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 the Party other than Registrant [ ]
Check the Appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section
240.14a-11(c) or 240.14a-12
MEDICUS SYSTEMS CORPORATION
- ------------------------------------------------
(Name of Registrant as Specified in its Charter)
MEDICUS SYSTEMS CORPORATION
- ------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check Appropriate Box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii),
14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy
pursuant to Exchange Act Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange
Act Rules 14a(i)(4) and 0-11.
1) Title of each class of securities to
which transaction applies:
2) Aggregate number of securities to which
transaction applies:
3) Per unit price or other underlying
value of transaction computed pursuant
to Exchange Act Rule 0-11:*
4) Proposed maximum aggregate value of
transaction:
5) Total fee paid:
[ ] 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:
* Set forth the amount on which the filing fee
is calculated and state how it was determined.
PRELIMINARY COPY
MEDICUS SYSTEMS CORPORATION
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
March 3, 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, third floor auditorium, One
Rotary Center, Evanston, Illinois, on March
3, 1997, at 10:00 a.m., Central Time, for the
following purposes:
1. To elect directors;
2. To consider and vote upon a
proposal to approve the Company's 1996
C.E.O. Replacement Stock Option Plan. A
copy of the plan is included as Exhibit
A to the proxy statement;
3. To consider and vote upon a
proposal to approve the Company's 1996
C.E.O. Special Stock Option Plan. A
copy of the plan is included as Exhibit
B to the proxy statement;
4. To consider and vote upon a
proposal to approve the amendments to
and restatement of the Company's 1989,
1991, 1993, 1993 Performance and 1994
Stock Option Plans. A copy of the form
of amendment and restatement of the
Plans is included as Exhibit C to the
proxy statement;
5. To consider and vote upon a
proposal to approve the Company's 1997
Employee Stock Option and Restricted
Stock Plan. A copy of the plan is
included as Exhibit D to the proxy
statement;
6. To consider and vote upon a
proposal to approve agreements pursuant
to which the Company would repurchase
from Richard C. Jelinek, Chairman of the
Company (and a trust of which Mr.
Jelinek is a beneficiary), an aggregate
of 1,000,000 shares of Common Stock and
500 shares of Voting Preferred Stock. A
copy of the form of such agreements is
included as Exhibit E to the proxy
statement; and
7. To transact such other business as
may properly come before the meeting.
Only stockholders of record at the close
of business on January 21, 1997 are entitled
to vote at the Annual Meeting or any
adjournment thereof.
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
February 3, 1997
<PAGE>
PRELIMINARY PROXY STATEMENT
MEDICUS SYSTEMS CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
March 3, 1997
This proxy 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, third floor auditorium,
One Rotary Center, Evanston, Illinois
at 10:00 a.m., Central Time, on March 3,
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 1996 C.E.O.
Replacement Stock Option Plan; for the
proposal to approve the 1996 C.E.O. Special
Stock Option Plan; for the proposal to
approve the amendments to and restatement of
the 1989, 1991, 1993, 1993 Performance and
1994 Stock Option Plans; for the proposal to
approve the 1997 Employee Stock Option and
Restricted Stock Plan; for the proposal to
approve the agreements providing for the
repurchase by the Company of 1,000,000 shares
of Common Stock and 500 shares of Voting
Preferred Stock from Richard C. Jelinek, 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
February 3, 1997.
SHARES OUTSTANDING AND VOTING RIGHTS
Only stockholders of record at the close
of business on January 21, 1997, are entitled
to vote at the Annual Meeting. The only
voting stock of the Company currently
outstanding is its Common Stock, $.01 par
value, of which 6,477,173 shares were
outstanding at the close of business on
January 21, 1997. Each share of Common Stock
issued and outstanding is entitled to one
vote. With respect to the proposals to
approve the 1996 C.E.O. Replacement Stock
Option Plan, the 1996 C.E.O. Special Stock
Option Plan, the amendments to and
restatement of the 1989, 1991, 1993, 1993
Performance and the 1994 Stock Option Plans,
the proposal to approve the 1997 Employee
Stock Option and Restricted Stock Plan; and
the proposal to approve the agreements
providing for the repurchase by the Company
of 1,000,000 shares of Common Stock and 500
shares of Voting Preferred Stock from Richard
C. Jelinek, an abstention will have the
effect of a vote against such proposals, and
non-voted shares will have no effect on the
approval of such proposals (assuming the
presence of a quorum). Votes will be
tabulated, using an automated scanner, by the
inspectors of election appointed by the
Company.
<PAGE>
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 BY MANAGEMENT
The following table sets forth, as of
December 6, 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 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>
Shares Percent of Common
Name<F1> Beneficially Owned Stock
- -------- ----------- -------
<S> <C> <C>
Richard C. Jelinek<F2><F3> 1,937,900 29.9%
Patrick C. Sommers<F3> 56,000 0.9%
James M. Alland 0 0.0%
William G. Brown<F3> 118,510 1.8%
Donald M. Dorfman<F3> 15,833 0.2%
Susan P. Dowell<F3> 120,500 1.9%
Jon E.M. Jacoby<F3> 73,750 1.1%
John P. Kunz 0 0.0%
Risa Lavizzo-Mourey<F3> 17,500 0.3%
Walter J. McNerney<F3> 113,128 1.7%
Frank A. Pierce<F3> 19,167 0.3%
Timothy K. Rutledge<F3> 81,120 1.3%
Gail L. Warden<F3> 108,250 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> 2,758,058 40.9%
<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,
Illinois 60201.
<F2> Includes 100,000 shares owned by Mr.
Jelinek's wife.
<F3> Includes 2,500, 50,000, 2,500, 15,833,
32,500, 28,750, 17,500, 2,500, 19,167,
11,250, 2,500, and 267,350 shares covered
by options held by Mr. Jelinek, Mr.
Sommers, Mr. Brown, Mr. Dorfman, Ms.
Dowell, Mr. Jacoby, Dr. Lavizzo-Mourey,
Mr. McNerney, Mr. Pierce, Mr. Rutledge,
Mr. Warden and all directors and
executive officers as a group,
respectively, which were exercisable
within sixty days of December 6, 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,
Massachusetts 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, Arkansas 72201.
</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. Richard C.
Jelinek, Chairman of the Company, who
beneficially owns approximately 29.9% 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. See "Approval of
Agreements with Richard C. Jelinek" for a
description of the proposed repurchase by the
Company of all of the Voting Preferred Stock.
<PAGE>
ELECTION OF DIRECTORS
Seven directors are to be elected at the
Annual Meeting. The persons named below have
been designated by the Board of Directors as
nominees for election as directors, for terms
expiring at the next Annual Meeting of
Stockholders. In addition, information is
provided concerning Walter J. McNerney, who
has stated that he will take a medical leave
of absence from the Board, effective as of
the date of the Annual Meeting. All nominees
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 seven
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 seven
nominees and Mr. McNerney is presented below:
Richard C. Jelinek, age 59, Chairman of
the Board of the Company, 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.
Patrick C. Sommers, age 49, President and
Chief Executive Officer, joined the Company
in his current position 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.
<PAGE>
Jon E.M. Jacoby, age 58, 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, 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.
Risa Lavizzo-Mourey, age 42, 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 Physcians. 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.
Walter J. McNerney, age 71, 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 a
director of the Board of American Health
Properties, Inc., Hanger Orthopedic Group,
Inc., The Hospital Fund, Inc., Hospital
Research and Educational Trust, Institute for
the Future, Institute of Physician Management
Relations, National Executive Service Corps.,
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 served as a
director of the Company and Managed Care
Solutions since the Distribution and Mergers,
and served as Chairman of the Board of
Managed Care Solutions from March 1, 1996 to
July 1, 1996. Mr. McNerney has stated that
he will take a medical leave of absence from
his duties as a director, effective as of the
date of the Annual Meeting, due to health
reasons. Therefore, he is not a nominee for
election as a director at the Annual Meeting.
However, the Board currently intends to
increase the number of directors to eight,
and to elect Mr. McNerney to the resulting
vacancy, at such time as his health permits
him to resume a full schedule of business
activities.
<PAGE>
Gail L. Warden, age 58, 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 and Mergers.
John P. Kunz, age 63, 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.
MEETINGS AND COMMITTEES OF THE BOARD
During the fiscal year ended May 31,
1996, the Board of Directors held seven
meetings (six of which were meetings of the
Predecessor Corporation Board of Directors
and one of which occurred after the
Distribution and Mergers). 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,
except that Jon Jacoby, a director of the
Predecessor Corporation, failed to attend two
meetings of the Predecessor Corporation Board
of Directors. 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, and a Compensation
and Stock Option Committee, whose functions
include making recommendations to the Board
regarding the salaries and bonuses to be paid
and 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
and Dr. Lavizzo-Mourey and Messrs. McNerney
and Warden are currently the members of the
Compensation and Stock Option Committee.
During the fiscal year ended May 31, 1996,
the Audit Committee and the Compensation and
Stock Option Committee met once. Prior to
the Distribution and Mergers, the Audit
Committee of the Predecessor Corporation met
two times and the Compensation and Stock
Option Committee of the Predecessor
Corporation met five times.
<PAGE>
<TABLE>
COMPENSATION
Summary Compensation Table
<CAPTION>
Long-Term
Annual Compensation Compensation
======================= ============
Securities
Other Underlying
Annual Options/ All Other
Name and Principal Fiscal Salary Bonus Compensation SARs Compensation
Position<F1><F2> Year ($) ($) ($) (#) ($)<F3>
- ------------------ ------ ------ ----- ------------ ----- ------------
<S> <C> <C> <C> <C> <C> <C>
Richard C. Jelinek
Chairman 1996 247,917 5,000 10,605
Patrick C. Sommers<F4>
C.E.O. 1996 63,465 718,000
James M. Alland
Exec. VP 1996 173,250 3,465
Donald M. Dorfman
VP 1996 108,825 35,000 15,000 2,557
Susan P. Dowell
Exec. VP 1996 173,250 3,465
Frank A. Pierce
Sr. VP 1996 155,750 70,000 20,000 4,340
Timothy K. Rutledge
VP 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 S.E.C. 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.
<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. 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. Of the amounts shown for Mr.
Jelinek, $4,620 represents contributions
to his account under such plans and $5,985
represents amounts paid to Mr. Jelinek as
an automobile allowance.
<F4> The number of options shown for Mr.
Sommers includes 350,000 options originally
granted under the 1996 C.E.O. Stock Option
Plan by the Predecessor Corporation on
February 28, 1996, which were assumed by
the Company, but were subsequently canceled
upon the grant by the Company of a new
option for 350,000 shares under its 1996
C.E.O. Replacement Stock Option Plan (also
reflected in the number of options shown in
the table).
</TABLE>
<PAGE>
Option / SAR Grants Table
- -------------------------
The following table provides information
on stock options granted to the named
executive officers during fiscal year 1996.
The potential realizable value of each grant
of options was determined assuming that the
market price of the underlying security
appreciates in value from the date of grant
to the end of the option term at annualized
rates of 5% and 10% as required pursuant to
Item 402 of S.E.C. Regulation S-K.
<PAGE>
<TABLE>
Option / SAR Grants in Last Fiscal Year
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants 10-Year Option Term
=============================================== ===================
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise Expir-
Options/SARs Employees in or Base ation 5%<F2> 10%<F2>
Name Granted(#)<F1> Fiscal Year Price($/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 8.2% 6.500 3/12/06 238,875 602,875
Patrick C.
Sommers<F6> 58,333 8.2% 6.500 3/12/06 238,875 602,875
Patrick C.
Sommers<F7> 58,333 8.2% 6.500 3/12/06 238,875 602,875
Patric 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 canceled 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 during the 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 February 28, 1997. The
closing price of the Company's Common
Stock on the date of grant was $6.50 per
share. The 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 $81,000.
</TABLE>
<PAGE>
<TABLE>
Option / SAR Exercises and Year-end Valuation
Table
- ---------------------------------------------
Aggregated Option / SAR Exercises in Last Fiscal Year and FY-
End Option / SAR Values
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End at FY-End<F3>
================== =================
Shares Acquired Value
on Exercise<F1> Realized<F2> Exerci- Unexerc- Exerci- Unexerci-
Name (#) ($) sable(#) sable(#) sable($) sable($)
- ------- --------------- ------------ -------- -------- -------- -------
<S> <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>
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.
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
has waived his rights to receive an option
under the Directors' Stock Option Plan at the
time of the Annual Meeting.
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
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
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. 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.
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.
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.
Compensation and Stock Option Committee
Report
- ---------------------------------------
The Company's compensation policies
applicable to its executive officers are
administered by the Compensation and Stock
Option Committee 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 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
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 1996, bonuses had two elements:
a Company Performance Incentive and an
Individual Performance Incentive. The
Company Performance Incentive 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. The award increases
incrementally, up to 150% of the Company
Performance award, if the Company achieves an
earnings per share above the "stretch" level.
For fiscal 1996, 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 as exhibited in the
Compensation Table contained herein: Mr.
Dorfman, Mr. Pierce 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 Director's Stock Option
Plan, and, subject to shareholder approval,
the 1996 C.E.O. Replacement Stock Option
Plan, 1996 C.E.O. Special Stock Option Plan,
and the 1997 Employee Stock Option and
Restricted Stock Plan, which are being
presented for approval to the stockholders at
the Annual Meeting (see "Approvals of 1996
C.E.O. Replacement Stock Option Plan and 1996
C.E.O. Special Stock Option Plan" and
"Approval of 1997 Employee Stock Option and
Restricted Stock 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.
Generally, stock options are 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 which 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 1996, the Company's most
highly compensated executive officer was
Richard C. Jelinek, Chairman of the Board
and, until February 1996, the Chief Executive
Officer of the Predecessor Corporation. As a
director of the Company, Mr. Jelinek was
awarded 5,000 options under the 1994
Director's Stock Option Plan. His 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 Mr. Jelinek's
overall performance. No specific weighting
was assigned to these factors. In addition,
it was the opinion of the Committee that Mr.
Jelinek's leadership and vision has
strengthened the position of the Company over
the past several years and for the future.
In the Committee's view, Mr. Jelinek's fiscal
1996 compensation package reflects an
appropriate balance of (i) the Company's
performance in fiscal 1995, (ii) Mr.
Jelinek's own performance level, and (iii)
competitive standards.
On February 28, 1996, Mr. Sommers joined
the Company as President and Chief Executive
Officer. Pursuant to Item 402, information
related to Mr. Sommers' compensation has been
included herein. 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 1996 compensation package
reflects an appropriate balance of (i) the
Company's performance during his tenure in
fiscal 1996, (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 $1 million the tax
deduction for compensation paid to executive
officers of a publicly-held corporation who
are named in the proxy statement, subject to
an exception for a "performance-based"
compensation plan as defined under that
section. The 1996 C.E.O. Replacement Stock
Option Plan, the Company's existing employee
stock option plans, as proposed to be amended
as described in this proxy statement, and the
1997 Employee Stock Option and Restricted
Stock Plan, are intended to qualify as
"performance-based plans," except with
respect to Restricted Shares awarded under
such plans. The Company's Compensation and
Stock Option Committee has determined that
the other compensation currently paid to the
Company's executive officers, including
Restricted Shares, is not expected to exceed
the limitation as set forth in Section
162(m).
The foregoing report has been approved by
all members of the Committee and Mr. Brown,
who served on the Committee during fiscal
1996.
William G. Brown
Risa Lavizzo-Mourey
Walter J. McNerney
Gail L. Warden
<PAGE>
Option Repricing Report and Table
- ---------------------------------
The following table sets forth certain
information concerning the repricing of stock
options occurring since August 1, 1991, the
date the Predecessor Corporation became a
reporting company under the Securities
Exchange Act of 1934.
<TABLE>
Ten Year Options/SAR Repricings
-------------------------------
Number of
Securities
Underlying Mkt. Price
Options/ of Stock Exercise Price Original Term
SARs at Time of at Time of New Remaining
Repriced or Repricing or Repricing or Exercise at Date of
Name<F1> Date Amended(#) Amendment($) Amendment($) Price($) Repricing
- -------- ------ ----------- ------------ ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Patrick C.
Sommers 3/12/96 350,000 6.50 7.51 6.50 9yr., 11 mo.
C.E.O.
Deborah R.
Suckow 2/27/93 10,000 8.75 10.00 8.75 9yr., 4 mo.
VP
Robert C.
Steffel 2/27/93 2,000 8.75 10.00 8.75 9yr., 4 mo.
Sr. VP 7/8/94 1,000 12.00 18.88 12.00 9yr., 7 mo.
7/8/94 50,000 12.00 17.00 12.00 9yr., 10 mo
Donald
Simborg 7/8/94 170,000 12.00 17.00 12.00 9yr., 10 mo.
Sr. VP
Victor W.
Sterne 2/27/93 9,000 8.75 10.00 8.75 9yr., 4 mo.
VP
Carol
Hayden 2/27/93 10,000 8.75 10.00 8.75 9yr., 4 mo.
VP
Michael
Minear 2/27/93 2,000 8.75 10.00 8.75 9yr., 4 mo.
VP
George
Whetsell 2/27/93 60,000 8.75 10.00 8.75 9yr., 4 mo.
VP
Robert
Barcklay 7/8/94 2,000 12.00 18.88 12.00 9yr., 7 mo.
VP
Arlene
Verona 7/8/94 10,000 12.00 18.88 12.00 9yr., 7 mo.
VP
Roxane
Spitzer-
Lehmann 7/8/94 5,000 12.00 17.00 12.00 9yr., 10 mo.
VP
Frank A.
Pierce 7/8/94 76,667 12.00 17.25 12.00 9yr., 11 mo.
Sr. VP
<FN>
<F1> The repricings of stock options
granted to Ms. Suckow, Mr. Steffel, Mr.
Simborg, Mr. Sterne, Ms. Hayden, Mr.
Minear, Mr. Whetsell, Mr. Barcklay, Ms.
Verona, Ms. Spitzer-Lehmann and Mr.
Pierce were approved by the Predecessor
Corporation's Board of Directors and
occurred prior to the Distribution. For
these individuals, the market prices, the
original exercise prices and the new
exercise prices shown in the Repricing
Table are the actual prices at the
time the repricings occurred and have
not been adjusted to reflect the impact
of the Distribution on these prices.
</TABLE>
<PAGE>
On March 12, 1996, the Compensation and
Stock Option Committee of the Company's Board
of Directors determined that certain stock
options issued to the Chief Executive Officer
by the Predecessor Corporation had an
exercise price higher than the market price
of the Company's Common Stock. In light of
the Committee's conclusion that such options
were not providing the desired incentive, it
replaced options with exercise prices of
$7.51 per share with new stock options to
purchase an identical number of shares of the
Company's Common Stock at the then current
market price of $6.50 per share.
William G. Brown
Walter J. McNerney
Gail L. Warden
Performance Graph
- -----------------
The following graph compares the
cumulative total shareholder return on
Medicus Systems Corporation Common Stock to
that of the NASDAQ market index 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, 1996.
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.
CORPORATE PERFORMACE GRAPH
(See Appendix A)
March 1, 1996 May 31, 1996
------------- ------------
Medicus 100 70.7
NASDAQ U.S. 100 113.3
Peer Group 100 116.0
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 market index 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.
CORPORATE PERFORMACE GRAPH
(See Appendix B)
1991 1992 1993 1994 1995 1996 (1)
---- ---- ---- ---- ---- ----
Medicus 100 147 114 219 132 121
NASDAQ U.S. 100 118 142 150 178 227
Peer Group 100 107 125 152 203 260
(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, 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 S.E.C. Regulation S-K, except as
described below.
For the fiscal year ended May 31, 1996,
the Company incurred legal fees for general
legal services and fees associated with the
Distribution, 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. Also, 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 affiliate 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 Managed Care
Solutions and the Company
- ---------------------------------------------
Messrs. Jelinek, Brown and McNerney and
Dr. Lavizzo-Mourey are each directors, and
Mr. Jelinek is Chairman of the Board, of both
the Company and 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 have also entered into
a Services Agreement pursuant to which the
Company was to (i) make 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) provide certain
financial services to Managed Care Solutions,
including analysis and advice regarding
potential financial transactions (including,
but not limited to, proposed issuance's 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 were to commence on the date of
the Distribution and continue for one year.
Managed Care Solutions was to pay 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 elects to utilize the
services. Managed Care Solutions 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.
CERTAIN TRANSACTIONS
For descriptions of certain transactions
between the Company and Messrs. Brown,
Jacoby, Warden and Managed Care Solutions,
see "Compensation and Stock Option Committee
Interlocks and Insider Participation."
APPROVALS OF 1996 C.E.O. REPLACEMENT STOCK
OPTION PLAN AND 1996 C.E.O. SPECIAL STOCK
OPTION PLAN
In order to continue to encourage
ownership of the Company's Common Stock by
executives, key personnel and 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 1996 C.E.O. Replacement
Stock Option Plan (the "1996 C.E.O.
Replacement Plan") and the Medicus Systems
Corporation 1996 C.E.O. Special Stock Option
Plan (the "1996 Special Plan"). Options
granted under the 1996 C.E.O. Replacement
Plan and the 1996 Special Plan are intended
not to qualify as "Incentive Stock Options"
as defined in the Internal Revenue Code of
1986, as amended (the "Code").
The following descriptions are qualified
in their entirety by reference to the terms
of the 1996 C.E.O. Replacement Plan and the
1996 Special Plan, copies of which are
attached to this proxy statement as Exhibit A
and Exhibit B, respectively.
Description of the 1996 C.E.O. Replacement
Plan
- ---------------------------------------------
The 1996 C.E.O. Replacement Plan is
administered by a committee of the Board of
Directors composed of no fewer than two
disinterested outside directors designated by
the Board of Directors. The Compensation and
Stock Option Committee (the "Committee")
currently administers the 1996 C.E.O.
Replacement Plan. The Committee has the
authority to determine the persons to be
granted options under the 1996 C.E.O.
Replacement Plan, the number of shares
subject to each option, the time or times at
which options will be granted, the option
price of the shares subject to each option
(which price shall not be less than the fair
market value of the shares at the date of
grant), and the time or times when each
option becomes exercisable and the duration
of the exercise period.
Options may be granted to key employees
and directors (other than members of the
Committee) of the Company. Options may be
granted with respect to a total of not more
than 400,000 shares of Common Stock under the
1996 C.E.O. Replacement Plan, subject to
antidilution and other adjustment provisions.
No individual may receive options covering
more than 400,000 shares under the 1996
C.E.O. Replacement Plan. No options may be
granted under the 1996 C.E.O. Replacement
Plan after March 12, 2006. If an option
expires or is terminated or canceled
unexercised as to any shares, such released
shares may again be optioned (including a
grant in substitution for a canceled option).
Each option is for such term of not more
than ten years as shall be determined by the
Committee at the date of the grant. Each
option becomes exercisable in such
installments, at such time or times, and may
be subject to such conditions, including
conditions based upon the performance of the
Company, as the Committee may in its
discretion determine at the date of grant.
The Committee may accelerate the
exercisability of any option or, at any time
before the expiration or termination of an
option previously granted, extend the terms
of such option for such additional period as
the Committee, in its discretion, shall
determine, except that the aggregate option
period with respect to any option, including
the original term of the option and any
extensions thereof, shall never exceed ten
years.
The Committee 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 exercise date.
If the employment or 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 employment or directorship
(or upon the scheduled termination of the
option, if earlier). In the event of
termination of employment or 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 at the time of grant, by the
optionee or, if he is not living, 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
employment or 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 discharged for cause, his
option shall expire forthwith and all rights
to purchase shares under it shall terminate
immediately. For this purpose, "discharge
for cause" means a discharge 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 1996 C.E.O. Replacement Plan
at any time. However, no such amendment or
discontinuation shall (a) change or impair
any option previously granted without the
consent of the optionee, (b) increase the
maximum number of shares which may be
purchased by all optionees, (c) change the
minimum purchase price, (d) change the
limitations on the option period or increase
the time limitations on the grant of options,
or (e) permit the granting of options to
members of the Committee.
Description of the 1996 Special Plan
- ------------------------------------
The 1996 Special Plan is administered by a
committee of the Board of Directors composed
of no fewer than two disinterested outside
directors designated by the Board of
Directors. The Compensation and Stock Option
Committee (the "Committee") currently
administers the 1996 Special Plan.
Options under the 1996 Special Plan may
only be granted to the Chief Executive
Officer of the Company. Options may be
granted with respect to a total of not more
than 18,000 shares of Common Stock under the
1996 Special Plan, subject to antidilution
and other adjustment provisions.
Each option is for such term of not more
than ten years as shall be determined by the
Committee at the date of the grant. An
option to purchase 18,000 shares at an
exercise price of $2.00 per share has been
granted to Mr. Sommers under the 1996 Special
Plan. Such option will become fully
exercisable on February 28, 1997.
If the employment or 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 later of (i) February 28, 1997, and (ii)
termination of employment or directorship (or
upon the scheduled termination of the option,
if earlier). In the event of termination of
employment or 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 at the time of
grant, by the optionee or, if he is not
living, 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 employment or 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 the optionee is
discharged for cause, his option shall expire
forthwith and all rights to purchase shares
under it shall terminate on the later of (i)
thirty days following February 28, 1997, or
(ii) the date of discharge. For this
purpose, "discharge for cause" means a
discharge 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 or pursuant to a qualified
domestic relations order, and each option
shall be exercisable during an optionee's
lifetime only by him.
Options granted to date under the 1996
C.E.O. Replacement Plan and the 1996 Special
Plan, subject in each case to shareholder
approval, are displayed in the following
table.
New Plan Benefits
------------------------------
1996 Replacement 1996 Special
Name Plan (#) Plan (#)
- ------- ---------- ----------
Richard C. Jelinek
Chairman.
Patrick C. Sommers
President and C.E.O. 400,000 18,000
James M. Alland
Executive Vice President
Donald M. Dorfman
Vice President
Susan P. Dowell
Executive Vice President
Frank A. Pierce
Senior Vice President
Timothy K. Rutledge
Vice President
Executive Officers
as a Group 400,000 18,000
Non-executive Directors
All Employees as a Group 400,000 18,000
On January 21, 1997, the last reported
sales price of the Company's Common Stock on
the Nasdaq National Market (as reported by
the "Wall Street Journal" (Midwest Edition))
was $6.625 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 1996 C.E.O.
Replacement Plan or the 1996 Special 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 by the
optionee. The Company will be entitled to a
deduction equal to the amount of ordinary
income recognized by the optionee, except
that with respect to stock issued upon
exercise of options granted under the 1996
Special Plan, the Company may be restricted
in its ability to deduct compensation in
excess of $1 million pursuant to Section
162(m) of the Internal Revenue Code. See
"Compensation - Compensation and Stock Option
Committee Report - Policy with Regard to the
$1 Million Deduction Limit." 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 both the 1996 C.E.O.
Replacement Plan and the 1996 Special 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. Richard C.
Jelinek, Chairman of the Company and the
owner of approximately 28.4% of the
outstanding Common Stock, has agreed that he
will take such actions as may be necessary to
cause the 1996 C.E.O. Replacement Plan to be
approved by stockholders. Mr. Jelinek has
the ability, if necessary, to acquire the
voting power necessary to ensure such
approval through the exercise of the option
he holds to acquire all of the Company's
Voting Preferred Stock. The Board of
Directors recommends that stockholders vote
FOR approval of each plan. If no other
direction is given, signed proxies which are
returned in a timely manner will be voted for
approval of the 1996 C.E.O. Replacement Plan
and for approval of the 1996 Special Plan.
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. With
respect to the proposals, 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 proposals
(assuming the presence of a quorum).
APPROVAL OF AMENDMENTS TO AND RESTATEMENT OF
THE COMPANY'S 1989, 1991, 1993, 1993
PERFORMANCE AND 1994 STOCK OPTION PLANS
Background. The stockholders of the
Company have previously approved the
Company's 1989 Stock Option Plan (the "1989
Plan"), the Company's 1991 Stock Option Plan
(the "1991 Plan"), the Company's 1993 Stock
Option Plan (the "1993 Plan"), the Company's
1993 Performance Stock Option Plan (the "1993
Performance Plan") and the Company's 1994
Stock Option Plan (the "1994 Plan"), which
plans shall be collectively referred to
hereafter as the "Plans."
Purpose. The Board of Directors has
unanimously adopted and recommends that the
stockholders approve substantially similar
amendments (the "Amendments") to each of the
Plans. The purposes of the Amendments are:
(i) to provide an ability to the Committee
which administers the Plans to grant
restricted shares of Common Stock
("Restricted Shares") in addition to stock
options under the terms of the Plans; and
(ii) with respect to options granted under
the Plans after the date of the Annual
Meeting, to qualify the Plans as "performance-
based plans" under Section 162(m) of the
Internal Revenue Code of 1986 (as amended)
and the regulations promulgated thereunder.
The Board of Directors also adopted and
recommends that the stockholders approve
restatements of each of the Plans to
incorporate the Amendments. Each of the
Plans, as so amended and restated, is
identical except with respect to (i) the
number of shares authorized to be issued
under each of the Plans, (ii) the effective
dates of the Plans, (iii) the dates after
which no further grants shall be made under
the Plans, and (iv) the name of the Plans. A
copy of the form of amended and restated plan
is attached to the proxy statement as
Appendix C. The form of amended and restated
plan sets forth the specific differences
among the 1989 Plan, the 1991 Plan, the 1993
Plan, the 1993 Performance Plan and the 1994
Plan. The following summary of the
Amendments and the amended and restated form
of plan is qualified in its entirety by
reference to the text of the form of amended
and restated plan. Approval by stockholders
of the form of amended and restated plan
shall be deemed to be approval of the
Amendments and of the amendment and
restatement of the 1989 Plan, the 1991 Plan,
the 1993 Plan, the 1993 Performance Plan and
the 1994 Plan (the "Amended and Restated
Plans"). The Board of Directors recommends
that the stockholders vote FOR approval of
the Amendments. If no direction is given,
signed proxies which are returned in a timely
manner will be voted for approval of the
Amendments. Approval of the Amendments
requires the affirmative vote of the holders
of a majority of the shares of Common Stock
represented at the Annual Meeting and voting
on the issue, whether in person or by proxy.
Abstentions will have the effect of a vote
against the Amendments and non-voted shares
will have no effect on the approval of the
Amendments (assuming the presence of a
quorum).
Summary of the Amendments
- -------------------------
Number of Shares Covered by Grants to Any
Individual; Exercise Price. The Amendments
to the Plans provide that the number of
shares of Common Stock covered by any option
or options together with the number of
Restricted Shares granted to any single
individual in any calendar year will not
exceed 100,000 shares of Common Stock under
each plan. In addition, the 1989 and 1991
Plans will be amended to clarify that the
exercise price of options under such Plans
shall not be less than the fair market value
of the shares at the date of grant.
Administration. Under the terms of the
Amendments, the Committee which administers
the Plans shall, in addition to its authority
with respect to the granting of stock
options, have the authority, in its sole
discretion, (a) to determine the individuals
to whom Restricted Shares are granted; (b) to
determine the number of Restricted Shares
subject to grant; (c) to determine the time
or times when Restricted Shares are granted;
(d) to determine the time or times, or
conditions upon which, restriction on the
Restricted Shares lapse (the duration of such
restrictions hereinafter referred to as the
"Restricted Period"); (e) to accelerate the
Restricted Period for Restricted Shares; (f)
to determine the terms of each grant of
Restricted Shares; (g) to prescribe the form
or forms of agreements which evidence
Restricted Shares granted; and (h) to
interpret the Plans and to adopt rules or
regulations which, in the Committee's
opinion, may be necessary or advisable for
the administration of the Plans. In
addition, under the Amendments, the Committee
will be composed of directors who qualify as
"outside" directors for purposes of Section
162(m). Except as described above, the
Amended and Restated Plans provide for no
changes in the authority of the Committee
under the Plans.
Rights and Restrictions Governing
Restricted Shares. At the time of grant of
Restricted Shares, one or more certificates
representing the number of shares of Common
Stock granted to an individual shall be
registered in such individual's name or for
such individual's benefit either individually
or collectively with others. The
certificates shall be held by the Company for
the account of the individual. The
individual shall have other rights of a
holder as to such shares of Common Stock
including the right to vote such shares and
the right to receive cash dividends declared
and paid to holders of Common Stock. The
individual shall not be entitled to receive
the certificates representing the shares of
Common Stock subject to the grant of
Restricted Shares until the restrictions with
respect to the Restricted Shares have lapsed.
If a dividend is paid in shares of Common
Stock, such shares of Common Stock shall be
held by the Company subject to the same
restrictions as the Restricted Shares that is
the basis of the stock dividend. None of the
Restricted Shares may be sold, transferred,
assigned, pledged or otherwise encumbered or
disposed of during the period in which
restrictions apply. Except to the extent the
individual's employment is terminated by
reason of death, permanent disability or
retirement (as defined in the Plans),
Restricted Shares shall be forfeited and all
rights of the individual with respect to
Restricted Shares shall terminate without
further obligation of the Company in the
event the individual granted the Restricted
Shares does not remain in the continuous
employment of the Company for the entire
Restricted Period.
Payments of Restricted Shares. At the
end of the Restricted Period, all
restrictions shall lapse as to the Restricted
Shares and one or more certificates for the
appropriate number of shares of Common Stock
shall be delivered to the individual, unless
the Committee, in its sole discretion, has
authorized the individual, at his request, to
defer the receipt of all or any portion of
the Restricted Shares in accordance with the
terms of the amendment.
Federal Tax Consequences of Restricted
Share Grants. Under existing federal income
tax law, no income will be recognized by the
individual to whom Restricted Shares have
been granted at the time of the Restricted
Shares award. Upon the expiration of the
Restricted Period, the individual will be
required to treat as ordinary income the fair
market value of the stock and the Company
will be entitled to a deduction in such
amount, except that the value of such
Restricted Shares may be taken into account
in determining whether the Company is
restricted in its ability to deduct certain
compensation in excess of $1 million paid to
executives. See "Compensation - Compensation
and Stock Option Committee Report - Policy
with Regard to $1 million Deduction Limit."
Summary of the Amended and Restated Plans
- -----------------------------------------
The Plans are administered by a committee
of the Board of Directors composed of no
fewer than two disinterested outside
directors designated by the Board of
Directors. The Compensation and Stock Option
Committee (the "Committee") of the Board of
Directors currently administers the Plans.
The Committee has authority to determine the
persons to be granted options under the
Plans, the number of shares subject to each
option, the time or times at which options
will be granted, the option price of the
shares subject to each option (which price
shall not be less than the fair market value
of the shares at the date of grant), and the
time or times when each option becomes
exercisable and the duration of the exercise
period.
Options or Restricted Shares may be
granted to key employees and directors (other
than members of the Committee) of the
Company. Options or Restricted Shares may be
granted with respect to a total of not more
than 220,000, 200,000, 300,000, 200,000 and
400,000 shares of Common Stock under the
1989, 1991, 1993, 1993 Performance and 1994
Plans, respectively, subject to anti-dilution
and other adjustment provisions. The maximum
number of shares subject to all options,
together with all Restricted Shares, granted
to any individual in any calendar year shall
in no event exceed 100,000 under each plan.
No options or Restricted Shares may be
granted under the 1989, 1991, 1993, 1993
Performance and 1994 Plans after January 1,
1999, August 31, 2001, January 31, 2003,
March 31, 2001 and April 14, 2004,
respectively. If an option expires or is
terminated or canceled unexercised as to any
shares, such released shares may again be
optioned (including a grant in substitution
for a canceled option).
Each option is for such term of not more
than ten years as shall be determined by the
Committee at the date of the grant. Each
option becomes exercisable in such
installments, at such time or times, and may
be subject to such conditions, including
conditions based upon performance of the
Company, as the Committee may in its
discretion determine at the date of grant.
The Committee may accelerate the
exercisability of any option or, at any time
before the expiration or termination of an
option previously granted, extend the terms
of such option for such additional periods as
the Committee, in its discretion, shall
determine, except that the aggregate option
period with respect to any option, including
the original term of the option and any
extensions thereof, shall never exceed ten
years. All employees are eligible to
participate in the 1989, 1991, 1993, 1993
Performance and 1994 Plans.
The Committee 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 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
exercise date.
If the employment or tenure as 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 employment or directorship
(or upon the scheduled termination of the
option, if earlier). In the event of
termination of employment or 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 at the time of grant, by the
optionee or, if he is not living, 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
employment or 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 discharged for cause, his
option shall expire forthwith and all rights
to purchase shares under it shall terminate
immediately. For this purpose, "discharge
for cause" means a discharge 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 or pursuant to a qualified
domestic relations order, and each option
shall be exercisable during an optionee's
lifetime only by him.
The Board of Directors may amend or
discontinue the Plans at any time. However,
no such amendment or discontinuation shall
(a) change or impair any option previously
granted without the consent of the optionee,
(b) increase the maximum number of shares
which may be purchased by all optionees, (c)
change the minimum purchase price, (d) change
the limitations on the option period or
increase the time limitations on the grant of
options, or (e) permit the granting of
options to members of the Committee.
Federal Tax Consequences of Options. No
gain or loss will be recognized to an
optionee upon the grant of an option under
the Plans, but 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.
No Restricted Shares have been granted
under the Plans as of the date of this proxy
statement and no Restricted Shares will be
granted until Amendments as set forth in the
form of Amended and Restated Plans are
approved by stockholders of the Company. In
the event the Amendments and Amended and
Restated Plans are not approved, the 1989
Plan, 1991 Plan, 1993 Plan, 1993 Performance
Plan and 1994 Plan will continue to be
administered in accordance with their terms
as they existed immediately prior to the
adoption of the Amendments by the Board of
Directors.
APPROVAL OF 1997 EMPLOYEE STOCK OPTION AND
RESTRICTED STOCK PLAN
In order to continue to encourage
ownership of the Company's Common Stock by
executives, key personnel and 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 Employee Stock
Option and Restricted Stock Plan (the "1997
Employee Plan"). Options granted under the
1997 Employee Plan are intended not to
qualify as "Incentive Stock Options" as
defined in the Internal Revenue Code of 1986,
as amended (the "Code"). A copy of the 1997
Employee Plan is attached to this proxy
statement as Exhibit D. The following
summary of the 1997 Employee Plan is
qualified in its entirety by reference to the
text of the plan. The Board of Directors
recommends that stockholders vote FOR
approval of the 1997 Employee Plan. If no
direction is given, signed proxies which are
returned in a timely manner will be voted for
approval of the 1997 Employee Plan. Approval
of the 1997 Employee Plan requires the
affirmative vote of the holders of a majority
of the shares of Common Stock represented at
the Annual Meeting and voting on the issue,
whether in person or by proxy. Abstentions
will have the effect of a vote against the
1997 Employee Plan and non-voted shares will
have no effect on the approval of the 1997
Employee Plan (assuming the presence of a
quorum).
The 1997 Employee Plan is administered by
a committee of the Board of Directors
composed of no fewer than two disinterested
outside directors designated by the Board of
Directors. The Compensation and Stock Option
Committee (the "Committee") of the Board of
Directors currently administers the 1997
Employee Plan. The Committee has authority
to determine the persons to be granted
options under the 1997 Employee Plan, the
number of shares subject to each option, the
time or times at which options will be
granted, the option price of the shares
subject to each option (which price shall not
be less than the fair market value of the
shares at the date of grant), and the time or
times when each option becomes exercisable
and the duration of the exercise period. In
addition, the Committee shall have the
authority, in its sole discretion, (a) to
determine the individuals to whom restricted
shares of Common Stock ("Restricted Shares")
are granted; (b) to determine the number of
Restricted Shares subject to a grant; (c) to
determine the time or times when Restricted
Shares are granted; (d) to determine the time
or times, or conditions upon which,
restriction on the Restricted Shares lapse
(the duration of such restrictions
hereinafter referred to as the "Restricted
Period"); (e) to accelerate the Restricted
Period for Restricted Shares; (f) to
determine the terms of each grant of
Restricted Shares; (g) to prescribe the form
or forms of agreements which evidence
Restricted Shares granted; and (h) to
interpret the 1997 Employee Plan and to adopt
rules or regulations which, in the
Committee's opinion, may be necessary or
advisable for the administration of the 1997
Employee Plan.
Options or Restricted Shares may be
granted to key employees and directors (other
than members of the Committee) of the
Company. Options or Restricted Shares may be
granted with respect to a total of not more
than 300,000 shares of Common Stock under the
1997 Employee Plan, subject to anti-dilution
and other adjustment provisions. The maximum
number of shares subject to all options,
together with all Restricted Shares, granted
to any individual in any calendar year shall
in no event exceed 100,000 under the 1997
Employee Plan. No options or Restricted
Shares may be granted under the 1997 Employee
Plan after January 2, 2007. If an option
expires or is terminated or canceled
unexercised as to any shares, such released
shares may again be optioned (including a
grant in substitution for a canceled option).
Each option is for such term of not more
than ten years as shall be determined by the
Committee at the date of the grant. Each
option becomes exercisable in such
installments, at such time or times, and may
be subject to such conditions, including
conditions based upon the performance of the
Company, as the Committee may in its
discretion determine at the date of grant.
The Committee may accelerate the
exercisability of any option or, at any time
before the expiration or termination of an
option previously granted, extend the terms
of such option for such additional period as
the Committee, in its discretion, shall
determine, except that the aggregate option
period with respect to any option, including
the original term of the option and any
extensions thereof, shall never exceed ten
years. All employees are eligible to
participate in the 1997 Employee Plan.
The Committee 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 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 employment or 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 employment or directorship
(or upon the scheduled termination of the
option, if earlier). In the event of
termination of employment or 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 at the time of grant, by the
optionee or, if he is not living, 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
employment or 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 discharged for cause, his
option shall expire forthwith and all rights
to purchase shares under it shall terminate
immediately. For this purpose, "discharge
for cause" means a discharge 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 or pursuant to a qualified
domestic relations order, and each option
shall be exercisable during an option's
lifetime only by him.
At the time of grant of Restricted
Shares, one or more certificates representing
the number of shares of Common Stock granted
to an individual shall be registered in such
individual's name or for such individual's
benefit either individually or collectively
with others. The certificates shall be held
by the Company for the account of the
individual. The individual shall have other
rights of a holder as to such shares of
Common Stock including the right to vote such
shares and the right to receive cash
dividends declared and paid to holders of
Common Stock. The individual shall not be
entitled to receive the certificates
representing the shares of Common Stock
subject to the grant of Restricted Shares
until the restrictions with respect to the
Restricted Shares have lapsed. If a dividend
is paid in shares of Common Stock, such
shares of Common Stock shall be held by the
Company subject to the same restrictions as
the Restricted Stock that is the basis of the
stock dividend. None of the Restricted
Shares may be sold, transferred, assigned,
pledged or otherwise encumbered or disposed
of during the period in which restrictions
apply. Except to the extent the individual's
employment is terminated by reason of death,
permanent disability or retirement (as
defined in the 1997 Employee Plan),
Restricted Shares shall be forfeited and all
rights of the individual with respect to
Restricted Shares shall terminate without
further obligation of the Company in the
event the individual granted the Restricted
Shares does not remain in the continuous
employment of the Company for the entire
Restricted Period.
At the end of the Restricted Period, all
restrictions shall lapse as to the Restricted
Shares and one or more certificates for the
appropriate number of shares of Common Stock
shall be delivered to the individual, unless
the Committee, in its sole discretion, has
authorized the individual, at his request, to
defer the receipt of all or any portion of
the Restricted Shares in accordance with the
terms of the 1997 Employee Plan.
The Board of Directors may amend or
discontinue the 1997 Employee Plan at any
time. However, no such amendment or
discontinuation shall (a) change or impair
any option previously granted without the
consent of the optionee, (b) increase the
maximum number of shares which may be
purchased by all optionees, (c) change the
minimum purchase price, (d) change the
limitations on the option period or increase
the time limitations on the grant of options,
or (e) permit the granting of options to
members of the Committee.
Federal Tax Consequences of Options. No
gain or loss will be recognized to an
optionee upon the grant of an option under
the 1997 Employee Plan, but 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.
Federal Tax Consequences of Restricted
Share Grants. Under existing federal income
tax law, no income will be recognized by the
individual to whom Restricted Shares have
been granted at the time of the Restricted
Shares award. Upon the expiration of the
Restricted Period, the individual will be
required to treat as ordinary income the fair
market value of the stock and the Company
will be entitled to a deduction in such
amount, subject to the potential effect of
the $1 million deduction limit imposed by
Section 162 (m) of the Code. See
"Compensation - Compensation and Stock Option
Committee Report - Policy with Regard to $1
Million Deduction Limit."
No Options or Restricted Shares have been
granted under the 1997 Employee Plan as of
the date of this proxy statement.
APPROVAL OF AGREEMENTS WITH RICHARD C.
JELINEK
Summary
- -------
On January 20, 1997, Richard C. Jelinek,
the founder, former Chief Executive Officer,
and current Chairman of the Board of the
Company, and the Boston Safe Deposit and
Trust Company of California, as trustee under
the Richard C. Jelinek Charitable Remainder
Unitrust dated August 3, 1993 (the "Trust"),
entered into agreements, effective as of
January 2, 1997 (the "Agreements"), pursuant
to which Mr. Jelinek agreed to sell to the
Company 550,000 (or approximately 8.6% of the
outstanding) shares of Common Stock and 275
shares of Voting Preferred Stock of the
Company and the Trust agreed to sell to the
Company 450,000 (or approximately 7.0% of the
outstanding) shares of Common Stock and 225
shares of Voting Preferred Stock of the
Company. Immediately before consummation of
these purchases, Mr. Jelinek will exercise
his stock option (the "Jelinek Option") to
purchase 500 shares (representing all of the
authorized shares) of Voting Preferred Stock
of the Company for an aggregate exercise
price of $500,000 and after this exercise, he
will immediately transfer 225 of these shares
to the Trust.
The Company's certificate of
incorporation provides that prior to May 31,
1998, the holders of the Voting Preferred
Stock will be entitled to 44,000 votes per
share, and after May 31, 1998 to 220 votes
per share, on all matters to be voted upon by
stockholders. Holders are also entitled to
quarterly dividends at an annual rate equal
to two percentage points below the prime rate
of The First National Bank of Chicago in
effect as of the prior May 31. In the event
of any liquidation, dissolution or winding up
of the Company, holders of the Voting
Preferred Stock are entitled to receive out
of assets available for distribution to
stockholders the sum of $1,000 per share plus
any accumulated and unpaid dividends. After
May 31, 1998, the Voting Preferred Stock may
be redeemed at the option of the Company at a
redemption price equal to $1,000 per share
plus any accumulated but unpaid dividends.
The Voting Preferred Stock has no preemptive,
conversion or exchange rights.
As a result of the voting rights of the
Company's Voting Preferred Stock, following
exercise by Mr. Jelinek of the Jelinek Option
to purchase 500 shares of Voting Preferred
Stock, he and the Trust will be able to cast
approximately 84% of the votes on any matter
submitted to the stockholders of the Company
and thus will be able to control the Company.
In consideration for the sale of Common
Stock and Voting Preferred Stock by
Mr. Jelinek and the Trust to the Company, the
Company will pay in the aggregate to
Mr. Jelinek and the Trust $4,500,000 in cash,
$2,000,000 in 8% promissory notes maturing in
two equal installments at the end of one year
and two years from the date of issuance, and
five-year Stock Exchange and Subscription
Warrants (the "Warrants") to purchase from
the Company 400,000 shares of Common Stock at
a price of $8.00 per share, with the Company
having the right to require payment at the
time of exercise in either cash or shares of
Common Stock valued at their then fair market
value.
Consummation of the Agreements is subject
to approval by the stockholders of the
Company.
Except for Mr. Jelinek, who did not vote,
the Board unanimously approved the
Agreements. Each of the directors other than
Mr. Jelinek has indicated his or her
intention to vote shares owned by him or her
in favor of the transactions. Mr. Jelinek
has agreed to vote shares owned by him in
favor of the transactions in at least the
same proportion as other stockholders voting
on the transactions.
Background and Reasons for Board Action
- ---------------------------------------
The Agreements are the result of
unsolicited, arms-length negotiations
initiated by Management of the Company
between and among Management, representatives
of the Board and Mr. Jelinek. In the opinion
of the Company's Board of Directors, the
Agreements are fair and reasonable and in the
best interest of the Company and its
stockholders.
The Company adopted a plan to repurchase
800,000 shares of Common Stock in July 1994,
and has from time to time purchased its
shares of Common Stock in the open market and
in privately negotiated transactions. The
Board believes that these purchases have been
good investments considering the purchase
price paid for the shares and the underlying
value attributable by the Board to these
shares. The number of shares included in the
Company's announced buyback plan was based
primarily on the then outstanding employee
stock options, although at that time and
subsequent to that time the Board believed
that given the assets and prospects of the
Company, it would be in the interest of the
Company and its stockholders to buy back up
to 1,000,000 shares. The Company was,
however, prevented from pursuing its buyback
plan for two reasons. First, whenever an
attempt was made to purchase shares, the
purchases by the Company appeared to
influence the price of the stock, and the
Company concluded that it would be unable to
purchase a substantial number of shares at
current market prices in an orderly and
systematic manner. Second, any shares
purchased by the Company would be "tainted
shares" under generally accepted accounting
principles, and the holding of these tainted
shares would in most cases limit the
Company's ability to either acquire or be
acquired by another company in a "pooling of
interests" transaction. Since it is
desirable in the Company's industry to
utilize "pooling of interests" accounting,
the Company concluded that it was not in its
best interest to purchase a relatively small
number of shares at current market prices
without any assurance that it could acquire
the relatively large number of shares that it
desired to purchase. At the same time, the
Company believed that its so-called "float"
of publicly traded shares (the shares held by
persons other than insiders) was already
smaller than desirable, and thus any
repurchases of shares in the public market
would exacerbate this problem.
During 1996, it also became apparent to
the Board that the objectives of Mr. Jelinek
and the other members of the Board of
Directors of the Company were not identical.
During most of that year, the Company was
engaged in discussions through Mr. Jelinek as
Chairman of the Board with various companies
expressing a desire to acquire all or part of
the Company. Certain Board members expressed
their belief that these discussions were not
in the best interest of the Company and that
the stockholders and the Company would
benefit from a period of uninterrupted focus
on the Company's operations. Mr. Jelinek
expressed his point of view that remaining an
independent company entailed more risk (with
a greater potential return) than selling to
or merging with a bigger company and he
questioned whether it would be wise for him,
with such a significant part of his net worth
tied up in the Company, to take this risk.
In this context, the Board examined
various alternatives. All discussions with
potential acquirers of the Company had ended
without consummation and the Board concluded
that the negative impact on "pooling of
interests" transactions was less important
than the Company's business objective of
acquiring more of its outstanding shares
coupled with eliminating the majority voting
control held by Mr. Jelinek.
The Board also concluded that because
Mr. Jelinek was no longer involved in the day-
to-day management, it was no longer
appropriate that he continue to serve as
Chairman of the Board. The Board did,
however, wish to have Mr. Jelinek's ongoing
advice and counsel as a continuing member of
the Board of Directors.
Negotiations began in earnest between
Management and representatives of the Board
and Mr. Jelinek following a Board meeting
held on October 30, 1996. At that meeting,
the Board appointed a Special Committee of
the Board consisting of all members of the
Board except Mr. Jelinek to negotiate and
finalize a transaction. On December 5, 1996,
Mr. Jelinek traveled to Chicago from Colorado
and William G. Brown (one of the Company's
directors) traveled to Chicago from Florida
to meet with Mr. Sommers (the Company's Chief
Executive Officer) to attempt to finalize the
principal terms of the proposed transactions.
At this meeting, Messrs. Sommers, Jelinek and
Brown reached agreement on the principal
terms of the transactions as described
herein. After the conclusion of the meeting
with Mr. Jelinek, Messrs. Sommers and Brown
contacted each of the remaining directors
(other than Mr. McNerney) on December 5th.
Each of the other directors approved the
principal terms of the transactions, subject
to (i) advice of legal counsel and review of
definitive documentation, (ii) receipt of a
fairness opinion from an investment banking
firm, and (iii) approval by stockholders.
The Special Committee retained the
investment banking firm of Punk, Ziegel &
Knoell on December 16th, and a proposed form
of agreement was presented to the Special
Committee and the Board on January 2, 1997.
In arriving at an agreement with Mr. Jelinek
and the Trust, the Board was influenced by
the underlying value of the Company, the
current value of Mr. Jelinek's voting control
of the Company, his willingness to accept
payment in a combination of cash, promissory
notes and warrants, his willingness to enter
into a binding transaction subject to
stockholder approval, the difficulty and
timing in purchasing shares from any other
stockholder or stockholders for a
consideration other than cash, Mr. Jelinek's
unwillingness to sell the shares of Common
Stock and the Voting Preferred Stock he has a
right to purchase under the Jelinek Option
for less than the price which he finally
accepted, and advice and counsel received
from Punk, Ziegel & Knoell relating to the
fairness of the proposed transaction from a
financial point of view. See "Fairness
Opinion." This proposal was approved by the
Special Committee and the Board on January 2,
1997 and the Agreements were executed and
delivered by all parties on January 20, 1997.
Opinion of Financial Advisor
- ----------------------------
The Company retained Punk, Ziegel &
Knoell to render an opinion on whether the
transactions with Mr. Jelinek are fair, from
a financial point of view, to the Company and
its shareholders (other than Mr. Jelinek).
Punk, Ziegel & Knoell has delivered a
written opinion to the Board, confirming oral
advice rendered at the time of the January 2,
1997 Board meeting, that the transaction is
fair from a financial point of view to the
Company and its shareholders. In connection
with its oral advice and opinion, Punk,
Ziegel & Knoell, among other procedures,
reviewed the Company's publicly available
annual and quarterly financial statements for
the fiscal years 1994-1996, reviewed the
trading history and the market for the
Company's Common Stock and discussed the
business and prospects of the Company with
certain officers of the Company. None of
such information was independently verified
by Punk, Ziegel & Knoell. No instructions
were received by Punk, Ziegel & Knoell from
the Company with respect to its oral advice
or opinion, nor were any limitations imposed
on the scope of its investigation. A copy of
Punk, Ziegel & Knoell's written opinion is
attached as Exhibit F to this proxy
statement. The full text of the written
opinion, which sets forth, among other
things, the assumptions made, matters
considered, and limitations of the review
undertaken in connection with the opinion,
should be read carefully in its entirety.
Punk, Ziegel & Knoell is a recognized
investment banking firm which regularly
engages in the valuation of businesses and
their securities in connection with mergers
and acquisitions, underwritings and private
placements as well as valuations for estate,
corporate and other purposes.
Punk, Ziegel & Knoell will receive a fee
of $125,000 for rendering the opinion
referred to above. The Company has agreed to
reimburse Punk, Ziegel & Knoell for out-of-
pocket expenses, and has also agreed to
indemnify Punk, Ziegel & Knoell against
certain liabilities, including liabilities
under the federal securities laws.
Terms of the Agreements
- -----------------------
Each of Mr. Jelinek and the Trust has
executed substantially identical Agreements.
A copy of Mr. Jelinek's Agreement (with
differences from the Trust's Agreement noted
thereon) is attached hereto as Exhibit E, and
the following description is qualified in its
entirety by reference to the Agreement.
Pursuant to the Agreements, the Company has
agreed to purchase, and Mr. Jelinek and the
Trust have agreed to sell to the Company, an
aggregate of 1,000,000 shares of Common Stock
(representing approximately 15.6% of the
currently outstanding Common Stock) and 500
shares of Voting Preferred Stock
(representing 100% of the authorized Voting
Preferred Stock). The Company will pay to
Mr. Jelinek and the Trust an aggregate of
$4,500,000 in cash, $2,000,000 in promissory
notes, and Stock Exchange and Subscription
Warrants (the "Warrants") to purchase from
the Company 400,000 shares of Common Stock at
a price of $8.00 per share, with the Company
having the right to require payment at the
time of exercise in either cash or shares of
Common Stock valued at their then fair market
value. Mr. Jelinek will resign as Chairman
of the Company (though he will remain a
director).
The promissory notes will bear interest
at the rate of 8% per annum, payable monthly.
They will mature as to 50% of their principal
amount one year from their issuance, and as
to the remaining outstanding principal amount
two years from their issuance. The Warrants
will be exercisable for a period of five
years from their date of issuance. The
Company may require that the exercise price
of the Warrants be paid, in whole or in part,
by delivery of mature shares of Common Stock
(valued for such purposes, in most cases, at
the average of the closing sale price of the
Common Stock for the 30 calendar days
preceding exercise).
The Agreements contain a number of
restrictions on the activities of Mr. Jelinek
and the Trust with respect to the Company and
the Common Stock. Mr. Jelinek and the Trust
have agreed that they will not sell any
shares of Common Stock held by them without
the consent of the disinterested members of
the Board for a period of five years,
provided that such restrictions lapse as to
20% of such shares on each anniversary of the
Agreement. Mr. Jelinek and the Trust have
also agreed that they will not take certain
other actions for a period of five years,
including acquiring additional voting
securities of the Company (other than upon
exercise of a Warrant), engaging in a proxy
contest, participating in a tender offer,
become part of a "group" for purposes of
Section 13(d) under the Securities Exchange
Act of 1934, or otherwise attempting to
influence or control the Company other than
through the performance of Mr. Jelinek's
duties as a director in the ordinary course.
Each party's obligations to consummate
the transactions contemplated by the
Agreements are subject to the condition that
the Agreements be approved by stockholders.
Ownership by Mr. Jelinek Following
Transactions
- ---------------------------------------------
Prior to the closing of the proposed
transactions, Mr. Jelinek and the Trust will
own beneficially 1,837,900 shares (or
approximately 28.4%) of the outstanding
Common Stock (excluding 100,000 shares owned
by Mr. Jelinek's wife). Upon exercise of the
Jelinek Option immediately prior to closing
the proposed transactions, Mr. Jelinek will
own 500 shares (or 100%) of the outstanding
Voting Preferred Stock of which he will
immediately transfer 225 shares (or 45%) to
the Trust. As a result of the voting rights
of the Company's Voting Preferred Stock,
following exercise by Mr. Jelinek of the
Jelinek Option, he and the Trust will be able
to cast approximately 84% of the votes on any
matter submitted to the stockholders of the
Company and thus will be able to control the
Company.
Following the closing of the proposed
purchase by the Company of 1,000,000 shares
of Common Stock and 500 shares of Voting
Preferred Stock, Mr. Jelinek will own 837,900
shares (or approximately 15.5%) of the
outstanding Common Stock, the Trust will not
own any shares of Common Stock, and no shares
of Voting Preferred Stock will be
outstanding. Mr. Jelinek's wife owns 100,000
shares (or approximately 1.56% before the
proposed transactions and 1.85% following the
proposed transactions) of the Common Stock.
Tax and Accounting Treatment of Proposed
Transactions
- ---------------------------------------------
The Company understands that upon the
exercise of the Jelinek Option, ordinary
income, measured by the excess of the fair
market value of the shares acquired over the
option price, will be recognized to Mr.
Jelinek. The Company will be entitled to a
deduction equal to the amount of ordinary
income recognized to Mr. Jelinek.
Mr. Jelinek's basis in shares of Voting
Preferred Stock acquired upon the exercise of
his options will be equal to the option
exercise price of $1,000 per share plus the
amount of ordinary income recognized by
Mr. Jelinek. Mr. Jelinek's holding period
for the Voting Preferred Stock will begin on
the date on which the option is exercised.
The Company understands that under
generally accepted accounting principles, it
will be required to record a charge to
expense of approximately (i) $1,000,000,
representing the difference between the fair
market value of the 500 shares of Voting
Preferred Stock to be acquired by the Company
and Mr. Jelinek's $500,000 option exercise
price; and (ii) $319,000, representing the
difference between the value of the Stock
Exchange Warrants, cash and notes to be paid
to Mr. Jelinek and the Trust in consideration
for the 1,000,000 shares of Common Stock to
be purchased and the last reported sale price
of the Company's Common Stock on December 5,
1996, the day on which the principal terms of
the transaction were agreed to by the
parties.
The repurchase by the Company of
1,000,000 shares of Common Stock and 500
shares of Voting Preferred Stock will
significantly limit the Company's ability to
participate in a business combination
utilizing the "pooling of interests" method
of accounting for a period of two years after
the closing of the proposed transactions.
Historical Financial Information
- --------------------------------
The financial statements of the Company
for the year ended May 31, 1996 and 1995, the
related Report of Independent Accountants,
and Management's Discussion and Analysis of
Results of Operations and Financial Condition
for the fiscal years 1994 through 1996, which
appear in the Company's 1996 Annual Report,
copies of which are being sent to the
stockholders of the Company concurrently with
this proxy statement, are incorporated by
reference in this proxy statement.
Certain Financial Effects of the Proposed
Transactions with Richard C. Jelinek
- ---------------------------------------------
The last reported sale price of the
Common Stock on December 5, 1996, the date on
which all of the principal terms of the
transactions were agreed to by the parties,
was $5.625. Based on this publicly reported
fair market value of the Company's Common
Stock and other factors deemed relevant,
Punk, Ziegel & Knoell has advised the Company
that the Warrants, if issued on December 5,
1996, would in their opinion have an
aggregate value of $944,000. The Board of
Directors of the Company, based on analyses
made by Punk, Ziegel & Knoell and other
factors which it deemed relevant, has also
determined that the fair market value of the
Voting Preferred Stock to be purchased is
$1,500,000.
The following pro forma analysis is based
on these values. The following pro forma
information should be read in conjunction
with the historical financial information
incorporated in this proxy statement by
reference.
Net Income
- ----------
The proposed purchase of shares by the
Company would have increased the Company's
fiscal 1996 net loss per share of Common
Stock on a pro forma basis. Set forth below,
among other data, are the Company's reported
and pro forma net income/(loss) per share for
the year ended May 31, 1996, and for the six
months ended November 30, 1996, assuming the
shares had been purchased and the payments
had been made under the terms of the
Agreements as of June 1, 1995. Included
in the following pro forma computations
are interest expense on the notes
($160,000 for the year ended May 31, 1996,
and $40,000 for the six months
ended November 30, 1996), foregone interest
income relating to the cash payments
($172,000 for the year ended May 31, 1996,
and $106,000 for the six months ended
November 30, 1996), and related income tax
benefits ($132,800 for the year ended May 31,
1996, and $58,400 for the six months ended
November 30, 1996).
<TABLE>
<CAPTION>
Year Ended Six Months Ended
May 31, 1996 Nov. 30, 1996
------------------------ ---------------------
Reported Pro Forma Reported Pro Forma
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net income/(loss) $(3,725,991) $(3,925,191) $ 503,790 $ 416,190
Net income/(loss)
per share (primary) $ (0.57) $ (0.71) $ 0.08 $ 0.08
Weighted average
common and common
equivalent shares
outstanding 6,539,988 5,539,988 6,485,121 5,485,121
</TABLE>
Book Value
- ----------
The following table shows, as of May 31,
and November 30, 1996, the reported and pro
forma book value per share and other
financial information assuming on June 1,
1995, the shares had been purchased and the
payments had been made under the terms of the
Agreements. Because of the payments to be
made in connection with the proposed
transactions, pro forma current assets
decreased by the cash consideration to be
paid ($4.5 million), estimated costs of
consummating the transaction ($300,000),
cash payments for debt service and interest
($1,160,000 at May 31, 1996 and $1,200,000 at
November 30, 1996), and foregone interest
income relating to cash payments ($172,000 at
May 31, 1996 and $278,000 at November 30,
1996) offset by cash received upon exercise
of the Jelinek Option ($500,000) and
the increase in the Company's prepaid
income taxes ($532,800 at May 31,
1996 and $591,200 at November 30, 1996).
Current liabilities increased by the debt
assumed ($2 million at June 1, 1995), less
debt service payments ($1 million at May 31,
1996 and November 30, 1996). Stockholders'
equity decreased by the decrease in pro forma
net income discussed previously. In addition
to the pro forma net income adjustments, the
following pro forma presentation includes the
one-time charge of $1.319 million ($919,000
after tax), estimated costs of consummating
the transaction ($300,000), the cost of
Common Stock repurchased ($5,625,000) and the
issuance of the Warrants ($944,000).
<TABLE>
<CAPTION>
Balance as of Balance as of
May 31, 1996 Nov. 30, 1996
------------------------- ------------------------
Reported Pro Forma Reported Pro Forma
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Working capital:
Current assets $ 22,151,060 $ 17,051,860 $ 21,270,426 $ 16,083,626
Current liabilities $ 9,578,323 $ 10,578,323 $ 8,503,516 $ 9,503,516
Working capital $ 12,572,737 $ 6,473,537 $ 12,766,910 $ 6,580,110
Capitalization:
Stockholders' equity $ 18,201,237 $ 12,102,037 $ 18,790,236 $ 12,603,436
Number of shares
outstanding 6,456,447 5,456,447 6,469,246 5,469,246
Total book value
per share $ 2.82 $ 2.22 $ 2.90 $ 2.30
</TABLE>
Other Financial Effects
- -----------------------
The consummation of the proposed
transactions with Mr. Jelinek will
significantly limit the Company's ability to
participate in a business combination
utilizing the "pooling of interests" method
of accounting for business combinations for a
period of two years after the closing of the
proposed transactions. The Company believes
that its inability to use "pooling of
interests" accounting during that period will
not have a materially adverse impact on its
future plans.
The Company has not paid any dividends on
its Common Stock since the Distribution. It
is the present policy of the Board of
Directors to retain all earnings to support
the growth of the Company's business. Accord-
ingly, it is expected that no cash dividends
will be paid to holders of Common Stock in
the foreseeable future. Any payment of
dividends in the future is dependent upon the
financial condition, capital requirements and
earnings of the Company and such other
factors as the Board of Directors deems
relevant.
Other Information Concerning the Proposed
Transactions with Richard C. Jelinek
- ---------------------------------------------
Because the reported transactions with
Mr. Jelinek involve a substantial expenditure
of the Company's funds and involve a
transaction with a director of the Company
who is a substantial stockholder, and in
accordance with the policies of the Nasdaq
National Market, Management and the Board of
Directors believe that stockholders should be
given the opportunity to vote on the proposed
transactions. Unless the holders of a
majority of the shares of Common Stock
outstanding authorize it, the Company will
not consummate the proposed transactions with
Mr. Jelinek. Under the Company's Certificate
of Incorporation and its By-Laws, and under
Delaware law, however, the Company has the
power to purchase shares of its Common Stock
to the extent of unreserved and unrestricted
retained earnings as long as no purchase or
payment is made at a time when the Company's
capital is impaired or the purchase or
payment would cause an impairment of the
Company's capital. The aggregate purchase
price will not exceed the Company's total
equity and the Company's capital is not
impaired, nor will purchase of or payment for
the shares cause an impairment of the
Company's capital.
Due to his ownership of Common Stock and
the Jelinek Option, Mr. Jelinek has, and if
the transactions are not approved, will
continue to have, the effective ability to
control the Company, including the ability to
remove directors, elect new directors and
cause or prevent any merger, sale of business
or other transaction which might result in a
change in control of the Company. While
Mr. Jelinek will continue to own
approximately 15.5% of the Common Stock after
completion of the transactions, he will no
longer have the ability to prevent change in
control transactions or otherwise control the
Company. While the removal of Mr. Jelinek's
control ability might make an acquisition
proposal from a third party more likely, the
inability to achieve control of the Company
through Mr. Jelinek might make certain of
such proposals less likely. In addition, the
inability of a potential acquirer to account
for an acquisition as a pooling of interests
during the two years following the proposed
transactions may also make future third party
acquisition proposals less likely.
As of December 6, 1996, directors and
officers of the Company as a group, including
Mr. Jelinek, beneficially owned 2,758,058
shares of Common Stock of the Company, or
40.9% of the shares outstanding. If the
proposed transactions with Mr. Jelinek are
consummated, the percentage of ownership of
the directors and officers will be 30.6%.
Vote Required
- -------------
Approval of the transactions with
Mr. Jelinek requires the affirmative vote of
a majority of the votes represented at the
Annual Meeting and voting on the proposal.
Abstentions will have the effect of a vote
against approval; non-voted shares will have
no effect. Mr. Jelinek, who currently owns
approximately 28.4% of the outstanding Common
Stock, has agreed to vote his shares of
Common Stock in favor of the transactions in
at least the same proportion as other
shareholders. Therefore, if a majority of
the shares held by stockholders other than
Mr. Jelinek and represented at the Annual
Meeting are voted in favor of the
transactions, they will be approved. In
addition, Mr. Jelinek could decide to vote up
to all of his shares in favor of the
transactions. This would have the effect of
reducing the number of votes required from
other stockholders to secure approval. As of
the date of mailing of this proxy statement,
Mr. Jelinek had not determined whether he
would vote any more of his shares in favor of
approval than will be required under the
Agreements.
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 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 (through
January 21,1997) 7 1/2 4 3/8
On December 5, 1996, the day on which the
principal terms of the proposed transactions
were agreed upon, the closing price of the
Common Stock was $5.625. On January 2, 1997,
the day of the meeting of the Board of
Directors at which Punk, Ziegel & Knoell
rendered their opinion on the fairness of the
proposed transactions and at which the Board
approved the form of definitive agreements,
the closing price of the Common Stock was
$5.00. On January 21, 1997, the closing price
of the Common Stock was 6.625.
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 1997. 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, 1996
with this proxy statement. Stockholders are
referred to this report for financial and
other information about the Company, but such
report (other than the financial statements
and other portions of the Annual Report
specifically referred to under the caption
"Approval of Agreements with Richard C.
Jelinek - Historical Financial Information")
is not incorporated in this proxy statement
and is not a part of the proxy soliciting
material.
PROPOSALS BY STOCKHOLDERS
Any proposals by stockholders intended to
be presented at the 1997 Annual Meeting must
be received by the Company no later than June
30, 1997.
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
<PAGE>
EXHIBIT A
MEDICUS SYSTEMS CORPORATION 1996 C.E.O.
REPLACEMENT STOCK OPTION PLAN
The purpose of the 1996 C.E.O.
Replacement Stock Option Plan (the
"Replacement Plan") is to benefit the Company
through the maintenance and development of
management by offering certain present and
future executive and key personnel a
favorable opportunity to become stockholders
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
Replacement 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 Replacement
Plan shall be administered by a committee
(the "Committee") of the Board of Directors
composed of no fewer than two "disinterested"
"outside" directors designated by the Board
of Directors. For purposes of the
Replacement Plan, (a) "disinterested"
directors shall include directors who meet
the tests for "disinterested administration"
of the Replacement Plan under the rules and
regulations adopted by the Securities and
Exchange Commission under Section 16 of the
Securities Exchange Act of 1934 and (b)
"outside" directors shall include directors
who meet the tests for "outside director"
under the regulations adopted by the Internal
Revenue Service relating to Section 162 of
the Code, including all of the transition
rules thereunder. A majority of the
Committee shall constitute a quorum, and the
acts of a majority of the members present at
any meeting at which a quorum is present, or
acts approved in writing by all of the
members, shall be the acts of the Committee.
This Replacement Plan is intended to qualify
for exemption from Section 16(b) of the
Securities Exchange Act of 1934 and to
qualify as performance-based compensation
under Section 162 of the Code and shall be
interpreted in such a way as to result in
such qualification.
Subject to the provisions of the
Replacement Plan, the Committee shall have
full and final authority, in its absolute
discretion, (a) to determine the persons to
be granted options under the Replacement
Plan, (b) to determine the number of shares
subject to each option, (c) to determine the
time or times at which options will be
granted, (d) to determine the option price of
the shares subject to each option, which
price shall not be less than the minimum
specified in Section 4 of the Replacement
Plan, (e) to determine the time or times when
each option becomes exercisable and the
duration of the exercise period, (f) to
prescribe the form or forms of the agreements
evidencing any options granted under the
Replacement Plan (which forms shall be
consistent with the Replacement Plan), (g) to
adopt, amend and rescind such rules and
regulations as, in the Committee's opinion,
may be advisable in the administration of the
Replacement Plan, and (h) to construe and
interpret the Replacement Plan, the rules and
regulations and the agreements evidencing
options granted under the Replacement Plan
and to make all other determinations deemed
necessary or advisable for the administration
of the Replacement Plan. Any decision made
or action taken in good faith by the
Committee in connection with the
administration, interpretation, and
implementation of the Replacement Plan and of
its rules and regulations shall, to the
extent permitted by law, be conclusive and
binding upon all optionees under the
Replacement Plan and upon any person claiming
under or through such an optionee, and no
director of the Company shall be liable for
any such decision made or action taken by the
Committee.
2. Eligibility. Options shall be
granted only to key employees and directors
(other than members of the Committee) of the
Company.
3. Granting of Options.
(a) The Committee may grant
options under which a total of not more
than 400,000 shares of the Common Stock
of the Company may be purchased, subject
to adjustment as provided in paragraph
9. Since the Replacement Plan is being
adopted principally to be used for the
Chief Executive Officer, options to
purchase up to 400,000 shares of the
Common Stock of the Company may be
granted to the Chief Executive Officer
but options (including options made
available by cancellation, lapse, or
otherwise) shall not be granted to the
same individual to purchase more than
400,000 shares hereunder. This
Replacement Plan replaces the 1996
C.E.O. Plan of the Company's
predecessor, Managed Care Solutions,
Inc., formerly known as Medicus Systems
Corporation, which predecessor C.E.O.
Plan and the options to purchase 350,000
shares granted thereunder are being
terminated on the date of the adoption
of the Replacement Plan and new options
under the Replacement Plan are being
granted to purchase the same number of
shares as were subject to option under
the terminated C.E.O. Plan. If the
350,000 options granted to the Chief
Executive Officer under the predecessor
C.E.O. Plan and canceled and replaced
with options granted under the
Replacement Plan are deemed to have been
granted pursuant to the Replacement
Plan, options to purchase no more than
750,000 shares of the common stock of
the Company (the 350,000 canceled
options plus the 400,000 available under
the Replacement Plan) shall be deemed to
be available to be granted to the Chief
Executive Officer hereunder.
(b) No options shall be granted
under the Replacement Plan after
March 12, 2006. If an option expires or
is terminated or canceled unexercised as
to any shares, such released shares may
again be optioned (including a grant in
substitution for a canceled option).
Shares subject to options may be made
available from unissued or reacquired
shares of common stock.
(c) Nothing contained in the
Replacement Plan or in any option
granted pursuant thereto shall confer
upon any optionee any right to be
continued in the employment of the
Company, or interfere in any way with
the right of the Company to terminate
his employment at any time.
4. Option Price. The option price
shall be determined by the Committee and,
subject to the provisions of paragraph 9,
shall be not less than the fair market value,
at the time the option is granted, of the
stock subject to the option.
5. Duration of Options, Increments and
Extensions.
(a) Subject to the provisions of
paragraph 7, each option shall be for
such term of not more than ten years as
shall be determined by the Committee at
the date of the grant. Each option
shall become exercisable in such
installments, at such time or times, and
may be subject to such conditions,
including conditions based upon the
performance of the Company, as the
Committee may in its discretion
determine at the date of grant.
(b) The Committee may in its
discretion (i) accelerate the
exercisability of any option or (ii) at
any time before the expiration or
termination of an option previously
granted, extend the terms of such option
(including options held by officers) for
such additional period as the Committee,
in its discretion, shall determine,
except that the aggregate option period
with respect to any option, including
the original term of the option and any
extensions thereof, shall never exceed
ten years.
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 Committee
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 exercise date.
(b) At the time of exercise of any
option, the Committee 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 Committee 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 Committee.
(d) If the Committee 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 employment or 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 employment or
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 employment
because of illness, vacation, approved
leave of absence, or transfer of
employment shall not be considered to
terminate employment or to interrupt
continuous employment.
(b) In the event of termination of
employment or 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, by his heirs, legatees, or
legal representative or alternate payee
under a qualified domestic relations
order, as the case may be, during its
specified term prior to one year after
the date of death or permanent
disability. In the event of termination
of employment or 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, legal
representative or alternate payee under
a qualified domestic relations order, 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 discharged
for cause, his option shall expire
forthwith and all rights to purchase
shares under it shall terminate
immediately. For this purpose,
"discharge for cause" means a discharge
on account of dishonesty, disloyalty or
insubordination.
(d) Notwithstanding the foregoing
provisions of this paragraph 7, the
Committee may in the grant of any option
make other and different provisions with
respect to its exercise after the
optionee's termination of employment or
directorship.
8. Non-Transferability of Options. No
option shall be transferable by the optionee
otherwise than by will or the laws of descent
and distribution or pursuant to a qualified
domestic relations order, and each option
shall be exercisable during any optionee's
lifetime only by the optionee or optionee's
legal representative.
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
Replacement Plan and to options under
the Replacement 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 Replacement
Plan after such capital reorganization,
reclassification, consolidation, merger
or sale thereon 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
Committee 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 Replacement Plan. The
Board of Directors may amend or discontinue
the Replacement Plan at any time. However,
no such amendment or discontinuance shall (a)
change or impair any option previously
granted without the consent of the optionee,
(b) increase the maximum number of shares
which may be purchased by all optionees or
any one optionee, (c) change the minimum
purchase price, (d) change the limitations on
the option period or increase the time
limitations on the grant of options, or (e)
permit the granting of options to members of
the Committee.
11. Effective Date. The
Replacement Plan has been adopted and
authorized by the Board of Directors for
submission to the stockholders of the
Company. If the Replacement Plan is approved
by the affirmative vote of the holders of a
majority of the outstanding voting stock of
the Company at a duly held stockholders'
meeting, it shall be deemed to have become
effective on March 12, 1996, the date of
adoption by the Board of Directors. Options
may be granted under the Replacement Plan
before its approval by the stockholders, but
subject to such approval, and in each such
case the date of grant shall be determined
without reference to the date of the approval
of the Replacement Plan by stockholders.
<PAGE>
EXHIBIT B
MEDICUS SYSTEMS CORPORATION 1996 C.E.O.
SPECIAL STOCK OPTION CERTIFICATE
(Not Qualifying as an Incentive Stock Option)
This is to certify that the predecessor
of Medicus Systems Corporation (the
"Company"), a Delaware corporation and
successor to the software business of Managed
Care Solutions, Inc., formerly known as
Medicus Systems Corporation, has on March 12,
1996, granted to Patrick C. Sommers (the
"Optionee") an option to purchase 18,000
shares of its common stock, par value $.01
per share, upon the terms and conditions set
forth herein.
1. The purchase price payable upon
exercise of this option, shall be $ 2.00 per
share, subject to adjustment as provided in
paragraph 6 below.
2. The exercise of this option
shall be subject to the following conditions:
(a) This option shall become
exercisable with respect to 100% of the
shares subject to this option on February 28,
1997. 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.
(b) This 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 (i) the full purchase price for the shares
to be purchased either in cash or by check;
and (ii) payment in full of all withholding
taxes due as a result of the exercise or
another arrangement satisfactory to the
Company for the payment of such withholding
taxes.
(c) At the time of any exercise of
this option, the Company 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 this option
and a stop transfer order may be placed with
the transfer agent.
(d) If at any time a disinterested
committee of the Board of Directors
determines, in its discretion, that the
listing, registration or qualification of the
shares subject to this 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, this 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 by the disinterested committee of
the Board of Directors.
3. The term of this option is ten
years, but subject to earlier expiration as
provided in paragraph 5. This option is thus
not exercisable to any extent after the expi-
ration of ten years from the date of this
stock option certificate, or after any
earlier expiration date that may be
applicable under the terms of paragraph 5.
4. This option is not transferable
by the Optionee otherwise than by will or the
laws of descent and distribution, and during
the life of the Optionee it is exercisable
only by him.
5. (a) If the employment of the
Optionee with the Company or any of its
subsidiaries is terminated for any reason
other than death, permanent disability,
retirement or cause, this option, to the
extent it is exercisable on the date of
termination, shall expire thirty days after
the later of (i) February 28, 1997, and (ii)
the date of termination of employment (or
upon the scheduled termination of this
option, if earlier), and all rights to
purchase shares pursuant thereto shall
terminate at such time. Temporary absence
from employment because of illness, vacation
or approved leaves of absence, or transfers
of employment among the Company and its
parent or subsidiary corporations, shall not
be considered to terminate employment or to
interrupt continuous employment.
(b) In the event of termination of
employment because of death or permanent
disability (within the meaning of section
22(e)(3) of the Internal Revenue Code, as
amended), this option may be exercised in
full, without regard to the installments
established by paragraph 2(a), by the
Optionee or, if he is not living, by his
heirs, legatees, or legal representative, as
the case may be, during its specified term
prior to one year after the date of death or
permanent disability. In the event of
termination of employment because of
retirement, this 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 this
option was exercisable at the date of such
termination.
(c) If the Optionee is discharged
for cause, this option shall expire forthwith
and all rights to purchase shares under it
shall terminate on the later of (i) 30 days
following February 28, 1997, and (ii) the
date of discharge. For this purpose,
"discharge for cause" means a discharge on
account of dishonesty, disloyalty or insubor
dination.
6. (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 this option 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 give
notice to the Optionee providing that upon
exercise of this option after such capital
reorganization, reclassification,
consolidation, merger or sale there shall be
issuable upon exercise of this 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 upon exercise
as in the judgment of a disinterested
committee Board of Directors is required to
compensate equitably for the effect of such
event upon the exercise rights of the
Optionee. The above provisions of this
Section 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.
7. The granting of this option
shall not confer upon the Optionee any right
to be continued in the employment of the
Company or any subsidiary of the Company, or
interfere in any way with the right of the
Company or its subsidiaries to terminate his
employment at any time.
8. Neither the Optionee nor his
heirs, legatees, or legal representative
shall have any rights of stockholders with
respect to the shares subject to this option
until such shares are actually issued upon
exercise of this option.
9. (a) This option is granted
pursuant to a resolution of the Board of
Directors of the Company, and is explicitly
not granted pursuant to or under an Incentive
Stock Option Plan as defined in the Internal
Revenue Code. Thus this option is intended
not to qualify as an "incentive stock option"
under the Internal Revenue Code.
(b) This option shall be
administered by a committee of disinterested
outside members of the Board of Directors of
the Company, whose interpretation of the
terms and provisions of this option shall be
final and conclusive.
This certificate is executed as of
the date on which this option evidenced by it
is granted as stated above.
MEDICUS SYSTEMS CORPORATION
By /s/ William W. Cowan
-----------------------
William W. Cowan
Vice President
<PAGE>
EXHIBIT C
Form of
MEDICUS SYSTEMS CORPORATION, INC.
(1989/1991/1993/1993 PERFORMANCE, AND 1994)
STOCK OPTION AND RESTRICTED STOCK PLAN,
AS AMENDED
____________, 199_
The purpose of this Stock Option Plan
(the "Plan") is to benefit Medicus Systems
Corporation, Inc. (the "Company") and its
subsidiaries through the maintenance and
development of management by offering certain
present and future executive and key
personnel 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 or its
subsidiaries. Options granted under this
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 a committee (the "Committee")
of the Board of Directors composed of no
fewer than two "disinterested" "outside"
directors designated by the Board of
Directors. For purposes of this Plan, (a)
"disinterested" has the meaning under the
tests for "disinterested administration" of
the Plan under the rules and regulations
adopted by the Securities and Exchange
Commission under Section 16 of the Securities
Exchange Act of 1934 and (b) "outside" has
the meaning under the tests for "outside
director" under the Regulations adopted by
the Internal Revenue Service relating to
Section 162(m) of the Code, or any successor
provision,, including all of the transition
rules thereunder. A majority of the
Committee shall constitute a quorum, and the
acts of a majority of the members present at
any meeting at which a quorum is present, or
acts approved in writing by all of the
members, shall be the acts of the Committee.
This Plan is intended to qualify for
exemption from Section 16(b) of the
Securities Exchange Act of 1934 and stock
options issued under the Plan are intended to
qualify as performance-based compensation
under Section 162(m) of the Code and the Plan
shall be interpreted in such a way as to
result in such qualification.
Subject to the provisions of the Plan,
the Committee shall have full and final
authority, in its absolute discretion, (a) to
determine the persons to be granted options
under the Plan, (b) to determine the number
of shares subject to each option, (c) to
determine the time or times at which options
will be granted, (d) to determine the option
price of the shares subject to each option,
which price shall not be less than the
minimum specified in Section 4 of the Plan,
(e) to determine the time or times when each
option becomes exercisable and the duration
of the exercise period, (f) to prescribe the
form or forms of the agreements evidencing
any options granted under the Plan (which
forms shall be consistent with the Plan), (g)
to adopt, amend and rescind such rules and
regulations as, in the Committee's opinion,
may be advisable in the administration of the
Plan, and (h) to construe and interpret the
Plan, the rules and regulations and the
agreements evidencing options granted under
the Plan and to make all other determinations
deemed necessary or advisable for the
administration of the Plan. Any decision
made or action taken in good faith by the
Committee in connection with the
administration, interpretation, and
implementation of the Plan and of its rules
and regulations shall, to the extent
permitted by law, be conclusive and binding
upon all optionees under the Plan and upon
any person claiming under or through such an
optionee, and no director of the Company
shall be liable for any such decision made or
action taken by the Committee.
In addition, the Committee shall have
the authority, in its sole discretion, (a) to
determine the individuals to whom shares of
Restricted Stock are granted under the Plan;
(b) to determine the number of Restricted
Shares subject to each such grant; (c) to
determine the time or times when Restricted
Shares are granted; (d) to determine the time
or times when, or conditions upon which, the
restrictions on such Restricted Shares lapse
(the duration of such restrictions
hereinafter referred to as the "Restricted
Period"); (e) to accelerate the Restricted
Period for Restricted Shares granted pursuant
to the Plan including with respect to
Restricted Shares held by employees whose
employment has been terminated by reason of
death, permanent disability or retirements;
(f) to determine the term of each grant of
Restricted Shares; (g) to prescribe the form
or forms of agreements which evidence
Restricted Shares granted under the Plan; and
(h) to interpret the Plan and to adopt rules
or regulations (consistent with the terms of
the Plan) which, in the Committee's opinion,
may be necessary or advisable for the
administration of the Plan.
2. Eligibility. Options shall be
granted only to key employees and directors
(other than members of the Committee) of the
Company and its subsidiaries.
3. Granting of Options and Restricted
Shares.
(a) The Committee may grant
options and Restricted Shares under
which a total of not more than ________
(1989 Plan: 220,000 shares; 1991 Plan:
200,000 shares; 1993 Plan: 300,000;
1993 Performance Plan: 200,000 shares;
and 1994 Plan: 400,000 shares) of the
Common Stock of the Company may be
purchased from or provided by the
Company, subject to adjustment as
provided in Paragraph 9 of this Plan.
The maximum number of shares subject to
all options, together with all
Restricted Shares, granted to an
individual in any calendar year shall in
no event exceed 100,000, subject to
adjustment as provided in Section 9.
(b) No options or Restricted
Shares shall be granted under the Plan
after (1989 Plan: January 2, 1999; 1991
Plan: August 31, 2001; 1993 Plan:
January 31, 2003; 1993 Performance Plan:
March 31, 2001; and 1994 Plan: April
14, 2004). If an option expires or is
terminated or canceled unexercised as to
any shares, such released shares may
again be optioned (including a grant in
substitution for a canceled option).
Shares subject to options or granted as
Restricted Shares may be made available
from unissued or reacquired shares of
Common Stock.
(c) Nothing contained in the Plan
or in any option granted pursuant
thereto shall confer upon any optionee
any right to be continued in the
employment of the Company or any
subsidiary of the Company, or interfere
in any way with the right of the Company
or its subsidiaries to terminate his
employment at any time.
4. Option Price. The option price
shall be determined by the Committee and,
subject to the provisions of paragraph 9,
shall be not less than the fair market value,
at the time the option is granted, of the
stock subject to the option.
5. Duration of Options, Increments and
Extensions and Rights and Restrictions
Governing Restricted Shares.
(a) Subject to the provisions of
paragraph 7, each option shall be for
such term of not more than ten years as
shall be determined by the Committee at
the date of the grant. Each option
shall become exercisable in such
installments, at such time or times, and
may be subject to such conditions,
including conditions based upon the
performance of the Company, as the
Committee may in its discretion
determine at the date of grant.
(b) The Committee may in its
discretion (i) accelerate the
exercisability of any option or (ii) at
any time before the expiration or
termination of an option previously
granted, extend the terms of such option
(including options held by officers) for
such additional period as the Committee,
in its discretion, shall determine,
except that the aggregate option period
with respect to any option, including
the original term of the option and any
extensions thereof, shall never exceed
ten years.
(c) At the time of grant of
Restricted Shares, subject to the
receipt by the Company of any applicable
consideration for such Restricted
Shares, one or more certificates
representing the appropriate number of
shares of Common Stock granted to an
individual shall be registered either in
his name or for his benefit either
individually or collectively with
others, but shall be held by the Company
for the account of the individual. The
individual shall have all rights of a
holder as to such shares of Common
Stock, including the right to receive
dividends, to exercise rights, and to
vote such Common Stock and any
securities issued upon exercise of
rights, subject to the following
restrictions: (a) the individual shall
not be entitled to delivery of
certificates representing such shares of
Common Stock and any other such
securities until the expiration of the
Restricted Period, (b) none of the
Restricted Shares may be sold,
transferred, assigned, pledged, or
otherwise encumbered or disposed of
during the Restricted Period, and (c)
all of the Restricted Shares shall be
forfeited and all rights of the
individual to such Restricted Shares
shall terminate without further
obligation on the part of the Company
unless the individual remains in the
continuous employment of the Company for
the entire Restricted Period in relation
to which such Restricted Shares were
granted, except as otherwise allowed by
Section 7 hereof. Any shares of Common
Stock or other securities or property
received with respect to such shares
shall be subject to the same
restrictions as such Restricted Shares.
6. Exercise of Options and Payments of
Restricted Shares.
(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 Committee
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 Committee may, if it shall
determine it necessary or desirable for
any reason, require the optionee (or his
heirs, legatees, legal representative,
or alternate payee under a domestic
relations order, 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 Committee 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 Committee.
(d) If the Committee 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.
(e) At the end of the Restricted
Period, all restrictions contained in
the Restricted Share Agreement and in
the Plan shall lapse as to the
Restricted Shares granted in relation to
such Restricted Period, and one or more
stock certificates for the appropriate
number of shares of Common Stock, free
of restrictions, shall be delivered to
the individual or such shares of Common
Stock shall be credited to a brokerage
account if the individual so directs.
(f) The Company may, in its sole
discretion, offer an individual the
right, by execution of a written
agreement, to defer the receipt of all
or any portion of the payment, if any,
for Restricted Shares. If such an
election to defer is made, the shares of
Common Stock receivable in payment for
Restricted Shares shall be deferred as
stock units equal in number to and
exchangeable, at the end of the deferral
period, for the number of shares of
Common Stock that would have been paid
to the individual. Such stock units
shall represent only a contractual right
and shall not give the individual any
interest, right or title to any shares
of Common Stock the deferral period.
The cash receivable in payment for
fractional shares receivable shall be
deferred as cash units. Deferred stock
units may be credited annually with the
appreciation factor contained in the
deferred compensation agreement or plan,
which may include dividend equivalents.
All other terms and conditions of
deferred payments shall be as contained
in the written agreements.
7. Termination of Employment; Exercise
Thereafter.
(a) If the employment or 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 employment
or 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 employment
because of illness, vacation, approved
leave of absence, or transfer of
employment among the Company and its
parent or subsidiary corporations, shall
not be considered to terminate
employment or to interrupt continuous
employment.
(b) In the event of termination of
employment or 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, by his heirs, legatees,
legal representative, or alternate payee
pursuant to a domestic relations order,
as the case may be, during its specified
term prior to one year after the date of
death or permanent disability. In the
event of termination of employment or
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, legal representative, or
alternate payee under a domestic
relations order, 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 discharged
for cause, his option shall expire
forthwith and all rights to purchase
shares under it shall terminate
immediately. For this purpose,
"discharge for cause" means a discharge
on account of dishonesty, disloyalty or
insubordination.
(d) Notwithstanding the foregoing
provisions of this paragraph 7, the
Committee may in the grant of any option
make other and different provisions with
respect to its exercise after the
optionee's termination of employment or
directorship.
(e) If an individual ceases to be
an employee of the Company by reason of
death, disability or retirement (as such
terms are described in subsection (b)
above) prior to the end of a Restricted
Period, all Restricted Shares granted to
such individual are immediately payable
in the manner set forth in Section 6(e).
Upon a termination of employment for a
reason other than death, disability or
retirement (as such terms are described
in subsection (b) above) prior to the
end of a Restricted Period, an
individual shall immediately forfeit all
Restricted Shares previously granted,
unless the Committee, in its sole
discretion, finds that the circumstances
in the particular case so warrant and
allows a Participant whose employment
has so terminated to retain any or all
of the Restricted Shares granted to such
individual.
8. Non-Transferability of Options. No
option shall be transferable by the Optionee
otherwise than by will or the laws of descent
and distribution or pursuant to a domestic
relations order and each option shall be
exercisable during an Optionee's lifetime
only by the Optionee or by the Optionee's
legal representative.
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 this Plan
and to options under this 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
Committee 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 Plan. The Board of
Directors may amend or discontinue the Plan
at any time. However, no such amendment or
discontinuance shall (a) change or impair any
option previously granted without the consent
of the optionee, (b) increase the maximum
number of shares which may be purchased by
all optionees, (c) change the minimum
purchase price, (d) change the limitations on
the option period or increase the time
limitations on the grant of options, or (e)
permit the granting of options to members of
the Committee.
11. Effective Date. The Plan has been
adopted and authorized by the Board of
Directors for submission to the stockholders
of the Company. If the Plan is approved by
the affirmative vote of the holders of a
majority of the outstanding voting stock of
the Company represented in person or by proxy
at a duly held stockholders' meeting, it
shall be deemed to have become effective on
the date of such approval (1989 Plan: March
22, 1989; 1991 Plan: September 9, 1991; 1993
Plan: February 27, 1993; 1993 Performance
Plan: April 22, 1993; 1994 Plan: April 15,
1994). Options may be granted under the Plan
before its approval by the stockholders, but
subject to such approval, and in each such
case the date of grant shall be determined to
be the date of the approval of the Plan by
stockholders.
<PAGE>
EXHIBIT D
MEDICUS SYSTEMS CORPORATION, INC.
1997 EMPLOYEE STOCK OPTION AND RESTRICTED
STOCK PLAN
The purpose of this Stock Option and
Restricted Stock Plan (the "Plan") is to
benefit Medicus Systems Corporation, Inc.
(the "Company") and its subsidiaries through
the maintenance and development of management
by offering certain present and future
executive and key personnel 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 or its subsidiaries. Options granted
under this 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 a committee (the "Committee")
of the Board of Directors composed of no
fewer than two "disinterested" "outside"
directors designated by the Board of
Directors. For purposes of this Plan, (a)
"disinterested" has the meaning under the
tests for "disinterested administration" of
the Plan under the rules and regulations
adopted by the Securities and Exchange
Commission under Section 16 of the Securities
Exchange Act of 1934 and (b) "outside" has
the meaning under the tests for "outside
director" under the Regulations adopted by
the Internal Revenue Service relating to
Section 162(m) of the Code, or any successor
provision, including all of the transition
rules thereunder. A majority of the
Committee shall constitute a quorum, and the
acts of a majority of the members present at
any meeting at which a quorum is present, or
acts approved in writing by all of the
members, shall be the acts of the Committee.
This Plan is intended to qualify for
exemption from Section 16(b) of the
Securities Exchange Act of 1934 and stock
options issued under the Plan are intended to
qualify as performance-based compensation
under Section 162(m) of the Code and the Plan
shall be interpreted in such a way as to
result in such qualification.
Subject to the provisions of the Plan,
the Committee shall have full and final
authority, in its absolute discretion, (a) to
determine the persons to be granted options
under the Plan, (b) to determine the number
of shares subject to each option, (c) to
determine the time or times at which options
will be granted, (d) to determine the option
price of the shares subject to each option,
which price shall not be less than the
minimum specified in Section 4 of the Plan,
(e) to determine the time or times when each
option becomes exercisable and the duration
of the exercise period, (f) to prescribe the
form or forms of the agreements evidencing
any options granted under the Plan (which
forms shall be consistent with the Plan), (g)
to adopt, amend and rescind such rules and
regulations as, in the Committee's opinion,
may be advisable in the administration of the
Plan, and (h) to construe and interpret the
Plan, the rules and regulations and the
agreements evidencing options granted under
the Plan and to make all other determinations
deemed necessary or advisable for the
administration of the Plan. Any decision
made or action taken in good faith by the
Committee in connection with the
administration, interpretation, and
implementation of the Plan and of its rules
and regulations shall, to the extent
permitted by law, be conclusive and binding
upon all optionees under the Plan and upon
any person claiming under or through such an
optionee, and no director of the Company
shall be liable for any such decision made or
action taken by the Committee.
In addition, the Committee shall have
the authority, in its sole discretion, (a) to
determine the individuals to whom shares of
Restricted Stock are granted under the Plan;
(b) to determine the number of Restricted
Shares subject to each such grant; (c) to
determine the time or times when Restricted
Shares are granted; (d) to determine the time
or times when, or conditions upon which, the
restrictions on such Restricted Shares lapse
(the duration of such restrictions
hereinafter referred to as the "Restricted
Period"); (e) to accelerate the Restricted
Period for Restricted Shares granted pursuant
to the Plan including with respect to
Restricted Shares held by employees whose
employment has been terminated by reason of
death, permanent disability or retirements;
(f) to determine the term of each grant of
Restricted Shares; (g) to prescribe the form
or forms of agreements which evidence
Restricted Shares granted under the Plan; and
(h) to interpret the Plan and to adopt rules
or regulations (consistent with the terms of
the Plan) which, in the Committee's opinion,
may be necessary or advisable for the
administration of the Plan.
2. Eligibility. Options shall be
granted only to key employees and directors
(other than members of the Committee) of the
Company and its subsidiaries.
3. Granting of Options and Restricted
Shares.
(a) The Committee may grant
options and Restricted Shares under
which a total of not more than 300,000
shares of the Common Stock of the
Company may be purchased from or
provided by the Company, subject to
adjustment as provided in Paragraph 9 of
this Plan. The maximum number of shares
subject to all options, together with
all Restricted Shares, granted to an
individual in any calendar year shall in
no event exceed 100,000, subject to
adjustment as provided in Section 9.
(b) No options or Restricted
Shares shall be granted under the Plan
after January 2, 2007. If an option
expires or is terminated or canceled
unexercised as to any shares, such
released shares may again be optioned
(including a grant in substitution for a
canceled option). Shares subject to
options or granted as Restricted Shares
may be made available from unissued or
reacquired shares of Common Stock.
(c) Nothing contained in the Plan
or in any option granted pursuant
thereto shall confer upon any optionee
any right to be continued in the
employment of the Company or any
subsidiary of the Company, or interfere
in any way with the right of the Company
or its subsidiaries to terminate his
employment at any time.
4. Option Price. The option price
shall be determined by the Committee and,
subject to the provisions of paragraph 9,
shall be not less than the fair market value,
at the time the option is granted, of the
stock subject to the option.
5. Duration of Options, Increments and
Extensions and Rights and Restrictions
Governing Restricted Shares.
(a) Subject to the provisions of
Section 7, each option shall be for such
term of not more than ten years as shall
be determined by the Committee at the
date of the grant. Each option shall
become exercisable in such installments,
at such time or times, and may be
subject to such conditions, including
conditions based upon the performance of
the Company, as the Committee may in its
discretion determine at the date of
grant.
(b) The Committee may in its
discretion (i) accelerate the
exercisability of any option or (ii) at
any time before the expiration or
termination of an option previously
granted, extend the terms of such option
(including options held by officers) for
such additional period as the Committee,
in its discretion, shall determine,
except that the aggregate option period
with respect to any option, including
the original term of the option and any
extensions thereof, shall never exceed
ten years.
(c) At the time of grant of
Restricted Shares, subject to the
receipt by the Company of any applicable
consideration for such Restricted
Shares, one or more certificates
representing the appropriate number of
shares of Common Stock granted to an
individual shall be registered either in
his name or for his benefit either
individually or collectively with
others, but shall be held by the Company
for the account of the individual. The
individual shall have all rights of a
holder as to such shares of Common
Stock, including the right to receive
dividends, to exercise rights, and to
vote such Common Stock and any
securities issued upon exercise of
rights, subject to the following
restrictions: (a) the individual shall
not be entitled to delivery of
certificates representing such shares of
Common Stock and any other such
securities until the expiration of the
Restricted Period, (b) none of the
Restricted Shares may be sold,
transferred, assigned, pledged, or
otherwise encumbered or disposed of
during the Restricted Period, and (c)
all of the Restricted Shares shall be
forfeited and all rights of the
individual to such Restricted Shares
shall terminate without further
obligation on the part of the Company
unless the individual remains in the
continuous employment of the Company for
the entire Restricted Period in relation
to which such Restricted Shares were
granted, except as otherwise allowed by
Section 7 hereof. Any shares of Common
Stock or other securities or property
received with respect to such shares
shall be subject to the same
restrictions as such Restricted Shares.
6. Exercise of Options and Payments of
Restricted Shares.
(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 Committee
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 Committee may, if it shall
determine it necessary or desirable for
any reason, require the optionee (or his
heirs, legatees, legal representative,
or alternate payee under a domestic
relations order, 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 Committee 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 Committee.
(d) If the Committee 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.
(e) At the end of the Restricted
Period, all restrictions contained in
the Restricted Share Agreement and in
the Plan shall lapse as to the
Restricted Shares granted in relation to
such Restricted Period, and one or more
stock certificates for the appropriate
number of shares of Common Stock, free
of restrictions, shall be delivered to
the individual or such shares of Common
Stock shall be credited to a brokerage
account if the individual so directs.
(f) The Company may, in its sole
discretion, offer an individual the
right, by execution of a written
agreement, to defer the receipt of all
or any portion of the payment, if any,
for Restricted Shares. If such an
election to defer is made, the shares of
Common Stock receivable in payment for
Restricted Shares shall be deferred as
stock units equal in number to and
exchangeable, at the end of the deferral
period, for the number of shares of
Common Stock that would have been paid
to the individual. Such stock units
shall represent only a contractual right
and shall not give the individual any
interest, right or title to any shares
of Common Stock during the deferral
period. The cash receivable in payment
for fractional shares receivable shall
be deferred as cash units. Deferred
stock units may be credited annually
with the appreciation factor contained
in the deferred compensation agreement
or plan, which may include dividend
equivalents. All other terms and
conditions of deferred payments shall be
as contained in the written agreements.
7. Termination of Employment; Exercise
Thereafter.
(a) If the employment or 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 employment
or 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 employment
because of illness, vacation, approved
leave of absence, or transfer of
employment among the Company and its
parent or subsidiary corporations, shall
not be considered to terminate
employment or to interrupt continuous
employment.
(b) In the event of termination of
employment or 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, by his heirs, legatees,
legal representative, or alternate payee
pursuant to a domestic relations order,
as the case may be, during its specified
term prior to one year after the date of
death or permanent disability. In the
event of termination of employment or
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, legal representative, or
alternate payee under a domestic
relations order, 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 discharged
for cause, his option shall expire
forthwith and all rights to purchase
shares under it shall terminate
immediately. For this purpose,
"discharge for cause" means a discharge
on account of dishonesty, disloyalty or
insubordination.
(d) Notwithstanding the foregoing
provisions of this paragraph 7, the
Committee may in the grant of any option
make other and different provisions with
respect to its exercise after the
optionee's termination of employment or
directorship.
(e) If an individual ceases to be
an employee of the Company by reason of
death, disability or retirement (as such
terms are described in subsection (b)
above) prior to the end of a Restricted
Period, all Restricted Shares granted to
such individual are immediately payable
in the manner set forth in Section 6(e).
Upon a termination of employment for a
reason other than death, disability or
retirement (as such terms are described
in subsection (b) above) prior to the
end of a Restricted Period, an
individual shall immediately forfeit all
Restricted Shares previously granted,
unless the Committee, in its sole
discretion, finds that the circumstances
in the particular case so warrant and
allows a Participant whose employment
has so terminated to retain any or all
of the Restricted Shares granted to such
individual.
8. Non-Transferability of Options. No
option shall be transferable by the Optionee
otherwise than by will or the laws of descent
and distribution or pursuant to a domestic
relations order and each option shall be
exercisable during an Optionee's lifetime
only by the Optionee or by the Optionee's
legal representative.
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 this Plan
and to options under this 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
Committee 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 Plan. The Board of
Directors may amend or discontinue the Plan
at any time. However, no such amendment or
discontinuance shall (a) change or impair any
option previously granted without the consent
of the optionee, (b) increase the maximum
number of shares which may be purchased by
all optionees, (c) change the minimum
purchase price, (d) change the limitations on
the option period or increase the time
limitations on the grant of options, or (e)
permit the granting of options to members of
the Committee.
11. Effective Date. The Plan has been
adopted and authorized by the Board of
Directors for submission to the stockholders
of the Company. If the Plan is approved by
the affirmative vote of the holders of a
majority of the outstanding voting stock of
the Company represented in person or by proxy
at a duly held stockholders' meeting, it
shall be deemed to have become effective on
the date of such approval. Options may be
granted under the Plan before its approval by
the stockholders, but subject to such
approval, and in each such case the date of
grant shall be determined to be the date of
the approval of the Plan by stockholders.
<PAGE>
EXHIBIT E
STOCK PURCHASE AND WARRANT AGREEMENT
This Stock Purchase and Warrant
Agreement (the "Agreement") is entered into
as of January 2, 1997 between Medicus Systems
Corporation, a Delaware corporation (the
"Company"), and Richard C. Jelinek (*) [the
==================
Boston Safe Deposit and Trust Company of
California, or its successors, as trustee of
the Richard C. Jelinek Charitable Remainder
Unitrust dated August 3, 1993] (**) (the
"Shareholder").
* Language for Agreement with Ricahrd C.
Jelinek appears doublr-underlined.
** Language for Agreement with Richard C.
Jelinek Trust appears in brackets [ ].
W I T N E S S E T H
WHEREAS, the Shareholder is the
beneficial owner of 1,837,900 [450,000]
=========
shares of Common Stock, $.01 par value
("Common Stock"), of the Company, and the
Shareholder wishes to sell 550,000 [450,000]
=======
of such shares to the Company (such shares of
Common Stock to be sold being referred to as
the "Shares");
WHEREAS, the Shareholder holds an
=========
option (the "Option") to purchase all 500 of
=============================================
the authorized [will own 225] shares of the
===============
Company's Voting Preferred Stock [("Voting
Preferred Shares") immediately prior to the
closing of the transactions contemplated in
this Agreement;](275 shares of such shares of
=============================
Voting Preferred Stock being referred to as
=============================================
the "Voting Preferred Shares");
===============================
WHEREAS, the Shareholder intends to
===================================
exercise the Option;
====================
WHEREAS, the Board of Directors
(the "Board") of the Company has determined
that it is in the best interest of its
stockholders for the Company to acquire the
Shares and the Voting Preferred Stock owned
by the Shareholder, all upon the terms and
subject to the conditions set forth herein;
NOW THEREFORE, in consideration of
the foregoing and the mutual covenants and
agreements herein contained, the Company and
the Shareholder hereby agree as follows:
1. The Purchase. Subject to the
terms and conditions set forth in this
Agreement, the Company agrees to purchase
from the Shareholder, and the Shareholder
agrees to sell, assign and transfer to the
Company on the Closing Date (as defined
below), all of the Shareholder's right, title
and interest in the Shares and all of the
Shareholder's right, title and interest in
the Voting Preferred Shares.
2. The Closing. The Closing of
the transactions contemplated by this
Agreement (the "Closing") shall take place at
the offices of Bell, Boyd & Lloyd, Three
First National Plaza, Chicago, Illinois not
later than April 15, 1997, unless the parties
otherwise agree. The date upon which the
Closing occurs is herein referred to as the
Closing Date.
3. Payment. At the Closing,
(a) the Company shall deliver to the
Shareholder (i) cash consideration of
$2,475,000 [$2,025,000] (the "Cash
==========
Consideration"), (ii) a promissory note, in
substantially the form of Exhibit A hereto,
with 50% of the principal amount maturing in
one year and the balance one year thereafter
and bearing 8% interest, in the aggregate
principal amount of $1,100,000 [$900,000]
==========
(the "Promissory Note"), and (iii) a Warrant
to purchase 220,000 [180,000] shares of
=======
Common Stock at an exercise price of $8.00
per share, which shall be substantially in
the form of Exhibit B hereto (the "Warrant"),
and (b) the Shareholder shall deliver to the
Company certificates representing all of the
Shares and all of the Voting Preferred
Shares, together with duly executed stock
powers with respect to the Shares and Voting
Preferred Shares in blank in form
satisfactory to the Company. The Company
shall make payment of the Cash Consideration
pursuant to this Section 3 on the Closing
Date by wire transfer to an account
designated by the Shareholder in an amount
equal to the Cash Consideration.
4. Representations and Warranties
of the Shareholder. The Shareholder hereby
represents and warrants to the Company that:
(a) This Agreement has been duly
executed by the Shareholder and is the legal,
valid and binding obligation of the
Shareholder, enforceable against the
Shareholder in accordance with its terms.
Such execution and delivery do not, and
performance of this Agreement will not,
(i) conflict with, violate or breach any
order, judgment, injunction or decree of any
court, arbitrator, government or governmental
agency or instrumentality against or binding
on the Shareholder or by which any of his
assets or properties are bound or affected,
(ii) constitute a violation by the
Shareholder of any law, rule, regulation,
order, judgment or decree applicable to the
Shareholder or by which any property or asset
of the Shareholder is bound or affected or
(iii) conflict with, violate, breach or cause
a default (or an event which with notice or
lapse of time or both would become a default)
under, or give to others any rights of
termination, amendment, acceleration or
cancellation of, any agreement or instrument
to which the Shareholder is party or by which
any of his assets or properties are bound or
affected or result in the creation of a lien
or other encumbrance on any of his Shares.
(b) The Shareholder has had access
to such information concerning the Company,
its business and its financial condition as
he [the Shareholder] deemed necessary in
==
connection with the transactions contemplated
by this Agreement.
(c) On the Closing Date, the
Shareholder will have valid title to all of
the Shares and the Voting Preferred Shares,
in each case free and clear of any liens,
charges or encumbrances, and such Shares and
Voting Preferred Shares will not be subject
to any claims by virtue of rights, options,
contracts, calls, agreements or otherwise.
(d) The sale by the Shareholder
pursuant to this Agreement and the delivery
of the certificate(s) representing the Shares
and the Voting Preferred Shares to the
Company will transfer to the Company good and
valid title to the Shares and the Voting
Preferred Shares free and clear of all
claims, liens, encumbrances, security
interests, proxies, voting and other
restrictions or interests of any nature
whatsoever.
(e) The Shareholder acknowledges
(i) that representatives of the Company have
strongly recommended that the Shareholder
engage separate counsel to represent the
Shareholder in connection with the
negotiation of this Agreement, and (ii) that
the Shareholder has determined, nevertheless,
not to be represented by counsel in the
negotiation of this Agreement. The
Shareholder has made this decision in part
based upon his own [the] extensive business
=======
and investment experience [of Richard C.
Jelinek], as well as the involvement of
William G. Brown, a director and secretary of
the Company, and a partner in the law firm of
Bell, Boyd & Lloyd, counsel to the Company,
in the negotiation and preparation of the
Agreement and related documents, Mr. Brown
having had a long-standing personal and
business relationship with the Shareholder
================
[Mr. Jelinek]; however, the Shareholder
acknowledges that Mr. Brown has been acting
solely as a representative of the Company,
and has not been representing the
Shareholder's interests, in such matters.
The Shareholder represents that he [the
==
Shareholder] has read and fully understands
this Agreement, the Warrant and the
Promissory Note.
5. Representations and Warranties
of the Company. The Company hereby
represents and warrants to the Shareholder
that:
(a) The Company is a corporation
duly organized, validly existing and in
good standing under the laws of the
State of Delaware and has the requisite
corporate power and authority and all
necessary governmental approvals to own,
lease and operate its properties and to
carry on its business as it is now been
conducted.
(b) The Company has all necessary
corporate power and authority to execute
and deliver this Agreement, to perform
its obligations hereunder and to
consummate the transactions contemplated
hereby. The execution and delivery of
this Agreement by the Company and the
consummation by the Company of the
purchase of the Shares pursuant hereto
have been duly and validly authorized by
all necessary corporate action and no
other corporate proceedings on the part
of the Company are necessary to
authorize this Agreement or to
consummate the purchase of the Shares
hereunder, other than the stockholder
approval contemplated in Sections 6(f)
====
[6(e)] and 7(c) below. This Agreement
has been duly and validly executed and
delivered by the Company and is the
legal, valid and binding obligation of
the Company, enforceable against the
Company in accordance with its terms.
(c) The execution and delivery of
this Agreement by the Company do not,
and performance of this Agreement by the
Company will not, (i) conflict with,
violate or breach the Certificate of
Incorporation or By-laws of the Company,
(ii) conflict with, violate or breach
any order, judgment, injunction or
decree of any court, arbitrator,
government or governmental agency or
instrumentality against or binding on
the Company or by which any of its
assets or properties are bound or
affected, (iii) constitute a violation
by the Company of any law, rule,
regulation, order, judgment or decree
applicable to the Company or by which
any property or asset of the Company is
bound or affected or (iv) conflict with,
violate, breach or cause a default (or
an event which with notice or lapse of
time or both would become a default)
under, or give to others any rights of
termination, amendment, acceleration or
cancellation of, any agreement or
instrument to which the Company is a
party or by which any of the Company's
assets or properties are bound or
affected or result in the creation of a
lien or other encumbrance on any of its
assets or properties.
6. Conditions Precedent to the
Company's Obligations. The obligations of
the Company to purchase the Shares and the
Voting Preferred Shares and issue the Warrant
pursuant to this Agreement are subject to the
fulfillment of the following conditions:
(a) The representations and
warranties of the Shareholder contained in
this Agreement shall be true and correct in
all material respects on and as of the
Closing Date, with the same force and effect
as if made as of the Closing Date;
(b) The performance of this
Agreement by the Company shall not conflict
with or violate any order, judgment or decree
applicable to the Company or by which any of
its assets or properties are bound or
affected;
(c) The Shareholder shall have
delivered to the Company certificate(s)
evidencing all of the Shares, together with
stock powers in form satisfactory to the
Company executed in blank;
(d) The Shareholder shall have
delivered to the Company certificate(s)
evidencing all of the Voting Preferred
Shares, together with stock powers in form
satisfactory to the Company executed in
blank;
(e) The Shareholder shall have
=============================
delivered to the Company his resignation as
=============================================
Chairman of the Company, it being understood
=============================================
that the Shareholder will remain a director
=============================================
of the Company;
===============
(f) The stockholders of the
===
Company shall have approved the transactions
contemplated by this Agreement; and
(g)[(f)] All conditions to the
===
closing of the transactions contemplated by
the Stock Purchase and Warrant Agreement
dated the date hereof between Boston Safe
============
Deposit and Trust Company of California, or
=============================================
its successors, as trustee of the Richard C.
=============================================
Jelinek Charitable Remainder Unitrust dated
=============================================
August 3, 1993 (the "Trust") [Richard C.
===============================
Jelinek] and the Company (the
"Trust["Jelinek] Agreement") shall have been
======
satisfied.
7. Conditions Precedent to the
Shareholder's Obligations. The obligations
of the Shareholder to sell the Shares and
Voting Preferred Shares pursuant to this
Agreement are subject to the fulfillment of
the following conditions:
(a) The representations and
warranties of the Company contained in this
Agreement shall be true and correct in all
material respects on and as of the Closing
Date, with the same force and effect as if
made as of the Closing Date;
(b) The Company shall have
delivered to the Shareholder (i) by wire
transfer an amount equal to the Cash
Consideration, (ii) the Promissory Note, and
(iii) the Warrant;
(c) The stockholders of the
Company shall have approved the transactions
contemplated by this Agreement;
(d) All conditions to the closing
of the transactions contemplated by the Trust
=====
[Jelinek] Agreement shall have been
satisfied.
8. Additional Agreements of the
Shareholder. (a) The Shareholder agrees
that, for a period of five years from the
date of this Agreement, the Shareholder will
not, without the prior consent of the
disinterested members of the Board, transfer
any shares of Common Stock held by the
Shareholder immediately after the Closing
(the "Remaining Shares"), or any shares of
Common Stock issuable upon exercise of the
Warrant ("Warrant Shares"), except as
provided in the following sentence. The
restriction set forth above shall lapse as to
20% of the Remaining Shares and as to 20% of
any outstanding Warrant Shares on each
anniversary of the date of this Agreement,
provided that any transfer of Remaining
Shares or Warrant Shares as to which such
restriction has lapsed may only be made
(i) to a member of the immediate family of
the Shareholder [Mr. Jelinek] or any trust,
================
partnership, or corporation beneficially
owned in its entirety by members of the
immediate family of the Shareholder [Mr.
================
Jelinek], (ii) as a gift to any tax-exempt
organization, or (iii) in a transaction
satisfying the requirements of Rule 144
promulgated under the Securities Act of 1933.
(b) The Shareholder further agrees
that, from the date hereof through and
including the fifth anniversary of the date
hereof, without the Company's prior written
consent, the Shareholder will not:
(i) acquire, announce an
intention to acquire, offer or propose
to acquire, or agree to acquire,
directly or indirectly, by purchase or
otherwise beneficial ownership of any
Common Stock or other voting securities
of the Company (collectively the "Voting
Securities") or direct or indirect
rights or options to acquire (through
purchase, exchange, conversion or
otherwise) any Voting Securities;
(ii) make, or in any way
participate, directly or indirectly
(other than solely as a member of the
========================================
Company's Board of Directors in
========================================
connection with solicitations by the
========================================
entire Board of Directors), in any
=============================
"solicitation" of proxies (as such terms
are defined in Rule 14a-1 under the
Securities Exchange Act of 1934, as
amended (the "Exchange Act")) to vote
any Voting Securities, seek to advise,
encourage or influence any person or
entity with respect to the voting of any
Voting Securities, initiate or propose
any shareholder proposal or induce or
attempt to induce any other person to
initiate any shareholder proposal;
(iii) make any statement
or proposal, whether written or oral, to
the Board of Directors of the Company,
or to any director, officer or agent of
the Company, or make any public
announcement or proposal whatsoever with
respect to a merger or other business
combination, sale or transfer of assets,
recapitalization, dividend, share
repurchase, liquidation or other
extraordinary corporate transaction with
the Company or other transaction which
could result in a change of control, or
solicit or encourage any other person to
make such statement or proposal;
(iv) after consummation of the
Closing, form, join or in any way
participate in a "group" (within the
meaning of Section 13(d)(3) of the
Exchange Act) with respect to any
securities of the Company;
(v) otherwise act, alone or
in concert with others, to seek to
exercise any control over the
management, Board of Directors or
policies of the Company[, other than in
the performance in the normal course of
his duties as a director of the
Company];
(vi) make a public request to
the Company (or its directors, officers,
shareholders, employees or agents) to
amend or waive any provisions of this
Agreement, the Certificate of
Incorporation or By-Laws of the Company;
(vii) take any action
which might require the Company to make
a public announcement regarding the
possibility of any transaction referred
to in paragraph (ii) above or similar
transaction or, advise, assist or
encourage any other persons in
connection with the foregoing; or
(viii) disclose any
intention, plan or arrangement
inconsistent with the foregoing.
(c) The Shareholder agrees that he
[the Shareholder] will vote in favor of
approval of the transactions contemplated by
this Agreement at least that number of shares
of Common Stock as represents the same
percentage of the Shareholder's holdings of
Common Stock as the number of shares of
Common Stock voted in favor of such approval
by holders other than the Shareholder
represents of all shares voted on such
proposal (excluding shares which are not
present, are not voted or abstain) by holders
other than the Shareholder.
(d) The Shareholder agrees that he
===============================
will resign as Chairman of the Board (while
=============================================
remaining a director) concurrently with the
=============================================
closing of the purchase and sale contemplated
=============================================
herein.
=======
9. Additional Agreements of the
Company. The Company agrees that it will use
its reasonable best efforts to cause its
upcoming Annual Meeting of Stockholders (the
"Annual Meeting") to be held on March 3, 1997
or as soon thereafter as practicable, that it
will seek approval of the transactions
contemplated in this Agreement at the Annual
Meeting, and that it will promptly prepare
and file with the Securities and Exchange
Commission ("SEC") preliminary proxy
materials, and as promptly as practicable
following SEC review, mail definitive proxy
materials to stockholders, in connection with
the Annual Meeting.
10. Registration Rights. The
Shareholder shall have the following rights
with respect to the Warrant Shares.
10.1 Demand Registrations.
(a) Upon the written request of the
Shareholder that the Company register all or
part of the Warrant Shares then owned by the
Shareholder or which the Shareholder has a
right to acquire upon exercise of the Warrant
(which request shall satisfy the requirements
of paragraph (c) of this Section 10.1), the
Company shall, subject in all cases to the
provisions of paragraph (b) of this Section
10.1, thereupon, use its reasonable best
efforts to cause the Warrant Shares specified
in such request to be so registered as soon
as practicable, but not later than 90 days
after the date of the Shareholder's written
request to register.
(b) The Company's obligation to
register all or part of the Warrant Shares
pursuant to paragraph (a) of this Section
10.1 shall in all cases be subject to the
following limitations and qualifications:
(i) The Company shall (x) be
required to effect only one such
registration if such registration is
ordered or declared effective and
(y) not be obligated to file a
registration statement at any time if a
special audit of the Company would be
required by the rules and regulations of
the Securities and Exchange Commission
(the "Commission") in connection
therewith; and
(ii) The Company shall be
entitled to postpone for a reasonable
period of time not to exceed 90 days the
filing of any registration statement
otherwise required to be prepared and
filed by it if, at the time it receives
a request for registration, the Company
determines, in its reasonable judgment,
that such registration would materially
interfere with any financing,
acquisition, corporate reorganization or
other material transaction then being
contemplated by its Board of Directors,
involving the Company, and promptly
gives the Shareholder written notice of
such determination and the reasons
therefor, provided that the Company
shall not defer its obligations in this
manner more than twice in any twelve
month period and the Company shall not
defer its obligations until 90 days have
expired after any prior deferral. In
such event, the Shareholder shall have
the right to withdraw the request for
registration by giving written notice to
the Company within 30 days after receipt
of the notice of postponement (and, in
the event of such withdrawal, such
request shall be ignored for purposes of
counting the demand registration to
which the Shareholder is entitled
pursuant to this paragraph (b)).
For purposes of this paragraph (b),
"special audit" shall mean an audit other
than a year-end audit, requiring an opinion
of the Company's independent public
accountants.
(c) Any written request of the
Shareholder made pursuant to paragraph (a) of
this Section 10.1 shall:
(i) specify the number of the
Warrant Shares which the Shareholder
intends to offer and intends to sell;
(ii) state the firm intention
of the Shareholder to offer such shares
for sale;
(iii) describe the
intended method of distribution of such
shares; and
(iv) contain an undertaking on
the part of the Shareholder to provide
all such information and materials
concerning the Shareholder and take all
such action as may be required to permit
the Company to comply with all
applicable requirements of the
Commission and to obtain acceleration of
the effective date of the registration
statement.
10.2 Participation Registrations.
(a) If, at any time from the date hereof, the
Company shall propose to register under the
Securities Act an offering of Common Stock to
be offered and sold by it or any stockholder,
it shall give written notice of such proposed
registration to the Shareholder as promptly
as possible and shall, subject in all cases
to paragraph (b) of this Section 10.2, use
its reasonable best efforts to include in the
offering such number of the Warrant Shares
then owned by the Shareholder as the
Shareholder shall request, within 10 days
after the giving of such notice, to be
included, such offering to be upon the same
terms (including the method of distribution)
as the Common Stock being sold by the Company
pursuant to any such offering.
(b) The Company's obligation to
include the Warrant Shares owned by the
Shareholder in any offering pursuant to
paragraph (a) of this Section 10.2 shall in
all cases be subject to the following
limitation and qualifications:
(i) The Company shall not be
required to give notice to the
Shareholder or include such shares in
any such registration if the proposed
registration is (x) a registration of
stock option or compensation plan or of
the Company Common Stock issued or
issuable pursuant to any such plan, or
(y) a registration of the Company Common
Stock proposed to be issued in exchange
for securities or assets of, or in
connection with a merger or
consolidation with, another corporation;
(ii) The Company may require
that the number of such shares requested
to be included in such registration be
reduced, or that all such shares be
excluded from any such registration, if
it is advised in writing by its managing
underwriter that such reduction or
exclusion, as the case may be, is
necessary to permit the orderly sale and
distribution of the securities being
offered by the Company. Any reduction
shall be made pro rata among all Selling
Shareholders in proportion to the
relative number of shares sought by each
to be registered. If the Company shall
require such a reduction, the
Shareholder shall have the right to
withdraw from the offering;
(iii) The Company may, in
its sole discretion and without the
consent of the Shareholder, withdraw
such registration statement and abandon
the proposed offering in which the
Shareholder had requested to
participate; and
(iv) The Company shall be
required to effect only one such
registration; provided that the
Shareholder's right to registration
under this Section 10.2 shall not expire
unless all shares the Shareholder has
requested under Section 10.2(a) to be
registered have been so registered.
10.3 Certain Covenants of the
Company. (a) In connection with any
registration of the Warrant Shares undertaken
by the Company pursuant to Section 10.1 and,
if and to the extent appropriate, Section
10.2, the Company shall:
(i) prepare and file with the
Commission a registration statement with
respect to such shares and use its best
efforts to cause such registration
statement to become effective;
(ii) prepare and file with the
Commission such amendments and
supplements to such registration
statement and the prospectus used in
connection therewith as may be necessary
to keep such registration statement
current for such period not to exceed
270 days as the Shareholder shall
request and to comply with the
provisions of the Securities Act with
respect to the sale of all the Warrant
Shares covered by such registration
statement during such period;
(iii) provide the
Shareholder a reasonable opportunity to
review and, in the case of registrations
effected pursuant to Section 10.1,
approve prior to filing (x) any
registration statement filed by the
Company in connection with a
registration effected pursuant to
Section 10.1 or Section 10.2 and (y) any
amendments or supplements to such
registration statement and any
prospectus used in connection therewith;
(iv) furnish to the
Shareholder such number of conformed
copies of such registration statement
and of each such amendment and
supplement thereto (in each case
including all exhibits), such number of
copies of the prospectus included in
such registration statement (including
each preliminary prospectus and
prospectus supplement), copies of which
are in conformity with the requirements
of the Securities Act, and such other
documents as the Shareholder may
reasonably request in order to
facilitate the sale of the Warrant
Shares covered by such registration
statement;
(v) use its best efforts to
register or qualify the Warrant Shares
covered by such registration statement
under such other securities or blue sky
laws of such jurisdictions as the
Shareholder shall reasonably request,
and do any and all other acts and things
which may be reasonably necessary or
advisable to enable the Shareholder to
consummate the sale in such
jurisdictions of such shares; provided
that the Company shall not for any such
purpose be required to qualify generally
to do business as a foreign corporation
in any jurisdiction wherein it would not
but for the requirements of this
paragraph (v) be obligated to be so
qualified, to subject itself to taxation
in any such jurisdiction or to consent
to general service of process in any
such jurisdiction;
(vi) notify the Shareholder,
at any time when a prospectus relating
to the Warrant Shares covered by such
registration statement is required to be
delivered under the Securities Act, of
the Company's becoming aware that the
prospectus included in such registration
statement, as then in effect, includes
an untrue statement of a material fact
or omits to state any material fact
required to be stated therein or
necessary to make the statements therein
not misleading in light of the
circumstances then existing, and at the
request of the Shareholder promptly
prepare and furnish to the Shareholder a
reasonable number of copies of a
prospectus supplemented or amended so
that, as thereafter delivered to the
purchasers of such shares, such
prospectus shall not include an untrue
statement of a material fact or omit to
state a material fact required to be
stated therein or necessary to make the
statements therein not misleading in
light of the circumstances then
existing;
(vii) use its best efforts
to cause all the Warrant Shares covered
by such registration statement to be
listed on each securities exchange on
which securities of the same class
issued by the Company are then listed
or, if there shall then be no such
listing, to be accepted for quotation on
NASDAQ;
(viii) provide a transfer
agent and registrar for the Warrant
Shares covered by such registration
statement not later than the effective
date of such registration statement; and
(ix) enter into such
agreements (including an underwriting
agreement in customary form) and take
such other actions as the Shareholder
reasonably requests in order to expedite
or facilitate the disposition of such
shares.
(b) The Company shall take all
reasonable actions necessary so as to enable
the Shareholder to make sales of the Warrant
Shares under Rule 144 (or any successor rule)
under the Securities Act and in accordance
with applicable laws, rules and regulations,
the requirements of the Company's transfer
agent(s), and the reasonable requirements of
the broker through which the sales are
proposed to be executed.
(c) From and after the date of
this Agreement, the Company shall not,
without the written consent of the
Shareholder, enter into any agreement
granting to any person or entity any
registration rights that are more favorable
than the registration rights granted to the
Shareholder under this Note, unless the same
rights are granted to the Shareholder.
10.4 Standstill. In the event of a
registered public offering, the Shareholder
will agree with the underwriters not to sell
any Shares for up to 180 days following
commencement of the offering if and only if
the Shareholder has been offered the
opportunity to participate in the offering
and the underwriters have not reduced the
number of shares that the Shareholder may
sell.
10.5 Expenses. (a) The Shareholder
shall pay all out-of-pocket expenses incurred
by the Company in connection with any
registration of the Warrant Shares pursuant
to Section 10.1 including, without
limitation, all registration and filing fees,
printing expenses, underwriting discounts,
commissions and expenses, fees and
disbursements of the Company's legal counsel
and accountants, transfer agents and
registrars, and expenses incidental to any
post-effective amendment to any such
registration statement. For purposes of this
Section 10.5, "out-of-pocket expenses" shall
not include salaries of the Company employees
or expenses attributable to the Company's
corporate overhead.
(b) In connection with any
registration pursuant to Section 10.2, the
Company shall pay all registration and filing
fees, underwriting discounts, commissions and
expenses (other than those attributable to
the Warrant Shares being sold by the
Shareholder), printing expenses, fees and
disbursements of the Company's legal counsel
and accountants, transfer agents and
registrars fees, and expenses incidental to
any post-effective amendment to any such
registration statement. The Shareholder
shall pay all other out-of-pocket expenses
attributable to the inclusion in the offering
of the Warrant Shares being sold by it
including, without limitation, registration
and filing fees and underwriting discounts,
commissions and expenses attributable thereto
and fees and disbursements of the
Shareholder's legal counsel and accountants.
10.6 Indemnification. (a) In the
case of each registration effected by the
Company pursuant to Section 10.1 or Section
10.2, the Company agrees to indemnify and
hold harmless the Shareholder, each
underwriter of the Warrant Shares so
registered and each person who controls any
such underwriter within the meaning of
Section 15 of the Securities Act, against any
and all losses, claims, damages or
liabilities to which they or any of them may
become subject under the Securities Act or
any other statute or common law, including
any amount paid in settlement of any
litigation, commenced or threatened, if such
settlement is effected with the written
consent of the Company, which consent is not
unreasonably withheld in light of all factors
which are important to such indemnified
party, and to reimburse them for any legal or
other expenses incurred by them in connection
with investigating any claims and defending
any actions, insofar as any such losses,
claims, damages, liabilities or actions arise
out of or are based upon (i) any untrue
statement or alleged untrue statement of a
material fact contained in the registration
statement relating to the sale of the Warrant
Shares, or any post-effective amendment
thereto, or the omission or alleged omission
to state therein a material fact required to
be stated therein or necessary to make the
statements therein not misleading or (ii) any
untrue statement or alleged untrue statement
of a material fact contained in any
preliminary prospectus, if used prior to the
effective date of such registration
statement, or contained in the final
prospectus (as amended or supplemented if the
Company shall have filed with the Commission
any amendment thereof or supplement thereto)
if used within the period during which the
Company is required to keep the registration
statement to which such prospectus relates
current, or the omission or alleged omission
to state therein (if so used) a material fact
necessary in order to make the statements
therein, in light of the circumstances under
which they were made, not misleading;
provided, however, that the indemnification
agreement contained in this paragraph (a)
shall not (x) apply to such losses, claims,
damages, liabilities or actions arising out
of, or based upon, any such untrue statement
or alleged untrue statement, or any such
omission or alleged omission, if such
statement or omission was made in reliance
upon and in conformity with information
furnished in writing to the Company by the
Shareholder or such underwriter for use in
connection with the preparation of the
registration statement, any preliminary
prospectus or final prospectus contained in
the registration statement, or any amendment
or supplement thereto, or (y) inure to the
benefit of any underwriter or any person
controlling such underwriter, if such
underwriter failed to send or give a copy of
the final prospectus to the person asserting
the claim at or prior to the written
confirmation of the sale of the Warrant
Shares to such person and if the untrue
statement or omission concerned had been
corrected in such final prospectus.
Notwithstanding the foregoing, the Company
agrees to be subject to such indemnification
and contribution provisions as the
underwriters may reasonably request in
connection with any underwritten offering and
that to the extent that the provisions on
indemnification and contribution contained in
the underwriting agreement entered into in
connection with such offerings are in
conflict with the foregoing provisions, the
provisions in the underwriting agreement
shall control.
(b) In the case of each
registration effected by the Company pursuant
to Section 10.1 or 10.2, the Shareholder and
each underwriter of the Warrant Shares to be
registered (each such party and such
underwriters being referred to severally in
this paragraph (b) as the "indemnifying
party") shall agree in the same manner and to
the same extent as set forth in paragraph (a)
of this Section 10.6 to indemnify and hold
harmless the Company, each person who
controls the Company, the directors of the
Company and those of its officers who shall
have signed any such registration statement,
with respect to any untrue statement or
alleged untrue statement in, or omission or
alleged omission from, such registration
statement or any post-effective amendment
thereto or any preliminary prospectus or
final prospectus (as amended or as
supplemented, if amended or supplemented as
aforesaid) contained in such registration
statement, if such statement or omission was
made in reliance upon and in conformity with
information furnished in writing to the
Company by such indemnifying party
specifically for use in connection with the
preparation of such registration statement or
any preliminary prospectus or final
prospectus contained in such registration
statement or any such amendment or supplement
thereto.
(c) Each indemnified party shall,
with reasonable promptness after its receipt
of written notice of the commencement of any
action against such indemnified party in
respect of which indemnity may be sought from
an indemnifying party on account of an
indemnity agreement contained in this Section
10.6, notify the indemnifying party in
writing of the commencement thereof. In case
any such action shall be brought against any
indemnified party and it shall so notify an
indemnifying party of the commencement
thereof, the indemnifying party shall be
entitled to participate therein and, to the
extent it may wish, jointly with any other
indemnifying party similarly notified, to
assume the defense thereof with counsel
reasonably satisfactory to such indemnified
party, and after notice from the indemnifying
party to such indemnified party of its
election so to assume the defense thereof,
the indemnifying party shall not be liable to
such indemnified party under this Section
10.6 for any legal or other expenses
subsequently incurred by such indemnified
party in connection with the defense thereof
other than reasonable costs of investigation.
Notwithstanding the foregoing, the
indemnifying party shall promptly pay as
incurred the reasonable fees and expenses of
the counsel retained by the indemnified party
in the event (i) the indemnifying party and
the indemnified party shall have mutually
agreed to the retention of such counsel or
(ii) the named parties to any such proceeding
(including any impleaded parties) include
both the indemnifying party and the
indemnified party and the indemnified party
shall have reasonably concluded that there
may be a conflict between the positions of
the indemnifying party and the indemnified
party in conducting the defense of any such
action or that there may be legal defenses
available to it or other indemnified parties
that are different from or in addition to
those available to the indemnifying party.
The indemnity agreements in this Section 10.5
shall be in addition to any liabilities which
the indemnifying parties may have pursuant to
law.
11. Cooperation, Etc. The Company
and the Shareholder shall cooperate and use
all efforts to take all action, and to do all
things necessary, proper or advisable to
consummate the sale of the Shares to the
Company and to otherwise consummate and make
effective the transactions contemplated by
this Agreement, and shall refrain from taking
any action that shall be inconsistent with,
or contrary to, this Agreement. Each of the
parties hereto shall cooperate and use all
reasonable efforts to resist any attempts to
impose any legal prohibition or restraint on
the purchase and sale of the Shares in
accordance herewith and, in the event
thereof, to remove, vacate and/or reverse any
such prohibition or restraint.
12. Expenses. The Shareholder
shall be responsible for any legal fees or
other expenses incurred by the Shareholder in
connection with the transactions contemplated
by this Agreement. The Company shall be
responsible for any legal fees or other
expenses incurred by it in connection with
the transactions contemplated by this
Agreement including the fees due to the
investment banking firm of Punk, Ziegel &
Knoell ("Punk Ziegel") and the expenses of
preparation, printing and mailing of the
Company's proxy statement.
13. Non-Disclosure. The Company
and the Shareholder acknowledge that
disclosure concerning this Agreement is
required by law, and agree that each party
will have the opportunity to review the
Company's proxy materials, the Company's 8-K
(if any) and the Shareholder's Amendment to
Schedule 13D with respect to this Agreement
prior to the filing thereof. Except for such
filings and except to the extent otherwise
required by law, neither the Company nor the
Shareholder shall make any disclosure of the
terms hereof or the negotiations with respect
hereto (other than to the parties hereto and
their representatives and advisors) except
pursuant to a press release which shall be
approved by all of the parties hereto prior
to the release thereof. The Shareholder (and
their agents and advisors) shall not make any
disparaging public statements with respect to
the Company or any of its employees, and the
Company (and its employees, agents and
advisors) shall make no disparaging public
statements concerning the Shareholder.
14. Amendments; Waivers. This
Agreement shall not be modified, amended,
altered or supplemented, nor shall any
provision of this Agreement be waived, except
upon the execution and delivery of a written
agreement executed by each of the parties
hereto.
15. Assignments; Successors.
(a) Neither the Company nor the
Shareholder shall assign any of their rights
or delegate any of their duties under this
Agreement.
(b) This Agreement shall be
binding upon, inure to the benefit of, and be
enforceable by, the parties hereto. Nothing
expressed or referred to in this Agreement is
intended or shall be construed to give any
person other than the parties to this
Agreement any legal or equitable right,
remedy or claim under or in respect of this
Agreement or any provision contained herein.
16. Specific Performance and
Injunctive Relief. The parties hereto agree
that irreparable damage would occur in the
event of the breach of any provision of this
Agreement and that the parties shall be
entitled to specific performance of the terms
hereof, in addition to any other remedy at
law or equity.
17. Notices. All notices and
other communications provided for hereunder
shall be in writing (including telex and
telecopy communication) and shall be sent by
mail, telex, telecopier or hand delivery:
(i) if to the Company, at its address at One
Rotary Center, Suite 1111, Evanston, IL
60201, Attention: Patrick C. Sommers, or
(ii) if to the Shareholder, at 0312 Ridge
===========
Road, Aspen, Colorado 81611 [Mellon Private
============================
Asset Management, Boston Safe Deposit and
Trust Company of California, 400 South Hope
Street, Suite 400, Los Angeles,
California 90071, attention Ms. M. Patricia
Whiteley].
18. Governing Law. This Agreement
shall be governed by, and construed in
accordance with, the laws of the State of
Illinois applicable to contracts executed in
and to be performed in that State.
19. Headings. The descriptive
headings contained in this Agreement are
included for convenience of reference only
and shall not affect in any way the meaning
or interpretation of this Agreement.
20. Counterparts. This Agreement
may be executed in one or more counterparts,
and by the different parties hereto in
separate counterparts, each of which when
executed shall be deemed to be an original
but all of which taken together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the parties
hereto have caused this Agreement to be
executed as of the date first written above.
MEDICUS SYSTEMS
CORPORATION
By /s/ Patrick C. Sommers
--------------------------
Patrick C. Sommers,
President and Chief
Executive Officer
THE SHAREHOLDER
By /s/ Richard C. Jelinek
==========================
Richard C. Jelinek
==================
[By /s/ Brenden Gilmore
Brenden Gilmore,
as Trustee]
<PAGE>
EXHIBIT F
Punk, Ziegel & Knoell 520 Madison Avenue
New York, NY 10022
212.308.9494
Fax 212.308.2203
555 Montgomery St.
San Francisco, CA
94111
415.675.7960
Fax 415.675.7979
January 2, 1997
CONFIDENTIAL
The Special Committee of the Board of
Directors
Medicus Systems Corporation
One Rotary Center, Suite 1111
Evanston, IL 60201
Ladies and Gentlemen:
You have requested our opinion as to the
fairness, from a financial point of view, to
Medicus Systems Corporation (the "Company")
and to its shareholders, with the exception
of Richard C. Jelinek, Chairman of the Board
of Directors, of the consideration (as
defined below) to be paid to Mr. Jelinek and
the Boston Safe Deposit and Trust Company of
California as trustee under Richard C.
Jelinek Charitable Remainder Unitrust (the
"Trust") pursuant to Stock Purchase and
Warrant Agreements (the "Agreements") dated
January 2, 1997, between the Company, Mr.
Jelinek and the Trust. This letter confirms
the oral opinion which we rendered to you on
January 2, 1997 and, accordingly, is dated as
of the deliverance of such oral opinion.
Pursuant to the Agreements, the Company will
acquire one million shares of Common Stock
$.01 par value ("Common Stock") of Mr.
Jelinek's total holdings of 1,837,900 shares
of Common Stock of the Company; and
repurchase all 500 shares of the Company's
Voting Preferred Stock held by Mr. Jelinek
and the Trust. You have advised us that the
consideration for the above transaction (the
"Transaction") reflected in the Agreements
will consist of (i) $4.5 million in cash;
(ii) $2 million in 8% Notes, and (iii) five
year Stock Exchange and Subscription Warrants
to purchase 400,000 shares of Common Stock.
The terms of the foregoing Notes and Warrants
are set forth in Exhibits to the Agreements.
The foregoing consideration is referred to
herein as the "Consideration."
Punk, Ziegel & Knoell, as part of its
investment banking services, is often engaged
in the valuation of businesses and their
securities in connection with mergers and
acquisitions, negotiated underwritings,
secondary distributions of securities,
private placements and valuations for
corporate and other purposes. We are
familiar with the Company, having
participated as a co-manager in its 1993
Common Stock offering, and we currently act
as a market maker of the Company's Common
Stock. We have not acted as a financial
advisor to the Special Committee of the Board
of Directors of the Company in connection
with the Agreements, and we will receive a
fee for our services upon delivery of this
opinion.
Punk, Ziegel & Knoell regularly
publishes research reports regarding the
healthcare information systems industry and
the business and securities of publicly-owned
companies in that industry.
In rendering our opinion, we have
reviewed, among other things, the Agreements;
the draft Proxy Statement dated as of January
2, 1997; Annual Reports to Stockholders on
Form 10-K of the Company for the years ended
May 31, 1996, 1995 and 1994; the draft Stock
Purchase and Warrant Agreements dated as of
January 2, 1997; certain interim reports to
Stockholders on Form 10-Q of the Company;
certain internal financial analyses and
forecasts for the Company prepared by
management of the Company; the pro forma
financial impact of the Transaction on the
Company's financial statements and a
memorandum of the Company's counsel
addressing certain legal issues relating to
the Transaction. We also have held
discussions with members of senior management
of the Company regarding past and current
business operations, financial condition and
future prospects of the Company regarding the
attainability of the projections that the
management of the Company has furnished to
us. In addition, we have reviewed the
reported price and trading activity for the
capital stock of the Company, compared
certain financial and stock market
information for the Company with similar
information for certain other companies the
securities of which are publicly traded,
reviewed recent transactions involving
premiums paid in self-tender offers,
performed a series of financial analyses to
determine the fair value of the Company's
Common Stock, reviewed the financial terms of
certain recent business combinations in the
healthcare information systems industry,
reviewed the premiums attributable to voting
rights in companies whose capitalization
structure consists of two classes of stock,
the terms of which are equal with the
exception of voting rights; and reviewed the
financial literature regarding premiums paid
for super voting securities and performed
such other studies and analyses as we
considered appropriate.
We have relied, without independent
verification, upon the accuracy and
completeness of all of the financial and
other information reviewed by us for purposes
of this opinion. We have assumed that the
information presents fairly in all material
respects the financial position and results
of operations of the Company for the periods
set forth therein. Management of the Company
has advised us that the internal projections
provided to us reflect the best currently
available judgment and estimates by them, and
we have assumed, with your consent, that the
results contemplated in such projections,
will be realized in the amounts and at the
times contemplated therein. We have not made
an independent evaluation or appraisal of the
assets and liabilities of the Company and we
have not been furnished with any such
evaluation or appraisal. Our opinion shall
be deemed effective upon the unanimous
favorable vote of the Special Committee of
the Company's Board of Directors as to the
Transaction and the Consideration.
Based upon and subject to the foregoing
and based upon such other matters we consider
relevant, it is our opinion that as of the
date hereof, the Consideration to be paid to
Mr. Jelinek and the Trust by the Company
pursuant to the Agreements is fair from a
financial point of view to the Company and
its shareholders (except for Mr. Jelinek).
Very truly yours,
By /s/ Punk, Zeigel & Knoell
----------------------------
Punk, Zeigel & Knoell
<PAGE>
PROXY CARD
MEDICUS SYSTEMS CORPORATION
Annual Meeting, March 3, 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 March 3, 1997,
and at any adjourment 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 nominess listed in Item 1,
FOR the proposal set forth in Item 2 to
approve the Company's 1996 C.E.O.
Replacement Stock Option Plan, FOR the
proposal set forth in Item 3 to approve the
Company's 1996 C.E.O. Special Stock Option
Plan, FOR the proposal set forth Item 4 to
approve the amendments to and restatement
of the Company's 1989, 1991, 1993, 1993
Performance and 1994 Stock Option Plans,
FOR the proposal set forth in Item 5 to
approve the Company's 1997 Employee Stock
Option and Restricted Stock Plan, and FOR
the proposal set forth in Item 6 to
approve agreements pursuant to which the
Company would repurchase from Richard C.
Jelinek an aggregate of 1,000,000 shares of
Common Stock and 500 shares of Voting
Preferred Stock.
PLEASE MARK THIS PROXY AND SIGN AND DATE IT
ON THE REVERSE SIDE AND RETURN IT IN THE
ENCLOSED ENVELOPE
<PAGE>
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:
Richard C. Jelinek, William G.
Brown, Jon E.M. Jacoby, Risa Lavizzo-
Mourey, Patrick C. Sommers, Gail L.
Warden, John P. Kunz
FOR [] WITHHOLD [] FOR ALL []
(Except Nominees Within Brackets)
2. Approval of 1996 C.E.O. Replacement
Stock Option Plan described in the
accompanying Proxy Statement
FOR [] AGAINST [] ABSTAIN []
3. Approval of the 1996 C.E.O. Special
Stock Option Plan described in the
accompanying Proxy Statement
FOR [] AGAINST [] ABSTAIN []
4. Approval of the amendments to and
restatement of the Company's 1989,
1991, 1993, 1993 Performance and
1994 Stock Option Plans as described
in the accompanying Proxy Statement
FOR [] AGAINST [] ABSTAIN []
5. Approval of the Company's 1997
Employee Stock Option and Restricted
Stock Plan
FOR [] AGAINST [] ABSTAIN []
6. Approval of the agreements pursuant
to which the Company would repurchase
from Richard C. Jelinek an aggregate
of 1,000,000 shares of Common Stock
and 500 shares of Voting Preferred
Stock
FOR [] AGAINST [] ABSTAIN []
Dated:________199_________
Signatures:______________________
Please sign exactly as your name(s)
appears herein. Executors, administrators,
trustees and other signing in
representative capacity should indicate
the capacity in which they sign. Where
there is more than one owner, each should
sign.
