the change in control will be deemed completed at the
16
<PAGE>
time of the change in control. An executive's or beneficiary's benefits are
payable in a lump sum in certain circumstances, including following a change
in control.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are two of the non-employee
directors, Messrs. Hartley and Raggio.
Mr. Raggio is a senior partner of Jones-Vargas, a Nevada law firm which
during 1997 rendered legal services to the Company.
DIRECTOR COMPENSATION
Directors who are not officers of the Company are paid $18,000 per annum,
plus a $1,000 meeting fee for meetings attended, including committee meetings
of the Board. This policy applies to Messrs. Raggio, Ruthe and Hartley.
The 1995 Non-Employee Directors' Stock Plan, as amended (the "Directors'
Plan") provides for an automatic grant to each non-employee Director of an
option to purchase 5,000 shares of Common Stock. Such grants are made
automatically on the date on which a person is first elected to the Board of
Directors and on each January 20 thereafter (unless the initial grant occurred
within the previous six months). The options' exercise price per share is
equal to the fair market value of a share on the date of grant. Such options
become exercisable as to 20% of the underlying shares on each of the first
five anniversaries of the date of grant, or immediately if the Director ceases
to serve due to death or disability, at the date six months prior to the
expiration of the director's term if the director continues to serve through
such date and will reach age 75 before the expiration of the term, or
immediately upon a change of control more than six months after grant. The
options expire at the earliest of ten years after grant, one year after the
optionee ceases to serve as a Director due to death, disability or retirement
or six months after the optionee ceases to serve as a Director for any other
reason (the post-termination period is extended for up to one year if the
optionee dies during the period). Options not exercisable at or before the
time a Director ceases to be a Director are canceled. The Directors' Plan also
permits a non-employee Director to elect to forego cash fees that are
otherwise payable and receive instead the equivalent value in shares of Common
Stock or credits of "deferred stock" that will be settled at a future date by
issuance of Common Stock. During 1997, the Board voted to increase the number
of options granted on an annual basis to the outside directors from 3,000 to
5,000. Messrs. Hartley, Raggio and Ruthe abstained from voting on this matter.
During 1997, Mr. Ruthe also received $6,700 as director's fees for his
service as Chairman of the Board of HPN.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning Certain Related Transactions with respect to Mr.
Raggio, a Director of the Company, please refer to "Compensation Committee
Interlocks and Insider Participation."
In late 1996, in anticipation of the closing of a corporate transaction by
March 31, 1997, the Company asked Mr. Laurence S. Howard, its Senior Vice
President, to relocate with his family to Florida. Consequently, Mr. Howard
purchased a home with a shared equity arrangement wherein the Company paid the
20% down payment, plus closing costs, totaling $144,896. The Company also
agreed to reimburse him for certain improvements made during the first year
and other expenses. Mr. Howard's contribution was a note of $488,000 given to
a mortgage lender plus a commitment to make mortgage payments. The equity was
shared between the parties in proportion to their financial contribution. The
parties agreed that because the transaction did not close, the Company would
acquire Mr. Howard's interest and hold him harmless from all obligations. The
Company subsequently sold the home in Florida and assisted Mr. Howard in
reacquiring his home in Las Vegas at a total cost to the Company of $172,289.
17
<PAGE>
ITEM NO. 2--APPROVAL OF AMENDMENT TO THE 1995 LONG-TERM INCENTIVE PLAN
REASONS FOR AMENDMENT AND STOCKHOLDER APPROVAL
As discussed above in the "Compensation Committee Report on Executive
Compensation" (the "Compensation Committee Report"), the Company's 1995 Long-
Term Incentive Plan, as amended (the "1995 Plan"), is an important means by
which the Company ties executive officers' compensation to the performance of
the Company. To date, awards under the 1995 Plan for executive officers have
been limited to stock options, although the Plan also authorizes a broad range
of other awards, including performance awards, stock appreciation rights
("SARs") and other types of awards based on the Company's Common Stock
(collectively, "Awards"). Annual incentive awards are not currently granted
under the 1995 Plan, but instead are granted under the separate Cash Bonus
Program.
At the 1998 Annual Meeting, the Company's stockholders will be asked to
approve an amendment to the 1995 Plan which will make two significant changes.
First, the amendment will add 900,000 shares to the number of shares currently
reserved for issuance under the 1995 Plan. Second, the amendment will broaden
the authority to grant performance-based awards under the Plan, so that cash-
denominated annual incentive awards which should qualify as "performance-
based" compensation under Section 162(m) of the Internal Revenue Code (the
"Code") can be granted. Section 162(m) limits the deductions a publicly held
company can claim for compensation in excess of $1,000,000 paid to certain
executive officers (generally, the officers who are "named executive officers"
in the summary compensation table in the company's proxy statement).
"Performance-based" compensation is not counted against the $1 million
deductibility cap.
The Board of Directors and the Compensation and Stock Plan Committees (the
"Committees") believe that attracting and retaining executives and other key
employees of high quality is essential to the Company's growth and success.
Important advantages to the Company are gained by a comprehensive compensation
program which may include different types of incentives for motivating
employees of the Company and rewards for outstanding service. In particular,
stock options have been and will continue to be an important element of
compensation for executives and other employees, because such Awards enable
such persons to acquire or increase their proprietary interest in the Company,
thereby promoting a closer identity of interests between them and the
Company's stockholders. Such Awards also provide an increased incentive for
the recipient to expend his or her maximum efforts for the success of the
Company's business.
The Board and the Committees also intend that the Company's ability to claim
tax deductions for compensation paid should be preserved to the greatest
extent practicable. Therefore, the Company is seeking stockholder approval of
the material terms of annual incentive awards to named executives under the
1995 Plan, in order to meet a key requirement for such awards to qualify as
"performance-based" compensation under Section 162(m) of the Code. If the
amendment is approved by stockholders, annual incentive awards granted under
the 1995 Plan will be payable only upon achievement of pre-established levels
of earnings per share for the year or other specified performance goals
(subject to such additional requirements and terms as the Committee may
establish). The Board and Committees believe that such annual incentive awards
have and will continue to provide strong motivation to executives to achieve
performance objectives set by the Compensation Committee, and thereby place
strong emphasis on the building of value for all stockholders.
For purposes of Section 162(m), approval of the amendment to the 1995 Plan
will be deemed also to include approval (or, in the case of terms originally
included in the 1995 Plan, re-approval) of the eligibility of executive
officers and other employees to participate in the 1995 Plan, the annual per-
person limitations described below under the caption "Shares Available and
Award Limitations," and the general business criteria upon which performance
objectives for performance awards, including annual incentive awards, are
based, described below under the caption "Performance-Based Awards" and
"Annual Incentive Awards." Because stockholder approval of general business
criteria, without specific targeted levels of performance, qualifies
performance awards and annual incentive awards for a period of approximately
five years, stockholder approval of such business criteria will meet the
requirements under Section 162(m) until 2003. Stockholder approval of the
performance goal inherent in stock options and SARs (increases in the market
price of stock) is not subject to a time limit under Section 162(m).
18
<PAGE>
DESCRIPTION OF THE 1995 LONG-TERM INCENTIVE PLAN, AS PROPOSED TO BE AMENDED
The following is a brief description of the material features of the 1995
Plan, as proposed to be amended (the "Plan"). Such description is qualified in
its entirety by reference to the full text of the Plan, a copy of which is
attached to this Proxy Statement as Exhibit A.
Shares Available and Award Limitations. Under the Plan, the number of shares
of Common Stock reserved and available for awards will be 2,100,000 plus the
number of shares reserved for the grant under two predecessor plans which have
not been and will not be issued under those plans (approximately 415,000
shares). At December 31, 1997, 375,000 shares remained available for future
grants of awards under the Plan. Shares subject to forfeited or expired Awards
or to an Award that is settled in cash or is otherwise terminated without
issuance of shares to the participant and shares withheld by or surrendered to
the Company to satisfy withholding tax obligations or in payment of the
exercise price of an Award will be deemed to remain available for Awards under
the Plan. Shares delivered under the Plan may be either newly issued or
treasury shares. On April 2, 1998, the last reported sale price of the
Company's Common Stock on the composite tape for New York Stock Exchange-
listed securities was $39.75 per share.
In addition, the Plan includes a limitation on the amount of Awards that may
be granted to any one participant in a given calendar year in order to qualify
Awards as "performance-based" compensation not subject to the limitation on
deductibility under Section 162(m) of the Code. Under this annual per-person
limitation, no participant may in any year be granted stock-denominated Awards
under the Plan with respect to more than 200,000 shares of Common Stock and no
individual annual incentive award may be settled by payment of an amount that
exceeds 4% of the Company's operating income for the year to which such annual
incentive award relates. The Committee expects that annual incentive awards
granted under the Plan, which will be limited to the named executive officers,
will not in a given year, in the aggregate, exceed 10% of the Company's
average annual pre-tax operating income for the five years ended December 31,
1997.
Adjustments to the number and kind of shares subject to the share
limitations and annual per-person limitations relating to stock-denominated
Awards under the Plan are authorized in the event that a dividend or other
distribution (whether in cash, shares, or other property), recapitalization,
reclassification, stock split, reorganization, business combination, or other
similar corporate transaction or event affects the Common Stock. The Committee
is also authorized to adjust performance conditions and other terms of Awards
in response to these kinds of events or to changes in applicable laws,
regulations, or accounting principles, except that any adjustments to awards
intended to qualify as "performance-based" must conform to requirements under
Section 162(m).
Eligibility. Executive officers and other key employees of the Company and
its subsidiaries, including any director who is also an executive officer or
employee of the Company, and consultants to the Company and its subsidiaries
and directors of subsidiaries, are eligible to be granted awards under the
Plan. No member of the Committee is eligible to be granted awards under the
Plan. At present, approximately 300 persons would be eligible for Awards under
the Plan.
Administration. The Plan will be administered by the Stock Plan Committee,
in the case of Awards relating to stock, and by the Compensation Committee in
the case of annual incentive awards, except that the Board may appoint any
other committee to administer the Plan and may itself act to administer the
Plan. (References to "Committee" below mean the committee or full Board
exercising authority with respect to a given type of award.) Subject to the
terms and conditions of the Plan, the Committee is authorized to select
participants, determine the type and number of Awards to be granted and the
number of Shares to which Awards will relate or the amount of an annual
incentive award, specify times at which Awards will be exercisable or settled,
including performance conditions that may be required as a condition thereof,
set other terms and conditions of such Awards, prescribe forms of Award
agreements, interpret and specify rules and regulations relating to the Plan,
and make all other determinations which may be necessary or advisable for the
administration of the Plan. Nothing in the Plan precludes the Committee from
authorizing payment of other
19
<PAGE>
compensation, including bonuses based upon performance, to officers and
employees, including the executive officers. The Plan provides that Committee
members shall not be personally liable, and shall be fully indemnified, in
connection with any action, determination, or interpretation taken or made in
good faith under the Plan.
Stock Options and SARs. The Committee is authorized to grant stock options,
including both incentive stock options ("ISOs"), which can result in
potentially favorable tax treatment to the participant, and non-qualified
stock options, and SARs entitling the participant to receive the excess of the
fair market value of a share on the date of exercise or other specified date
over the grant price of the SAR. The exercise price of an option and the grant
price of a SAR is determined by the Committee, but generally may not be less
than the fair market value of the stock on the date of grant (except as
described below). The maximum term of each option or SAR, the times at which
each option or SAR will be exercisable, and provisions requiring forfeiture of
unexercised options at or following termination of employment, generally are
fixed by the Committee, subject to a restriction that no ISO, or SAR in tandem
therewith, may have a term exceeding ten years. Options may be exercised by
payment of the exercise price in cash, stock or other property (possibly
including notes or obligations to make payment on a deferred basis) or by
surrender of other outstanding awards, having a fair market value equal to the
exercise price. Methods of exercise and settlement and other terms of SARs
will be determined by the Committee. SARs granted under the Plan may include
"limited SARs" exercisable for a stated period of time following a "change of
control" of the Company, as discussed below.
Restricted and Deferred Stock. The Committee is authorized to make Awards of
restricted stock and deferred stock. Prior to the end of the restricted
period, shares received as restricted stock may not be sold or disposed of by
participants, and may be forfeited in the event of termination of employment.
The restricted period generally is established by the Committee, but
Restricted Stock must be forfeitable for at least three years in the event of
the termination of the participant's employment under certain circumstances if
the grant or lapse of restrictions is not conditioned upon achievement of a
performance objective. An Award of restricted stock entitles the participant
to all of the rights of a stockholder of the Company, including the right to
vote the shares and the right to receive any dividends thereon, unless
otherwise determined by the Committee. Deferred stock gives participants the
right to receive shares at the end of a specified deferral period, subject to
forfeiture of the Award in the event of termination of employment under
certain circumstances prior to the end of a specified restricted period (which
need not be the same as the deferral period). Prior to settlement, deferred
stock Awards carry no voting or dividend rights or other rights associated
with stock ownership, but dividend equivalents may be paid on such deferred
stock.
Other Stock-Based Awards, Bonus Stock, and Awards in lieu of Cash
Obligations. The Plan authorizes the Committee to grant Awards that are
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to Common Stock. The Committee will determine
the terms and conditions of such Awards, including the consideration to be
paid to exercise Awards in the nature of purchase rights, the periods during
which Awards will be outstanding, and any forfeiture conditions and
restrictions on Awards. In addition, the Committee is authorized to grant
shares as a bonus free of restrictions, or to grant shares or other Awards in
lieu of the Company's obligations under other plans or compensatory
arrangements, subject to such terms as the Committee may specify.
Performance-Based Awards. The Committee may require satisfaction of pre-
established performance goals, consisting of one or more business criteria and
a targeted performance level with respect to such criteria, as a condition of
Awards being granted or becoming exercisable or settleable under the Plan, or
as a condition to accelerating the timing of such events. If so determined by
the Committee, in order to avoid the limitations on deductibility under
Section 162(m) of the Code, the business criteria used by the Committee in
establishing performance goals applicable to performance Awards to the chief
executive officer and the four other most highly compensated executive
officers will be selected from among the following: (i) the Company's annual
return on equity, (ii) operating income, (iii) annual earnings or earnings per
share, (iv) changes in its annual revenues, (v) total stockholder return,
and/or (vi) strategic business criteria, consisting of one or more objectives
based on specified revenue, market penetration, geographic business expansion
and cost targets, and goals relating to acquisitions or divestitures as
specified by the Committee.
20
<PAGE>
Annual Incentive Awards. The Committee is authorized to grant annual
incentive awards, settleable in cash or in stock upon achievement of
preestablished performance objectives achieved during a specified one-year
period. The performance objectives will be one or more of the performance
objectives available for other performance Awards under the Plan, as described
in the preceding paragraph. As stated above, annual incentive awards granted
to named executives are intended to constitute "performance-based
compensation" not subject to the limitation on deductibility under Code
Section 162(m). The Committee generally must establish the performance
objectives, the corresponding amounts payable (subject to per-person limits),
other terms of settlement, and all other terms of such Awards not later than
90 days after the beginning of the Company's fiscal year.
Other Terms of Awards. Awards may be settled in cash, stock, other Awards or
other property, in the discretion of the Committee. The Committee may require
or permit participants to defer the settlement of all or part of an Award in
accordance with such terms and conditions as the Committee may establish,
including payment or crediting of interest or dividend equivalents on any
deferred amounts. The Committee is authorized to place cash, shares or other
property in trusts or make other arrangements to provide for payment of the
Company's obligations under the Plan. The Committee may condition Awards on
the payment of taxes such as by withholding a portion of the stock or other
property to be distributed (or previously acquired stock or other property
surrendered by the participant) in order to satisfy tax obligations. Awards
granted under the Plan generally may not be pledged or otherwise encumbered
and are not transferable except by will or by the laws of descent and
distribution, or to a designated beneficiary upon the participant's death,
except that the Committee may permit transfers in individual cases, including
for estate planning purposes.
Awards under the Plan are generally granted without a requirement that the
participant pay consideration in the form of cash or property for the grant
(as distinguished from the exercise), except to the extent required by law.
The Committee may, however, grant Awards in substitution for other Awards
under the Plan, awards under other Company plans, or other rights to payment
from the Company, and may grant Awards in addition to and in tandem with such
other Awards, awards, or rights as well.
Vesting, Forfeitures, and Acceleration Thereof. The Committee may, in its
discretion, determine the vesting schedule of options and other Awards, the
circumstances that will result in forfeiture of the Awards, the post-
termination exercise periods of options and similar Awards, and the events
that will result in acceleration of the ability to exercise and the lapse of
restrictions, or the expiration of any deferral period, on any Award. In
addition, the Plan provides that in the event of a change of control of the
Company, outstanding Awards granted six months or more prior to such change of
control will immediately vest and be fully exercisable and any restrictions,
deferral of settlement and forfeiture conditions of such Awards will lapse. A
change of control means an event in which (i) the Company shall merge or
consolidate with any other corporation and shall not be the surviving
corporation; (ii) the Company shall transfer all or substantially all of its
assets to any other person; or (iii) any person shall have become the
beneficial owner of more than 50% of the voting securities of the Company.
Amendment and Termination of the Plan. The Board of Directors may amend,
alter, suspend, discontinue, or terminate the Plan or the Committee's
authority to grant awards thereunder without stockholder approval unless
required by law, regulation, or stock exchange rules, or deemed advisable.
Thus, stockholder approval will not necessarily be required for amendments
which might increase the cost of the plan or broaden eligibility. Unless
earlier terminated, the Plan will terminate at such time that no shares
reserved under the Plan remain available and the Company has no further
obligation with respect to any outstanding award.
Effect of Stockholder Approval on Awards. With one exception, all Awards
granted to date have been granted under the 1995 Plan as currently in effect
and annual incentive awards, including those for 1998, have been granted
outside of the 1995 Plan, so such Awards will be unaffected by the action of
stockholders relating to the Plan at the Annual Meeting. Annual incentive
awards and stock options granted in the 1995-1997 period to the named
executives as of December 31, 1997, are shown above in the Summary
Compensation Table, and other information relating to such Awards is set forth
in the "Compensation Committee Report" and under the
21
<PAGE>
caption "Stock Options" above. The only current Award that will be directly
affected by the vote of stockholders is the annual incentive award for 1998
for Dr. Marlon. If stockholders decline to approve the amendment to the 1995
Plan, such Award cannot be settled, and future Awards will not be granted, to
the extent necessary to meet the requirements of Treasury Regulation 1.162-
27(e)(4).
The following table sets forth the maximum dollar value of the annual
incentive award authorized under the Plan in respect of the 1998 performance
year to be awarded to Dr. Marlon. The Committee has established various
performance objectives for 1998 for determination of such annual incentive
award. The terms of the annual incentive award authorization for 1998 are
similar to those for 1997, as discussed above in the "Compensation Committee
Report":
NEW PLAN BENEFITS
1995 LONG-TERM INCENTIVE PLAN, AS AMENDED
<TABLE>
<CAPTION>
TARGET DOLLAR VALUE
OF ANNUAL INCENTIVE
NAME AND POSITION UNDER THE PLAN
----------------- -------------------
<S> <C>
Anthony M. Marlon, M.D............................... $630,000
Chairman, Chief Executive Officer
</TABLE>
FEDERAL INCOME TAX IMPLICATIONS OF THE PLAN
The following is a brief description of the federal income tax consequences
generally arising with respect to Awards that may be granted under the Plan.
The grant of an option or SAR (including a stock-based award in the nature of
a purchase right) will create no federal income tax consequences for the
participant or the Company. A participant will not have taxable income upon
exercising an ISO (except that the alternative minimum tax may apply). Upon
exercising an option other than an ISO (including a stock-based Award in the
nature of a purchase right), the participant must generally recognize ordinary
income equal to the difference between the exercise price and the fair market
value of the freely transferable and nonforfeitable stock acquired on the date
of exercise. Upon exercising a SAR, the participant must generally recognize
ordinary income equal to the cash or to the fair market value of the freely
transferable and nonforfeitable stock received.
Upon a disposition of shares acquired upon exercise of an ISO before the end
of the applicable ISO holding periods, the participant must generally
recognize ordinary income equal to the lesser of (i) the fair market value of
the shares at the date of exercise of the ISO minus the exercise price or (ii)
the amount realized upon the disposition of the ISO shares minus the exercise
price. Otherwise, a participant's disposition of shares acquired upon the
exercise of an option or SAR generally will result in short-term or long-term
capital gain or loss measured by the difference between the sale price and the
participant's tax basis in such shares (generally, the exercise price plus any
amount previously recognized as ordinary income in connection with the
exercise of the option or SAR).
The Company generally will be entitled to a tax deduction equal to the
amount recognized as ordinary income by the participant in connection with
options and SARs. The Company generally is not entitled to a tax deduction
relating to amounts that represent a capital gain to a participant.
Accordingly, the Company will not be entitled to any tax deduction with
respect to an ISO if the participant holds the shares for the applicable ISO
holding periods prior to disposition of the shares.
With respect to other Awards granted under the Plan that may be settled
either in cash or in stock or other property that is either not restricted as
to transferability or not subject to a substantial risk of forfeiture, the
participant must generally recognize ordinary income equal to the cash or the
fair market value of stock or other property actually received. Except as
discussed below, the Company generally will be entitled to a deduction for the
same amount. With respect to awards involving stock or other property that is
restricted as to transferability and subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
22
<PAGE>
the fair market value of the shares or other property received at the first
time the shares or other property become transferable or not subject to a
substantial risk of forfeiture, whichever occurs earlier. Except as discussed
below, the Company generally will be entitled to a deduction in an amount
equal to the ordinary income recognized by the participant. A participant may
elect to be taxed at the time of receipt of shares or other property rather
than upon lapse of restrictions on transferability or the substantial risk of
forfeiture, but if the participant subsequently forfeits such shares or
property he would not be entitled to any tax deduction, including as a capital
loss, for the value of the shares or property on which he previously paid tax.
The foregoing provides only a general description of the application of
federal income tax laws to certain types of awards under the Plan. This
discussion is intended for the information of stockholders considering how to
vote at the Annual Meeting and not as tax guidance to participants in the Plan
as the consequences may vary with the types of Awards made, the identity of
the recipients and the method of payment or settlement. Different tax rules
may apply, including in the case of variations in transactions that are
permitted under the Plan (such as payment of the exercise price of an option
by surrender of previously acquired shares). The summary does not address the
effects of other federal taxes (including possible "golden parachute" excise
taxes) or taxes imposed under state, local, or foreign tax laws.
As discussed above, compensation that qualifies as "performance-based"
compensation is excluded from the $1,000,000 deductibility cap of Code Section
162(m), and therefore remains fully deductible by the company that pays it.
Under the Plan, options and SARs granted with an exercise price or grant price
at least equal to 100% of fair market value of the underlying stock at the
date of grant, annual incentive awards to employees the Committee expects to
be named executives at the time compensation is received under such Awards,
and certain other Awards which are conditioned upon achievement of performance
goals are intended to qualify as such "performance-based" compensation. A
number of requirements must be met in order for particular compensation to so
qualify, however, so there can be no assurance that such compensation under
the Plan will be fully deductible under all circumstances. In addition, other
Awards under the Plan generally will not so qualify, so that compensation paid
to certain executives in connection with such Awards may, to the extent it and
other compensation subject to Section 162(m)'s deductibility cap exceed
$1,000,000 in a given year, be subject to the limitation of Section 162(m).
VOTE REQUIRED FOR APPROVAL
Approval of the amendment to the 1995 Plan will require the affirmative vote
of holders of a majority of the voting power of the issued and outstanding
voting securities present in person or represented by proxy and entitled to
vote.
The Board of Directors considers the Plan to be in the best interests of the
Company and its stockholders and recommends that the stockholders vote FOR
approval.
ITEM NO. 3--RATIFICATION OF APPOINTMENT OF AUDITORS
APPOINTMENT OF AUDITORS
The Board of Directors has appointed the firm of Deloitte & Touche LLP,
independent certified public accountants, as auditors of the Company for the
year ending December 31, 1998. Although not required to do so, the Board has
determined that it would be desirable to request ratification of this
appointment by the holders of Common Stock of the Company. If such
ratification is not received, the Board will reconsider the appointment.
Representatives of Deloitte & Touche LLP are expected to be present at the
1998 Annual Meeting, will have the opportunity to make a statement if they so
desire, and are expected to be available to respond to appropriate questions
from stockholders.
THE BOARD OF DIRECTORS CONSIDERS DELOITTE & TOUCHE LLP TO BE WELL-QUALIFIED
AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR RATIFICATION.
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OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors knows of no
other matters that may come before the 1998 Annual Meeting. However, if any
further business should properly come before the 1998 Annual Meeting, the
proxy holders named on the accompanying proxy card, or their substitutes, will
vote on such business in accordance with their best judgment.
PROPOSALS OF STOCKHOLDERS
Proposals that stockholders intend to present at the next Annual Meeting of
Stockholders of the Company in May, 1999 must be received by the Secretary of
the Company at its principal executive offices (P.O. Box 15645, Las Vegas,
Nevada 89114-5645) no later than December 12, 1998 for inclusion in the
Company's Proxy Statement and proxy for that meeting and must be otherwise in
compliance with applicable SEC regulations. Use of certified mail is
suggested.
ANNUAL REPORT TO STOCKHOLDERS
The Company's 1997 Annual Report to Stockholders, which includes financial
statements for the fiscal year ended December 31, 1997, accompanies this Proxy
Statement. The Annual Report does not constitute a part of the proxy
materials.
It is important that proxies be returned promptly. Therefore, stockholders
are urged to fill in, date, sign and return the enclosed proxy card in the
enclosed stamped envelope.
By Order of the Board of Directors,
/s/ Frank E. Collins
Frank E. Collins
Secretary
Dated: April 10, 1998
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EXHIBIT A
SIERRA HEALTH SERVICES, INC.
1995 LONG-TERM INCENTIVE PLAN,
AS AMENDED AND RESTATED
1. PURPOSE. The purpose of this 1995 Long-Term Incentive Plan, as
amended and restated (the "Plan"), of Sierra Health Services, Inc., a Nevada
corporation (the "Company"), is to advance the interests of the Company and its
stockholders by providing a means to attract, retain, and reward executive
officers and other key employees of, and consultants to, the Company and its
subsidiaries, and directors of subsidiaries, to link compensation to measures of
the Company's performance in order to provide additional incentives, including
stock-based incentives and cash-based annual incentives, to such persons for the
creation of stockholder value, and to enable such persons to acquire or increase
a proprietary interest in the Company in order to promote a closer identity of
interests between such persons and the Company's stockholders.
2. DEFINITIONS. The definitions of awards under the Plan, including
Options, SARs (including Limited SARs), Restricted Stock, Deferred Stock, Stock
granted as a bonus or in lieu of other awards, and Other Stock-Based Awards, are
set forth in Section 6 of the Plan, and the definition of Performance Awards and
Annual Incentive Awards is set forth in Section 8 of the Plan. Such awards,
together with any other right or interest granted to a Participant under the
Plan, are termed "Awards." The definitions of terms relating to a Change of
Control of the Company are set forth in Section 9 of the Plan. In addition to
such terms and the terms defined in Section 1, the following terms shall be
defined as set forth below:
(a) "Award Agreement" means any written agreement, contract, notice to a
Participant, or other instrument or document evidencing an Award.
(b) "Beneficiary" means the person, persons, trust, or trusts which have
been designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the benefits specified under
this Plan upon such Participant's death. If, upon a Participant's death, there
is no designated Beneficiary or surviving designated Beneficiary, then the term
Beneficiary means the person, persons, trust, or trusts entitled by will or the
laws of descent and distribution to receive such benefits.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended from time to
time. References to any provision of the Code include regulations thereunder and
successor provisions and regulations thereto.
(e) "Committee" means the Stock Plan Committee of the Board in the case of
Awards other than Annual Incentive Awards, the Compensation Committee of the
Board in the case of Annual Incentive Awards, or such other Board committee or
committees as may be designated by the Board to administer the Plan in respect
of any Award, and the term "Committee" shall refer to the full Board in any
case in which it is performing any function of the Committee under the Plan. In
appointing members of the Committee, the Board will consider whether each
member will qualify as a "Non-Employee Director" within the meaning of Rule 16b-
3(b)(3) and as an "outside director" within the meaning of Treasury Regulation
1.162-27(e)(3) under Code Section 162(m), but the members are not required to
so qualify at the time of appointment or during their term of service on the
Committee.
(f) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time. References to any provision of the Exchange Act include
rules thereunder and successor provisions and rules thereto.
(g) "Fair Market Value" means, with respect to Stock, Awards, or other
property, the fair market value of such Stock, Awards, or other property
determined by such methods or procedures as shall be established from time to
time by the Committee. Unless otherwise determined by the Committee, the Fair
Market Value of Stock as of any given date means the closing sale price of a
share of common stock reported in the table entitled "New York Stock Exchange
Composite Transactions" contained in THE WALL STREET JOURNAL (or an equivalent
successor table) for such date or, if no such closing price was reported for
such date, for the most recent trading day prior to such date for which such
closing price was reported.
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(h) "ISO" means any Option intended to be and designated as an incentive
stock option within the meaning of Section 422 of the Code.
(i) "Participant" means a person who, as an executive officer or key
employee of the Company or a subsidiary, has been granted an Award under the
Plan which remains outstanding.
(j) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(k) "Stock" means the Common Stock, $.005 par value, of the Company and
such other securities as may be substituted for Stock or such other securities
pursuant to Section 4.
3. ADMINISTRATION.
(a) Authority of the Committee. The Plan shall be administered by the
Committee. The Committee shall have full and final authority to take the
following actions, in each case subject to and consistent with the provisions
of the Plan:
(i) to select Participants to whom Awards may be granted;
(ii) to determine the type or types of Awards to be granted to each
Participant;
(iii) to determine the number of Awards to be granted, the number of
shares of Stock to which an Award will relate, the cash amount payable in
settlement of an Annual Incentive Award and the performance conditions
applicable thereto, all other terms and conditions of any Award granted
under the Plan (including, but not limited to, any exercise price, grant
price, or purchase price, any restriction or condition, any schedule or
performance conditions for the lapse of restrictions or conditions relating
to transferability, forfeiture, exercisability, or settlement of an Award,
and waivers, accelerations, or modifications thereof, based in each case on
such considerations as the Committee shall determine), and all other
matters to be determined in connection with an Award;
(iv) to determine whether, to what extent, and under what
circumstances an Award may be settled, or the exercise price of an Award may
be paid, in cash, Stock, other Awards, or other property, or an Award may be
cancelled, forfeited, or surrendered;
(v) to determine whether, to what extent, and under what
circumstances cash, Stock, other Awards, or other property payable with
respect to an Award will be deferred either automatically, at the election of
the Committee, or at the election of the Participant;
(vi) to prescribe the form of each Award Agreement, which need not
be identical for each Participant;
(vii) to adopt, amend, suspend, waive, and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;
(viii) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the Plan and any
Award, rules and regulations, Award Agreement, or other instrument
hereunder; and
(ix) to make all other decisions and determinations as may be
required under the terms of the Plan or as the Committee may deem necessary
or advisable for the administration of the Plan.
(b) Manner of Exercise of Committee Authority. Any action of the Committee
with respect to the Plan shall be final, conclusive, and binding on all
persons, including the Company, subsidiaries of the Company, Participants, any
person claiming any rights under the Plan from or through any Participant, and
stockholders. The express grant of any specific power to the Committee, and
the taking of any action by the Committee, shall not be construed as limiting
any power or authority of the Committee. The Committee may delegate to
officers or managers of the Company or any subsidiary of the Company the
authority, subject to such terms as the Committee shall determine, to perform
such functions as the Committee may determine, to the extent that such
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delegation will not result in the loss of an exemption under Rule 16b-3(d)(1)
for Awards granted to Participants subject to Section 16 of the Exchange Act
in respect of the Company and will not cause Awards intended to qualify as
"performance-based" compensation under Code Section 162(m) to fail to so
qualify, and as otherwise limited by applicable law. Other provisions of the
Plan notwithstanding, the Board may perform any function of the Committee
under the Plan, in order to ensure that transactions under the Plan are exempt
under Rule 16b-3 or for any other reason; provided, however, that authority
specifically reserved to the Board under the terms of the Plan, the Company's
Certificate of Incorporation or By-laws, or applicable law shall be exercised
by the Board and not by the Committee.
(c) Limitation of Liability. Each member of the Committee shall be
entitled to, in good faith, rely or act upon any report or other information
furnished to him by any officer or other employee of the Company or any
subsidiary, the Company's independent certified public accountants, or any
executive compensation consultant, legal counsel, or other professional retained
by the Company to assist in the administration of the Plan. No member of the
Committee, nor any officer or employee of the Company acting on behalf of the
Committee, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Committee and any officer or employee of the Company acting on
behalf of the Committee or members thereof shall, to the extent permitted by
law, be fully indemnified and protected by the Company with respect to any such
action, determination, or interpretation.
4. STOCK AVAILABLE UNDER THE PLAN; PER-PERSON AWARD LIMITATIONS;
ADJUSTMENTS.
(a) Stock Reserved for Awards. Subject to adjustment as hereinafter
provided, the total number of shares of Stock reserved and available for
issuance to Participants in connection with Awards under the Plan shall be
2,100,000 plus the number of shares reserved for the grant of awards under the
Company's Second Amended and Restated 1986 Stock Option Plan and Second
Restated Capital Accumulation Plan but which have not been and will not be
issued under such plans (as determined at any time during the effectiveness of
the Plan). No Award may be granted if the number of shares to which such Award
relates, when added to the number of shares to which other then-outstanding
Awards relate, exceeds the number of shares then remaining available for
issuance under this Section 4. If all or any portion of an Award is forfeited,
settled in cash, or otherwise terminated without issuance of shares to the
Participant, the shares to which such Award or portion thereof related shall
again be available for Awards under the Plan; provided, however, that shares
withheld in payment of the exercise price of any Option or withholding taxes
relating to Awards and shares equal to the number of Shares surrendered in
payment of the exercise price of any Option or withholding taxes relating to
Awards shall, for purposes of this provision, be deemed not to have been
issued to the Participant in connection with such Awards under the Plan. The
Committee may adopt procedures for the counting of shares relating to any
Award to ensure appropriate counting and avoid double counting (in the case of
tandem or substitute awards). Any shares of Stock issued pursuant to an Award
may consist, in whole or in part, of authorized and unissued shares, treasury
shares, or shares acquired in the market for the account of the Participant
(which treasury shares or acquired shares will be deemed to have been "issued"
pursuant to such Award).
(b) Annual Individual Limitations. During any calendar year, no
Participant may be granted Options, SARs, and other Awards under the Plan with
respect to more than 200,000 shares of Stock, subject to adjustment as provided
in Section 4(c). For purposes of this Section 4(b), unless more restrictive
counting is required in order for Awards to comply with the requirements of Code
Section 162(m) and regulations thereunder, this provision will limit the maximum
number of shares that can be issued to a Participant under Awards (taking into
consideration the terms of the Awards, including tandem exercise provisions). In
addition, no Annual Incentive Award or Awards granted to a Participant in
respect of any one calendar year may be settled by payment of an amount that
exceeds four percent of the Company's pre-tax operating income (determined under
generally accepted accounting principles) for that year.
(c) Adjustments. In the event that the Committee shall determine that any
dividend or other distribution in the form of Stock or property other than
cash, other special, large, and non-recurring dividends or distributions,
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Stock such that an
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adjustment is appropriate in order to prevent dilution or enlargement of the
rights of Participants under the Plan, then the Committee shall, in such manner
as it may deem equitable, adjust any or all of (i) the number and kind of shares
of Stock reserved and available for Awards under Section 4(a), (ii) the number
and kind of shares of outstanding Restricted Stock or relating to any other
outstanding Award in connection with which shares have been issued, (iii) the
number and kind of shares that may be issued in respect of other outstanding
Awards, (iv) the exercise price, grant price, or purchase price relating to any
Award (or, if deemed appropriate, the Committee may make provision for a cash
payment with respect to any outstanding Award), and (v) the number of shares
with respect to which Options, SARs, and other Awards may be granted to a
Participant in any calendar year, as set forth in Section 4(b). In addition, the
Committee is authorized to make adjustments in the terms and conditions of, and
the criteria included in, Awards (including Performance Awards and performance
goals, and Annual Incentive Awards and any performance goals relating thereto)
in recognition of unusual or nonrecurring events (including, without limitation,
events described in the preceding sentence) affecting the Company or any
subsidiary or the financial statements of the Company or any subsidiary, or in
response to changes in applicable laws, regulations, or accounting principles.
The foregoing notwithstanding, no adjustments shall be authorized under this
Section 4(c) with respect to ISOs or SARs in tandem therewith to the extent that
such authority would cause the Plan or such Awards to fail to comply with
Section 422 of the Code, and no such adjustment shall be authorized with respect
to Options, SARs, Annual Incentive Awards, or other Awards subject to Section 8
to the extent that such authority would cause such Awards intended to qualify as
"qualified performance-based compensation" under Section 162(m)(4)(C) of the
Code and regulations thereunder to fail to so qualify.
5. ELIGIBILITY. Executive officers and other key employees of the Company
and its subsidiaries (including any director of the Company who is also an
executive officer or key employee), and consultants to the Company and its
subsidiaries and directors of any subsidiary (excluding any director of the
Company who would be eligible solely due to service as such a consultant or
subsidiary director), are eligible to be granted Awards under the Plan. The
foregoing notwithstanding, no member of the Committee shall be eligible to be
granted Awards under the Plan.
6. SPECIFIC TERMS OF AWARDS.
(a) General. Awards may be granted on the terms and conditions set forth
in this Section 6. In addition, the Committee may impose on any Award or the
exercise thereof, at the date of grant or thereafter (subject to Section 10(e)),
such additional terms and conditions, not inconsistent with the provisions of
the Plan, as the Committee shall determine, including terms requiring forfeiture
of Awards in the event of termination of employment or service by the
Participant or upon the occurrence of other events. Except as expressly provided
by the Committee (including for purposes of complying with requirements of the
Nevada General Corporation Law relating to lawful consideration for issuance of
shares), no consideration other than for services will be required for the grant
(but not the exercise) of any Award.
(b) Options. The Committee is authorized to grant Options to Participants
(including "reload" options automatically granted to offset specified
exercises of options) on the following terms and conditions:
(i) Exercise Price. The exercise price per share of Stock purchasable
under an Option shall be determined by the Committee; provided, however,
that, except as provided in Section 7(a), such exercise price shall be not
less than the Fair Market Value of a share on the date of grant of such
Option.
(ii) Time and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part, the
methods by which such exercise price may be paid or deemed to be paid, the
form of such payment, including, without limitation, cash, Stock, other Awards
or awards granted under other Company plans, or other property (including
notes or other contractual obligations of Participants to make payment on a
deferred basis, such as through "cashless exercise" arrangements, to the
extent permitted by applicable law), and the methods by which Stock will be
delivered or deemed to be delivered to Participants.
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(iii) ISOs. The terms of any ISO granted under the Plan shall comply
in all respects with the provisions of Section 422 of the Code, including but
not limited to the requirement that no ISO shall be granted more than ten
years after the effective date of the Plan. Anything in the Plan to the
contrary notwithstanding, no term of the Plan relating to ISOs shall be
interpreted, amended, or altered, nor shall any discretion or authority
granted under the Plan be exercised, so as to disqualify either the Plan or
any ISO under Section 422 of the Code, unless the Participant has first
requested such disqualification.
(c) Stock Appreciation Rights. The Committee is authorized to grant SARs
to Participants on the following terms and conditions:
(i) Right to Payment. An SAR shall confer on the Participant to
whom it is granted a right to receive, upon exercise thereof, the excess of
(A) the Fair Market Value of one share of Stock on the date of exercise (or,
if the Committee shall so determine in the case of any such right other than
one related to an ISO, the Fair Market Value of one share at any time during a
specified period before or after the date of exercise), over (B) the grant
price of the SAR as determined by the Committee as of the date of grant of the
SAR, which, except as provided in Section 7(a), shall be not less than the
Fair Market Value of one share of Stock on the date of grant.
(ii) Other Terms. The Committee shall determine the time or times at
which an SAR may be exercised in whole or in part, the method of exercise,
method of settlement, form of consideration payable in settlement, method
by which Stock will be delivered or deemed to be delivered to Participants,
whether or not an SAR shall be in tandem with any other Award, and any
other terms and conditions of any SAR. Limited SARs that may only be
exercised upon the occurrence of a Change of Control (as such term is
defined in Section 10(b) or as otherwise defined by the Committee) may be
granted on such terms, not inconsistent with this Section 6(c), as the
Committee may determine. Such Limited SARs may be either freestanding or in
tandem with other Awards.
(d) Restricted Stock. The Committee is authorized to grant Restricted
Stock to Participants on the following terms and conditions:
(i) Grant and Restrictions. Restricted Stock shall be subject to
such restrictions on transferability and other restrictions, if any, as the
Committee may impose, which restrictions may lapse separately or in
combination at such times, under such circumstances, in such installments, or
otherwise as the Committee may determine; provided, however, that Restricted
Stock the grant of which is not conditioned upon achievement of any
performance objective shall be subject to a restriction on transferability and
a risk of forfeiture for a period of not less than three years after the date
of grant (except that the Committee may accelerate the lapse of such
restrictions in the event of the Participant's termination of employment or
service due to death, disability, normal or approved early retirement, or
involuntary termination by the Company or a subsidiary without "cause," as
defined by the Committee). Except to the extent restricted under the terms of
the Plan and any Award Agreement relating to the Restricted Stock, a
Participant granted Restricted Stock shall have all of the rights of a
stockholder including, without limitation, the right to vote Restricted Stock
or the right to receive dividends thereon.
(ii) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment or service during the applicable restriction
period, Restricted Stock that is at that time subject to restrictions shall be
forfeited and reacquired by the Company; provided, however, that the Committee
may provide, by rule or regulation or in any Award Agreement, or may determine
in any individual case, that restrictions or forfeiture conditions relating to
Restricted Stock will be waived in whole or in part in the event of
terminations resulting from specified causes, except as otherwise provided in
Section 6(d)(i).
(iii) Certificates for stock. Restricted Stock granted under the Plan
may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of the
Participant, such certificates shall bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to such Restricted Stock,
the Company shall retain physical possession of the certificate, and the
Participant shall have delivered a stock power to the Company, endorsed in
blank, relating to the Restricted Stock.
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(iv) Dividends and Distributions. Dividends paid on Restricted Stock
shall be either paid at the dividend payment date in cash or in shares of
unrestricted Stock having a Fair Market Value equal to the amount of such
dividends, or the payment of such dividends shall be deferred and/or the
amount or value thereof automatically reinvested in additional Restricted
Stock, other Awards, or other investment vehicles, as the Committee shall
determine or permit the Participant to elect. Stock distributed in
connection with a Stock split or Stock dividend, and other property
distributed as a dividend, shall be subject to restrictions and a risk of
forfeiture to the same extent as the Restricted Stock with respect to which
such Stock or other property is distributed.
(e) Deferred Stock. The Committee is authorized to grant Deferred Stock to
Participants, subject to the following terms and conditions:
(i) Award and Restrictions. Issuance of Stock will occur upon
expiration of the deferral period specified for an Award of Deferred Stock by
the Committee (or, if permitted by the Committee, as elected by the
Participant). In addition, Deferred Stock shall be subject to such
restrictions as the Committee may impose, if any, which restrictions may
lapse at the expiration of the deferral period or at earlier specified times,
separately or in combination, under such circumstances, in such installments,
or otherwise as the Committee may determine.
(ii) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment or service during the applicable deferral
period or portion thereof to which forfeiture conditions apply (as provided
in the Award Agreement evidencing the Deferred Stock), all Deferred Stock
that is at that time subject to such risk of forfeiture shall be forfeited;
provided, however, that the Committee may provide, by rule or regulation or
in any Award Agreement, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Deferred Stock will be
waived in whole or in part in the event of terminations resulting from
specified causes.
(iii) Dividend Equivalents. The Committee may provide that payments
in the form of dividend equivalents will be credited in respect of Deferred
Stock, which amounts may be paid or distributed when accrued or deemed
reinvested in additional Deferred Stock.
(f) Bonus Stock and Awards in Lieu of Cash Obligations. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in
lieu of Company obligations to pay cash under other plans or compensatory
arrangements. Stock or Awards granted hereunder shall be subject to such other
terms as shall be determined by the Committee.
(g) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Stock and factors that may influence
the value of Stock, as deemed by the Committee to be consistent with the
purposes of the Plan, including, without limitation, convertible or
exchangeable debt securities, other rights convertible or exchangeable into
Stock, purchase rights for Stock, Awards with value and payment contingent
upon performance of the Company or any other factors designated by the
Committee, and Awards valued by reference to the book value of Stock or the
value of securities of or the performance of specified subsidiaries. The
Committee shall determine the terms and conditions of such Awards. Stock
issued pursuant to an Award in the nature of a purchase right granted under
this Section 6(g) shall be purchased for such consideration, paid for at such
times, by such methods, and in such forms, including, without limitation,
cash, Stock, other Awards, or other property, as the Committee shall
determine. Cash awards, as an element of or supplement to any other Award
under the Plan, may be granted pursuant to this Section 6(g).
7. CERTAIN PROVISIONS APPLICABLE TO AWARDS.
(a) Stand-alone, Additional, Tandem, and Substitute Awards. Awards granted
under the Plan may, in the discretion of the Committee, be granted either
alone or in addition to, in tandem with, or in substitution for, any other
Award granted under the Plan or any award granted under any other plan of the
Company, any subsidiary,
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or any business entity to be acquired by the Company or a subsidiary, or any
other right of a Participant to receive payment from the Company or any
subsidiary. Awards granted in addition to or in tandem with other Awards or
awards may be granted either as of the same time as or a different time from
the grant of such other Awards or awards. The per share exercise price of any
Option, grant price of any SAR, or purchase price of any other Award
conferring a right to purchase Stock granted in substitution for an
outstanding Award or award may be adjusted to reflect the in-the-money value
of the surrendered Award or award.
(b) Term of Awards. The term of each Award shall be for such period as may
be determined by the Committee; provided, however, that in no event shall the
term of any ISO or an SAR granted in tandem therewith exceed a period of ten
years from the date of its grant (or such shorter period as may be applicable
under Section 422 of the Code).
(c) Form of Payment Under Awards. Subject to the terms of the Plan and any
applicable Award Agreement, payments to be made by the Company or a subsidiary
upon the grant or exercise of an Award may be made in such forms as the
Committee shall determine, including, without limitation, cash, Stock, other
Awards, or other property, and may be made in a single payment or transfer, in
installments, or on a deferred basis. Such payments may include, without
limitation, provisions for the payment or crediting of reasonable interest on
installment or deferred payments or the grant or crediting of dividend
equivalents in respect of installment or deferred payments denominated in
Stock.
(d) Rule 16b-3 Compliance.
(i) Six-Month Holding Period. Unless a Participant could otherwise
dispose of equity securities (including derivative securities) acquired
under the Plan without incurring liability under Section 16(b) of the
Exchange Act, equity securities acquired under the Plan must be held for a
period of six months following the date of such acquisition, provided that
this condition shall be satisfied with respect to a derivative security if
at least six months elapse from the date of acquisition of the derivative
security to the date of disposition of the derivative security (other than
upon exercise or conversion) or its underlying equity security.
(ii) Compliance Generally. With respect to a Participant who is then
subject to the reporting requirements of Section 16(a) of the Exchange Act
in respect of the Company, the Committee shall implement transactions under
the Plan and administer the Plan in a manner that will ensure that each
transaction by such a Participant is exempt from liability under Rule 16b-
3, except that this provision shall not limit sales by such a Participant,
and such a Participant may engage in other non-exempt transactions under
the Plan if written notice is given to the Participant regarding the non-
exempt nature of such transaction. The Committee may authorize the Company
to repurchase any Award or shares of Stock resulting from any Award in
order to prevent a Participant who is subject to Section 16 of the Exchange
Act from incurring liability under Section 16(b). Unless otherwise
specified by the Participant, equity securities or derivative securities
acquired under the Plan which are disposed of by a Participant shall be
deemed to be disposed of in the order acquired by the Participant.
(e) Loan Provisions. With the consent of the Committee, and subject at all
times to, and only to the extent, if any, permitted under and in accordance
with, laws and regulations and other binding obligations or provisions
applicable to the Company, the Company may make, guarantee, or arrange for a
loan or loans to a Participant with respect to the exercise of any Option or
other payment in connection with any Award, including the payment by a
Participant of any or all federal, state, or local income or other taxes due
in connection with any Award. Subject to such limitations, the Committee shall
have full authority to decide whether to make a loan or loans hereunder and to
determine the amount, terms, and provisions of any such loan or loans,
including the interest rate to be charged in respect of any such loan or
loans, whether the loan or loans are to be with or without recourse against
the borrower, the terms on which the loan is to be repaid and conditions, if
any, under which the loan or loans may be forgiven.
A-7
<PAGE>
8. PERFORMANCE AND ANNUAL INCENTIVE AWARDS.
(a) Performance Conditions. The right of a Participant to exercise or
receive a grant or settlement of any Award, and the timing thereof, may be
subject to such performance conditions as may be specified by the Committee.
The Committee may use such business criteria and other measures of performance
as it may deem appropriate in establishing any performance conditions, and may
exercise its discretion to reduce or increase the amounts payable under any
Award subject to performance conditions, except as limited under Sections 8(b)
and 8(c) hereof in the case of a Performance Award or Annual Incentive Award
intended to qualify under Code Section 162(m).
(b) Performance Awards Granted to Designated Employees. If the Committee
determines that a Performance Award to be granted to an eligible person who is
designated by the Committee as likely to be a "covered employee" (as such term
is used in the regulations under Section 162(m)) with respect to a specified
fiscal year (a "Covered Employee") should qualify as "performance-based
compensation" for purposes of Code Section 162(m), the grant, exercise, and/or
settlement of such Performance Award shall be contingent upon achievement of
preestablished performance goals and other terms set forth in this Section
8(b).
(i) Performance Goals Generally. The performance goals for such
Performance Awards shall consist of one or more business criteria and a
targeted level or levels of performance with respect to each of such
criteria, as specified by the Committee consistent with this Section 8(b).
Performance goals shall be objective and shall otherwise meet the
requirements of Code Section 162(m) and regulations thereunder (including
Regulation 1.162-27 and successor regulations thereto), including the
requirement that the level or levels of performance targeted by the
Committee result in the achievement of performance goals being
"substantially uncertain." The Committee may determine that such
Performance Awards shall be granted, exercised, and/or settled upon
achievement of any one performance goal or that two or more of the
performance goals must be achieved as a condition to the grant, exercise,
and/or settlement of such Performance Awards. Performance goals may differ
for Performance Awards granted to any one Participant or to different
Participants.
(ii) Business Criteria. One or more of the following business
criteria for the Company, on a consolidated basis, and/or for specified
subsidiaries or business units of the Company (except with respect to the
annual earnings per share and total stockholder return criteria), shall be
used by the Committee in establishing performance goals for such Performance
Awards: (1) annual return on equity; (2) annual earnings or earnings per
share; (3) changes in annual revenues; (4) operating income; (5) total
stockholder return; and/or (6) strategic business criteria, consisting of one
or more objectives based on meeting specified revenue, market penetration,
geographic business expansion goals, cost targets, and goals relating to
acquisitions or divestitures. The targeted level or levels of performance with
respect to such business criteria may be established at such levels and in
such terms as the Committee may determine, in its discretion, including in
absolute terms, as a goal relative to performance in prior periods, or as a
goal compared to the performance of one or more comparable companies or an
index covering multiple companies.
(iii) Performance Period; Timing for Establishing Performance
Goals. Achievement of performance goals in respect of such Performance
Awards shall be measured over a performance period specified by the
Committee. Performance goals shall be established not later than 90 days
after the beginning of any performance period applicable to such
Performance Awards, or at such other date as may be required or permitted
for "performance-based compensation" under Code Section 162(m).
(iv) Settlement of Performance Awards; Other Terms. Settlement of
such Performance Awards shall be in Stock, other Awards, or other property, in
the discretion of the Committee. The Committee may, in its discretion, reduce
the amount of a settlement otherwise to be made in connection with such
Performance Awards, but may not exercise discretion to increase any such
amount payable to a Covered Employee in respect of a Performance Award subject
to this Section 8(b). The Committee shall specify the circumstances in which
such Performance Awards shall be paid or forfeited in the event of termination
of employment by the Participant or other event (including a Change of
Control) prior to the end of a performance period or settlement of Performance
Awards.
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<PAGE>
(c) Annual Incentive Awards Granted to Designated Covered Employees. The
Committee may grant an Annual Incentive Award under the Plan to a person who
is designated by the Committee as a Covered Employee. Such Annual Incentive
Award will be intended to qualify as "performance-based compensation" for
purposes of Code Section 162(m), and therefore its grant, exercise, and/or
settlement shall be contingent upon achievement of preestablished performance
goals and other terms set forth in this Section 8(c).
(i) Grant of Annual Incentive Awards. Not later than the end of the
90th day of each fiscal year, or at such other date as may be required or
permitted in the case of Awards intended to be "performance-based
compensation" under Code Section 162(m), the Committee shall determine the
Covered Employees who will potentially receive Annual Incentive Awards, and
the amount(s) potentially payable thereunder, for that fiscal year. The
amount(s) potentially payable shall be based upon the achievement of a
performance goal or goals based on one or more of the business criteria set
forth in Section 8(b)(ii) hereof in the given performance year, as specified
by the Committee. The Committee may designate an annual incentive award pool
as the means by which Annual Incentive Awards will be measured, provided that
the portion of such pool potentially payable to the Covered Employee shall be
preestablished. In all cases, the maximum Annual Incentive Award of any
Participant shall be subject to the limitation set forth in Section 5 hereof.
(ii) Payout of Annual Incentive Awards. After the end of each fiscal
year, the Committee shall determine the amount, if any, of the Annual
Incentive Award for that fiscal year payable to each Participant. The
Committee may, in its discretion, determine that the amount payable to any
Participant as a final Annual Incentive Award shall be reduced from the
amount of his or her potential Annual Incentive Award, including a
determination to make no final Award whatsoever, but may not exercise
discretion to increase any such amount. The Committee shall specify the
circumstances in which an Annual Incentive Award shall be paid or forfeited
in the event of termination of employment by the Participant or other event
(including a Change of Control) prior to the end of a fiscal year or
settlement of such Annual Incentive Award.
(d) Written Determinations. Determinations by the Committee as to the
establishment of performance goals, the amount potentially payable in respect
of Performance Awards and Annual Incentive Awards, the achievement of
performance goals relating to Performance Awards and Annual Incentive Awards,
and the amount of any final Performance Award and Annual Incentive Award shall
be recorded in writing, except in the case of Performance Awards not intended
to qualify under Section 162(m). Specifically, the Committee shall certify in
writing, in a manner conforming to applicable regulations under Section
162(m), prior to settlement of each such Award granted to a Covered Employee,
that the performance objective relating to operating profits and other
material terms of the Award upon which settlement of the Award was conditioned
have been satisfied. The Committee may not delegate any responsibility
relating to such Performance Awards or Annual Incentive Awards, and the Board
shall not perform such functions at any time that the Committee is composed
solely of members who qualify as "outside directors" under the Section 162(m)
regulations.
9. CHANGE OF CONTROL PROVISIONS.
(a) Effect of Change of Control. In the event of a "Change of Control," as
defined in this Section, the following acceleration provisions shall apply:
(i) any outstanding Award carrying a right to exercise which Award
was not previously exercisable and vested, shall become fully exercisable and
vested, subject only to the restrictions set forth in Sections 7(d)(i) and
10(a); and
(ii) The restrictions, deferral of settlement, and forfeiture
conditions applicable to any other outstanding Award, other than an Annual
Incentive Award, granted six months or more before the date of the Change of
Control shall lapse and such Award shall be deemed fully vested, subject to
the restrictions set forth in Sections 7(d)(i) and 10(a).
(b) Definition of Change of Control. For purposes of the Plan, a "Change
of Control" means a transaction or event in which, after the effective date of
the Plan, (i) the Company shall merge or consolidate with any other corporation
and shall not be the surviving corporation; (ii) the Company shall transfer all
or
A-9
<PAGE>
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.
10. GENERAL PROVISIONS.
(a) Compliance with Laws and Obligations. The Company shall not be
obligated to issue or deliver Stock in connection with any Award or take any
other action under the Plan in a transaction subject to the registration
requirements of the Securities Act of 1933, as amended, or any other federal or
state securities law, any requirement under any listing agreement between the
Company and any national securities exchange or automated quotation system, or
any other law, regulation, or contractual obligation of the Company, until the
Company is satisfied that such laws, regulations, and other obligations of the
Company have been complied with in full. Certificates representing shares of
Stock issued under the Plan will be subject to such stop-transfer orders and
other restrictions as may be applicable under such laws, regulations, and other
obligations of the Company, including any requirement that a legend or legends
be placed thereon.
(b) Limitations on Transferability. Awards and other rights under the Plan
will not be transferable by a Participant except by will or the laws of
descent and distribution (or to a designated Beneficiary in the event of the
Participant's death), and, if exercisable, shall be exercisable during the
lifetime of a Participant only by such Participant or his guardian or legal
representative; provided, however, that such Awards and other rights (other
than ISOs and SARs in tandem therewith) may be transferred during the lifetime
of the Participant, for purposes of the Participant's estate planning or other
purposes consistent with the purposes of the Plan (as determined by the
Committee), and may be exercised by such transferees in accordance with the
terms of such Award, but only if and to the extent then consistent with the
registration of the offer and sale of Stock on Form S-8 or Form S-3 or such
other registration form of the Securities and Exchange Commission as may then
be filed and effective with respect to the Plan, and permitted by the
Committee. Awards and other rights under the Plan may not be pledged,
mortgaged, hypothecated, or otherwise encumbered, and shall not be subject to
the claims of creditors.
(c) No Right to Continued Employment; Leaves of Absence. Neither the Plan
nor any action taken hereunder shall be construed as giving any employee,
consultant, subsidiary director, or other person the right to be retained in
the employ or service of the Company or any of its subsidiaries, nor shall it
interfere in any way with the right of the Company or any of its subsidiaries
to terminate any persons's employment or service at any time. Unless otherwise
specified in the applicable Award Agreement, an approved leave of absence
shall not be considered a termination of employment or service for purposes of
an Award under the Plan.
(d) Taxes. The Company and any subsidiary is authorized to withhold from
any Award granted or to be settled, any delivery of Stock in connection with an
Award, any other payment relating to an Award, or any payroll or other payment
to a Participant amounts of withholding and other taxes due or potentially
payable in connection with any transaction involving an Award, and to take such
other action as the Committee may deem advisable to enable the Company and
Participants to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Participant's tax obligations.
(e) Changes to the Plan and Awards. The Board may amend, alter, suspend,
discontinue, or terminate the Plan or the Committee's authority to grant
Awards under the Plan without the consent of stockholders or Participants,
except that any amendment or alteration shall be subject to the approval of
the Company's stockholders at or before the next annual meeting of
stockholders for which the record date is after the date of such Board action
if such stockholder approval is required by any federal or state law or
regulation or the rules of any stock exchange or automated quotation system on
which the Stock may then be listed or quoted, and the Board may otherwise, in
its discretion, determine to submit other such amendments or alterations to
stockholders for approval; provided, however, that, without the consent of an
affected Participant, no such action may materially impair the rights of such
Participant under any Award theretofore granted to him. The Committee may
waive any conditions or rights under, or amend, alter, suspend, discontinue,
or terminate, any Award theretofore granted and any Award Agreement relating
thereto; provided, however, that, without the consent of an affected
Participant, no such action may materially impair the rights of such
Participant under such Award.
A-10
<PAGE>
(f) No Rights to Awards; No Stockholder Rights. No Participant or other
person shall have any claim to be granted any Award under the Plan, and there
is no obligation for uniformity of treatments of Participants, employees,
consultants, or subsidiary directors. No Award shall confer on any Participant
any of the rights of a stockholder of the Company unless and until Stock is
duly issued or transferred and delivered to the Participant in accordance with
the terms of the Award or, in the case of an Option, the Option is duly
exercised.
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant pursuant to an Award,
nothing contained in the Plan or any Award shall give any such Participant any
rights that are greater than those of a general creditor of the Company;
provided, however, that the Committee may authorize the creation of trusts or
make other arrangements to meet the Company's obligations under the Plan to
deliver cash, Stock, other Awards, or other property pursuant to any Award,
which trusts or other arrangements shall be consistent with the "unfunded"
status of the Plan unless the Committee otherwise determines with the consent
of each affected Participant.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor its submission to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board to adopt
such other compensatory arrangements as it may deem desirable, including,
without limitation, the granting of awards otherwise than under the Plan, and
such arrangements may be either applicable generally or only in specific
cases.
(i) No Fractional Shares. No fractional shares of Stock shall be issued or
delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards, or other property shall be issued or paid in lieu
of such fractional shares or whether such fractional shares or any rights
thereto shall be forfeited or otherwise eliminated.
(j) Compliance with Code Section 162(m). It is the intent of the Company
that Options, SARs, and other Awards designated as Awards to Covered Employees
subject to Section 8 shall constitute "qualified performance-based
compensation" within the meaning of Code Section 162(m) and regulations
thereunder (including Proposed Regulation 1.162-27). Accordingly, the terms of
Sections 8(b), (c), and (d), including the definitions of Covered Employee and
other terms used therein, shall be interpreted in a manner consistent with
Code Section 162(m) and regulations thereunder. The foregoing notwithstanding,
because the Committee cannot determine with certainty whether a given
Participant will be a Covered Employee with respect to a fiscal year that has
not yet been completed, the term Covered Employee as used herein shall mean
only a person designated by the Committee, at the time of grant of Performance
Awards or an Annual Incentive Award, as likely to be a Covered Employee with
respect to a specified fiscal year. If any provision of the Plan or any
agreement relating to a Performance Award or Annual Incentive Award that is
designated as intended to comply with Code Section 162(m) does not comply or
is inconsistent with the requirements of Code Section 162(m) or regulations
thereunder, such provision shall be construed or deemed amended to the extent
necessary to conform to such requirements, and no provision shall be deemed to
confer upon the Committee or any other person discretion to increase the
amount of compensation otherwise payable in connection with any such Award
upon attainment of the applicable performance objectives.
(k) Governing Law. The validity, construction, and effect of the Plan, any
rules and regulations under the Plan, and any Award Agreement will be
determined in accordance with the Nevada General Corporation Law and other
laws (including those governing contracts) of the State of Nevada, without
giving effect to principles of conflicts of laws, and applicable federal law.
(l) Effective Date, Stockholder Approval, and Plan Termination. The Plan
became effective May 16, 1995, upon its approval by stockholders of the
Company. The 1998 amendment and restatement of the Plan shall be subject to
the approval of the stockholders of the Company by the vote required by
Section 78.320.1(b) of the Nevada Revised Statutes at the 1998 Annual Meeting
of Stockholders. Unless earlier terminated by action of the Board of
Directors, the Plan will remain in effect until such time as no Stock remains
available for delivery under the Plan and the Company has no further rights or
obligations under the Plan with respect to outstanding Awards under the Plan.
A-11
<PAGE>
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SIERRA HEALTH SERVICES, INC. [LOGO OF SIERRA
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS HEALTH SERVICES,
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON MAY 12, 1998 INC.(R)]
The undersigned holder of shares of Common Stock of SIERRA HEALTH SERVICES,
INC. (the "Company") hereby appoints Anthony M. Marlon, M.D. and Thomas Y.
Hartley, or either of them acting singly in the absence of the other, with full
power of substitution, the Proxies of the undersigned to represent the
undersigned and vote all of the shares of said Common Stock held of record by
the undersigned at April 2, 1998, or which the undersigned otherwise would be
entitled to vote at the Annual Meeting of Stockholders of the Company to be
held May 12, 1998 and at any adjournments or postponements thereof.
1. Election of Directors FOR all nominees listed WITHHOLD AUTHORITY
below (except as marked to vote for all nominees
to the contrary listed below [_]
below) [_]
Erin E. MacDonald, William J. Raggio, Charles L. Ruthe
(INSTRUCTION: To withhold authority to vote for any individual nominee strike a
line through the nominee's name in the list above.)
2. To amend the Company's 1995 Long-Term Incentive Plan, including for the
purpose of increasing by 900,000 the number of shares of Common Stock
reserved for issuance to participants and to authorize cash annual incentive
awards thereunder.
[_] FOR [_] AGAINST [_] ABSTAIN
3. To ratify the appointment of Deloitte & Touche as the Company's auditors for
1998.
[_] FOR [_] AGAINST [_] ABSTAIN
4. To transact such other business as may properly come before the meeting or
any adjournments thereof.
(Continued and to be signed on reverse side)
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THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" ITEMS 1, 2 AND 3. IF CUMULATIVE VOTING FOR DIRECTORS IS INVOKED AT
THE MEETING, DISCRETIONARY AUTHORITY IS HEREBY GRANTED TO THE PROXIES TO
CUMULATE VOTES AND DISTRIBUTE SUCH VOTES AMONG SOME OR ALL OF THE NOMINEES
(OTHER THAN ANY NOMINEE AS TO WHICH VOTING AUTHORITY IS WITHHELD). THE PROXIES
WILL VOTE IN ACCORDANCE WITH THEIR BEST JUDGMENT WITH RESPECT TO ANY MATTERS
REFERRED TO IN ITEM 4. THIS PROXY REVOKES ALL PRIOR PROXIES RELATING TO THE
ANNUAL MEETING.
NOTE: Please sign exactly as
your name or names appear
herein. Joint owners must
each sign. When signing as an
executor, administrator,
corporation, officer,
attorney, agent, trustee or
guardian, etc., please add
your full title to your
signature.
______________________________
Signature
______________________________
Signature
Date _________________________
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