<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
United Payors & United Providers, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
United Payors & United Providers, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(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.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
UNITED PAYORS & UNITED PROVIDERS, INC.
2275 RESEARCH BOULEVARD
ROCKVILLE, MARYLAND 20850
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JUNE 4, 1998
The Annual Meeting of Shareholders of United Payors & United Providers, Inc.
(the "Company") will be held June 4, 1998 at the Ritz-Carlton Pentagon City,
1250 S. Hayes Street, Arlington, Virginia 22202 at 1:30 p.m., Eastern Daylight
Time, for the following purposes:
1. To elect three directors for a three-year term expiring at the annual
meeting of shareholders in 2001;
2. To ratify the selection of Coopers & Lybrand L.L.P. as the Company's
independent certified public accountants for 1998; and
3. 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, 1998 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, then 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 28, 1998
<PAGE>
UNITED PAYORS & UNITED PROVIDERS, INC.
2275 RESEARCH BOULEVARD
ROCKVILLE, MARYLAND 20850
----------------
PROXY STATEMENT
----------------
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JUNE 4, 1998
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 4, 1998 at 1:30 p.m., Eastern Daylight Time, at
the Ritz-Carlton Pentagon City, 1250 S. Hayes Street, 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, 1998. The 1997 Annual Report to Shareholders,
including the consolidated financial statements for the fiscal year ended
December 31, 1997 accompanies this Proxy Statement.
At the Meeting, shareholders will be asked to vote upon: (1) the election of
three directors for three-year terms expiring at the annual meeting of
shareholders in 2001; (2) ratification of the selection of independent
certified public accountants for 1998; and (3) 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, 1998 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 11,374,095 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
2001 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 in person or by proxy and entitled to vote on
the matter will be required to ratify the selection of the Company's
independent certified public accountants. In determining whether this proposal
has received the requisite number of affirmative votes, broker non-votes will
be disregarded and will have no effect on the outcome of the vote.
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 AND AT THE DISCRETION OF THE PROXIES ON ANY OTHER MATTERS
THAT MAY COME BEFORE THE MEETING.
1
<PAGE>
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 to those officers and employees).
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.
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, 1998, 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 shareholders 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.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
-----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE
- ------------------------ --------- ----------
<S> <C> <C>
Principal Mutual Life Insurance Company ("Principal Mu-
tual")(1)............................................. 4,400,000 38.7%
David J. Drury(2)...................................... 4,400,000(3) 38.7
Thomas J. Graf(2)...................................... 4,400,000(3) 38.7
Michael H. Gersie(2)................................... 4,400,000(3) 38.7
Julia Lawler(2)........................................ 4,400,000(3) 38.7
Thomas L. Blair........................................ 2,258,200(4) 19.9
Edward S. Civera....................................... 543,480(7) 4.6
Spiro A. Karadimas..................................... 440,056(5) 3.9
S. Joseph Bruno........................................ 404,830(6) 3.6
Anthony J. Pino........................................ 38,761(8) *
Bette B. Anderson...................................... 7,000 *
William E. Brock....................................... 7,500 *
Frederick H. Graefe.................................... 19,420 *
Kenneth J. Linde....................................... 1,700 *
All executive officers and directors as a group........ 8,227,180 68.9
</TABLE>
- --------
* 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, Graf's and Gersie'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 and Chief Executive Officer, Mr. Graf is Senior
Vice President, Mr. Gersie is Senior Vice President and Chief Financial
Officer, and Ms. Lawler is Second Vice President. Also, Mr. Linde is the
former President of Principal Health Care, Inc., an affiliate of Principal
Mutual.
2
<PAGE>
(4) Of Mr. Blair's shares, 2,023,800 are held jointly with his wife, 200,000
are held solely by Mr. Blair's wife and 34,400 shares are held by
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, 180,000 shares are held in trust under the Uniform Gift to
Minors Act for Mr. Bruno's children and 37,500 shares are in Mr. Bruno's
wife's name.
(7) Of this number 10,000 shares are held in trust under the Uniform Gifts to
Minors Act for Mr. Civera's children. In connection with Mr. Civera's
employment agreement, Mr. Civera was granted options to purchase 750,000
shares of the Company's Common Stock of which 250,000 vest over an eight-
year period; 531,250 shares are currently exercisable.
(8) Includes options to purchase 50,000 shares of the Company's Common Stock.
Of this amount, 25,000 shares are currently exercisable.
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."
Julia Lawler, who has served as director of the Company since 1996, will
retire from the Board of Directors as of the date of the 1998 Annual Meeting
of Shareholders, which coincides with the expiration of her term.
The persons designated by the Board of Directors as nominees for election as
directors with terms expiring at the 1998 annual shareholders meeting are
Bette B. Anderson, Michael H. Gersie and Kenneth J. Linde.
UNLESS A CONTRARY DIRECTION IS INDICATED, IT IS INTENDED THAT PROXIES
RECEIVED WILL BE VOTED "FOR" THE ELECTION AS DIRECTORS FOR THE THREE NOMINEES
TO SERVE FOR THREE-YEAR TERMS EXPIRING AT THE 2001 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 in the following table will
be available for election.
All the nominees for director, and the directors who will continue to serve
after the 1998 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
<PAGE>
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, 1998:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION SINCE
- ---- --- -------- --------
<S> <C> <C> <C>
Nominees for the term expiring in
2001:
Bette B. Anderson................. 69 Director 1996
Michael H. Gersie................. 49 Director --
Kenneth J. Linde.................. 51 Director 1997
Director whose term expires in
1998:
Julia Lawler...................... 38 Director 1996
Directors whose terms expire in
1999:
Thomas L. Blair................... 53 Chairman of the Board and 1996
Chief Executive Officer
Thomas J. Graf.................... 49 Director 1996
Frederick H. Graefe............... 54 Director 1996
Directors whose terms expire in
2000:
William E. Brock.................. 68 Director 1996
David J. Drury.................... 53 Director 1996
Edward S. Civera.................. 47 Director, President and 1997
Chief Operating Officer
Officers who are not directors:
S. Joseph Bruno................... 49 Vice President and Chief
Financial Officer
Barbara M. Freeman................ 49 President of National Health
Services, Inc.(1)
Spiro A. Karadimas................ 39 Vice President of Operations
Joseph M. Mott.................... 44 Secretary and General Counsel
Anthony J. Pino................... 50 President of National Health
Services, Inc.(1)
Michael A. Smith.................. 48 President of America's Health
Card Services, Inc.
</TABLE>
- --------
(1) Effective April 1998, Mr. Anthony J. Pino resigned from National Health
Services, Inc. and Barbara Freeman, M.D., became the company's President.
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.
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
4
<PAGE>
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.
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.
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.
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.
Michael H. Gersie joined Principal Mutual in 1970 and has served as Senior
Vice President and Chief Financial Officer since 1996. Mr. Gersie has been an
officer of Principal Mutual since 1974 and has served the company in various
other capacities, including Chief Information Officer.
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.
Thomas J. Graf joined Principal Mutual in 1972 and, since 1994, has served
as Senior Vice President for Group Operations. 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.
Julia Lawler joined Principal Mutual in 1984 and currently is Second Vice
President. Since May 1995, Ms. Lawler has served as Director, Capital Markets
of Principal Mutual, and since 1993 has served in various other capacities,
including Executive Advisor to the President.
Kenneth J. Linde was the founder, President and Chief Executive Officer of
Principal Health Care, Inc., a subsidiary of Principal Mutual. Mr. Linde
joined Principal Mutual in 1987. In 1998, Principal Health Care, Inc. was
merged with Coventry Health Care, Inc., a subsidiary of Coventry Corporation.
Mr. Linde is the Executive Vice President and Chief Operating Officer of
Coventry Health Care, Inc. Principal Mutual holds approximately 40% of the
common stock of Coventry Corporation.
S. Joseph Bruno has been Vice President and 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.
Barbara M. Freeman, M.D., joined National Health Services, Inc. ("NHS") in
1993 as Executive Vice President and Chief Medical Officer and has been the
President of NHS since April 1998. From 1986 to 1993, Dr. Freeman was Medical
Director of Healthcare Review Corporation, currently a subsidiary of NHS. From
1984 to 1986, Dr. Freeman was the Medical Director for the Kentucky Peer
Review Organization ("PRO"), the
5
<PAGE>
federal contracted PRO for the State of Kentucky. She has been a practicing
physician specializing in family practice since 1975.
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.
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 principal 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.
from 1991 to April 1998. 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.
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. During 1997, the Board of Directors held five
meetings. The only director who attended fewer than 75% in the aggregate of
the total number of meetings of the Board was David J. Drury, who missed two
Board meetings.
The committees of the Board of Directors consist of an Audit 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 two
meetings during fiscal year 1997.
Compensation Committee. The Compensation Committee reviews and recommends
the compensation and bonuses of the executives of the Company. The
Compensation Committee also administers the Company's (i) 1996 Stock Option
Plan, and (ii) the 1996 Employee Stock Purchase Plan. The Compensation
Committee is comprised of Messrs. Graefe and Graf and Ms. Anderson and held
two meetings during fiscal year 1997.
Nominating Committee. The Company does not currently have a Nominating
Committee. The Company's Board of Directors or any 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 for election
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.
6
<PAGE>
DIRECTORS' COMPENSATION
Directors who are not affiliated with the Company each receive a fee of
$2,500 for each Board of Directors meeting and $500 for each Committee meeting
attended, plus travel and incidental expenses incurred in attending meetings
and carrying out their duties as directors. The directors from Principal
Mutual receive no fees and are reimbursed only for their travel and incidental
expenses.
In January 1998, the non-affiliated directors received a stock option grant
of 3,000 shares of Common Stock. One-third of these stock options vested
immediately, and the other two-thirds vest ratably over a two-year period. The
options have a ten-year life and permit the holder to purchase shares at their
fair market value on the date of grant.
On January 1 of each subsequent year, non-affiliated directors will receive
a stock option grant of 1,000 shares of Common Stock which vest at the date of
grant, are exercisable for a ten-year period and permit the holder to purchase
shares at the fair market value on the date of grant.
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 representation that no other
reports were required, the Company believes that, during 1997, all of its
executive officers and directors complied with the requirements of Section
16(a).
2. 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 1998. 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 1998.
3. 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.
7
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation for each
of the last three fiscal years ended December 31, 1997 awarded to or earned by
the Chief Executive Officer and each of the other four most highly compensated
executive officers of the Company.
<TABLE>
<CAPTION>
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND COMPEN- STOCK OPTIONS/ LTIP COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS SATION AWARD(S) SARS PAYOUTS SATION
- ------------------ ---- ------ ----- ------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas L. Blair......... 1997 $93,469 $149,767(1) -- -- -- -- $74,790(2)
Chairman of the Board 1996 115,998(1) 106,457(1) -- -- -- -- 46,546(2)
and Chief Executive 1995 -- (1) -- -- -- -- -- 603,345(2)
Officer
Edward S. Civera........ 1997 253,294 100,000(3) -- -- 750,000 -- 375,930(4)
President and Chief
Operating Officer
S. Joseph Bruno......... 1997 255,794 25,000(10) -- -- -- -- 29,610(9)
Vice President and 1996 240,000 -- -- -- -- -- 58,619(9)
Chief Financial Officer 1995 70,000(8) -- -- 55,000(6) -- -- 35,000(9)
Spiro A. Karadimas...... 1997 210,794 25,000(10) -- -- -- -- 23,868(5)
Vice President of 1996 150,000 -- -- -- -- -- 45,911(5)
Operations 1995 83,333 -- -- 55,000(6) -- -- 10,834(7)
Anthony J. Pino......... 1997 225,385 148,600(10) -- -- 50,000 -- 15,250(11)
President of National 1996 80,769 -- -- -- -- -- --
Health Services, Inc. 1995 -- -- -- -- -- -- --
</TABLE>
- --------
(1) 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"), 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
for 1996 and an amount accrued for 1997 of $149,767, paid in March 1998.
(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 allowance of $22,249. For 1997, consists of
payments from the Company for life insurance of $45,973, matching 401(k)
contribution of $4,817 and automobile allowance of $24,000.
(3) Reflects bonus pursuant to employment agreement accrued in 1997, paid in
March 1998.
(4) Includes $357,000 representing a funded retirement benefit (see
"Employment Agreements"), life insurance of $1,680, matching 401(k)
contribution of $5,250 and automobile allowance of $12,000.
(5) Includes life insurance of $4,618, matching 401(k) contribution of $5,250
and automobile allowance of $14,000 for 1997 through the Company. For
1996, includes life insurance of $7,666 and automobile allowance of
$11,643 through the Company and $26,602 paid by IM&I.
(6) 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
8
<PAGE>
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.
(7) Consists of compensation paid to Mr. Karadimas from IM&I.
(8) Represents salary for 1995.
(9) 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 allowance of $9,523, and $36,386 deferred
compensation from 1995. In 1997, includes life insurance of $10,360,
matching 401(k) contribution of $5,250 and automobile allowance of $14,000.
(10) Reflects bonus accrued for 1997, paid in March 1998.
(11) Consists of matching 401(k) contribution of $5,250 and automobile
allowance of $10,000.
STOCK OPTION AND STOCK PURCHASE PLAN
All executive officers, with the exception of Thomas L. Blair, Chief
Executive Officer, may participate in the Company's 1996 Stock Option and 1996
Employee Stock Purchase Plans. During the fiscal year ended December 31, 1997,
stock options were awarded to certain named executive officers.
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table sets forth certain information with respect to stock
options granted to named executive officers during 1997 under the Company's
1996 Stock Option Plan:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF ASSUMED ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS GRANT- PRICE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO DATE TERM(1)
OPTIONS EMPLOYEES IN MARKET EXERCISE EXPIRATION --------------------------------
NAME GRANTED FISCAL YEAR PRICE PRICE DATE 0%($) 5%($) 10%($)
- ---- ---------- ------------- ------ -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Edward S. Civera........ 250,000 21.9% $12.00 $6.00 Mar. 2009 $1,500,000 $2,387,500 $6,415,000
250,000 21.9 12.00 12.00 Mar. 2009 -- 2,387,500 6,415,000
250,000 21.9 12.00 18.00 Mar. 2009 -- 2,387,500 6,415,000
Anthony J. Pino......... 50,000 4.4 11.00 14.00 Feb. 2003 -- 187,000 424,500
</TABLE>
- --------
(1) These potential realizable values are based on assumed rates of
appreciation required by applicable regulations of the Securities and
Exchange Commission.
OPTION EXERCISES AND VALUES FOR FISCAL 1997
The table below sets forth the following information with respect to option
exercises during fiscal 1997 by each of the named executive officers and the
status of their options at December 31, 1997:
- the number of shares of Common Stock acquired upon exercise of options
during fiscal 1997;
- the aggregate dollar value realized upon the exercise of such options;
- the total number of exercisable and non-exercisable stock options held at
December 31, 1997; and
- the aggregate dollar value of in-the-money exercisable options at December
31, 1997.
9
<PAGE>
AGGREGATED OPTION EXERCISES DURING FISCAL 1997
AND OPTION VALUES ON DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED IN-
SHARES VALUE NUMBER OF UNEXERCISED THE-MONEY OPTIONS
ACQUIRED UPON REALIZED OPTIONS 12/31/97 12/31/97(1)
EXERCISE UPON ------------------------- -------------------------
OF OPTION EXERCISE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Edward S. Civera........ -- -- 531,250 218,750 $2,539,063 $2,898,438
Anthony J. Pino......... -- -- 12,500 37,500 65,625 196,875
</TABLE>
- --------
(1) In accordance with the SEC's rules, values are calculated by subtracting
the exercise price from the fair market value of the underlying common
stock. For purposes of this table, fair market value is deemed to be
$19.25, the closing price of the stock reported by the National
Association of Securities Dealers as of December 31, 1997.
CERTAIN TRANSACTIONS
Effective September 1, 1997, the Company acquired AHP from Principal Mutual
for a purchase price of approximately $15.5 million, consisting of $15.1
million in cash and the assumption of approximately $400,000 in liabilities in
excess of the fair value of the assets acquired. The purchase price is subject
to adjustment through the year 2001, should AHP revenues exceed pre-determined
targets.
The Company utilizes, for corporate business purposes, the services of an
aircraft owned by a corporation which is controlled by the Chairman of the
Company. The amount paid by the Company to this corporation in 1997 was
approximately $263,000.
During 1997, Principal Mutual became a payor client of the Company.
Approximately $2,342,000 of the Company's provider network revenue was derived
from its contract with Principal Mutual.
The Company purchases medical and life insurance from Principal Mutual.
Commencing in 1997, Principal Mutual administered the Company's 401(k) plan.
Amounts paid to Principal Mutual in 1997 for these insurance products and
services approximated $386,000.
Thomas L. Blair and Principal Mutual who hold shares in the Company's stock
aggregating approximately 59%, formed and funded a new entity in 1996 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.
10
<PAGE>
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 B. Anderson and Frederick H. Graefe, who are outside directors, and
Thomas J. Graf, who is Senior Vice President of Principal Mutual.
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 employees consist primarily of
three major components: base salary, bonus awards, and long-term incentive
compensation in the form of discretionary stock options. In addition, executive
officers may receive other compensation in the form of various fringe benefits.
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
policy is subjective 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 awards made
for the year ended December 31, 1997 were to Mr. Thomas L. Blair, the CEO
(refer to "Compensation of the Chief Executive Officer" below); to Mr. Edward S.
Civera, the President and Chief Operating Officer; to Mr. S. Joseph Bruno,
Vice President and Chief Financial Officer; to Mr. Spiro Karadimas, Vice
President of Operations; and to Anthony J. Pino, the President of National
Health Services, Inc.
Long-Term Incentive Compensation
The Stockholders during 1997 approved 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 1997, grants or awards were made to Mr. Civera and
Mr. Pino. The awards made to Messrs. Civera and Pino were made in connection
with their employment contracts.
Compensation of the Chief Executive Officer
Thomas L. Blair neither requested nor accepted any base salary from the
Company during 1995. For 1996, Mr. Blair received a total of $115,998 as base
salary; $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. During 1997 Mr. Blair received a base salary
of $93,469. In addition, in accordance with Mr. Blair's employment contract,
he also receives 1% of the Company's after-tax profit, which is reflected as a
11
<PAGE>
bonus in the compensation table (see "Executive Compensation" section), and
amounted to $106,457 for 1996 and $149,767 for 1997, and other compensation in
the form of fringe benefits.
Employment Agreements
Thomas L. Blair, S. Joseph Bruno and Spiro A. Karadimas entered into
employment agreements with the Company. The employment agreements, which are
substantially similar for each of the three executives, provide for two-year
terms, covenants not to compete, and severance arrangements. Mr. Blair's base
salary, pursuant to his employment agreement, is $350,000 per year plus one
percent of the Company's annual after-tax profits. The base salaries currently
are $240,000 and $280,000, respectively, for Messrs. Karadimas and Bruno. Base
salary may be 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
and Bruno. 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.
Commencing in January 1998, Mr. Bruno and Mr. Karadimas will participate in a
bonus arrangement of one-quarter of one percent, each, of the Company's net
income.
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, among other things, an annual base salary of
$350,000 and a bonus arrangement of 1% of the Company's after-tax profit,
options to purchase 750,000 shares of the Company's Common Stock (500,000
shares exercisable at or above the market price at the date of grant and
250,000 shares exercisable at $6.00 below the market price at the date of
grant) that will vest over an eight-year period (with acceleration provision
based on performance) and a retirement benefit (approximately $1 million) in
the form of vested trust arrangements that is earned over a five-year period.
In December 1997, the Company accelerated the vesting on 500,000 stock options
which had an exercise price at the date of grant equal to or above the market
price at the date of grant. Mr. Civera's agreement also contains benefit
provisions related to a change in control of the Company's ownership.
COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS
Bette B. Anderson, Chairperson
Thomas J. Graf
Frederick H. Graefe
March 9, 1998
12
<PAGE>
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, and January 1, 1997 to
June 30, 1997, and July 1, 1997 to December 31, 1997. 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, June 30, 1997 and
December 31, 1997 was $13.50, $13.00 and $19.00, respectively. 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.
[LINE GRAPH APPEARS HERE]
- --------------------------------------------------------------------------------
Summary
-------
7/2/96 12/31/96 6/30/97 12/31/97
------ -------- ------- --------
United Payors & United Providers, Inc. 100.00 122.73 118.00 175.00
Nasdaq National Market 100.00 108.65 121.00 133.00
Nasdaq Health Service Stock 100.00 88.10 92.00 90.00
Notes:
- ------
A. The lines represent six-month index levels.
B. If the six-month interval, based on the fiscal year-end, is not a trading
day, the proceeding trading day is used.
C. The index level for all series was set to $100.00 on July 2, 1996.
- --------------------------------------------------------------------------------
13
<PAGE>
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 1999, they must be received by the Company at its principal executive
offices by December 31, 1998.
By Order of the Board of Directors
/s/ Joseph M. Mott
Joseph M. Mott Secretary
April 28, 1998
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
14
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Shareholders
UNITED PAYORS & UNITED PROVIDERS, INC.
June 4, 1998
. Please Detach and Mail in the Envelope Provided .
- --------------------------------------------------------------------------------
+
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 for three-year terms expiring at
the annual meeting of shareholders in 2001 (except as indicated to the
contrary below).
FOR VOTE WITHHELD
[_] [_]
Nominees: Bette B. Anderson
Michael H. Gersie
Kenneth J. Linde
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the line provided below.
- --------------------------------------------
2. This ratification of the appointment of Coopers & Lybrand L.L.P. as
independent certified public accountants for United Payors & United
Providers, Inc. for 1998.
FOR AGAINST ABSTAIN
[_] [_] [_]
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
be 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 28, 1998 and of the Annual Report to Shareholders.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
Dated: _____, 1998
- ----------------------------- ------------------------
SIGNATURE OF SHAREHOLDER SIGNATURE OF SHAREHOLDER
NOTE: Please sign exactly as your name appears on 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.
<PAGE>
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
UNITED PAYORS & UNITED PROVIDERS, INC.
ANNUAL MEETING OF SHAREHOLDERS
June 4, 1998
1:30 p.m. EDT
The undersigned hereby appoints Thomas L. Blair, Edward S. Civera, S. Joseph
Bruno and Joseph M. Mott or any one or more of them acting in the absence of the
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 at the
Annual Meeting of Shareholders, to be held on June 4, 1998, at 1:30 p.m.,
Eastern Daylight Time, at the Ritz-Carlton Pentagon City, 1250 S. Hayes Street,
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.)
