UNITED STATES
SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 1996
Commission File No. 0-27614
MEDICUS SYSTEMS CORPORATION
A Delaware Corporation IRS Employer
Identification No.
36-4056769
One Rotary Center, Suite 1111
Evanston, Illinois 60201
(847) 570-7500
Securities Registered Pursuant to Section 12(b) of the
Act: None
Securities Registered Pursuant to Section 12(g) of the
Act: Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past
90 days.[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of the
Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K/A-1 or any amendment to this Form 10-K/A-1. [X]
As of August 15, 1996, there were 6,446,132 shares of
common stock outstanding, and the aggregate market value
of the common stock (based upon the August 15, 1996
closing sale price on the NASDAQ National Market System)
held by nonaffiliates was approximately $32,230,660.
<PAGE>
MEDICUS SYSTEMS CORPORATION
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The officers and directors of the Company, their ages and
their positions with the Company are provided in the table
below.
Name Age Position
==== === ========
Richard C. Jelinek 59 Chairman of the Board of
Directors
Patrick C. Sommers 49 President, Chief Executive
Officer and Director
Susan P. Dowell 44 Executive Vice President
Angus J. Carroll 37 Senior Vice President
Raymond J. Hanson, Jr. 44 Senior Vice President
Frank A. Pierce 49 Senior Vice President
Robert C. Steffel 43 Senior Vice President
William W. Cowan 32 Vice President, Chief
Financial Officer and
Asst. Secretary
Susan K. Doctors 55 Vice President
Donald M. Dorfman 44 Vice President
Lynda D. Hernandez 40 Vice President
Michael Y. Kaminaka 41 Vice President
Ralph D. Keiser 38 Vice President
Timothy K. Rutledge 38 Vice President
Stephen F. Sedlock 32 Vice President
William G. Brown 53 Secretary and Director
Jon E.M. Jacoby 58 Director
Risa Lavizzo-Mourey 42 Director
Walter J. McNerney 70 Director
Gail L. Warden 58 Director
Officers serve at the pleasure of the Board.
<PAGE>
Richard C. Jelinek, Ph.D., Chairman of the Board of
Directors, was co-founder of the predecessor of the
Predecessor Corporation in 1969 and served as Chairman
of the Board of the Predecessor Corporation from
its incorporation in December 1984 until the Distribution.
From December 1984 through February 1996, he also served
as the Predecessor Corporation's Chief Executive Officer.
From 1983 to 1985, he was also Chairman of the Board and
Chief Executive Officer of Mediflex Systems Corporation.
Since July 1996, he has also been Chairman of
Managed Care Solutions, Inc. Prior to founding the
Company, Dr. Jelinek was Associate Professor of
Industrial Engineering and Hospital Administration and
Director, Systems Engineering Group, Bureau of Hospital
Administration at the University of Michigan.
He has a Ph.D. in Industrial Engineering from the
University of Michigan. Dr. Jelinek also serves as a
director of Spectra Medical Systems, Inc. He was a
director of the Predecessor Corporation from its
incorporation in 1984, and has been a director of the
Company and Managed Care Solutions, Inc. since the
Distribution.
Patrick C. Sommers, President and Chief Executive
Officer, joined the Predecessor Corporation in February
1996. From 1992 to 1996, Mr. Sommers served as President
of Ceridian Employer Services, a $400 million division of
Ceridian Corporation (formerly Control Data Corporation).
From 1990 to 1992, Mr. Sommers was President of GTE
Information Services, a division of GTE Corporation, and
from 1969 to 1990, he served in successive management
positions with Dun & Bradstreet Corporation, culminating
with his position as President of Dun & Bradstreet
Information Resources, Inc.
Susan P. Dowell, Executive Vice President, is responsible
for the operations of the Company's product divisions.
Ms. Dowell was Senior Vice President responsible
for software products development and operations.
Previously, she was Vice President for the Clinical Data
Systems division. She joined the Predecessor Corporation
in November, 1986 and served successively as Senior
Consultant and Product Manager. She first became an officer
of the Predecessor Corporation in 1987. Prior to joining
the Predecessor Corporation in November, 1986, Ms. Dowell
was Director of Patient Data Services at the University of
Washington. Ms. Dowell is past President of the American
Health Information Management Association (AHIMA).
Angus J. Carroll, Senior Vice President, is responsible
for strategic planning and business development. From 1993
to 1996, Mr. Carroll served as Vice President of Business
Development at Ceridian Employer Services. From 1990 to
1993, he was Director of Business Planning at GTE
Corporation. From 1979 to 1990, Mr. Carroll held successive
management positions with Dun & Bradstreet Corporation,
culminating with his position as Assistant Vice President of
Computer Development. Mr. Carroll received his M.B.A. from
Fairleigh-Dickinson University.
<PAGE>
Raymond J. Hanson, Jr., Senior Vice President, is
responsible for all sales operations. Mr. Hanson's career
with the Predecessor Corporation began in 1978 as manager
of marketing, sales and regional client support for the
Eastern United States. Later, as a corporate officer, he
successfully launched the Bethesda, Inc. contract. From
1994 to September 1995, Mr. Hanson served as Executive Vice
President of CMSI, Inc. Mr. Hanson received his B.S. in
Industrial Engineering from the University of Rhode Island
and his M.B.A. from Bryant College.
Frank A. Pierce, Senior Vice President, is responsible
for product development efforts. He was previously
responsible for the strategic management of the
Patient Focused Systems division. Prior to joining the
Predecessor Corporation in May, 1994, Mr. Pierce was CEO
of MDAX Corporation. From 1991 to 1994, Mr. Pierce was
Director of Nursing Systems with Critikon Corporation, a
subsidiary of Johnson and Johnson. From March, 1983 to
March, 1991, Mr. Pierce was founder, President and
Chairman of the Board of MDAX Corporation.
Robert C. Steffel, Senior Vice President, is responsible
for the Contract Management and Information Services
businesses. Most recently, Mr. Steffel worked
for the Predecessor Corporation as consultant to a
large hospital that has successfully transitioned into an
integrated health system consisting of three client
hospitals and a large regional HMO. Prior to joining the
Predecessor Corporation in December, 1991, he was Vice
President, Information Systems of Specialty Home Health Care
from 1989 to 1991. He also served as Director of
Information Systems and Management Engineering at Curaflex
Home Health Care from 1988 to 1989.
William W. Cowan, Vice President, Chief Financial
Officer and Asst. Secretary, is responsible for all finance,
accounting, treasury and contracting functions. From 1994
to 1995, he was Senior Director of the Decision Support
Systems division of the Predecessor Corporation. Mr. Cowan
joined the Predecessor Corporation in 1993 as Assistant to
the Chairman responsible for financial analysis, investor
relations and third party contracting. From 1992 to 1993,
Mr. Cowan was a post-graduate Fellow at Intermountain
Healthcare, Inc. Prior to 1992, he held successive
management positions in operations and finance with other
healthcare related organizations. Mr. Cowan received his
M.B.A. and his M.S. in Health Services Administration from
the University of Michigan.
<PAGE>
Susan K. Doctors, Vice President, is responsible for
Human Resources and Operations Resources having joined the
Predecessor Corporation in 1995. From 1993 to 1995, Ms.
Doctors worked as an independent consultant. Prior to 1993,
Ms. Doctors served in successive management positions at
Official Airline Guides, Inc.
Donald M. Dorfman, Vice President, is responsible for the
operations of the Patient Focused Systems division. Prior
to joining the Predecessor Corporation in May, 1994, Mr.
Dorfman was COO and Vice President of MDAX Corporation.
From 1991 to 1994, Mr.Dorfman was Manager of Nursing Systems
with Critikon Corporation, a subsidiary of Johnson and
Johnson. Prior to that, Mr. Dorfman was Vice President of
Operations of MDAX Corporation from March, 1983 to March,
1991.
Lynda D. Hernandez, Vice President, is responsible for
the operations of the Clinical Data Systems division. Most
recently, Ms. Hernandez served as Senior Director for
operations of the Predecessor Corporation. From 1990 to
1992 she was manager of Technical Support, Interfaces and
Client Services in the Clinical Data Systems division.
Prior to 1990, Ms. Hernandez served in successive technical
and management positions with the Predecessor Corporation.
Michael Y. Kaminaka, Vice President, is responsible for
Clinical Data Systems sales having rejoined the Predecessor
Corporation in 1995. From 1994 to 1995, he served in sales
management with S.T.C. Datagate. From 1993 to 1994, he was
the National Accounts Manager at Innovative Healthcare
Systems. From 1985 to 1993, Mr. Kaminaka served in
successive management and sales positions with the
Predecessor Corporation.
Ralph D. Keiser, Vice President, is responsible for all
corporate and divisional marketing. Before joining the
Predecessor Corporation in April, 1995, he served as Vice
President and General Manager of the Healthcare Systems
Group of Synthesys Technologies, Inc., where he was
responsible for the management of product development,
training, support, third party relationships, marketing and
sales since joining in 1990.
<PAGE>
Timothy K. Rutledge, Vice President, is responsible for
the operations of the Decision Support Systems division.
He joined the Predecessor Corporation in June, 1992
following the acquisition of Innovate Software Solutions,
Inc. which he co-founded in 1989. He held successive
management positions with that firm until its acquisition
by Medicus. Previously, he served as a manager for Price
Waterhouse.
Stephen F. Sedlock, Vice President, is responsible for
the operations of the Resource Case Management Systems
division. From 1993 to 1995, Mr. Sedlock served as a
Regional Sales Manager for the Decision Support Systems
division of the Predeccessor Corporation. Prior to 1993,
he served as manager of EIS Development at Bethesda Hospital
for the Company and as an applications consultant at
Comshare, Inc. Mr. Sedlock received his M.B.A. from Xavier
University.
William G. Brown, is a partner of Bell, Boyd &
Lloyd, Chicago, IL, counsel to the Company, and
has been Secretary and a director of the Predecessor
Corporation from its incorporation in December 1984 until
the Distribution, and of the Company and Managed Care
Solutions, Inc. since the Distribution. Mr. Brown is
also a director of MYR Group, Inc., Dovenmuehle Mortgage,
Inc. and CFC International, Inc.
Jon E.M. Jacoby is Executive Vice President,
Chief Financial Officer and member of the Board of
Directors of Stephens Group, Inc., an affiliate of
Stephens Inc. Mr. Jacoby is also a director of American
Classic Voyages Co., St. Vincent Infirmary Medical
Center, SD Leasing, Inc., Pine Bluff Warehouse Company,
Systematics, Inc. and Beverly Enterprises, Inc. He was
first elected a director of the Predecessor Corporation
in 1991 and has been a director of the Company
since the Distribution.
<PAGE>
Risa Lavizzo-Mourey is the Class of 1970
Associate Professor of Medicine and Health Care Systems
at the University of Pennsylvania and a board certified
Internist and Geriatrician. Dr. Lavizzo-Mourey earned
her medical degree at Harvard Medical School followed
by a Masters of Business Administration at the University of
Pennsylvania's Wharton School. After completing a
residency in internal medicine at Brigham and Women's
Hospital in Boston, MA, she was a Robert Wood
Johnson Clinical Scholar at the University of
Pennsylvania. She also held faculty appointments at the
Harvard Medical School and Temple University Medical
School. Dr. Lavizzo-Mourey has served on numerous
Federal advisory committees, including the White House
Task Force on Health Care Reform where she co-chaired the
Working Group on Quality of Care. She continues to be a
consultant to the White House on Health Care Policy. Ms.
Lavizzo-Mourey joined the Predecessor Corporation Board
in April, 1994, and has served as a director of the Company
and Managed Care Solutions, Inc. since the Distribution.
Walter J. McNerney is the Herman Smith Professor
of Health Policy at the J.L. Kellogg Graduate School of
Management, Northwestern University and Chairman of
Walter J. McNerney and Associates. From 1978 to 1981,
Mr. McNerney was national President of the Blue Cross and
Blue Shield Association. Mr. McNerney is Chairman of the
Board of McNerney Heintz, Inc. He is also Chairman of the
Board of American Health Properties, Inc. and a director
of Hanger Orthopaedic Group, Inc., The Hospital Fund,
Inc., Hospital Research and Educational Trust, Institute
for the Future, Institute of Physician Management
Relations, National Executive Service Corps., Nellcor
Corp., Osteotech Inc., The Stanley Works, Inc., Value
Health, Inc. and Ventritex. He was first elected a
director of the Predecessor Corporation in 1985 and has
been a director of the Company and Managed Care Solutions,
Inc. since the Distribution.
<PAGE>
Gail L. Warden is President and Chief Executive
Officer of Henry Ford Health System, Detroit, MI.
Mr. Warden is Past Chairman and Board Member of the
American Hospital Association Board of Trustees and a
member of the Governing Council of the Institute of
Medicine of the National Academy of Sciences. Mr. Warden
is also a director of the Robert Wood Johnson Foundation,
Comerica Bank Midwest of Detroit, Mental Health
Management and American Healthcare Systems. In addition,
Mr. Warden is Chairman of the Michigan Medicaid Funding
Task Force, Vice Chairman of the Matthew Thorton Health
Plan, and a member of the Association for Health Services
Research and the Pew Health Professions Commission. He is
past Chairman of the Board of Trustees of the National
Committee for Quality Assurance. He was first elected a
director of the Predecessor Corporation in 1988 and has
served as a director of the Company since the Distribution.
<PAGE>
<TABLE>
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
<CAPTION>
Long-Term
Compensation
============
Securities
Annual Compensation Underlying
Name and ====================== Options/ All Other
Principal Fiscal Salary Bonus SARs Compensation
Position <F1> Year<F2> ($) ($) (#) ($)<F3>
================== ======= ====== ===== ==== ============
<S> <C> <C> <C> <C> <C>
Richard C. Jelinek
Chairman 1996 247,917 5,000 10,605
Patrick C. Sommers
Chief Executive
Officer<F4> 1996 63,465 718,000
James M. Alland
Exec. Vice President 1996 173,250 3,465
Donald M. Dorfman
Vice President 1996 108,825 35,000 15,000 2,557
Susan P. Dowell
Exec. Vice President 1996 173,250 3,465
Frank A. Pierce
Sr. Vice President 1996 155,750 70,000 20,000 4,340
Timothy K. Rutledge
Vice President 1996 88,664 50,668 2,324
<FN>
<F1> Includes the Chairman of the Board and Chief Executive
Officer and the other most highly compensated executive
officers as measured by salary and bonus meeting the
disclosure threshold requirements pursuant to Item 402
of Regulation S-K. In February 1996, Mr. Jelinek
resigned his position as President and Chief Executive
Officer of the Company and remains Chairman of the Board
of Directors. Mr. Sommers was elected President and
Chief Executive Officer of the Company in February 1996.
Pursuant to Item 402, information is included on James
M. Alland, although he was no longer an executive
officer as of May 31, 1996.
<PAGE>
<F2> Information is provided only for the fiscal year
ended May 31, 1996 because the Company only became
subject to the reporting requirements of the Securities
Exchange Act of 1934 in connection with the
Distribution, which occurred on March 1, 1996. The
amounts shown include compensation received from the
Predecessor Corporation prior to March 1, 1996.
<F3> The Company has a contributory retirement savings
plan which covers eligible employees who qualify as to
age and length of service. Participants may contribute
2% to 15% of their salaries, subject to maximum
contribution limitations imposed by the Internal Revenue
Service. Of the amounts shown for Mr. Jelinek,
$4,620 represents contributions to his account under such
plans and $5,985 represents amounts paid to Mr. Jelinek as
an automobile allowance. The amounts shown for Mr. Alland,
Mr. Dorfman, Ms. Dowell, Mr. Pierce and Mr. Rutledge
represent contributions to the accounts of these individuals
under such plans.
<F4> The number of options shown for Mr. Sommers includes
350,000 options originally granted under the 1996
C.E.O. Stock Option Plan by the Predecessor Corporation
on February 28, 1996, which were assumed by the Company,
but were subsequently cancelled upon the grant by the
Company of a new option for 350,000 shares under its 1996
C.E.O. Replacement Stock Option Plan (also reflected in the
number of options shown in the table).
</TABLE>
<PAGE>
Option/SAR Grants Table
The following table provides information on stock
options granted to the named executive officers during
fiscal year 1996. The potential realizable value of
each grant of options was determined assuming that the
market price of the underlying security appreciates in
value from the date of grant to the end of the option
term at annualized rates of 5% and 10% as required
pursuant to Item 402 of Regulation S-K.
<PAGE>
<TABLE>
Option/SAR Grants in Last Fiscal Year
=====================================
<CAPTION>
Potential
Realizable Value
at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants 10-Year Option Term
============================================= ===================
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees in or Base Expiration 5%<F2> 10%<F2>
Name Granted(#)<F1> Fiscal Year Price($/Sh) Date ($) ($)
========== ============ ========== ========= ======= ====== ========
<S> <C> <C> <C> <C> <C> <C>
Richard C.
Jelinek 5,000 0.7% 7.605 2/27/06 23,956 60,460
Patrick C.
Sommers<F3> 350,000 -- 7.510 2/28/06 1,653,050 4,189,152
Patrick C.
Sommers<F4> 175,000 24.5% 6.500 3/12/06 716,625 1,808,625
Patrick C.
Sommers<F5> 58,333.33 8.2% 6.500 3/12/06 238,875 602,875
Patrick C.
Sommers<F6 58,333.33 8.2% 6.500 3/12/06 238,875 602,875
Patrick C.
Sommers<F7> 58,333.33 8.2% 6.500 3/12/06 238,875 602,875
Patrick C.
Sommers<F8> 18,000 2.5% 2.000 3/12/06 154,710 267,030
James M.
Alland -- -- -- -- -- --
Donald M.
Dorfman 15,000 2.1% 6.825 7/28/05 64,496 162,776
Susan P.
Dowell -- -- -- -- -- --
Frank A.
Pierce 20,000 2.8% 6.825 7/28/05 55,125 217,035
Timothy K.
Rutledge -- -- -- -- -- --
<FN>
<F1> Generally, options granted in fiscal year 1996 are
exercisable starting 12 months after the grant date,
with 25 percent of the shares covered thereby becoming
exercisable at that time and with an additional 25
percent of the option shares becoming exercisable on
each successive anniversary date, with full vesting
occurring on the fourth anniversary date. The options
were granted for a term of 10 years, subject to earlier
termination in certain events related to termination of
employment.
<F2> These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, on stock
option exercises and common stock holdings are dependent
on the future performance of the common stock and
overall stock market conditions. There can be no
assurance that the amounts reflected in this table will
be achieved.
<F3> These options were granted on February 28, 1996 by
the Predecessor Corporation under the 1996 C.E.O. Stock
Option Plan, were assumed by the Company, and were
subsequently cancelled on March 12, 1996 upon the grant
by the Company of 350,000 new options under the 1996
C.E.O. Replacement Stock Option Plan. Therefore, the
options granted on February 28, 1996 have been omitted
in calculating the percentage of total options/SARs
granted to employees in fiscal year.
<F4> Of these options, 25% were immediately exercisable,
with an additional 25% becoming exercisable on each of the
second, third and fourth anniversaries of the date of grant.
<F5> Represents performance options which will vest if the
price of the Common Stock for ten consecutive trading days
exceeds (i) $9.50 prior to February 28, 1997, (ii) $11.50
between March 1, 1997 and February 28, 1998, or (iii)
$13.50 between March 1, 1998 and February 28, 2000.
<F6> Represents performance options which will vest if
the price of the Common Stock for ten consecutive trading
days exceeds (i) $11.50 prior to February 28, 1998, or
(ii) $13.50 between March 1, 1998 and February 28, 2000.
<F7> Represents performance options which will vest if the
price of the Common Stock exceeds $13.50 for ten consecutive
trading days prior to February 28, 2000.
<F8> This grant to Mr. Sommers represents options which
have an exercise price of $2.00 per share, all of which
become exercisable on March 12, 1997. The closing
stock price of the Company's Common Stock on the date of
this grant was $6.50 per share. The stock price used as
the base share price in calculating the potential
realizable value of the grant was $6.50. At the date of
grant, the value of these options was $81,000.
</TABLE>
<PAGE>
Option/SAR Exercises and Year-end Valuation
<TABLE>
(CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/SAR Values
=========================================================
Value of
In-the Money
Number of Securities Unexercised
Underlying Unexercised Options/SARs
Options/SARs at FY-End at FY-End<F3>
====================== =================
Shares Acquired Value Exerci- Unexerci- Exerci- Unexerci-
on Exercise<F1> Realized<F2> sable sable sable sable
Name (#) ($) (#) (#) ($) ($)
======= =============== =========== ======== ========= ======= ========
<S> <C> <C> <C> <C> <C> <C>
Richard C.
Jelinek -- -- 1,250 8,750 -- --
Patrick C.
Sommers -- -- 43,750 324,250 -- 65,250
James M.
Alland -- -- 80,000 65,000 -- --
Donald M.
Dorfman -- -- 9,583 43,750 -- --
Susan P.
Dowell -- -- 27,500 22,500 -- --
Frank A.
Pierce -- -- 19,167 77,500 -- --
Timothy K.
Rutledge -- -- 11,250 3,750 -- --
<FN>
<F1> Number of securities underlying options/SARs
exercised.
<F2> Market value of underlying securities on date
of exercise, minus the exercise or base price.
<F3> Market value of underlying securities at year-
end ($5.625), minus the exercise or base price.
</TABLE>
<PAGE>
Director Compensation
=====================
All directors of the Company are paid an annual retainer
of $12,000. In addition, under the Company's 1994
Directors' Stock Option Plan, an option to purchase 5,000
shares of the Company's Common Stock is granted to each
director of the Company at the time of each annual meeting
of the stockholders. Each option is for a term of ten
years, becomes exercisable with respect to 25% of the
shares covered thereby on each of the first four
anniversaries of the date of grant and has an exercise
price equal to the fair market value on the date of grant.
Employment Agreement
====================
The Company has entered into an employment agreement with
Patrick C. Sommers providing for his employment as
President and Chief Executive Officer of the Company. The
agreement, which was entered into in February 1996 and
amended in March 1996, provides that during Mr. Sommers'
full-time employment, he is to receive an annual salary of
not less than $250,000 and is eligible to participate in
Medicus' bonus plan with a targeted bonus of 44% of his
base salary in accordance with the Company's customary
practices and formulae. Mr. Sommers also received options
to purchase 368,000 shares of the Company's Common Stock.
Of the total option grant, the option to purchase 175,000
shares is subject to vesting in four equal increments of
25% on the date of the agreement and on February 28, 1998,
1999, 2000. Of the total option grant, the option to
purchase an additional 175,000 shares is subject to vesting
in three separate tranches triggered by the closing price
of Medicus Common Stock for ten consecutive trading days
equaling or exceeding specified targets. Of the total
option grant, the option to purchase 18,000 shares is
subject to vesting on February 28, 1997 and such option is
not subject to termination as a result of his termination
for any reason prior to February 28, 1997. In the event of
a change in control of the Company, Medicus has agreed that
if Mr. Sommers' employment is terminated by the Company
other than for cause or, without his consent, Medicus
materially changes his duties or responsibilities or the
location of his principal place of work and as a result of
such change or changes he voluntarily terminates his
employment, then, in either such event, all of Mr. Sommers'
outstanding options will vest and become exercisable on
the date of termination of his employment. In addition,
if a change of control occurs during the first twelve
months following the date of his employment agreement,
and if at the time of the change in control his vested
in-the-money options do not have a value of at least
$1,000,000, Medicus will alternatively accelerate enough
of Mr. Sommers' options so that he has a vested value
of $1,000,000 or pay him a bonus equal to the difference
between the vested value of his options and $1,000,000.
<PAGE>
The Company has entered into an employment agreement with
Frank A. Pierce providing for his employment as Senior Vice
President of the Company. The agreement, which was entered
into in May 1994 and expires in May 1998, provides that Mr.
Pierce's employment will be full time for the first two
years of its term and may become part-time thereafter at
either party's option. During his full-time employment,
Mr. Pierce is to receive an annual salary of not less than
$140,000, with an annual bonus in the first two years of
$70,000 if certain personal and corporate objectives are
met (and bonuses thereafter in accordance with the
Company's customary practices). During any period of less
than full-time employment, Mr. Pierce's annual salary will
not be less than $12,000. Mr. Pierce is eligible for the
same benefits as other Company employees,except
that he will be eligible for 26 days of paid time
off annually. At the time of execution of the agreement,
Mr. Pierce received options to purchase 20,000 shares of
the Company's Common Stock, subject to vesting in four
annual installments of 25%, and performance options to
purchase an additional 56,667 shares of the Company's
Common Stock, subject to vesting in four annual
installments of 25%, if agreed upon performance objectives
are met.
Compensation and Stock Option Committee Interlocks and
Insider Participation
==========================================================
Messrs. Brown, McNerney, and Warden are currently the
members of the Compensation and Stock Option Committee.
None of the Company's directors have interlocking or other
relationships with other boards or the Company that
require disclosure under Item 402(j) of Regulation S-K,
except as described in the following two sentences.
For the fiscal year ended May 31, 1996, the Company
incurred legal fees, for general legal services and fees
associated with the distribution of Medicus Systems
Software, Inc. effective March 1, 1996, of $360,619 to
the law firm of Bell, Boyd & Lloyd, of which William G.
Brown, Secretary and a director of the Company, is a
partner. In addition, during fiscal 1996, the Company
received payments of $452,392 for sales of products and
services to Henry Ford Health System, Detroit, MI, of
which Gail L. Warden, a director of the Company, is the
President and Chief Executive Officer.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of May 31, 1996,
certain information regarding the beneficial ownership
of the Company's Common Stock by each of the Company's
directors and executive officers named in the Summary
Compensation Table in Item 11 and by all directors and
executive officers of the Company as a group, and by
each person known by the Company to be the beneficial
owner of 5 percent or more of the outstanding Common
Stock.
<PAGE>
<TABLE>
<CAPTION>
Percent of Common
Name<F1> Shares Beneficially Owned Stock
======================== ========================= =================
<S> <C> <C>
Richard C. Jelinek<F2><F3> 1,936,950 30.0%
Patrick C. Sommers<F3> 49,750 0.8%
James M. Alland<F3> 80,000 1.2%
William G. Brown<F3> 117,260 1.8%
Donald M. Dorfman<F3> 9,583 0.1%
Susan P. Dowell<F3> 115,500 1.8%
Jon E.M. Jacoby<F3> 46,250 0.7%
Risa Lavizzo-Mourey<F3> 8,750 0.1%
Walter J. McNerney<F3> 111,878 1.7%
Frank A. Pierce<F3> 19,167 0.3%
Timothy K. Rutledge<F3> 81,120 1.3%
Gail L. Warden<F3> 107,000 1.7%
Hollybank Investments, LP<F4> 266,800 4.1%
Stephens Inc.<F5> 654,501 10.1%
All directors and executive
officers as a group ========= =====
(21 persons)<F3> 2,719,958 40.7%
========= =====
<FN>
<F1> The address of all of the persons named or identified
above, except for Stephens Inc. and Hollybank Investments,
LP, is c/o Medicus Systems Corporation, One Rotary
Center, Suite 1111, Evanston, IL 60201.
<F2> Includes 100,000 shares owned by Mr. Jelinek's wife.
<F3> Includes 1,250, 43,750, 80,000, 1,250, 9,583,
27,500, 1,250, 8,750, 1,250, 19,167, 11,250, 1,250, and
229,250 shares covered by options held by Mr. Jelinek,
Mr. Sommers, Mr. Alland, Mr. Brown, Mr. Dorfman, Ms.
Dowell, Mr. Jacoby, Dr. Lavizzo-Mourey, Mr. McNerney,
Mr. Pierce, Mr. Rutledge, Mr. Warden and all the
directors and executive officers as a group,
respectively, which were exercisable within sixty days
of May 31, 1996. Such persons disclaim beneficial
ownership of such shares.
<F4> Represents shares as of November 29, 1995, as
reported on Schedule 13D ("13D"). The persons filing
the 13D are Hollybank Investments, LP, a Delaware
Limited Partnership ("LP") and Dorsey R. Gardner, the
general partner of LP ("Gardner"). The 13D was filed
pursuant to the purchase of shares of the Company's
common stock on November 29, 1995 which, when aggregated
with Gardner and LP's previously purchased shares, gives
Gardner deemed beneficial ownership of 326,800 of the
outstanding shares of the Company. Gardner, as general
partner of LP, may be deemed to beneficially own shares
beneficially owned by LP. Except to the extent of his
interest as a limited partner in LP, Gardner expressly
disclaims such beneficial ownership. The address of
Hollybank Investments, LP is One Financial Center, Suite
1600, Boston, MA 02111.
<F5> Represents shares as of February 12, 1996, as
reported on Schedule 13G, Amendment No. 3. Stephens
Inc. disclaims beneficial ownership with respect to all
of the shares for all purposes other than for reporting
purposes on Schedule 13G. These shares are shares over
which Stephens Inc.'s investment adviser division,
Stephens Capital Management ("SCM"), has or shares voting
and dispositive power with respect to discretionary
accounts of customers of SCM. The address of Stephens
Inc. is 111 Center St., Little Rock, AR 72201.
The Company's certificate of incorporation authorizes
500 shares of Voting Preferred Stock, $1,000 par value.
Until May 31, 1998, the Voting Preferred Stock is
entitled to 44,000 votes per share, or 22,000,000 votes
if all shares are issued. After May 31, 1998, the
Voting Preferred Stock has 220 votes per share. Richard
C. Jelinek, Chairman of the Board of the Company, who
owns 30.0% of the Common Stock outstanding, has an
option to purchase all 500 shares of the Voting Preferred
Stock for $1,000 per share at any time prior to May 31,
1998.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For descriptions of certain transactions between the
Company and Messrs. Brown and Warden, see the
discussion under the caption "Compensation and Stock
Option Committee Interlocks and Insider Participation"
in Item 11, which is incorporated herein by reference.
During the fiscal year, the Company incurred fees of
$19,283 from Stephens Inc. for financial advisory services
rendered to the Company in connection with the Distribution.
Jon E.M. Jacoby, Executive Vice President, Chief Financial
Officer and director of Stephens Group, Inc., an affliliate
of Stephens Inc., serves as a director of the Company.
Also, Stephens' affiliates either own or manage
approximately 16% of the issued and outstanding shares of
the Company's Common Stock.
Relationship Between the Company and
Managed Care Solutions, Inc.
====================================
Messrs. Jelinek, Brown and McNerney and Dr. Lavisso-
Mourey are each directors, and Mr. Jelinek is Chariman of
both the Company and Managed Care Solutions, Inc. ("MCS").
In connection with the Distribution, the Company and MCS
entered into a Distribution Agreement and Services
Agreement.
Distribution Agreement
The Distribution Agreement provides for, among other
things, the principal corporate transactions which were
required to effect the Distribution, the division between
the Company and MCS of certain liabilities, the treatment
of certain employee compensation, benefit and labor matters,
and certain other agreements governing the relationship
between the Company and MCS following the Distribution.
Subject to certain exceptions, the Distribution Agreement
is designed to place with the Company and its subsidiaries,
following the Distribution, financial responsibility for
liabilities of the Company's businesses and for other
corporate liabilities of the Predecessor Corporation,
except for those liabilities relating to businesses that
relate specifically to the business of MCS.
The Distribution Agreement provides that, except as
otherwise set forth therein, all costs and expenses arising
prior to the Distribution in connection with the
Distribution were to be paid by MCS (except that the Company
was to pay all expenses in connection with the filing of its
Registration Statement on Form 10 and the printing and
mailing of the related Information Statement) and that both
the Company and MCS will indemnify each other in respect of
certain liabilities under the Securities Exchange Act of
1934. Except as otherwise specifically provided in the
Distribution Agreement, the Company will generally indemnify
MCS for all liabilities arising in connection with the
assets and businesses of the Company or that are otherwise
unrelated to the businesses of MCS.
The Company and MCS have also agreed to make records and
personnel available to each other in connection with audits,
claims, litigation and preparation of tax returns. The
Distribution Agreement also provides for the allocation of
benefits between the Company and MCS under existing
insurance policies.
Pursuant to the Distribution Agreement, the Company
generally assumed all liabilities of the Predecessor
Corporation under employee pension and welfare
benefit plans with respect to the employees and former
employees (including retirees and disabled workers) of the
Company's businesses. In addition, the Company has
agreed that it and its subsidiaries will be solely
responsible for salary and bonus deferrals by employees
of the Company and its subsidiaries who are not also
employees of MCS following the Distribution.
Services Agreement
The Company and MCS have also entered into a Services
Agreement pursuant to which the Company was to (i)
make available to MCS certain services, including tax,
accounting, data processing, cash management, employee
benefits, monitoring, operational, supervisory,
insurance purchasing and claims administration consulting
services, and (ii) provide certain financial services to
MCS, including analysis and advice regarding potential
financial transactions (including but not limited to
proposed issuances of debt or equity securities, proposed
merger of asset acquisitions or sale transactions and
dividend, stock split or similar transactions), assistance
in budget and forecast preparation, relations with financial
analysts, financial press, and investors, and crisis
management and control. Such services were to commence on
the date of the Distribution and continue for one year.
MCS was to pay the Company $700,000 for such services.
In order to compensate the Company for fixed costs
in making such services available, MCS was to be obligated
to pay such fees whether or not it elects to utilize the
services. MCS will also reimburse the Company for its
out-of-pocket expenses in connection therewith. The
Services Agreement also provides that the Company will not
be liable for any losses or damages suffered in respect of
services to be performed thereunder, other than by reason
of its willful misconduct or gross negligence in performing
such services.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
Set forth below is a list of the financial statements
which were filed with the Original Report, and the page
number of the Original Report where such statements
appeared.
Financial Statements: Page
Report of Independent Accountants F-2
Balance Sheets as of May 31, 1996 and 1995 F-3
Statements of Operations for the years ended
May 31, 1996, 1995 and 1994 F-4
Statements of Changes in Stockholders' Equity for the
years ended May 31, 1996, 1995 and 1994 F-5
Statements of Cash Flows for the years ended
May 31, 1996, 1995 and 1994 F-6
Notes to Financial Statements F-7
All supplemental schedules other than as set forth above
are omitted as inapplicable or because the required
information is included in the Financial Statements or the
Notes to Financial Statements.
<PAGE>
Exhibits:
A list of Exhibits is set forth in the Exhibit Index,
which index precedes such exhibits and which is
incorporated herein by this reference thereto. Included
in the exhibits listed therein are the following exhibits
which constitute management contracts or compensatory
plans or arrangements:
(i.) 1989 Stock Option Plan, as amended*
(ii.) 1991 Stock Option Plan**
(iii.) 1993 Stock Option Plan***
(iv.) 1993 Performance Stock Option Plan***
(v.) Voting Preferred Stock Option Agreement
with Richard C. Jelinek ##
(vi.) Employee Stock Purchase Plan, as amended ##
(vii.) Form of Indemnification Contract
between Registrant and each officer
and director*
(viii.) Retirement Savings Plan***
(ix.) 1994 Stock Option Plan****
(x.) 1994 Directors' Stock Option Plan*****
(xi.) 1995 RCM Stock Option Plan ##
(xii.) 1996 C.E.O. Stock Option Plan ##
(xiii.) 1996 C.E.O. Replacement Stock Option Plan ##
(xiv.) 1996 C.E.O. Special Stock Option Plan ##
(xv.) Frank A. Pierce Employment Agreement #
(xvi.) Patrick C. Sommers Employment Agreement
<PAGE>
* Incorporated by reference to the exhibit with the
same designation filed as part of Registration
Statement No. 33-41253.
** Incorporated by reference to the exhibit with the
same designation filed as shown on the exhibit
index in the Annual Report on Form 10-K of the
Predecessor Corporation (Commission File No.
0-19393) for the fiscal year ended May 31, 1992.
*** Incorporated by reference to the exhibit with the
same designation filed as shown on the exhibit
index in the Annual Report on Form 10-K of
the Predecessor Corporation for the fiscal
year ended May 31, 1993.
**** Incorporated by reference to the exhibit
with the same designation as shown on the
exhibit index in the Annual Report on Form
10-K of the Predecessor Corporation for the
fiscal year ended May 31, 1994.
***** Incorporated by reference to the exhibit
with the same designation as shown on the
exhibit index in the Annual Report on Form 10-K
of the Predecessor Corporation for the fiscal
year ended May 31, 1995.
# Incorporated by reference to the exhibit with
the same designation as shown on the exhibit
index on Form 10-KA of the Predecessor Corporation
for the fiscal year ended May 31, 1995.
## Filed with Original Report.
<PAGE>
Reports on Form 8-K:
====================
No reports on Form 8-K were filed during the last quarter
of the fiscal year ended May 31, 1995.
SIGNATURES
==========
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEDICUS SYSTEMS CORPORATION
By William W. Cowan
William W. Cowan
Vice President,
Chief Financial
Officer and Asst.
Secretary
Dated: September 30, 1996
<PAGE>
Exhibit Index
Exhibit
Number
Page*
===========================================================
2 Distribution Agreement between the Predecessor
Corporation and the Registrant (incorporated by
Reference to Exhibit 2(b) to the Predecessor
Corporation's Report on Form 8-K (Commission File
No. 0-19393) dated March 1, 1996, as amended by
Form 8-K/A-1 filed on April 30, 1996).
3 (a) Restated Certificate of Incorporation
(incorporated by reference to Exhibit 4(a) to
Registration Statement No. 333-3028).
(b) Bylaws (incorporated by reference to Exhibit 3(b)
to the Registrant's Registration Statement on
Form 10 (Commission File No. 0-27614)).
10 (b) Agreement between the Registrant and Comshare,
Inc.**
(c) 1989 Stock Option Plan, as amended**
(c)(1) 1991 Stock Option Plan ***
(c)(2) 1993 Stock Option Plan****
(c)(3) 1993 Performance Stock Option Plan****
(c)(4) 1994 Stock Option Plan*****
(c)(5) 1994 Directors' Stock Option Plan #
(c)(6) 1995 RCM Stock Option Plan ##
(c)(7) 1996 C.E.O. Stock Option Plan ##
(c)(8) 1996 C.E.O. Replacement Stock Option Plan ##
(c)(9) 1996 C.E.O. Special Stock Option Plan ##
(e) Voting Preferred Stock Option Agreement with
Richard C. Jelinek ##
(f) Employee Stock Purchase Plan, as amended ##
(g) Form of Indemnification Contract between
Registrant and each officer and director**
(h) Retirement Savings Plan****
(i) Lease of Evanston, IL office ##
(j) Lease of Alameda, CA office ##
(k) Lease of Cincinnati, OH office***
(l) Lease of Chesterfield, MO office ##
(m) Frank A. Pierce Employment Agreement #
(n) Patrick C. Sommers Employment Agreement
23 Consent of Price Waterhouse LLP
<PAGE>
* Indicated only on manually signed original of
report.
** Incorporated by reference to the exhibit with the
same designation filed as part of Registration
Statement No. 33-41253.
*** Incorporated by reference to the exhibit with the
same designation filed as part of the Annual Report
on Form 10-K of the Predecessor Corporation for the
fiscal year ended May 31, 1992.
**** Incorporated by reference to the exhibit with the
same designation filed as part of the Annual Report
on Form 10-K of the Predecessor Corporation for the
fiscal year ended May 31, 1993.
***** Incorporated by reference to the exhibit with
the same designation filed as part of the Annual
Report on Form 10-K of the Predecessor Corporation
for the fiscal year ended May 31, 1994.
# Incorporated by reference to the exhibit with the
same designation filed as part of the Annual Report
on Form 10-K of the Predecessor Corporation for the
fiscal year ended May 31, 1995.
## Filed with Original Report.
February 28, 1996
Mr. Patrick C. Sommers
6505 Shawnee Circle
Edina, Minnesota 55439
Dear Pat:
This letter confirms our agreement that Medicus Systems
Corporation ("Medicus") has agreed to employ you and you
have agreed to serve as President and Chief Executive
Officer of Medicus effective immediately.
Your base salary will be $250,000 annually (or in future
years, such increased amount as we may agree) commencing on
your first day of full-time work. You will also participate
in Medicus' bonus plan with a targeted bonus of 44% of your
salary in accordance with the Company's customary practices
and formulae. You will also receive the same benefit
package as other Medicus employees, except that you will be
immediatley eligible for 26 days of paid time off on an
annual basis (in addition to regularly scheduled Medicus
holidays).
Concurrently with the execution of this letter, Medicus
has granted you ten year stock options to purchase 175,000
shares of Medicus stock, such options subject to vesting in
four equal installments of 25% on the date of this letter
and on February 28, 1998, 1999 and 2000. Medicus has also
granted to you ten year performance options to purchase
175,000 shares of Medicus stock. Except as provided below
in certain events of termination and change of control, if
your employment is terminated at any time, your option will
expire thirty days following such termination (provided that
if your employment is terminated other than for cause
during the first year of employment, your options will
continue to vest in accordance with their terms and
terminate 30 days following the end of such year). All
options will also terminate immediately if you breach your
employment agreement or if you are terminated for cause
at any time.
Your performance options will vest in three separate
tranches of 58,333-1/3 options triggered by the closing
price of Medicus common stock for ten consecutive trading
days equalling or exceeding $14, $17 and $20. More
specifically, if during the twelve months following February
28, 1996 Medicus common stock trades for ten consecutive
trading at or above $14, the first tranche of 58,333-1/3
shares will vest. Similarly, during the same twelve month
period, if Medicus common stock trades for ten consecutive
trading days at or above $17 or $20, the second and third
58,333-1/3 shares will vest.
During the second twelve months following February 28,
1996, if (a) the first tranche of 58,333-1/3 options did
not vest during the first twelve months, and (b) Medicus
common stock trades for ten consecutive trading days at or
above $17, the first tranche of 58,333-1/3 options will
vest. In addition, during the same twelve month period,
if Medicus common stock trades for ten consecutive trading
days at or above $17 and if the second tranche of
58,333-1/3 options has not already vested, it will vest;
and if during such period Medicus common stock trades for
ten consecutive days at or above $20 and if the third
tranche of 58,333-1/3 options has not already vested,
it will vest.
In similar fashion, if during the forty-eight months
following the first twenty-four months following the
date of this letter (February 28, 1998 through February
25, 2002), Medicus common stock trades for ten consecutive
trading days at or above $20, all unvested options will
vest.
Medicus performance options also vest automatically nine
years after the date of the grant and are exercisable except
if terminated at an earlier date during the ten year period
following the date of the grant. Both the option exercise
price of $9-5/8 (being the last reported sale price of
Medicus common at the time of the Compensation meeting on
February 28, 1996, at which your options were approved) and
the trigger prices of $14, $17, and $20 will be adjusted
proportionately as described in the Medicus proxy statement
for the meeting to be held on February 27, 1996.
For the purposes of this letter, termination by Medicus
"for cause" shall mean termination on account of gross
negligence, dishonesty, willful material breach of an
agreement with Medicus, or violation of any reasonable rule
or regulation of Medicus of which you have been advised
in writing.
Notwithstanding the foregoing, in the event of a Change
in Control (as defined below) of Medicus, Medicus agrees
that if (a) your employment is terminated by Medicus other
than for cause, or (b) without your consent Medicus
materially changes your duties or responsibilities or the
location of your principal place of work and as a result of
such change or changes you voluntarily terminate your
employment, then, in either such event, all of your
outstanding options will vest and become exercisable on the
date of termination of your employment.
In addition, if a Change in Control occurs during the
first twelve months following the date of this letter, and
if at the time of the Change in Control your vested
in-the-money options do not have a value of at least
$1,000,000, Medicus will alternatively accelerate enough of
your options so that you do have a vested value of
$1,000,000 or pay you a bonus equal to the difference
between the vested value of your options and $1,000,000.
For the purposes of this letter, "Change in Control"
shall mean the occurrence of any of the following events:
(i) The acquisition, by new stockholders (being any person
or group of persons other than Richard C. Jelinek, the other
current directors of the Company, their respective families,
estates, trusts and other affiliates) acting in concert, of
beneficial ownership of such persons or group of persons
equaling or exceeding 50% of the outstanding common stock
and warrants of the Company; provided, however, that no
such person or persons shall be deemed to beneficially own
(i) any common stock or warrants aquired directly from the
Company or (ii) any common stock warrants held by the
Company or any of its subsidiaries or any employee benefit
(or any related trust) of the Company or its subsidiaries.
The Change in Control shall be deemed to occur on the date
the beneficial ownership of the aquiring person or group of
persons first equals or exceeds 50% of the outstanding
common stock and warrants of the Company.
(ii) A merger, consolidation or other reorganization having
substantially the same effect, or the sale of all or
substantially all the consolidated assets of the Company
in each case, with respect to which the person or group
of persons who were the respective beneficial owners
of the outstanding common stock immediately prior to such
event do not, following such event, beneficially own,
directly or indirectly, more than 50% of, respectively, the
then outstanding voting stock of the corporation resulting
from such event or the corporation purchasing or receiving
assets pursuant to such event.
If more than one of the foregoing events shall occur,
each such event shall constitute a separate Change in
Control.
Medicus further confirms that it will abide by both the
letter and the spirit of the adjustment provisions
contained in its Stock Option Plans and the Stock Option
Certificates which you hold, pursuant to which Medicus has
agreed to adjust the outstanding options appropriately in
the event of a sale or merger of the corporation.
Medicus further agrees that in the event that Medicus
stock trades for ten consecutive days during April, 1996,
at a price which is $1.00 or more less than the adjusted
exercise price of your options, you will be granted an
additional 50,000 options exercisable at closing price on
the last day of such (or the first such) ten day period.
Half these options will vest in four installments of 25%
on the same dates as the 175,000 options vesting on fixed
dates described above, and half these options will vest in
three tranches on the same performance basis and on the same
dates as the 175,000 options vesting in three tranches
described above.
For the purposes of this letter, a change in duty or
responsibility shall be broadly interpreted. Thus, by way
of example, a change in your autonomy or role in setting
strategy and policies of the Company would be deemed to
constitute a change in duty or responsibility even if you
remained in title chief executive officer of the Medicus
business.
In addition to the options described above, Medicus will
at its next Board of Directors Compensation Committee
meeting grant to you an option. We have discussed
alternatively a 13,000 share pre-spinoff option at $2.8875
per share or a 15,000 share pre-spinoff option at $4.8125,
such option vesting on February 28, 1997 and such option
not being subject to termination as a result of your
termination for any reason prior to February 28, 1997.
In the event the Company terminates your employment
other than for cause during your first year of employment,
you will be entitled to severance pay equal to the remainder
of the first year plus six months. Thereafter, in the event
of such termination, you will be entitled to six months
severance. In each case, severance will include only base
salary.
We have agreed that Medicus will not pay your relocation
expenses for your relocation to Illinois.
We have also agreed that I will retire as a full-time
employee of Medicus effective June 1, 1996, under the terms
and conditions approved by the Board and discussed with
you.
As a condition to your employment, you will execute
Medicus' Standard Key Employee Executive Nondisclosure
Agreement.
Again, I would like to take this opportunity to say how
excited I am about working together with you to develop
Medicus into one of the significant and most profitable
companies in our industry.
The substance of the terms of this letter was negotiated
and agreed to in Illinois and it is solely for the
convenience of the parties that it is being signed by
facsimile outside of Illinois. Illinois law applicable to
contracts made and to be performed in Illinois shall
therefore apply to and govern all aspects of this
Agreement.
Please confirm your agreement with and acceptance of the
provisions of this letter by signing and returning the
enclosed copy of this letter where indicated.
Sincerely, Richard C. Jelinek
Chairman
Accepted and Agreed:
Patrick C. Sommers
March 12, 1996
Mr. Patrick C. Sommers
6505 Shawnee Circle
Edina, Minnesota 55439
Dear Pat:
This letter amends your letter agreement dated February
28, 1996, and confirms the repricing of your options as
follows.
As a result of the reorganization of Medicus and spinoff
of Managed Care Solutions, Inc., your 175,000 four year
vesting options ("time-vesting options") and your 175,000
performance based vesting options ("performance options")
now represent options to purchase shares of Medicus Systems
Corporation, a Delaware corporation and the successor to the
business of a predecessor Delaware corporation of the same
name, at an adjusted exercise price of $7.51 per share
(adjusted down from $9.625 per share). The vesting
provisions of your time-vesting options remained unchanged
and the three price targets triggering vesting of your
performance options of $14.00, $17.00 and $20.00 have been
adjusted to $10.92, $13.26 and $15.60.
The Compensation Committee today has approved the
repricing of your options and adjustment of the three
price targets triggering vesting of your performance
options so that the exercise price of all of your options
shall be $6.50 per share. The three price targets
triggering vesting of tranches of your performance options
are repriced at $9.50, $11.50 and $13.50 per share. We also
agree that the price at which Medicus stock must trade to
trigger an obligation to grant an additional 50,000 options
shall be $5.50 per share. The Compensation Committee also
granted to you an option to purchase 18,000 shares at a
price of $2.00 per share, such option vesting on February
28, 1997 and such option not being subject to termination
as a result of your termination for any reason prior to
February 28, 1997. These options will also not be counted
in computing your minimum $1,000,000 gain in the event of
a Change in Control.
Other than these changes and the clarification in the
next paragraph of this letter, the terms and conditions of
your options and our original letter agreement remain
unchanged.
We have also agreed that the statement in our letter
agreement dated February 28, 1996, that Medicus will not
pay your relocation expenses for your relocation to Illinois
does not apply to out-of-pocket expenses incurred in moving
your furniture and other belongings to the Chicago area,
and that Medicus will reimburse you for these expenses in
accordance with Medicus' customary policies.
Please confirm your agreement with and acceptance of the
provisions of this letter by signing and returning the
enclosed copy of this letter where indicated.
Sincerely, Richard C. Jelinek
Chairman
Accepted and Agreed:
Patrick C. Sommers
