<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. ____)
Filed by the Registrant [ ]
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)
N/A
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
.......................................................................
2) Aggregate number of securities to which transaction applies:
.......................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
.......................................................................
4) Proposed maximum aggregate value of transaction:
.......................................................................
5) Total fee paid: None
.......................................................................
<PAGE> 2
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
............................................
2) Form, Schedule or Registration Statement No.:
............................................
3) Filing Party:
............................................
4) Date Filed:
............................................
<PAGE> 3
UNITED PAYORS & UNITED PROVIDERS, INC.
2275 RESEARCH BOULEVARD
ROCKVILLE, MARYLAND 20850
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 15, 1999
The Annual Meeting of Stockholders of United Payors & United Providers,
Inc. (the "Company") will be held June 15, 1999 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 stockholders in 2002 and until their successors
are elected and qualified, and to elect two directors to serve the
remaining term of a three-year term expiring at the annual meeting
of stockholders in 2001 and until their successors are elected and
qualified;
2. To amend the Company's Certificate of Incorporation by (i) repealing
Article FIFTH, Section C, which prohibits stockholders from taking
action by written consent; (ii) repealing Article EIGHTH, which
imposes restrictions on certain transactions with "interested
stockholders", (iii) repealing Article NINTH, which authorizes the
Board of Directors to consider the impact of certain business
transactions on constituencies other than stockholders; and (iv)
amending Article SIXTH, Section D, Article SEVENTH and Article
TWELFTH to lower from 80% to 66 2/3% the stockholder vote required
to remove directors for cause and to amend the Certificate of
Incorporation and Bylaws;
3. To ratify the selection of PricewaterhouseCoopers LLP as the
Company's independent certified public accountants for 1999; and
4. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only stockholders of record at the close of business on April 30, 1999
will be entitled to receive notice of, and to vote at, the Annual Meeting.
Stockholders 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 stockholders 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
SECRETARY
May 17, 1999
<PAGE> 4
UNITED PAYORS & UNITED PROVIDERS, INC.
2275 RESEARCH BOULEVARD
ROCKVILLE, MARYLAND 20850
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 15, 1999
GENERAL INFORMATION
This Proxy Statement is furnished to stockholders 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 Stockholders (the "Meeting"). The Meeting is
scheduled to be held on June 15, 1999 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
stockholders of this Proxy Statement and the enclosed form of proxy will
commence on or about May 17, 1999. The 1998 Annual Report to Stockholders,
including the consolidated financial statements for the fiscal year ended
December 31, 1998, accompanies this Proxy Statement.
At the Meeting, stockholders will be asked to vote upon: (1) the election
of three directors to serve for three-year terms expiring at the annual meeting
of stockholders in 2002 and until their successors are elected and qualified,
and the election of two directors to serve for the remaining term of a
three-year term expiring at the annual meeting of stockholders in 2001 and until
their successors are elected and qualified; (2) the amendment of the Company's
Certificate of Incorporation to modify or eliminate various anti-takeover
provisions; (3) the ratification of the selection of independent certified
public accountants for 1999; and (4) 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 30, 1999 has been fixed as the record date
(the "Record Date") for the determination of stockholders entitled to receive
notice of and to vote at the Meeting. As of the close of business on that date,
the Company had outstanding and entitled to vote 18,820,956 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. Stockholders may
not cumulate their votes for the election of directors. The three nominees
receiving the highest number of votes for the term expiring at the annual
meeting of stockholders in the year 2002 will be elected, and the two nominees
receiving the highest number of votes for the remaining term expiring at the
annual meeting of stockholders in 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 holders of at least 80% of the shares of Common
Stock outstanding as of the Record Date will be required to approve the proposed
amendment of the Company's Certificate of Incorporation, except that the repeal
of Article NINTH, which authorizes the Board of Directors to consider the impact
of certain business transactions on constituencies other than stockholders, only
requires the affirmative vote of a majority of the shares of Common Stock
outstanding as of the Record Date. Accordingly, if an affirmative vote of a
majority but less than 80% of the shares of Common Stock outstanding as of the
Record Date is received for the proposed amendment of the
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<PAGE> 5
Company's Certificate of Incorporation, the effect will be to repeal Article
NINTH but not adopt any of the other changes to the Certificate of Incorporation
proposed by the amendment. Failure to return a properly executed proxy card or
to vote in person, or abstaining from voting, will have the same effect as a
vote AGAINST approval of the proposed amendment of the Certificate of
Incorporation. Shares underlying broker non-votes will not be counted as having
been voted at the Meeting and will have the same effect as a vote AGAINST
approval of the proposed amendment of the Certificate of Incorporation.
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 PROPOSAL 1 "ELECTION OF DIRECTORS"; "FOR" THE PROPOSED AMENDMENT OF THE
CERTIFICATE OF INCORPORATION SET FORTH UNDER PROPOSAL 2 "APPROVAL OF AMENDMENT
OF THE COMPANY'S CERTIFICATE OF INCORPORATION"; "FOR" THE RATIFICATION OF
PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999 UNDER PROPOSAL 3
"RATIFICATION OF THE SELECTION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTS"; AND AT
THE DISCRETION OF THE PROXIES ON ANY OTHER MATTERS THAT MAY COME BEFORE THE
MEETING.
REVOCATION OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by a
stockholder at any time before it is exercised by written notice delivered 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 stockholders 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). In addition to the
solicitation of proxies by mail, D.F. King & Co., Inc., a proxy solicitation
firm, will assist the Company in soliciting proxies for the Meeting and will be
paid a fee not to exceed $6,500, plus out-of-pocket expenses. Officers and
employees of the Company may also solicit proxies from stockholders 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 30, 1999, 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 stockholders had sole voting and investment 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.
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<PAGE> 6
<TABLE>
<CAPTION>
Shares Beneficially Owned
Name of Beneficial Owner Number Percentage
------------------------ ------ ----------
<S> <C> <C>
Thomas L. Blair(1)....................................................... 7,183,150 38.2%
Principal Mutual Holding Company ("Principal Mutual") (2)(3)............. 850,000 4.5
Independent Divestment Trust (the "Trust")(4)............................ 4,500,000 23.9
Capital Z Financial Services Fund II, L.P. and Capital Z Financial
Services Private Fund II, L.P. (collectively, the "Capital Z Funds")(5).. 4,000,000 21.3
OTHER DIRECTORS AND NAMED EXECUTIVE OFFICERS
Edward S. Civera(6) ..................................................... 530,994 2.7
Spiro A. Karadimas(7).................................................... 500,943 2.7
S. Joseph Bruno(8)....................................................... 440,339 2.3
Bette B. Anderson........................................................ 13,500 (9)
William E. Brock......................................................... 14,250 (9)
Frederick H. Graefe...................................................... 34,120 (9)
All executive officers and directors as a group(10)...................... 11,468,595 59.4
</TABLE>
- ---------------------------
(1) Represents 2,424,500 shares owned by Mr. Blair jointly with his wife,
200,000 shares owned solely by his wife, 58,650 shares owned by companies
Mr. Blair may be deemed to control and 4,500,000 shares that Mr. Blair has
agreed to purchase from Independent Divestment Trust. Mr. Blair has granted
to the Capital Z Funds an option (the "Capital Z Option") to purchase
2,250,000 shares of Common Stock. See "--Recent Changes in Ownership by
Principal Stockholders."
(2) These shares are held through Principal Health Care, Inc. an indirect
wholly owned subsidiary of Principal Mutual. The address of Principal
Mutual and Principal Health Care is 711 High Street, Des Moines, Iowa
50392. Two current Directors of the Company are executive officers of
Principal Mutual. Mr. Drury is Chairman of the Board and Chief Executive
Officer and Mr. Graf is Senior Vice President. These persons do not
individually own any shares of Company stock, but may be considered
beneficial owners with respect to the shares owned by Principal Mutual by
virtue of their positions with Principal Mutual. The respective addresses
of these persons are care of Principal Mutual at Principal Mutual's
address.
(3) In connection with the proposed acquisition by the Company of Baltimore
American Savings Bank (the "Bank") and its parent holding company,
Principal Mutual is divesting its control of the Company within the meaning
of the Savings and Loan Holding Company Act. Such divestiture has involved
Principal Mutual's sale of 4,500,000 shares of Common Stock of the Company
to the Trust and 1,250,000 shares in a public offering. In addition,
Messrs. Michael H. Gersie and Kenneth J. Linde, who were nominated as
directors of the Company by Principal Mutual, resigned from the Board
effective April 30, 1999, and Messrs. Drury and Graf intend to resign as
directors of the Company prior to its acquisition of Baltimore American
Savings Bank.
(4) The Trust is obligated to sell these shares to Mr. Blair and he is a
beneficial owner of these shares. The Trust is required to vote these
shares in the same proportion as other stockholders vote their shares,
except that the Trust is required pursuant to the terms of the trust
agreement to vote all of its shares in favor of the amendment of the
Certificate of Incorporation presented to stockholders at this Meeting. See
"--Recent Changes in Ownership by Principal Stockholders."
(5) Includes (i) 1,742,482 shares owned by Capital Z Financial Services Fund
II, L.P. ("Capital Z Qualified Fund"), a limited partnership of which
Capital Z Partners, Ltd. ("Capital Z Partners") is the ultimate general
partner, (ii) 7,518 shares owned by Capital Z Financial Services Private
Fund II, L.P. ("Capital Z Private Fund"), a limited partnership of which
Capital Z Partners is the ultimate general partner, (iii) 2,240,334 shares
which may be acquired by Capital Z Qualified Fund upon exercise of the
Capital Z Option and (iv) 9,666 shares which may be acquired by Capital Z
Private Fund upon exercise of the Capital Z Option. Steven M. Gluckstern
and Robert A. Spass are members of the Investment Committee of Capital Z
Partners' Board of Directors. As members of such committee, Messrs.
Gluckstern and Spass may be deemed indirect beneficial owners of the shares
owned by Capital Z Qualified Fund and Capital Z Private Fund. Each of
Messrs. Gluckstern and Spass disclaims beneficial ownership of any shares
not held of record by him. At the request of the Capital Z Funds, Messrs.
Gluckstern and Paul H. Warren, a Senior Vice President of Capital Z
Partners, have been appointed to the board of directors and nominated for
election by stockholders to fill the remaining terms as directors which
expires at the annual meeting of stockholders in 2001. The address of
Capital Z Partners and Messrs. Gluckstern, Spass and Warren is One Chase
Manhattan Plaza, 44th Floor, New York, New York 10005.
(6) Includes options to purchase 515,625 shares which are presently
exercisable. Of the 530,994 shares beneficially owned by Mr. Civera, 10,000
shares are held in trust under the Uniform Gift to Minors Act for Mr.
Civera's children.
(7) Of this number, 105,000 shares are held in trust under the Uniform Gift to
Minors Act for Mr. Karadimas' children and 120,000 are in Mr. Karadimas'
wife's name.
(8) Of this number, 230,000 shares are held in trust under the Uniform Gift to
Minors Act for Mr. Bruno's children and 25,750 shares are in Mr. Bruno's
wife's name.
(9) Represents less than 1.0% of the Company's Common Stock.
(10) Includes shares owned by Principal Mutual and the Capital Z Funds.
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<PAGE> 7
RECENT CHANGES IN OWNERSHIP BY PRINCIPAL STOCKHOLDERS
In 1999, certain principal stockholders of the Company engaged in
transactions that have resulted in significant changes in their ownership of the
Company's Common Stock. As a result, Principal Mutual has reduced its beneficial
ownership of Common Stock from 6,600,000 shares to 850,000 shares. Mr. Blair has
increased his beneficial ownership from 3,383,150 shares to 7,183,150 shares and
the Capital Z Funds have purchased (a) 1,750,000 shares of Common Stock from
management and employees of the Company; and (b) an option to purchase from Mr.
Blair an additional 2,250,000 shares of Common Stock. These transactions are
described below.
SALE OF SHARES BY PRINCIPAL MUTUAL
In light of the proposed acquisition by the Company of Baltimore American
Savings Bank, a federal savings bank (the "Bank"), Principal Mutual is divesting
its control (for purposes of the Savings and Loan Holding Company Act) of the
Company. In February 1999, Principal Mutual sold 4,500,000 shares of the
Company's Common Stock (the "Principal Shares"), representing 25.6% of the
then-outstanding shares of Common Stock and 68.2% of Principal Mutual's
holdings, to the Trust, a Delaware business trust formed for that purpose.
Principal Mutual received from the Trust $13,225,000 in cash and trust
certificates entitling it to the additional proceeds to be received by the Trust
from the sale of the Principal Shares as described below. In addition, in April
1999, Principal Mutual sold 1,250,000 shares in a public offering.
As a result of these divestitures, Principal Mutual beneficially owns
850,000 shares of Common Stock, or approximately 4.5% of the outstanding shares.
In addition, two directors of the Company who were nominated as directors by
Principal Mutual have resigned. The remaining two directors of the Company who
were nominated by Principal Mutual would resign prior to acquisition of the
Bank. See "Proposal 1 Election of Directors."
AGREEMENT OF MR. BLAIR TO PURCHASE SHARES FROM THE TRUST
At the same time that Principal Mutual sold its shares to the Trust, Mr.
Blair agreed to purchase the Principal Shares from the Trust. Mr. Blair paid the
Trust $13,225,000 towards the purchase and committed to pay the additional
amount owed on or before February 25, 2003 (the "Settlement Date"). The purchase
price per share is a maximum of $27.60 per share (less $2.94 per share
representing the allocable per share portion of the $13,225,000 already paid by
Mr. Blair). Mr. Blair may purchase the shares in whole or in part prior to the
Settlement Date and must purchase all of the shares by the Settlement Date. In
the event of a default by Mr. Blair on the Settlement Date with respect to the
purchase of any of the Principal Shares, the Trust is required to sell those
shares.
As a result of his agreement with the Trust, Mr. Blair is considered under
the rules of the Securities and Exchange Commission ("SEC") to beneficially own
the Principal Shares. Such ownership, together with Mr. Blair's existing
ownership of Common Stock, means that Mr. Blair beneficially owns 7,183,150
shares, or approximately 38.2% of outstanding shares of Common Stock as of April
30, 1999. However, 2,250,000 of these shares are subject to the Capital Z
Option, which is discussed below.
Prior to Mr. Blair's purchase of the Principal Shares from the Trust, the
Trust would be the legal owner of those shares. However, the Trust is required
to vote the Principal Shares on any matter in the same proportion as the votes
on such matter by the other Company stockholders; except that the Trust is
required to vote for the amendment of the Company's Certificate of Incorporation
presented to stockholders for their approval at the Meeting. See "Proposal 2
Approval of Amendment of the Company's Certificate of Incorporation."
CAPITAL Z FUND'S PURCHASE OF SHARES FROM MANAGEMENT
Also in February 1999, the Capital Z Funds purchased from Mr. Blair and
certain other management and employee holders of Common Stock an aggregate of
1,750,000 shares of Common Stock for $35 million. Mr. Blair sold 700,000 of
those shares. Also, Mr. Blair granted the Capital Z Option which entitle the
Capital Z Funds to purchase
4
<PAGE> 8
from him an additional 2,250,000 shares of Common Stock for $27.60 per share,
including a $6.00 per share non-refundable deposit. Mr. Blair used most of the
proceeds from this transaction, after giving effect to his federal and state
income tax obligations, to make the $13,225,000 payment to the Trust. As a
result, the Capital Z Funds own 9.3% of the Company's Common Stock outstanding.
The Capital Z Funds beneficially own 21.3% of the Common Stock when the Capital
Z Option is considered. Mr. Blair's beneficial ownership would be reduced to
26.2% if the option is exercised.
For the purposes of the SEC's rules (and the foregoing table), the
2,250,000 shares subject to the Capital Z Option are considered to be
beneficially owned by Mr. Blair and the Capital Z Funds.
RELATED ARRANGEMENTS
In connection with the Capital Z Funds transactions described above, Mr.
Blair and the Company agreed to certain related arrangements, which are
described below.
NOMINATION OF DIRECTORS. The Company agreed to nominate to its Board of
Directors two individuals designated by the Capital Z Funds. Those persons have
been appointed to the Board and are presented for election by stockholders at
this Meeting, as discussed under "Proposal 1 Election of Directors." Certain
increases in the number of directors could require an increase in the number of
directors to be designated by the Capital Z Funds. The Capital Z Fund's rights
to board nominees are subject to their maintaining specified levels of Common
Stock ownership.
REGISTRATION RIGHTS. In addition, the Company granted certain registration
rights which permit the Capital Z Funds to have the Company file registration
statements with the SEC to cover sales of the 1,750,000 shares acquired by the
Capital Z Funds and the 2,250,000 shares that the Capital Z Funds would acquire
upon exercise of the Capital Z Option. These registration rights are not
exercisable until at least August 1999. The Capital Z Funds may assign these
rights. The Company has a right of first offer with respect to any proposed sale
by the Capital Z Funds of the shares covered by the aforementioned registration
rights.
AMENDMENT OF CERTIFICATE OF INCORPORATION. The Company agreed to submit to
stockholders at this Meeting a proposal to amend its Certificate of
Incorporation to eliminate or reduce requirements imposed by certain provisions
which may be considered to have an anti-takeover effect. This amendment is
discussed under "Proposal 2 Approval of Amendment of the Company's Certificate
of Incorporation."
Thomas L. Blair has agreed to vote his shares in favor of that amendment,
and the Trust is directed to vote its shares in favor of that amendment.
OTHER MATTERS. In addition, Mr. Blair granted the Capital Z Funds certain
rights to buy shares of Common Stock if Mr. Blair proposes to sell those shares
and certain rights to participate in a sale by Mr. Blair of shares of Common
Stock. The Company has also agreed not to repurchase shares of its stock to the
extent that such repurchases would subject the Capital Z Funds to a possible
presumption of control under the Home Owners Loan Act, as amended, based on the
1,750,000 shares the Capital Z Funds currently own and shares that they acquire
upon exercise of the Capital Z Option so long as the Company is a savings and
loan holding company.
MATTERS SUBJECT TO STOCKHOLDER VOTE
PROPOSAL 1 ELECTION OF DIRECTORS
Pursuant to the Company's Certificate of Incorporation and Bylaws, the
Board of Directors of the Company is divided into three classes as nearly equal
in number as possible. The persons designated by the Board of Directors as
nominees for election as directors with terms expiring at the annual meeting of
stockholders in 2002 are Thomas L. Blair, Thomas J. Graf and Frederick H.
Graefe.
5
<PAGE> 9
In addition, as discussed under "Voting Securities and Security
Ownership--Recent Changes in Ownership by Principal Stockholders," Principal
Mutual has significantly reduced its ownership in the Company. As a result,
Messrs. Michael H. Gersie and Kenneth J. Linde resigned from the Board of
Directors effective April 30, 1999. Both of these persons were nominated as
directors at the request of Principal Mutual. Messrs. Drury and Graf also would
resign from the Board of Directors prior to the Company's acquisition of the
Bank.
Further, also as discussed under "Voting Securities and Security
Ownership--Recent Changes in Ownership by Principal Stockholders," Messrs.
Steven M. Gluckstern and Paul H. Warren have been appointed to the Board and
nominated by the Board of Directors for election by stockholders at this meeting
to fill the remaining terms of Messrs. Gersie and Linde, which expire at the
annual meeting of stockholders in 2001. Mr. Gluckstern is the Chairman and Mr.
Warren is a Senior Vice President of Capital Z Partners, the ultimate general
partners of the Capital Z Funds.
UNLESS A CONTRARY DIRECTION IS INDICATED, IT IS INTENDED THAT PROXIES
RECEIVED WILL BE VOTED "FOR" THE ELECTION AS DIRECTORS OF THE THREE NOMINEES TO
SERVE FOR THREE-YEAR TERMS EXPIRING AT THE ANNUAL MEETING OF STOCKHOLDERS IN
2002, AND UNTIL THEIR SUCCESSORS ARE ELECTED AND QUALIFIED, AND OF THE TWO
NOMINEES TO SERVE THE REMAINING TERMS EXPIRING AT THE ANNUAL MEETING OF
STOCKHOLDERS IN 2001, 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 1999 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.
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 30, 1999.
<TABLE>
<CAPTION>
Name Age Position Since
---- --- -------- -----
<S> <C> <C>
NOMINEES FOR THE TERM EXPIRING IN 2002:
Thomas L. Blair...................... 54 Chairman of the Board and
Co-Chief Executive Officer.............. 1996
Thomas J. Graf....................... 50 Director.................................. 1996
Frederick H. Graefe.................. 55 Director.................................. 1996
NOMINEES FOR THE TERM EXPIRING IN 2001:
Steven M. Gluckstern................. 48 Director.................................. 1999
Paul H. Warren....................... 43 Director.................................. 1999
CONTINUING DIRECTORS WHOSE TERMS EXPIRE IN 2000:
William E. Brock..................... 67 Director.................................. 1996
David J. Drury ...................... 54 Director.................................. 1996
Edward S. Civera..................... 48 Co-Chief Executive Officer and President.. 1997
CONTINUING DIRECTOR WHOSE TERM EXPIRES IN 2001:
Bette B. Anderson.................... 70 Director.................................. 1996
OFFICERS WHO ARE NOT DIRECTORS:
S. Joseph Bruno...................... 50 Vice President and Chief Financial Officer
Nancy I. Connaway.................... 50 President of ProAmerica Managed Care, Inc.
Barbara M. Freeman................... 50 President of National Health Services, Inc. ("NHS")
Spiro A. Karadimas................... 40 Vice President of Operations
Joseph M. Mott....................... 45 Secretary and General Counsel
</TABLE>
6
<PAGE> 10
BETTE B. ANDERSON has served as Vice Chairman of Kelly, Anderson &
Patrick, management consultants, since 1995. She served as its President from
1989 through 1995. Ms. Anderson has served 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, she 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
America's Health Plan, Inc. ("AHP") in 1989 and served as its President and
Chief Executive Officer from 1989 to 1992. From 1992 to 1995, Mr. Blair was
President of Initial Managers & Investors, Inc. ("IM&I"), which business was
contributed to the Company. From 1977 until 1988, Mr. Blair was a principal of
Jurgovan & Blair, Inc., which developed and managed health maintenance
organizations.
WILLIAM E. BROCK has served as Senior Counsel and Trustee of the Center
for Strategic and International Studies in Washington, D.C. since 1994. From
1988 to 1994, Mr. Brock served as Chairman of the Brock Group, a consulting
firm. From 1988 to 1991, he served as the Chairman of the National Endowment for
Democracy. From 1985 to 1987, he served as the United States Secretary of Labor
and from 1981 to 1985, he was a 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 its President and
Chief Operating Officer and became Co-Chief Executive Officer in March 1999.
Prior to joining the Company, Mr. Civera was a partner with
PricewaterhouseCoopers LLP, then Coopers & Lybrand L.L.P., where he had been
employed for 25 years.
DAVID J. DRURY joined an affiliate of Principal Mutual in 1966 and
currently serves as its Chairman of the Board and Chief Executive Officer. Since
1970, Mr. Drury has served as an officer of Principal Mutual or its affiliates
in various other capacities. Mr. Drury also is a director of Coventry Health
Care, Inc.
STEVEN M. GLUCKSTERN is a co-founder and Chairman of the Boards of Capital
Z Management, Inc. and Capital Z Partners, Ltd. Capital Z Partners is the
ultimate general partner of the Capital Z Funds. Prior to co-founding Capital Z
Partners in July 1998, Mr. Gluckstern was a member of the Corporate Executive
Board of Zurich Group ("Zurich") and served as Chairman and Chief Executive
Officer of Zurich Re, the global reinsurance network of Zurich. Mr. Gluckstern
also held the position of Chief Executive Officer of Zurich Centre Investments,
Inc., the private equity arm of Zurich, as well as Chairman and Chief Executive
Officer of Zurich Centre Group, the holding company for Zurich's "strategic
financial" business. Mr. Gluckstern is a co-owner of the New York Islanders
Hockey Club and a member of the National Hockey League Board of Governors.
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 an affiliate of Principal Mutual in 1972 and since
1994, has served as Senior Vice President of Principal Mutual. Since 1976, Mr.
Graf has served as an officer of affiliates of Principal Mutual. Mr. Graf also
is a director of Coventry Health Care, Inc.
PAUL H. WARREN is a co-founder of Capital Z Partners. Prior to co-founding
Capital Z Partners, Mr. Warren was a Partner in Insurance Partners, L.P.
("IPI"), a limited partnership organized in 1994 to make investments in property
and casualty insurers, life and health insurers, healthcare services firms and
related insurance businesses. In
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<PAGE> 11
connection with IPI, he serves as a director of Tarquin plc, Corporate Health
Dimension, Provincia Salud, Provincia ART and Annuity & Life Re. Prior to the
formation of IPI, Mr. Warren was a Managing Director of International Insurance
Advisors, Inc. and a Vice President in the insurance group at J.P. Morgan & Co.
Before that, Mr. Warren was an Assistant Secretary in the Hong Kong Government.
S. JOSEPH BRUNO has been Vice President and Chief Financial Officer of the
Company since September 1995 and its Corporate Secretary from September 1995 to
March 1997. Prior to joining the Company, Mr. Bruno was a partner with
PricewaterhouseCoopers LLP, then Coopers & 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 the Washington D.C. and Rome, Italy offices.
NANCY I. CONNAWAY has been President of ProAmerica Managed Care, Inc.
since 1992. Prior to that, Ms. Connaway was employed by the John Hancock Mutual
Life Insurance Company, directing its preferred provider organization activities
in a 12 state region as Southern Regional Director, Hancock Preferred Health
Plans. From 1981 until 1986, she served as Vice President and General Counsel
for the Nursefinders Corporation. Ms. Connaway is a registered nurse and a
member of the Texas State Bar Association.
BARBARA M. FREEMAN, M.D., joined NHS in 1993 as its Executive Vice
President and Chief Medical Officer and has been the President of NHS since
April 1998. From 1986 to 1993, Dr. Freeman was the Medical Director of the
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 federally contracted PRO for the State of Kentucky. She has been a
practicing physician specializing in family practice since 1975.
SPIRO A. KARADIMAS joined the Company in March 1995. He has 18 years of
information systems and operations management experience in local government and
the private sector. Prior to joining the Company, Mr. Karadimas designed and
developed all in-house and client support information systems and processes for
AHP, from 1992 to 1994. From 1991 to 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.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors generally meets on a quarterly basis and may have
additional meetings as needed. During 1998, the Board of Directors held seven
meetings. The only director who attended fewer than 75% in the aggregate of the
total number of meetings of the Board was William E. Brock, who missed two Board
meetings. The Board has agreed to place at least one of the designees as a
director of the Capital Z Funds on each of its Committees.
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 Messrs. Graefe and Brock and held one meeting during fiscal year
1998.
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 Ms. Anderson and Messrs. Graefe and Graf, and held one meeting during fiscal
year 1998.
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<PAGE> 12
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 that 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 Company
that are beneficially owned by such stockholder.
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, each of the non-affiliated directors received a stock
option grant of 4,500 shares of Common Stock. One-third of these stock options
vested immediately, one-third vested in January 1999, and the other one-third
will vest in January 2000. 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, 1999, each non-affiliated director also received a stock
option grant of 1,500 shares of Common Stock which vested at the date of grant,
is exercisable for a ten-year period and permits 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, as
amended, and the rules issued thereunder, the Company's executive officers and
directors are required to file with the SEC reports of ownership and changes in
ownership of Common Stock. Except as discussed below, based on copies of such
reports furnished to the Company, or written representation that no other
reports were required, the Company believes that, during 1998, all of its
executive officers and directors complied with the requirements of Section
16(a). Mr. Blair disclaims beneficial ownership of shares of Common Stock
acquired by a company that he may be considered to control. Nevertheless, he has
included those shares on a Form 5 report of beneficial ownership he filed for
1998. Mr. Blair did not timely file seven Form 4 reports of beneficial ownership
for 1998 relating to purchases of an aggregate of 16,700 shares of Common Stock,
(less than 1/10 of 1% of outstanding shares). Of those 16,700 shares, 11,400
shares were acquired by the company referenced above.
PROPOSAL 2 APPROVAL OF AMENDMENT OF THE COMPANY'S
CERTIFICATE OF INCORPORATION
The Board of Directors unanimously approved, declared advisable and
recommends that stockholders approve an amendment of the Company's Certificate
of Incorporation to:
i. repeal Article FIFTH, Section C, which prohibits stockholders from
taking action by written consent;
ii. repeal Article EIGHTH, which imposes restrictions on transactions
with "interested stockholders";
iii. repeal Article NINTH, which authorizes the Board of Directors to
consider the impact of certain business combinations on
constituencies other than stockholders; and
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<PAGE> 13
iv. amend Article SIXTH, Section D, Article SEVENTH and Article TWELFTH
to lower the stockholder vote required to remove directors for cause
and amend the Company's Bylaws and Certificate of Incorporation
(collectively, the "Certificate Amendment").
The Certificate Amendment is being proposed as a result of a stockholders
agreement (the "Stockholders Agreement") the Company entered into with Capital Z
Qualified Fund, Capital Z Private Fund and Thomas L. Blair. The Certificate
Amendment is subject to the approval of the Company's stockholders. The Board of
Directors believes that the Certificate Amendment is in the best interests of
the Company and its stockholders and recommends a vote FOR the Certificate
Amendment.
THIS DISCUSSION REGARDING THE CERTIFICATE AMENDMENT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO EXHIBITS A AND B TO THE PROXY STATEMENT, WHICH SET
FORTH THE PROPOSED CERTIFICATE AMENDMENT AND THE PROVISIONS OF THE CERTIFICATE
OF INCORPORATION THAT WOULD BE DELETED OR AMENDED BY THE CERTIFICATE AMENDMENT,
RESPECTIVELY.
EFFECT OF CERTIFICATE AMENDMENT
GENERAL
The Certificate Amendment is intended to facilitate the ability of
stockholders to participate in the corporate governance of the Company and to
enter into transactions with the Company by making it easier for stockholders to
take action without a meeting, eliminating certain restrictions on the ability
of stockholders who own, directly or indirectly, more than 10% of the voting
stock of the Company to enter into certain transactions with the Company,
preventing the Board of Directors from considering the effects of certain
business transactions on non-stockholder constituencies and lowering from 80% to
66 2/3% the voting threshold required for stockholders to remove directors for
cause and amend the Certificate of Incorporation and Bylaws. The Company does
not have and is not aware of any plans, arrangements or proposals relating to
the acquisition of control of the Company by any person, except for the rights
to acquire stock in the Company disclosed in this Proxy Statement. See "Voting
Securities and Security Ownership--Security Ownership of Management and
Principal Stockholders" and "--Recent Changes in Ownership by Principal
Stockholders." The form of the Certificate of Amendment to be filed with the
Secretary of State of Delaware if the stockholders approve the Certificate
Amendment is attached hereto as Exhibit A. Pursuant to the Stockholders
Agreement, if the stockholders approve the Certificate Amendment, the Board of
Directors will adopt amendments to the Bylaws that correspond to the Certificate
Amendment in order to eliminate any conflicts between the Bylaws and the
Certificate of Incorporation, as amended. The following summary of the effects
of the Certificate Amendment is qualified in its entirety by reference to the
Delaware General Corporation Law and the Certificate of Incorporation and
Bylaws.
REPEAL OF PROHIBITION ON STOCKHOLDER ACTION BY WRITTEN CONSENT
Article FIFTH, Section C of the Certificate of Incorporation provides:
"Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders."
The Certificate Amendment, if approved by stockholders, would repeal
Article FIFTH, Section C of the Certificate of Incorporation in its entirety.
Pursuant to Article TWELFTH, the affirmative vote of at least 80% of the Common
Stock outstanding as of the Record Date is required to repeal Section C of
Article FIFTH. Under the Delaware General Corporation Law, unless the
certificate of incorporation specifically provides otherwise, any action that is
required to be taken or that may be taken at an annual or special meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
are signed by the holders of outstanding stock representing not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. If stockholders take corporate action without a meeting by less than
unanimous written consent, prompt notice
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<PAGE> 14
of such action must be given to stockholders who did not consent in writing and
who, if the action had been taken at a meeting, would have been entitled to
notice of such meeting.
REPEAL OF RESTRICTIONS ON TRANSACTIONS WITH "INTERESTED STOCKHOLDERS"
Article EIGHTH of the Certificate of Incorporation provides that certain
types of "business combinations" between the Company, or any of its
subsidiaries, and an "interested stockholder," or affiliate of such stockholder,
require the affirmative vote of at least eighty percent (80%) of the outstanding
shares of stock of the Company entitled to vote in the election of directors,
voting together as a single class ("80% Vote Requirement"). The types of
business combinations covered by Article EIGHTH include mergers and
consolidations, certain sales, leases, exchanges, mortgages, pledges, transfers
and other dispositions of the assets of the Company or any of its subsidiaries,
certain issuances by the Company or any subsidiary of any securities to an
interested stockholder or its affiliate, the liquidation or dissolution of the
Company and certain reclassifications of securities. Generally, the Certificate
of Incorporation defines "interested stockholder" to mean any person other than
the Company or an affiliate or subsidiary thereof who or which (i) is the
beneficial owner, directly or indirectly, of more than ten percent (10%) of
outstanding shares of stock of the Company entitled to vote in the election of
directors; (ii) is an affiliate of the Company and at any time within the
two-year period prior to the date in question was the beneficial owner, directly
or indirectly, of more than ten percent (10%) of outstanding shares of stock of
the Company entitled to vote in the election of directors; or (iii) is the
assignee of or successor to any shares that at any time within the two-year
period immediately prior to the date in question were beneficially owned by an
interested stockholder.
Article EIGHTH further provides that the 80% Vote Requirement is not
required for business combinations otherwise covered by Article EIGHTH if a
majority of disinterested directors (as defined in Article EIGHTH) approve the
business combination or each of the conditions set forth in Section B.2 of
Article EIGHTH are satisfied. The conditions set forth in Section B.2 relate
generally to the amount and form of consideration to be received by
stockholders, whether certain actions regarding dividends have been taken
without the approval of a majority of disinterested directors, whether the
interested stockholder has received the benefit of any financial assistance or
tax advantages directly or indirectly from the Company and the delivery to
stockholders of a proxy or information statement disclosing the business
combination.
The Certificate Amendment, if approved by stockholders, would repeal
Article EIGHTH in its entirety. Pursuant to Section F of Article EIGHTH and
Article TWELFTH, the affirmative vote of at least 80% of the Common Stock
outstanding as of the Record Date is required to repeal Article EIGHTH.
If the stockholders approve the Certificate Amendment, the requirements
for effecting the types of business combinations covered by Article EIGHTH will
be governed by the remaining provisions of the Certificate of Incorporation and
the Delaware General Corporation Law. Section 203 of the Delaware General
Corporation Law prohibits a corporation from engaging in any business
combination with an interested stockholder (defined as a 15% stockholder) for a
period of three years after the date that stockholder became an interested
stockholder unless (i) before that date, the board of directors of the
corporation approved the business combination or the transaction transforming
the stockholder into an interested stockholder, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, that stockholder owned at least 85% of the outstanding voting stock
(excluding shares owned by directors, officers and certain employee stock
ownership plans) or (iii) on or after the date the stockholder became
"interested," the business combination gained the approval of both the
corporation's directors and two-thirds of the outstanding voting shares not
owned by the interested stockholder voted at a meeting and not by written
consent. A Delaware corporation may negate this provision through an amendment
to the certificate of incorporation or bylaws adopted by a majority of the
outstanding voting shares. The Board of Directors of the Company waived the
applicability of Section 203 of the Delaware General Corporation Law with
respect to acquisition of Company Common Stock by Capital Z discussed under
"Voting Securities and Security Ownership."
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<PAGE> 15
REPEAL OF PROVISION REGARDING NON-STOCKHOLDER CONSTITUENCIES
Article NINTH of the Certificate of Incorporation provides:
"The Board of Directors of the Corporation, when evaluating any offer of
another Person (as defined in Article EIGHTH hereof) to: (A) make a tender or
exchange offer for any equity security of the Corporation; (B) merge or
consolidate the Corporation with another corporation or entity; or (C) purchase
or otherwise acquire all or substantially all of the properties and assets of
the Corporation, may, in connection with the exercise of its judgment in
determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, the social and economic effect of acceptance of such offer on the
Corporation's present and future customers and employees and those of its
Subsidiaries; (as defined in Article EIGHTH hereof); and on the communities in
which the Corporation and its Subsidiaries operate or are located."
If approved by stockholders, the Certificate Amendment would repeal
Article NINTH in its entirety. The affirmative vote of a majority of the shares
of Common Stock outstanding as of the Record Date is required to repeal Article
NINTH. The Company does not believe that the repeal of Article NINTH will have
any significant impact on the fiduciary obligations of the directors under
Delaware law to the Company and its stockholders in evaluating the types of
transactions covered by Article NINTH.
REDUCTION IN VOTE REQUIRED TO REMOVE DIRECTORS FOR CAUSE AND AMEND CERTIFICATE
OF INCORPORATION AND BYLAWS
Article SIXTH, Section D of the Certificate of Incorporation provides that
any director, or the entire Board of Directors, may be removed from office at
any time, but only for cause and only by the affirmative vote of the holders of
at least 80% of the outstanding shares of capital stock of the Company entitled
to be voted for the election of directors, voting together as a single class.
Likewise, Article SEVENTH grants stockholders the power to adopt, amend or
repeal any provisions of the Company's Bylaws with the affirmative vote of the
holders of at least 80% of the outstanding shares of capital stock of the
Company entitled to be voted for the election of directors, voting together as a
single class. Finally, Article TWELFTH provides that the affirmative vote of the
holders of at least 80% of the outstanding shares of capital stock of the
Company entitled to be voted for the election of directors, voting together as a
single class, is required to amend or repeal Article TWELFTH, Sections C or D of
Article FIFTH, Article SIXTH, Article SEVENTH, Article EIGHTH or Article TENTH.
The Certificate Amendment, if approved by stockholders, would amend
Article SIXTH, Section D, Article SEVENTH and Article TWELFTH to change the
required vote in each case from at least 80% of the outstanding shares of
capital stock of the Company entitled to be voted for the election of directors
to at least 66 2/3% of such shares. Pursuant to Article TWELFTH, the affirmative
vote of at least 80% of the shares of Common Stock outstanding as of the Record
Date is required to approve these changes to the Certificate of Incorporation.
The Certificate Amendment would not affect any of the provisions of Article
SIXTH, Section D, Article SEVENTH and Article TWELFTH other than the percentage
of the stockholder vote required to remove directors for cause and to amend the
Bylaws and Certificate of Incorporation.
PURPOSE OF CERTIFICATE AMENDMENT
The Board of Directors adopted the Certificate Amendment and is presenting
it to stockholders pursuant to a condition set forth in the Stockholders
Agreement. The Certificate Amendment is intended to make it easier for
stockholders to participate in the corporate governance of the Company and to
enhance the rights of stockholders by allowing stockholders to take action by
written consent, eliminating the provision permitting the Board of Directors to
consider the impact of certain transactions on groups other than stockholders
and lowering the stockholder vote required to remove directors and amend the
Certificate of Incorporation and Bylaws. Further, the Certificate Amendment is
intended to increase the flexibility of stockholders to enter into transactions
with the Company. Accordingly, the Board of Directors believes that the adoption
of the Certificate Amendment and submission thereof for the approval of the
stockholders, is in the best interest of the Company and its stockholders.
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<PAGE> 16
VOTE REQUIRED
Pursuant to the Certificate of Incorporation, the approval of the
Certificate Amendment requires the affirmative vote of the holders of at least
80% of the shares of Common Stock outstanding as of the Record Date, except that
the repeal of Article NINTH, which authorizes the Board of Directors to consider
the impact of certain business transactions on constituencies other than
stockholders, only acquires the affirmative vote of a majority of the shares of
Common Stock outstanding as of the Record Date. Approval of the Certificate
Amendment by at least 80% of the shares of Common Stock outstanding as of the
Record Date constitutes approval of each of the proposed changes to the
Certificate of Incorporation described herein. If, however, the affirmative vote
of a majority but less than 80% of the shares of Common Stock outstanding as of
the Record Date is received for the proposed Certificate Amendment, the effect
will be to repeal Article NINTH but not adopt any of the other changes to the
Certificate of Incorporation proposed by the Certificate Amendment.
UNLESS MARKED TO THE CONTRARY, THE SHARES PRESENTED BY THE ENCLOSED PROXY
WILL BE VOTED FOR THE APPROVAL OF THE CERTIFICATE AMENDMENT.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE
THE CERTIFICATE AMENDMENT
PROPOSAL 3 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 stockholders, PricewaterhouseCoopers LLP, independent
certified public accountants, to audit the consolidated financial statements of
the Company and its subsidiaries for the year ending December 31, 1999.
PricewaterhouseCoopers LLP has audited the Company's financial statements since
1995.
The Company expects representatives of PricewaterhouseCoopers LLP to
attend the Meeting, to be available to respond to appropriate questions from
stockholders, 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 PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS FOR THE YEAR ENDED DECEMBER 31, 1999.
OTHER MATTERS
The Board of Directors knows of no other matters that 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.
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<PAGE> 17
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation awarded
to or earned by the Chief Executive Officer and each of the other four most
highly compensated executive officers of the Company for each of the last three
fiscal years ended December 31, 1998.
<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............. 1998 $350,000 $196,000(1) -- -- -- -- $ 81,286(2)
Chairman of the Board 1997 93,469 149,767(1) -- -- -- -- 86,790(2)
and Chief Executive 1996 115,998(1) 106,457(1) -- -- -- -- 46,546(2)
Officer(3)
Edward S. Civera ........... 1998 350,000 196,000(4) -- -- -- 231,180(5)
President and Chief 1997 253,294 100,000(4) -- -- 1,125,000 -- 224,930(5)
Operating Officer(3)
S. Joseph Bruno............. 1998 280,000 49,000(6) -- -- -- -- 28,290(7)
Vice President and 1997 255,794 25,000(6) -- -- -- -- 35,610(7)
Chief Financial Officer 1996 240,000 -- -- -- -- -- 58,619(7)
Spiro A. Karadimas.......... 1998 240,000 49,000(8) -- -- -- -- 28,250(9)
Vice President of 1997 210,794 25,000(8) -- -- -- -- 29,868(9)
Operations 1996 150,000 -- -- -- -- -- 45,911(9)
Barbara Freeman
President of National 1998 215,500 -- -- -- 22,500 -- 14,600(10)
Health Services, Inc. 1997 211,823 15,000 -- -- -- -- 5,250(10)
1996 51,375 -- -- -- -- -- --
</TABLE>
- -----------------------------
(1) For 1996, Mr. Blair received a total of $115,998 as compensation; $49,998
from the Company; and $66,000 from IM&I, an entity owned by Mr. Blair which
was contributed to and then merged with the Company. In addition, the
bonuses for 1996 and 1997 reflect Mr. Blair's receipt in April 1997 and
March 1998, respectively, of 1% of the Company's after-tax profit for the
respective year pursuant to the terms of his employment agreement. The
bonus for 1998 reflects the amount accrued for 1998 and paid in March 1999.
(2) For 1996, 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, and includes premiums for life
insurance of $24,297 and automobile allowance of $22,249. For 1997,
consists of payments from the Company of premiums for life insurance of
$45,973, matching 401(k) contribution of $4,817 and automobile allowance of
$36,000. For 1998, consists of payments from the Company of premiums for
life insurance of $39,786, matching 401(k) contribution of $5,500 and
$36,000 of automobile allowance.
(3) In March 1999, Edward S. Civera was elected by the Board to serve as Co-
Chief Executive Officer along with Thomas L. Blair.
(4) Reflects Mr. Civera's receipt in March 1998 of the 1997 bonus and receipt
in March 1999 of the 1998 bonus pursuant to his employment agreement.
(5) Includes for 1997 and 1998, respectively, $200,000 and $200,000, net of
income tax, representing a funded retirement benefit (see "Compensation
Committee Report on Executive Compensation--Employment Agreements"),
premiums for life insurance of $1,680, and $1,680, matching 401(k)
contributions of $5,250 and $5,500 and automobile allowance of $18,000 and
$24,000.
(6) Reflects Mr. Bruno's receipt in March 1998 of the 1997 bonus and receipt in
March 1999 of the 1998 bonus.
(7) In 1996, includes payment from the Company of premiums for life insurance
of $12,710, automobile allowance of $9,523, and $36,386 deferred
compensation from 1995. In 1997 and 1998, respectively, includes payment
from the Company of premiums for life insurance of $10,360 and $2,790
respectively, matching 401(k) contributions of $5,250 and $5,500,
respectively, and automobile allowances of $20,000 for both years.
(8) Reflects Mr. Karadimas' receipt in March 1998 of the 1997 bonus and receipt
in March 1999 of the 1998 bonus.
(9) For 1997 and 1998, includes payment from the Company of premiums for life
insurance of $4,618 and $2,750, respectively, matching 401(k) contributions
of $5,250 and $5,500, respectively, and automobile allowances of $20,000
and $20,000, respectively. For 1996, includes payment by the Company of
premiums for life insurance of $7,666 and automobile allowances of $11,643
and payment by IM&I of $26,602.
(10) Consists of matching 401(k) contributions of $5,250 and $5,500 for 1997 and
1998, respectively, and automobile allowance for 1998 of $9,100.
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<PAGE> 18
STOCK OPTION PLAN
All executive officers, with the exception of Thomas L. Blair, Co-Chief
Executive Officer, may participate in the Company's 1996 Stock Option Plan.
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table sets forth certain information with respect to stock
options granted to named executive officers during 1998 under the Company's 1996
Stock Option Plan:
<TABLE>
<CAPTION>
% of
Number Total Options Potential
of Securities Granted to Grant- Realizable Value at Assumed
Underlying Employees Date Annual Rates of Stock Price
Options in Fiscal Market Exercise Expiration Appreciation for Option Term (1)
--------------------------------
Name Granted Year Price Price Date 5% 10%
---- ------- ----------- ------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Barbara M. Freeman..... 22,500 13.4% 12.94 $14.67 Jan. 2003 $371,700 $468,700
</TABLE>
- ------------------------------------
(1)These potential realizable values are based on assumed rates of appreciation
required by applicable regulations of the SEC.
AGGREGATED OPTION EXERCISES DURING FISCAL 1998
AND OPTION VALUES ON DECEMBER 31, 1998
The following table sets forth information concerning stock option
exercises and stock option values for the named executive officers at December
31, 1998.
<TABLE>
<CAPTION>
Number of
of Shares Value Value
Acquired Upon Realized Number of Unexercised of Unexercised In-The-
Exercise Upon Options 12/31/98 Money Options 12/31/98(1)
-------------------------- --------------------------
of Option Exercise Exercisable Unexercisable Exercisable Unexercisable
--------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Edward S. Civera..... -- -- 843,750(2) 281,250 $16,171,875 $6,890,625
Barbara Freemen...... -- -- -- 22,500 -- 311,175
</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 $28.50, the closing
price of the stock reported by the Nasdaq National Market as of December 31,
1998.
(2)In February 1999, Mr. Civera exercised options to purchase an aggregate of
375,000 shares of Common Stock.
CERTAIN TRANSACTIONS
The following are transactions involving Thomas L. Blair, the Chairman of
the Board and Co-Chief Executive Officer of the Company and/or Principal Mutual
and the Company:
The Company utilizes, for corporate business purposes, the services of an
aircraft owned by a corporation that is owned by Thomas L. Blair. The amount
paid by the Company to this corporation in 1998, 1997 and 1996 was approximately
$445,000, $263,000, and $153,000, respectively.
15
<PAGE> 19
During 1996, an affiliate of Principal Mutual that is a payor for health
care services contracted with the Company for access to a network of health care
providers developed by the Company (the "Provider Network"). Principal Mutual's
affiliate has also been a payor client of an affiliate of the Company since
1992. Approximately $7,376,000, $2,342,000 and $80,000 of Provider Network
revenue for 1998, 1997 and 1996, respectively, was derived from its contract
with the Principal Mutual affiliate. At December 31, 1998 and 1997,
approximately $904,000 and $341,000, respectively, was due from a Principal
Mutual affiliate.
During 1997, the Company purchased medical and life insurance from a
Principal Mutual affiliate. The Company did not purchase health insurance from
that Principal Mutual affiliate during 1998. A Principal Mutual affiliate has
also administered the Company's 401(k) plan since 1997. Amounts paid to
Principal Mutual affiliates in 1998 and 1997 for these insurance products and
services approximated $159,000 and $386,000, respectively.
The Company performs certain administrative services for HealthExtras, an
entity formed by Principal Mutual and Thomas L. Blair that markets catastrophic
and supplemental health insurance. During 1998, HealthExtras reimbursed the
Company approximately $839,000 for staffing and other costs incurred by the
Company in the performance of services on behalf of HealthExtras. The Company
has also entered into a royalty agreement with HealthExtras effective January 1,
1999. The royalty agreement provides the Company with a per member per month
royalty fee in exchange for the Company granting HealthExtras' members access to
its Provider Network at no fee over a four-year period. The royalty fee
initially starts at $1.00 per member per month in year one and increases to
$1.50 per member per month in year four. The royalty fee is based upon the
tenure of each member participating in the HealthExtras program. It is likely
that HealthExtras' future product development will integrate the use of the
Provider Network. The Company has guaranteed a credit facility of HealthExtras
in the amount of $3.0 million.
See "Voting Securities and Security Ownership--Recent Changes in Ownership
by Principal Stockholders" for a discussion of proposed arrangements relating to
the divestiture by Principal Mutual of a controlling relationship with respect
to the Company and related possible transactions, which, among other things,
could involve transactions between the Company and Mr. Blair or Principal
Mutual, including its affiliates.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Under rules established by the SEC, 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 stockholder value by aligning the
financial interests of the Company's executive officers with those of the
stockholders.
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. For 1998, the Committee
consisted 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 consists primarily of three
major components: base salary,
16
<PAGE> 20
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, 1998 were to Mr. Thomas L. Blair, the CEO
during 1998 (refer to COMPENSATION OF THE CHIEF EXECUTIVE OFFICER below); Mr.
Edward S. Civera, the President and Chief Operating Officer during 1998; Mr. S.
Joseph Bruno, Vice President and Chief Financial Officer; and Mr. Spiro
Karadimas, Vice President of Operations.
LONG-TERM INCENTIVE COMPENSATION
In 1997, the stockholders approved the United Payors & United Providers,
Inc. 1996 Stock Option Plan (the "Stock Option Plan"), under which executive
officers and other employees may receive grants of stock options and stock
awards. The Compensation Committee believes that stock ownership is a
significant incentive in building stockholder wealth and aligning the interests
of employees and stockholders. Mr. Blair has excluded himself from participation
in the Company's plan. During 1998, the Committee granted stock options to Mrs.
Freeman and to Mr. Mott.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Thomas L. Blair, for 1996, received a total of $115,998 as base salary;
$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. During 1997 and 1998, Mr. Blair received a base salary of
$93,469 and $350,000, respectively. 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 bonus in the compensation table (see EXECUTIVE
COMPENSATION section), and which amounted to $106,457 for 1996, $149,767 for
1997, and $196,000 for 1998, and other compensation in the form of fringe
benefits.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Blair,
Civera, Bruno, and Karadimas. The employment agreements for Messrs. Blair, Bruno
and Karadimas are substantially similar and provide for two-year terms
(initially effective July 1996, and as amended, from January 1999), 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
17
<PAGE> 21
executive personnel and reimbursement of reasonable expenses incurred in
promoting the business of the Company. As of January 1998, Mr. Bruno and Mr.
Karadimas began participating in a bonus arrangement entitling each of them to
one-quarter of one percent of the Company's net income. In addition, in 1998 the
Board approved and the Company paid an aggregate of $700,000 for variable- and
fixed-rate annuity policies for Mr. Blair. Mr. Blair has reimbursed the Company
$250,000 of that amount and currently is the owner of one-third of the policy.
The remainder of the policy vests to Mr. Blair over the next two years, subject
to his reimbursement to the Company for the remainder of the cost. Until it is
reimbursed in full, the Company has a proportionate ownership interest in the
policy.
Mr. Civera's agreement, initially effective January 1997, and, as amended,
from January 1999, provides for, among other things, an annual base salary of
$350,000, a bonus arrangement of one percent of the Company's after-tax profit,
options to purchase 1,125,000 shares of the Company's Common Stock (750,000
shares exercisable at or above the market price at the date of grant and 375,000
shares exercisable at $4.00 below the market price at the date of grant) that
vest over an eight-year period (with an acceleration provision based on
performance) and a net of income tax retirement benefit (approximately $1.0
million) in the form of vested trust arrangements that is earned over a
five-year period. In December 1997, the Company accelerated the vesting of the
750,000 stock options which had an exercise price 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. On February 25, 1999,
Mr. Civera exercised options to purchase 375,000 shares of Common Stock at a
weighted average exercise price of $6.50. These shares were sold by Mr. Civera
to Capital Z. Mr. Blair agreed, in Mr. Civera's employment contract, to vote the
shares of Common Stock he controls for the election of Mr. Civera to the Board
of Directors.
Each of the employment agreements contains benefit provisions related to a
change in control of the Company's ownership. In the event of a change in
control, Mr. Civera will be entitled to: (i) his annual base salary and
incentive bonus for the remaining term of his employment agreement; (ii) the
remainder of his advance benefit payment; and (iii) immediately accelerate the
vesting of all of his unvested stock options. In the event of a change in
control, Messrs. Blair, Bruno and Karadimas will each receive his respective
base salary and incentive bonus payment for a period of time which is the
greater of the remaining unexpired term of his respective employment agreement
or for one year.
For purposes of each of the employment agreements, a "change in control"
has occurred if: (i) a person becomes the beneficial owner of at least 20% of
the Company's outstanding securities; (ii) in any 24 month period, a majority of
the Board is replaced, unless the election of each new director was approved by
a vote of 2/3 of the directors in office who were also directors at the
beginning of the period; or (iii) the stockholders of the Company approve a
definitive merger agreement, sale of asset agreement, or an agreement to
liquidate or dissolve the Company.
Notwithstanding the definition of "a change in control," (a) the recent
transfer of 4,500,000 shares of Common Stock to the Trust by Principal Mutual,
and (b) the recent acquisition by Capital Z of 1,750,000 shares of Common Stock
and the option to purchase 2,250,000 shares of Common Stock does not constitute
a "change in control of the Company" for purposes of these employment agreements
because the holder of each agreement has waived his rights to a "change in
control" under those circumstances. The waiver was accomplished through the
amendment of each employment contract in January 1999.
COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS
April 22, 1999 Bette B. Anderson, Chairperson
Thomas J. Graf
Frederick H. Graefe
18
<PAGE> 22
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder 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, commencing July 2, 1996 (the
date of the Company's initial public offering) and as of December 31, 1996, June
30, 1997, December 31, 1997, June 30, 1998 and December 31, 1998. 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.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Summary
-------
7/2/96 12/31/96 6/30/97 12/31/97 6/30/98 12/31/98
------ -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
United Payors & United Providers, Inc. 100.00 125.01 120.46 175.00 308.54 388.65
Nasdaq National Market 100.00 108.63 121.57 133.27 160.45 187.34
Nasdaq Health Service Stock 100.00 88.08 91.79 89.76 89.47 76.97
</TABLE>
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 preceding trading day is used.
C. The index level for all series was set to $100.00 on July 2, 1996.
19
<PAGE> 23
DEADLINE FOR SUBMISSION OF
STOCKHOLDER PROPOSALS AND NOMINATIONS FOR THE
ANNUAL MEETING OF STOCKHOLDERS IN THE YEAR 2000
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 2000, they must be received by the Company at its principal executive
offices by January 15, 2000.
The Bylaws of the Company provide an advance notice procedure for certain
business to be brought before an annual meeting. In order for a stockholder to
properly bring business before an annual meeting, the stockholder must deliver
written notice to the Secretary of the Company at the principal executive
offices of the Company not less than 90 days before the time originally fixed
for such meeting; provided, however, that in the event that less than 100 days'
notice or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be received not later
than the close of business on the tenth day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made. In order for the notice of a stockholder proposal for consideration at
the Company's 2000 Annual Meeting of Stockholders to be timely, the Company
would have to receive such notice no later than April 16, 2000, assuming the
2000 Annual Meeting is held on June 15, 2000 and the Company provides at least
100 days' notice or public disclosure of the date of the meeting. The notice
must include the stockholder's name and address, as it appears on the Company's
record of stockholders, a brief description of the proposed business, the reason
for conducting such business at the annual meeting, the class and number of
shares of the Company's Common Stock that are beneficially owned by such
stockholder and any material interest of such stockholder in the proposed
business. In the case of nominations to the Board, certain information regarding
the nominee must be provided. See "Election of Directors--Meetings and
Committees of the Board of Directors--Nominating Committee." Nothing in this
paragraph shall be deemed to require the Company to include in its proxy
statement and proxy relating to an annual meeting any stockholder proposal which
does not meet all of the requirements for inclusion established by the SEC in
effect at the time such proposal is received.
May 17, 1999
By Order of the Board of Directors
/s/ Joseph M. Mott
JOSEPH M. MOTT
SECRETARY
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING. WHETHER
OR NOT YOU PLAN TO ATTEND THE MEETING, YOU 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.
- --------------------------------------------------------------------------------
20
<PAGE> 24
EXHIBIT A
AMENDMENT OF
CERTIFICATE OF INCORPORATION
OF
UNITED PAYORS & UNITED PROVIDERS, INC.
(Pursuant to 8 Del C. Section 242)
United Payors & United Providers, Inc., a corporation organized and existing
under and by virtue of the Delaware General Corporation Law (the "Corporation")
does hereby certify that:
FIRST, a Certificate of Incorporation was initially filed by the Corporation on
April 15, 1996 with the Office of the Secretary of the State of Delaware.
SECOND, that the Board of Directors of the Corporation, in accordance with the
provisions of Section 242 of the Delaware General Corporation Law, duly adopted
resolutions setting forth an amendment (the "Amendment") of the Certificate of
Incorporation, declared said amendment to be advisable and called a meeting of
stockholders of the Corporation for consideration thereof. The Amendment of the
Corporation's Certificate of Incorporation proposed by these resolutions is as
follows:
1. Amend Article FIFTH by repealing Section C of such Article.
2. Amend Article SIXTH, Section D to provide as follows:
"D. Subject to the rights of holder of any series of Preferred Stock
then outstanding, any Director, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least sixty-six and two-thirds
percent (66 2/3%) of the voting power of all of the then-outstanding
shares of capital stock of the Corporation entitled to vote generally in
the election of Directors, voting together as a single class."
3. Amend Article SEVENTH to provide as follows:
"SEVENTH: The Board of Directors is expressly empowered to
-------
adopt, amend or repeal the Bylaws of the Corporation. Any adoption,
amendment or repeal of the Bylaws of the Corporation by the Board of
Directors shall require the approval of a majority of the Whole
Board. The stockholders shall also have power to adopt, amend or
repeal the Bylaws of the Corporation; provided, however, that, in
addition to any vote of the holders of any class or series of stock
of this Corporation required by law or by this Certificate of
Incorporation, the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the voting power of
all of the then-outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of Directors,
voting together as a single class, shall be required for the
stockholders to adopt, amend or repeal any provisions of the Bylaws
of the Corporation."
4. Repeal Article EIGHTH.
5. Repeal Article NINTH.
<PAGE> 25
6. Amend Article TWELFTH to provide as follows:
"TWELFTH: The Corporation reserves the right to amend or
-------
repeal any provision contained in this Certificate of Incorporation
in the manner prescribed by the laws of the State of Delaware and
all rights conferred upon stockholders are granted subject to this
reservation; provided, however, that, notwithstanding any other
provision of this Certificate of Incorporation or any provision of
law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the
stock of this Corporation required by law or by this Certificate of
Incorporation, the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the voting power of
all of the then-outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of Directors,
voting together as a single class, shall be required to amend or
repeal this Article TWELFTH, Section D of Article FIFTH, Article
SIXTH, Article SEVENTH or Article TENTH."
THIRD, that thereafter on June 15, 1999, an Annual Meeting of Stockholders of
the Corporation was duly called and held, upon notice and in accordance with
Section 222 of the Delaware General Corporation Law, at which meeting the
necessary number of shares as required by the Delaware General Corporation Law
were voted in favor of the Amendment.
FOURTH, the Amendment was duly adopted in accordance with the provisions of
Section 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by
its President and Co-Chief Executive Officer and attested by its Corporate
Secretary on this __ day of June, 1999.
UNITED PAYORS & UNITED PROVIDERS, INC.
2
<PAGE> 26
EXHIBIT B
EXISTING PROVISIONS OF CERTIFICATE OF INCORPORATION OF
UNITED PAYORS & UNITED PROVIDERS, INC.
DELETED OR REVISED BY THE CERTIFICATE AMENDMENT
1. The Certificate Amendment would repeal Section C of Article FIFTH. Article
FIFTH of the Certificate of Incorporation currently reads in its entirety as
follows:
"FIFTH: The following provisions are inserted for the management of the
-----
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by statute or by this Certificate of
Incorporation or the Bylaws of the Corporation, the Directors are hereby
empowered to exercise all such powers and do all such acts and things as may
be exercised or done by the Corporation.
B. The Directors of the Corporation need not be elected by written ballot
unless the Bylaws so provide.
C. Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
D. Special meetings of stockholders of the Corporation may be called only
by the Board of Directors pursuant to a resolution adopted by a majority of
the Whole Board or as otherwise provided in the Bylaws. The term "Whole
Board" shall mean the total number of authorized directorships (whether or
not there exist any vacancies in previously authorized directorships at the
time any such resolution is presented to the Board for adoption)."
2. The Certificate Amendment would amend Section D of Article SIXTH to read as
set forth in the Certificate Amendment. Section D of Article SIXTH of the
Certificate of Incorporation currently reads as follows:
"D. Subject to the rights of holder of any series of Preferred Stock then
outstanding, any Director, or the entire Board of Directors, may be removed
from office at any time, but only for cause and only by the affirmative vote
of the holders of at least 80 percent of the voting power of all of the
then-outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of Directors, voting together as a single class."
3. The Certificate Amendment would amend Article SEVENTH to read as set forth in
the Certificate Amendment. Article SEVENTH of the Certificate of Incorporation
currently reads as follows:
"SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of
the Bylaws of the Corporation by the Board of Directors shall require the
approval of a majority of the Whole Board. The stockholders shall also have
power to adopt, amend or repeal the Bylaws of the Corporation; provided,
however, that, in addition to any vote of the holders of any class or series
of stock of this Corporation required by law or by this Certificate of
Incorporation, the affirmative vote of the holders of at least 80 percent of
the voting power of all of the then-outstanding shares of the capital stock
of the Corporation entitled to vote generally in the election of Directors,
voting together as a single class, shall be required for the stockholders to
adopt, amend or repeal any provisions of the Bylaws of the Corporation."
4. The Certificate Amendment would repeal Article EIGHTH. Article EIGHTH of the
Certificate of Incorporation currently reads as follows:
1
<PAGE> 27
"EIGHTH:
A. In addition to any affirmative vote required by law or this Certificate
of Incorporation, and except as otherwise expressly provided in this Article
EIGHTH:
1. any merger or consolidation of the Corporation or any Subsidiary
(as hereinafter defined) with: (a) any Interested Stockholder (as
hereinafter defined); or (b) any other corporation (whether or
not itself an Interested Stockholder) which is, or after such
merger or consolidation would be, an Affiliate (as hereinafter
defined) of an Interested Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to
or with any Interested Stockholder, or any Affiliate of any
Interested Stockholder, of any assets of the Corporation or any
Subsidiary having an aggregate Fair Market Value (as hereinafter
defined) equaling or exceeding 25% or more of the combined assets
of the Corporation and its Subsidiaries; or
3. the issuance or transfer by the Corporation or any Subsidiary (in
one transaction or a series of transactions) of any securities of
the Corporation or any Subsidiary to any Interested Stockholder
or any Affiliate of any Interested Stockholder in exchange for
cash, securities or other property (or a combination thereof)
having an aggregate Fair Market Value (as hereinafter defined)
equaling or exceeding 25% of the combined Fair Market Value of
the outstanding common stock of the Corporation and its
Subsidiaries, except for any issuance or transfer pursuant to an
employee benefit plan of the Corporation or any Subsidiary
thereof; or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Stockholder or any Affiliate of any Interested
Stockholder; or
5. any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or
any other transaction (whether or not with or into or otherwise
involving an Interested Stockholder) which has the effect,
directly or indirectly, of increasing the proportionate share of
the outstanding shares of any class of equity or convertible
securities of the Corporation or any Subsidiary which is directly
or indirectly owned by any Interested Stockholder or any
Affiliate of any Interested Stockholder;
shall require the affirmative vote of the holders of at least 80% of the voting
power of the then-outstanding shares of stock of the Corporation entitled to
vote in the election of Directors (the "Voting Stock"), voting together as a
single class. Such affirmative vote shall be required notwithstanding the fact
that no vote may be required, or that a lesser percentage may be specified, by
law or by any other provisions of this Certificate of Incorporation or any
Preferred Stock Designation in any agreement with any national securities
exchange or otherwise.
The term "Business Combination" as used in this Article EIGHTH shall mean
any transaction which is referred to in any one or more of paragraphs 1 through
5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only the affirmative vote of the majority of the outstanding
shares of capital stock entitled to vote, or such vote (if any), as is required
by law or by this Certificate of Incorporation, if, in the case of any Business
Combination that does not involve any cash or other consideration being received
by the stockholders of the Corporation solely in their capacity as stockholders
of the Corporation, the condition specified in the following paragraph 1 is met
or, in the case of any other Business Combination, all of the conditions
specified in either of the following paragraphs 1 or 2 are met:
2
<PAGE> 28
1. The Business Combination shall have been approved by a majority of
the Disinterested Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
a. The aggregate amount of the cash and the Fair Market Value as of
the date of the consummation of the Business Combination of
consideration other than cash to be received per share by the holders
of Common Stock in such Business Combination shall at least be equal
to the higher of the following:
(i) (if applicable) the Highest Per Share Price (as hereinafter
defined), including any brokerage commissions, transfer taxes
and soliciting dealers' fees, paid by the Interested
Stockholder or any of its Affiliates for any shares of Common
Stock acquired by it: (I) within the two-year period
immediately prior to the first public announcement of the
proposal of the Business Combination (the "Announcement Date");
or (II) in the transaction in which it became an Interested
Stockholder, whichever is higher; or
(ii) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (such latter date
is referred to in this Article EIGHTH as the "Determination
Date"), whichever is higher.
b. The aggregate amount of the cash and the Fair Market Value as of the
date of the consummation of the Business Combination of consideration
other than cash to be received per share by holders of shares of any
class of outstanding Voting Stock other than Common Stock shall be at
least equal to the highest of the following (it being intended that
the requirements of this subparagraph (b) shall be required to be met
with respect to every such class of outstanding Voting Stock, whether
or not the Interested Stockholder has previously acquired any shares
of a particular class of Voting Stock):
(i) (if applicable) the Highest Per Share Price (as hereinafter
defined), including any brokerage commissions, transfer taxes
and soliciting dealers' fees, paid by the Interested
Stockholder for any shares of such class of Voting Stock
acquired by it: (I) within the two-year period immediately
prior to the Announcement Date; or (II) in the transaction in
which it became an Interested Stockholder, whichever is higher;
or
(ii) (if applicable) the highest preferential amount per share to
which the holders of shares of such class of Voting Stock are
entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; or
(iii) the Fair Market Value per share of such class of Voting Stock
on the Announcement Date or on the Determination Date,
whichever is higher.
c. The consideration to be received by holders of a particular class of
outstanding Voting Stock (including Common Stock) shall be in cash or
in the same form as the Interested Stockholder has previously paid
for shares of such class of Voting Stock. If the Interested
Stockholder has paid for shares of any class of Voting Stock with
varying forms of consideration, the form of consideration to be
received per share by holders of shares of such class of Voting Stock
shall be either cash or the form used to acquire the largest number
of shares of such class of Voting Stock previously acquired by the
Interested Stockholder. The price determined in accordance with
subparagraph B.2 of this Article EIGHTH shall be subject to
appropriate adjustment in the event of any stock dividend, stock
split, combination of shares or similar event.
d. After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business
Combination: (i) except as approved by a majority of the
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Disinterested Directors (as hereinafter defined), there shall have
been no failure to declare and pay at the regular date therefor any
full quarterly dividends (whether or not cumulative) on any
outstanding stock having preference over the Common Stock as to
dividends or liquidation; (ii) there shall have been: (I) no
reduction in the annual rate of dividends paid on the Common Stock
(except as necessary to reflect any subdivision of the Common Stock),
except as approved by a majority of the Disinterested Directors; and
(II) an increase in such annual rate of dividends as necessary to
reflect any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which has
the effect of reducing the number of outstanding shares of the Common
Stock, unless the failure to so increase such annual rate is approved
by a majority of the Disinterested Directors, and (III) neither such
Interested Stockholder or any of its Affiliates shall have become the
beneficial owner of any additional shares of Voting Stock except as
part of the transaction which results in such Interested Stockholder
becoming an Interested Stockholder.
e. After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received the
benefit, directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages
provided, directly or indirectly, by the Corporation, whether in
anticipation of or in connection with such Business Combination or
otherwise.
f. A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, and the
rules or regulations thereunder) shall be mailed to stockholders of
the Corporation at least 30 days prior to the consummation of such
Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or subsequent
provisions).
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a firm, a group acting in
concert, a corporation, a partnership, an association, a joint
venture, a pool, a joint stock company, a trust, an unincorporated
organization or similar company, a syndicate or any other group
formed for the purpose of acquiring, holding or disposing of
securities or any other entity.
2. "Interested Stockholder" shall mean any person (other than the
Corporation or any Holding Company or Subsidiary thereof) who or
which:
a. is the beneficial owner, directly or indirectly, of more than 10%
of the voting power of the outstanding Voting Stock; or
b. is an Affiliate of the Corporation and at any time within the
two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 10% or more of the
voting power of the then outstanding Voting Stock; or
c. is an assignee of or has otherwise succeeded to any shares of
Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by
any Interested Stockholder, if such assignment or succession
shall have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning
of the Securities Act of 1933, as amended.
3. "Beneficial ownership" shall be determined pursuant to Rule 13d-3 of
the General Rules and Regulations under the Securities Exchange Act
of 1934, as amended (or any successor rule or statutory provision),
or, if said Rule 13d-3 shall be rescinded and there shall be no
successor rule or provision thereto, pursuant to said Rule 13d-3 as
in effect on the date of filing of this Certificate of
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<PAGE> 30
Incorporation; provided, however, that a person shall, in any event,
also be deemed the "beneficial owner" of any Common Stock:
a. which such person or any of its affiliates beneficially owns,
directly or indirectly; or
b. which such person or any of its affiliates has: (i) the right to
acquire (whether such right is exercisable immediately or only
after the passage of time), pursuant to any agreement,
arrangement or understanding (but shall not be deemed to be the
beneficial owner of any voting shares solely by reason of an
agreement, contract, or other arrangement with this Corporation
to effect any transaction which is described in any one or more
of clauses 1 through 5 of Section A of Article EIGHTH of this
Certificate of Incorporation ("Article EIGHTH")), or upon the
exercise of conversion rights, exchange rights, warrants, or
options or otherwise, or (ii) sole or shared voting or investment
power with respect thereto pursuant to any agreement,
arrangement, understanding, relationship or otherwise (but shall
not be deemed to be the beneficial owner of any voting shares
solely by reason of a revocable proxy granted for a particular
meeting of stockholders, pursuant to a public solicitation of
proxies for such meeting, with respect to shares of which neither
such person nor any such Affiliate is otherwise deemed the
beneficial owner); or
c. which are beneficially owned, directly or indirectly, by any
other person with which such first mentioned person or any of its
Affiliates acts as a partnership, limited partnership, syndicate
or other group pursuant to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of any shares of capital stock of this Corporation; and
provided further, however, that: (1) no Director or Officer of
this Corporation (or any Affiliate of any such Director or
Officer) shall, solely by reason of any or all of such Directors
or Officers acting in their capacities as such, be deemed, for
any purposes hereof, to beneficially own any Common Stock
beneficially owned by any other such Director or Officer (or any
Affiliate thereof); and (2) neither any employee stock ownership
or similar plan of this Corporation or any subsidiary of this
Corporation, nor any trustee with respect thereto or any
Affiliate of such trustee (solely by reason of such capacity of
such trustee), shall be deemed, for any purposes hereof, to
beneficially own any Common Stock held under any such plan. For
purposes only of computing the percentage of beneficial ownership
of Common Stock of a person, the outstanding Common Stock shall
include shares deemed owned by such person through application of
this subsection but shall not include any other Common Stock
which may be issuable by this Corporation pursuant to any
agreement, or upon exercise of conversion rights, warrants or
options, or otherwise. For all other purposes, the outstanding
Common Stock shall include only Common Stock then outstanding and
shall not include any Common Stock which may be issuable by this
Corporation pursuant to any agreement, or upon the exercise of
conversion rights, warrants or options, or otherwise.
4. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect
on the date of filing of this Certificate of Incorporation.
5. "Subsidiary" means any corporation of which a majority of any class
of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the
definition of Interested Stockholder set forth in Paragraph 2 of this
Section C, the term "Subsidiary" shall mean only a corporation of
which a majority of each class of equity security is owned, directly
or indirectly, by the Corporation.
6. "Disinterested Director" means any member of the Board of Directors
who is unaffiliated with the Interested Stockholder and was a member
of the Board of Directors prior to the time that the
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<PAGE> 31
Interested Stockholder became an Interested Stockholder, and any
Director who is thereafter chosen to fill any vacancy of the Board of
Directors or who is elected and who, in either event, is unaffiliated
with the Interested Stockholder and in connection with his or her
initial assumption of office is recommended for appointment or
election by a majority of Disinterested Directors then on the Board
of Directors.
7. "Fair Market Value" means:
a. in the case of stock, the highest closing sales price of the
stock during the 30-day period immediately preceding the date in
question of a share of such stock on the National Association of
Securities Dealers Automated Quotation System or any system then
in use, or, if such stock is admitted to trading on a principal
United States securities exchange registered under the Securities
Exchange Act of 1934, as amended, Fair Market Value shall be the
highest sale price reported during the 30-day period preceding
the date in question, or, if no such quotations are available,
the Fair Market Value on the date in question of a share of such
stock as determined by the Board of Directors in good faith, in
each case with respect to any class of stock, appropriately
adjusted for any dividend or distribution in shares of such stock
or any stock split or reclassification of outstanding shares of
such stock into a greater number of shares of such stock or any
combination or reclassification of outstanding shares of such
stock into a smaller number of shares of such stock; and
b. in the case of property other than cash or stock, the Fair Market
Value of such property on the date in question as determined by
the Board of Directors in good faith.
8. Reference to "Highest Per Share Price" shall in each case with
respect to any class of stock reflect an appropriate adjustment for
any dividend or distribution in shares of such stock or any stock
split or reclassification of outstanding shares of such stock into a
greater number of shares of such stock or any combination or
reclassification of outstanding shares of such stock into a smaller
number of shares of such stock.
9. In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received"
as used in Subparagraphs (a) and (b) of Paragraph 2 of Section B of
this Article EIGHTH shall include the shares of Common Stock and/or
the shares of any other class of outstanding Voting Stock retained by
the holders of such shares.
D. A majority of the Disinterested Directors of the Corporation shall
have the power and duty to determine for the purposes of this Article EIGHTH,
on the basis of information known to them after reasonable inquiry: (a)
whether a person is an Interested Stockholder; (b) the number of shares of
Voting Stock beneficially owned by any person; (c) whether a person is an
Affiliate or Associate of another; and (d) whether the assets which are the
subject of any Business Combination have, or the consideration to be received
for the issuance or transfer of securities by the Corporation or any
Subsidiary in any Business Combination has an aggregate Fair Market Value
equaling or exceeding 25% of the combined Fair Market Value of the Common
Stock of the Corporation and its Subsidiaries. A majority of the Disinterested
Directors shall have the further power to interpret all of the terms and
provisions of this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed to relieve
any Interested Stockholder from any fiduciary obligation imposed by law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this
Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the
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<PAGE> 32
then-outstanding shares of the Voting Stock, voting together as a single
class, shall be required to alter, amend or repeal this Article EIGHTH."
5. The Certificate Amendment would repeal Article NINTH in its entirety. Article
NINTH of the Certificate of Incorporation currently reads as follows:
"NINTH: The Board of Directors of the Corporation, when evaluating
-----
any offer of another Person (as defined in Article EIGHTH hereof) to: (A)
make a tender or exchange offer for any equity security of the Corporation;
(B) merge or consolidate the Corporation with another corporation or entity;
or (C) purchase or otherwise acquire all or substantially all of the
properties and assets of the Corporation, may, in connection with the
exercise of its judgment in determining what is in the best interest of the
Corporation and its stockholders, give due consideration to all relevant
factors, including, without limitation, the social and economic effect of
acceptance of such offer on the Corporation's present and future customers
and employees and those of its Subsidiaries; (as defined in Article EIGHTH
hereof), and on the communities in which the Corporation and its
Subsidiaries operate or are located."
6. The Certificate Amendment would amend Article TWELFTH to read as set forth
in the Certificate Amendment. Article TWELFTH of the Certificate of
Incorporation currently reads as follows:
"TWELFTH: The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred
upon stockholders are granted subject to this reservation; provided,
however, that, notwithstanding any other provision of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any vote of the holders of any class or
series of the stock of this Corporation required by law or by this
Certificate of Incorporation, the affirmative vote of the holders of at
least 80 percent of the voting power of all of the then-outstanding shares
of the capital stock of the Corporation entitled to vote generally in the
election of Directors, voting together as a single class, shall be required
to amend or repeal this Article TWELFTH, Sections C or D of Article FIFTH,
Article SIXTH, Article SEVENTH, Article EIGHTH or Article TENTH."
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<PAGE> 33
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 at right to the terms
expiring at the Annual Meeting of Stockholders in the year 2002 and 2001,
respectively, and until their successors are elected and qualified.
FOR ALL NOMINEES VOTE WITHHELD
(Except as indicated to
the contrary below)
[___] [___]
Nominees:
For term expiring in the year 2002:
Thomas L. Blair
Thomas J. Graf
Frederick H. Graefe
For term expiring in the year 2001:
Steven M. Gluckstern
Paul H. Warren
INSTRUCTIONS: To withhold authority to vote for any individual nominee, write
that nominee's name on the line provided below.
------------------------------------
2. The amendment of the Company's certificate of incorporation to: (i)
repeal Article FIFTH, Section C; (ii) repeal Article EIGHTH; (iii) repeal
Article NINTH; and (iv) amend Article SIXTH, Section D, Article SEVENTH
and Article TWELFTH to lower from 80% to 66 2/3% the stockholder vote
required to remove directors for cause and amend the certificate of
incorporation and bylaws.
FOR AGAINST ABSTAIN
[__] [__] [__]
3. This ratification of the appointment of PricewaterhouseCoopers LLP as
independent certified public accountants for United Payors & United
Providers, Inc. for 1999.
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 Stockholders and of a Proxy
Statement dated May 17, 1999 and of the Annual Report to Stockholders.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
________________________ ________________________ Dated: ______________, 1999
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
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> 34
- ------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
UNITED PAYORS & UNITED PROVIDERS, INC.
ANNUAL MEETING OF STOCKHOLDERS
JUNE 15, 1999
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 Stockholders, to be held on June 15, 1999, 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.)
