SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
[Amendment No. ]
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6 (e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
MEDICUS SYSTEMS CORPORATION
-----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] $125 per Exchange Act Rules 0-11(c)(l)(ii), 14a-6(i)(l), or
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by the 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:
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
November 17, 1997
You are cordially invited to attend the Annual Meeting of Stockholders of
Medicus Systems Corporation (the "Company") which will be held at the Company's
executive offices, twelfth floor, One Rotary Center, Evanston, Illinois, on
November 17, 1997, at 12:00 p.m., Central Time, for the following purposes:
1. To elect directors;
2. To consider and vote upon a proposal to approve the Company's 1997
Directors' Stock Option Plan. A copy of the plan is included as Exhibit A to the
proxy statement; and
3. To transact such other business as may properly come before the meeting.
Only stockholders of record at the close of business on September 26, 1997
are entitled to vote at the Annual Meeting or any adjournment thereof.
Beneficial owners of shares of Common Stock not held in their name may not vote
such shares directly, but must instruct the record holder of such shares (such
as a brokerage or bank) with respect to the voting of such shares.
A proxy statement and a proxy card solicited by the Board of Directors are
enclosed herewith. It is important that your shares be represented at the Annual
Meeting regardless of the size of your holdings. Whether or not you intend to be
present at the meeting in person, we urge you to please mark, date and sign the
enclosed proxy card and return it in the envelope provided for that purpose,
which does not require postage if mailed in the United States. If you attend the
meeting, you may, if you wish, withdraw your proxy and vote in person.
William G. Brown
Secretary
Evanston, Illinois
October 3, 1997
MEDICUS SYSTEMS CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
November 17, 1997
This statement is furnished in connection with the solicitation by the Board
of Directors of Medicus Systems Corporation ("Medicus" or the "Company") of
proxies for use at the Annual Meeting of Stockholders of the Company to be held
at the Company's executive offices, twelfth floor, One Rotary Center, Evanston,
Illinois at 12:00 p.m., Central Time, on November 17, 1997, or any adjournment
thereof. Proxies properly executed and returned in a timely manner will be voted
at the Annual Meeting in accordance with the directions specified therein. If no
direction is indicated, they will be voted for the election of the nominees
named herein as directors; for the proposal to approve the Company's 1997
Directors' Stock Option Plan; and on other matters properly presented for a
vote, in accordance with the judgment of the persons acting under the proxies.
Any stockholder giving a proxy has the power to revoke it any time before it is
voted, either in person at the meeting, by written notice to the Secretary of
the Company, or by delivery of a later-dated proxy.
The Company's executive offices are located at One Rotary Center, Evanston,
Illinois 60201 and its telephone number is 847-570-7500. Proxy materials are
being mailed to stockholders beginning on or about October 3, 1997.
SHARES OUTSTANDING AND VOTING RIGHTS
Only stockholders of record at the close of business on September 26, 1997
are entitled to vote at the Annual Meeting. Beneficial owners of shares of
Common Stock not held in their name may not vote such shares directly, but must
instruct the record holder of such shares (such as a brokerage or bank) with
respect to the voting of such shares. The only voting stock of the Company
currently outstanding is its Common Stock, $.01 par value, of which 5,486,509
shares were outstanding at the close of business on September 26, 1997. Each
share of Common Stock issued and outstanding is entitled to one vote. With
respect to the proposal to approve the 1997 Director's Stock Option Plan, an
abstention will have the effect of a vote against such proposal, and non-voted
shares will have no effect on the approval of such proposal (assuming the
presence of a quorum). Votes will be tabulated, using an automated scanner, by
the inspectors of election appointed by the Company.
HISTORY
Prior to March 1, 1996, the Company's predecessor (the "Predecessor
Corporation") operated a software and related services business and a small
managed care business. In February 1995, the Predecessor Corporation adopted a
formal plan to separate its managed care business from its software and related
services business. In order to effect this separation, the Predecessor
Corporation formed a new Delaware subsidiary, Medicus Systems Software, Inc., to
which it transferred all of its assets and liabilities excluding only the
defined assets and liabilities of its managed care business. In turn, the stock
of this company was distributed on March 1, 1996 on a share-for-share basis to
the stockholders of the Predecessor Corporation (the "Distribution"), and the
name of the new company was changed to Medicus Systems Corporation. Immediately
after the Distribution, the Predecessor Corporation, which then consisted only
of the managed care business, effected a one-for-three reverse stock split. Also
on March 1, 1996, immediately after the reverse stock split, the Predecessor
Corporation acquired three Arizona corporations engaged in the managed care
business through merger transactions (the "Mergers") pursuant to which each of
the three Arizona corporations became a wholly-owned subsidiary of the
Predecessor Corporation, and the Predecessor Corporation's name was changed to
Managed Care Solutions, Inc. ("Managed Care Solutions").
COMMON STOCK OWNERSHIP OF CERTAIN BENFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 31, 1997, 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 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.
<TABLE>
<CAPTION>
Name <F1> Shares Beneficially Owned Percent of Common Stock
---- ------------------------- -----------------------
<S> <C> <C>
Patrick C. Sommers <F3>............................... 74,000 1.3%
William G. Brown <F3>................................. 219,760 4.0%
Angus J. Carroll <F3>................................. 11,250 0.2%
Susan K. Doctors <F3>................................. 5,625 0.1%
Susan P. Dowell <F3>.................................. 128,000 2.3%
Raymond J. Hanson <F3>................................ 17,500 0.3%
Lynda D. Hernandez <F3>............................... 16,475 0.3%
Jon E.M. Jacoby <F3>.................................. 86,250 1.6%
Richard C. Jelinek <F2><F3>........................... 1,339,150 22.8%
John P. Kunz.......................................... 0 0.0%
Risa Lavizzo-Mourey <F3>.............................. 26,250 0.5%
Timothy K. Rutledge <F3>.............................. 71,875 1.3%
Gail L. Warden <F3>................................... 109,500 2.0%
Dorsey R. Gardner <F4>................................ 670,003 12.2%
Mellon Bank Corporation <F5>.......................... 453,000 8.3%
All directors (including the nominee) and executive
officers as a group (16 persons) <F3>.............. 2,134,785 34.7%
<FN>
<F1> The address of all of the persons named or identified above, except for
Mellon Bank Corporation, is c/o Medicus Systems Corporation, One Rotary
Center, Suite 1111, Evanston, Illinois 60201.
<F2> Includes 100,000 shares owned by Mr. Jelinek's wife and warrants to
purchase 400,000 shares of Common Stock, as to which Mr. Jelinek disclaims
beneficial ownership.
<F3> Includes 68,000, 3,750, 11,250, 5,625, 40,000, 7,500, 16,475, 41,250,
3,750, 26,250, 16,875, 3,750 and 272,225 shares covered by options held by
Mr. Sommers, Mr. Brown, Mr. Carroll, Ms. Doctors, Ms. Dowell, Mr. Hanson,
Ms. Hernandez, Mr. Jacoby, Mr. Jelinek, Dr. Lavizzo-Mourey, Mr. Rutledge,
Mr. Warden and all directors and executive officers as a group,
respectively, which were exercisable within sixty days of May 31, 1997.
Such persons disclaim beneficial ownership of such shares.
<F4> Includes 550,778 shares owned by Hollybank Investments, LP, a Delaware
Limited Partnership ("LP") of which Dorsey R. Gardner is general partner.
Mr. 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, Mr. Gardner expressly disclaims such beneficial
ownership.
<F5> Represents shares as of February 6, 1997 as reported on Schedule 13G held
by a trust of which Mellon Bank Corporation is a trustee and of which Mr.
Jelinek is a beneficiary. Such shares are also included in the shares
shown as beneficially owned by Richard C. Jelinek.
</FN>
</TABLE>
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. No shares of Voting Preferred Stock are currently outstanding.
ELECTION OF DIRECTORS
Eight directors are to be elected at the Annual Meeting. The Board of
Directors has designated the persons named below as nominees for election as
directors, for terms expiring at the next Annual Meeting of Stockholders. All
nominees other than Mr. Gardner are currently serving as directors.
Unless authority is withheld, signed proxies which are returned in a timely
manner will be voted for the election of the eight nominees for director,
provided that, if any of such nominees should be unable to serve by virtue of an
unexpected occurrence, the proxies will be voted for such other person or
persons as will be determined by the holders of the proxies in their discretion.
Nominees receiving a plurality of the votes of the shares present or represented
by proxy at the Annual Meeting and entitled to vote will be elected as
directors.
Biographical information concerning the eight nominees is presented below:
Patrick C. Sommers, age 50, Chairman of the Board of the Company, President
and Chief Executive Officer, joined the Company 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. From 1969 to 1990, Mr. Sommers served in successive
management positions with Dun & Bradstreet Corporation, culminating with his
position as President of Dun & Bradstreet Information Resources, Inc.
William G. Brown, age 54, is a partner of Bell, Boyd & Lloyd, Chicago, IL,
counsel to the Company, and has been Secretary and a director of the Predecessor
Corporation since its incorporation in December 1984, and of the Company and
Managed Care Solutions since the Distribution and Mergers. Mr. Brown is also a
director of MYR Group, Inc., Dovenmuehle Mortgage, Inc. and CFC International,
Inc.
Jon E.M. Jacoby, age 59, 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 St. Vincent Infirmary Medical
Center, Delta & Pine Land Co. 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.
John P. Kunz, age 64, was elected a director on January 2, 1997. He is
founder and President, since 1989, of J.P.K. Associates, an international
consulting firm in the information industry. From 1978 to 1989, Mr. Kunz served
in successive management positions with Dun & Bradstreet Corporation,
culminating with his position as President of Dun & Bradstreet Business
Marketing Services in 1984 and President of Dun & Bradstreet Business
Information Services in 1989. From 1975 to 1978, Mr. Kunz served as Chairman of
R.H. Donnelley, Europe. Mr. Kunz was formerly a director of Advance-Peterholm
Group, Ltd., American Credit Indemnity Company, Dun & Bradstreet International,
and Intervest.
Richard C. Jelinek, age 60, was co-founder of the predecessor of the
Predecessor Corporation in 1969 and served as Chairman of the Board of the
Predecessor Corporation since its incorporation in December 1984 through
February 29, 1996. 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. Prior to founding the predecessor of the Predecessor Corporation,
Mr. 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. He has been a director of the
Predecessor Corporation since its incorporation in 1984 and of the Company and
Managed Care Solutions since the Distribution and Mergers. He has been Chairman
of the Board of Managed Care Solutions since July 1996.
Risa Lavizzo-Mourey, age 43, is the Sylvan Eisman Professor of Medicine and
Health Care Systems at the University of Pennsylvania where she is a practicing
Internist and Geriatrician. Dr. Lavizzo-Mourey earned her medical degree and
completed her residency at Harvard Medical School followed by a Masters of
Business Administration at the University of Pennsylvania's Wharton School. 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, and several Institute
of Medicine Committees. She continues to be a consultant to the White House on
Health Care Policy. Dr. Lavizzo-Mourey is a director of Nellcor Puritan Bennett,
the Kapson Group, the American Board of Internal Medicine and a Regent of the
American College of Physicians. Dr. Lavizzo-Mourey has been a director of the
Predecessor Corporation since April 1994, and of the Company and Managed Care
Solutions since the Distribution and Mergers.
Gail L. Warden, age 59, is President and Chief Executive Officer of Henry
Ford Health System, Detroit, MI. Mr. Warden is an elected member of the
Institute of Medicine of the National Academy of Sciences, as well as a member
of the Institute's Governing Council, its Board on Health Care Services and its
Coordinating Committee on Health Care Quality. He is a member of Board of
Trustees 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. In 1995, Mr. Warden was Chairman of the American Hospital Association
Board of Trustees. He is a graduate of Dartmouth College with a masters degree
in health care management from the University of Michigan. He was first elected
a director of the Predecessor Corporation in 1988 and has served as a director
of the Company since the Distribution and Mergers.
Dorsey R. Gardner, age 55, has been President of Kelso Management Co., Inc.,
an investment advisor, from 1980 to the present, and General Partner of
Hollybank Investments, LP, a Delaware Limited Partnership, since 1994. From 1966
to 1980, Mr. Gardner served in successive management positions with Fidelity
Management Research. Mr. Gardner is a director of Crane Company, Medusa
Corporation, and Filene's Basement.
MEETINGS AND COMMITTEES OF THE BOARD
During the fiscal year ended May 31, 1997, the Board of Directors held eight
meetings. No director attended fewer than three-fourths of the aggregate number
of meetings of the Board and of the committees described below on which he or
she served during the past fiscal year. The Board has designated an Audit
Committee, whose functions include making recommendations to the Board on the
selection and retention of the Company's independent accountants, a Compensation
Committee whose functions include making recommendations to the Board regarding
the salaries and bonuses to be paid to the executive officers and key employees
of the Company and a Stock Option Committee, whose functions include making
recommendations to the Board regarding stock options to be granted to the
executive officers and key employees of the Company. Messrs. Brown and Jacoby
are currently the members of the Audit Committee, Messrs. Brown, Jelinek and
Kunz are currently the members of the Compensation Committee, and Dr.
Lavizzo-Mourey and Messrs. Warden and Kunz are currently the members of the
Stock Option Committee. During the fiscal year ended May 31, 1997, the Audit
Committee met once and the Stock Option Committee met six times.
<TABLE>
<CAPTION>
COMPENSATION
Summary Compensation Table
Long-Term
Annual Compensation Compensation
------------------------------------------- ------------
Securities
Underlying
Other Annual Options All Other
Name and Principal Fiscal Salary Bonus Compensation SAR's Compensation
Position <F1><F2> Year ($) ($) ($) (#) ($) <F3>
--------------- ---- --- --- ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Patrick C. Sommers <F4> 1997 250,000 - - 50,000 3,000
Chairman, Chief 1996 63,465 - - 718,000 -
Executive Officer and
President
Angus J. Carroll 1997 155,817 - - 90,000 -
Sr. Vice President 1996 0 - - - -
Susan K. Doctors 1997 98,333 7,500 - 15,000 2,033
Vice President 1996 89,800 - - - -
Susan P. Dowell 1997 172,067 20,000 - 50,000 19,269
Executive Vice 1996 173,250 - - - 3,465
President
Raymond J. Hanson 1997 162,420 15,000 - - 3,000
Sr. Vice President 1996 121,221 - - - -
Lynda D. Hernandez 1997 111,250 11,667 - - 2,022
Vice President 1996 92,077 - - - -
Timothy K. Rutledge 1997 121,413 10,000 - 25,000 2,541
Vice President 1996 88,664 50,668 - - 2,324
<FN>
<F1> Includes the Chairman of the Board and Chief Executive Officer and the four
other most highly compensated executive officers as measured by salary and
bonus meeting the disclosure threshold requirements pursuant to Item 402 of
SEC Regulation S-K. Pursuant to Item 402, information is also included for
Ms. Dowell and Mr. Hanson, although they were no longer executive officers
as of May 31, 1997.
<F2> Information is provided only for the fiscal years ended May 31, 1997 and
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 that 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. The amounts shown for
1997 for all executives listed except Ms. Dowell represent contributions to
their accounts under such plan. Of the amounts shown for Ms. Dowell for
1997, $3,000 represents contributions to her account under such plan and
$16,269 represents amounts paid to Ms. Dowell as accrued vacation.
<F4> The number of options shown for Mr. Sommers includes 350,000 options
originally granted under the 1996 C.E.O. Stock Option Plan by the
Predecessor Corporation on February 28, 1996, which were assumed by the
Company, but were subsequently canceled upon the grant by the Company of a
new option for 350,000 shares under its 1996 C.E.O. Replacement Stock
Option Plan (also reflected in the number of options shown in the table).
</FN>
</TABLE>
Option / SAR Grants Table
The following table provides information on stock options granted to the
named executive officers during fiscal year 1997. The potential realizable value
of each grant of options was determined assuming that the market price of the
underlying security appreciates in value from the date of grant to the end of
the option term at annualized rates of 5% and 10% as required pursuant to Item
402 of SEC Regulation S-K.
<TABLE>
<CAPTION>
Option / SAR Grants in Last Fiscal Year
---------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants 10-Year Option Term
------------------------------------------------------------ -----------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees in or Base Expiration 5%<F2> 10%<F2>
Name Granted (#)<F1> Fiscal Year Price ($/Sh) Date ($) ($)
- ------------- -------------- ------------- ------------ ------ ----- ----
<S> <C> <C> <C> <C> <C> <C>
Patrick C. Sommers <F3> 25,000 4.1% 5.250 7/19/06 82,542 209,179
Patrick C. Sommers <F4> 8,333 1.4% 5.250 7/19/06 27,513 69,723
Patrick C. Sommers <F5> 8,333 1.4% 5.250 7/19/06 27,513 69,723
Patrick C. Sommers <F6> 8,334 1.4% 5.250 7/19/06 27,516 69,732
Angus J. Carroll <F3> 40,000 6.1% 6.250 7/3/06 157,224 398,436
Angus J. Carroll <F7> 13,334 2.2% 6.250 7/3/06 52,411 132,819
Angus J. Carroll <F8> 13,333 2.2% 6.250 7/3/06 52,407 132,809
Angus J. Carroll <F9> 13,333 2.2% 6.250 7/3/06 52,407 132,809
Angus J. Carroll <F3> 5,000 0.8% 5.250 7/19/06 16,508 41,836
Angus J. Carroll <F4> 1,667 0.3% 5.250 7/19/06 5,504 13,948
Angus J. Carroll <F5> 1,667 0.3% 5.250 7/19/06 5,504 13,948
Angus J. Carroll <F6> 1,666 0.3% 5.250 7/19/06 5,501 13,940
Susan K. Doctors <F10> 2,500 0.4% 5.250 7/19/06 8,254 20,918
Susan K. Doctors 2,500 0.4% 5.250 7/19/06 8,254 20,918
Susan K. Doctors 10,000 1.6% 5.625 2/3/07 35,375 89,648
Susan P. Dowell <F10> 25,000 4.1% 5.250 7/19/06 82,542 209,179
Susan P. Dowell 25,000 4.1% 5.250 7/19/06 82,542 209,179
Raymond J. Hanson <F10> 10,000 1.6% 5.250 7/19/06 33,017 83,671
Raymond J. Hanson 10,000 1.6% 5.250 7/19/06 33,017 83,671
Raymond J. Hanson 20,000 3.3% 5.625 2/3/07 70,751 179,296
Lynda D. Hernandez <F10> 7,500 1.2% 5.250 7/19/06 24,763 62,754
Lynda D. Hernandez 7,500 1.2% 5.250 7/19/06 24,763 62,754
Lynda D. Hernandez 2,900 0.5% 5.625 2/3/07 10,259 25,998
Timothy K. Rutledge <F10> 7,500 1.2% 5.250 7/19/06 24,763 62,754
Timothy K. Rutledge 7,500 1.2% 5.250 7/19/06 24,763 62,754
Timothy K. Rutledge 10,000 1.6% 5.625 2/3/07 35,375 89,648
<FN>
<F1> Generally, options granted in fiscal year 1997 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> 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.
<F4> Represents performance options, which will vest if price of the Common
Stock for ten consecutive trading days exceeds $9.50 during the 12 months
after July 19, 1996, or $11.50 during the 48 months after July 19, 1998.
<F5> Represents performance options, which will vest if price of the Common
Stock for ten consecutive trading days exceeds $11.50 during the 24 months
after July 19, 1996, or $13.50 during the 48 months after July 19, 1998.
<F6> Represents performance options, which will vest if price of the Common
Stock for ten consecutive trading days exceeds $13.50 during the 24 months
after July 19, 1996 and during the 48 months after July 19, 1998.
<F7> Represents performance options, which will vest if price of the Common
Stock for ten consecutive trading days exceeds $13.50 during the 24 months
after July 3, 1996 and during the 48 months after July 3, 1998.
<F8> Represents performance options, which will vest if price of the Common
Stock for ten consecutive trading days exceeds $9.50 during the 12 months
after July 3, 1996, or $11.50 during the 48 months after July 3, 1998.
<F9> Represents performance options, which will vest if price of the Common
Stock for ten consecutive trading days exceeds $11.50 during the 24 months
after July 3, 1996, or $13.50 during the 48 months after July 3, 1998.
<F10>Represents performance options that shall become exercisable with respect
to 100% of the shares subject thereto nine years after the date of grant,
namely July 19, 2005.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Option / SAR Exercises and Year-end Valuation Table
Aggregated Option / SAR Exercises in Last Fiscal Year
and FY-End Option / SAR Values
-----------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/
Options/SARs at FY-End SARs at FY-End <F3>
----------------------------- -------------------------
Shares Acquired Value
on Exercise <F1> Realized <F2> Exercisable Unexercisable Exercisable Unexercisable
Name (#) ($) (#) (#) ($) ($)
- -------------- --------------- ----------- -------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Patrick C. Sommers - - 68,000 350,000 69,750 -
Angus J. Carroll - - 11,250 78,750 - -
Susan K. Doctors - - 3,750 21,250 - -
Susan P. Dowell - - 40,000 60,000 - -
Raymond J. Hanson - - 7,500 82,500 - -
Lynda D. Hernandez - - 10,850 29,150 - -
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 ($5.875),
minus the exercise or base price.
</FN>
</TABLE>
Director Compensation
During fiscal 1997, directors of the Company received annual retainers of
$12,000. In future, directors of the Company will receive annual retainers of
$6,000, and a fee of $1,500 for each meeting attended in person. 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. At
the time of his election to the Board, Mr. Kunz was granted an option to
purchase 30,000 shares of Common Stock on similar terms and waived his right to
receive an option under the 1994 Directors' Stock Option Plan at the time of the
Company's Annual Meeting held on March 19, 1997. Options, with terms similar to
those under the 1994 Directors' Stock Option Plan, will also be granted under
the Company's 1997 Directors' Stock Option Plan, subject to shareholder
approval. For a description of the Company's 1997 Directors' Stock Option Plan,
see "Approval of 1997 Directors' Stock Option Plan."
Employment Agreements
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, and 2000. The option to purchase 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 remaining total option grant, the option
to purchase 18,000 shares is subject to vesting on February 28, 1997 with such
option not being subject to cancellation as a result of his termination for any
reason prior to February 28, 1997. In the event of a change in control of
Medicus, 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.
The Company has entered into an employment agreement with Angus J. Carroll
providing for his employment as Senior Vice President of the Company. The
agreement, which was entered into in July 1996, provides that during Mr.
Carroll's full-time employment, he is to receive an annual salary of not less
than $175,000 and is eligible to participate in Medicus' bonus plan with a
targeted bonus of 33% of his base salary in accordance with the Company's
customary practices and formulae. The Company agreed to pay a lump sum of
$50,000 to assist him in relocating to Illinois, as well as normal moving
expenses. Mr. Carroll is eligible for the same benefits as other Company
employees, except that he will be eligible for 26 days of paid time off
annually. Mr. Carroll also received options to purchase 80,000 shares of the
Company's Common Stock. Of the total option grant, the option to purchase 40,000
shares is subject to vesting in four equal increments of 25% on the date of the
agreement and on July 3, 1998, 1999, and 2000. The option to purchase additional
40,000 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. In the event of a change in control of Medicus,
Medicus has agreed that if Mr. Carroll's 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. Carroll's outstanding options will vest
and become exercisable on the date of termination of his employment.
Compensation and Stock Option Committee Report
The Compensation Committee administers the Company's compensation policies
applicable to its executive officers and the Stock Option Committee comprised of
three independent non-employee members of the Board of Directors.
Compensation Philosophy
The Company's compensation programs are designed to link executives'
compensation to the performance of the Company and provide competitive
compensation for the Company's executives relative to a select group of peer
companies in order to attract and retain high caliber senior executives
essential to the Company's long-term prosperity. The compensation mix reflects a
balance of annual base salary, annual cash awards, including incentive awards,
and equity-based incentives. Annual incentive cash awards are granted based on
the achievement of corporate financial targets, divisional operating and
financial objectives, and individual performance. Emphasis, however, is placed
on the more strategic equity-based plans that build shareholder value and
provide incentives to motivate executive behavior over the long term.
Compensation Program
The Company's executive officer compensation consists of two key elements:
(1) an annual cash component comprised of base salary and bonus; and (2) a
long-term equity component with respect to which existing holdings of Common
Stock are recognized and, in appropriate cases, stock options are granted. The
policies with respect to each of these elements are described below.
(1) Annual Compensation
Base salaries for executive officers are determined by evaluating the
responsibilities of the position and comparing it with other executive officer
positions in the Company and the marketplace. For purposes of comparability, the
Company utilizes annual executive compensation surveys prepared internally as
well as periodic surveys prepared by a nationally recognized compensation
consulting firm. For this purpose, the "market" consists of a broad range of
companies with which the Company feels it competes for executive talent. This
group is different than the peer group used for comparison purposes in the stock
price performance graph that appears elsewhere in this proxy statement because
the Company believes that the market for executive talent extends to a broader
range of companies than those included in the stock price performance graph.
Annual salary adjustments are determined by a review of market research, the
Company's performance (measured by earnings per share ("EPS") growth), the
individual's contribution to that performance, and for executive officers
responsible for particular business units, the financial and operating results
of their business units. No specific weights are assigned to these factors.
For fiscal 1997, bonuses had two elements: a Company Performance Incentive
and an Individual Performance Incentive. The Company Performance Incentive bonus
is an incentive program based on the Company meeting or exceeding its targeted
earnings objective and is defined as a percentage of each executive's salary.
The Company Performance Incentive program is designed to link compensation to
the performance of the Company. Under this program, the Company must produce a
minimum target return to shareholders before Company performance awards are
generated. At the minimum target level, 50% of the Company Performance award is
given. An additional award of 50% of the Company Performance award can be paid
should the Company achieve its "stretch" target performance level. For fiscal
1997, the minimum target return to shareholders was not achieved, and therefore
Company Performance Incentive bonuses were not awarded. The Individual
Performance Incentive is an incentive program based on achieving individual
objectives that are defined at the beginning of each fiscal year. Individual
objectives, such as business unit operating profit, customer satisfaction
measures and customer deliverables, are action-oriented with measurable outcomes
and/or results. Individual performance objectives were achieved by the following
named executive officers: Ms. Doctors, Ms. Dowell, Mr. Hanson, Ms. Hernandez and
Mr. Rutledge.
(2) Long-Term Compensation
To align shareholders' and executive officers' interests, the Company's
long-term compensation plan uses stock option grants whose value is related to
the value of the Company's Common Stock. Grants of stock options are made under
the Medicus Systems Corporation 1989, 1991, 1993, and 1994 Stock Option Plans,
the 1993 Performance Stock Option Plan, the 1994 Directors' Stock Option Plan,
the 1996 C.E.O. Replacement Stock Option Plan, 1996 C.E.O. Special Stock Option
Plan, the 1997 Employee Stock Option and Restricted Stock Plan, and, subject to
shareholder approval, the 1997 Directors' Stock Option Plan, which is being
presented for approval to the stockholders at the Annual Meeting (see "Approval
of 1997 Directors' Stock Option Plan"). In granting options, the Board takes
into account existing stock holdings and options already held by each executive.
The size of each option grant is determined by the individual's position within
the Company, the individual's level of responsibility and the number of options
currently held by the individual.
Stock options are generally granted with an exercise price equal to the fair
market value of the Company's stock on the date of grant. Stock options
generally vest in four annual increments and are exercisable up to ten years
from the date granted. In addition, the Company has granted and intends to
continue granting performance-based options that vest upon the attainment of
individually-specified goals or after nine years. Both types of stock options
provide incentive for the creation of stockholder value over the long term since
the full benefit of the compensation package cannot be realized unless an
appreciation occurs in the price of the Company's Common Stock over a specified
number of years.
CEO Compensation
During fiscal 1997, the Company's most highly compensated executive officer
was Patrick C. Sommers, Chairman of the Board and the Chief Executive Officer of
the Company. Mr. Sommers' annual compensation was determined by the Committee
using the same criteria that were used to determine compensation levels for
other corporate officers and was based on the Committee's assessment of the
responsibilities of the position and comparing it with other executive officer
positions in the Company and the marketplace. In addition, Mr. Sommers was
granted options to purchase a total of 368,000 shares of Medicus Common Stock
(see "Employment Agreements"). It was the opinion of the Committee that the
options granted to Mr. Sommers align his interests with those of stockholders
and the size of the grant was commensurate with the level of responsibility of
his position. In the Committee's view, Mr. Sommers' fiscal 1997 compensation
package reflects an appropriate balance of (i) the Company's performance during
his tenure in fiscal 1997, (ii) Mr. Sommers' own performance level, and (iii)
competitive standards.
Policy with Regard to the $1 Million Deduction Limit
In 1993, Section 162(m) was added to the Internal Revenue Code. This section
generally limits to $1 million the tax deduction for compensation paid to
executive officers of a publicly-held corporation who are named in the proxy
statement, subject to an exception for a "performance-based" compensation plan
as defined under that section. The 1996 C.E.O. Replacement Stock Option Plan and
the Company's existing employee stock option plans are intended to qualify as
"performance-based plans," except with respect to Restricted Shares awarded
under such plans. The Company's Compensation and Stock Option Committee has
determined that the other compensation currently paid to the Company's executive
officers, including Restricted Shares, is not expected to exceed the limitation
as set forth in Section 162(m).
All members of the Compensation and Stock Option Committees have approved the
foregoing report.
William G. Brown
Richard C. Jelinek
John P. Kunz
Risa Lavizzo-Mourey
Gail L. Warden
Performance Graphs
The following graph compares the cumulative total shareholder return on
Medicus Systems Corporation Common Stock to that of the Nasdaq National Market
and an index comprised of the common stock of 17 peer companies that compete in
the healthcare information systems industry over the period from the
Distribution of the Company's common shares to stockholders of the Predecessor
Corporation on March 1, 1996 to May 31, 1997. In calculating cumulative total
shareholder return, reinvestment of dividends is assumed, and the returns of
each member of the peer group are weighted for market capitalization.
(See Appendix A)
March 1, 1996 May 31, 1996 May 31, 1997
------------- ------------ ------------
Medicus 100 75 79
Nasdaq U.S. 100 113 128
Peer Group 100 116 107
The peer group of companies was selected based upon their being in the
business of healthcare information systems and related services. The companies
in the peer group, which for Corporate Performance Graph purposes does not
include the Company, are as follows: Access Health Marketing, Cerner
Corporation, Cycare Systems, Inc., First Data Corporation, GMIS, Inc., HBO &
Company, Health Management Systems, Health Risk Management, Keane, Inc.,
Medaphis Corporation, Medic Computer Systems, Mediware Information Systems,
Policy Management Systems, Shared Medical Systems, Spacelabs Medical, Inc., U.S.
Services, Inc. and Value Health, Inc.
The following graph compares the cumulative shareholder return on Predecessor
Corporation Common Stock over the period from the initial public offering of
Predecessor Corporation Common Stock on August 1, 1991, to February 29, 1996
(the last trading day prior to the Distribution) to that of the Nasdaq National
Market and an index comprised of the common stock of 17 peer companies that
compete in the healthcare information systems industry. In calculating
cumulative total shareholder return, reinvestment of dividends is assumed, and
the returns of each member of the peer group are weighted for market
capitalization.
(See Appendix A)
1992 1993 1994 1995 1996 (1)
---- ---- ---- ---- ----
Medicus 100 67 172 85 74
Nasdaq U.S. 100 124 132 160 209
Peer Group 100 118 145 196 253
(1) Data is shown as of February 29, 1996, the last trading day prior
to the Distribution.
The peer group of companies selected by the Predecessor Corporation to graph
the corporate performance prior to the Distribution is identical to the peer
group of companies selected by the Company as listed above.
Compensation and Stock Option Committee Interlocks and Insider Participation
Messrs. Brown, Jelinek and Kunz are currently the members of the Compensation
Committee and Dr. Lavizzo- Mourey and Messrs. Warden and Kunz are currently the
members of the 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 SEC Regulation S-K, except as described
below.
At the time of Mr. Jelinek's resignation as Chief Executive Officer of the
Company, the Company and Mr. Jelinek entered into a letter agreement providing
that, for the two-year period beginning June 1, 1996 (the date of Jelinek's
resignation as a full-time employee), Mr. Jelinek would serve as Chairman of the
Board and as a consultant to Medicus. The agreement provides that Mr. Jelinek
will receive compensation of $250,000 annually. The agreement also provides that
Mr. Jelinek will receive (i) lifetime medical benefits for himself and his wife
equivalent to those provided to Medicus executives, (ii) reimbursement of Mr.
Jelinek's out-of-pocket expenses for his relocation to Colorado, and (iii) the
services of a full-time secretary at his office in Colorado. In connection with
this agreement, Mr. Jelinek executed a modified version of the Medicus Standard
Key Employee Executive Non- disclosure Agreement.
On December 5, 1996, the Company reached an agreement in principle (the
"Agreement") with Mr. Jelinek, to purchase from him, and a trust of which he is
a beneficiary (the "Trust"), one million shares of Common Stock and 500 shares
of Voting Preferred Stock. Also, Mr. Jelinek agreed to resign as Chairman and
agreed, among other things, not to attempt to seek voting control of the Company
for a period of five years. (Mr. Jelinek continues to serve as a Director.) In
exchange, the Company agreed to pay Mr. Jelinek and the Trust $4.5 million in
cash and $2.0 million in 8% two-year promissory notes, and to issue to Mr.
Jelinek and the Trust 400,000 five-year warrants to purchase Common Stock at
$8.00 per share. The Company's Board of Directors approved the Agreement on
January 2, 1997, and the Company's stockholders approved the Agreement at the
Annual Meeting of Stockholders on March 19, 1997.
For the fiscal year ended May 31, 1997, the Company incurred legal fees of
$300,104 for services provided by 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 1997, the Company received payments of $185,831 for
sales of products and services to Henry Ford Health System, Detroit, Michigan,
of which Gail L. Warden, a director of the Company, is the President and Chief
Executive Officer.
Relationship Between Managed Care Solutions and the Company
Messrs. Jelinek and Brown and Dr. Lavizzo-Mourey are each directors of both
the Company and Managed Care Solutions. Also, Mr. Jelinek is Chairman of the
Board of Managed Care Solutions. In connection with the Distribution, the
Company and Managed Care Solutions entered into a Distribution Agreement and
Services Agreement.
Distribution Agreement. The Distribution Agreement provides for, among other
things, the principal corporate transactions required to effect the
Distribution, the division between Managed Care Solutions and the Company of
certain liabilities, the treatment of certain employee compensation, benefit and
labor matters, and certain other agreements governing the relationship between
the Company and Managed Care Solutions following the Distribution. Subject to
certain exceptions, the Distribution Agreement is designed to place with the
Company, following the Distribution, financial responsibility for the
liabilities of the Company's businesses and for other corporate liabilities of
the Predecessor Corporation, except those liabilities relating to businesses
that relate specifically to the business of Managed Care Solutions.
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 Managed Care Solutions (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 Managed Care Solutions 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 Managed Care
Solutions for all liabilities arising in connection with the assets and
businesses of the Company or that are otherwise unrelated to the businesses of
Managed Care Solutions.
The Company and Managed Care Solutions 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 Managed Care Solutions 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 will be solely responsible for salary and bonus
deferrals by employees of the Company who are not also employees of Managed Care
Solutions following the Distribution.
Services Agreement. The Company and Managed Care Solutions entered into a
Services Agreement pursuant to which the Company (i) made available to Managed
Care Solutions certain services, including tax, accounting, data processing,
cash management, employee benefits, monitoring, operational, supervisory,
insurance purchasing and claims administration consulting services, and (ii)
provided certain financial services to Managed Care Solutions, including
analysis and advice regarding potential financial transactions (including, but
not limited to, proposed issuance of debt or equity securities, proposed mergers
or 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 commenced on the date of the Distribution and continued
for one year. Managed Care Solutions paid the Company $700,000 for such
services. In order to compensate the Company for fixed costs in making such
services available, Managed Care Solutions was obligated to pay such fees
whether or not it elected to utilize the services. Managed Care Solutions also
reimbursed the Company for its out-of-pocket expenses in connection therewith.
The Services Agreement provided 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.
Section 16(a) Beneficial Ownership Reporting Compliance
During the fiscal year ended May 31, 1997, the Initial Statements of
Beneficial Ownership on Form 3 were not filed in a timely manner for the
following executive officers: Angus J. Carroll, Daniel P. DiCaro, Susan K.
Doctors and Marlon T. Gruen.
CERTAIN TRANSACTIONS
For descriptions of certain transactions between the Company and Messrs.
Brown, Jelinek, Warden and Managed Care Solutions, see "Compensation and Stock
Option Committee Interlocks and Insider Participation."
APPROVAL OF 1997 DIRECTORS' STOCK OPTION PLAN
In order to continue to encourage ownership of the Company's Common Stock by
directors of the Company, and to provide incentives for them to make maximum
efforts for the success of the business, the Board of Directors of the Company
has adopted and recommends that stockholders vote to approve the Medicus Systems
Corporation 1997 Directors' Stock Option Plan (the "1997 Directors' Plan").
Options granted under the 1997 Directors' Plan are intended not to qualify as
"Incentive Stock Options" as defined in the Internal Revenue Code of 1986 (the
"Code"). The 1997 Directors' Plan is substantially similar to the 1994
Directors' Plan, pursuant to which options to purchase a total of 90,000 shares
of Common Stock were granted to directors at the last three Annual Meetings of
Stockholders. Since no further shares are available under the 1994 Directors'
Plan, the Board of Directors has approved the successor 1997 Directors' Plan in
order to continue the same director incentives as before.
The following description is qualified in its entirety by reference to the
terms of the 1997 Directors' Plan, a copy of which is attached to this proxy
statement as Exhibit A.
Description of the 1997 Directors' Plan
The Board of Directors administers the 1997 Directors' Plan.
Options shall be granted only to directors of the Company. Options may be
granted with respect to a total of not more than 90,000 shares of Common Stock
under the 1997 Directors' Plan, subject to antidilution and other adjustment
provisions. If an option expires or is terminated or canceled unexercised as to
any shares, such released shares may again be optioned.
An option covering 5,000 shares of Common Stock shall be automatically
granted to each director of the Company on the date of the annual meeting of
stockholders each year. The option price shall be the fair market value of a
share of Common Stock on the date of the grant. Each option is for a term of ten
years, subject to earlier termination if the optionee's service as a director
terminates. Each option becomes exercisable with respect to 25% of the shares
subject to the option twelve months after the date of its grant and with respect
to an additional 25% at the end of each twelve-month period thereafter during
the succeeding three years.
No options have been granted as of May 31, 1997 under the 1997 Directors'
Plan. If the 1997 Directors' Plan is approved by stockholders, each nominee
identified under "Election of Directors" who is elected as a director at the
Annual Meeting will receive an option covering 5,000 shares of Common Stock.
The Board of Directors may permit the purchase price for shares purchased
upon exercise of an option to be paid, all or in part, by the delivery to the
Company of other shares of Common Stock of the Company in such circumstances and
manner as the Committee may specify, valued at the fair market value of the
Common Stock at the close of business on the date preceding the date of
exercise.
If the tenure as a director of any optionee with the Company or any of its
subsidiaries is terminated for any reason other than death, permanent
disability, retirement or cause, such optionee's option, to the extent the
option is exercisable at the date of termination, shall expire thirty days after
the termination of directorship (or upon the scheduled termination of the
option, if earlier). In the event of termination of directorship because of
death or permanent disability, the option may be exercised in full, unless
otherwise provided at the time of grant, without regard to any installments
established as described above, by the optionee, if he is living, or by his
heirs, legatees, or legal representative, during its specified term prior to one
year after the date of death or permanent disability. In the event of
termination of directorship because of retirement, the option may be exercised
by the optionee (or, if he dies within three months after such termination, by
his heirs, legatees, or legal representative), at any time during its specified
term prior to three months after the date of such termination, but only to the
extent the option was exercisable at the date of such termination. If an
optionee is removed for cause, his option shall expire forthwith and all rights
to purchase shares under it shall terminate immediately. For this purpose,
"removed for cause" means removed on account of dishonesty, disloyalty or
insubordination.
No option is transferable by the optionee otherwise than by will or the laws
of descent and distribution, and each option shall be exercisable during an
optionee's lifetime only by him.
The Board of Directors may amend or discontinue the 1997 Directors' Plan at
any time, provided, however, that the 1997 Directors' Plan may not be amended
more than once every six months except to conform with changes in the Internal
Revenue Code, ERISA or the rules and regulations under each, and provided
further, that no such amendment or discontinuation shall (a) change or impair
any option previously granted without the consent of the optionee, or (b)
without the approval of the holders of a majority of the shares of Common Stock
which vote in person or by proxy at a duly held stockholders meeting, (i)
increase the maximum number of shares which may be purchased by all optionees,
(ii) change the purchase price of any option, or (iii) change the option period
or increase the time limitations on the grant of options.
Options granted as of May 31, 1997, and which will be granted on the date of
the Annual Meeting (assuming the election of all seven director nominees) under
the 1997 Directors' Stock Option Plan, subject to shareholder approval, are
displayed in the following table.
Name 1997 Directors' Stock Option Plan
----------------------------- ----------------------------------
Patrick C. Sommers 5,000
Chairman/C.E.O. and President
Angus J. Carroll -
Senior Vice President
Susan K. Doctors -
Vice President
Susan P. Dowell -
Executive Vice President
Raymond J. Hanson -
Vice President
Lynda D. Hernandez -
Vice President
Timothy K. Rutledge -
Vice President
Non-executive Directors 35,000
On September 26, 1997, the last reported sales price of the Company's Common
Stock on the Nasdaq National Market was $4.75 per share.
Federal Tax Consequences
The Company understands that no gain or loss will be recognized to an
optionee upon the grant of an option under the 1997 Directors' Plan, but that
upon exercise of the option, ordinary income measured by the excess of the fair
market value of the shares acquired over the option price will be recognized to
the optionee. The Company will be entitled to a deduction equal to the amount of
ordinary income recognized to the optionee. An optionee's basis in shares
acquired upon the exercise of an option will be equal to the option price plus
the amount of ordinary income recognized to the optionee. An optionee's holding
period begins on the date on which the option is exercised.
Vote Required
Approval of the 1997 Directors' Plan requires the affirmative vote of the
holders of a majority of the shares of Common Stock present or represented by
proxy at the Annual Meeting and entitled to vote. The Board of Directors
recommends that stockholders vote FOR approval of the plan. If no other
direction is given, signed proxies which are returned in a timely manner will be
voted for approval of the 1997 Directors' Plan.
MARKET PRICE OF COMMON STOCK
The reported high and low prices of the Company's Common Stock on the Nasdaq
National Market on a fiscal quarter basis for the periods indicated, since the
date of the Distribution, were as follows:
High Low
---- ----
Fiscal Year Ended May 31, 1996
Fourth Quarter 9 5 1/4
Fiscal Year Ending May 31, 1997
First Quarter 6 1/2 4 3/4
Second Quarter 6 5/16 4 1/2
Third Quarter 7 1/2 4 3/8
Fourth Quarter 6 1/2 5
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP has been selected by the Board of Directors, upon the
recommendation of its Audit Committee, to continue to act as the Company's
independent accountants in fiscal 1998. A representative of Price Waterhouse LLP
will be present at the Annual Meeting. He will have the opportunity to make a
statement, if he desires to do so, and will be available to respond to
appropriate questions.
ANNUAL REPORT
The Company has enclosed its Annual Report for the fiscal year ended May 31,
1997 with this proxy statement. Stockholders are referred to this report for
financial and other information about the Company, but such report is not
incorporated in this proxy statement and is not a part of the proxy soliciting
material.
PROPOSALS BY STOCKHOLDERS
The Company must receive any proposals by stockholders intended to be
presented at the 1998 Annual Meeting no later than June 5, 1998.
OTHER MATTERS
Brokerage firms, banks, fiduciaries, voting trustees or other nominees will
be requested to forward the soliciting material to each beneficial owner of
stock held of record by them, and the Company will, upon request, reimburse them
for the reasonable expense of doing so. The entire cost of the solicitation will
be borne by the Company.
The Board of Directors does not intend to present, and does not have any
reason to believe that others will present, any item of business at the Annual
Meeting other than those specifically set forth in the notice of the meeting.
However, if other matters are properly presented for a vote, the proxies will be
voted with respect to such matters in accordance with the judgment of the
persons acting under the proxies.
By Order of the Board of Directors
William G. Brown
Secretary
PROXY PROXY
MEDICUS SYSTEMS CORPORATION
Annual Meeting, November 17, 1997
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Patrick C. Sommers and William G. Brown, each with full power of substitution,
are hereby authorized to vote all shares of Common Stock of Medicus Systems
Corporation which the undersigned would be entitled to vote if personally
present at the Annual Meeting of Stockholders of Medicus Systems Corporation to
be held on November 17, 1997, and at any adjournment thereof, as indicated
herein.
The shares represented by this proxy will be voted as directed herein, but if
no direction is given, the shares will be voted FOR all nominees listed in Item
1, and FOR the proposal set forth in Item 2 to approve the Company's 1997
Directors' Stock Option Plan. This proxy can be revoked at any time before it is
voted, either in person at the Annual Meeting, by written notice to the
Secretary of the Company, or by delivery of a later-dated proxy.
PLEASE MARK THIS PROXY AND SIGN AND DATE IT ON THE REVERSE SIDE
AND RETURN IT IN THE ENCLOSED ENVELOPE
(Continued and to be signed on reverse side.)
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY:
The Board of Directors Recommends a Vote FOR Each of the Listed Proposals.
1. Election of Directors:
Nominees: William G. Brown, Dorsey R. Gardner, Jon E.M. Jacoby, Richard C.
Jelinek, John P. Kunz, Risa Lavizzo-Mourey, Patrick C. Sommers,
Gail L. Warden
FOR [ ] WITHHOLD [ ] FOR ALL [ ]
---------------------------------
(Except Nominee(s) written above)
2. Approval of the 1997 Directors' Stock Option Plan described in the
accompanying Proxy Statement.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Dated
--------------------------------
--------------------------------
Signature(s)
Please sign exactly as your name (or names) appears herein. Executors,
administrators, trustees and others signing in representative capacity should
indicate the capacity in which they sign. Where there is more than one owner,
each should sign.
APPENDIX
A) This graph displays cumulative shareholder return with the dollar amount on
the Y axis and the time period on the X axis.
Exhibit A
MEDICUS SYSTEMS CORPORATION
1997 DIRECTORS' STOCK OPTION PLAN
The purpose of this Directors' Stock Option Plan (the "Plan") is to benefit
Medicus Systems Corporation (the "Company") and its subsidiaries by offering its
directors a favorable opportunity to become holders of stock in the Company over
a period of years, thereby giving them a permanent stake in the growth and
prosperity of the Company and encouraging the continuance of their services with
the Company. Options granted under the Plan are intended not to qualify as
"Incentive Stock Options" as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), and the Plan shall be construed so as to carry
out that intention.
1. Administration. The Plan shall be administered by the Board of
Directors, whose interpretation of the terms and provisions of the Plan shall be
final and conclusive.
2. Eligibility.Options shall be granted only to directors of the Company.
3. Granting of Options.
(a) An option under which a total of 5,000 shares of the Common Stock of
the Company may be purchased from the Company shall be automatically granted by
the Company, without further action required, to each director of the Company,
on the date of the Annual Meeting of Stockholders; provided that such director
is eligible at that time under the terms of paragraph 2 of the Plan, and
provided, further, that no person may receive an option to purchase more than
5,000 shares of Common Stock pursuant to paragraph 3(b) in any calendar year and
provided further that the aggregate number of shares subject to options granted
under the Plan shall be 90,000. If at any Annual Meeting date, less than 5,000
shares is available from the shares covered by the Plan for each eligible
director, the option automatically granted on the date of such Annual Meeting to
each director shall be an option to purchase the number of shares equal to each
director's pro rata share of the shares available under the Plan. If an option
expires or is terminated or canceled unexercised as to any shares, such released
shares may again be optioned.
(b) Nothing contained in the Plan or in any option granted pursuant
thereto shall confer upon any director any right to continue serving as a
director of the Company or interfere in any way with any right of the Board of
Directors or stockholders of the Company to remove such director pursuant to the
certificate of incorporation or bylaws of the Company or applicable law.
4. Option Price. The option price shall be the fair market value of the
shares of Common Stock subject to the option on the date of the grant of such
option. For purposes of this paragraph, "fair market value" shall be the closing
sales price of the Common Stock reported on the Nasdaq National Market (or on
the principal national stock exchange on which it is listed or quotation service
on which it is listed) (as reported in The Wall Street Journal, Midwest Edition)
on the date the option is granted (or, if the date of grant is not a trading
date, on the first trading date immediately preceding the date of grant). In the
event that the Common Stock is not listed or quoted on the Nasdaq National
Market or any other national stock exchange, the fair market value of the shares
of Common Stock for all purposes of the Plan shall be reasonably determined by
the Board of Directors.
5. Duration of Options, Increments and Extensions.
(a) Subject to the provisions of paragraph 7, each option shall be for a
term of ten years. Each option shall become exercisable with respect to 25% of
the shares subject to the option twelve months after the date of its grant and
with respect to an additional 25% at the end of each twelve-month period
thereafter during the succeeding three years. All or any part of the shares with
respect to which the right to purchase has accrued may be purchased at the time
of such accrual or at any time or times thereafter during the option period.
6. Exercise of Option.
(a) An option may be exercised by giving written notice to the Company,
attention of the Secretary, specifying the number of shares to be purchased,
accompanied by the full purchase price for the shares to be purchased in cash or
by check, except that the Board of Directors may permit the purchase price for
the shares to be paid, all or in part, by the delivery to the Company of other
shares of Common Stock of the Company in such circumstances and manner as it may
specify. For this purpose, the per share value of the Company's Common Stock
shall be the fair market value at the close of business on the date preceding
the date of exercise.
(b) At the time of exercise of any option, the Board of Directors may, if
it shall determine it necessary or desirable for any reason, require the
optionee (or his heirs, legatees, or legal representative, as the case may be)
as a condition upon the exercise, to deliver to the Company a written
representation of present intention to purchase the shares for his own account
for investment and an agreement not to distribute or sell such shares in
violation of the registration provisions of applicable securities laws. If such
representation and agreement are required to be delivered, an appropriate legend
may be placed upon each certificate delivered to the optionee upon his exercise
of part or all of the option and a stop transfer order may be placed with the
transfer agent.
(c) Each option shall also be subject to the requirement that, if at any
time the Board of Directors determines, in its discretion, that the listing,
registration or qualification of the shares subject to the option upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the issue or purchase of shares thereunder,
the option may not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Board of Directors.
(d) If the Board of Directors shall determine it necessary or desirable
for any reason, an option shall provide that it is contemplated that the shares
acquired through the exercise of the option will not be registered under
applicable federal and state securities laws and that such shares cannot be
resold unless they are registered under such laws or unless an exemption from
registration is available, and the certificate for any such shares issued upon
the exercise of the option shall bear a legend making appropriate reference to
such provisions.
7. Termination of Employment-Exercise Thereafter.
(a) If the tenure as a director of any optionee with the Company is
terminated for any reason other than death, permanent disability, retirement or
cause, such optionee's option, to the extent the option is exercisable at the
date of termination, shall expire thirty days after the termination of
directorship (or upon the scheduled termination of the option, if earlier), and
all rights to purchase shares pursuant thereto shall terminate at such time.
Temporary absence from acting as a director because of illness, vacation,
approved leave of absence shall not be considered to terminate or interrupt
continuous service as director.
(b) In the event of termination of directorship because of death or
permanent disability (within the meaning of Section 22(e)(3) of the Code), the
option may be exercised in full, unless otherwise provided at the time of grant,
without regard to any installments established under paragraph 5 hereof, by the
optionee or, if he is not living, prior to one year after the date of death or
permanent disability. In the event of termination of directorship because of
retirement, the option may be exercised by the optionee (or, if he dies within
three months after such termination, by his heirs, legatees, or legal
representative, as the case may be), at any time during its specified term prior
to three months after the date of such termination, but only to the extent the
option was exercisable at the date of such termination.
(c) If an optionee is removed for cause, his option shall expire forthwith
and all rights to purchase shares under it shall terminate immediately. For this
purpose, "removal for cause" means a removal on account of dishonesty,
disloyalty or insubordination.
8. Non-Transferability of Options. No option shall be transferable by the
optionee otherwise than by will or the laws of descent and distribution, and
each option shall be exercisable during any optionee's lifetime only by him.
9. Adjustment.
(a) In the event that the Company's outstanding Common Stock is changed by
any stock dividend, stock split or combination of shares, the number of shares
subject to the Plan and to options under the Plan shall be proportionately
adjusted.
(b) In case of any capital reorganization, or of any reclassification of
the Common Stock or in case of the consolidation of the Company with or the
merger of the Company with or into any other corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification of outstanding shares of Common
Stock) or of the sale of the properties and assets of the Company as, or
substantially as, an entirety to any other corporation, the Company or the
corporation resulting from such consolidation or surviving such merger or to
which such sale shall be made, as the case may be, shall determine that upon
exercise of options granted under the Plan after such capital reorganization,
reclassification, consolidation, merger or sale there shall be issuable upon
exercise of an option a kind and amount of shares of stock or other securities
or property (which may, as an example, be a fixed amount of cash equal to the
consideration paid to stockholders of the Company for shares transferred or sold
by them) which the holders of the Common Stock (immediately prior to the time of
such capital reorganization, reclassification, consolidation, merger or sale)
are entitled to receive in such transaction as in the judgment of the Board of
Directors is required to compensate equitably for the effect of such event upon
the exercise rights of the optionees. The above provisions of this paragraph
shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers and sales.
(c) In the event of any such adjustment the purchase price per share shall
be proportionately adjusted.
10. Amendment of the Plan. The Board of Directors may amend or
discontinue the Plan at any time, provided, however, that the Plan may not be
amended more than once every six months except to comply with changes in the
Code, the Employee Retirement Income Security Act, or the rules and regulations
under each, and provided further, that no such amendment or discontinuance shall
(a) without the consent of the optionee change or impair any option previously
granted, or (b) without the approval of the holders of a majority of the shares
of Common Stock which vote in person or by proxy at a duly held stockholders'
meeting, (i) increase the maximum number of shares which may be purchased by all
eligible directors pursuant to the Plan, (ii) change the purchase price of any
option, or (iii) change the option period or increase the time limitations on
the grant of options.
11. Effective Date. The Plan has been adopted and authorized by the Board
of Directors for submission to the stockholders of the Company at its Annual
Meeting of Stockholders in 1997. If the Plan is approved at a duly held
stockholders' meeting, it shall be deemed to have become effective on the date
of such Annual Meeting.
