<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
<TABLE>
<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule
14a-12
</TABLE>
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):
<TABLE>
<S> <C> <C>
/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:
------------------------------------------------------------
</TABLE>
<PAGE>
[LOGO]
P.O. Box 15645
Las Vegas, Nevada 89114-5645
April 5, 2000
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Sierra Health Services, Inc., which will be held on Thursday, May 18, 2000, 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 and its officers and Directors.
Please sign and return the enclosed proxy card as soon as possible in the
envelope provided so that your shares can be voted at the meeting in accordance
with your instructions. Even if you plan to attend the meeting, we urge you to
sign and promptly return the enclosed proxy. You can revoke the proxy at any
time prior to voting, or vote your shares personally if you attend the meeting.
We look forward to seeing you.
Sincerely,
[SIG]
Anthony M. Marlon, M.D.
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
<PAGE>
SIERRA HEALTH SERVICES, INC.
P.O. BOX 15645
LAS VEGAS, NEVADA 89114-5645
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD THURSDAY, MAY 18, 2000
------------------------
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, Thursday, May 18, 2000, 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 and to elect one Director for a one-year
term and until his successor is duly elected and qualified.
2. To amend the Company's Employee Stock Purchase Plan to increase by
1,250,000 the number of shares of Common Stock reserved for issuance to
participants and to extend the term of the Plan to 2010.
3. To ratify the appointment of Deloitte & Touche LLP as the Company's
auditors for 2000.
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 March 29, 2000 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, Charles L. Ruthe,
William J. Raggio for two-year terms, and Anthony L. Watson for a one-year term.
You are cordially invited to attend the Annual Meeting. Whether or not you
expect to attend the Annual Meeting in person, please fill out, sign, date and
return at your earliest convenience, in the envelope provided, the enclosed
proxy card which is being solicited on behalf of the Company's Board of
Directors. The proxy card shows the form in which your shares of Common Stock
are registered. Your signature must be in the same form. The return of the proxy
card does not affect your right to vote in person should you decide to attend
the Annual Meeting. We look forward to seeing you.
By Order of the Board of Directors,
[SIG]
Frank E. Collins
SECRETARY
Las Vegas, Nevada
April 5, 2000
IMPORTANT
IN ORDER TO ENSURE THAT A QUORUM WILL BE REPRESENTED AT THE ANNUAL MEETING,
WE URGE STOCKHOLDERS 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 THURSDAY, MAY 18, 2000
------------------------
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, for use at the 2000 Annual Meeting of Stockholders of the Company
(the "2000 Annual Meeting") to be held at 10:00 a.m., local time, on Thursday,
May 18, 2000, 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 each of the Company's
stockholders is April 6, 2000.
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 four nominees
described herein, (ii) for the amendment to the Company's Employee Stock
Purchase 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 2000 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 2000 Annual Meeting and expressing a desire to vote his or her
shares in person. See "Other Matters."
EXPENSES OF SOLICITATION
The expenses of the preparation of proxy materials and the solicitation of
proxies for the 2000 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.
VOTING SECURITIES
Holders of the Company's Common Stock, par value $.005 per share, as of the
close of business on March 29, 2000 will be entitled to notice of, and to vote
at, the 2000 Annual Meeting or any adjournments thereof. On that date, there
were 27,040,757 shares of Common Stock outstanding, each of which is entitled to
one vote with respect to each matter to be voted on at the 2000 Annual Meeting,
except as described below for the election of Directors. The presence in person
or by proxy (regardless of whether
1
<PAGE>
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 as of March 29, 2000 will constitute a quorum at the 2000 Annual
Meeting. All amounts in this Proxy Statement reflect the three for two split of
the Company's Common Stock that became effective May 18, 1998.
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 2000 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 (four), 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 2000 Annual Meeting, Directors will
be elected by a plurality of the votes cast at the 2000 Annual Meeting by
holders of shares of Common Stock present in person or represented by proxy.
Approval of other items at the 2000 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 March 29, 2000 (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....................... 2,692,821(1) 9.9%
Erin E. MacDonald............................ 460,534(2) 1.7
Laurence S. Howard........................... 208,765(3) *
Jonathon W. Bunker........................... 50,177(4) *
Frank E. Collins............................. 226,746(5) *
Thomas Y. Hartley............................ 39,800(6) *
Charles L. Ruthe............................. 25,513(7) *
William J. Raggio............................ 45,585(8) *
Anthony L. Watson............................ 0(9) *
All current Directors and Executive Officers 4,146,150(10)
as a Group (13 persons).................... 14.6
Wellington Management Company, LLP........... 2,506,000(11) 9.3
Vanguard Specialized Portfolio............... 2,189,600(12) 8.1
The Prudential Ins. Co. of America........... 1,551,075(13) 5.7
</TABLE>
- ------------------------
* Indicates beneficial ownership of less than 1% of the outstanding Common
Stock.
2
<PAGE>
(1) Includes 285,625 shares that can be acquired within 60 days of March 29,
2000 upon the exercise of stock options. Also includes 76,693 shares held
indirectly through investment allocation in the Company's 401(k) Plan and
2,329,003 shares held indirectly through four trusts established by
Dr. Marlon and his wife, and 1,500 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 four
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 four
trusts, other than 1,135,341 shares held by the Marlon Family Trust (a
revocable trust of which he is a trustee). Dr. Marlon's beneficial
ownership does not include 163,054 shares held in three trusts for the
benefit of family members, the trustee of each of which is Erin E.
MacDonald (see Note 2 below). Dr. Marlon's beneficial ownership also does
not include 652,648 shares held by the AMM & 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). Dr. Marlon's
address is c/o Sierra Health Services, Inc., P. O. Box 15645, Las Vegas,
Nevada 89114-5645.
(2) Includes 239,000 shares that can be acquired within 60 days of March 29,
2000 upon the exercise of stock options, and 163,054 shares held in three
trusts for the benefit of Dr. Marlon's family members, of which
Ms. MacDonald is the trustee. Ms. MacDonald's beneficial ownership does not
include 2,329,003 shares held in four trusts established by Dr. Marlon and
his wife, as to which Ms. MacDonald serves as a trustee (these 2,329,003
shares are included in Dr. Marlon's beneficial ownership as shown in the
Table; see Note 1 above).
(3) Includes 192,063 shares that can be acquired within 60 days of March 29,
2000 upon the exercise of stock options.
(4) Includes 45,125 shares that can be acquired within 60 days of March 29,
2000 upon the exercise of stock options.
(5) Includes 198,375 shares that can be acquired within 60 days of March 29,
2000 upon the exercise of stock options.
(6) Includes 16,800 shares that can be acquired within 60 days of March 29,
2000 upon the exercise of stock options.
(7) Includes 17,363 shares that can be acquired within 60 days of March 29,
2000 upon the exercise of stock options.
(8) Includes 16,800 shares that can be acquired within 60 days of March 29,
2000 upon the exercise of stock options.
(9) Mr. Watson became a Director on the Board effective March 1, 2000.
(10) Includes 1,333,726 shares that can be acquired within 60 days of
March 29, 2000 upon the exercise of stock options. Excludes 652,648 shares
held by the ARFLP (see Note 1 above).
(11) The following information is derived from this stockholder's Schedule 13G
filed with the Securities and Exchange Commission ("SEC") on February 11,
2000. The business address of this stockholder is 75 State Street, Boston,
MA 02109. Wellington Management Company, LLP ("Wellington") is a
registered investment advisor organized under the laws of the State of
Massachusetts. Wellington has shared voting power over 298,000 shares and
shared dispositive power over 2,506,000 shares. This beneficial ownership
information is as of December 31, 1999.
(12) The following information is derived from this stockholder's Schedule 13G
filed with the SEC on February 8, 2000. The business address of this
stockholder is P. O. Box 2600, V37, Valley Forge, PA
3
<PAGE>
19482. Vanguard Specialized Funds--Vanguard Health Care Fund ("Vanguard")
is an investment company organized under the laws of the State of
Delaware. Vanguard has sole voting power and shared dispositive power over
2,189,600 shares. This beneficial ownership information is as of
December 31, 1999.
(13) The following information is derived from this stockholder's Schedule 13G
filed with the SEC on January 31, 2000. The business address of this
stockholder is 751 Broad Street, Newark, New Jersey 07102-3777. The
Prudential Insurance Company of America ("Prudential") is a mutual
insurance company organized under the laws of the State of New Jersey.
Prudential has sole voting power and sole dispositive power over 393,200
shares, and shared voting power and shared dispositive power over
1,157,875 shares. This beneficial ownership information is as of
December 31, 1999.
ITEM NO. 1--ELECTION OF DIRECTORS
The Board of Directors has fixed the number of Directors at six. 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 2000
Annual Meeting of Stockholders, the terms of Erin E. MacDonald, Charles L.
Ruthe, and William J. Raggio will expire. Accordingly, three Directors will be
elected to serve for a term of two years expiring at the 2002 Annual Meeting of
Stockholders and until their successors are duly elected and qualified. In
addition, the term of Anthony L. Watson is up for election to serve a term of
one year expiring at the 2001 Annual Meeting of Stockholders and until his
successor is 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 four nominees listed below in favor of the four
nominees, and if cumulative voting is invoked, to distribute, in such proportion
as they see fit, the four votes represented by each such share among the four
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, Charles L.
Ruthe, and William J. Raggio for re-election to the Board for two-year terms.
The Company's Board of Directors has also nominated Anthony L. Watson for
election to the Board for a term expiring at the 2001 Annual Meeting of
Stockholders and until his successor is duly elected and qualified. 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
becomes 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.
The Board of Directors is considering a possible increase in the size of the
Board to seven members. If the Board increases to seven members, the additional
Director will be an independent Director who is not a current or former employee
of the Company.
NOMINEES FOR ELECTION AS DIRECTORS
FOR TERMS EXPIRING IN 2002
ERIN E. MACDONALD, 52, 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 as Vice President of HMO Operations from
1984 to 1990; Vice President of HMO and Insurance Operations, from 1990 to 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
4
<PAGE>
Insurance Company, Inc. ("SHL"), the Company's insurance subsidiary, from 1990
to 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.
CHARLES L. RUTHE, 65, 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 through 1996, he
served as President and a Director of Boyd Gaming Corporation. From 1995 through
1996, he served as President and a Director of Boyd Development Corporation, a
subsidiary of 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. Mr. Ruthe served on the Board of Directors of Pioneer Citizens
Bank of Nevada from January 1998 to November 1999.
WILLIAM J. RAGGIO, 73, has been a Director of the Company since 1984. He has
been a State Senator of Nevada since 1972 and was National Chairman of the
American Legislative Exchange Council in 1993. He is currently the General
Counsel of Santa Fe Gaming Corporation, a corporation which operates two Nevada
hotel/casinos and formerly served as a Director until 1997. On January 14, 1999,
a petition for involuntary bankruptcy under Chapter Seven was filed against
Santa Fe Gaming Corporation, which petition was conditionally dismissed by the
federal Bankruptcy Court on March 19, 1999. Since 1991, Mr. Raggio has been a
shareholder 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 President of the National District Attorneys Association in 1967-1968.
He was a senior partner in the law firm of Raggio, Wooster & Lindell, Ltd. from
1970 to 1991. Mr. Raggio also served as a Director of the Las Vegas Sands, Inc.,
which operates the Venetian Resort, Hotel & Casino, from November 1997 to
March 31, 2000.
FOR A TERM EXPIRING IN 2001
ANTHONY L. WATSON, 59, has been a Director of the Company since March 1,
2000. He has been Chairman and Chief Executive Officer of HIP Health Plan of New
York since 1991. From 1966 to 1970, he was Supervising Public Health Advisor at
the Center for Disease Control of the United States Department of Health,
Education and Welfare. From 1970 to 1976, he was Deputy Director of the New York
City Comprehensive Health Planning Agency and from 1976 to 1985, its Executive
Director. From 1972 to 1974, he also was an instructor in health planning at the
Herbert J. Lehman College of the City of New York. Mr. Watson is currently
President of the HIP Foundation, which provides overall strategic direction for
the HIP system. He also serves as Chairman of HIP Health Plan of Florida, and
HIP's Centralized Laboratory Services. In 1999, Mr. Watson was named by
President Clinton to serve as a member of the National Bipartisan Commission on
the Future of Medicare. Mr. Watson served as Chairman of the Board of Directors
of HIP Health Plan of New Jersey from 1991 to 1999. In September 1998, the New
Jersey Department of Banking and Insurance placed the plan under administrative
supervision due to its financial condition. The plan voluntarily entered into
rehabilitation under the supervision of the State. Ultimately, the State
rejected all plans for rehabilitation and decided to liquidate the plan, close
its medical centers and have all members choose alternative health care carriers
via open enrollment. The plan is now in the final stages of liquidation
supervised by the State of New Jersey.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE FOR
THE ELECTION OF ERIN E. MACDONALD, CHARLES L. RUTHE, WILLIAM J. RAGGIO AND
ANTHONY L. WATSON AS DIRECTORS OF THE COMPANY.
5
<PAGE>
CONTINUING DIRECTORS WHOSE TERMS EXPIRE AT THE 2001 ANNUAL MEETING
ANTHONY M. MARLON, M.D., 57, has been the Chief Executive Officer and a
Director of the Company since its inception in 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
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, 66, has been a Director of the Company since 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 served on the
Boards of Directors of 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 also served on the Board of
Directors of the Rio Suite Hotel & Casino, Inc. from 1990 to 1998. From 1959
until his retirement in 1988 as area managing partner in charge of Las Vegas,
Reno, Phoenix, and Tucson, Mr. Hartley was associated with Deloitte Haskins &
Sells (currently Deloitte & Touche LLP). Mr. Hartley, who obtained his degree in
business from Ohio University in 1955, is a Certified Public Accountant. He is
active in many Las Vegas civic and charitable organizations.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
During the fiscal year ended December 31, 1999, the Board of Directors held
six meetings.
The Company's Audit Committee held four meetings during the fiscal year
ended December 31, 1999. The current members of the Audit Committee are
Messrs. Hartley, Raggio and Ruthe. The principal functions of the Audit
Committee currently 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 four meetings during the fiscal
year ended December 31, 1999. For 1999, the members of the Company's
Compensation Committee were Messrs. Hartley, Raggio and Ruthe, and the members
of the subcommittee of the Compensation Committee, which made determinations
regarding compensation intended to qualify as "performance-based" under
Section 162(m) of the Internal Revenue Code, were Messrs. Hartley and Ruthe. The
principal function of the Compensation Committee is to make recommendations
concerning the Company's compensation programs, including the Company's 1986
Stock Option Plan, the 1995 Long-Term Incentive Plan and other bonus, benefit,
and incentive plans.
The Company's Stock Plan Committee held five meetings during the fiscal year
ended December 31, 1999. For 1999, the members of the Company's Stock Plan
Committee were Messrs. Hartley, Raggio and
6
<PAGE>
Ruthe and the members of the subcommittee of the Stock Plan Committee, which
made determinations regarding option grants intended to qualify as
"performance-based" under Section 162(m) of the Internal Revenue Code, were
Messrs. Hartley and Ruthe. The function of the Stock Plan Committee is to
administer the Company's stock-based incentive programs, including the 1985
Employee Stock Purchase Plan, the 1986 Stock Option 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 2001 should be submitted in writing to the Secretary at the Company's
principal executive offices no later than December 8, 2000.
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............... 41 Sr. Vice President, Managed Healthcare Division
Frank E. Collins................. 45 Exec. Vice President, Secretary and General Counsel
William R. Godfrey............... 55 Exec. Vice President, Administrative Services
Laurence S. Howard............... 44 Sr. Vice President, Program Office and Information
Technology
Michael A. Montalvo.............. 55 Vice President, Customer Service
Paul H. Palmer................... 39 Vice President, Chief Financial Officer and Treasurer
Marie H. Soldo................... 59 Exec. Vice President, Government Affairs and Special
Projects
</TABLE>
Jonathon W. Bunker joined the Company in 1996 as Vice President, HMO and
Insurance Operations and serves as President of HPN, SHL, and the Company's
administrative service subsidiary, Sierra Health-Care 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: Med One Health Plan, M.E.G.A., Inc., Prime Health, Inc., and Elias
F. Ghanem, Ltd. Mr. Bunker was President of Family Healthcare Services, Family
Home Hospice, Inc., and Sierra Home Medical Products, Inc. from 1998 to February
2000. In March 2000, Mr. Bunker was appointed Senior Vice President, Managed
Healthcare Division, which encompasses all of Sierra's managed health care and
group practice management operations, including responsibility for sales and
marketing, in both Texas and Nevada. 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 1986 as General Counsel and
Secretary. In 1997 he was also appointed Executive Vice President. 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. Mr. Collins 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
7
<PAGE>
William R. Godfrey was with the Company when it began operations in 1984 as
Vice President of Health Delivery Finance. He currently serves as Executive Vice
President of Administrative Services and is responsible for directing the
Company's facilities, 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 the Controller of the Company's
predecessor physician group from 1974 to 1984.
Laurence S. Howard joined the Company in 1986 as HMO Project Manager. From
1986 to 1987, he also served as Director of Operations for HPN. His other
positions with the Company have been as Vice President and Chief Operating
Officer of HPN and SHL from 1987 to 1990; Assistant Vice President, HMO and
Insurance Operations from 1990 to 1992; President of HPN and SHL from 1992 to
1996 as well as Vice President of HMO and Insurance Operations. From 1996 to
February 2000, Mr. Howard served as Senior Vice President of HMO and Insurance
Operations. In March 2000, Mr. Howard was appointed Senior Vice President,
Program Office and Information Technology and will also monitor the
implementation of Sierra's recently announced restructuring of its Texas
operations.
Michael A. Montalvo joined the Company as Vice President of Marketing and
Sales in 1993. In 1994, he also assumed responsibility for the Company's
underwriting department. In March 2000, Mr. Montalvo was appointed Vice
President of Customer Service, which includes the day-to-day management of
claims, member and group services and customer complaint resolutions. 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.
Paul H. Palmer joined the Company in 1993 as the Finance Director for one of
the Company's subsidiaries, Southwest Medical Associates, Inc. In 1994, he
became the Assistant Vice President and Corporate Controller of the Company. In
April 1998, Mr. Palmer was appointed Vice President, Acting Chief Financial
Officer and Treasurer of the Company. In November 1998, he became the Chief
Financial Officer. Prior to joining the Company, Mr. Palmer was a Manager at
Deloitte & Touche where he worked from 1988 to 1993. Mr. Palmer received a
Masters Degree in Business Administration and a Masters of Accountancy from
Brigham Young University and is a certified public accountant.
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.
The following report and the Comparative Stock Performance Graph on page 12
shall not be deemed filed or incorporated by reference into any other Company
filing under the Securities Act of 1933 or the Securities Exchange Act of 1934,
except to the extent the Company specifically incorporates this information by
reference into such filing.
8
<PAGE>
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 and the
Company's other executive officers. During 1999, the three non-employee
Directors who served on the Committee also served as the Company's Stock Plan
Committee, which administered the Company's stock-based incentive compensation
plans. In some cases compensation decisions with respect to the Chief Executive
Officer and certain other executive officers are subject to the approval of a
subcommittee of the Compensation Committee and the Stock Plan Committee, the two
members of which qualify as "outside Directors" for purposes of Section 162(m)
of the Internal Revenue Code (discussed below).
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 serving at
year end to the extent that compensation exceeds $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. The
Committee has taken steps so that annual incentive compensation payable to the
Chief Executive Officer, as well as compensation resulting from stock options
granted to all executive officers, can qualify as "performance-based"
compensation and therefore be fully deductible by the Company. The regulations
under Section 162(m) impose a number of technical requirements in order for such
compensation to qualify as "performance-based," however. There can be no
assurance that compensation in excess of $1 million paid 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 any one element of compensation interferes with more important objectives
of the Company or 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 competitive 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. The Company from time to time engages the services of a
compensation consulting firm 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.
9
<PAGE>
CASH COMPENSATION
Each year, the Committee reviews the Chief Executive Officer's base salary
and sets the amount. In doing so, the Committee makes a subjective assessment of
the Chief Executive Officer's performance and its expectation of the Chief
Executive Officer's future contributions to the Company. The Committee may also
consider competitive compensation data. For the other executive officers, the
Committee sets a permissible range of increase in salaries from the previous
year and allows the Chief Executive Officer 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
considers the Company's policy governing annual "merit" salary increases for
employees generally. In accordance with these procedures, based on information
showing the competitive range of merit increases for executives to be ranging
from 4% to 5.3%, most executives' salaries for 1999 were adjusted in
December 1998 in an amount of up to 4 percent. For 2000, the Committee
authorized merit increases in executive salaries ranging from 0% to 3%.
The annual incentive bonus payment for the Chief Executive Officer 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 1999, the Committee determined
that annual incentive bonuses would be payable based on achievement of a
targeted level of earnings per share, with additional performance measures
specified for some executives. For this purpose, earnings per share was to be
measured excluding acquisition-related charges, year-2000 charges,
non-operating, unusual charges, and positive and negative effects of
acquisitions completed in 1999. Achievement of the targeted earnings 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 target
annual incentive for the Chief Executive Officer represents a higher percentage
of base salary than that for other executive officers, in line with industry
practice and consistent with the Committee's view that Company performance more
closely reflects the Chief Executive Officer's individual performance. The
Committee authorized a potential bonus of 100% of base salary for the Chief
Executive Officer, 75% of base salary for the President, and amounts ranging
from 20% to 50% of base salary for other eligible employees. In 1999, the
Company's earnings per share, as adjusted, reached the minimum level necessary
to fund the annual incentive pool, so annual incentive bonuses were paid to
executive officers and other eligible employees under the bonus program. The
level of funding, and the resulting bonuses, were approximately 50% of the
eligible amounts.
The Committee has retained authority to grant bonuses apart from the Cash
Bonus Program described above. With respect to executives other than the Chief
Executive Officer, the Committee has authorized the Chief Executive Officer
and/or the President to make recommendations regarding such bonuses. In years in
which there remains unallocated amounts in the bonus pool resulting from
performance 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.
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 1999, such long-term incentives were provided under the
1995 Long-Term Incentive Plan (the "1995 Plan"), approved by stockholders in
1995 and amended in 1998. 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 1999 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
10
<PAGE>
value from the date of grant onward, and do so at lower cost than other types of
awards. In determining the size of the 1999 awards, the Stock Plan Committee
considered the individual's past and current performance, compliance with stock
ownership requirements under the Executive Stock Ownership Program, and other
subjective factors; the Stock Plan Committee did not assign any particular
weighting to these considerations.
The Executive Stock Ownership Program, which began in 1995, requires that
certain stock ownership levels be reached and maintained by executive officers
of the Company. Ownership requirements are determined by the executive's base
salary at date of hire or promotion date. Once the initial goal is met after
three years, the executive's ownership requirement is modified annually to tie
it to his/her next year's salary and then-current market prices of Company
stock. Longer time periods are allowed for executives to reach required
ownership levels if the levels rise due to larger stock price movements.
Executives other than the Chief Executive Officer and the President are required
to acquire stock or hold vested stock options equal in value to the executive's
targeted salary. The Chief Executive Officer 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 target salary, respectively.
During 1999, the Committee extended by three years the stated term of
options covering 1,035,000 shares that would have expired in 1999 and 2000. All
of the affected options were exercisable at prices in excess of the then-current
fair market value of Common Stock. No change was made to the exercise price of
the options. The affected options included options covering 945,325 shares held
by executive officers, including options covering 202,500 shares held by the
Chief Executive Officer. The Committee took this action to preserve the
incentive provided by such options.
OTHER BENEFITS
As discussed above, the Committee intends that the level of Company benefits
be in line with those of comparable publicly traded companies. Benefits extended
to executives in 1999 were not materially changed from the levels established in
1998.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee set the Chief Executive Officer's 1999 base salary at
$655,200, representing a four percent increase. For 2000, the Committee has
determined not to increase the Chief Executive Officer's salary from the 1999
level. The considerations affecting the Committee's determination with respect
to the Chief Executive Officer's salary are discussed above. The Committee
authorized an annual bonus of up to 100% of the CEO's salary based on pre-tax
operating income, subject to meeting a specified earnings per share target (as
discussed above). Following the completion of the Company's 1999 fiscal year,
the Committee determined that the Company had met the minimum performance
objectives established by the Committee under the 1995 Plan and the Cash Bonus
Plan as a condition to payment of the Chief Executive Officer's annual incentive
for 1999, resulting in payment of the annual bonus at 50% of the target amount
of the award. In keeping with the Committee's view that a significant portion of
Chief Executive Officer compensation should be tied to the Company's future
performance, stock options provide a component of compensation which offers
above-average compensation opportunities tied to growth in share value. The
Chief Executive Officer was granted options to purchase 100,000 shares in
October 1999 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 discussed above, this grant was made by the Stock Plan
Committee based on its consideration of the Chief Executive Officer's past and
current performance and demands upon him, as well as 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, CHARLES L. RUTHE
11
<PAGE>
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 500 Index and a group of peer companies over the same
period (the "1999 Peer Group") (assuming the investment of $100 in the Company's
Common Stock, the S&P 500 Index, and the 1999 Peer Group on December 31, 1994,
and reinvestment of all dividends).
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG SIERRA HEALTH SERVICES, INC., THE S & P 500 INDEX,
AND THE 1999 PEER GROUP (1)
[LOGO]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOLLARS SIERRA HEALTH PEER GROUP S & P 500
SERVICES, INC.
<S> <C> <C> <C>
12/94 100.00 100.00 100.00
12/95 100.40 135.66 137.58
12/96 77.87 107.74 169.17
12/97 106.32 92.98 225.61
12/98 99.90 77.61 290.09
12/99 31.72 74.33 351.13
</TABLE>
*$100 INVESTED ON 12/31/94 IN STOCK OR INDEX--
INCLUDING REINVESTMENTS OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
- ------------------------
(1) The 1999 Peer Group is comprised of the following companies: Foundation
Health Corporation, Coventry Corp., United Healthcare Corporation, Oxford
Health Plans, Pacificare Health Systems, Inc., Maxicare Health Plans, Inc.,
Mid Atlantic Medical Services, Inc. and Humana, Inc. and is the same as the
1998 and 1997 Peer Group.
12
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company for the
fiscal years ended December 31, 1999, 1998 and 1997, of (a) the Chief Executive
Officer during the 1999 fiscal year and (b) each of the four most highly
compensated executive officers, other than the Chief Executive Officer, for the
1999 fiscal year (hereinafter collectively referred to as the "named
executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------------
-------------------------------------------- SECURITIES ALL OTHER
OTHER ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($)(1) BONUS ($) COMPENSATION ($) OPTIONS/SARS (#)(2) ($)(3)
- --------------------------- -------- ------------- --------- ---------------- ------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Anthony M. Marlon, M.D. 1999 654,320 327,600 0 150,000 99,487(4)
Chairman, Chief Executive 1998 651,923 630,000 0 0 105,085
Officer 1997 542,784 793,000 0 37,500 119,837
Erin E. MacDonald 1999 427,885 160,680 0 100,000 87,272(5)
President, Chief
Operating 1998 426,923 350,200 0 20,000 113,695
Officer 1997 361,823 437,000 0 30,000 119,904
Laurence S. Howard 1999 256,720 64,272 0 75,000 26,981(6)
Senior Vice President, 1998 265,661 173,040 0 20,000 36,402
Program Office and IT 1997 292,515 197,280 17,766 15,000 90,587
Jonathon W. Bunker 1999 233,148 81,689 0 75,000 21,351(7)
Senior Vice President, 1998 234,808 113,250 0 10,000 26,713
Managed Healthcare Div. 1997 210,577 136,600 0 45,000 11,482
Frank E. Collins 1999 235,329 58,916 0 75,000 26,746(8)
Exec. Vice President, 1998 243,523 135,959 0 15,000 33,876
Gen. Counsel & Secretary 1997 201,790 206,600 0 22,500 39,001
</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) The amounts reflected as compensation to executives resulting from
split-dollar insurance policies purchased in 1997 are calculated based on
regulations of the SEC. 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 1999 totaled $43,331.
(4) This amount includes $6,600 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 (i) $17,029,
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") and (ii) $75,858, which represents
13
<PAGE>
compensation from a split-dollar life insurance policy. Beginning July 1,
1999, the Restoration Contributions under the Deferred Compensation Plan
ended for all executives.
(5) This amount includes $6,600, which was contributed by the Company to the
Company's 401(k) Plan on behalf of Ms. MacDonald; $2,343, which was a
Restoration Contribution; and $78,329, which represents compensation from a
split-dollar life insurance policy.
(6) This amount includes $7,060, which was contributed by the Company to the
Company's 401(k) Plan on behalf of Mr. Howard; $766, which was a Restoration
Contribution; and $19,155, which represents compensation from a split-dollar
life insurance policy.
(7) This amount includes $6,600, which was contributed by the Company to the
Company's 401(k) Plan on behalf of Mr. Bunker; $549, which was a Restoration
Contribution; and $14,202, which represents compensation from a split-dollar
life insurance policy.
(8) This amount includes $7,374, which was contributed by the Company to the
Company's 401(k) Plan on behalf of Mr. Collins; $513, which was a
Restoration Contribution; and $18,859, which represents compensation from a
split-dollar life insurance policy.
STOCK OPTIONS
The following table contains information concerning the grants of stock
options to the named executives during fiscal year 1999:
OPTION/SAR GRANTS IN FISCAL YEAR 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS(1) VALUE AT ASSUMED
---------------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS/SARS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED (#) 1999 ($/SHARE) DATE 5% ($) 10% ($)
- ---- ------------- ------------ ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Anthony M. Marlon, M.D......... 50,000(2)(3) 3.54 14.94 02/09/05 254,009 576,260
Anthony M. Marlon, M.D......... 100,000(3)(4) 7.07 8.00 10/12/05 272,077 617,249
Erin E. MacDonald.............. 100,000(3)(4) 7.07 8.00 10/12/05 272,077 617,249
Laurence S. Howard............. 75,000(3)(4) 5.31 8.00 10/12/05 204,057 462,937
Jonathon W. Bunker............. 75,000(3)(4) 5.31 8.00 10/12/05 204,057 462,937
Frank E. Collins............... 75,000(3)(4) 5.31 8.00 10/12/05 204,057 462,937
</TABLE>
- ------------------------
(1) All options were granted at an exercise price equal to the fair market value
of the Company's Common Stock on the option grant date. The exercise price
may be paid by the optionee in cash or by check, except that the Stock Plan
Committee may, in its discretion, allow such payment to be by surrender of
unrestricted shares of the Company's Common Stock (at their fair market
value on the date of exercise), or by a combination of cash, check and
unrestricted shares.
(2) These options were granted on February 10, 1999 in respect of 1998
performance and vest and are exercisable at the rate of 20% per year
starting with the first anniversary date of the grant and will expire not
later than six years after grant.
(3) All awards were non-qualified stock options granted pursuant to the
Company's 1995 Long-Term Incentive 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 will be automatically
accelerated, provided, however, that the Stock Plan Committee 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 will terminate and may no longer be
exercised
14
<PAGE>
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.
(4) These options were granted on October 13, 1999 and vest and are exercisable
at the rate of 20% per year starting with the first anniversary date of the
grant and will expire not later than six years after grant.
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, 1999 and unexercised options held as of December 31, 1999:
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1999 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES FY-END (#) FY-END ($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE(1)
- ---- ------------ ------------ --------------- --------------------
<S> <C> <C> <C> <C>
Anthony M. Marlon, M.D.............. -0- -0- 275,625/189,375 -0- / -0-
Erin E. MacDonald................... -0- -0- 239,000/146,000 -0- / -0-
Laurence S. Howard.................. -0- -0- 192,063/104,687 -0- / -0-
Jonathon W. Bunker.................. -0- -0- 35,375/113,375 -0- / -0-
Frank E. Collins.................... -0- -0- 198,375/109,125 -0- / -0-
</TABLE>
- ------------------------
(1) Based on the closing price of the Common Stock on December 31, 1999, which
was $6.6875, minus the exercise price of the option.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
The Company has entered into employment agreements with its Chief Executive
Officer and other executive officers. The term of employment covered by the
agreements is five years for the CEO and the President, and ranges from one to
five 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 Chief Executive Officer,
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 Chief Executive Officer 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 Chief Executive Officer,
if a change in control is not approved by
15
<PAGE>
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 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 each executive's 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 3 to the table entitled Option/SAR Grants In Fiscal
Year 1999, 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
The Company's Supplemental Executive Retirement Plan (the "Supplemental
Plan"), 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
1,500,000 244,688 489,375 734,063 978,750 978,750
</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.
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<PAGE>
Each of the executives named in the Summary Compensation Table above have
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, 16 years; Mr. Collins, 17 years; and
Mr. Bunker 7 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
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.
Other executives of the Company participate in the Company's Supplemental
Executive Retirement Plan. In addition, there are other executives who
participate in the Company's Supplemental Executive Retirement Plan II ("Plan
II"). The terms of Plan II are substantially the same as those of the
Supplemental Plan except that annual benefits are calculated at a rate reduced
by one-third from the level of benefits under the Supplemental Plan. Thus, the
amounts of annual retirement income shown in the above table, reduced by
one-third, represent the benefits generally available under Plan II.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee, each of whom is a non-employee
Director, are Messrs. Hartley, Raggio and Ruthe. The members of the Compensation
subcommittee are Messrs. Hartley and Ruthe.
Mr. Raggio is a shareholder of Jones-Vargas, a Nevada law firm which during
1999 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, Hartley and Watson.
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 7,500 shares of Common Stock. This amount reflects the 3 for
2 stock split that occurred in May 1998. 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 1999, Mr. Ruthe also received $9,400 as Director's fees for his
service as Chairman of the Board of HPN.
17
<PAGE>
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."
The Company's Board of Directors has authorized a line of credit from the
Company to Dr. Marlon, our Chairman of the Board and Chief Executive Officer.
Dr. Marlon borrowed amounts under this line of credit during 1998 which resulted
in aggregate borrowings of $2,650,000. He repaid approximately $360,000 of the
indebtedness during the first quarter of 1999. The borrowed amounts bear
interest at a rate equal to the rate at which the Company could have borrowed
funds under the credit facility at the time of the borrowing plus 10 basis
points. Indebtedness under the line of credit is secured by certain of
Dr. Marlon's rights to compensation from the Company. At February 29, 2000, the
aggregate outstanding principal of and accrued interest on this indebtedness was
$2,662,000.
ITEM NO. 2--AMENDMENT OF THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN, FOR THE
PURPOSE OF INCREASING BY 1,250,000 THE NUMBER OF SHARES OF COMMON STOCK
RESERVED FOR ISSUANCE TO PARTICIPANTS
APPROVAL OF AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN
Stockholders will be asked to approve an amendment to the Sierra Health
Services, Inc. Amended and Restated 1985 Employee Stock Purchase Plan (the
"Plan") at the Annual Meeting. The amendment will increase the number of shares
of Common Stock that may be sold to employees under the Plan by 1,250,000 shares
and extend the termination date of the Plan through 2010. If stockholders
approve the amendment, approximately 1,286,000 shares, or 4.8% of the currently
outstanding class of Common Stock, will be available for issuance under the
Plan.
The Plan is a stock purchase plan which provides employees with the
opportunity to purchase the Common Stock at a discount through payroll
deductions and other contributions. Originally adopted in 1985, the Plan meets
the requirements of Section 423 of the Internal Revenue Code, providing
participants with tax advantages in buying and holding shares. The Board of
Directors believes that the Plan provides a benefit that helps the Company
compete for talented employees and, by promoting employee ownership of Company
shares, provides an incentive to excellent performance, to the benefit of both
the employee and the Company.
If an employee elects to participate in the Plan, he or she makes
contributions during six-month purchase periods, which run from January through
June and from July through December each year. On the last business day of June
and December, the full amount of the employee's contributions are used to
purchase Common Stock at a price per share equal to 85% of the fair market value
of a share at the beginning of the purchase period or 85% of the fair market
value of a share at the Exercise Date, whichever is less.
SUMMARY OF TERMS OF THE PLAN
The following summary describes the material terms of the Plan.
Participation in the Plan is voluntary and open to all employees of the
Company and its subsidiaries who work more than 20 hours per week and for more
than five months per year, except that any employee who owns five percent or
more of the total combined voting power or value of all outstanding shares of
all classes of securities of the Company or any subsidiary (determined under IRS
regulations) may not participate. Currently, approximately 4,350 employees are
eligible to participate in the Plan, of which approximately 850 are currently
participating. An eligible employee enrolls in the Plan by authorizing the
Company to deduct between 1% and 5% of his or her compensation during a purchase
period. An employee may also make a separate contribution of up to $2,500 before
a cut off date during the purchase
18
<PAGE>
period. In accordance with Section 423 of the Code, a participant may not
purchase Plan shares in any one calendar year having an aggregate fair market
value of more than $25,000. Fair market value for this purpose is measured at
the beginning of each purchase period.
At the end of the purchase period, the participant's contributions are used
to purchase shares from the Company at the discounted purchase price. Cash
contributions do not earn interest pending investment. The shares purchased are
held for the participant in a brokerage account at a brokerage firm selected by
the Company to help administer the Plan. No restrictions apply to the shares
purchased by a participant, and each participant is entitled to vote shares held
for his or her account. Thus, a participant may direct the brokerage firm to
sell his or her Plan shares.
A participant may reduce the rate of his or her payroll contributions during
a purchase period, but may only increase this rate at the beginning of a
purchase period. A participant may also withdraw from participation in the Plan
during a purchase period, in which case payroll contributions cease and prior
payroll contributions are refunded to the participant. Withdrawal from the plan
automatically occurs upon termination of employment. Participants' rights under
the Plan are nontransferable except pursuant to the laws of descent and
distribution.
The Compensation Committee of the Board of Directors administers the Plan.
The number of shares reserved under the Plan and the purchase price for a given
purchase period are subject to appropriate adjustment by the Committee, with the
approval of the Board, to reflect stock splits, stock dividends, other capital
adjustments, other changes in the number of outstanding shares without receipt
of consideration by the Company, or other extraordinary corporate events. Shares
purchased from the Company will be either authorized but unissued shares or
treasury shares. Costs and expenses in connection with the Plan are paid by the
Company, except for commissions payable by a participant who sells shares and
certain other fees imposed by the brokerage firm for specified services provided
to a participant.
The Board of Directors may amend, discontinue, or terminate the Plan without
further stockholder approval, except stockholder approval must be obtained if an
amendment would increase the number of shares reserved for the Plan, reduce the
purchase price payable under the Plan, or broaden eligibility to participate in
the Plan. Thus, stockholder approval will not necessarily be required for
amendments which might increase the cost of the Plan, such as an amendment to
increase the permitted level of participant contributions. The Plan will
terminate on December 31, 2010, or earlier if so determined by the Board, if
shares reserved under the Plan are exhausted, or if the Company is dissolved or
is not the surviving or resulting corporation in any corporate reorganization.
On March 24, 2000, the last reported sale price of the Company's Common
Stock in consolidated trading of New York Stock Exchange-listed securities was
$5.0625 per share.
FEDERAL INCOME TAX CONSEQUENCES
The Company believes that under present law the following Federal income tax
consequences would generally result under the Plan. Rights to purchase shares
under the Plan are intended to constitute "options" issued pursuant to an
"employee stock purchase plan" within the meaning of Section 423 of the Code:
(1) A participant's payroll contributions are "after-tax" amounts, meaning
they are taxable as ordinary income to the participant at the payroll
date. Otherwise, no taxable income results to the participant upon the
grant of a right to purchase or upon the purchase of shares for his or
her account under the Plan.
(2) If the participant disposes of shares purchased in an offering period
less than two years after the first day of the offering period, the
participant will realize ordinary income in an amount equal to the fair
market value of the shares on the date of purchase minus the amount of
the participant's payroll contributions used to purchase the shares.
19
<PAGE>
(3) If the participant holds Plan shares for at least two years after the
first day of the offering period, upon disposition of the shares the
participant will realize ordinary income in an amount equal to the lesser
of (i) the fair market value of the shares on the first day of the
offering period minus the amount of the participant's payroll
contributions used to purchase the shares or (ii) the fair market value
of the shares on the date of disposition minus the amount of the
participant's payroll contributions used to purchase the shares.
(4) In addition, the participant will realize a long-term or short-term
capital gain or loss, as the case may be, in an amount equal to the
difference between the amount realized upon any sale of the Common Stock
and the participant's "tax basis" in the Common Stock. This "tax basis"
will be the purchase price plus the amount, if any, taxed to the
participant as ordinary income, as described above.
(5) If the statutory holding period described in (2) and (3) above is
satisfied, the Company will not receive any deduction for federal income
tax purposes with respect to any discount in the sale price of the Common
Stock to the participant. If the statutory holding period is not
satisfied, the Company generally should be entitled to a tax deduction
equal to the amount taxed to the participant as ordinary income.
This is only a general description of the application of federal income tax
laws to the Plan, provided for the information of stockholders considering their
vote on the proposal. The summary does not address the effects of other federal
taxes or taxes imposed under state, local, or foreign tax laws. Because of the
complexities of the tax laws, Plan participants should consult a tax advisor as
to their individual circumstances.
The amendment to the Plan will be approved if the number of votes cast in
favor of the proposal exceeds the number of votes cast in opposition to the
proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN.
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, 2000. 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 2000 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.
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's Directors and executive officers, and persons who beneficially own
more than 10% of the Company's outstanding Common Stock, to file with the SEC
initial reports of beneficial ownership and reports of changes in beneficial
ownership of Common Stock and other equity securities of the Company on Forms 3,
4 and 5, and to furnish the Company with copies of all Section 16(a) forms they
file. The Company inadvertently
20
<PAGE>
filed, 14 days late, a Form 4 for one of its non-employee Directors,
Mr. Hartley, reporting a transaction during 1999 in which Mr. Hartley purchased
Company stock on the open market.
OTHER MATTERS
At the date 45 days before the anniversary of the mailing date of the
Company's proxy statement for the 1999 Annual Meeting of Stockholders, the
Company had not received notice of any proposal to be submitted by a stockholder
for a vote at the 2000 Annual Meeting or notice invoking cumulative voting as to
which the persons voting the proxies would exercise discretionary authority. If,
however, any further business should properly come before the 2000 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
Any proposal that a stockholder intends to present at the 2001 Annual
Meeting of Stockholders of the Company, expected to be held in May 2001, must be
received by the Secretary of the Company at its principal executive offices
(2724 North Tenaya Way, P.O. Box 15645, Las Vegas, Nevada 89114-5645) no later
than December 8, 2000 for inclusion in the Company's Proxy Statement and proxy
for that meeting and must be otherwise in compliance with applicable SEC
regulations. If a stockholder intends to present a proposal at the next Annual
Meeting of Stockholders of the Company but does not seek to have the proposal
included in the Company's Proxy Statement and proxy, for purposes of the SEC
regulations notice must be received by the Company at its principal executive
offices no later than February 20, 2001. Use of certified mail is suggested.
ANNUAL REPORT TO STOCKHOLDERS
The Company's 1999 Annual Report to Stockholders, which includes financial
statements for the fiscal year ended December 31, 1999, 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 postage paid envelope.
By Order of the Board of Directors,
[SIGNATURE]
Frank E. Collins
SECRETARY
Dated: April 5, 2000
21
<PAGE>
[LOGO]
-----------------
ANNUAL MEETING OF STOCKHOLDERS
THURSDAY, MAY 18, 2000
10:00 A.M.
PRESIDENT'S AUDITORIUM AT THE
SIERRA HEALTH SERVICES CORPORATE COMPLEX
2716 NORTH TENAYA WAY
LAS VEGAS, NEVADA 89128
- --------------------------------------------------------------------------------
[LOGO] PROXY
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
ON MAY 18, 2000.
The shares of stock you hold in your account will be voted as you specify on
the reverse side.
IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED "FOR" ITEMS 1, 2 AND 3.
By signing the proxy, you revoke all prior proxies and appoint 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 March 29, 2000, or which the
undersigned otherwise would be entitled to vote at the Annual Meeting of
Stockholders of the Company to be held May 18, 2000 and at any adjournments or
postponements thereof.
SEE REVERSE FOR VOTING INSTRUCTIONS.
<PAGE>
[GRAPHIC] PLEASE DETACH HERE [GRAPHIC]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
1. Election of directors: / / Vote FOR / / Vote WITHHELD
all nominees from all nominees
(except as marked)
Two year terms: 01 Erin E. MacDonald 03 Charles L. Ruthe
02 William J. Raggio
One year term: 04 Anthony L. Watson
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE, WRITE
THE NUMBER OF THE WITHHELD NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.)
/ /
2. To amend the Company's Employee Stock Purchase Plan to increase by
1,250,000 the number of shares of Common Stock reserved for issuance
to participants and to extend the term of the Plan to 2010.
/ / For / / Against / / Abstain
3. To ratify the appointment of Deloitte & Touche LLP as the Company's auditors
for 2000.
/ / For / / Against / / Abstain
4. To transact such other business as may properly come before the meeting or
any adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
Address Change? Mark Box / / Indicate changes below:
Date
-----------------------------------
/ /
Signature(s) in Box
Please sign exactly as your name(s) appear on Proxy. If held in joint
tenancy, all persons must sign. Trustees, administrators, etc., should
include title and authority. Corporations should provide full name of
corporation and title of authorized officer signing the proxy.
