Proxy materials filed with the Securities and Exchange Commission must include a
cover page in the form indicated below in Schedule 14A and the appropriate box
on the cover page must be checked to indicate the type of filing.
Please mark up the template below for your filing.
================================================================================
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
[X] Definitive Proxy Materials
[_] Definitive Additional Statement
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
United Payors & United Providers, Inc.
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (check the appropriate box):
[X] No filing fee required
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11.*
(4) Proposed maximum aggregate value of transaction:
- - --------
*Set forth the amount on which the filing is calculated and state how it was
determined.
[_] 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:
Notes:
UNITED PAYORS & UNITED PROVIDERS, INC.
2275 RESEARCH BOULEVARD
ROCKVILLE, MARYLAND 20850
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JUNE 3, 1997
The Annual Meeting of Shareholders of United Payors & United Providers, Inc.
(the "Company") will be held June 3, 1997 at the Crystal City Marriott, 1999
Jefferson Davis Highway, Arlington, Virginia 22202 at 1:30 p.m., Eastern
Standard Time, for the following purposes:
1. To elect one director to serve a term expiring at the annual meeting of
shareholders in 1998 and three directors for three-year terms expiring at
the annual meeting of shareholders in 2000;
2. To approve the Company's 1996 Employee Stock Purchase Plan;
3. To approve the Company's 1996 Stock Option Plan;
4. To ratify the selection of Coopers & Lybrand L.L.P. as the Company's
independent certified public accountants for 1997; and
5. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only shareholders of record at the close of business on April 15, 1997 will
be entitled to receive notice of and to vote at the Annual Meeting.
Shareholders are cordially invited to attend the Annual Meeting (the
"Meeting") in person. Whether or not you expect to attend, WE URGE YOU TO READ
THE ACCOMPANYING PROXY STATEMENT AND THEN COMPLETE, SIGN, DATE, AND RETURN THE
ENCLOSED PROXY CARD IN THE ACCOMPANYING POSTAGE-PREPAID ENVELOPE. It is
important that your shares be represented at the Meeting by your executed
proxies should you be unable to attend the Meeting in person. Your promptness
in responding will assist us to prepare for the Meeting and to avoid the cost
of a follow-up mailing. If you receive more than one proxy card because you
own shares registered in different names or at different addresses, each proxy
card should be completed and returned. A list of shareholders entitled to vote
at the Meeting will be available at the Company, 2275 Research Boulevard, 6th
Floor, Rockville, Maryland 20850, for a period of ten days prior to the
Meeting and will also be available at the Meeting itself.
Sincerely,
/s/ Joseph M. Mott
Joseph M. Mott
Secretary
April 30, 1997
UNITED PAYORS & UNITED PROVIDERS, INC.
2275 RESEARCH BOULEVARD
ROCKVILLE, MARYLAND 20850
----------------
PROXY STATEMENT
----------------
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JUNE 3, 1997
GENERAL INFORMATION
This Proxy Statement is furnished to shareholders of United Payors & United
Providers, Inc., a Delaware corporation (the "Company"), in connection with
the solicitation by the Board of Directors of the Company of proxies for use
at its Annual Meeting of Shareholders (the "Meeting"). The Meeting is
scheduled to be held on June 3, 1997 at 1:30 p.m., Eastern Standard Time, at
the Crystal City Marriott, 1999 Jefferson Davis Highway, Arlington, Virginia
22202 and at any adjournments thereof. It is anticipated that the mailing to
shareholders of this Proxy Statement and the enclosed form of proxy will
commence on or about April 30, 1997. The 1996 Annual Report to Shareholders,
including the consolidated financial statements for the fiscal year ended
December 31, 1996 accompanies this Proxy Statement.
At the Meeting, shareholders will be asked to vote upon: (1) the election of
one director for a term expiring at the annual meeting of shareholders in 1998
and the election of three directors for three-year terms expiring at the
annual meeting of shareholders in 2000; (2) approval of the Company's 1996
Employee Stock Purchase Plan; (3) approval of the Company's 1996 Stock Option
Plan; (4) ratification of the selection of independent certified public
accountants for 1997; and (5) such other business as may properly come before
the Meeting and at any adjournments thereof.
VOTING SECURITIES AND SECURITY OWNERSHIP
The close of business on April 15, 1997 has been fixed as the record date
(the "Record Date") for the determination of shareholders entitled to receive
notice of and to vote at the Meeting. As of the close of business on such
date, the Company had outstanding and entitled to vote 11,558,186 shares of
common stock, par value $0.01 per share (the "Common Stock").
A majority of the outstanding shares of Common Stock must be represented in
person or by proxy at the Meeting in order to constitute a quorum for the
transaction of business. The record holder of each share of Common Stock
entitled to vote at the Meeting will have one vote for each share so held.
Directors are elected by a plurality of the votes cast. Shareholders may not
cumulate their votes. The three candidates receiving the highest number of
votes for the term expiring at the annual meeting of shareholders in the year
2000 and the one candidate for the term expiring at the annual meeting of
shareholders in the year 1998 will be elected. In tabulating the votes, votes
withheld in connection with the election of one or more nominees and broker
non-votes will be disregarded and will have no effect on the outcome of the
vote.
The affirmative vote of the holders of a majority of the shares of Common
Stock represented at the Meeting, either in person or by proxy and entitled to
vote thereat, will be required to approve the United Payors & United
Providers, Inc. 1996 Employee Stock Purchase Plan and the United Payors &
United Providers, Inc. 1996 Stock Option Plan, and ratify the selection of the
Company's independent certified public accountants. In determining whether
these proposals have received the requisite number of affirmative votes,
broker non-votes will be disregarded and will have no effect on the outcome of
the vote.
1
VOTING OF PROXIES
IF THE ACCOMPANYING PROXY IS PROPERLY EXECUTED AND RETURNED, THE SHARES
REPRESENTED BY THE PROXY WILL BE VOTED AT THE MEETING AS SPECIFIED IN THE
PROXY. IF NO INSTRUCTIONS ARE SPECIFIED, THE SHARES REPRESENTED BY ANY
PROPERLY EXECUTED PROXY WILL BE VOTED "FOR" THE ELECTION OF THE NOMINEES
LISTED BELOW UNDER "ELECTION OF DIRECTORS" AND "FOR" THE SPECIFIC PROPOSALS
PRESENTED HEREIN.
REVOCATION OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by a
shareholder at any time before it is exercised by written notice to the
Secretary of the Company, by timely submission of a properly executed proxy
bearing a later date or by voting in person at the Meeting.
SOLICITATION OF PROXIES
The Company will bear the cost of this solicitation, including amounts paid
to banks, brokers, and other record owners to reimburse them for their
expenses in forwarding solicitation material regarding the Meeting to
beneficial owners of Common Stock. The solicitation will be by mail, with the
material being forwarded to the shareholders of record and certain other
beneficial owners of Common Stock by the Company's officers and other regular
employees (at no additional compensation). Such officers and employees may
also solicit proxies from shareholders by personal contact, by telephone, or
by other means if necessary in order to assure sufficient representation at
the Meeting.
American Stock Transfer & Trust Company has been retained to receive and
tabulate proxies and to provide representatives to act as inspectors of
election for the Meeting.
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of April 15, 1997, by (a) each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (b) each executive officer identified in
the Summary Compensation Table below, (c) each director and nominee for
director, and (d) all executive officers and directors as a group. Except as
otherwise noted, the named shareholder had sole voting and investments power
with respect to such securities. Unless indicated otherwise, the address of
each of these persons is c/o United Payors & United Providers, Inc., 2275
Research Boulevard, Rockville, Maryland 20850.
SHARES BENEFICIALLY OWNED
----------------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE
------------------------ ------ --------------
Principal Mutual Life Insurance Company
("Principal Mutual")(1)................ 4,400,000 38.1%
David J. Drury(2)....................... 4,400,000(3) 38.1
Thomas J. Graf(2)....................... 4,400,000(3) 38.1
Julia Lawler(2)......................... 4,400,000(3) 38.1
Kenneth J. Linde(2)..................... 4,400,000(3) 38.1
Thomas L. Blair......................... 2,235,400(4) 19.2
Spiro A. Karadimas...................... 490,000(5) 4.2
S. Joseph Bruno......................... 487,000(6) 4.2
Edward S. Civera........................ 62,500(7) *
Michael C. Miller....................... 35,250(8) *
Joseph M. Mott.......................... 11,000(9) *
Anthony J. Pino......................... 13,450 *
Michael A. Smith........................ 102,900 1.1
Bette B. Anderson....................... 6,000 *
William E. Brock........................ 6,500 *
Frederick H. Graefe..................... 32,000 *
Wanger Asset Management L.P............. 635,000(10) 5.5
All executive officers and directors as
a group................................ 7,882,000 67.6
2
- - --------
*Represents less than 1.0% of the Company's Common Stock.
(1) Principal Mutual's address is 711 High Street, Des Moines, Iowa 50392
(2) Messrs. Drury's and Graf's and Ms. Lawler's address is c/o Principal
Mutual at Principal Mutual's address.
(3) Represents shares held of record by Principal Mutual, of which Mr. Drury
is Chairman of the Board, President and Chief Executive Officer, Mr. Graf
is Senior Vice President and Ms. Lawler is Director of Capital Markets.
Also, Mr. Linde is President of Principal Health Care, Inc., an indirect
wholly owned subsidiary of Principal Mutual.
(4) Of Mr. Blair's shares, 2,011,100 are held jointly with his wife, 200,000
are held solely by Mr. Blair's wife and 24,300 shares are held by two
companies he controls.
(5) Of this number, 90,000 shares are held in trust under the Uniform Gift to
Minors Act for Mr. Karadimas' children and 100,000 are in Mr. Karadimas'
wife's name.
(6) Of this number, 200,000 shares are held in trust under the Uniform Gift
to Minors Act for Mr. Bruno's children and 98,500 shares are in Mr.
Bruno's wife's name.
(7) In connection with Mr. Civera's employment agreement, Mr. Civera was
granted options to purchase 750,000 shares of the Company's Common Stock
that will vest over an eight-year period. Of this amount, 62,500 shares
are exercisable.
(8) Total shares include 1,000 shares currently held and options which are
exercisable for 10,000 shares.
(9) Total shares include 2,750 shares currently held and options which are
exercisable for 32,500 shares.
(10) The information with respect to Wanger Asset Management L.P. is presented
in reliance to information contained in a Schedule 13G report as of
December 31, 1996 as filed with the Securities and Exchange Commission.
The address of Wanger Asset Management L.P. is 227 West Monroe Street,
Chicago, Illinois 60606.
MATTERS SUBJECT TO SHAREHOLDER VOTE
1. ELECTION OF DIRECTORS
Pursuant to the Company's Certificate of Incorporation and By-laws, the
Board of Directors of the Company is divided into three classes of directors,
as nearly equal in numbers as possible, serving staggered three-year terms.
Effective April 1, 1997, the Board of Directors of the Company increased the
number of directors constituting the whole Board from seven to nine and added
Edward S. Civera and Kenneth J. Linde to the Board of Directors. Mr. Civera
was made a member of the Board of Directors in connection with his employment
agreement as President and Chief Operating Officer. See "Compensation
Committee Report on Executive Compensation--Employment Agreements."
The persons designated by the Board of Directors as nominees for election as
directors with terms expiring at the 1998 and 2000 annual shareholders
meetings are Kenneth J. Linde in 1998, and David J. Drury, William E. Brock
and Edward S. Civera in 2000.
UNLESS A CONTRARY DIRECTION IS INDICATED, IT IS INTENDED THAT PROXIES
RECEIVED WILL BE VOTED "FOR" THE ELECTION AS DIRECTORS FOR THE NOMINEE TO
SERVE A TERM EXPIRING AT THE 1998 ANNUAL MEETING OF SHAREHOLDERS AND FOR THE
THREE NOMINEES TO SERVE FOR THREE-YEAR TERMS EXPIRING AT THE 2000 ANNUAL
MEETING OF SHAREHOLDERS, AND UNTIL THEIR SUCCESSORS ARE ELECTED AND QUALIFIED.
In the event any nominee for director declines or is unable to serve, the
proxies may be voted for a substitute nominee selected by the Board of
Directors. The Board of Directors expects that each nominee named herein in
the following table will be available for election.
All the nominees for director, and the directors who will continue to serve
after the 1997 Annual Meeting, are listed below with their principal
occupations for the last five years.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE "FOR"
THE ELECTION OF ALL THE NOMINEES NAMED IN THIS PROXY STATEMENT.
3
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company as of April 15, 1997:
DIRECTOR
NAME AGE POSITION SINCE
---- --- -------- --------
Nominee for the term expiring in 1998:
Kenneth J. Linde.................... 50 Director................ 1997
Nominees for the term expiring in 2000:
William E. Brock.................... 67 Director................ 1996
David J. Drury...................... 52 Director................ 1996
Director, President and
Edward S. Civera.................... 46 Chief Operating Officer. 1997
Directors whose terms expire in 1998:
Bette B. Anderson................... 68 Director................ 1996
Julia Lawler........................ 37 Director................ 1996
Directors whose terms expire in 1999:
Thomas L. Blair..................... 52 Chairman of the Board 1996
and Chief Executive
Officer.................
Thomas J. Graf...................... 48 Director................ 1996
Frederick H. Graefe................. 53 Director................ 1996
Officers who are not directors:
S. Joseph Bruno..................... 48 Chief Financial Officer
Spiro A. Karadimas.................. 38 Vice President of
Operations
Michael C. Miller................... 48 Vice President for
Marketing
Joseph M. Mott...................... 43 Secretary
Anthony J. Pino..................... 49 President of National
Health Services, Inc.
Michael A. Smith.................... 47 President of America's
Health Card Services,
Inc.
Kenneth J. Linde is the President and Chief Executive Officer of Principal
Health Care, Inc., an indirect wholly owned subsidiary of Principal Mutual.
Mr. Linde joined Principal Mutual in 1987.
William E. Brock currently serves as Senior Counsel and Trustee of the
Center for Strategic and International Studies in Washington, D.C. From 1988
to 1994, Mr. Brock served as Chairman of the Brock Group, a consulting firm,
from 1988 to 1991 as the Chairman of the National Endowment for Democracy,
from 1985 to 1987 as the United States Secretary of Labor and from 1981 to
1985 as the United States Trade Representative. Mr. Brock has also served for
eight years as a member of the United States House of Representatives and for
six years as a member of the United States Senate. Mr. Brock is a director of
Sinclair Broadcasting Corp. and On Assignment, Inc.
David J. Drury joined Principal Mutual in 1966 and currently serves as its
Chairman of the Board, President and Chief Executive Officer. Since 1970, Mr.
Drury has served as an officer of Principal Mutual in various other
capacities, including Executive Vice President and Chief Actuary.
Edward S. Civera joined the Company on April 1, 1997 as the President and
Chief Operating Officer. Prior to joining the Company, Mr. Civera was a
partner with Coopers & Lybrand L.L.P. , where he had been employed for 25
years.
Bette B. Anderson currently is Vice Chairman and from 1989 through 1995 was
President of Kelly Anderson & Pethick, management consultants. Ms. Anderson
serves on the Board of Directors for ITT Corporation, ITT Educational
Services, ITT Hartford Insurance and American Banknote Corp. She is Chairman
of the United States Treasury Historical Association and the Advisory Council
of the Girl Scouts of the United States of America. Previously, Ms. Anderson
served as Under Secretary of the United States Department of the Treasury and
prior to that was Senior Vice President in charge of credit administration for
the Citizens and Southern National Bank of Savannah, Georgia.
4
Julia Lawler joined Principal Mutual in 1984 and, since May 1995, has served
as Director, Capital Markets of the company. Since 1993, Ms. Lawler has served
as an officer of Principal Mutual in various other capacities, including
Executive Advisor to the President.
Thomas L. Blair is the founder of the Company and served as its sole
director and controlling holder of its outstanding voting stock from its
formation in 1995 until its public offering in 1996. He was the founder of
America's Health Plan, Inc. ("AHP") in 1989 and served as its President and
Chief Executive Officer from 1989 to 1992. From 1977 until 1988, Mr. Blair was
a Principal of Jurgovan & Blair, Inc. which developed and managed health
maintenance organizations and installed proprietary managed care systems in
over sixty health maintenance organizations and other managed care entities.
Jurgovan & Blair, Inc. was acquired in 1986 by a major publicly-traded
insurer.
Thomas J. Graf joined Principal Mutual in 1972 and, since 1994, has served
as Senior Vice President for the company. Since 1976, Mr. Graf has served as
an officer of Principal Mutual in various other capacities, including Vice
President, Chief Information Officer and Chief Actuary.
Frederick H. Graefe has been a partner with the law firm of Baker &
Hostetler in Washington, D.C. since 1988, specializing in national health care
policy with an emphasis on comprehensive health care reform. He serves as
Washington counsel to several health care trade associations and coalitions of
hospitals and physicians, manufacturers, malpractice liability insurers and
health insurance companies.
S. Joseph Bruno has been the Chief Financial Officer of the Company since
September 1995 and Corporate Secretary from September 1995 to March 1997.
Prior to joining the Company, Mr. Bruno was a Partner at Coopers and Lybrand
L.L.P. from 1989 to 1995. From 1986 to 1989, Mr. Bruno was the Senior Vice
President and Chief Financial Officer of Jurgovan & Blair, Inc. From 1971 to
1986, Mr. Bruno worked at KPMG Peat Marwick L.L.P., where he served in various
capacities, including Partner in both Washington D.C. and Rome, Italy.
Spiro A. Karadimas has 18 years of information systems and operations
management experience in local government and private sector organizations. He
has been with the Company since March of 1995. Prior to that, Mr. Karadimas
headed the Information Systems and Operations departments at AHP. During the
period of 1992 through 1994, Mr. Karadimas designed and developed all in-house
and client support information systems and processes for AHP. During 1991 and
1992, Mr. Karadimas served as Director of Systems Development for Columbia
Services Group, an Arlington, Virginia company.
Michael C. Miller joined the Company in May 1996 as Vice President for
Marketing. Mr. Miller has 23 years of health care management, marketing and
operations experience. Prior to joining the Company, he was President and
Chief Executive Officer of Biotek Solutions, a pathology instrumentation
technology company, until its sale to Venture Medial Systems in early 1995. He
previously served as Chief Operating Officer of Abbey Home HealthCare from
1992 to 1994. From 1991 to 1992, Mr. Miller was Senior Vice President for
CareLink Home Monitoring Corporation. From 1986 to 1991, Mr. Miller was
founder of Practicon Managed Care Systems, which was merged with Direct
Health, Inc. in 1988, where he held the position of Marketing Vice President.
From 1983 to 1986, Mr. Miller held positions of Marketing Vice President,
Corporate Director and Vice President of Strategic Planning for the St. Joseph
Health System.
Joseph M. Mott joined the Company in January 1997 as the Company's General
Counsel. He was appointed the Company's Corporate Secretary in March 1997.
Prior to joining the Company, Mr. Mott was a partner with the law firm of
Miles & Stockbridge P.C. in Rockville, Maryland, which he joined in 1988.
Anthony J. Pino has been the President of National Health Services, Inc.
since 1991. From 1991 to 1994 Mr. Pino was the President of National Group
Life. From 1991 to 1996 Mr. Pino was the Executive Vice President of Pioneer
Financial Services, Inc.
5
Michael A. Smith joined the Company in August 1995, and is currently
President of America's Health Card Services, Inc. Prior to joining the
Company, Mr. Smith was Executive Vice President at Chevy Chase Bank, Chevy
Chase Maryland, with responsibility for credit cards, consumer lending,
marketing, branch administration and operations. During his 13 years at Chevy
Chase Bank, Mr. Smith had responsibility for other areas from time to time,
including human resources, property management and branch acquisitions.
MEETINGS AND COMMITTEES OF THE BOARD DIRECTORS
The Board of Directors generally meets on a quarterly basis and may have
additional meetings as needed. Subsequent to the public offering, the Board of
Directors held two meetings. The only directors who attended fewer than 75% in
the aggregate of the total number of meetings of the Board and committees in
1996 were David J. Drury and William E. Brock, each of whom missed one Board
meeting.
The committees of the Board of Directors consist of an Audit Committee, a
Nominating Committee, and a Compensation Committee.
Audit Committee. The Audit Committee recommends to the Board of Directors
the annual appointment of independent certified public accountants with whom
the committee reviews the audit fees, scope, and timing of the audit, the
adequacy of internal controls, and any other services rendered. The Audit
Committee is comprised of Mr. Graefe, Ms. Lawler, and Mr. Brock and held one
meeting during fiscal year 1996.
Compensation Committee. The Compensation Committee reviews and recommends
the compensation and bonuses of the executives of the Company. The
Compensation Committee also will administer the Company's (i) 1996 Stock
Option Plan, and (ii) the 1996 Employee Stock Purchase Plan. The Compensation
Committee is comprised of Messrs. Graefe, Graf and Ms. Anderson and held one
meeting during fiscal year 1996.
Nominating Committee. The Company's Nominating Committee appointed by the
Board of Directors will consider all suggestions for nominees to the Board of
Directors which are timely received in proper written form. To be in proper
written form, a stockholder's notice shall set forth in writing (i) as to each
person whom the stockholder proposes to nominate as a director, all
information relating to such person that is required to be included in a proxy
statement filed pursuant to the proxy rules of the SEC, including such
person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected and (ii) as to the stockholder giving
the notice (x) the name and address, as they appear on the Company's books, of
such stockholder and (y) the class and number of shares of the corporation
which are beneficially owned by such stockholder.
DIRECTORS' COMPENSATION
Directors who are not affiliated with the Company each receive a fee of
$2,500 per Board of Directors meeting attended, plus travel and incidental
expenses incurred in attending meetings and carrying out their duties as
directors. The directors from Principal Mutual and Principal Health Care, Inc.
receive no fees and are reimbursed only for their travel and incidental
expenses.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Securities Exchange Act of 1934 (the
"Exchange Act") and the rules issued thereunder, the Company's executive
officers and directors are required to file with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc. reports of
ownership and changes in ownership of Common Stock. Based on copies of such
reports furnished to the Company, or written representations that no other
reports were required, the Company believes that, during 1996, all of its
executive officers and directors complied with the requirements of Section
16(a).
6
2.PROPOSAL TO APPROVE THE UNITED PAYORS & UNITED PROVIDERS, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
On October 31, 1996, the Board of Directors of the Company adopted, subject
to stockholder approval, the Company's 1996 Employee Stock Purchase Plan. The
purpose of the Company's 1996 Employee Stock Purchase Plan is to provide full-
time employees of the Company with an incentive to invest in Company Common
Stock. By encouraging such investment, the Company can align the interests of
the employees with those of the stockholders and focus employees on
performance that will enhance stockholder value. The total number of shares of
Common Stock which will be made available for purchase is 350,000.
As of the date of adoption of the Company's 1996 Employee Stock Purchase
Plan, there were approximately 170 employees who were eligible to participate
in the Company's 1996 Employee Stock Purchase Plan based on the one-year
service eligibility requirement. Adoption of the Company's 1996 Employee Stock
Purchase Plan is an essential element of the Company's existing and ongoing
compensation policy. THE BOARD OF DIRECTORS RECOMMENDS THAT THE COMPANY'S
STOCKHOLDERS VOTE "FOR" THE ADOPTION OF THE COMPANY'S 1996 EMPLOYEE STOCK
PURCHASE PLAN.
An eligible employee may elect to participate in the 1996 Employee Stock
Purchase Plan at any Offering Period (as hereinafter described). The 1996
Employee Stock Purchase Plan provides for two six-month Offering Periods each
year beginning on the first trading day on or after the first day of January
and July of each year. The first Offering Period will commence on July 1,
1997, and end on December 31, 1997. To participate in the 1996 Employee Stock
Purchase Plan an employee must complete an enrollment and payroll deduction
authorization form provided by the Company which indicates the amounts to be
deducted from his or her salary and applied to the purchase of Common Stock on
the Share Purchase Date (as hereinafter defined). The payroll deduction must
be within limits set by the Company and limits imposed by the Internal Revenue
Code.
A payroll deduction account will be established for each participating
employee by the Company and all payroll deductions made on behalf of each
employee will be credited to each such employee's respective payroll deduction
account. On the last trading day of each Offering Period or such other date as
the Compensation Committee shall designate (the "Share Purchase Date") the
amount credited to each participating employee's payroll deduction account
will be applied to purchase as many whole Shares as may be purchased with such
amount at the applicable purchase price.
The purchase price for Shares purchased from the Plan will be 85% of the
lower of the closing prices of shares of Common Stock on the Nasdaq National
Market on the first or last trading day of the applicable Offering Period.
Employees may purchase Shares through the Employee Stock Purchase Plan only by
payroll deductions. Stock purchased by the Plan for employees will be
purchased from the Company from its Treasury Stock or, if no Treasury Stock is
available and the Plan is continued, by an independent agent appointed for
such purpose on the open market or otherwise from executive officers. The
Company will pay all expenses of the Plan, including any brokerage fees for
the purchase of the Common Stock and the difference between the market price
and the price paid by the participating employees if shares are purchased on
the open market.
The Board of Directors of the Company may amend, suspend or terminate the
1996 Employee Stock Purchase Plan at any time; provided, however, that no
amendment shall be effective unless approved within 12 months after the date
of the adoption of such amendment by stockholders if such stockholder approval
is required for the 1996 Employee Stock Purchase Plan to continue to comply
with the requirements of Section 423 of the Internal Revenue Code.
The 1996 Employee Stock Purchase Plan is intended to be an "employee stock
purchase plan" as defined in Section 423 of the Internal Revenue Code. As a
result, an employee participant will pay no federal income tax upon enrolling
in the purchase plan or upon purchase of the Shares. A participant may
recognize income and/or gain or loss upon the sale or other disposition of
Shares purchased under the plan, the amount and character of which will depend
on whether the Shares are held for two years from the first day of the
Offering Period, and one year after the transfer of the Shares to the plan
participant.
7
If the participant sells or otherwise disposes of the Shares before the
expiration of the holding period, the participant will recognize ordinary
income at the time of disposition in an amount equal to the excess of the
market price of the Shares on the date of purchase over the purchase price and
the Company will be entitled to a tax deduction for the same amount.
If the participant sells or otherwise disposes of the Shares after the
expiration of the holding period, the participant will recognize ordinary
income at that time in an amount equal to the lesser of (i) the excess of the
market price of the Shares on the first day of the Offering Period over the
Purchase Price, or (ii) the excess of the market price of the Shares at the
time of disposition over the purchase price. Any further gain would be taxed
as a capital gain. The Company will not be entitled to any tax deduction with
respect to Shares purchased under the plan if the Shares are held for the
requisite two-year period.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE SHARES OF COMMON
STOCK REPRESENTED AT THE MEETING AND ENTITLED TO VOTE ON THE PLAN IS REQUIRED
FOR APPROVAL OF THE 1996 EMPLOYEE STOCK PURCHASE PLAN. ABSTENTIONS WILL COUNT
AS A VOTE AGAINST THE PROPOSAL, AND BROKER NON-VOTES WILL HAVE NO EFFECT ON
THE PROPOSAL.
3.PROPOSAL TO APPROVE THE UNITED PAYORS & UNITED PROVIDERS, INC.
1996 STOCK OPTION PLAN
On October 31, 1996, the Board of Directors of the Company adopted, subject
to stockholder approval, the Company's 1996 Stock Option Plan. The purpose of
the Company's 1996 Stock Option Plan is to offer certain present and future
key employees, outside directors and consultants a favorable opportunity to
become holders of Common Stock, thereby giving them a permanent stake in the
growth and prosperity of the Company and encouraging the continuance of their
involvement with the Company. The total number of shares of Common Stock
issuable over the term of the Company's 1996 Stock Option Plan may not exceed
1,550,000 shares of Common Stock.
As of the date of adoption of the Company's 1996 Stock Option Plan, there
were approximately 260 employees who were eligible to participate in the
Company's 1996 Stock Option Plan. Adoption of the Company's 1996 Stock Option
Plan is an essential element of the Company's existing and ongoing
compensation policy. THE BOARD OF DIRECTORS RECOMMENDS THAT THE COMPANY'S
STOCKHOLDERS VOTE "FOR" THE ADOPTION OF THE COMPANY'S 1996 STOCK OPTION PLAN.
The Plan authorizes the granting of awards in the form of (i) options to
purchase Common Stock which are intended to qualify as incentive stock options
under Section 422 of the Internal Revenue Code (options which afford tax
benefits to the recipients upon compliance with certain conditions and which
do not result in tax deductions to the Company), referred to as "Incentive
Stock Options"; (ii) options that do not so qualify (options which do not
afford income tax benefits to recipients, but which may provide tax deductions
to the Company), referred to as "Non-statutory Stock Options"; and (iii)
limited rights (discussed below) which are exercisable only upon a change in
control of the Company (as defined in the Plan) that is not accounted for as a
"pooling of interest" ("Limited Rights"). Incentive Stock Options may only be
granted to employees. Non-statutory Stock Options may be granted to employees,
outside directors and consultants.
Under the terms of the Company's 1996 Stock Option Plan, on or after October
31, 1996, the Board of Directors or the Compensation Committee of the Board of
Directors of the Company, consisting of two or more directors, may grant
options under the Plan, subject to stockholder approval of the Plan. Certain
such options were granted after October 31, 1996. The price at which shares of
Common Stock may be purchased pursuant to the options granted and the term of
exercise of the options granted will be determined by the Board of Directors
or the Compensation Committee in its discretion on a case-by-case basis. Each
option will be for a term of not more than twelve years (ten years for
incentive stock options) from the date of grant. Incentive Stock Options
granted to any person who is the beneficial owner of more than 10% of the
outstanding voting stock may be exercised only for a period of five years from
the date of grant and the exercise price must be at least equal to 110% of the
fair market value of the underlying Common Stock on the date of grant.
8
The following table sets forth certain information with respect to stock
options granted under the Company's 1996 Stock Option Plan as of April 15,
1997:
NUMBER OF
SECURITIES VALUE OF
UNDERLYING SHARES
EXERCISE OPTIONS CURRENTLY
NAME AND POSITION PRICE GRANTED EXERCISABLE(1)
----------------- -------- ---------- -------------
Edward S. Civera................... $ 6.00 250,000 $226,562
President and Chief Operating 12.00 250,000 39,062
Officer 18.00 250,000 --
Michael C. Miller.................. 11.00 260,000 73,125
Vice President of Marketing
Anthony J. Pino.................... 14.00 50,000 --
President of National Health
Services, Inc.
Joseph M. Mott..................... 11.00 10,000 22,500
General Counsel and Secretary
All executive officers, as a group. 6.00 - 18.00 1,070,000 361,249
All other employees, as a group.... 11.00 - 12.50 130,000 191,936
- - --------
(1) The closing price per share of the Common Stock on the Nasdaq National
Market on April 15, 1997 of $13.25 minus the exercise price multiplied by
the number of shares underlying the options for the shares currently
exercisable.
The Compensation Committee, in its discretion, may provide at the date of
grant for another time or times of exercise or accelerate the exercisability
of any such option subject to such terms and conditions as the Compensation
Committee deems necessary and appropriate. In addition, the Compensation
Committee may, at any time prior to the expiration or termination of an option
previously granted, extend the term of such option for an additional period as
it shall, in its discretion, determine (but only insofar as the aggregate
option period with respect to an option does not exceed twelve years).
Furthermore, it is intended that any such modifications will comply with the
rule in Section 424 of the Internal Revenue Code regarding Incentive Stock
Options.
Upon exercise of an option under the Company's 1996 Stock Option Plan, the
exercise price for the purchased shares will be immediately payable in cash,
by check, or in such other legally permissible form acceptable to the Company,
no later than 15 business days after the date of exercise of the option, if
applicable, or, if approved by the Compensation Committee, in shares of Common
Stock valued at fair market value on the date of exercise, or by a combination
of these methods. An option may be exercised only if the closing sale price
per share of Common Stock on the date of exercise on the primary stock market
upon which Common Stock is traded is equal to or greater than the option
price.
Options are not assignable or transferable other than by will or the laws of
descent and distribution, or by a qualified domestic relations order, and,
during the optionee's lifetime, the option may be exercised only by such
optionee.
Generally, options granted under the Company's 1996 Stock Option Plan
terminate if the optionee's employment terminates for any reason other than
death, disability or retirement. Under appropriate circumstances, the Company
may permit outstanding options to be exercised for a period after termination
of employment but in no event after the expiration date of the option. In the
event of the optionee's death or disability or retirement, the optionee's
estate or the person inheriting the option will have three years (or such
longer period as the Compensation Committee may prescribe) after the date of
the optionee's death, disability or retirement to exercise the option in full,
but under no circumstances may the option be exercised after the specified
expiration of the option term. It is intended that any option rights granted
after termination of employment for any reason will comply with Section 422 of
the Internal Revenue Code with respect to Incentive Stock Options.
If any option granted under the Company s 1996 Stock Option Plan expires or
is terminated or cancelled unexercised as to any shares of Common Stock, such
released shares may again be optioned (including a grant in substitution for a
cancelled option).
9
In the event any change is made to the Common Stock issuable under the
Company's 1996 Stock Option Plan (by reason of any stock split, stock
dividend, combination of shares, merger, consolidation, reorganization or
other change in the capitalization of the Company), appropriate adjustments
will be made as necessary to (i) the aggregate number of shares of Common
Stock and/or the kind of securities available for issuance under the Company's
1996 Stock Option Plan, (ii) the number of shares of Common Stock and/or the
kind of securities to be made the subject of each subsequent grant, (iii) the
exercise price, and (iv) the number of shares of Common Stock and/or the kind
of securities purchasable under each outstanding option and the exercise price
payable per share so that no dilution or enlargement of benefits will occur
under such option.
Upon exercise of Limited Rights in the event of a change in control that is
not accounted for as a "pooling of interests," the optionee will be entitled
to receive a lump sum cash payment equal to the difference between the
exercise price of the related option and the fair market value of the shares
of Common Stock subject to the option on the date of exercise of the right in
lieu of purchasing the stock underlying the option. Payments will be less any
applicable tax withholding required under the plan.
The Board of Directors may amend or discontinue the Company's 1996 Stock
Option Plan at any time.
An optionee will generally not be deemed to have recognized taxable income
upon grant or exercise of any incentive stock option, provided that shares
transferred in connection with the exercise are not disposed of by the
optionee for at least two years from the date the option was granted and one
year from the date the option was exercised. If the holding period is
satisfied, upon disposal of the shares, the aggregate difference between the
per share option exercise price and the fair market value of the Common Stock
is recognized as income taxable at long term capital gains rates as a result of
the grant or exercise of Incentive Stock Options, assuming the holding period
is met.
In the case of the exercise of a non-statutory stock option, an optionee
will be deemed to have received ordinary income upon exercise of the stock
option in an amount equal to the aggregate amount by which the per share
exercise price is exceeded by the fair market value of the Common Stock. In
the event shares received through the exercise of an incentive stock option
are disposed of prior to the satisfaction of the holding period (a
"disqualifying disposition"), the exercise of the option will be treated as
the exercise of a non-statutory stock option, except that the optionee will
recognize the ordinary income for the year in which the disqualifying
disposition occurs. The amount of any ordinary income deemed to have been
received by an optionee upon the exercise of a non-statutory stock option or
due to a disqualifying disposition will be a deductible expense of the Company
for tax purposes.
The Company's 1996 Stock Option Plan is subject to approval by the
affirmative vote of the holders of a majority of the shares of Common Stock
voting in person or by proxy and entitled to vote thereon. If the Company's
1996 Stock Option Plan is so approved, it will become effective as of the date
of its adoption by the Board of Directors. Any options granted on or after the
effective date and prior to stockholder approval will be cancelled and void if
the Company's 1996 Stock Option Plan is not approved by the stockholders. The
Company's 1996 Stock Option Plan will terminate on the date that all shares
available for issuance under the plan are issued or cancelled pursuant to the
exercise or cancellation of options granted under such plan.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE SHARES OF COMMON
STOCK REPRESENTED AT THE MEETING AND ENTITLED TO VOTE ON THE PLAN IS REQUIRED
FOR APPROVAL OF THE 1996 STOCK OPTION PLAN. ABSTENTIONS WILL COUNT AS A VOTE
AGAINST THE PROPOSAL, AND BROKER NON-VOTES WILL HAVE NO EFFECT ON THE
PROPOSAL.
10
4. RATIFICATION OF THE SELECTION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors, in accordance with the recommendation of the Audit
Committee of the Company's Board of Directors, has selected, subject to
ratification by the shareholders, Coopers & Lybrand L.L.P., independent
certified public accountants, to audit the consolidated financial statements
of the Company and its subsidiaries for 1997. Coopers & Lybrand L.L.P. has
audited the Company's financial statements since 1995.
The Company expects representatives of Coopers & Lybrand L.L.P. to attend
the Meeting, to be available to respond to appropriate questions from
shareholders, and to have the opportunity to make a statement if so desired.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO RATIFY THE
SELECTION OF COOPERS & LYBRAND L.L.P. AS INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS FOR 1997.
5.OTHER MATTERS
The Board of Directors knows of no other matters which are likely to be
brought before the meeting. If any other matters should be properly brought
before the meeting, it is the intention of the persons named in the enclosed
proxy to vote, or otherwise act, in accordance with their judgment on such
matters.
11
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation for each
of the last two fiscal years ended December 31, 1996 awarded to or earned by
the Chief Executive Officer and each of the other four most highly compensated
executive officers of the Company.
OTHER RESTRICTED SECURITIES ALL
ANNUAL STOCK UNDERLYING LTIP OTHER
NAME AND YEAR SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION ---- -------- -------- ------------ ---------- ------------ ------- ------------
Thomas L. Blair......... 1996 $115,998(1) $106,457(1) -- -- -- -- $ 46,546(2)
Chairman of the Board, 1995 -- (1) -- -- -- -- -- 603,345(2)
President and Chief
Executive Officer
Spiro A. Karadimas...... 1996 150,000 -- -- -- -- -- 45,911(3)
Vice President for
Operations 1995 83,333 -- -- $55,000(4) -- -- 10,834(5)
S. Joseph Bruno......... 1996 240,000 -- -- -- -- -- 58,619(7)
Vice President, Chief 1995 70,000(6) -- -- 55,000(4) -- -- 35,000(7)
Financial Officer and
Secretary
Michael C. Miller....... 1996 83,333 -- -- -- -- -- --
Vice President for 1995 -- -- -- -- -- -- --
Marketing
Michael A. Smith........ 1996 145,667(8) -- -- -- -- -- --
President of AHCS 1995 16,782 -- -- 14,000(9) -- -- 7,500(10)
- - -------
(1) Thomas L. Blair neither requested nor accepted any compensation from the
Company during 1995. For 1996, Mr. Blair received a total of $115,998 as
compensation; $49,998 from the Company; and $66,000 from Initial Managers
& Investors, Inc. ("IM&I"), an entity owned by Mr. Blair which was
contributed to and then merged with the Company. In addition, the bonus
reflects Mr. Blair's receipt in April 1997 of 1% of the Company's after-
tax profit for the year pursuant to the terms of his employment
agreement.
(2) Consists of payments from IM&I to Thomas L. Blair, the Chief Executive
Officer, President and sole stockholder of IM&I prior to his contribution
of IM&I to the Company for 1995, and for 1996 includes life insurance of
$24,297 and automobile of $22,249.
(3) Includes life insurance of $7,666 and automobile of $11,643 through the
Company and $26,602 paid by IM&I.
(4) Shortly after the formation of the Company, in January 1995, Mr. Blair
gave shares of Common Stock of the Company to approximately 40
individuals or family groups. Such gifts included 490,000 shares each to
Messrs. Bruno and Karadimas, including other members of their immediate
families, and were considered by the parties as private and personal
gifts based on their long-term friendships and personal relationships.
Subsequently Messrs. Bruno and Karadimas joined the Company as executive
officers. Therefore, while the Company does not consider and has not
treated, other than for accounting purposes, such gifts to Messrs. Bruno
and Karadimas as compensation, the Company has treated such gifts, for
accounting purposes, as non-cash compensation expense and has reported an
aggregate of $110,000 in 1995 for such expense.
(5) Consists of compensation paid to Mr. Karadimas from IM&I.
(6) Represents salary for 1995.
(7) Consists of consulting fees paid by the Company to Mr. Bruno prior to his
becoming a salaried employee of the Company in 1995. In 1996 includes
life insurance of $12,710, automobile of $9,523, and $36,386 deferred
compensation from 1995.
(8) Effective November, 1996, Mr. Smith's compensation is $24,000. In
addition, Mr. Smith is advanced $13,000 per month in the form of a loan
(collateralized by shares of the Company's common stock held by Mr.
Smith).
(9) Represents the non-cash compensation expense recorded by the Company, for
accounting purposes, for 128,000 shares of Common Stock given to Mr.
Smith by Mr. Blair as part of the inducement for Mr. Smith to become
President of AHCS.
(10) Consists of consulting fees paid by the Company to Mr. Smith prior to his
becoming a salaried employee of the Company.
12
STOCK OPTION AND STOCK PURCHASE PLAN
All executive officers, with the exception of Thomas L. Blair, Chief
Executive Officer, may participate in the Company's 1996 Stock Option and 1996
Employee Stock Purchase Plans. During the fiscal year ended December 31, 1996,
no stock options were awarded to any of the named executive officers of the
Company.
CERTAIN TRANSACTIONS
During 1996, the Company repaid a demand note payable to Thomas L. Blair in
the amount of $3,700,000 plus accrued interest of five percent. Also during
1996, the Company utilized, for corporate business purposes, the services of a
corporate jet owned by a principal stockholder of the Company. The amount paid
by the Company for these services was approximately $153,000.
During 1996, the Company accessed the provider network of an entity
indirectly owned by Principal Mutual for certain claims transactions without
any payment except to the extent necessary to cover costs under certain
sharing arrangements the entity has with other provider networks.
During 1996, Principal Mutual became a payor client of the Company.
Approximately $80,000 of the Company's provider network revenue was derived
from its contract with Principal Mutual.
During 1996, the Company purchased medical and life insurance from Principal
Mutual. Amounts paid to Principal Mutual in 1996 approximated $180,000.
Commencing in 1997, Principal Mutual will administer the Company's 401(k)
plan.
In December 1996, Thomas L. Blair and an affiliate of Principal Mutual who
beneficially hold shares in the Company's stock aggregating approximately 57%,
formed and funded a new entity to pursue the development and marketing of new
products and services for the health care industry.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Under rules established by the Securities and Exchange Commission ("SEC"),
United Payors & United Providers, Inc. (the "Company") is required to provide
certain data and information in regard to the compensation and benefits
provided to the Company's Chief Executive Officer ("CEO") and other executive
officers. The disclosure requirements for the CEO and the other executive
officers include the use of tables and a report explaining the rationale and
considerations that led to fundamental compensation decisions affecting those
individuals. In fulfillment of this requirement, the Compensation Committee of
the Board of Directors (the Committee ) has prepared the following report for
inclusion in this proxy statement.
General
Under the supervision of the Committee, the Company has developed and
implemented compensation policies, plans and programs which seek to enhance
the profitability of the Company and thus shareholder value by aligning the
financial interests of the Company's executive officers with those of the
shareholders.
The Compensation Committee of the Board of Directors of the Company is
directly responsible for establishing the compensation levels and benefits for
the CEO of the Company. With respect to the other officers, the CEO of the
Company recommends compensation levels and other incentives to the Committee.
The Committee ultimately has the final decision. The Committee consists of
Bette Anderson, Thomas Graf, and Frederick Graefe, who are all outside
directors.
13
Compensation Policies
In furtherance of the Company's goals, and to attract and retain corporate
officers and other key employees with outstanding abilities and to motivate
them to perform to the full extent of their abilities, compensation for the
executive officers, as well as other management and employees consist of three
major components: base salary, discretionary bonus awards, and long-term
incentive compensation in the form of discretionary stock options.
Base Salaries
In determining salary levels, the Committee considers the entire
compensation package plans of the executive officers, including the equity
compensation provided under the Company's stock plans. Salary levels are
intended to be consistent with industry standards and each executive's level
of responsibility. Although the Committee's decisions are discretionary and no
specific formula is used for decision making, salary increases are aimed at
reflecting the overall performance of the Company and the performance of the
individual executive officer.
Bonus Awards
In determining bonus awards, the Committee considers the entire compensation
package of the executive officers. As discussed under Base Salaries, bonus
awards are intended to be consistent with other companies in the industry and
each executive officer's level of responsibility. Although the Committee's
decisions are discretionary and no specific formula is used for decision
making, the bonus awards are aimed to reflect the overall financial
performance of the Company including the achievement of the revenues and net
income goals and the performance of the individual executive officer. The only
bonus award made for the year ended December 31, 1996 was to the CEO (refer to
Compensation of the Chief Executive Officer below)
Long-Term Incentive Compensation
The Board of Directors has adopted, subject to stockholder approval, the
United Payors & United Providers, Inc. 1996 Stock Option Plan, under which
executive officers and other employees may receive grants and awards. The
Compensation Committee believes that stock ownership is a significant
incentive in building shareholder wealth and aligning the interests of
employees and shareholders. Mr. Blair, the Chief Executive Officer of the
Company, has excluded himself from participation in the Company's plan. During
1996, no grants or awards were made to any of the named executive officers.
Compensation of the Chief Executive Officer
Thomas Blair neither requested nor accepted any compensation from the
Company during 1995. For 1996, Mr. Blair received a total of $115,998 as
compensation; $49,998 from the Company; and $66,000 from Initial Managers &
Investors, Inc. ("IM&I"), entity owned by Mr. Blair which was contributed to
and then merged with the Company. In accordance with Mr. Blair's employment
contract, he will also receive 1% of the Company's after-tax profit, which is
reflected as a bonus in the compensation table.
Employment Agreements
Thomas Blair, Joseph Bruno, Spiro Karadimas, and Michael Smith entered into
employment agreements with the Company. The employment agreements, which are
substantially similar for each of the four executives, provide for two-year
terms, covenants not to compete, and severance arrangements. Mr. Blair's
salary, pursuant to his employment agreement, shall be no less than $50,000
per year plus one percent of the Company's annual after-tax profits. The base
salaries are $200,000 and $250,000, respectively, for Messrs. Karadimas and
Bruno. Mr. Smith's compensation is currently $2,000 per month plus cash
advances of $13,000 per month in the form of a loan (collateralized by shares
of the Company's common stock held by Mr. Smith). Base salary may be
14
increased by the Company's Board of Directors, in the case of Mr. Blair, and
by the Company's President, in the case of Messrs. Karadimas, Bruno and Smith.
In addition to base salary, the employment agreements provide for, among other
things, participation by the executives in employee benefit plans, other
fringe benefits applicable to executive personnel and reimbursement of
reasonable expenses incurred in promoting the business of the Company.
The Committee reviewed and approved a five-year employment agreement with
Edward S. Civera, as President and Chief Operating Officer effective April 1,
1997. The agreement provides for an annual base salary of $350,000 and a bonus
arrangement of 1% of the Company's after-tax profits. In addition, Mr. Civera
will receive options to purchase 750,000 shares of the Company's common stock
that will vest over an eight-year period and a funded retirement benefit in
the form of vested trust arrangements that will be earned over a five-year
period. Mr. Civera's agreement contains benefit provisions related to a change
in control of the Company's ownership and he will be nominated as a member of
the Board of Directors.
COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS
March 18, 1997 Bette B. Anderson, Chairperson
Thomas J. Graf
Frederick H. Graefe
15
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on the
Company's Common Stock with the cumulative total return of the index for
companies whose equity securities are traded on the Nasdaq National Market and
the index for the Nasdaq Health Services Stocks, for the period July 2, 1996
(date of initial public offering) to December 31, 1996. The initial public
offering price of the Company's Common Stock was $11.00 and the average
between the bid and asked price at December 31, 1996 was $13.50. The graph was
derived from data for only a limited period of time and, as a result, may not
be indicative of possible future performance of the Company's Common Stock.
[CHART APPEARS HERE]
7/02/96 9/30/96 12/31/96
------- ------- --------
United Payors & United Providers, Inc. 100.00 110.23 122.73
Nasdaq National Market 100.00 103.56 108.65
Nasdaq Health Service Stock 100.00 99.62 88.10
Notes:
- - ------
A. The lines represent quarterly index levels.
B. If the quarterly interval, based on the fiscal year end, is not a trading
day, the preceding day is used.
c. The index level for all series was set to $100.00 on July 2, 1996.
16
DEADLINE FOR SUBMISSION OF
1998 STOCKHOLDER PROPOSALS AND NOMINATIONS
In order for stockholder proposals to be considered by the Company for
inclusion in the proxy material for the Annual Meeting of Stockholders to be
held in 1998, they must be received by the Company at its principal executive
offices by December 31, 1997.
By Order of the Board of Directors
/s/ Joseph M. Mott
Joseph M. Mott
Secretary
April 30, 1997
- - --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, ALL STOCKHOLDERS ARE URGED
TO PROMPTLY COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE
ACCOMPANYING ENVELOPE. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR
STOCK PERSONALLY EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
- - --------------------------------------------------------------------------------
17
- - --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
UNITED PAYORS & UNITED PROVIDERS, INC.
ANNUAL MEETING OF SHAREHOLDERS
June 3, 1997
1:30 p.m.
The undersigned hereby appoints Thomas L. Blair, S. Joseph Bruno and Joseph M.
Mott or any one or more of them acting in the absence of others, each with full
power of substitution, to act as proxy for the undersigned, and to vote all
shares of Common Stock of United Payors & United Providers, Inc. (the "Company")
which the undersigned is entitled to vote only at the Annual Meeting of
Shareholders, to be held on June 3, 1997, at 1:30 p.m., at The Crystal City
Marriott, 1999 Jefferson Davis Highway, Arlington, Virginia 22202, and at any
and all adjournments thereof, with all of the powers the undersigned would
possess if personally present at such meeting, as follows:
(Continued and to be signed on reverse side.)
- - --------------------------------------------------------------------------------
[ARROW [ARROW
POINTING POINTING
DOWNWARD DOWNWARD
APPEARS APPEARS
HERE] Please Detach and Mail in the Envelope Provided HERE]
- - --------------------------------------------------------------------------------
A [X] Please mark your + +
votes as in this + +
example +
+++++++
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED
AND "FOR" EACH OF THE PROPOSALS PRESENTED.
1. The election as directors of all nominees listed for the following terms
(except as marked to the contrary below). FOR VOTE WITHHELD
[_] [_]
Nominees: Kenneth J. Linde, for a term expiring in 1998;
David J. Drury, for a term expiring in 2000;
William E. Brock, for a term expiring in 2000; and
Edward S. Civera, for a term expiring in 2000.
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the line provided below:
________________________________________________
FOR AGAINST ABSTAIN
2. The approval of the United Payors & United [_] [_] [_]
Providers, Inc. 1996 Employee Stock Purchase
Plan
3. The approval of the United Payors & United [_] [_] [_]
Providers, Inc. 1996 Stock Option Plan
4. The ratification of the appointment of Coopers [_] [_] [_]
& Lybrand L.L.P. independent certified public
accountants of United Payors & United
Providers, Inc. for 1997.
This proxy is revocable and will be voted as directed, but if no instructions
are specified, this proxy will be voted "FOR" each of the nominees listed and
"FOR" each of the proposals listed. If any other business is presented at the
Annual Meeting, including whether or not to adjourn the meeting, this proxy will
by voted by the proxies in their best judgment. At the present time, the Board
of Directors knows of no other business to be presented at the Annual Meeting.
The undersigned acknowledges receipt from the Company prior to the execution of
this proxy of a Notice of Annual Meeting of Shareholders and of a Proxy
Statement dated April 30, 1997 and of the Annual Report to Shareholders.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
___________________________ _________________________ Dated:____________, 1997
Signature of SHAREHOLDER Signature of SHAREHOLDER
NOTE: Please sign exactly as your name appears of this card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder may sign but only one signature
is required.