SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 0-26306
IMNET SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 39-1730068
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3015 Windward Plaza, Windward Fairways II,
Alpharetta, Georgia 30005
(Address of principal executive offices)(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (770) 521-5600
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
Registrant was approximately $217,595,621 at October 15, 1998 ( 8,329,019
shares). The number of common shares outstanding at October 15, 1998 was
9,808,550 (exclusive of treasury shares).
<PAGE>
In filing the Annual Report on Form 10-K of IMNET Systems, Inc. (the
"Company" or the "Registrant"), the Company incorporated certain information
required by Part III by reference to the Company's Proxy Statement for the
Annual Meeting of Stockholders. The Company's Proxy Statement for the Annual
Meeting of Stockholders will not be filed within the 120 day period following
the end of the Company's fiscal year ended June 30, 1998. Accordingly, the
undersigned registrant hereby amends Part III of its Annual Report on Form 10-K
as set forth below to include such information:
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS AND EXECUTIVE OFFICERS.
The Company's directors and executive officers and their ages as of
October 15, 1998 are as follows:
NAME AGE POSITION
Kenneth D. Rardin.......48 Chairman of the Board, President and Chief Executive
Officer
Gary D. Bowers..........45 Executive Vice President and Chief Operating Officer
Thomas D. Underwood.....40 Senior Vice President - Client Services
Raymond L. Brown........41 Senior Vice President - Business Development
Paul J. Collins, Jr.....42 Senior Vice President - Marketing
James L. Hall...........38 Senior Vice President - Sales
Scott A. Remley.........44 Senior Vice President and Chief Financial Officer
Charles F. Warner, Jr. .59 Vice President - Assistant to Chairman
Daniel P. Howell (1)(2).46 Secretary and Director
James A. Gordon (1)(2)..49 Director
(1) Member of the Audit Committee
(2) Member of the Compensation Advisory Committee
Mr. Rardin has been Chairman of the Board and Chief Executive Officer of
the Company since October 1992, when the Company acquired certain assets of
IMGE, Inc. and certain of its subsidiaries (collectively, "IMGE"), and has been
President of the Company since November 1997. Mr. Rardin was also President of
the Company from October 1992 until the appointment of Mr. Gilbert as President
in September 1996. Mr. Rardin has over 25 years of experience in the computer
software field. Beginning in late 1990 until the consummation of the 1992 IMGE
acquisition (the "1992 Acquisition"), he was Chief Executive Officer of IMGE.
From 1989 to 1990, Mr. Rardin was a self-employed consultant in the computer and
data communications industries. From 1986 to 1989, Mr. Rardin served as
President and Chief Executive Officer of GMD, Inc., a provider of systems which
integrate design and manufacturing automation with business systems. From 1983
to 1986, Mr. Rardin was President and Chief Executive Officer of FutureSoft
Synergies, Inc., a venture capital investment and management company. From 1977
to 1982, Mr. Rardin was Chief Operating Officer of Software AG of North America.
During such time, Software AG of North America grew from a small private
software company to one of the industry's largest publicly-held international
software companies.
Mr. Bowers has been Executive Vice President and Chief Operating Officer of
the Company since July 1998. From October 1997 to July 1998, Mr. Bowers served
as Senior Vice President - Product Technology. Mr. Bowers has over 21 years of
technical and management experience in the computer software and services field.
Mr. Bowers joined the Company following the 1992 Acquisition in October 1992 as
Vice President Marketing and Business Development. He was employed by IMGE
beginning in 1991 as Vice President of Technical Operations. From 1986 through
1991, Mr. Bowers was employed at Software AG as Director of Sales Support for
its newly-formed Federal Systems subsidiary and subsequently as Director of the
Geographic Information Systems Group.
Mr. Underwood became Senior Vice President - Client Services in January
1996. He was Vice President - Technical Operations from July 1995 until January
1996. Mr. Underwood has over 15 years of experience in operations management and
hardware and software development. From May 1992 through June 1995, Mr.
Underwood was Business Unit Manager for the Document Management Systems division
of Perceptics Corporation ("Perceptics"), a subsidiary of Westinghouse Electric
Corporation. From November 1988 through May 1992, Mr. Underwood served as the
Director - Operations and Engineering for Perceptics.
Mr. Raymond L. Brown has been Senior Vice President - Business Development
since November 1997, and served as the Company's Chief Financial Officer from
December 1995 to November 1997. Prior to joining IMNET, he was employed by
Communications Central, Inc., a pay telephone service provider, as Vice
President, Chief Financial Officer and Treasurer from October 1994 to November
1995. From March 1993 to September 1994, Mr. Brown served as Vice President,
Chief Financial Officer, Treasurer and Secretary of AER Energy Resources, Inc.,
a battery manufacturing company, where he had responsibility for all finance,
management information systems and human resource activities. From September
1989 to February 1993, Mr. Brown served as Vice President, Finance and Chief
Operating Officer of Delta Color, Inc., an ink manufacturing company, where he
was responsible for finance and operations. Prior to September 1989, Mr. Brown
served as Director, Accounting and Financial Planning for Gould, Inc. in its
imaging and graphics division.
Mr. Collins has been Senior Vice President - Marketing of the Company since
April 1995. Mr. Collins has 15 years of experience in information processing,
including ten years in the healthcare industry. Prior to joining IMNET, he was
employed by Lanier Worldwide ("Lanier") for 14 years, most recently as Marketing
Director. From 1991 through 1993 he served as Director of Product Marketing, and
from 1985 through 1991, he served as a District Manager for Lanier.
Mr. Hall joined IMNET in November 1996 as Senior Vice President - Sales.
Prior to joining IMNET, he was employed by The Compucare Company as Vice
President of Sales, from September 1995 to October 1996. From March 1987 to June
1995, Mr. Hall served in various sales capacities with divisions of American
Express Health Systems Group, and subsequently as National Sales Director of
First Data Corporation.
Mr. Remley joined IMNET in November 1997 as Senior Vice President and Chief
Financial Officer. Prior to joining IMNET, he was employed by The
Robinson-Humphrey Co., LLC as a securities analyst covering the healthcare
industry. From 1990 until 1996 he was employed by Health Management Systems,
Inc. as Vice President and Chief Financial Officer. From 1976 until 1990 he was
employed by KPMG Peat Marwick serving two years as a partner in the firm's audit
division. Mr. Remley is a certified public accountant.
Mr. Warner joined IMNET in July 1995 and became Vice President and
Assistant to the Chairman in December 1997. From July 1995 until December 1997
he served in various sales management positions at IMNET primarily dealing with
national accounts and business partners. Prior to joining IMNET, from 1990 until
1995 he served in various sales management capacities with American Express
Health Systems Group, and from 1983 until 1990 he was employed by Shared Medical
Systems, also in various sales management positions.
Mr. Howell has been a director of the Company since the 1992 Acquisition.
He is a principal and the Executive Vice President of Mesirow Private Equity
Investments, Inc., and the Vice President of Mesirow Financial Services, Inc. in
Chicago. Mesirow Private Equity Investments, Inc. manages in excess of $200
million in equity capital. He joined Mesirow in 1986. He has an M.B.A. from the
University of Wisconsin-Madison and a B.A. from Lawrence University. Mr. Howell
serves as a director and a member of the compensation committee of Microware
Systems Corporation.
Mr. Gordon has been a director of the Company since 1992. He is the
principal of Gordon Management, Inc., which he founded in 1992 to serve as the
general partner of Edgewater Private Equity Fund, L.P., a $150 million private
equity and venture capital investment fund. From 1971 through 1992, he served as
the president and owner of Gordon's Wholesale, Inc. ("GWI"). In 1982, Mr. Gordon
engineered a leveraged buy-out of his personal and family interests in GWI and
sold GWI to a European multinational corporation in 1986. Mr. Gordon has been
active in the private equity markets since 1982 and has completed numerous
transactions since that time. He serves on the boards of directors of Advanced
Photonix, a public company; Pride Industries; Microware Systems Corporation;
Pangea, Inc. and DAC Vision, Inc. He also serves as Chairman of the Investment
Committee at Grinnell College and is an Advisory member of the National
Committee for the Performing Arts. Mr. Gordon is a graduate of Northwestern
University.
The IMNET Board of Directors is comprised of three persons, two of whom are
affiliated with investor groups (Messrs. Howell and Gordon), and IMNET's Chief
Executive Officer (Mr. Rardin). Each director was initially elected and
reelected pursuant to the terms of a stockholders' agreement, originally
executed at the time of the 1992 Acquisition. That agreement terminated upon the
closing of the Company's initial public offering.
TERMS OF OFFICE.
Each of the Company's directors will hold office until the Company's Annual
Meeting of Stockholders or until his successor is duly elected and qualified.
All executive officers of the Company serve at the discretion of the Board of
Directors.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
Based solely on its review of copies of forms received by it pursuant to
Section 16(a) of the Securities Exchange Act of 1934, as amended, or written
representations from certain reporting persons, the Company believes that with
respect to fiscal year 1998, all Section 16(a) filing requirements applicable to
its executive officers, directors and greater than 10% beneficial owners were
complied with, except that (i) Mr. Gordon filed one late Form 5 to report one
option grant, (ii) Mr. Howell filed one late Form 5 to report one option grant,
(iii) Mr. Bowers filed one late Form 5 to report three option grants, and (iv)
Mr. Underwood filed one late Form 5 to report three option grants.
ITEM 11. EXECUTIVE COMPENSATION.
DIRECTOR COMPENSATION.
The Company pays directors who are not full-time employees of the Company
an annual fee of $5,000 for service on the Board of Directors and a fee of $500
for each Board meeting attended. Directors are entitled to reimbursement of
their traveling costs and other out-of-pocket expenses incurred in attending
Board and Committee meetings. Additionally, directors who are not members of the
Compensation Committee are eligible to participate in the Company's Employee
Stock Option and Rights Plan (the "1993 Plan"). Pursuant to the terms of the
1995 Non-Employee Directors Stock Option Plan ("Directors Plan"), each
non-employee director receives options to acquire 3,760 shares of Common Stock
on the first business day after the Annual Meeting of Stockholders, at the
closing price of the Company's Common Stock on the date prior to the grant of
the option. All options granted under the 1995 Non-Employee Directors Stock
Option Plan become exercisable one year after the date of grant, provided the
director has attended at least 75% of the sum of all meetings of the Board of
Directors and any committees on which that director serves, from the date of
grant to such anniversary date. No option granted pursuant to the Directors Plan
may be exercised later than five years from the date of grant thereof.
EXECUTIVE COMPENSATION.
The following table sets forth the compensation paid or accrued by the
Company to the Company's Chief Executive Officer, the five other most highly
paid executive officers of the Company in 1998 and Mr. James A. Gilbert, the
Company's former President and Chief Operating Officer (the "Named Executives").
The information presented is for the fiscal years ended June 30, 1998, 1997 and
1996.
<PAGE>
SUMMARY COMPENSATION TABLE
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION LONG TERM
- --------------------------- COMPENSATION
ON AWARDS
FISCAL YEAR SECURITIES
ENDED ANNUAL UNDERLYING ALL OTHER
JUNE 30, COMPENSATION OPTIONS(#) COMPENSATION($) (1)
------------ ------------------- ------------ ----------
SALARY($) BONUS($)
<S> <C> <C> <C> <C> <C>
Kenneth D. Rardin 1998 321,890 150,000(6) --- 34,557
Chairman, President and Chief 1997 315,363 792,854(5) 105,000 12,508
Executive Officer............. 1996 324,118 248,955 193,984 11,763
James L. Gilbert 1998 250,000 --- --- ---
Former President and Chief 1997 184,225 148,258 (5) 400,000 ---
Operating Officer(2).......... 1996 --- --- --- ---
Thomas D. Underwood 1998 159,446 25,358 40,000 4,038
Senior Vice President - Client 1997 155,545 51,519(5) 40,000 ---
Services(3)................... 1996 139,652 55,975 50,000 ---
Raymond L. Brown 1998 166,503 12,462(6) 35,000 13,863
Senior Vice President - 1997 145,649 48,498(5) 25,000 ---
Business Development(4)....... 1996 77,538 40,113 50,000 ---
Gary D. Bowers 1998 154,420 3,522(6) 30,000 4,523
Executive Vice President and 1997 134,510(3) 45,864(5) 15,000 ---
Chief Operating Officer(7) ... 1996 145,192(3) 38,438 23,647 ---
Scott A. Remley 1998 98,008 95,107 100,000 ---
Senior Vice President and 1997 --- --- --- ---
Chief Financial Officer........ 1996 --- --- --- ---
Charles F. Warner, Jr. 1998 94,423 84,926 20,620 ---
Vice President - 1997 --- --- --- ---
Assistant to Chairman(8)....... 1996 --- --- --- ---
</TABLE>
(1) The amounts shown include $22,309, $4,038, $13,863 and $4,523 in
administrative fees for the Deferred Compensation Plan paid by the Company
in 1998, for Messrs. Rardin, Underwood, Brown, and Bowers, respectively.
The amounts also include $6,097, $7,309 and $9,370 in disability premiums
paid, and $6,151, $5,199 and $2,393 in term life insurance premiums paid,
by the Company for Mr. Rardin in 1998, 1997 and 1996, respectively.
(2) Mr. Gilbert joined the Company in September 1996 and resigned as President
and Chief Operating Officer in November 1997.
(3) Mr. Underwood joined the Company in July 1995. He was appointed Senior Vice
President - Client Services in January 1996.
(4) Mr. Brown joined the Company in November 1995. He was appointed Senior Vice
President - Business Development in November 1997.
(5) Includes $500,916, $79,027, $17,809, $37,380, and $17,702, respectively,
deferred by Messrs. Rardin, Gilbert, Underwood, Brown and Bowers under the
Company's Deferred Compensation Plan. See "Deferred Compensation Plan."
(6) Includes $12,462 and $3,522, respectively, deferred by Messrs. Brown and
Bowers under the Company's Deferred Compensation Plan. See "Deferred
Compensation Plan."
(7) Mr. Bowers was appointed Executive Vice President and Chief Operating
Officer in July 1998.
(8) Mr. Warner joined the Company in July 1995. He was appointed Vice President
- Assistant to Chairman in December 1997.
OPTION GRANTS TABLE
The following table sets forth certain information regarding options
granted to the Named Executive Officers during the fiscal year ended June 30,
1998. No separate stock appreciation rights ("SARs") were granted during fiscal
1998.
OPTION GRANTS IN FISCAL 1998
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------- POTENTIAL
NUMBER OF % OF TOTAL EXERCISE EXPIRATION REALIZABLE VALUE AT
NAME SECURITIES OPTIONS GRANTED PRICE DATE ASSUMED ANNUAL
UNDERLYING TO EMPLOYEES IN ($/SHARE) RATES OF STOCK
OPTIONS FISCAL YEAR PRICE APPRECIATION
GRANTED(#)(1) FOR
OPTION TERM(2)
---------------------
5%($) 10%($)
- ---------------------- --------------- ----------------- ---------- ------------ ---------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas D. Underwood 40,000 10.2% 18.25 10/31/07 459,093 1,163,432
Raymond L. Brown 35,000 8.9% 18.25 10/31/07 401,706 1,018,003
Gary D. Bowers 35,000 8.9% 18.25 10/31/07 401,706 1,018,003
Scott A. Remley 100,000 25.6% 17.56 11/06/07 1,104,339 2,798,612
Charles F. Warner, Jr. 5,620 1.4 % 18.25 10/31/07 64,503 163,462
15,000 3.8% 16.13 12/17/07 152,161 385,606
</TABLE>
(1) The stock options will become exercisable at the rate of 20% per year from
the date of grant and have 10-year terms so long as the optionee's
employment with the Company continues. The exercise price of each stock
option is equal to the fair market value of the underlying Common Stock on
the date of the grant, as determined by the Compensation Advisory Committee
of the Board of Directors. The exercise price may be paid in cash or, at
the discretion of the Compensation Advisory Committee, in shares of Common
Stock valued at fair market value on the exercise date. The vesting of the
options will accelerate, and they will become immediately exercisable, in
the event of a "change of control" of the Company. The consummation of the
pending merger (the "Merger") with HBO & Company will constitute such a
change of control.
(2) Future value of current-year grants assuming appreciation in the market
value of the Common Stock of 5% and 10% per year over the 10-year option
period. The actual value realized may be greater than or less than the
potential realizable values set forth in the table.
OPTION EXERCISES AND YEAR-END VALUE TABLE
None of the Named Executive Officers has held or exercised separate SARs.
The following table sets forth certain information regarding stock options
exercised during the fiscal year ended June 30, 1998 by, and unexercised stock
options held at fiscal year end by, each of the Named Executive Officers.
FISCAL 1998 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES VALUE NUMBER OF SECURITIES VALUE OF UNEXERCISED
NAME ACQUIRED REALIZED UNDERLYING IN-THE-MONEY
ON EXERCISE $ UNEXERCISED OPTIONS AT OPTIONS AT 1998 FISCAL
(#) 1998 FISCAL YEAR END(#) YEAR END($)(2)
EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE(1)
- --------------------------------------- ----------- -------------------------- -------------------------------------
<S> <C> <C> <C> <C>
Kenneth D. Rardin........ 0 0 232,921/271,571 843,061/433,540
James A. Gilbert......... 0 0 250,000/0 0/0
Thomas D. Underwood...... 0 0 28,000/102,000 14,850/22,275
Raymond L. Brown......... 0 0 25,000/85,000 0/0
Gary D. Bowers........... 0 0 30,741/70,459 115,820/56,797
Scott A. Remley.......... 0 0 0/100,000 0/0
Charles F. Warner, Jr. .. 0 0 752/21,748 0/0
- -----
</TABLE>
(1) The vesting of all unvested stock options will be accelerated, and such
options will become immediately exercisable, upon the consummation of the
Merger.
(2) Calculated based on the $13.375 estimated fair market value of the
underlying securities as of June 30, 1998.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Mr. Rardin in May
1992, which was amended in January 1995, July 1995, May 1996, November 1997, and
April 1998. It extends through December 31, 2000. The employment agreement, as
amended, establishes Mr. Rardin's base salary at $303,132, subject to adjustment
upward in accordance with the Consumer Price Index (the "CPI"). Under the
agreement, the Company also has agreed to pay the premiums with respect to
certain life and disability insurance for Mr. Rardin. The agreement may be
terminated by the Company with or without cause or upon Mr. Rardin's death or
his inability to perform his duties on a substantially full-time basis on
account of disability or incapacity for a period of six or more months. The
agreement also contains a one-year non-competition provision. The agreement
provides that Mr. Rardin is to be nominated for election as a director of the
Company for so long as he is employed full time by the Company. Mr. Rardin is
also entitled to receive bonuses provided that the Company achieves certain
earnings targets, and is entitled to participate in insurance and other benefit,
pension or health plans provided by the Company to its key executive employees.
Mr. Rardin is entitled to severance through December 31, 2000 upon termination
of his employment prior to January 1, 2000 by reason of: (i) termination by the
Company other than for cause; or (ii) at the election of Mr. Rardin within the
six month period following a Severance Event. A Severance Event includes: (a)
the occurrence of material changes made without the written consent of Mr.
Rardin which diminish the position, title, authority, compensation or scope of
authority enjoyed by Mr. Rardin as of the date the employment agreement was
executed; (b) the occurrence of a transaction involving the Company whereby,
following the consummation thereof, (1) 51% of the Company's outstanding voting
shares will have been acquired by a third party or parties in a transaction or
series of transactions effected with the purpose or effect of accomplishing a
change in control of the Company or (2) the Company will have disposed of to a
third party substantially all of the assets or business or entered into a
substantially similar transaction; or (c) the occurrence of certain bankruptcy
or insolvency events involving the Company (a "Bankruptcy Event"). The
consummation of the pending merger (the "Merger") with HBO & Company ("HBOC")
will be a Severance Event. In the event that Mr. Rardin's employment with the
Company is terminated on or after January 1, 2000 for any of the reasons set
forth above, Mr. Rardin is entitled to severance for a period of 12 months from
the date of termination of his employment. The severance to which Mr. Rardin is
entitled includes continued compensation payments at the base salary rate in
effect at the time of the termination of employment, continued ability to
participate in life or death benefit plans, continued life and disability
insurance, and continued ability to participate in employee fringe benefit and
pension plans, each as Mr. Rardin would have been entitled to receive during the
term of his employment. In the event that Mr. Rardin's employment with the
Company terminates by reason of: (A) termination by the Company other than for
cause; (B) disability; (C) death; or (D) a Severance Event, Mr. Rardin is
entitled to receive a pro rata portion of the bonus which he would otherwise
have been entitled to receive, prorated to reflect the actual number of days
worked by Mr. Rardin during such fiscal year. Mr. Rardin has agreed to forego
any bonus for the first quarter of fiscal year 1998 to provide for additional
bonuses for other executive officers of IMNET as an incentive to achieve IMNET's
profit objectives.
Messrs. Bowers, Gilbert, Underwood, Brown, Remley and Warner have entered
into employment agreements with the Company dated May 22, 1992 (as amended April
24, 1998), September 10, 1996, July 5, 1995, November 17, 1995 (as amended April
6, 1998), November 6, 1997 and June 12, 1998, respectively. The agreements are
terminable at any time upon three months' written notice by either party,
automatically in the event of the death of the employee; immediately upon
written notice if termination is for cause as defined therein and at any time
upon the mutual agreement of the Company and the employee. The agreements
established original base salary rates for each subject to annual adjustments
tied to increases in the Consumer Price Index. Each of the employees is eligible
to receive incentive bonuses under bonus plans to be determined by the Chief
Executive Officer of the Company for senior level executives of the Company,
with grants of any such bonuses being made in the sole discretion of the Board
of Directors. Each executive (other than Mr. Bowers and Mr. Gilbert) is entitled
to receive six months' severance pay at the monthly rate of their respective
then-current base salaries upon termination of his employment for any reason
other than cause. Mr. Bowers' agreement provides that in the event of
termination of his employment for any reason other than cause or in the event
Mr. Rardin's employment with IMNET is terminated and Mr. Bowers elects to
terminate his employment within 30 days thereafter, he will receive 12 months'
severance and be reimbursed for certain relocation expenses, subject to certain
conditions. With respect to each of the officers, all such severance payments
terminate upon acceptance of full-time employment with a subsequent employer
during the severance period. Mr. Bowers' agreement contains a six month
non-competition provision. Each of the other executives' agreement contains a
one-year non-competition provision. Certain of the Named Executive Officers
elected to defer a portion of his fiscal 1997 or 1998 bonus under the Company's
Deferred Compensation Plan. See "Deferred Compensation Plan." In November 1997,
Mr. Gilbert resigned as Chief Operating Officer and President. He remained
employed by the Company until June 1998. Currently, the base salary of each of
the Named Executive Officers of IMNET is as follows: Mr. Rardin: $326,420; Mr.
Bowers: $200,000; Mr. Underwood: $160,998; Mr. Brown: $150,755; Mr. Remley:
$162,720; and Mr. Warner: $100,000. Upon consummation of the Merger, each of the
executive officers who cease to be employed by HBOC or its subsidiaries will
receive severance payments based upon these amounts.
BENEFIT PLANS
EMPLOYEE STOCK OPTION AND RIGHTS PLAN
The 1993 Employee Stock Option and Rights Plan ("1993 Plan"), as amended
pursuant to Stockholder approval on December 19, 1996, provides for the grant of
stock options to acquire a maximum of 1,590,000 shares of Common Stock. As of
June 30, 1998, stock options for 105,061 shares had been exercised under the
1993 Plan, and stock options for 1,042,061 were outstanding. The number of
shares covered by the 1993 Plan was increased from 944,000 to 1,590,000 pursuant
to approval of the Stockholders in December 1996. Unless sooner terminated by
the Board, the 1993 Plan terminates on October 29, 2003. These stock options
also usually expire upon termination of employment or shortly thereafter, except
in the event of retirement, disability or death, in which case the term of the
stock option may continue for some time thereafter. In the event of a
"Non-Acquiring Transaction" as defined in 1993 Plan (certain transactions
constituting a change in control), limitations on exercisability of stock
options owned by executive officers shall be waived, and the limitations on
exercisability of stock options owned by others may be waived (in the discretion
of the Compensation Advisory Committee). The Merger will be a "Non-Acquiring
Transaction".
1997 LONG TERM INCENTIVE PLAN
IMNET's 1997 Long Term Incentive Plan (the "1997 Plan") provides for the
grant of stock options to acquire up to 875,000 shares of Common Stock, none of
which were granted or outstanding as of September 30, 1998. In general, if IMNET
is merged into or consolidated with another corporation under circumstances in
which IMNET is not the surviving corporation, or if IMNET is liquidated, or
sells or otherwise disposes of substantially all of its assets to another
corporation (any such merger, consolidation, etc., being hereinafter referred to
as a "Change of Control Transaction") while unexercised options are outstanding
under the 1997 Plan, after the effective date of a Change of Control Transaction
each holder of an outstanding option shall be entitled, upon exercise of such
option, to receive such stock, or other securities as the holders of the same
class of stock as those shares subject to the option shall be entitled to
receive in such Change of Control Transaction based upon the agreed upon
conversion ratio or per share distribution. However, any limitations on
exercisability of options owned by executive officers or IMNET shall be waived,
and options of non-executive officers may be waived (in the discretion of the
Committee), so that all such options, from and after a date prior to the
effective date of such Change of Control Transaction shall be exercisable in
full. Furthermore, the right to exercise shall, in the case of executive
officers, and may (in the discretion of the Committee), in the case of other
option holders, be given to each holder (by written notice) of an option during
a 15-day period preceding the effective date of such Change of Control
Transaction. Any outstanding options not exercised within such 15-day period may
be cancelled by the Committee as of the effective date of any such Change of
Control Transaction, as specified in the 15-day notice. To the extent that the
foregoing adjustments relate to stock or securities of the Company, such
adjustments shall be made by the Committee, whose determination in that respect
shall be final, binding and conclusive. The Merger will be a "Change of Control
Transaction."
EMPLOYEE DISCOUNT STOCK PURCHASE PLAN
In December 1996, the Stockholders approved the adoption of the IMNET
Systems, Inc. Employee Discount Stock Purchase Plan for employees of the company
and its subsidiaries (the "Stock Purchase Plan"). The Stock Purchase Plan was
established pursuant to the provisions of Section 423 of the Code. The purpose
of the Stock Purchase Plan is to provide a method whereby all eligible employees
of the company may acquire a proprietary interest in the company through the
purchase of the Company's common stock. Under the Stock Purchase Plan, payroll
deductions are used to purchase the company's common stock.
An aggregate of 300,000 shares of common stock of the Company were reserved
for issuance under the Stock Purchase Plan, and as of June 30, 1998, an
aggregate of 54,359 shares of common stock were purchased and issued under that
Plan (including approximately 3,508 shares purchased by executive officers). All
employees (including officers) of the company or its majority-owned subsidiaries
whose customary employment is at least 20 hours per week and five months per
year are eligible to participate in the Stock Purchase Plan. As of July 1, 1998,
approximately 325 were eligible to participate in the Stock Purchase Plan. An
employee electing to participate in the Stock Purchase Plan must authorize a
whole percentage (not less than 1% nor more than 25%) of the employee's
compensation to be deducted by the Company from the employee's pay during each
pay period. Each six-month period from January 1 to June 30 and July 1 to
December 31 is a "Plan Period" during which payroll deductions will be
accumulated to purchase Common Stock at the end of such a Plan Period. The price
for common stock purchased under the Stock Purchase Plan is equal to the lesser
of 85% of the closing sale price on Nasdaq of the Common Stock on either the (i)
first trading day or (ii) the last trading day of the applicable Plan Period;
provided that the price will be the closing sale price on the last trading day
of the Plan Period if the Board does not specify a maximum number of shares per
employee for the Plan Period. Upon consummation of the Merger, HBOC will assume
IMNET's obligations under the Stock Purchase Plan.
A participant may voluntarily withdraw from the Stock Purchase Plan at any
time and may, at the participant's option (i) receive on withdrawal the cash
balance, without interest, then held in the participant's account or (ii) allow
the cash balance to remain in the Plan and to be used to purchase Common Stock
at the end of the Plan Period. Upon termination of employment for any reason,
including resignation, discharge, disability or retirement, or upon the death of
a participant, the balance of the participant's account, without interest, will
be paid to the participant or his or her designated beneficiary. However, in the
event of the participant's death, disability or retirement, the participant or
the participant's beneficiary may elect to exercise the participant's option to
purchase such number of full shares which such participant's accumulated payroll
deductions will purchase at the applicable purchase price.
RESERVATION OF SHARES FOR OTHER OPTIONS
In September 1996, the Company's Board of Directors approved the grants of
options to acquire 610,000 shares of Common Stock as part of an Informal Stock
Option Plan (the "Informal Plan"). The Compensation Advisory Committee was
authorized to grant further stock options under the Informal Plan to acquire up
to 200,000 shares of the Company's Common Stock on such terms as it deems
appropriate. As of September 30, 1998, stock options for 400 shares had been
exercised under the Informal Plan, stock options for 598,000 shares were
outstanding, and 57,500 shares remained available for issuance under the
Informal Plan. Stock options issued under the Informal Plan incorporate by
reference the terms of the 1993 Plan.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
The Non-Employee Directors Stock Option Plan (the "1995 Plan") permits the
granting of options to purchase an aggregate of 94,000 shares of Common Stock to
non-employee directors of the Company. The 1995 Plan provides for automatic
grants of non-qualified stock options to non-employee directors of the Company
at an exercise price equal to the then-current fair market value. An initial
grant of stock options to purchase 3,760 shares, at a price equal to the initial
public offering price, was awarded to each non-employee director effective upon
the closing of the initial public offering. Commencing with the 1996 Annual
Meeting of Stockholders, each non-employee director receives an annual grant of
stock options to purchase 3,760 shares on the first business day after such
annual meeting. Stock options granted under the 1995 Plan are not transferable
other than by will or the laws of descent and distribution. Stock options vest
on the first anniversary of the grant date, but do not vest unless the director
has attended at least 75% of the sum of all meetings of the Board of Directors
and any committees on which that director serves, from the date of grant to such
anniversary date. Stock options terminate 30 days following cessation of service
as a non-employee director for any reason other than death. Upon the death of a
non-employee director, stock options which were exercisable on the date of death
are exercisable by his legal representatives or heirs for one year from the date
of death. Under no circumstances may a stock option be exercised more than five
years following the date of grant. As of the fiscal year end, stock options for
61,393 shares had been granted, under the 1995 Plan. Of these, stock options to
acquire 14,781 shares were exercised, stock options to acquire 24,052 shares
expired without vesting and stock options to acquire 22,560 shares remain
outstanding.
DEFERRED COMPENSATION PLAN
In 1997, the Company adopted a non-qualified deferred compensation plan
whereby certain executive officers, including Messrs. Rardin, Underwood, Brown,
and Bowers, can elect to defer a portion of the cash compensation he would
otherwise be entitled to receive. This plan, unlike a qualified plan which is
subject to, among other things, the compensation limitations and vesting
requirements of the Internal Revenue Code and additional requirements of the
Employee Retirement Income Security Act, is an arrangement for a select group of
management or other highly compensated employees that is not subject to any
specific qualification criteria. The participants do not recognize income for
income tax purposes until amounts are paid to the participant. Likewise, the
Company is not entitled to an income tax deduction until such amounts are paid
to participant. For fiscal 1997, the amount of compensation deferred under the
Deferred Compensation Plan was $500,916, $79,027, 17,809, $37,380, and 17,702
for Messrs. Rardin, Gilbert, Underwood, Brown and Bowers, respectively. For
fiscal 1998, the amount of compensation deferred under the Deferred Compensation
Plan was $3,522, $12,462 and $3,522 for Messrs. Underwood, Brown, and Bowers,
respectively.
EXECUTIVE SPLIT-DOLLAR LIFE INSURANCE PROGRAM
In October 1997, the Company implemented a split dollar life insurance
program for certain executives, including Messrs. Rardin, Underwood, Brown, and
Bowers. This program obligates the Company to obtain a life insurance policy
("Policy") insuring the life of the executive which will provide a minimum
specified dollar amount in death benefits (called the "Minimum Death Benefit").
The Company will pay all the insurance premiums required under the Policies.
Ownership of the Policy is "split" between the Company and the Participants. The
Company has the right of ownership of the net cash value of the Policy and has
the right to receive from any death benefit the greater of (a) total premiums
paid by the Company under the Policy, and (b) net cash surrender value of the
Policy on the date of death of the Participant. The Participant has the right to
designate the death benefit beneficiary for the portion of the death benefit in
excess of the Company's interest described above. This portion of the death
benefit must at all times equal or exceed the Minimum Death Benefit. The Minimum
Death Benefit under the program is $925,000, $90,000, $160,000 and $80,000 for
Messrs. Rardin, Underwood, Brown and Bowers, respectively.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of October 15, 1998, by: (i) each
person (or group of affiliated persons) known by the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock; (ii) the Named
Executive Officers who own shares of the Company's Common Stock; (iii) each
director of the Company; and (iv) all of the Company's executive officers and
directors as a group. Except as otherwise indicated in the footnotes to this
table, the Company believes that the persons named in this table have sole
voting and investment power with respect to all the shares of Common Stock
indicated.
BENEFICIAL OWNERSHIP
BENEFICIAL OWNER AS OF OCTOBER 15, 1998
SHARES PERCENTAGE
Edgewater Private Equity Fund, L.P.(1).. 706,896 7.2
Mesirow Capital(2)...................... 644,396 6.6
Kenneth D. Rardin(3).................... 361,430 3.6
Gary D. Bowers(4)....................... 55,516 *
Thomas D. Underwood(5).................. 49,400 *
Raymond L. Brown(6)..................... 37,649 *
Scott A. Remley(7)...................... 22,484 *
James L. Hall(8)........................ 26,614 *
Paul J. Collins, Jr.(9)................. 22,315 *
Charles F. Warner(10)................... 3,260 *
James A. Gilbert (11)................... 259,092 2.6
James A. Gordon(1)(12).................. 714,416 7.3
Daniel P. Howell(2)(12)................. 651,916 6.6
All officers and directors as a group
(10 persons)(1)(2)(13)................1,945,000 18.9
J.P. Morgan & Co. Incorporated (14)..... 670,200 6.8
Enrique H. Boilini (15)................. 538,600 5.5
David I. Cohen (15)..................... 538,600 5.5
Joseph F. Downes (15)................... 538,600 5.5
Jason M. Fish (15)...................... 538,600 5.5
Andrew B. Fremder (15).................. 538,600 5.5
William F. Mellin (15).................. 538,600 5.5
Stephen L. Millham (15)................. 538,600 5.5
Meridee A. Moore (15)................... 538,600 5.5
Thomas F. Steyer (15)................... 538,600 5.5
- ------------------------
* Represents beneficial ownership of less than 1%.
(1) The shares beneficially owned include 706,896 shares held by Edgewater
Private Equity Fund, L.P. ("Edgewater"). Gordon Management, Inc. serves as
general partner of Edgewater. Mr. Gordon is the President and a principal
of Gordon Management, Inc. Mr. Gordon may therefore be deemed to be the
beneficial owner of the shares held by Edgewater. The address of Edgewater
Private Equity Fund, L.P., is 900 North Michigan Avenue, 14th Floor,
Chicago, Illinois 60611.
(2) The shares beneficially owned include 520,287 shares held by Mesirow V and
124,109 shares held by Mesirow VI. Mr. Howell is a principal and the Senior
Managing Director of Mesirow Private Equity Investments, Inc., the General
Partner of Mesirow V and Mesirow VI. Mr. Howell may therefore be deemed to
be the beneficial owner of the shares held by Mesirow V and Mesirow VI. The
address of Mesirow Private Equity Investments is 350 North Clark Street,
Chicago, Illinois 60610.
(3) Includes 3,760 shares held by Mr. Rardin's daughter. Also includes stock
options to purchase 253,922 shares which are either currently exercisable
or which become exercisable within 60 days of October 15, 1998. Does not
include 250,570 shares subject to outstanding stock options, which stock
options are not currently exercisable and will not become exercisable
within 60 days of October 15, 1998, unless the Merger is consummated. If
the Merger is consummated, vesting of these stock options will be
accelerated and they will become immediately exercisable.
(4) Includes stock options to purchase 40,741 shares which are either currently
exercisable or which become exercisable within 60 days of October 15, 1998.
Does not include 60,459 shares subject to outstanding stock options, which
stock options are not currently exercisable and will not become exercisable
within 60 days of October 15, 1998, unless the Merger is consummated. If
the Merger is consummated, vesting of these stock options will be
accelerated and they will become immediately exercisable.
(5) Includes stock options to purchase 49,400 shares which are either currently
exercisable or which become exercisable within 60 days of October 15, 1998.
Does not include 80,600 shares subject to outstanding stock options, which
stock options are not currently exercisable and will not become exercisable
within 60 days of October 15, 1998, unless the Merger is consummated. If
the Merger is consummated, vesting of these stock options will be
accelerated and they will become immediately exercisable.
(6) Includes stock options to purchase 37,000 shares which are either currently
exercisable or which become exercisable within 60 days of October 15, 1998.
Does not include 73,000 shares subject to outstanding stock options, which
stock options are not currently exercisable and will not become exercisable
within 60 days of October 15, 1998, unless the Merger is consummated. If
the Merger is consummated, vesting of these stock options will be
accelerated and they will become immediately exercisable.
(7) Includes 100 shares held by Mr. Remley's daughter. Includes 20,000 shares
subject to outstanding stock options, which stock options will become
exercisable within 60 days of October 15, 1998. Does not include 80,000
shares subject to outstanding stock options, which stock options are not
currently exercisable and will not become exercisable within 60 days of
October 15, 1998, unless the Merger is consummated. If the Merger is
consummated, vesting of these stock options will be accelerated and they
will become immediately exercisable.
(8) Includes stock options to purchase 26,000 shares which are either currently
exercisable or which become exercisable within 60 days of October 15, 1998.
Does not include 54,000 shares subject to outstanding stock options, which
stock options are not currently exercisable and will not become exercisable
within 60 days of October 15, 1998, unless the Merger is consummated. If
the Merger is consummated, vesting of these stock options will be
accelerated and they will become immediately exercisable.
(9) Includes stock options to purchase 21,490 shares which are either currently
exercisable or which become exercisable within 60 days of October 15, 1998.
Does not include 47,489 shares subject to outstanding stock options, which
stock options are not currently exercisable and will not become exercisable
within 60 days of October 15, 1998, unless the Merger is consummated. If
the Merger is consummated, vesting of these stock options will be
accelerated and they will become immediately exercisable.
(10) Includes stock options to purchase 1,876 shares which are either currently
exercisable or which become exercisable within 60 days of October 15, 1998.
Does not include 20,624 shares subject to outstanding stock options, which
stock options are not currently exercisable and will not become exercisable
within 60 days of October 15, 1998, unless the Merger is consummated. If
the Merger is consummated, vesting of these stock options will be
accelerated and they will become immediately exercisable.
(11) Includes stock options to purchase 250,000 shares which are currently
exercisable.
(12) Includes stock options to purchase 7,520 shares which are either currently
exercisable or which become exercisable within 60 days of October 15, 1998.
Does not include 3,760 shares subject to outstanding stock options, which
stock options are not currently exercisable and will not become exercisable
within 60 days of October 15, 1998.
(13) Includes stock options to purchase 465,469 shares which are currently
exercisable or which become exercisable within 60 days of October 15, 1998.
Does not include 674,262 shares subject to outstanding stock options, which
stock options are not currently exercisable and will not become exercisable
within 60 days of October 15, 1998, unless the Merger is consummated. If
the Merger is consummated, vesting of 666,742 of these stock options will
be accelerated and they will become immediately exercisable.
(14) The address of J. P. Morgan & Co. Incorporated is 60 Wall Street, New York,
New York 10260.
(15) Based upon information contained in a Schedule 13D filed with the
Securities and Exchange Commission, and is as of October 15, 1998. Includes
shares held by (i) Farallon Capital Partners, L.P., a California limited
partnership ("FCP"), (ii) Farallon Capital Institutional Partners, L.P., a
California limited partnership ("FCIP"); (iii) Farallon Capital
Institutional Partners II, L.P., a California limited partnership ("FCIP
II"); (iv) Farallon Capital Institutional Partners III, L.P., a Delaware
limited partnership ("FCIP III"); (v) Tinicum Partners, L.P., a New York
limited partnership ("Tinicum", collectively with FCP, FCIP, FCIP II and
FCIP III, the "Partnerships"); (vi) Farallon Capital Management, L.L.C., a
Delaware limited liability company ("FCMLLC"), and Farallon Capital
Offshore Investors, Inc., a British Virgin Islands corporation
("Offshore"), and certain other accounts managed by FCMLLC (together with
Offshore, the "Managed Accounts"); and (vii) Farallon Partners, L.L.C., a
Delaware limited liability company ("FPLLC"). The shares reported hereby
for the Partnerships are owned directly by the Partnerships and those
reported by FCMLLC on behalf of the Managed Accounts are owned directly by
the Managed Accounts. Each of Messrs. Boilini, Cohen, Downes, Fish,
Fremder, Mellin, Millham, Moore and Steyer may be deemed, as a managing
member of FPLLC and FCMLLC, to be the beneficial owner of all such shares.
FPLLC may be deemed to be the beneficial owner of all such shares owned by
the Partnerships. FCMLLC may be deemed to be the beneficial owner of all
such shares owned by the Managed Accounts. Each of FCMLLC, FPLLC, Boilini,
Cohen, Downes, Fairman, Fish, Fremder, Mellin, Millham, Moore and Steyer
disclaims any beneficial ownership of all such Shares. The address of each
of Messrs. Cohen, Downes, Fish, Fremder, Mellin, Millham, Moore and Steyer
is c/o Farallon Capital Management, L.L.C., One Maritime Plaza, Suite 1325,
San Francisco, CA 94111. The address for Mr. Boilini is c/o Farallon
Capital Management, L.L.C., 75 Holly Hill Lane, Greenwich, CT 06830.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
<PAGE>
753158v4
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IMNET SYSTEMS, INC.
October 26, 1998 By: /s/ Scott A. Remley
-------------------
Scott A. Remley,
Chief Financial Officer
(Principal Financial and
Accounting Officer)
