SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. _____)
Filed by the Registrant [ X ] Filed by a Party other than the Registrant [ ]
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
[ X ] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2)
[ ] Soliciting Material Pursuant to
ss.240.14a-11(c)or ss.240.14a-12
Managed Care Solutions, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Managed Care Solutions, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2) or
item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
MANAGED CARE SOLUTIONS, INC.
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
October 10, 1997
You are cordially invited to attend the Annual Meeting of Stockholders of
Managed Care Solutions, Inc. (the "Company") which will be held at the executive
offices of the Company located at 7600 North 16th Street, Phoenix, Arizona, on
Friday, October 10, 1997, at 8:00 a.m., Mountain Time, for the following
purposes:
1. To elect directors; and
2. To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on August 25, 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. The Proxy Statement should be read carefully. 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.
/s/ William G. Brown
----------------------------
William G. Brown
Secretary
Phoenix, Arizona
September 5, 1997
<PAGE>
MANAGED CARE SOLUTIONS, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
October 10, 1997
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Managed Care Solutions, Inc. (the "Company") of
proxies for use at the Annual Meeting of Stockholders of the Company to be held
at the executive offices of the Company located at 7600 North 16th Street,
Phoenix, Arizona, 8:00 a.m., Mountain Time, on Friday, October 10, 1997,
and at 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, 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 7600 North 16th Street,
Suite 150, Phoenix, Arizona 85020 and its telephone number is 602-331-5100.
Proxy materials are being mailed to stockholders beginning on or about
September 5, 1997.
SHARES OUTSTANDING AND VOTING RIGHTS
Only stockholders of record at the close of business on August 25, 1997,
are entitled to vote at the Annual Meeting. The only voting stock of the Company
outstanding is its Common Stock, of which 4,389,855 shares were outstanding at
the close of business on August 25, 1997, and its Voting Preferred Stock, $1,000
par value per share, of which 6.85 shares (representing 100,667 votes) are
outstanding (all of which are owned by Richard C. Jelinek, Chairman of the
Company). Each share of Common Stock issued and outstanding is entitled to one
vote. Votes will be tabulated, using an automated scanner, by the inspectors of
election appointed by the Company.
HISTORY
The Company as it presently exists is the result of a spinoff and
subsequent merger transactions which occurred on March 1, 1996. Prior to
March 1, 1996 the Company was named Medicus Systems Corporation (the
"Predecessor Corporation"). On March 1, 1996, all of the assets of the
Predecessor Corporation, other than those related to its managed care business,
were transferred to a wholly owned subsidiary of the Predecessor Corporation,
and all of the shares of that company, then named Medicus Systems
Corporation ("Medicus"), were distributed (the "Distribution") on a
share-for-share basis to stockholders of the Predecessor Corporation.
Immediately after the Distribution, the Company, which then consisted only of
the managed care business of the Predecessor Corporation, effected a
one-for-three reverse stock split. Also on March 1, 1996, immediately after the
reverse stock split, the Company acquired three Arizona corporations engaged in
the managed care business through merger transactions (the "Mergers") pursuant
to which each of the Arizona corporations (Managed Care Solutions, Inc., now
named Managed Care Solutions of Arizona, Inc. ("MCSAZ"), Ventana Health Systems,
Inc. ("Ventana") and Arizona Health Concepts, Inc. ("AHC") became a wholly owned
subsidiary of the Company, and the Company's name was changed to Managed Care
Solutions, Inc.
<PAGE>
COMMON STOCK OWNERSHIP BY MANAGEMENT
The following table sets forth, as of May 31, 1997, certain information
regarding the beneficial ownership of Common Stock by each of the Company's
directors and executive officers named in the Summary Compensation Table and by
all directors and executive officers of the Company as a group, and by each
person known by the Company to be the beneficial owner of 5 percent or more of
the outstanding Common Stock.
<TABLE>
<CAPTION>
Shares Percent of
Name(1) Beneficially Owned Common Stock
------- ------------------ ------------
<S> <C> <C>
James A. Burns........................... 243,500 (2) 5.5%
Henry Kaldenbaugh........................ 568,614 13.0%
John Lingenfelter........................ 599,579 13.7%
Richard C. Jelinek....................... 752,822 (3) (4) 16.8%
William G. Brown......................... 131,682 (2) (4) 2.9%
Risa Lavizzo-Mourey...................... 6,615 (2) *
Walter J. McNerney....................... 49,376 (2) 1.1%
Michael J. Kennedy....................... 31,455 (2) *
Hollybank Investments, LP................ 535,747 (5) 12.2%
Blue Cross and Blue Shield of Texas, Inc. 879,221 (6) 16.7%
Geralde Curtis........................... 362,053 (7) 8.2%
All directors and executive officers
as a group (8 persons)(2) (4)............ 2,295,721 50.3%
*Represents less than 1% of Common Stock beneficially owned.
</TABLE>
(1) The address of all of the persons named or identified above, except
Hollybank Investments, LP, Blue Cross and Blue Shield of Texas, Inc. and
Geralde Curtis, is c/o Managed Care Solutions, Inc., 7600 North 16th
Street, Suite 150, Phoenix, Arizona 85020.
(2) Includes 37,500, 15,000, 5,000, 12,500, 21,750 and 91,750 shares covered
by options and/or warrants held by Mr. Burns, Mr. Brown,
Dr. Lavizzo-Mourey, Mr. McNerney, Mr. Kennedy, and all directors and
officers as a group, respectively, which were exercisable within sixty
days of May 31, 1997 and such persons disclaim beneficial ownership of
such shares.
(3) Includes 33,333 shares owned by Mr. Jelinek's wife.
(4) Includes 77,922 shares which may be acquired upon conversion of
$300,000 principal amount of Convertible Note of the Company and 10,000
shares covered by a currently exercisable stock purchase warrant. Both the
Convertible Note and Stock Purchase Warrant are held by a trust created by
Mr. Brown for the benefit of members his family, and of which Mr. Jelinek
is one of the co-trustees.
(5) Represents shares as of March 10, 1997, as reported on Schedule 13D,
Amendment No. 3. Hollybank Investments, LP disclaims beneficial ownership
with respect to all of the shares for all purposes other than for
reporting purposes on Schedule 13D. The address of Hollybank Investments,
LP is One Financial Center, Suite 1600, Boston, Massachusetts, 02111.
(6) Represents 779,221 shares which may be acquired upon conversion of
$3,000,000 principal amount of Convertible Secured Note of the Company and
100,000 shares covered by a currently exercisable stock purchase warrant.
The address of Blue Cross and Blue Shield of Texas, Inc. is 901 S. Central
Expressway, Richardson, Texas 75080.
(7) Includes 2,100 shares owned by Ms. Curtis' children. The address of
Geralde Curtis is 2037 18th Street, Safford, Arizona 85546.
2
<PAGE>
The Company's Certificate of Incorporation authorizes 6.85 shares of Voting
Preferred Stock, $1,000 par value, all of which are outstanding, as described
below. Until May 31, 1998, the Voting Preferred Stock is entitled to 14,667
votes per share. After May 31, 1998, the Voting Preferred Stock has 220 votes
per share. Richard C. Jelinek, Chairman and a director of the Company, who owns
15.1% of the Common Stock outstanding, owns all of the authorized and
outstanding Voting Preferred Stock (representing 100,667 votes).
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
John Lingenfelter failed to timely file a Form 4 with respect to a
purchase of 25,925 shares of Common Stock during the fiscal year ended
May 31, 1997.
Risa Lavizzo-Mourey failed to timely file a Form 4 with respect to a
purchase of 1,615 shares of Common Stock during the fiscal year ended
May 31, 1997.
Ms. Curtis, who until May 1997 owned more than 10% of Common Stock, has
failed to timely file four reports on Form 4 with respect to 19 transactions in
which she sold an aggregate of 117,600 shares of Common Stock during the
fiscal year ended May 31, 1997.
Blue Cross and Blue Shield of Texas, Inc. failed to timely file a report
on Form 3 with respect to their acquisition of a note, convertible to 779,221
shares of Common Stock and an acquisition of 100,000 warrants during the
fiscal year ended May 31, 1997.
ELECTION OF DIRECTORS
Six 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. The Board has appointed Mr. McNerney as Honorary
Director during the period of his absence. 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 six 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 six nominees is presented below.
Richard C. Jelinek, age 60, Chairman of the Board of the Company, was
co-founder of the predecessor of the Predecessor Corporation in 1969 and served
as Chief Executive Officer of the Predecessor Corporation since its
incorporation in December 1984 until February 1996. From 1983 to 1985 he was
also Chairman of the Board and Chief Executive Officer of Mediflex Systems
Corporation. Prior to 1969, 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. Mr. Jelinek also
serves as a director of Medicus. He has been a director of the Predecessor
Corporation since its incorporation in 1984 and of the Company and Medicus since
the Distribution and Mergers.
William G. Brown, age 54, is a partner of Bell, Boyd & Lloyd, Chicago,
Illinois, 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 Medicus since the Distribution and Mergers. Mr. Brown is also a
director of MYR Group, Inc., Dovenmuehle Mortgage, Inc. and CFC International,
Inc.
3
<PAGE>
Risa Lavizzo-Mourey, M.D., age 42, is the Sylvan Eisman Professor of
Medicine and Health Care Systems at the University of Pennsylvania and a board
certified Internist and Geriatrician. Dr. Lavizzo-Mourey earned her medical
degree at Harvard Medical School followed by a Masters of Business
Administration at the University of Pennsylvania's Wharton School. After
completing a residency in internal medicine at Brigham and Women's Hospital in
Boston, Massachusetts, she was a Robert Wood Johnson Clinical Scholar at the
University of Pennsylvania. She also held faculty appointments at the Harvard
Medical School and Temple University Medical School. Dr. Lavizzo-Mourey has
served on numerous Federal advisory committees and is now serving on President
Clinton's Commission for Consumer Protection and Quality in the Health Care
Industry. Dr. Lavizzo-Mourey joined the Predecessor Corporation Board in
April 1994 and has served as a director of the Company and Medicus since the
Distribution and Mergers. She is also a director of Beverly Enterprises and
Kapson Senior Quarters.
James A. Burns, age 54, has been Vice Chairman of the Company since the
Mergers and became Chief Executive Officer and President in August, 1996. Prior
to that, he was President of MCSAZ since 1992. Previously, he served as
President of Med*Star Management Corporation from 1990 through 1992, as Senior
Vice President of Health Management Associates, Inc. from 1987 through 1990 and
as Executive Vice President of Lincoln National Health Plan from 1984 through
1987.
Henry Kaldenbaugh, M.D., age 52, is a founder of Ventana, AHC and MCSAZ,
and has been a director of the Company since the March 1, 1996. He has been an
officer and board member of Ventana and AHC since their inception and of MCSAZ
since 1993. He has had a family medicine and pediatric practice in northern
Arizona since 1977. Dr. Kaldenbaugh is board certified in pediatrics and quality
assurance and utilization and review. Dr. Kaldenbaugh served as medical director
of AHC from 1992 to the present and has been an officer or director of MCSAZ,
AHC and Ventana since their inception. He served as Administrative Medical
Director for Health Management Associates, Inc. from 1990 through 1991, for
Northern Arizona Family Health Plan from 1988 through 1991, and for the Arbors
Nursing Facility from 1984 through 1987. Dr. Kaldenbaugh received his medical
degree from Baylor University.
John Lingenfelter, M.D., age 69, is a founder of Ventana, AHC and MCSAZ,
and has been a director of the Company since March, 1996. He has been an officer
and board member of Ventana and AHC since their inception and of MCSAZ since
1993. Dr. Lingenfelter has engaged in the general practice of medicine in
Kingman, Arizona since 1961. He served as Mohave County, Arizona Health Director
from 1966 until 1982, Assistant County Medical Examiner from 1986 until 1987,
Hospital District Board Trustee from 1988 to the present and has been Medical
Director of the Kingman Health Care Center from 1985 to the present.
Dr. Lingenfelter received his medical degree from the University of Iowa.
Walter J. McNerney, age 72, Herman Smith Professor of Health Policy at the
J.L. Kellogg Graduate School of Management, Northwestern University, has been
unable to attend any meeting of the Board during the past year. From 1978 to
1981, Mr. McNerney was national President of the Blue Cross and Blue Shield
Association. Mr. McNerney has also served as Chairman of the Board of McNerney
Heintz, Inc., and served as 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 Medicus since the Distribution and Mergers, and
served as Chairman of the Board of the Company 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 seven, 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. In the interim, the Board has appointed Mr. McNerney as
Honorary Director of the Company.
4
<PAGE>
MEETINGS AND COMMITTEES OF THE BOARD
During the fiscal year ended May 31, 1997, the Board of Directors held 17
meetings. No director attended fewer than three-fourths of the aggregate number
of meetings of the Board and of the committees described below on which he or
she served during the past fiscal year, except that Walter McNerney was unable
to attend any meetings. The Board has designated an Audit Committee, whose
functions include making recommendations to the Board on the selection and
retention of the Company's auditors, a Compensation Committee, whose functions
include making recommendations to the Board regarding the salaries and bonuses
to be paid, and a Stock Option Committee, whose functions include granting
options under, and administering, the Company's stock option plans. William
Brown, Richard Jelinek, Henry Kaldenbaugh and Risa Lavizzo-Mourey are currently
the members of the Audit Committee; Mr. Brown, Dr. Kaldenbaugh and John
Lingenfelter are currently the members of the Compensation Committee; and Mr.
Jelinek and Dr. Lavizzo-Mourey are currently the members of the Stock Option
Committee. During the fiscal year ended May 31, 1997, the Compensation Committee
met one time, the Stock Option Committee met four times and the Audit Committee
met one time.
5
<PAGE>
COMPENSATION
Set forth below is information concerning the executive officers of the
Company as of May 31, 1997. Information for James Burns, who became an executive
officer of the Company on March 1, 1996, includes compensation received from
MCSAZ prior to the Mergers during the fiscal year ended May 31, 1996.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Annual Compensation Compensation
Other Securities
Annual Underlying All Other
Name and Principal Fiscal Salary Bonus Compensation Options/SARs Compensation
Position (1) Year ($) ($) ($) (#) ($) (4)
- ------------------ ------ ------ ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
James A. Burns
Vice Chairman, President
and Chief Executive Officer 1997 164,792 - - - 8,955
Vice Chairman 1996 162,319 75,000 - 150,000 1,568
Blaine Bergeson
Chief Executive Officer 1997 36,459 - - - 79,846
Chief Executive Officer 1996 162,319 75,000 - 150,000 1,334
Michael J. Kennedy
Chief Financial Officer 1997 125,000 - 31,809(2) 87,000(3) 1,458
Chief Financial Officer 1996 16,098 - - 87,000(3) -
</TABLE>
(1) Includes each person who served as the Chief Executive Officer during the
most recent fiscal year 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.
(2) The amount shown for Mr. Kennedy represent moving expense reimbursement of
$31,809.
(3) The options shown as granted in fiscal 1997 to Mr. Kennedy reflect the
repricing of the options originally granted in fiscal 1996.
(4) The amounts shown for Mr. Burns for fiscal 1997 include term life
insurance premiums of $1,140, split dollar insurance premiums of $470
and auto allowance of $7,345. The amount shown for Mr. Bergeson
represent severance pay of $58,333, vacation payout of $15,706, auto
allowance of $1,625 and payment of additional medical benefits of
$4,182. The Company has a contributory retirement savings plan which
covers eligible employees who qualify as to age and length of service.
Participants may contribute 1% to 15% of their salaries, subject to
maximum contribution limitations imposed by the Internal Revenue
Service. The amount shown for Mr. Kennedy represent Company
contributions to his account in the amount of $1,458, under such plan.
6
<PAGE>
OPTION / SAR GRANTS TABLE
The following table provides information on stock options granted to the
named executive officers during fiscal year 1997. The potential realizable value
of each grant of options was determined assuming that the market price of the
underlying security appreciates in value from the date of grant to the end of
the option term at annualized rates of 5% and 10% as required pursuant to Item
402 of S.E.C. Regulation S-K.
Option/SAR Grants in Last Fiscal Year
-------------------------------------
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants 10-Year Option Term
----------------------------------------------------------- ---------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees in or Base Expiration 5%(2) 10%(2)
Name Granted (#)(1) Fiscal Year Price ($/Sh) Date ($) ($)
- ------------------ -------------- ------------ ------------ ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Kennedy 87,000 36.3 3.25 4/27/06 177,820 450,631
</TABLE>
(1) Options granted to Mr. Kennedy in fiscal year 1997 reflect the
repricing of options originally granted in fiscal year 1996, and are
exercisable starting 12 months after the original 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.
(2) 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.
OPTION / SAR EXERCISES AND YEAR-END VALUATION
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year
---------------------------------------------------
and FY-End Option/SAR Values
----------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/
Options/SARs at FY-End SARs at FY-End
---------------------- ---------------------
Shares Acquired Value
on Exercise(1) Realized(2) Exercisable Unexercisable Exercisable Unexercisable
Name (#) ($) (#) (#) ($) ($)
- ------------------ --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James A. Burns - - 37,500 112,500 - -
Michael J. Kennedy - - 21,750 65,250 - -
</TABLE>
(1) Number of securities underlying options/SAR exercised.
(2) Market value of underlying securities on date of exercise, minus the
exercise or base price.
7
<PAGE>
DIRECTOR COMPENSATION
All directors of the Company are paid an annual retainer of $10,000. In
addition, under the Company's 1995 Directors' Stock Option Plan, an option to
purchase 20,000 shares of Common Stock is granted to each director of the
Company who is not an officer, employee or greater than five percent stockholder
of the Company at the time of such director's initial election to the Board.
Under the Company's 1996 Non-Employee Director Stock Option Plan each
non-employee director of the Company receives, on the date of each annual
meeting of stockholders, an option to purchase 5,000 shares of the Common Stock.
Options under each of the 1995 Directors Stock Option Plan and the 1996
Non-Employee Director Stock Option Plan are for a term of ten years, become
exercisable with respect to 25% of the shares covered thereby on each of the
first four anniversaries of the date of grant and have an exercise price equal
to the fair market value on the date of grant.
EMPLOYMENT AGREEMENTS
At the time of the Mergers, the Company entered into employment
agreements with each Mr. Burns and Mr. Bergeson. Mr. Burns' agreement
provides that he will receive a salary of at least $175,000 annually, and
that if his employment is terminated by the Company (other than for cause),
he will receive severance payments at the rate of $175,000 annually (i) until
March 1, 1999, in the event of termination prior to March 1, 1998; (ii) for a
period of one year if termination occurs between March 1, 1998 and
March 1, 1999; (iii) until March 1, 2000 if termination occurs between
March 1, 1999 and September 1, 1999; and (iv) for a period of six months if
termination occurs after September 1, 1999.
Mr. Bergeson's agreement also provided that he would receive a salary of
at least $175,000 annually, and for severance payments at the rate of $175,000
annually for a period of one year if the Company terminated his employment
(other than for cause).
Each of Mr. Burns' and Mr. Bergeson's employment agreements further
provided that in no event will severance pay exceed six months if at the time of
termination the Company has not had net income after taxes during the preceding
12 months of at least $1,000,000. Each agreement also provided for the grant of
options to purchase 150,000 shares of Common Stock (described elsewhere in this
Proxy Statement).
On August 16, 1996, Mr. Bergeson resigned as an officer and director of
the Company and each of its subsidiaries.
COMPENSATION AND STOCK OPTION COMMITTEE REPORT
The Company's compensation policies applicable to its executive officers
are administered by the Compensation Committee and, with respect to stock
options, the Stock Option Committee of the Board of Directors.
COMPENSATION PHILOSOPHY
The Company compensation programs are designed to link executives'
compensation to the performance of the Company and provide competitive
compensation for Company executives relative to a select group of peer companies
in order to attract and retain high caliber senior executives essential to the
long-term prosperity of the Company. The compensation mix reflects a balance of
annual base salary and equity-based incentives. Emphasis, however, is placed on
the more strategic equity-based plans intended to 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 (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.
8
<PAGE>
(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 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,
Company 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.
(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 Common Stock. Grants of stock options are made under the Company's
1995 and 1996 Stock Option Plans. In granting options, the Board takes into
account existing holdings and options already held by each executive. The size
of each option grant is determined by the individual's position within the
Company, the individual's level of responsibility and the number of options
currently held by the individual.
Stock options are granted with an exercise price equal to the fair market
value of the Common 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. Both types of stock options provide incentive for the creation of
shareholder value over the long term since the full benefit of the compensation
package cannot be realized unless an appreciation occurs in the price of Common
Stock over a specified number of years.
CEO COMPENSATION
Each Mr. Burns and Mr. Bergeson were compensated pursuant to their
employment agreements (described above under "Employment Agreements"), which
were entered into at the time of the Mergers. In determining the level of
compensation, Mr. Burn's and Mr. Bergeson's compensation level prior to the
Mergers, their experience in the managed care industry, and their record leading
the MCS Companies were all considered, although no specific weighting was
assigned to these factors.
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 $1 million the tax deduction for compensation paid
to executive officers of a publicly-held corporation who are named in the proxy
statement, subject to an exception for a "performance - based" compensation
plans as defined under that section. The Company's 1996 Stock Option Plan, as
Amended, is intended to qualify as a "performance-based plan". The Compensation
and Stock Option Committee has determined that the other compensation currently
paid to the Company's executive officers is not expected to exceed the
limitation as set forth in Section 162(m).
The foregoing report has been approved by all members of the Compensation
and Stock Option Committees.
Richard C. Jelinek
William G. Brown
Henry Kaldenbaugh
John Lingenfelter
Risa Lavizzo-Mourey
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OPTION REPRICING REPORT AND TABLE
The following table sets forth certain information concerning the
repricing of stock options occurring since August 1, 1991, the date the
Predecessor Corporation became a reporting company under the Securities Exchange
Act of 1934.
TEN YEAR OPTIONS/SAR REPRICING
------------------------------
<TABLE>
<CAPTION>
Number of
Securities
Underlying
Options/ Market Price Exercise Price Original Term
SARs of Stock at at Time of New Remaining at
Repriced or Repricing or Repricing or Execise Date of
Name Date Amended (#) Amendment ($) Amendment ($) Price ($) Repricing
- ------------------ ---- ----------- ------------- -------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Kennedy 7/18/96 87,000 3.25 7.38 3.25 9 yr., 9 mo.
Chief Financial Officer
Deborah R. Suckow (1) 2/27/93 10,000 8.75 10.00 8.75 9 yr., 4 mo.
Vice President
Robert C. Steffel(1) 2/27/94 2,000 8.75 10.00 8.75 9 yr., 4 mo.
Sr. Vice President 7/8/94 1,000 12.00 18.88 12.00 9 yr., 7 mo.
7/8/94 50,000 12.00 17.00 12.00 9 yr., 10 mo.
Donald Simborg (1) 7/8/94 170,000 12.00 17.00 12.00 9 yr., 10 mo.
Sr. Vice President
Victor W. Sterne (1) 2/27/93 9,000 8.75 10.00 8.75 9 yr., 4 mo.
Vice President
Carol Hayden (1) 2/27/93 10,000 8.75 10.00 8.75 9 yr., 4 mo.
Vice President
Michael Minear (1) 2/27/93 2,000 8.75 10.00 8.75 9 yr., 4 mo.
Vice President
George Whetsell (1) 2/27/93 60,000 8.75 10.00 8.75 9 yr., 4 mo.
Vice President
Robert Barcklay (1) 7/8/94 2,000 12.00 18.88 12.00 9 yr., 7 mo.
Vice President
Arlene Verona (1) 7/8/94 10,000 12.00 18.88 12.00 9 yr., 7 mo.
Vice President
Roxane Spitzer-Lehmann (1) 7/8/94 5,000 12.00 17.00 12.00 9 yr., 10 mo.
Vice President
Frank A. Pierce (1) 7/8/94 76,667 12.00 17.25 12.00 9 yr., 11 mo.
Sr. Vice President
</TABLE>
(1) 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.
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On July 18, 1996, the Compensation and Stock Option Committee of the
Existing Corporation's Board of Directors determined that certain stock options
issued to employees of the Existing Corporation had an exercise price higher
than the market price of the Existing Corporation'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 $7.38 per share with new
stock options to purchase an identical number of shares of Existing Corporation
Common Stock at the then current market price of $3.25.
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on
Common Stock since March 1, 1996 (the effective date of the Mergers and the date
on which the Common Stock began trading under the symbol MCSX) to that of the
Nasdaq market index and Nasdaq Health Services index.
[GRAPHIC OMITTED]
May 31,
--------------
March 1, 1996 1996 1997
------------- ---- ----
Managed Care Solutions 100 152 76
NASDAQ U.S. 100 113 128
NASDAQ Health Services 100 114 94
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The following graph compares the cumulative total shareholder return on
Predecessor Corporation (then known as Medicus Systems orporation) Common Stock
from June 1, 1992 to February 29, 1996 (the last trading day prior to the
effective date of the Mergers) to that of the Nasdaq market index and an index
comprised of the common stock of 13 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.
[GRAPHIC OMITTED]
1992 1993 1994 1995 1996 (1)
---- ---- ---- ---- --------
Medicus 100 78 149 90 82
NASDAQ U.S. 100 120 127 151 192
Peer Group 100 117 142 190 243
(1) Data is shown as of the effective date of the Mergers.
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 performance graph purposes, does not include the
Predecessor Corporation, are as follows: Access Health Marketing, First Data
Corporation, GMIS, Inc., Health Management Systems, Health Risk Management,
Keane, Inc., Medaphis Corporation, Medic Computer Systems, Mediware Informations
Systems, Policy Management Systems, Shared Medical Systems, Spacelabs Medical,
Inc. and US Services, Inc.
COMPENSATION AND STOCK OPTION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
Mr. Brown and Drs. Kaldenbaugh and Lingenfelter are currently members
of the Compensation Committee and Mr. Jelinek and Dr. Lavizzo-Mourey are
currently members of the Stock Option Committee. None of the Company's
directors have interlocking or other relationships with other boards or the
Company that require disclosure under Item 402(j) of S.E.C. Regulation S-K,
except as described below.
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For the fiscal year ended May 31, 1997, the Company incurred legal fees
for general legal services of $163,983 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, the directors of the Company other than Mr. Brown approved a
transaction pursuant to which a trust created by Mr. Brown, of which Richard C.
Jelinek and Mr. Brown's brother are trustees, purchased from the Company on
October 1, 1996, for a cash purchase price of $300,000, a convertible unsecured
note in the principal amount of $300,000, due, if extended in accordance with
its terms, on September 30, 2001, bearing interest at a rate of 8% per annum.
Such note is convertible into Common Stock at a conversion price of $3.85 per
share. The trust also received warrants to purchase 10,000 shares of Common
Stock at an exercise price of $4.45 per share. The Stock Option Committee
approved the grant to Mr. Brown of an additional option to purchase 25,000
shares of Common Stock at an exercise price equal to the market price at the
date of closing of such transaction. During the fiscal year ended May 31, 1997,
Dr. Kaldenbaugh served as a Medical Director of AHC, and the Company paid
Medical Director fees of $60,000 to Dr. Kaldenbaugh.
RELATIONSHIP BETWEEN MEDICUS AND THE COMPANY
Messrs. Jelinek and Brown and Dr. Lavizzo-Mourey are each directors of
both the Company and Medicus, and, prior to March 19, 1997, Mr. Jelinek was
Chairman of Medicus, and Mr. McNerney was director of Medicus. In connection
with the Distribution, the Company and Medicus entered into a Distribution
Agreement and a Services Agreement.
DISTRIBUTION AGREEMENT. The Distribution Agreement provides for, among
other things, the principal corporate transactions which were required to effect
the Distribution, the division between the Company and Medicus of certain
liabilities, the treatment of certain employee compensation, benefit and labor
matters, and certain other agreements governing the relationship between the
Company and Medicus following the Distribution. Subject to certain exceptions,
the Distribution Agreement is designed to place with Medicus and its
subsidiaries, following the Distribution, financial responsibility for the
liabilities of Medicus' businesses and for other corporate liabilities of the
Predecessor Corporation, except those liabilities relating to businesses that
relate specifically to the business of the Company.
SERVICES AGREEMENT. The Company and Medicus have also entered into a
Services Agreement (the "Services Agreement"), pursuant to which Medicus (i) was
to make available to the Company 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 the Company, including analysis
and advice regarding potential financial transactions (including but not limited
to proposed issuances of debt or equity securities, proposed merger or asset
acquisition 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. The Company paid Medicus $700,000 for such services
during the twelve months ended May 31, 1997. In order to compensate Medicus for
fixed costs incurred in making such services available, the Company was
obligated to pay such fees whether or not it elected to utilize the services.
The Services Agreement also provides that Medicus 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 RELATIONSHIPS AND RELATED TRANSACTIONS CONCERNING THE COMPANY
AND ITS SUBSIDIARIES
THE COMPANY. As of May 31, 1997, Dr. Kaldenbaugh owed $95,243 to the
Company pursuant to a promissory note in the original principal amount of
$94,000, with interest at the rate of 3%. The note was originally payable to
Ventana, and was transferred to the Company during the fiscal year ended
May 31, 1997. The note is payable upon demand. The purpose of this loan was to
provide Dr. Kaldenbaugh funds to settle litigation in 1992 concerning a covenant
not to compete to which he was subject.
During fiscal 1997, the Company received $300,000 from Blue Cross and Blue
Shield of Texas, Inc. ("BCBSTX") pursuant to an administrative services
agreement between the Company and Rio Grande HMO, Inc., a subsidiary of BCBSTX,
and $50,000 pursuant to a consulting agreement between the Company and BCBSTX.
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MCS AZ. In October 1995, MCSAZ borrowed $154,797 from a trust established
by Dr. Lingenfelter, $51,555 from a trust established by Dr. Kaldenbaugh, and
$43,464 from a trust established by Geralde Curtis, who was then a director and
officer of the MCS Companies and currently owns approximately 6.5% of the
Company's Common Stock. MCSAZ then loaned from these funds $118,153 each to
Dr. Kaldenbaugh and Ms. Curtis pursuant to promissory notes due
December 31, 2000 providing for interest to accrue at 8% per annum. The notes
are secured by a pledge of the Company Common Stock received by Dr. Kaldenbaugh
and Ms. Curtis in the Mergers in exchange for their stock in MCSAZ. The stock
pledge also secures the above described loans from the trusts to MCSAZ. The
purpose of the loans was to provide Dr. Kaldenbaugh and Ms. Curtis funds to
pay taxes incurred as a result of their owning shares in AHC, then a
Subchapter S corporation. As of May 31, 1997, $134,695 was outstanding under
each of the loans to Dr. Kaldenbaugh and Ms. Curtis. On July 24, 1997,
Ms. Curtis paid $118,153 in principal and $18,042 in accrued interest due to the
Company pursuant to the Promissory Note.
VENTANA. In October 1995, Dr. Kaldenbaugh borrowed $95,055 and
Ms. Curtis borrowed $97,704 from Ventana pursuant to promissory notes due
December 31, 2000 providing for interest to accrue at 8% per annum. The
notes are secured by a pledge of the Common Stock received by Dr. Kaldenbaugh
and Ms. Curtis in the Mergers in exchange for their stock in Ventana. The
purpose of the loans was to provide Dr. Kaldenbaugh and Ms. Curtis funds to
pay taxes as described in the preceding paragraph. As of May 31, 1997,
$107,729 and $110,731 was outstanding under the loans to Dr. Kaldenbaugh and
Ms. Curtis, respectively. On July 24, 1997, Ms. Curtis repaid all existing
loans from Ventana.
During fiscal 1997, Dr. Lingenfelter received total payments of $169,498
under risk sharing contracts between Dr. Lingenfelter and Ventana in Mohave
County, Arizona. As of May 31, 1997, Dr. Lingenfelter is owed an additional
$290,776 pursuant to such contracts.
ARIZONA HEALTH CONCEPTS. Dr. Lingenfelter and Dr. Kaldenbaugh received
payments of $3,140 and $48,136, respectively, during fiscal year 1997
pursuant to risk sharing contracts with AHC. As of May 31, 1997,
Dr. Lingenfelter and Dr. Kaldenbaugh are owed $4,573 and $5,805, respectively.
CERTAIN TRANSACTIONS
For descriptions of certain transactions involving Messrs. Brown and
Jelinek and Drs. Kaldenbaugh and Lingenfelter, see the information under the
caption "Compensation - Compensation and Stock Option Committee Interlocks
and Insider Participation."
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP has been selected by the Board of Directors of the
Company, upon the recommendation of its Audit Committee, to continue to act as
auditors in fiscal 1998. A representative of Price Waterhouse LLP will be
present at the Annual Meeting. He will have the opportunity to make a statement,
if he desires to do so, and will be available to respond to appropriate
questions.
ANNUAL REPORT
The Company is delivering herewith to stockholders its Annual Report on
Form 10-K for the fiscal year ended May 31, 1997. Stockholders are referred to
this report for financial and other information about the Company, but such
report is not incorporated in this Proxy Statement and is not a part of the
proxy soliciting material.
PROPOSALS BY STOCKHOLDERS
Any proposals by stockholders intended to be presented at the 1998 Annual
Meeting of Stockholders must be received by the Company no later than
May 8, 1998.
14
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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
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PROXY PROXY
MANAGED CARE SOLUTIONS, INC.
Annual Meeting, October 10, 1997
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Richard C. Jelinek or James A. Burns or either of them, each with full power of
substitution, is hereby authorized to vote all shares of Common Stock of Managed
Care Solutions, Inc. which the undersigned would be entitled to vote if
personally present at the Annual Meeting of Stockholders of Managed Care
Solutions, Inc. to be held on October 10, 1997, and at any adjournment thereof,
as indicated herein.
The shares represented by this proxy will be voted as directed herein, but if no
direction is given, the shares will be voted FOR all nominees listed in Item 1.
PLEASE MARK THIS PROXY AND SIGN AND DATE IT ON THE REVERSE SIDE AND
RETURN IT IN THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
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<PAGE>
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MANAGED CARE SOLUTIONS, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /X/
[ ]
The Board of Directors Recommends a Vote "FOR" the Listed Proposal.
FOR ALL
FOR ALL WITHHOLD EXCEPT
1. ELECTION OF DIRECTORS-
Nominees: Richard C. Jelinek, William G. Brown,
Risa Lavizzo-Mourey, M.D., Henry M. Kaldenbaugh,
M.D., John G. Lingenfelter, M.D., James A. Burns / / / / / /
------------------------------------------------
(Except Nominee(s) written above)
2. In their discretion, on such other business as may properly come before the
meeting
Dated:-------------------, 1997
Signature (s)------------------------------
-----------------------------------------
Please sign exactly as your name (or
names) appears herein. Executors,
administrators, trustees and other signing
in a representative capacity should
indicate the capacity in which they sign.
Where there is more than one owner, each
should sign.
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