def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY
STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES
EXCHANGE ACT OF 1934 (Amendment No. )
Filed by the
Registrant þ
Filed by a Party other than the
Registrant o
Check the appropriate box:
o Preliminary
Proxy Statement
o Confidential,
For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
þ Definitive
Proxy Statement
o Definitive
Additional Materials
o Soliciting
Material Pursuant to
§ 240.14a-12
HMS HOLDINGS CORP.
(Name of Registrant as Specified In
Its Charter)
(Name of Person(s) Filing Proxy
Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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þ
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No fee required.
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o
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(1)
and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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(2)
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Aggregate number of securities to which transaction applies:
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(3)
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Per unit price or other underlying value of transaction computed
pursuant to Exchange Act
Rule 0-11
(set forth the amount on which the filing fee is calculated and
state how it was determined):
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(4)
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Proposed maximum aggregate value of transaction:
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Fee paid previously with preliminary materials.
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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.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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HMS HOLDINGS CORP.
401 Park Avenue South
New York, New York 10016
April 30, 2009
Dear Stockholder:
On behalf of the Board of Directors and management, we cordially
invite you to attend our Annual Meeting of Shareholders on
Friday, June 12, 2009, beginning at 10:00 a.m.,
Eastern Daylight Time, at the offices of HMS Holdings Corp., 401
Park Avenue South, New York, NY 10016. The formal Notice of
Annual Meeting is set forth in the enclosed material.
The matters expected to be acted upon at the meeting are
described in the attached Proxy Statement. During the meeting,
stockholders will have the opportunity to ask questions and
comment on our business operations.
It is important that your views be represented whether or not
you are able to be present at the Annual Meeting. You may cast
your vote by signing and dating the enclosed proxy card, or, for
shares held in street name, the voting instruction form, and
promptly returning it in the provided return envelope. No
postage is required if this envelope is mailed in the United
States. You have the option to cast your vote in person at the
Annual Meeting on June 12, 2009. Registered shareholders
may also vote electronically by telephone or over the Internet
by following the instructions included with your proxy card. If
your shares are held in street name, as an alternative to
returning the voting instruction form you receive, you will have
the option to cast your vote by telephone or over the Internet
if your voting instruction form includes instructions and a
toll-free telephone number or Internet website to do so.
We appreciate your investment in HMS Holdings Corp. and urge you
to return your proxy card as soon as possible.
I look forward to seeing you at the Annual Meeting.
Sincerely,
Walter D. Hosp
Chief Financial Officer and
Corporate Secretary
April 30, 2009
HMS HOLDINGS CORP.
401 Park Avenue South
New York, New York 10016
Notice of Annual Meeting of Shareholders
To Be Held June 12,
2009
The Annual Meeting of Shareholders (the Annual Meeting) of HMS
Holdings Corp. will be held on Friday, June 12, 2009, at
10:00 a.m., Eastern Daylight Time, at our headquarters at
401 Park Avenue South, New York, New York 10016. At the Annual
Meeting, shareholders will be asked to:
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elect five persons to our Board of Directors;
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consider and take action on the proposed amendment to our
Amended and Restated 2006 Stock Plan as described within,
including increasing the aggregate maximum number of shares that
may be issued under the 2006 Stock Plan from
2,150,000 shares to 4,000,000 shares;
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consider and take action on the ratification of the selection of
KPMG LLP as our independent registered public accounting firm
for fiscal year 2009; and
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transact such other business as may properly come before the
Annual Meeting or any adjournments thereof.
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Only shareholders of record at the close of business on
April 28, 2009 will be entitled to receive notice of and to
vote at the Annual Meeting and at any adjournments of the Annual
Meeting.
Shareholders are cordially invited to attend the Annual Meeting
in person. Whether or not you expect to attend, we urge
you to read the accompanying Proxy Statement and then complete,
sign, date, and return the enclosed form of proxy (or, for
shares held in street name, the enclosed voting instruction
form) in the accompanying postage-prepaid envelope. It
is important that your shares be represented at the Annual
Meeting by virtue of your executed proxies should you be unable
to attend the Annual Meeting in person. Your promptness in
responding will assist us to prepare for the Annual Meeting and
to avoid the cost of a
follow-up
mailing. If you receive more than one form of proxy because you
own shares registered in different names or at different
addresses, each form of proxy should be completed and returned.
By Order of the Board of Directors,
Walter D. Hosp
Chief Financial Officer and Corporate Secretary
April 30, 2009
Important
Notice Regarding the Availability of Proxy Materials for the
Shareholder Meeting to be held on June 12, 2009.
Our Proxy
Statement and 2008 Annual Report to Shareholders are available
at
http://bnymellon.mobular.net/bnymellon/hmsy
TABLE OF
CONTENTS
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HMS
HOLDINGS CORP.
401 Park Avenue South
New York, New York 10016
PROXY
STATEMENT
Annual
Meeting of Shareholders To Be Held June 12, 2009
GENERAL
INFORMATION
This Proxy Statement is furnished to shareholders of HMS
Holdings Corp., a New York corporation, in connection with the
solicitation by our Board of Directors of proxies for use at our
Annual Meeting of Shareholders (the Annual Meeting). The Annual
Meeting is scheduled to be held on Friday, June 12, 2009,
at 10:00 a.m., Eastern Daylight Time, at our offices
located at 401 Park Avenue South, New York, New York. We
anticipate that this Proxy Statement and the enclosed form of
proxy will be mailed to shareholders on or about May 5,
2009.
At the Annual Meeting, shareholders will be asked to vote upon:
(1) the election of five directors; (2) the proposed
amendment to our Amended and Restated 2006 Stock Plan (the 2006
Stock Plan); (3) the ratification of the selection of
independent registered public accounting firm for fiscal year
2009; and (4) such other business as may properly come
before the Annual Meeting and at any adjournments thereof.
Internet
Availability
Pursuant to rules promulgated by the Securities and Exchange
Commission, we have elected to provide access to our proxy
materials both by sending you this full set of proxy materials,
including a proxy card, and by notifying you of the availability
of our proxy materials on the Internet. This Proxy Statement and
our 2008 Annual Report are available at our web site at
http://bnymellon.mobular.net/bnymellon/hmsy,
which does not have cookies that identify
visitors to the site.
Voting
Rights and Votes Required
The close of business on April 28, 2009 has been fixed as
the Record Date for the determination of shareholders entitled
to receive notice of and to vote at the Annual Meeting. As of
the close of business on such date, we had outstanding and
entitled to vote 25,865,629 shares of Common Stock, par
value $0.01 per share (the Common Stock), which are our only
securities entitled to vote at the Annual Meeting. Because many
shareholders cannot attend the Annual Meeting in person, it is
necessary that a large number of shareholders be represented by
proxy. Shareholders have a choice of voting over the Internet,
by using a toll-free number or by completing a proxy card and
mailing it in the postage-paid envelope provided. Shareholders
should refer to their proxy card or the information forwarded by
their bank, broker or other holder of record to see which voting
options are available to them. Shareholders should be aware that
if they vote over the Internet, they may incur costs such as
telephone and Internet access charges for which they will be
responsible. The Internet and telephone voting facilities for
shareholders of record will close at 11:59 p.m. Eastern
Daylight Time on June 11, 2009. Other deadlines may apply
to shareholders whose stock is held of record by a bank, a
broker or other holder of record.
A majority of the shares of Common Stock entitled to vote at the
Annual Meeting must be represented in person or by proxy at the
Annual Meeting in order to constitute a quorum for the
transaction of business. The record holder of each share of
Common Stock entitled to vote at the Annual Meeting will have
one vote for each share so held.
Directors are elected by a plurality of the votes cast.
Shareholders may not cumulate their votes. The five candidates
receiving the highest number of votes will be elected. In
tabulating the votes, votes withheld in connection with the
election of one or more nominees and broker nonvotes will be
disregarded and will have no effect on the outcome of the vote.
The affirmative vote of a majority of the votes cast at the
Annual Meeting by the holders of Common Stock represented at the
Annual Meeting in person or by proxy and entitled to vote will
be required to ratify the proposed amendment to our 2006 Stock
Plan and the selection of our independent registered public
accounting firm.
1
Abstentions and broker nonvotes will count for quorum purposes.
Abstentions and broker nonvotes will be disregarded and will
have no effect on the outcome of the proposals to amend the 2006
Stock Plan and the selection of independent registered public
accountants.
Voting of
Proxies
If the accompanying proxy is properly executed and returned, the
shares represented by the proxy will be voted at the Annual
Meeting as specified in the proxy. If no instructions are
specified, the shares represented by any properly executed proxy
will be voted FOR the election of the nominees listed
below under Election of Directors, FOR the
adoption of the proposed amendment to the 2006 Stock Plan and
FOR the ratification of the selection of independent
registered public accounting firm. Shares of Common Stock
represented by proxies that are returned improperly marked will
be counted as present for purposes of determining a quorum but
will be treated as abstentions for voting purposes. Unsigned
proxies will not be counted for any purpose.
Revocation
of Proxies
Any proxy given pursuant to this solicitation may be revoked by
a shareholder at any time before it is exercised by:
(i) written notice to our Secretary, (ii) timely
notice of a properly executed proxy bearing a later date
delivered to us, or (iii) voting in person at the Annual
Meeting.
Solicitation
of Proxies
We will bear the cost of the Annual Meeting and the cost of
soliciting proxies, including the cost of mailing the proxy
material. In addition to solicitation by mail, our directors,
officers and regular employees (who will not be specifically
compensated for such services) may solicit proxies by telephone
or otherwise. Arrangements will be made with brokerage houses
and other custodians, nominees and fiduciaries to forward
proxies and proxy material to their principals, and we will
reimburse them for their expenses. In addition, we have retained
BNYMellon Investor Services LLC (BNYMellon) to assist in the
reception and tabulation of proxies and to serve as inspectors
of election for the Annual Meeting. BNYMellons fee is
estimated to be $7,500 plus reasonable
out-of-pocket
expenses.
MATTERS
SUBJECT TO SHAREHOLDER VOTE
Pursuant to our by-laws, our Board of Directors is currently
divided into two classes, with one class standing for election
each year for two-year terms. Each of the nominees for the
office of director was elected by our shareholders at our 2007
annual meeting and their terms will expire at the Annual Meeting.
Five persons have been designated by the Board of Directors as
nominees for election as directors with terms expiring at the
2011 annual meeting: William F. Miller III, William W. Neal,
Ellen A. Rudnick, Michael A. Stocker, and Richard H. Stowe. The
terms of the other current directors listed below will expire at
the 2010 annual meeting.
Unless a contrary direction is indicated, it is intended that
proxies received will be voted for the election as directors of
the five nominees, to serve for the terms specified below, and
in each case until their successors are elected and qualified.
Each of the nominees has consented to being named in this proxy
statement and to serve as a director if elected. In the event
any nominee for director declines or is unable to serve, the
proxies may be voted for a substitute nominee selected by the
Board of Directors. The Board of Directors expects that each
nominee named in the following table will be available for
election.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL
NOMINEES.
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Position with the Company or
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Name
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Principal Occupation
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Served as Director from
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Nominees for Director for two year terms
ending in 2011:
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William F. Miller III
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Partner, Highlander Partners, a private equity firm(1)
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2000
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William W. Neal
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Private Investor
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1989
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Ellen A. Rudnick
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Executive Director, Michael P. Polsky Entrepreneurship Center,
University of Chicago Booth School of Business
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1997
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Michael A. Stocker
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Private Investor; Former Chief Executive Officer of Empire Blue
Cross Blue Shield
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2007
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Richard H. Stowe
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General Partner, Health Enterprise Partners LLP, a private
equity firm
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1989
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Mr. Miller served as our Chairman until April 2006. Under
Mr. Millers amended and restated employment
agreement, his employment as an executive of the Company
continued through December 31, 2007. |
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Position with the
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Company or Principal
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Name
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Occupation
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Served as Director from
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Directors continuing in office until 2010:
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Robert M. Holster
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Chairman
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2005
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James T. Kelly
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Private Investor
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2001
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William C. Lucia
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Chief Executive Officer
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2008
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William S. Mosakowski
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President, Chief Executive Officer and Director, Public
Consulting Group
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2006
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Galen D. Powers
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Senior Founder of Powers, Pyles, Sutter &
Verville, P.C. a healthcare law firm
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1992
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Executive
Officers and Directors
Certain information is set forth below with respect to our
executive officers and directors as of April 17, 2009:
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Name
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Position
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Robert M. Holster
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Chairman
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William C. Lucia
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Chief Executive Officer
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Walter D. Hosp
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Chief Financial Officer
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John D. Schmid
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Vice President of Human Resources
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James T. Kelly(1)(2)(4)
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Director
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William F. Miller III
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Director
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William S. Mosakowski
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Director
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William W. Neal(2)(4)
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Director
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Galen D. Powers(3)(4)
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Director
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Ellen A. Rudnick(1)(3)(4)
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Director
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Michael A. Stocker(3)(4)
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Director
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Richard H. Stowe(1)(2)(4)
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Director
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As of April 17, 2009, Board Committee membership was as
follows
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Member of the Audit Committee |
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Member of the Compensation Committee |
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Member of the Compliance Committee |
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Member of the Nominating Committee |
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Robert M. Holster, 62, has been the Chairman of our Board
of Directors since April 2006. He re-joined the Company in April
of 2001 as President and Chief Operating Officer, and served as
our Chief Executive Officer from May 1, 2005 until
February 28, 2009. He has served as a director since 2005.
Previously, Mr. Holster served as our Executive Vice
President from 1982 through 1993 and as one of our directors
from 1989 through 1996. Mr. Holster previously served in a
number of executive positions including Chief Financial Officer
of Macmillan, Inc. and Controller of Pfizer Laboratories, a
division of Pfizer, Inc.
William C. Lucia, 51, has served as our President and
Chief Operating Officer since May 1, 2005, and became our
Chief Executive Officer effective March 1, 2009. Since
joining us in 1996, Mr. Lucia has held several positions
with us including: President, Health Management Systems, Inc.
subsidiary, 2002 to present; President, Payor Services Division,
2001 to 2002 and Vice President and General Manager, Payor
Services Division, 2000 to 2001. Prior to joining us,
Mr. Lucia served in various executive positions including
Senior Vice President, Operations and Chief Information Officer
for Celtic Life Insurance Company and Senior Vice President,
Insurance Operations for North American Company for Life and
Health Insurance. Mr. Lucia is a Fellow, Life Management
Institute (LOMA).
Walter D. Hosp, 51, joined us in July 2007 as our Senior
Vice President and Chief Financial Officer. His responsibilities
include financial reporting, budgeting and planning, financial
operations, treasury and serves as a principal spokesperson to
security analysts and investors. Mr. Hosp has over
15 years of experience in senior financial executive
positions for large publicly-traded healthcare companies. Prior
to joining us, Mr. Hosp was Vice President and Treasurer of
Medco Health Solutions, Inc. (MHS) from August 2002 to July
2007. At MHS, Mr. Hosp built and managed all treasury
activities related to the spin-off of MHS from Merck &
Co. Prior to MHS, Mr. Hosp served as Chief Financial
Officer of Ciba Specialty Chemicals Corporation, and President
of their Business Support Center. Mr. Hosp is a director of
Bostwick Laboratories, Inc. and the United Way of Westchester
and Putnam.
John D. Schmid, 51, joined us in April 2007 as our Vice
President of Human Resources. Mr. Schmid has over
16 years experience, having held senior human resource
executive positions for publicly traded companies in the service
and production industries. Most recently, Mr. Schmid served
as global Director of HR Operations for Perot Systems from
December 2002 to April 2007. At Perot, his responsibilities
included IT outsourcing, international services and the
management of new and existing service center operations to
support Perots healthcare provider back offices. Prior to
Perot, Mr. Schmid held field and corporate human resource
positions with Office Depot and Fleming Companies.
Mr. Schmid served in the US Navy as a Surface Warfare
Officer for eight years before moving into the corporate human
resources arena.
James T. Kelly, 62, has served as a director since
December 2001. Mr. Kelly is a private investor and former
Chief Executive Officer (1986 to 1996) of Lincare Holdings,
Inc., one of the nations largest providers of oxygen and
other respiratory therapy services to patients in the home.
Mr. Kelly served as Chairman of the Board of Lincare from
1994 to 2000. Prior to Lincare, Mr. Kelly spent
19 years in various management positions within the Mining
and Metals Division of Union Carbide Corporation. Mr. Kelly
also serves as a director of Emergency Medical Services
Corporation, a leading provider of emergency medical services in
the U.S.
William F. Miller III, 59, director, joined the Company
in October 2000 as Chief Executive Officer and director.
Mr. Miller served as Chief Executive Officer through April
2005. From December 14, 2000 through April 4, 2006,
Mr. Miller served as the Companys Chairman of the
Board. Mr. Miller is a partner of Highlander Partners, a
private equity group in Dallas, Texas focused on investments in
healthcare products, services and technology. From 1983 through
1999, Mr. Miller served as President and Chief Operating
Officer of EmCare Holdings, Inc., a leading national healthcare
services firm focused on the provision of emergency physician
medical services. Mr. Miller is currently a director of
Lincare Holdings, Inc., and AMN Healthcare, Inc. and several
private companies.
William S. Mosakowski, 55, has served as a director since
December 2006. Mr. Mosakowski founded Public Consulting
Group, Inc. (PCG) in 1986 and has been its President since then.
Prior to starting PCG, he served as Assistant Revenue Director
for the Massachusetts Department of Mental Health and Mental
Retardation, as Manager of Reimbursement for the Harvard
Community Health Plan, and was a senior consultant with Touche
Ross & Company. Mr. Mosakowski is the Chairman of
the Board of Trustees of Clark University in Worcester,
Massachusetts. He is also a founding benefactor of Clarks
Mosakowski Institute. Mr. Mosakowski was elected as a
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director pursuant to an Asset Purchase Agreement dated
June 22, 2006 among us, Health Management Systems, Inc. and
PCG.
William W. Neal, 77, has served as a director since 1989.
Mr. Neal is a private investor. Mr. Neal formerly
served as Managing Principal of Piedmont Venture Partners from
1996 to 2001. From 1989 to 1996, he served as Chief Executive
Officer of Broadway and Seymour, a company that provided
software and computer systems to the banking industry. From 1985
through July 1989, he was a general partner of Welsh, Carson,
Anderson & Stowe (WCAS), a private equity firm.
Mr. Neal was Senior Vice President, Marketing of Automated
Data Processing, Inc. (ADP) from 1984 to 1985 and a Group
President of ADP from 1978 to 1984. He served as a director of
ADP from 1982 to 1985.
Galen D. Powers, 72, has served as a director since 1992.
Mr. Powers is the retired Senior Founder of Powers, Pyles,
Sutter & Verville P.C., a Washington, D.C. law
firm specializing in healthcare and hospital law, which he
founded in 1983. Mr. Powers was the first chief counsel of
the federal Health Care Financing Administration (now Centers
for Medicare and Medicaid Services) and has served as a director
and the President of the American Health Lawyers Association.
Mr. Powers is currently a director of MedCath, Inc., which
owns and operates acute care hospitals that specialize in
cardiovascular disease.
Ellen A. Rudnick, 58, has served as a director since
1997. Ms. Rudnick has been an Executive Director and
Clinical Professor of the Michael P. Polsky Entrepreneurship
Center, University of Chicago Booth School of Business since
1999. She also served as Chairman of CEO Advisors, Inc., a
privately held consulting firm through 2003. From 1993 until
1999, Ms. Rudnick served as Chairman of Pacific Biometrics,
Inc., a publicly held healthcare biodiagnostics company and its
predecessor, Bioquant. From 1990 to 1992, she was President and
Chief Executive Officer of Healthcare Knowledge Resources (HKR),
a privately held healthcare information technology corporation,
and subsequently served as President of HCIA, Inc. (HCIA)
following the acquisition of HKR by HCIA. From 1975 to 1990,
Ms. Rudnick served in various positions at Baxter Health
Care Corporation, including Corporate Vice President and
President of its Management Services Division. She serves on the
Boards of Liberty Mutual Insurance Company, Patterson Companies
and First Midwest Bank.
Michael A. Stocker, M.D., 67, has served as a
director since January 2007. Dr. Stocker served as Chief
Executive Officer of Empire Blue Cross Blue Shield (Empire) from
1994 until its acquisition by Wellpoint, Inc. in December 2005.
Dr. Stocker was employed by Wellpoint through April 2007.
Dr. Stocker is a past Chairman of Americas Health
Insurance Plans. Prior to joining Empire, Dr. Stocker had
served as President of Cigna Healthplans and as General Manager
of U.S. Healthcare for its New York market. Earlier he had
been Medical Director, Anchor HMO/Rush Presbyterian St.
Lukes Medical Center in Chicago, and Associate Chairman of
the Department of Family Practice at Cook County Hospital. He is
currently on the Boards of the Arthur Ashe Institute for Urban
Health, The New York Stem Cell Foundation, and Triveris, a
start-up
private equity company, which is part of the Psilos Group. He is
also Chairman of NYC Health and Hospitals Corporation.
Richard H. Stowe, 65, has served as a director since
1989. Mr. Stowe is general partner of Health Enterprise
Partners LLP, a private equity firm. From 1999 until 2005,
Mr. Stowe was a private investor, a Senior Advisor to the
predecessor fund of Health Enterprise Partners, and a Senior
Advisor to Capital Counsel LLC, an asset management firm. From
1979 until 1998, Mr. Stowe was a general partner of WCAS.
Prior to 1979, he was a Vice President of New Court Securities
Corporation (now Rothschild, Inc.). Mr. Stowe is also a
director of several private companies.
Director
Compensation
In 2008, we paid our non-employee directors $7,500 for each of
the first two quarters of the year and $8,750 for each of the
last two quarters of the year and also reimbursed them for
expenses incurred in attending Board of Directors and committee
meetings. The Chair of the Audit Committee receives an
additional fee of $1,250 per quarter. Directors who are
employees receive no additional cash compensation for serving on
the Board of Directors or its committees. Each non-employee
director is eligible to receive an annual award of stock options
valued at $40,000, with the number of options to be based on the
grant date fair value computed in accordance with Statement of
Financial Accounting Standards No. 123R (FAS 123R),
except that no assumption for forfeitures is included. Such
director option grants vest in quarterly increments over a
period of one year. The option grants made to
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directors in 2008 vest in quarterly increments over a period of
one year commencing on December 31, 2008 and will expire on
September 30, 2015.
The following table summarizes compensation paid to our
directors, other than Messrs. Holster and Lucia, during
2008.
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Fees Earned or
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Option
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Paid in Cash
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Awards
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Total
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Name
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($)
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($)(b)(c)(d)
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($)
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James T. Kelly
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32,500
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50,871
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83,371
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William F. Miller
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32,500
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50,871
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83,371
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William S. Mosakowski
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32,500
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55,689
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88,189
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William W. Neal
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32,500
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50,871
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83,371
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Galen D. Powers
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|
32,500
|
|
|
|
50,871
|
|
|
|
83,371
|
|
Ellen A. Rudnick(a)
|
|
|
37,500
|
|
|
|
51,935
|
|
|
|
89,435
|
|
Michael A. Stocker
|
|
|
32,500
|
|
|
|
50,919
|
|
|
|
83,419
|
|
Richard H. Stowe
|
|
|
32,500
|
|
|
|
50,871
|
|
|
|
83,371
|
|
|
|
|
(a) |
|
Ms. Rudnick has served as Chair of the Audit Committee
since July 1, 2007. |
|
(b) |
|
The amounts in this column reflect the dollar amount of
compensation expense recognized during 2008 for financial
reporting purposes under FAS 123R with respect to awards of
options to purchase shares of Common Stock held by each of the
directors listed above, including expense relating to awards
granted in earlier years, but disregarding estimated forfeitures
related to service-based vesting conditions. The relevant
assumptions made in the valuations may be found in Notes 12
to the financial statements in the Companys Annual Report
on
Forms 10-K
for the fiscal year ended December 31, 2008. |
|
(c) |
|
Each of the directors other than Mr. Holster and
Mr. Lucia received 5,850 stock options during 2008 under
our 2006 Stock Plan with a grant date fair value of each award
of approximately $40,000. |
|
(d) |
|
The number of stock options outstanding as of December 31,
2008 held by the directors named in the above table was as
follows: Mr. Kelly (267,000), Mr. Miller (17,000),
Mr. Mosakowski (15,750), Mr. Neal (17,000),
Mr. Powers (32,000), Ms. Rudnick (112,000),
Dr. Stocker (15,750) and Mr. Stowe (113,000). |
Corporate
Governance
Board
Determination of Independence
Under applicable NASDAQ rules, a director will only qualify as
an independent director if, in the opinion of our
Board of Directors, that person does not have a relationship
which would interfere with the exercise of independent judgment
in carrying out the responsibilities of a director.
Our Board has determined that none of Mr. Kelly,
Mr. Neal, Mr. Powers, Ms. Rudnick,
Dr. Stocker or Mr. Stowe has a relationship that would
interfere with the exercise of independent judgment in carrying
out the responsibilities of a director and that each of these
directors is an independent director as defined
under Rule 5605(a)(2) of the NASDAQ Stock Market, Inc.
Marketplace Rules.
In determining the independence of the directors listed above,
our Board considered each of the transactions discussed in
Certain Relationships and Related Person
Transactions.
Meetings
of the Board of Directors
The Board of Directors held five meetings during fiscal year
2008. During fiscal 2008, each director attended at least 75% of
the aggregate of the total number of meetings of (a) the
Board of Directors, and (b) the committees on which the
director served.
We do not have a policy with regard to directors
attendance at annual meetings. No director other than
Messrs. Holster and Lucia attended our 2008 annual meeting.
6
Board
Committees
The Board of Directors has the following standing committees:
Audit Committee; Compensation Committee; Compliance Committee;
and Nominating Committee, each of which operates pursuant to a
separate charter that has been approved by the Board of
Directors. A current copy of each charter is available at
http://www.hmsholdings.com/company/govern.asp.
Each committee reviews the appropriateness of its charter at
least annually. The Board of Directors performs periodic
self-evaluations of its composition and performance, including
evaluations of its standing committees and its individual
directors. The Board of Directors and each committee retains the
authority to engage its own advisors and consultants. The
composition and responsibilities of each committee are
summarized below.
Audit Committee. The Audit Committee consists
of Mr. Kelly, Ms. Rudnick and Mr. Stowe and
Ms. Rudnick serves as its Chair. The Board has determined
that all members of the Audit Committee are independent
directors under the rules of The NASDAQ Stock Market and the
independence requirements contemplated by
Rule 10A-3
under the Securities Exchange Act of 1934 (the Exchange Act).
The Board has determined that each member of the Audit Committee
is able to read and understand fundamental financial statements.
The Board has determined that Mr. Kelly qualifies as an
audit committee financial expert as defined by the
rules of the Securities and Exchange Commission.
The purpose of the Audit Committee is to oversee our accounting
and financial reporting processes and audits of our financial
statements. The responsibilities of the Audit Committee include
appointing the independent accountants to conduct the annual
audit of our accounts, reviewing the scope and results of the
independent audits, reviewing and evaluating internal accounting
policies, and approving all professional services to be provided
to us by our independent accountants. The Audit Committee also
approves the compensation of our independent accountants. The
Audit Committee held five meetings during fiscal year 2008.
Compensation Committee. The Compensation
Committee has a mission of overseeing compensation programs that
enable the Company to attract, retain and motivate executives
capable of establishing and accomplishing business plans in the
best interests of the shareholders. Specific responsibilities
within this overall mission include reviewing and recommending
the compensation of our senior executives and administering our
2006 Stock Plan. The processes and procedures followed by our
Compensation Committee in considering and determining executive
and director compensation are described below under the heading
Executive and Director Compensation Processes. The
Compensation Committee is comprised of Messrs. Stowe
(Chair), Kelly and Neal. The Board has determined that all
members of the Compensation Committee are independent directors
under the rules of The NASDAQ Stock Market. The Compensation
Committee held six meetings during fiscal year 2008.
Compliance Committee. The Compliance Committee
consists of Mr. Powers (Chair), Ms. Rudnick and
Mr. Stocker. The purpose of the Compliance Committee is to
oversee the operation of the Corporations Corporate
Compliance Program providing for adherence to health care
related laws, regulations, and guidance. The Compliance
Committee held four meetings during fiscal year 2008.
Nominating Committee. The Nominating Committee
consists of Mr. Kelly, Mr. Neal, Mr. Powers,
Ms. Rudnick, Mr. Stowe and Dr. Stocker, who
serves as Chair. The Nominating Committee held two meetings
during fiscal year 2008.
The Nominating Committee is responsible for reviewing the
qualifications and independence of members of the Board and its
various committees on a periodic basis, as well as the
composition of the Board as a whole. This assessment includes
members qualification as independent and their economic
interest in us through meaningful share ownership, as well as
consideration of diversity, age, skills and experience in
relation to the needs of the Board. Director nominees will be
recommended to the Board by the Committee in accordance with the
policies and principles in its charter. The processes and
procedures followed by the Nominating Committee in identifying
and evaluating director candidates are described below under the
heading Director Nomination Process. The ultimate
responsibility for selection of director nominees resides with
the Board of Directors.
7
Executive
and Director Compensation Processes
The Compensation Committee determines and approves total
executive remuneration based on its review and evaluation of
proposals and recommendations presented by the Companys
senior management. To establish total compensation levels, the
Committee reviews data collected by the Company and by
independent compensation firms retained by the Committee. The
Companys philosophy is that executive compensation should
be closely aligned with the performance of the Company, and to
that end annual performance goals are determined and set forth
in writing at the beginning of each calendar year for the
Company as a whole and for each executive. Annual corporate
goals are proposed by management and approved by the Board of
Directors at the end of each calendar year for the following
year. Annual corporate goals target the achievement of specific
strategic, operational and financial performance milestones.
Annual individual goals focus on contributions that facilitate
the achievement of the corporate goals. Individual goals are
proposed by management and approved by the Committee.
The Compensation Committee has the authority to retain
compensation consultants and other outside advisors to assist in
the evaluation of executive officer compensation. During 2006,
2007 and 2008, the Compensation Committee retained Frederic W.
Cook & Co., Inc. to develop senior management short-
and long-term incentive plans, to develop the Companys
peer group to be used by the Compensation Committee in making
compensation determinations and to assist in the process of
approval of the equity plan amendments. Frederic W.
Cook & Co., Inc. provides services only to, or at the
discretion of, the Compensation Committee. Representatives of
Frederic W. Cook & Co., Inc. attended meetings of the
Compensation Committee in 2008 to advise the Committee.
Additional information regarding compensation of executive
officers is provided on pages 21 through 31 of this Proxy
Statement.
Director
Nomination Process
The Nominating Committee of the Board of Directors selected and
recommended to the Board the current nominees for election to
the Board. At the Annual Meeting, shareholders will be asked to
consider the election of Messrs. Miller, Neal, Stocker,
Stowe and Ms. Rudnick.
Criteria for Nomination to the Board. In
evaluating director candidates, regardless of the source of the
nomination, the Board of Directors will consider the composition
of the Board as a whole, the requisite characteristics
(including independence, diversity, age, skills and experience)
of each candidate, and the performance and continued tenure of
incumbent Board members. The Board of Directors has not
established specific minimum qualifications in this connection.
No formal policy has been established for the consideration of
candidates recommended by shareholders, given the historically
small number of shareholder recommendations received in the
past. The Board of Directors does not believe the lack of such a
policy would materially affect its willingness to consider a
suitable candidate recommended by shareholders.
Process for Identifying and Evaluating
Nominees. The members of the Nominating Committee
initiate the process for identifying and evaluating nominees to
the Board of Directors by identifying a slate of candidates who
meet the criteria for selection as nominees and have the
specific qualities or skills being sought based on input from
all members of the Board of Directors and, if appropriate, a
third-party search firm. The Nominating Committee members
evaluate these candidates by reviewing their biographical
information and qualifications and checking the candidates
references. Qualified nominees are interviewed by at least one
member of the Nominating Committee. Appropriate candidates meet
with a majority of the Nominating Committee, and using the input
from such interviews and the information obtained by them, the
members of the Nominating Committee evaluate which of the
prospective candidates is qualified to serve as a director and
whether they should recommend to the Board of Directors that the
Board nominate, or elect to fill a vacancy, these final
prospective candidates. Candidates recommended by the Nominating
Committee are presented to the Board for selection as nominees
to be presented for the approval of the shareholders or for
election to fill a vacancy.
Code
of Ethics
We have adopted a Code of Business Conduct and Ethics that
applies to our employees, officers (including our principal
executive officer and principal financial officer) and
directors. The Code of Business Conduct and Ethics
8
is posted on our website at www.hms.com and can also be obtained
free of charge by sending a request to our Secretary at 401 Park
Avenue South, New York, New York 10016. Any changes to or
waivers under the Code of Business Conduct and Ethics as it
relates to our principal executive officer, principal financial
officer, controller or persons performing similar functions must
be approved by our Board of Directors and will be disclosed in a
Current Report on
Form 8-K
within four business days of the change or waiver.
Section 16(a)
Beneficial Ownership Reporting Compliance
Pursuant to Section 16(a) of the Exchange Act and the rules
issued thereunder, our executive officers and directors are
required to file with the SEC and NASDAQ reports of ownership
and changes in ownership of Common Stock. Copies of such reports
are required to be furnished to us. Based solely on review of
the copies of such reports furnished to us, or written
representations that no other reports were required, we believe
that during fiscal year 2008, all of our executive officers and
directors complied with the requirements of Section 16(a),
except that Mr. Stowe, a director, filed one late
Form 5 on March 12, 2008 relating to the sale of
47,312 shares of HMS Common Stock held by the Stowe Family
Foundation, of which Mr. Stowe is a beneficial owner; and
Mr. Walter D. Hosp, our Chief Financial Officer, filed an
amended Form 3 on March 10, 2008 relating his
beneficial ownership of 1,000 shares of our Common Stock.
|
|
2.
|
APPROVAL
OF AMENDMENT TO THE 2006 STOCK PLAN
|
The Board of Directors is seeking shareholder approval of the
Third Amendment (the Amendment) to the HMS Holdings Corp. 2006
Stock Plan (the 2006 Stock Plan) that, among other changes
described below, increases the number of shares of Common Stock
that may be delivered under the 2006 Stock Plan by
1,850,000 shares, from 2,150,000 to 4,000,000 shares
(any or all of which could be used for incentive stock options).
The Board of Directors unanimously approved the Amendment on
April 30, 2009 subject to shareholder approval at the
Annual Meeting. The affirmative vote of at least the majority of
the votes cast at the Annual Meeting is required to approve the
Amendment. If approved at the Annual Meeting, the 2006 Stock
Plan will be amended and restated to reflect the amendments. If
the Amendment is not approved at the Annual Meeting, then the
Amendment will not become effective and the 2006 Stock Plan will
continue as currently in effect.
The Compensation Committee of the Board of Directors (the
Committee) reviewed our 2006 Stock Plan as currently
constituted. Based on this review, the Committee determined that
an insufficient number of shares are available under the 2006
Stock Plan to enable the Committee to provide future grants of
stock options and other stock awards to our officers, directors
and employees.
Our shareholders approved the 2006 Stock Plan at our 2006 annual
meeting and authorized 1,000,000 shares for award
thereunder. An amendment to the Plan was approved at our 2007
annual meeting authorizing an additional 500,000 shares for
awards thereunder. Another amendment to the 2006 Stock Plan was
approved at our 2008 annual meeting authorizing an additional
650,000 shares for awards thereunder. As of March 31,
2009, awards to acquire 1,882,369 shares of Common Stock
had been granted under the 2006 Stock Plan to officers,
directors and employees, and approximately 158,901 shares
remained available for future grants under the 2006 Stock Plan.
The 1,850,000 additional shares of Common Stock that would be
authorized to be issued under the 2006 Stock Plan pursuant to
the Amendment represent approximately 7.2% of the shares of
Common Stock outstanding on March 31, 2009.
As of March 31, 2009, we had a total of 3,709,152 stock
options outstanding under the 2006 Stock Plan, our 1999
Long-Term Incentive Stock Plan (the 1999 Plan) (which plan was
terminated in connection with the adoption of the 2006 Stock
Plan) and inducement options issued outside of our plans. The
weighted average exercise price of these options is $12.70 per
share, and they have a weighted average term during which they
may be exercised of 5.2 years. In addition, 127,918
restricted stock awards were outstanding on March 31, 2009.
It is our understanding that the proposed increase in the number
of shares available for Awards under the 2006 Stock Plan is in
compliance with the standards set by RiskMetrics Group, Inc.
The Board believes that by allowing us to continue to offer our
employees long-term, performance-based compensation through the
proposed increase to the shares reserved for issuance under the
2006 Stock Plan, we will
9
continue to be able to attract, motivate and retain experienced
and highly qualified employees who will contribute to our
financial success.
The Board also agreed to several other changes to the 2006 Stock
Plan, which are designed to make the 2006 Stock Plan provisions
consistent with market-based best practices,
and/or
compliant with the Internal Revenue Code of 1986, as amended
(the Code). The change in control definition in the 2006 Stock
Plan was amended to (i) increase the percentage of the
Companys voting power that must be acquired to trigger a
change in control from 20% to 35%, and add an exclusion for
Company repurchases of our voting stock and (ii) revise the
exception to a merger or consolidation triggering a change in
control such that it will not be triggered if the Companys
stock is converted into stock of the successor organization
representing 55% (decreased from 80%) of the voting power of all
of the stock of the successor organization immediately after
that merger or consolidation.
Other significant changes made to the 2006 Stock Plan under the
Amendment are the addition of more specific provisions relating
to the use of restricted stock units and revised definitions of
change in control price (to the tender or exchange
offer price per share and otherwise the fair market value of our
Common Stock on the change in control date) and fair
market value (from the average of high and low prices to
the closing price on the NASDAQ Global Select Market).
Additionally, the Amendment adds a $1,500,000 limit on
performance units intended to comply with Code
Section 162(m) performance-based compensation that can be
earned by a participant for each fiscal year in a performance
period and clarifies that the 200,000 share limit on grants
of options and other awards to a participant in a calendar year
only applies to awards that are intended to comply with
Section 162(m).
The Amendment revises the 2006 Stock Plan to permit the payment
of the exercise price of an option by the withholding of shares
that would otherwise be issuable, if permitted by the Committee.
Dividends and dividend equivalents on performance awards, on
restricted stock awards and restricted stock unit awards that
vest based on the achievement of performance goals may only be
paid if the awards are earned.
In addition, the amendment prohibits certain shares withheld by
the Company in net exercises of stock options and shares
reacquired with cash proceeds from stock option exercises to be
added back to the maximum share limitation.
The 2006 Stock Plan provides for the granting of stock options,
stock awards, stock appreciation rights, performance-contingent
awards and other equity-based awards to our employees and
directors. The 2006 Stock Plan does not permit the
repricing of options without shareholder approval
(see Repricing Prohibited below) or the granting of
discounted options or stock appreciation rights (i.e., with an
exercise price below fair market value on the grant date), nor
does it contain an evergreen provision.
The following is a brief description of the material provisions
of the 2006 Stock Plan. Additional, non-material changes are
included in 2006 Stock Plan, as proposed to be amended at the
Meeting. The full text of the amended and restated 2006 Stock
Plan (taking into account the amendment for which approval is
sought in this proposal as well as the amendments approved at
the 2007 and 2008 annual meetings) is attached as Annex 1
to this Proxy Statement, and the following description is
qualified in its entirety by reference to this Annex.
It is the judgment of the Board of Directors that approval of
the Amendment to the 2006 Stock Plan is in the best interests of
the Company and our shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
FOR APPROVAL OF THE PROPOSED AMENDMENT TO THE 2006 STOCK
PLAN.
|
|
|
Plan Term |
|
The 2006 Stock Plan was approved by our shareholders at the 2006
annual meeting and became effective as of that date, and
amendments to the 2006 Stock Plan were approved at the 2007 and
2008 annual meetings. No awards may be made under the 2006 Stock
Plan after June 6, 2016, the tenth anniversary of the date
of initial approval. However, the 2006 Stock Plan may be
terminated earlier by the Board or the Committee. |
|
Eligibility for grants |
|
All employees of the Company and its subsidiaries as well as the
Companys non-employee directors are eligible to
participate in the |
10
|
|
|
|
|
2006 Stock Plan. From time to time, the Committee, or as to
non-employee Directors, the Board, will determine who will be
granted Awards, and the number of shares subject to such Awards. |
|
Awards available |
|
Incentive and Nonqualified Stock Options (Stock
Options).
|
|
|
|
Stock Appreciation Rights (SARs).
|
|
|
|
Restricted Stock Awards and Restricted Stock Unit
Awards.
|
|
|
|
Performance Shares and Performance Units
(Performance Awards).
|
|
|
|
Share Awards.
|
|
|
|
Phantom Stock Awards.
|
|
Shares Authorized |
|
The maximum number of shares of Common Stock that could be
issued under the 2006 Stock Plan, as amended to date, was
2,150,000 shares of Common Stock, counted and subject to
adjustments, as described below. The Amendment authorizes an
additional 1,850,000 shares for delivery with respect to
awards, increasing the maximum total from 2,150,000 shares
to 4,000,000 shares, counted and subject to adjustments as
described below. |
|
Share Counting Method |
|
Stock Options and SARs count as one share.
Combination Tandem SARs and Stock Options where
exercise of one results in cancellation of the other
count as one share in the aggregate.
|
|
|
|
Restricted Stock Awards, Restricted Stock Unit
Awards, Performance Shares, Share Awards and Phantom Stock
Awards count as 1.85 shares.
|
|
|
|
Shares tendered or withheld in payment of the
exercise price of a Stock Option do not increase the number of
shares authorized.
|
|
|
|
Shares withheld to satisfy tax withholding
obligations are not added to the shares authorized.
|
|
|
|
Shares reacquired by the Company on the open market
(or otherwise) using the cash proceeds of Stock Option exercises
are not added to the number of shares authorized.
|
|
|
|
All shares covered by a stock-settled SAR, to the
extent exercised, are counted against the number of shares
authorized, not just the net shares issued upon exercise.
|
|
|
|
Shares not purchased or awarded under a terminated,
lapsed or forfeited Award and shares not issued under an SAR or
other Award that is settled in cash may be used for further
Awards under the Plan; the shares will be added back as one
share if they were subject to a Stock Option or an SAR, and as
1.85 shares if they were subject to a Restricted Stock
Award, Restricted Stock Unit Award, Performance Share, Share
Award or Phantom Stock Award.
|
|
Individual Limitations |
|
In any year, no individual may receive Awards intended to comply
with the performance based exception of the Code covering more
than 200,000 shares of Common Stock. |
|
Repricing Prohibited |
|
No adjustments or reduction of the exercise price of any
outstanding Award in the event of a decline in stock price is
permitted without |
11
|
|
|
|
|
approval by our shareholders or as otherwise specifically
provided under the 2006 Stock Plan. The prohibition includes: |
|
|
|
reducing the exercise price of outstanding Awards;
|
|
|
|
canceling outstanding Awards in connection with
regranting Awards at a lower price to the same individual; and
|
|
|
|
canceling a Stock Option or an SAR for cash or
another Award (other than in connection with a Change in
Control).
|
|
Special Provisions for Stock Options |
|
|
|
Number granted |
|
Determined by the Committee. |
|
Exercise Price |
|
Not less than fair market value of a share of stock on grant
date. |
|
|
|
The fair market value is closing price of our Common
Stock as reported on The NASDAQ Global Select Market on the
grant date.
|
|
Vesting and Exercise Periods |
|
As determined by the Committee. However, |
|
|
|
If a grantees employment is terminated for
misconduct, as determined by the Company, all rights under the
Stock Option expire immediately.
|
|
|
|
The term of Stock Options may not exceed seven years.
|
|
Limits on Incentive Stock Options |
|
In general, Incentive Stock Options (ISOs) must satisfy
requirements prescribed by the Code to qualify for special tax
treatment. Therefore, among other requirements, |
|
|
|
No person may receive a grant of ISOs for stock that
would have an aggregate fair market value in excess of $100,000
(or such other amount as the Internal Revenue Service may decide
from time to time), determined when the ISO is granted, that
would be exercisable for the first time during any calendar year.
|
|
|
|
If any grant is made in excess of the limits
provided in the Code, the grant automatically becomes a
Nonqualified Stock Option.
|
|
Dividends/Dividend Equivalents |
|
Dividends and dividend equivalents are neither paid nor
accumulated on Stock Options. |
|
Special Provisions for SARs |
|
SARs may be issued singly (Stand Alone SAR) or in combination
with a Stock Option (Tandem SAR). SARs may be paid in shares,
cash or a combination of shares and cash. |
|
|
|
A Tandem SAR entitles its grantee to surrender the
Stock Option that is then exercisable and receive an amount
equal to the excess of the fair market value of the Common Stock
on the date the election to surrender is received by the Company
over the Stock Option exercise price multiplied by the number of
shares covered by the Stock Option that is surrendered.
|
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|
|
A Stand Alone SAR grantee is entitled to an amount
equal to the excess of the fair market value of the Common Stock
on the date the election to surrender is received by the Company
over the fair market value of the Common Stock on the date of
grant, multiplied by the number of shares covered by the Stand
Alone SAR.
|
|
Number granted |
|
Determined by the Committee. |
12
|
|
|
Dividends and Dividend Equivalents |
|
Dividends and dividend equivalents are neither paid nor
accumulated on SARs. |
|
Vesting and Exercise Periods |
|
As determined by the Committee. However, the term of SARs may
not exceed seven years. |
|
Special Provisions for Restricted Stock Awards and Restricted
Stock Unit Awards |
|
Restricted Stock Awards actual shares of Common
Stock may be granted subject to the terms and conditions as the
Committee prescribes. |
|
|
|
Restricted Stock Unit Awards units valued by
reference to shares of Common Stock may be granted subject to
the terms and conditions as the Committee prescribes. |
|
Number granted |
|
Determined by the Committee. |
|
Employment or Board membership required |
|
Grantees generally must remain employed or serve as directors
during a period designated by the Committee (Restricted Period)
in order to receive the shares, cash or combination thereof
under the Restricted Stock Award or Restricted Stock Unit Award. |
|
|
|
If employment or service as a director ends before the
Restricted Period ends, the Restricted Stock Award or Restricted
Stock Unit Award will terminate. |
|
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|
However, the Committee may, at the time of the grant, provide
for the employment or Board membership restriction to lapse with
respect to a portion or portions of the Restricted Stock Award
or Restricted Stock Unit Award at different times during the
Restricted Period. The Committee may, in its discretion, also
provide for complete or partial exceptions to the employment or
Board membership restriction as it deems equitable. |
|
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|
All restrictions imposed under the Restricted Stock Award or
Restricted Stock Unit Award lapse upon the expiration of the
Restricted Period if the conditions described above have been
met. |
|
Form of Grant |
|
Restricted Stock Awards are shares of actual Common Stock.
Restricted Stock Unit Awards are units valued by reference to
shares of Common Stock. |
|
|
|
Payouts of Restricted Stock Awards or Restricted Stock Unit
Awards may be in the form of shares of Common Stock, cash or any
combination of shares and cash as determined by the Committee. |
|
Dividends |
|
The Committee may at the time of grant provide that dividends
during the Restricted Period are paid or accumulated, or
reinvested in additional Restricted Stock or credited to
additional Restricted Stock Units, or neither paid nor
accumulated, except that dividends on Restricted Stock Awards or
Restricted Stock Unit Awards that vest based on the achievement
of Performance Goals must either be accumulated or
reinvested/credited and only be paid to the extent the
Restricted Stock Award or Restricted Stock Unit Award is earned,
or neither paid nor accumulated. |
|
Vesting |
|
Restricted Stock Awards and Restricted Stock Unit Awards will
have a vesting period of at least three years, subject to
certain exceptions, |
13
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|
|
including a one-year minimum vesting period for Restricted Stock
Awards and Restricted Stock Unit Awards that vest based on the
achievement of Performance Goals. |
|
Special Provisions for Performance Awards |
|
The Committee will determine the period for which a Performance
Award is made (Award Period) and the Performance Goals. The
Award Period may not be less than one year. Recipients of
Performance Awards must remain employees throughout the Award
Period. |
|
Number granted |
|
Determined by the Committee. |
|
Performance Goals |
|
May include any or a combination of the following: net sales;
revenue; revenue growth or product revenue growth; operating
income (before or after taxes); pre- or after-tax income (before
or after allocation of corporate overhead and bonus); earnings
per share; net income (before or after taxes); return on equity;
total shareholder return; return on assets or net assets;
appreciation in and/or maintenance of the price of the Common
Stock or any other publicly-traded securities of the Company;
market share; gross profits; earnings (including earnings before
taxes, earnings before interest and taxes or earnings before
interest, taxes, depreciation and amortization); economic
value-added models or equivalent metrics; comparisons with
various stock market indices; reductions in costs; cash flow or
cash flow per share (before or after dividends); return on
capital (including return on total capital or return on invested
capital); cash flow return on investment; improvement in or
attainment of expense levels or working capital levels;
operating margins, gross margins or cash margin; year-end cash;
debt reductions; stockholder equity; research and development
achievements; strategic partnerships or transactions (including
in-licensing and out-licensing of intellectual property;
establishing relationships with commercial entities with respect
to the marketing, distribution and sale of the Companys
products (including with group purchasing organizations,
distributors and other vendors); co-development, co-marketing,
profit sharing, joint venture or other similar arrangements);
financing and other capital raising transactions (including
sales of the Companys equity or debt securities; factoring
transactions; sales or licenses of the Companys assets,
including its intellectual property, whether in a particular
jurisdiction or territory or globally; or through partnering
transactions); and implementation, completion or attainment of
measurable objectives with respect to research, development,
manufacturing, commercialization, products or projects,
production volume levels, acquisitions and divestitures and
recruiting and maintaining personnel. |
|
|
|
For a Performance Award not intended to constitute
performance-based compensation under
Section 162(m) of the Code, measures may include any other
financial or other measurement established by the Committee. |
|
|
|
For any Performance Award intended to constitute
performance-based compensation under Section 162(m)
of the Code, revisions to the respective performance goals must
be set forth in the related Award Agreement within the time
period required by Section 162(m). |
14
|
|
|
Performance Share Award Payouts |
|
The Committee will establish the method of calculating the
amount of payment to be made under a Performance Award if
Performance Goals are met, including any maximum payment. |
|
|
|
The maximum amount that may be earned by any recipient for each
fiscal year in an Award Period with respect to Performance Units
that are intended to comply with the performance-based exception
under Section 162(m) is $1,500,000. |
|
|
|
After the completion of an Award Period, the relevant
performance will be measured against the Performance Goals, and
the Committee will determine whether all, none or a portion of
Performance Award is paid. |
|
Dividends/Dividend Equivalents |
|
The Committee may at the time of grant provide that dividends or
dividend equivalents during the Award Period are paid to or
accumulated for the participant to the extent that the
Performance Shares are earned, or are not paid or accumulated. |
|
Vesting |
|
Performance Awards denominated in Performance Shares will have a
minimum vesting period of one year. |
|
Other Share-Based Awards |
|
Actual shares of Common Stock or phantom shares of Common Stock
may be granted in the amounts and on the terms and conditions as
the Committee determines. |
|
Dividends/Dividend Equivalents |
|
The Committee may at the time of grant provide that dividends or
dividend equivalents are paid or accumulated to the extent that
the other share-based awards vest, or neither paid nor
accumulated. |
Other
Information
Administration of the Plan. The 2006 Stock
Plan is administered by the Compensation Committee of our Board
of Directors, provided that the Committee consists of two or
more directors all of whom are both (i) outside
directors within the meaning of Section 162(m) of the
Code and (ii) non-employee directors within the
meaning of
Rule 16b-3
of the General Rules and Regulations under the Exchange Act. To
the extent permitted by law, the Committee may delegate certain
of its authority in accordance with the 2006 Stock Plan. The
Committee has the authority to, among other things, determine
eligibility for and grant awards; determine, modify or waive the
terms and conditions of any award; and prescribe forms, rules
and procedures for awards. Determinations of the Committee under
the 2006 Stock Plan will be conclusive and bind all parties.
Change in Control. Unless provided otherwise
in the terms of a particular Award, in the event a participant
is involuntarily terminated without cause within 24 months
following a change in control of the Company (as defined in the
2006 Stock Plan) Stock Options and SARs will become fully vested
and immediately exercisable, unvested Restricted Stock will
immediately vest and become free of restrictions and the
restrictions and other conditions applicable to other Awards
shall lapse, and such Awards will become fully vested and
transferable, to the extent of the original grant. Upon a change
of control of the Company, all Performance Awards will be
considered to be earned and payable in full, based on the
applicable performance criteria or, if not determinable, at the
target level and any deferral or other restriction will lapse
and the Performance Awards will be immediately settled or
distributed.
The Committee may provide that Stock Option or SAR holders will
be entitled to receive cash for their Stock Options or SARs in
an amount at least equal to the difference between the exercise
price and the price paid to our shareholders in the change of
control transaction.
15
Adjustments
In the event of a stock dividend, stock split or combination of
shares (including a reverse stock split), recapitalization or
other change in our capital structure, the Committee will make
appropriate adjustments to the maximum number of shares that may
be delivered under the 2006 Stock Plan; the individual award
maximums and maximum share limits described in the 2006 Stock
Plan; the number and exercise price of outstanding Stock Options
and SARs; and the number and kind of shares subject to other
awards granted under the 2006 Stock Plan.
Plan
Amendment and Termination
The Board of Directors may discontinue the Plan at any time and
may from time to time amend or revise the terms of the 2006
Stock Plan as permitted by applicable statutes. However, it may
not, without the consent of affected grantees, revoke or alter
outstanding incentives in a manner unfavorable to them. The
Board also may not amend the 2006 Stock Plan without stockholder
approval where the absence of approval would cause the 2006
Stock Plan to fail to comply with
Rule 16b-3
under the Exchange Act, or any other requirement of applicable
law or regulation. Notwithstanding the foregoing, without
consent of affected grantees, awards may be amended, revised or
revoked when necessary to avoid penalties under
Section 409A of the Code.
Nontransferability
of Awards
No Award under the Plan is transferable other than by will or
the laws of descent and distribution, except that the Committee
may permit transfers of Stock Options (other than Incentive
Stock Options) to the optionees immediate family members
(i.e., spouse, parent, child, stepchild, grandchild and their
spouses) or to trusts, family partnerships or similar entities
for the benefit of immediate family members.
United
States Income Tax Consequences
The United States federal income tax consequences that will
arise with respect to participation in the 2006 Stock Plan and
with respect to the sale of Common Stock acquired under the 2006
Stock Plan are summarized in the following discussion. This
summary is based on the tax laws in effect as of the date of
this Proxy Statement. In addition, this summary assumes that all
awards are exempt from, or comply with, the rules under
Section 409A of the Code regarding nonqualified deferred
compensation. The summary deals with general tax principles
applicable to the 2006 Stock Plan and does not purport to be a
complete description of the federal income tax consequences of
awards made under the plan. The summary also does not cover
federal employment tax or other federal tax consequences that
may be associated with the 2006 Stock Plan, or state, local or
non-U.S. taxes.
Changes to these laws could alter the tax consequences described
below.
Incentive Stock Options (ISOs). A participant
will not have income upon the grant of an incentive stock
option. Also, except as described below, a participant will not
have income upon exercise of an incentive stock option if the
participant has been employed by the Company or its corporate
parent or 50% or more-owned corporate subsidiary at all times
beginning with the option grant date and ending three months
before the date the participant exercises the option. If the
participant has not been so employed during that time, then the
participant will be taxed as described below under
Nonqualified Stock Options. The exercise of an
incentive stock option may subject the participant to the
alternative minimum tax.
A participant will have income upon the sale of the stock
acquired under an incentive stock option at a profit (if sales
proceeds exceed the exercise price). The type of income will
depend on when the participant sells the stock. If a participant
sells the stock more than two years after the option was granted
and more than one year after the option was exercised, then all
of the profit will be long-term capital gain. If a participant
sells the stock prior to satisfying these waiting periods, then
the participant will have engaged in a disqualifying disposition
and a portion of the profit will be ordinary income and a
portion may be capital gain. This capital gain will be long-term
if the participant has held the stock for more than one year and
otherwise will be short-term. If a participant sells the stock
at a loss (sales proceeds are less than the exercise price),
then the loss will be a capital loss. This capital loss will be
long-term if the participant held the stock for more than one
year and otherwise will be short-term.
16
Nonqualified Stock Options (NSOs). A
participant will not have income upon the grant of a
nonqualified stock option. A participant will have compensation
income upon the exercise of a nonqualified stock option equal to
the value of the stock on the day the participant exercised the
option less the exercise price. Upon sale of the stock, the
participant will have capital gain or loss equal to the
difference between the sales proceeds and the value of the stock
on the day the option was exercised. This capital gain or loss
will be long-term if the participant has held the stock for more
than one year and otherwise will be short-term.
Restricted Stock. A participant will not have
income upon the grant of restricted stock unless an election
under Section 83(b) of the Code is made within 30 days
of the date of grant. If a timely 83(b) election is made, then a
participant will have compensation income equal to the value of
the stock less the purchase price. When the stock is sold, the
participant will have capital gain or loss equal to the
difference between the sales proceeds and the value of the stock
on the date of grant. If the participant does not make an 83(b)
election, then when the stock vests the participant will have
compensation income equal to the value of the stock on the
vesting date less the purchase price. When the stock is sold,
the participant will have capital gain or loss equal to the
sales proceeds less the value of the stock on the vesting date.
Any capital gain or loss will be long-term if the participant
held the stock for more than one year and otherwise will be
short-term.
Restricted Stock Units. A participant will not
have income upon the grant of a restricted stock unit award. A
participant is not permitted to make a Section 83(b)
election with respect to a restricted stock unit award. When the
restricted stock unit vests, the participant will have income on
the date payment is made or shares are issued under the
restricted stock unit in an amount equal to the fair market
value of the stock on such date (or the amount of the cash
paid). When the stock, if any, is sold, the participant will
have capital gain or loss equal to the sales proceeds less the
value of the stock already taken into income. Any capital gain
or loss will be long-term if the participant held the stock for
more than one year and otherwise will be short-term.
Awards That Are Settled in Cash or In Shares That Are
Not Subject to a Substantial Risk of
Forfeiture. With respect to other awards that are
settled either in cash or in shares that are not subject to a
substantial risk of forfeiture, the participant will recognize
ordinary income equal to the excess of (a) the cash or the
fair market value of any shares received (determined as of the
date of settlement) over (b) the amount, if any, paid for
the shares by the participant.
Tax Consequences to Us. There will be no tax
consequences to us except that we will be entitled to a
deduction when a participant has compensation income. Any such
deduction will be subject to the limitations of
Section 162(m) of the Code.
Section 162(m). Awards may qualify as
performance-based compensation under
Section 162(m) of the Code in order to preserve the
Companys federal income tax deductions with respect to
annual compensation required to be taken into account under
Section 162(m) that is in excess of $1 million and
paid to our chief executive officer and our other officers whose
compensation is required to be disclosed under the Exchange Act
by reason of being among our four most highly compensated
officers. To qualify, options and other awards must be granted
by a committee consisting solely of two or more outside
directors (as defined under applicable regulations) and
satisfy the limit on the total number of shares that may be
awarded to any one participant during any calendar year. In
addition, for awards other than options to qualify, the grant,
issuance, vesting or retention of the award must be contingent
upon satisfying one or more of the preestablished, objective
performance criteria, as approved by a committee consisting
solely of two or more outside directors.
Stock
Price
On April 17, 2009, the closing price of our Common Stock on
The NASDAQ Global Select Market was $30.92.
New
Plan Benefits
Since the Committee in its sole discretion will authorize
awards, future benefits under the 2006 Stock Plan are not
currently determinable. During 2008, stock options were granted
under the 2006 Stock Plan to the Companys named executive
officers, as set forth in the table captioned 2008 Grants of
Plan-Based Awards at page 27 of the
17
Proxy Statement. During 2008, options were granted to
non-employee Directors pursuant to the compensation arrangement
described in Director Compensation on page 6 of
this Proxy Statement.
|
|
3.
|
RATIFICATION
OF THE SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
|
The Board of Directors, in accordance with the recommendation of
the Audit Committee, has selected, subject to ratification by
shareholders, KPMG LLP, independent registered public accounting
firm, to audit our consolidated financial statements for fiscal
year 2009. KPMG LLP has audited our consolidated financial
statements and the financial statements of our predecessor since
1981.
We expect representatives of KPMG LLP to attend the Annual
Meeting, to be available to respond to appropriate questions
from shareholders, and to have the opportunity to make a
statement if so desired.
Fees of
Independent Registered Public Accountants
Consistent with the Audit Committees responsibility for
engaging our independent auditors, all audit and permitted
non-audit services are required to be approved by the Audit
Committee and all services were approved by the Audit Committee
prior to the services being performed by the auditors.
During fiscal years 2008 and 2007, fees in connection with
services rendered by KPMG LLP, the Companys independent
auditors, were as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Audit fees
|
|
$
|
556,500
|
|
|
$
|
475,100
|
|
Audit related fees
|
|
$
|
|
|
|
$
|
|
|
Tax fees
|
|
$
|
125,000
|
|
|
$
|
50,000
|
|
All other fees
|
|
$
|
|
|
|
$
|
|
|
Audit fees includes fees for professional services
rendered for the audits of the consolidated financial statements
of the Company, quarterly reviews, statutory audits, issuance of
comfort letters, consents, and assistance with and review of
documents filed with the SEC.
Audit-related fees generally include fees for pension or
other special purpose audits, acquisition assistance and other
accounting consultations.
Tax fees include fees for tax services, including tax
compliance, tax advice and tax planning provided during the
ordinary course of operations.
All other fees generally include fees for advisory
services related to accounting principles, rules and regulations.
Audit
Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Registered Public Accounting
Firm
The Audit Committee currently pre-approves all audit and
permissible non-audit services provided by our independent
registered public accounting firm. These services may include
audit services, audit-related services, tax services and other
services.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
FOR THE PROPOSAL TO RATIFY THE SELECTION OF KPMG LLP
AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL
YEAR 2009.
18
ADDITIONAL
INFORMATION
Stock
Ownership
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of March 31, 2009
by (a) each person known by us to be the beneficial owner
of more than 5% of the outstanding shares of Common Stock,
(b) each executive officer identified in the Summary
Compensation Table below, (c) each director and nominee for
director, and (d) all executive officers and directors as a
group.
Except as otherwise noted, the named shareholder had sole voting
and/or
investment power with respect to such securities. As of
March 31, 2009, there were 25,848,066 shares of Common
Stock outstanding.
|
|
|
|
|
|
|
|
|
Name
|
|
Amount
|
|
|
Percentage
|
|
|
Robert M. Holster(a)
|
|
|
750,644
|
|
|
|
2.8
|
|
William C. Lucia(b)
|
|
|
330,029
|
|
|
|
1.3
|
|
Walter D. Hosp(c)
|
|
|
49,084
|
|
|
|
*
|
|
John D. Schmid(d)
|
|
|
6,300
|
|
|
|
*
|
|
James T. Kelly(e)
|
|
|
225,752
|
|
|
|
*
|
|
William F. Miller III(f)
|
|
|
365,095
|
|
|
|
1.4
|
|
William S. Mosakowski(g)
|
|
|
10,126
|
|
|
|
*
|
|
William W. Neal(h)
|
|
|
58,752
|
|
|
|
*
|
|
Galen D. Powers(i)
|
|
|
10,989
|
|
|
|
*
|
|
Ellen A. Rudnick(j)
|
|
|
88,752
|
|
|
|
*
|
|
Michael A. Stocker(k)
|
|
|
10,126
|
|
|
|
*
|
|
Richard H. Stowe(l)
|
|
|
106,752
|
|
|
|
*
|
|
All executive officers and directors as a group:
12 people(m)
|
|
|
1,986,817
|
|
|
|
7.3
|
|
Barclays Global Investors, NA(n)
|
|
|
1,668,778
|
|
|
|
6.5
|
|
|
|
|
* |
|
denotes percentage of ownership is less than 1%. |
|
(a) |
|
Includes 31,996 shares of Common Stock owned by members of
the family of Mr. Holster, as to which Mr. Holster
disclaims beneficial ownership. And also includes outstanding
options to purchase 631,334 shares of Common Stock that are
currently exercisable or will become exercisable before
May 31, 2009. |
|
(b) |
|
Includes outstanding options to purchase 307,335 shares of
Common Stock that are currently exercisable or will become
exercisable before May 31, 2009 and 31,980 shares of
restricted stock, which will vest 25% annually on
December 31, 2011, 2012, 2013 and 2014. |
|
(c) |
|
Includes outstanding options to purchase 17,500 shares of
Common Stock that are currently exercisable or will become
exercisable before May 31, 2009 and 25,584 shares of
restricted stock, which will vest 25% annually on
December 31, 2011, 2012, 2013 and 2014. |
|
(d) |
|
Includes outstanding options to purchase 6,300 shares of
Common Stock that are currently exercisable or will become
exercisable before May 31, 2009. |
|
(e) |
|
Includes outstanding options to purchase 225,752 shares of
Common Stock that are currently exercisable or will become
exercisable before May 31, 2009. |
|
(f) |
|
Includes 6,000 shares of Common Stock owned by members of
the family of Mr. Miller, as to which Mr. Miller
disclaims beneficial ownership. Also includes outstanding
options to purchase 10,752 shares of Common Stock that are
currently exercisable or will become exercisable before
May 31, 2009. |
|
(g) |
|
Includes outstanding options to purchase 10,126 shares of
Common Stock that are currently exercisable or will become
exercisable before May 31, 2009. |
|
(h) |
|
Includes 48,000 shares of Common Stock owned by members of
the family of Mr. Neal, as to which Mr. Neal disclaims
beneficial ownership. Also includes outstanding options to
purchase 10,752 shares of Common Stock that are currently
exercisable or will become exercisable before May 31, 2009. |
19
|
|
|
(i) |
|
Includes 237 shares of Common Stock owned by members of the
family of Mr. Powers, as to which Mr. Powers disclaims
beneficial ownership. Also includes outstanding options to
purchase 10,752 shares of Common Stock that are currently
exercisable or will become exercisable before May 31, 2009. |
|
(j) |
|
Includes outstanding options to purchase 85,752 shares of
Common Stock that are currently exercisable or will become
exercisable before May 31, 2009. |
|
(k) |
|
Includes outstanding options to purchase 10,126 shares of
Common Stock that are currently exercisable or will become
exercisable before May 31, 2009. |
|
(l) |
|
Includes outstanding options to purchase 106,752 shares of
Common Stock that are currently exercisable or will become
exercisable before May 31, 2009. |
|
(m) |
|
Includes outstanding options to purchase 1,433,233 shares
of Common Stock that are currently exercisable or will become
exercisable before May 31, 2009. |
|
(n) |
|
Information is as of December 31, 2008, and is based on a
Schedule 13G filed with the SEC on February 5, 2009 by
Barclays Global Investors, NA (BGI) and its
affiliates Barclays Global Fund Advisors
(BGFA), Barclays Global Investors, Ltd.
(Barclays Ltd.), Barclays Global Investors Japan
Limited, Barclays Global Investors Canada Limited, Barclays
Global Investors Australia Limited and Barclays Global Investors
(Deutschland) AG. BGI reported that it has sole voting power
over 470,254 of these shares and sole dispositive power over
563,285 of these shares, BGFA reported that it has sole voting
power over 802,388 of these shares and sole dispositive power
over 1,088,728 of these shares, Barclays Ltd. reported that it
has sole voting power over 700 of these shares and sole
dispositive power over 16,765 of these shares. The principal
business office of BGI is 400 Howard Street, San Francisco,
CA 94105. |
10b5-1
Plans
Our policy regarding securities trades by our executive officers
and directors permits sales of our securities under plans
instituted pursuant to Securities and Exchange Commission
Rule 10b5-1
under the Exchange Act. These plans allow insiders to diversify
their holdings in a manner that dispels any inference that they
are trading on the basis of material nonpublic information.
Several of our executive officers and directors established
10b5-1 plans during 2005. Sales pursuant to these plans
commenced during 2006 and continued in 2007 and 2008. Additional
10b5-1 plans have been established in 2007 and 2008 and sales
pursuant to these plans are continuing. Other officers and
directors may adopt plans pursuant to
Rule 10b5-1
in the future.
Certain
Relationships and Related Person Transactions
Review
and Approval of Related Person Transactions
The Audit Committees written charter provides that the
Audit Committee shall review all related party transactions on
an ongoing basis and all such transactions must be approved by
the Audit Committee.
Our Audit Committee has not adopted any written policies or
procedures governing the review, approval or ratification of
related person transactions. The Audit Committees practice
is to evaluate whether a related person (as defined in
Item 404 of the Securities and Exchange Commissions
Regulation S-K)
will have a direct or indirect interest in a transaction in
which the Company may be a party. Where the Audit Committee
determines that such proposed transaction involved a related
person, the Audit Committee reviews any and all information it
deems necessary and appropriate to evaluate the fairness of the
transaction to us and our stockholders (other than the
interested person involved in such transaction), and may
consider among other things, the following factors: the related
persons relationship to us and direct or indirect interest
in the transaction, both objective (for example, the dollar
amount of the related persons interest) and subjective
(for example, any personal benefit not capable of
quantification); whether the interested transaction is on terms
no less favorable than terms generally available to an
unaffiliated third-party under the same or similar
circumstances; if applicable, the availability of other sources
of comparable products or services; the benefits to us of the
proposed interested transaction; and the impact on a
directors independence in the event the related person is
a director, an associated person of a director or an
entity in which a director is a partner, member, stockholder or
officer.
20
If the Audit Committee decides not to approve a transaction, the
Audit Committee will notify our Chief Executive Officer and
Chief Financial Officer, who will ensure that the transaction is
not entered into unless the concerns expressed by the Audit
Committee are addressed to its satisfaction.
Related
Person Transactions
Galen D. Powers, a director since 1992, is the retired Senior
Founder of Powers, Pyles, Sutter & Verville, P.C.
(PPSV), a law firm specializing in healthcare and hospital law,
which has provided legal and advisory services to us for many
years. We expect PPSV to continue providing similar services in
the future. The amount of annual fees we have paid to PPSV is
not reportable under applicable SEC rules.
William S. Mosakowski, a director since December 2006, is the
President, Chief Executive Officer, controlling stockholder and
a member of the Board of Directors of PCG. We acquired
PCGs Benefits Solutions Practice Area (BSPA) effective as
of August 31, 2006 for a purchase price of
$105.6 million and a contingent additional cash payment of
up to $15 million if certain revenue targets were met for
the twelve months ended June 30, 2007. As the revenue
targets were exceeded, we paid $15.0 million to PCG on
September 28, 2007. Mr. Mosakowski has an indirect
material interest in this transaction arising out of his
position with PCG. In addition, PCG maintains a continuing
business relationship with the Company.
As part of the acquisition of BSPA in 2006, we entered into four
subleases with PCG where BSPA was located in an office where the
lease liability was not assumed by us. For the year ended
December 31, 2008, the amounts recognized as expense by us
under subleases to PCG was approximately $114,000 and there were
no amounts recognized as a reduction to expense where PCG
subleases from us.
Also in connection with the acquisition of BSPA, we entered into
an Intercompany Services Agreement (the ISA) with PCG to allow
each party to perform services such as IT support and
contractual transition services. Services performed under the
ISA are billed at pre-determined rates as specified in the ISA.
For the year ended December 31, 2008, services rendered by
PCG to us under the ISA approximated $33,000 and services
rendered by us for PCG approximated $58,000.
Since the acquisition, amounts have been collected by or paid on
behalf of us by PCG and are reimbursed to PCG at cost. As of
December 31, 2008, $72,000 was owed to PCG and was
classified as a current liability in our consolidated balance
sheet.
During 2007 and 2008, we engaged And Partners (AP), a branding
consulting firm, to perform consulting and creative services
related to the re-branding of Health Management Systems. The
firm was selected through a competitive and formal request for
proposal process that resulted in responses from seven different
firms. We paid AP approximately $157,000 and $85,000 under this
engagement in 2008 and 2007, respectively. David Schimmel, the
President and Creative Director of AP, is the
son-in-law
of Ellen A. Rudnick, who is a member of our Board of Directors.
The Audit Committee has reviewed and approved these transactions.
Executive
Compensation
Compensation
Discussion and Analysis
This Compensation Discussion and Analysis provides a narrative
describing how compensation for our named executive officers for
2008 was established and should be read in conjunction with the
compensation tables and related narrative descriptions set forth
below.
Effective March 1, 2009, Mr. Lucia replaced
Mr. Holster as Chief Executive Officer of the Company, and
Mr. Holster continues as our Chairman of the Board. As of
the end of the fiscal year ended December 31, 2008, our
named executive officers were:
|
|
|
|
|
Robert M. Holster, Chairman and Chief Executive Officer;
|
|
|
|
William C. Lucia, President and Chief Operating Officer;
|
21
|
|
|
|
|
Walter D. Hosp, Chief Financial Officer; and
|
|
|
|
John D. Schmid, Vice President of Human Resources.
|
Objectives
and Philosophy of Our Executive Compensation
Program
Our mission is to be a significant provider of quality services
in the markets we serve. To support this and other strategic
objectives as approved by the Board of Directors and to provide
adequate returns to shareholders, we must compete for, attract,
develop, motivate, and retain top quality executive talent at
the corporate office and operating business units during periods
of both favorable and unfavorable business conditions.
Our executive compensation program is a critical management tool
in achieving this goal. Pay for performance is the
underlying philosophy for our executive compensation program.
Consistent with this philosophy, the program has been carefully
conceived and is independently administered by the Compensation
Committee of the Board of Directors, which is comprised entirely
of non-employee directors.
The program is designed and administered to:
|
|
|
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|
reward individual and team achievements that contribute to the
attainment of our business goals; and
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provide a balance of total compensation opportunities, including
salary, bonus, and longer-term cash and equity incentives, that
are competitive with similarly situated companies and reflective
of our performance.
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Role of
Management
Our Chief Executive Officer, in consultation with our Human
Resources department, assists the Compensation Committee with
its work. These individuals assist the Compensation Committee by
presenting information to them and making recommendations for
the Compensation Committees review and consideration. Such
information and recommendations include, among other things, the
compensation that should be received by the executive officers
and certain other highly compensated employees; performance
evaluations; financial information regarding us that should be
reviewed in connection with compensation decisions; and the
evaluation and compensation process to be followed by the
Compensation Committee.
Peer
Group Compensation Analysis
In making compensation decisions, the Compensation Committee
compares our executive compensation against that paid by a peer
group of publicly trading companies in the healthcare
information services industry developed by Frederick W.
Cook & Co., Inc. and approved by the Compensation
Committee. This peer group, which is periodically reviewed and
updated by the Compensation Committee, consists of companies the
Committee believes are generally comparable in size to our
company and against which the Committee believes we compete for
executive talent. Companies included in this peer group for 2008
were Allscripts Healthcare Solutions, AMICAS, Computer
Programs & Systems, eResearch Technology, First
Consulting Group, Matria Healthcare, Maximus, Mediware
Information Systems, National Research, Omnicell, Providence
Service, Quality Systems, Quovadx and TriZetto.
We compete with many other companies for executive personnel.
Accordingly, the Compensation Committee generally targets
overall compensation for executives near the median of
compensation paid to similarly situated executives of the
companies in the peer group. Variations to this general target
may occur as dictated by the experience level of the individual
and market factors.
Components
of our Executive Compensation Program
The primary elements of our executive compensation program are:
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base salary;
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annual cash incentive bonus;
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a long term incentive, primarily represented by stock
options; and
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insurance, retirement and other employee benefits.
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22
Base Salary. Base salary is used to recognize
the experience, skills, knowledge and responsibilities required
of all our employees, including our executives. In determining
the amount of compensation to be paid to our executive officers,
the Compensation Committee adheres to long established
compensation policies pursuant to which executive compensation
is determined. Base salary determinants include the prevailing
rate of compensation for positions of like responsibility in the
particular geographic area, the level of the executives
compensation in relation to our other executives with the same,
more, or less responsibilities, and the tenure of the
individual. To ensure both competitiveness and appropriateness
of base salaries, we retain professional consultants on a
periodic basis to update the job classification and pay scale
structure pursuant to which individual executives (and the
remainder of our employees) are classified and the pay ranges
with which their jobs are associated.
In the case of Mr. Holster and Mr. Lucia, the minimum
base salary is mandated by our employment agreements with those
executives.
Base salaries are reviewed at least annually by our Compensation
Committee, and are adjusted from time to time to realign
salaries with market levels after taking into account individual
responsibilities, performance and experience.
Annual Short Term (Cash) Incentive
Compensation. The Compensation Committee has the
authority to award annual bonuses to individual senior
executives in accordance with specific performance criteria
established each year, and based on the extent to which those
criteria were achieved. The committee believes that the short
term bonus plan promotes the Companys performance-based
compensation philosophy by providing executives with direct
financial incentives in the form of annual cash bonuses for
achieving specific performance goals. Bonus criteria are
established, and bonuses ultimately awarded, in a manner
intended to reward both overall corporate performance and an
individuals participation in attaining such performance.
Our annual short term incentive bonus is paid in cash,
ordinarily in a single installment in the first quarter
following the completion of the fiscal year, and is tied to the
achievement of predetermined annual corporate financial and
individual performance objectives. The targeted amount of annual
performance bonus for 2008 was 65% of base salary for each of
Mr. Holster and Mr. Lucia and 40% of base salary for
Mr. Hosp and Mr. Schmid.
The primary factor that the Compensation Committee considers
when determining incentive compensation for the Companys
named executive officers is the Companys overall financial
performance. Upon attainment of the Companys financial
performance objective, the named executive officers become
entitled to certain short term cash incentive payments. If the
Company financial performance objective is achieved, a named
executive officers incentive compensation may be impacted
by the Compensation Committees consideration of individual
performance during the course of the year.
The Company financial objective established for 2008 was the
achievement of specific budgeted net income earned by the
Company. The applicable percentage of the bonus target to be
paid under the formula varied with the percentage of the
Companys attainment of its net income goals. Upon
attainment of 100% of the Companys performance objective,
the executives would be entitled to 100% of their respective
bonus targets. The threshold for payment of any amount under the
incentive plan for 2008 was attainment of 85% of the
Companys performance objectives, which would result in
payment to the executive of 50% of the bonus target. The maximum
payout level established under the 2008 incentive plan was an
aggregate total equaling 20% of the incremental increase in
operating margin above budget. The Compensation Committee may
increase or decrease the annual bonus paid based on the
attainment of goals relating to strategic objectives or to
account equitably for items impacting the predetermined
performance objectives that are non-recurring in nature.
Other than the corporate financial objective, specific
individual goals are not set for each named executive officer;
rather, following completion of the fiscal year, the
Compensation Committee assesses each named executive
officers overall contributions to helping the Company
achieve its financial objective by (i) improving revenue,
net income, cash flow, operating margins, earnings per share,
and return on shareholders equity, (ii) developing
competitive advantages, (iii) dealing effectively with the
growing complexity of our businesses, (iv) developing
business strategies, managing costs, and improving the quality
of our services as well as customer satisfaction,
(v) successfully executing divestitures, business unit
closures, acquisitions, and strategic partnerships,
(vi) implementing operating efficiencies, and
(vii) general performance of individual job
responsibilities.
23
In December 2008, the Compensation Committee approved the cash
bonus amounts to be paid to each of the executive officers for
services performed in 2008. The bonus amounts awarded to
Mr. Holster and Mr. Lucia were at 86.2% and 84.4%
above each executive officers 2008 bonus target,
respectively, or $402,968 and $290,137, respectively. The bonus
amounts awarded to Mr. Hosp and Mr. Schmid were
prorated at 49.6% above each executive officers 2008 bonus
target, or $161,200 and $99,200, respectively. The cash bonuses
awarded to the executive officers for 2008 were determined
based, in part, on the level of attainment of the Companys
performance objectives during the period. In addition, in
determining bonus amounts for the 2008 fiscal year, the
Compensation Committee considered, for Mr. Holster, who
served as our Chief Executive Officer in 2008, the factors
discussed below under Compensation of the Chief Executive
Officer and for each of the other named executive
officers, the factors described above, particularly in light of
the named executive officers efforts in integrating the
operations of the Benefits Solution Practice Area of the Public
Consulting Group Inc., which the Company acquired in 2006.
The Compensation Committee has targeted bonus amounts to be paid
for performance in 2009 at percentages that range from 40% to
65% of base salary for fifteen of our senior executives. The
actual amount of bonus will be determined following a review of
each executives individual performance and attainment of
financial objectives conducted during the first quarter of 2010.
Individual financial objectives are budgeted business unit
operating margin (for executives heading business units),
budgeted corporate operating margin (for executives in charge of
Company-wide support functions) and budgeted corporate net
income (for the CEO, COO, CFO and VP of Human Resources). The
threshold for payment of any individual executive bonus is
attainment of 80% of the executives individual financial
objective. Bonuses may increase if individual financial
objectives are exceeded up to an aggregate total equaling 20% of
the incremental increase in operating margin above budget.
2008 Long Term Incentive Plan. The longer-term
component of our executive compensation program has generally
consisted of stock options. We believe that equity grants
provide our executives with a strong link to our long-term
performance create an ownership culture and help to align the
interest of our executives and our shareholders. Stock options
are granted upon the recommendation of management and approval
of the Compensation Committee based upon their subjective
evaluation of the appropriate amount for the level and amount of
responsibility of each executive officer.
For the 2008 fiscal year, the Compensation Committee considered
the individual contributions of the named executive officers
discussed above under Annual Short Term (Cash) Incentive
Compensation in making its determinations with respect to
granting long term incentives, in addition to several more
objective factors, including comparative share ownership of
similarly-situated executives, the Companys financial
performance and the amount of equity previously awarded, the
vesting of such awards and consultant recommendations. In
determining amounts of short term and long term incentive
compensation to be awarded, no fixed or specific mathematical
weighting was applied to this subjective assessment of the named
executive officers individual achievements.
The options generally permit the option holder to buy the number
of shares of the underlying Common Stock (an option exercise) at
a price equal to or greater than the market price of the Common
Stock at the time of grant. Thus, the options generally gain
value only to the extent the stock price exceeds the option
exercise price during the term of the option. The Compensation
Committee reviews all components of the executives
compensation when determining annual equity awards to ensure
that an executives total compensation conforms to our
overall philosophy and objectives.
The 2008 Long Term Incentive Plan provided option grants of
non-qualified (NQ) stock options to our executives on
October 1, 2008. These grants are exercisable over five
years and contain a performance vesting component that vests 50%
of the grant ratably over three and one-quarter years from the
date of issuance and the remaining 50% to cliff vest at the end
of the three and one-quarter years from the date of issuance
upon achievement of targeted Earnings per Share (EPS) growth.
Equity awards are typically granted to our executives annually
in conjunction with the review of their individual performance.
This review takes place at the regularly scheduled meeting of
the Compensation Committee held following the second quarter of
each year. We set the exercise price of all stock options to
equal the average of the highest and lowest sales price of our
Common Stock on the NASDAQ Stock Market on the day of the grant.
Grants are not made during blackout periods. Vesting and
exercise rights of non-exercised options cease shortly after
termination of employment except in the case of death or
disability.
24
In February 2009, we granted restricted stock awards to certain
of our executives, including Messrs. Lucia and Hosp. These
restricted stock awards will vest 25%, as of each applicable
vesting date of February 19, 2011, February 19, 2012,
February 19, 2013 and February 19, 2014 subject to the
executives continued employment with the Company.
Benefits and Other Compensation. We maintain
broad-based benefits that are provided to all employees,
including health and dental insurance, life and disability
insurance and a 401(k) plan. Executives are eligible to
participate in all of our employee benefit plans, in each case
on the same basis as other employees. The Company matches 100%
of participant contributions up to 3% and 50% of the next 2% of
their compensation contributed to the 401(k) plan.
Severance and
Change-in-Control
Benefits. Pursuant to employment agreements we
have entered into with certain of our executives and our 2006
Stock Plan, our executives are entitled to specified benefits in
the event of the termination of their employment under specified
circumstances, including termination following a change in
control of our company. We have provided more detailed
information about these benefits, along with estimates of their
value under various circumstances, under the caption
Potential Payments upon Termination of Employment or
Change-in-Control
below.
We believe providing these benefits help us compete for
executive talent. After reviewing the practices of companies
represented in our compensation peer group, we believe that our
severance and
change-in-control
benefits are generally in line with severance packages offered
to executives by the companies in the peer group.
Compensation
of the Chief Executive Officer
Determination of our compensation of Robert M. Holster, who was
our Chief Executive Officer during 2008, takes into account the
factors described above as pertinent to the remainder of our
executives and employees, while also taking into consideration
the proprietary nature of our business and efforts expended in
connection with development of our business strategy and service
development activities. The Compensation Committee more
specifically took into account Mr. Holsters
(i) success in growing revenues, (ii) success in
improving operating income compared to the prior year and in
general, progressively during the year, (iii) achievement
of certain specified financial and strategic targets, and
(iv) success in leading and strengthening the executive
team and the operating management teams. The Compensation
Committee also took into account the amount of
Mr. Holsters compensation relative to chief executive
officers of comparable companies.
Tax
Considerations
Section 162(m) of the Internal Revenue Code prohibits us
from deducting any compensation in excess of $1 million
paid to certain of our executive officers, except to the extent
that such compensation is paid pursuant to a shareholder
approved plan upon the attainment of specified performance
objectives. The Compensation Committee believes that tax
deductibility is an important factor, but not the sole factor,
to be considered in setting executive compensation policy.
Accordingly, the Compensation Committee periodically reviews the
potential consequences of Section 162(m) and generally
intends to take such reasonable steps as are required to avoid
the loss of a tax deduction due to Section 162(m). However,
the Compensation Committee may, in its judgment, authorize
compensation payments that do not comply with the exemptions in
Section 162(m) when it believes that such payments are
appropriate to attract and retain executive talent.
25
Summary
Compensation Table
The following table sets forth the cash and non-cash
compensation for the fiscal years ended December 31, 2008,
2007 and 2006 awarded to or earned by our the individuals who
served during 2008 as our Chief Executive Officer, Chief
Operating Officer, Chief Financial Officer and Vice President of
Human Resources.
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Change in
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Pension
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Value and
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Nonqualified
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Non-Equity
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Deferred
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Stock
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Option
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Incentive Plan
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Compensation
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All Other
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Name and Principal Position
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Year
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Salary
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Bonus(1)
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Awards(2)
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Awards(3)
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Compensation(4)
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Earnings(5)
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Compensation(6)
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Total
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(a)
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(b)
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(c)
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(d)
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(e)
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(f)
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(g)
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(h)
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(i)
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(j)
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Robert M. Holster,
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2008
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467,692
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31,813
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402,968
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N/A
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9,200
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911,673
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Chairman and Chief
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2007
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438,462
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59,694
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382,067
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N/A
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8,669
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888,892
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Executive Officer(7)
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2006
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400,000
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196,800
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400,000
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N/A
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46,600
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1,043,400
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William C. Lucia,
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2008
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343,846
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240,274
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290,137
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N/A
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9,200
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883,457
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President and Chief
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2007
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328,846
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260,808
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286,550
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N/A
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9,000
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885,204
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Operating Officer(8)
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2006
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300,000
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300,634
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300,000
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N/A
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36,381
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937,015
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Walter D. Hosp,
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2008
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325,000
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142,668
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161,200
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N/A
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7,015
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635,883
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Chief Financial Officer
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2007
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150,000
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63,012
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112,883
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N/A
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1,000
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326,895
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John D. Schmid
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2008
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200,000
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79,831
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99,200
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N/A
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9,200
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388,231
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Vice President, Human Resources
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2007
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142,308
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46,548
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129,200
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N/A
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1,846
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319,902
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1. |
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We did not grant any bonus awards to our named executive
officers. The amounts in column (g) represent the aggregate
cash awards paid to the named executive officers as Non-Equity
Incentive Plan Compensation, which are discussed in further
detail under the heading Compensation Discussion and
Analysis Components of our Executive Compensation
Program. |
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2. |
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We did not recognize any compensation expense related to stock
awards. |
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3. |
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The amounts in this column reflect the dollar amount of
compensation expense recognized during 2008 for financial
reporting purposes under FAS 123R with respect to awards of
options to purchase shares of Common Stock held by each of the
named executive officers, but disregarding estimated forfeitures
related to service-based vesting conditions. The 2008 Grants of
Plan-Based Awards Table also sets forth the aggregate grant date
fair value of the stock options granted during 2008 computed in
accordance with FAS 123R. The relevant assumptions made in
the valuations may be found in Note 12 to the financial
statements in the Companys Annual Reports on
Form 10-K
for the fiscal year ended December 31, 2008. |
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4. |
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The amounts set forth in this column reflect the amounts paid
for fiscal year 2008 to Messrs. Holster, Lucia, Hosp and
Schmid under the Companys cash incentive plan described in
the Compensation Discussion and Analysis contained in this Proxy
Statement under the heading Annual Cash Incentive
Compensation. These amounts are based on a percentage of
the individuals base salary for the fiscal year. |
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5. |
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We do not have a pension plan or a nonqualified plan for our
named executive officers. |
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6. |
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The amounts in this column reflect the company match for 401(k)
contributions, vacation payout and certain relocation and living
expenses. |
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7. |
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Mr. Holster served as our Chief Executive Officer until
March 1, 2009. He continues to serve as our Chairman. |
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8. |
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Mr. Lucia became our Chief Executive Officer effective
March 1, 2009. |
26
Grants of
Plan-Based Awards For the Year Ended December 31,
2008
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Exercise or
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Estimated Possible Payouts
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Number of
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Base Price
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Under Non-Equity Incentive
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Securities
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of Option
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Closing
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Grant Date
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Plan Awards(a)
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Underlying
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Awards
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Market
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Fair Value
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Threshold
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Target
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Maximum
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Grant
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Options (#)
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($/Sh)
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Price on
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of Option
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Name
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($)
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($)
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($)
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Date
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(b)
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(c)
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Grant Date
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Awards (d)
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Robert M. Holster
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162,500
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325,000
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10/1/2008
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30,000
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$
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23.99
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$
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24.00
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$
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253,353
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Chairman and Chief Executive Officer
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William C. Lucia
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117,000
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234,000
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10/1/2008
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30,000
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$
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23.99
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$
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24.00
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$
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253,353
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President and Chief Operating Officer
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Walter D. Hosp
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52,000
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104,000
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10/1/2008
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25,000
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$
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23.99
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$
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24.00
|
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$
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211,128
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Chief Financial Officer
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|
|
|
|
|
|
|
|
|
|
|
|
|
John D. Schmid
|
|
|
32,000
|
|
|
|
64,000
|
|
|
|
|
|
|
|
10/1/2008
|
|
|
|
20,000
|
|
|
$
|
23.99
|
|
|
$
|
24.00
|
|
|
$
|
168,902
|
|
Vice President, Human Resources
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The amounts set forth in this column reflect the estimated
payouts for fiscal year 2008 to Messrs. Holster, and Lucia
under the 2008 incentive plan described in the Compensation
Discussion and Analysis contained in this Proxy Statement under
the heading Annual Short Term (Cash) Incentive
Compensation. These amounts are based on the
individuals fiscal year 2008 base salary. The individual
bonus target amount for Mr. Holster and Mr. Lucia was
65% of base salary, while the individual bonus target for
Mr. Hosp and Mr. Schmid was 40% of base salary. The
threshold amount shown is 50% of the individuals bonus
target amount. The target amount shown is 100% of the individual
bonus target amount. The plan does not provide for a capped
maximum individual bonus amount. The maximum payable in the
aggregate under the plan is 20% of the incremental increase in
Operating Income above budget. Actual incentive bonuses received
by these named executive officers for fiscal year 2008 are
reported in the Summary Compensation Table under the column
entitled Non-Equity Incentive Plan Compensation. |
|
(b) |
|
The amounts set forth in this column reflect the number of stock
options granted under the Companys 2006 Stock Plan. The
options vest at the rate of 25% per year starting on the first
anniversary of the grant and expire in seven years from the
date of grant. |
|
(c) |
|
The exercise price equals the average of the highest and lowest
sale prices of our Common Stock on the date of the grant. |
|
(d) |
|
The dollar values of stock options disclosed in this column are
equal to the aggregate grant date fair value computed in
accordance with FAS 123R, except no assumptions for
forfeitures were included. A discussion of the assumptions used
in calculating the grant date fair value is set forth in
Note 12 of the Notes to Consolidated Financial Statements
of our 2008 Annual Report on
Form 10-K,
a copy of which accompanies this Proxy Statement. |
27
2008
Outstanding Equity Awards at Fiscal Year End Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
Option
|
|
|
|
Options
|
|
|
Options
|
|
|
Exercise
|
|
|
Expiration
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Price ($)
|
|
|
Date
|
|
|
Robert Holster
|
|
|
288,000
|
|
|
|
|
|
|
|
1.19
|
|
|
|
3/30/2011
|
|
|
|
|
45,000
|
|
|
|
|
|
|
|
2.48
|
|
|
|
12/12/2011
|
|
|
|
|
125,000
|
|
|
|
|
|
|
|
3.41
|
|
|
|
12/19/2012
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
2.92
|
|
|
|
11/4/2013
|
|
|
|
|
3,334
|
|
|
|
16,666
|
(a)
|
|
|
25.45
|
|
|
|
9/30/2012
|
|
|
|
|
|
|
|
|
30,000
|
(c)
|
|
|
23.99
|
|
|
|
9/30/2015
|
|
William C. Lucia
|
|
|
46,332
|
|
|
|
|
|
|
|
3.41
|
|
|
|
12/19/2012
|
|
|
|
|
668
|
|
|
|
|
|
|
|
2.92
|
|
|
|
11/4/2013
|
|
|
|
|
125,000
|
|
|
|
|
|
|
|
6.95
|
|
|
|
4/14/2015
|
|
|
|
|
61,999
|
|
|
|
20,666
|
(b)
|
|
|
9.44
|
|
|
|
5/4/2016
|
|
|
|
|
58,668
|
|
|
|
58,667
|
(b)
|
|
|
10.98
|
|
|
|
6/26/2016
|
|
|
|
|
3,334
|
|
|
|
16,666
|
(a)
|
|
|
25.45
|
|
|
|
9/30/2012
|
|
|
|
|
|
|
|
|
30,000
|
(c)
|
|
|
23.99
|
|
|
|
9/30/2015
|
|
Walter D. Hosp
|
|
|
15,000
|
|
|
|
45,000
|
(b)
|
|
|
19.12
|
|
|
|
7/2/2017
|
|
|
|
|
2,500
|
|
|
|
12,500
|
(a)
|
|
|
25.45
|
|
|
|
9/30/2012
|
|
|
|
|
|
|
|
|
25,000
|
(c)
|
|
|
23.99
|
|
|
|
9/30/2015
|
|
John D. Schmid
|
|
|
6,300
|
|
|
|
12,500
|
(b)
|
|
|
21.86
|
|
|
|
4/2/2017
|
|
|
|
|
|
|
|
|
12,500
|
(a)
|
|
|
25.45
|
|
|
|
9/30/2012
|
|
|
|
|
|
|
|
|
20,000
|
(c)
|
|
|
23.99
|
|
|
|
9/30/2015
|
|
|
|
|
a) |
|
Stock options vest as follows: 50% of initial grant vests in 1/3
increments over a period of three and a quarter years commencing
on December 31, 2009. Vesting of the remaining 50% shall
occur on December 31, 2011 to the extent that certain
pre-defined performance and service conditions are satisfied. |
|
|
|
b) |
|
Stock options vest as follows: 50% of initial grant vests in 1/3
increments over a period of three and a quarter years commencing
on December 31, 2008. Vesting of the remaining 50% shall
occur on December 31, 2010 to the extent that certain
pre-defined performance and service conditions are satisfied. |
|
|
|
c) |
|
Stock options vest annually in 25% increments beginning on first
anniversary date of grant. |
2008
Option Exercises and Stock Vested Table
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
Number of
|
|
|
Value Realized
|
|
|
|
Shares Acquired
|
|
|
on Exercise ($)
|
|
Name
|
|
on Exercise (#)
|
|
|
(a)
|
|
|
Robert M. Holster
|
|
|
150,000
|
|
|
$
|
3,350,000
|
|
William C. Lucia
|
|
|
105,000
|
|
|
$
|
2,113,615
|
|
|
|
|
a) |
|
The value realized on the exercise of stock options is based on
the difference between the exercise price and the market price
(used for tax purposes) of our Common Stock on the date of
exercise. |
28
Potential
Payments Upon Termination of Employment or Change in
Control
The following information and table set forth the amount of
payments to each of our named executive officers in the event of
a termination of employment as a result of involuntary
termination and termination following a change in control.
Assumptions and General Principles. The
following assumptions and general principles apply with respect
to the following table and any termination of employment of a
named executive officer:
|
|
|
|
|
The amounts shown in the table assume that each named executive
officer was terminated on December 31, 2008. Accordingly,
the table reflects amounts earned as of December 31, 2008
and includes estimates of amounts that would be paid to the
named executive officer upon the occurrence of a termination or
change in control. The actual amounts to be paid to a named
executive officer can only be determined at the time of the
termination or change in control.
|
|
|
|
A named executive officer is entitled to receive amounts earned
during his term of employment regardless of the manner in which
the named executive officers employment is terminated.
These amounts include base salary, unused vacation pay and
annual cash incentive compensation. These amounts are not shown
in the table, except for potential prorated annual cash
incentive compensation as described below.
|
|
|
|
Because we have assumed a December 31, 2008 termination
date, each of the named executive officers would have been
entitled to receive the targeted annual bonus payment for 2008
and not the amount that the Board determined to pay based upon
the level of attainment of the Company performance objectives.
Therefore, the amount set forth in the table for prorated bonus
compensation is the target bonus compensation for each named
executive officer and not the amount that was actually paid and
shown as Non-Equity Incentive Plan Compensation in the Summary
Compensation Table.
|
|
|
|
A named executive officer may exercise any stock options that
are exercisable prior to the date of termination and any
payments related to these stock options are not included in the
table because they are not severance payments.
|
Involuntary Termination. Our employment
contracts with Messrs. Holster and Lucia provide for
severance pay equal to two years of base salary payable in 24
equal monthly installments and the continuation of health care
benefits for 24 months in the event that employment is
terminated other than for cause or voluntary termination. Our
employment agreements with Messrs. Hosp and Schmid provide
for severance pay and the continuation of health care benefits
for six months in the event that employment is terminated other
than for cause or voluntary termination.
Change in Control. Our employment contracts
with Messrs. Holster and Lucia provide for severance pay
equal to two years of base salary payable in 24 equal monthly
installments and the continuation of health care benefits for
24 months in the event that employment is terminated within
45 days of a Change of Control transaction, as defined
below. Additionally in the event of a Change of Control
transaction, as defined below, all outstanding options
immediately vest upon the consummation of the Change of Control.
Our employment agreements with Messrs. Hosp and Schmid do
not provide for additional benefits for termination following a
Change of Control transaction; however, in the event of a
termination other than for cause or voluntary termination, they
would receive severance pay and the continuation of health care
benefits for six months.
29
A Change of Control means the sale or transfer of
all or substantially all of the assets of the Company or any
merger, consolidation or other transaction that would result in
the transfer, directly or indirectly, of more than 50% of the
then outstanding capital stock of the Company to holders who
were not holders of its capital stock immediately prior to such
merger. Under the terms of the employment contracts and
separation agreement, a sale of substantially all the
Companys assets may occur but such an event will not
constitute a Change of Control Transaction unless we
have sold all our significant lines of business and intend to
limit our future activities to the distribution of the proceeds
of such transaction.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Event
|
|
R.M. Holster
|
|
|
W.C. Lucia
|
|
|
W.D. Hosp
|
|
|
J.D. Schmid
|
|
|
Involuntary Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prorated Annual Bonus Compensation
|
|
|
220,000
|
|
|
|
165,000
|
|
|
|
130,000
|
|
|
|
80,000
|
|
Cash severance payment
|
|
|
880,000
|
|
|
|
660,000
|
|
|
|
162,500
|
|
|
|
100,000
|
|
Continued health benefits
|
|
|
3,876
|
|
|
|
1,938
|
|
|
|
1,170
|
|
|
|
969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,103,876
|
|
|
$
|
826,938
|
|
|
$
|
293,670
|
|
|
$
|
180,969
|
|
Change in control with termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prorated Annual Bonus Compensation
|
|
|
220,000
|
|
|
|
165,000
|
|
|
|
130,000
|
|
|
|
80,000
|
|
Accelerated stock options
|
|
|
390,897
|
|
|
|
698,694
|
|
|
|
|
|
|
|
|
|
Cash severance payment
|
|
|
880,000
|
|
|
|
660,000
|
|
|
|
162,500
|
|
|
|
100,000
|
|
Continued health benefits
|
|
|
3,876
|
|
|
|
1,938
|
|
|
|
1,170
|
|
|
|
969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,494,773
|
|
|
$
|
1,525,632
|
|
|
$
|
293,670
|
|
|
$
|
180,969
|
|
Individual
Agreements and Arrangements
Robert M.
Holster Chief Executive Officer
On March 1, 2009, Mr. Holster resigned from the
position of Chief Executive Officer but will continue as
Chairman of the Board, therefore, we entered into an amended and
restated employment agreement with Mr. Holster, which
agreement was originally entered into on March 31, 2001 and
amended on February 11, 2004 and July 16, 2007 (the
Holster Agreement). The Holster Agreement provides for his
employment through February 28, 2011 (the Holster
Employment Term) (subject to earlier termination in certain
circumstances as described below), at a base salary of $250,000
per year. Mr. Holster is eligible to receive bonus
compensation from us in respect of each fiscal year (or portion
thereof) during the Holster Employment Term in an amount of 65%
of base salary, in each case as may be determined by our Board
of Directors in its sole discretion on the basis of
performance-based or such other criteria as may be established
from time to time by our Board of Directors. For 2008,
Mr. Holster received a performance bonus of $402,968.
Also in connection with his employment, on March 30, 2001,
the Compensation Committee granted Mr. Holster options to
purchase 700,000 shares of Common Stock at an exercise
price of $1.19 per share (the then current market price), with
options covering 100,000 shares vesting on the first
anniversary of the grant, and options covering the remaining
600,000 shares vesting thereafter in eight equal quarterly
installments. These options were not granted pursuant to our
former 1999 Long-Term Incentive Stock Plan.
If we terminate Mr. Holsters employment without
cause or if his employment ceases because of his
death or disability or within 45 days of a change in
control of us (all as defined in the Holster Agreement),
Mr. Holster will be entitled to a continuation of salary
and group medical insurance through February 28, 2011. In
addition, certain of his unvested options accelerate in the case
of a change in control.
William
C. Lucia President and Chief Operating
Officer
On March 1, 2009, Mr. Lucia assumed the position of
Chief Executive Officer, therefore, we entered into an amended
and restated employment agreement with Mr. Lucia, which
agreement was originally entered into on January 1, 2003
and amended on December 31, 2005 (the Lucia Agreement). The
Lucia Agreement provides for his employment through
February 28, 2011 (the Lucia Employment Term) (subject to
earlier termination in certain circumstances as described below)
at a base salary of $400,000 per year. In 2008,
Mr. Lucias annual base salary was $344,000.
Mr. Lucia is eligible to receive bonus compensation from us
in respect of each fiscal year (or portion thereof) during the
Lucia Employment Term in an amount of 65% of base salary, in
each case as may be determined by our Board of Directors in
30
its sole discretion on the basis of performance-based or such
other criteria as may be established from time to time by our
Board of Directors. For 2008, Mr. Lucia received a
performance bonus of $290,137.
Also in connection with his employment, Mr. Lucia is
eligible for consideration by our Board of Directors for awards
of stock options under any stock option plan that may be
established by the Company for its and its subsidiaries
key employees. The amount, if any, of shares for which options
may be granted to Mr. Lucia is in the sole discretion of
the Compensation Committee of our Board of Directors.
If we terminate Mr. Lucias employment without
cause or if his employment ceases because of his
death or disability or within 45 days of a change in
control of us (all as defined in the Lucia Agreement),
Mr. Lucia will be entitled to a continuation of salary and
group medical insurance for 24 months following termination
of employment. In addition, certain of his unvested options
accelerate in the case of a change in control.
Walter D.
Hosp Chief Financial Officer
The terms of Mr. Hosps employment provide for a base
salary of $325,000 per year. He is eligible for an annual
performance bonus, with a target bonus of 40% of base salary,
prorated for the portion of a year for which he is an employee,
in each case as may be determined by our Board of Directors in
its sole discretion on the basis of meeting the business
objectives established from time to time by our Board of
Directors. For 2008, Mr. Hosp received a performance bonus
of $161,200. Upon his commencement of employment with us,
Mr. Hosp was granted options to purchase 60,000 shares
of Common Stock at an exercise price of $19.12 per share (the
then current market price), with options covering
15,000 shares vesting on the first anniversary of the
grant, and options covering the remaining 45,000 shares
vesting thereafter in three equal annual installments. These
options were not granted pursuant to our 2006 Stock Plan.
In the event of the involuntary termination of
Mr. Hosps employment, he will be entitled to a
continuation of salary and benefits for six months.
David
Schmid Vice President of Human Resources
The terms of Mr. Schmids employment provide for a
base salary of $200,000 per year. He is eligible for an annual
performance bonus, with a target bonus of 40% of base salary,
prorated for the portion of a year for which he is an employee,
in each case as may be determined by our Board of Directors in
its sole discretion on the basis of meeting the business
objectives established from time to time by our Board of
Directors. For 2008, Mr. Schmid received a performance
bonus of $99,200. Upon his commencement of employment with us,
Mr. Schmid received a sign-on bonus of $25,000. In
addition, Mr. Schmid was granted options to purchase
25,000 shares of Common Stock at an exercise price of
$21.86 per share (the then current market price), with options
covering 6,250 shares vesting on the first anniversary of
the grant, and options covering the remaining 18,750 shares
vesting thereafter in three equal annual installments. These
options were granted pursuant to our 2006 Stock Plan.
In the event of the involuntary termination of
Mr. Schmids employment, he will be entitled to a
continuation of salary and benefits for six months.
William
F. Miller III Director
Effective January 2006, our employment agreement with
Mr. Miller, originally entered into in October 2000 and
amended in November 2003 (the Miller Agreement) was amended and
restated. As so amended and restated, the Miller Agreement
provided that the term of Mr. Millers employment was
extended through December 31, 2007 and that he served as an
executive. Mr. Miller assisted in the development of
strategic alternatives for us, including possible acquisitions,
advising on our investor relations efforts, and performing such
other duties as may be assigned by the Board of Directors or
Chief Executive Officer from time to time. The Miller Agreement
provided for a lump-sum payment to Mr. Miller of $600,000
in lieu of preexisting severance obligations and any other
bonus, which we paid upon execution of the Miller Agreement in
2005. The Miller Agreement provided for a base salary of
$100,000 per annum, through the end of the employment term.
Our obligations to pay compensation terminated upon the
expiration of the Miller Agreement on December 31, 2007.
Mr. Millers health insurance benefits were provided
by us through December 31, 2008. Non-competition,
non-solicitation and non-interference covenants will apply to
Mr. Miller through December 31, 2009.
31
Report of
Compensation Committee
The Compensation Committee has reviewed and discussed the
Compensation Discussion and Analysis required by
Item 402(b) of
Regulation S-K
with management. Based on this review and discussion, the
Compensation Committee recommended to the Board of Directors
that the Compensation Discussion and Analysis be included in
this proxy statement.
By the Compensation Committee of the Board of Directors of HMS
Holdings Corp.
Richard H. Stowe, Chair
James T. Kelly
William W. Neal
Notwithstanding contrary statements set forth in any of our
previous filings under the Securities Act of 1933 (the
Securities Act) or the Exchange Act that might incorporate
future filings, including this Proxy Statement, the Compensation
Committee report and the Report of the Audit Committee set forth
below shall not be incorporated by reference into such future
filings.
Compensation
Committee Interlocks and Insider Participation
During 2008, the members of our Compensation Committee were
Richard H. Stowe, William W. Neal, and James T. Kelly, none of
whom has ever been an officer or employee of the Company and
none of whom had any related person transaction involving the
company. During 2008, none of our executive officers
(1) served as a member of the Board of Directors or
compensation committee of any other entity that had one or more
of its executive officers serving as a member of our
Compensation Committee or (2) served as a member of the
compensation committee of any other entity that had one or more
of its executive officers service as a member of our Board of
Directors.
Equity
Compensation Plan Information
The following table summarizes the total number of outstanding
options and shares available for other future issuances of
options under all of our equity compensation plans as of
December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
Number of Securities to
|
|
|
Weighted-Average
|
|
|
Remaining Available
|
|
|
|
be Issued Upon Exercise
|
|
|
Exercise Price of
|
|
|
for Future Issuance
|
|
|
|
of Outstanding
|
|
|
Outstanding
|
|
|
Under Equity Compensation
|
|
|
|
Warrants,
|
|
|
Warrants,
|
|
|
Plans (Excluding Securities
|
|
|
|
Options and Rights
|
|
|
Options and Rights
|
|
|
Reflected in Column (a)
|
|
Plan Category
|
|
(a)
|
|
|
(b)
|
|
|
(c)(2)
|
|
|
Equity Compensation Plans approved by Shareholders(1)
|
|
|
3,365,189
|
|
|
$
|
12.94
|
|
|
|
374,299
|
|
Equity Compensation Plans not approved by Shareholders(3)
|
|
|
701,250
|
|
|
$
|
8.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,066,439
|
|
|
$
|
12.26
|
|
|
|
374,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This includes options to purchase shares outstanding under:
(i) the 2006 amended and restated Stock Plan and
(ii) the 1999 Long-Term Incentive Plan (which was
terminated upon shareholder approval of the 2006 Stock Plan). |
|
(2) |
|
These shares remain available for issuance under the 2006 Stock
Plan. |
|
(3) |
|
Options issued under plans not approved by the shareholders
include (i) 300,000 inducement options granted in March
2001 to our Chairman (and former Chief Executive Officer) in
connection with his joining us, (ii) 341,250 inducement
options granted in September 2006 to ten former senior
executives of BSPA in connection with their joining us and
(iii) 60,000 inducement options granted to the Chief
Financial Officer in 2007. |
32
As of March 31, 2009 we had a total of 3,719,152 stock
options outstanding under the 2006 Stock Plan, our 1999
Long-Term Incentive Stock Plan (the 1999 Plan) (which plan was
terminated in connection with the adoption of the 2006 Stock
Plan) and inducement options issued outside of our plans. The
weighted average exercise price of these options is $12.70 per
share, and they have a weighted average term during which they
may be exercised of 5.2 years. In addition, 127,918
restricted stock awards were outstanding on March 31, 2009.
Report of
Audit Committee
In accordance with its Charter, the Audit Committee of the Board
of Directors, among its other duties, assists the Board in
fulfilling its responsibility for oversight of the quality and
integrity of our accounting, auditing, and financial reporting
practices. During 2008, the Audit Committee met four times. The
Audit Committee discussed the interim financial information
contained in each quarterly earnings announcement with our Chief
Executive Officer and Chief Financial Officer and independent
auditors prior to public release.
In discharging its oversight responsibility as to the audit
process, the Audit Committee obtained from the independent
auditors a formal written statement describing all relationships
between the auditors and us that might bear on the
auditors independence required by applicable requirements
of the Public Company Accounting Oversight Board, discussed with
the auditors any relationships that may impact their objectivity
and independence and determined the auditors independence.
The Audit Committee also discussed with senior management,
including our Chief Financial Officer, and the independent
auditors the quality and adequacy of our internal controls and
organization and responsibilities. The Audit Committee reviewed
with both the independent auditors and our Chief Financial
Officer their audit plans, audit scope and identification of
audit risks.
The Audit Committee discussed and reviewed with the independent
auditors all communications required by generally accepted
auditing standards, including those described in Statement on
Auditing Standards No. 61, as amended, Communications
with Audit Committees and, with and without management
present, discussed and reviewed the results of the independent
auditors examination of our financial statements. The
Audit Committee has considered whether the provision of nonaudit
services by our independent auditor is compatible with the
auditors independence.
The Audit Committee reviewed and discussed our audited financial
statements as of and for the fiscal year ended December 31,
2008 with management. Management has the responsibility for the
preparation of our financial statements and the independent
auditors have the responsibility for the examination of those
statements.
Based on the above mentioned review and discussions with
management and the independent auditors, the Audit Committee
recommended to the Board that the audited financial statements
be included in the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, for filing
with the Securities and Exchange Commission. The Committee also
recommended the reappointment, subject to shareholder approval,
of the independent auditors and the Board concurred in such
recommendation.
By the Audit Committee of the Board of Directors of HMS Holdings
Corp.
Ellen A. Rudnick, Chair
James T. Kelly,
Richard H. Stowe
Other
Business
As of the date of this Proxy Statement, the Board of Directors
knows of no business to be presented at the Annual Meeting other
than as set forth herein. If other matters properly come before
the Annual Meeting, the persons named as proxies will vote on
such matters in their discretion.
Shareholder
Proposals for 2010 Annual Meeting and Other Shareholder
Communications
Any shareholder proposals intended to be presented at our 2010
Annual Meeting of Shareholders must be received by the
Secretary, HMS Holdings Corp., 401 Park Avenue South, New York,
New York 10016, no later than
33
January 4, 2010 in order to be considered for inclusion in
our Proxy Statement and form of proxy relating to such meeting.
Shareholder communications to the Board of Directors, including
any such communications relating to director nominees, may also
be addressed to our Secretary at that address. The Board
believes that no more detailed process for these communications
is appropriate, due to the variety in form, content and timing
of these communications. Our Secretary will forward the
substance of meaningful shareholder communications, including
those relating to director candidates, to the Board or the
appropriate committee upon receipt.
Moreover, with regard to any proposal by a shareholder not
seeking to have such proposal included in the Proxy Statement
but seeking to have such proposal considered at the 2010 Annual
Meeting, if such shareholder fails to notify us in the manner
set forth above of such proposal no later than March 19,
2010 then the persons appointed as proxies may exercise their
discretionary voting authority if the proposal is considered at
the 2010 Annual Meeting notwithstanding that shareholders have
not been advised of the proposal in the Proxy Statement for the
2010 Annual Meeting. Any proposals submitted by shareholders
must comply in all respects with (i) the rules and
regulations of the Securities and Exchange Commission,
(ii) the provisions of our certificate of incorporation and
by-laws and (iii) applicable New York law.
Annual
Report
Our 2008 Annual Report on
Form 10-K
is concurrently being mailed to shareholders. The Annual Report
contains our consolidated financial statements and the report
thereon of KPMG LLP, independent registered public accounting
firm.
BY ORDER OF THE BOARD OF DIRECTORS
Walter D. Hosp
Chief Financial Officer and
Corporate Secretary
Dated: April 30, 2009
IT IS IMPORTANT THAT PROXIES BE RETURNED
PROMPTLY. THEREFORE, SHAREHOLDERS ARE URGED TO
COMPLETE, SIGN, DATE, AND RETURN THE ACCOMPANYING FORM OF
PROXY IN THE ENCLOSED ENVELOPE.
34
Section 1. Purpose
The purpose of the HMS Holdings Corp. 2006 Stock Plan (the
Stock Plan) is to furnish a material incentive to
employees and non-employee Directors of the Company and its
subsidiaries by making available to them the benefits of a
larger common stock ownership in the Company through stock
options and awards. It is believed that these increased
incentives stimulate the efforts of employees and non-employee
Directors towards the continued success of the Company and its
affiliates, as well as assist in the recruitment of new
employees and non-employee Directors.
Section 2. Definitions
As used in the Stock Plan, the following terms shall have the
meanings set forth below:
(a) Affiliate shall mean (i) any
Person that directly, or through one or more intermediaries,
controls, or is controlled by, or is under common control with,
the Company or (ii) any entity in which the Company has a
significant equity interest, as determined by the Committee.
(b) Award shall mean any Option, Stock
Appreciation Right, Restricted Stock Award, Restricted Stock
Unit Award, Performance Share, Performance Unit, dividend
equivalent or any other right, interest or option relating to
Shares granted pursuant to the provisions of the Stock Plan.
(c) Award Agreement shall mean any
written agreement, contract or other instrument or document
evidencing any Award granted by the Committee hereunder, which
in the sole and absolute discretion of the Committee may, but
need not, be signed or acknowledged by the Company and the
Participant.
(d) Award Period shall have the meaning
set forth in Section 9 of the Stock Plan.
(e) Board shall mean the Board of
Directors of the Company.
(f) Change in Control shall mean the
occurrence of any of the following events: (i) at any time
during the initial two-year period following the Effective Date
or during each subsequent Renewal Term, as the case may be, at
least a majority of the Board shall cease to consist of
Continuing Directors (meaning directors of the
Company who either were Directors at the beginning of such
initial two-year period or subsequent Renewal Term, as the case
may be, or who subsequently became Directors and whose election,
or nomination for election by the Companys stockholders,
was approved by a majority of the then Continuing Directors); or
(ii) any person or group (as
determined for purposes of Section 13(d)(3) of the Exchange
Act), except any majority-owned subsidiary of the Company or any
employee benefit plan of the Company or any trust thereunder,
shall have acquired beneficial ownership (as
determined for purposes of Securities and Exchange Commission
(SEC)
Regulation 13d-3)
of Shares having 35% or more of the voting power of all
outstanding Shares, unless such acquisition is approved by a
majority of the directors of the Company in office immediately
preceding such acquisition, provided that a Change in Control
shall not be deemed to occur because any person or group
acquires beneficial ownership of 35% or more of the voting power
of all outstanding Shares solely as a result of the
Companys acquisition of Shares which reduces the number of
Shares outstanding unless and until after such acquisition such
person or group becomes the beneficial owner of additional
Shares that increases the percentage of the voting power of
outstanding Shares beneficially owned by such person or group;
or (iii) a merger or consolidation occurs to which the
Company is a party, in which outstanding Shares are converted
into shares of another company (other than a conversion into
shares of voting common stock of the successor corporation or a
holding company thereof representing 55% of the voting power of
all capital stock thereof outstanding immediately after the
merger or consolidation) or other securities (of either the
Company or another company) or cash or other property; or
(iv) the sale of all, or substantially all, of the
Companys assets occurs; or (v) the stockholders of
the Company approve a plan of complete liquidation of the
Company. Notwithstanding the foregoing, as to any Award under
the Stock Plan
35
that consists of deferred compensation subject to
Section 409A of the Code, the definition of Change in
Control shall be deemed modified to the extent necessary
to comply with Section 409A of the Code.
(g) Change in Control Price means, with
respect to a Share, (A) if the Change in Control is the
result of a tender or exchange offer or a corporate transaction,
the price per such Share paid in such tender or exchange offer
or corporate transaction; or (B) if the Change in Control
is not the result of a tender or exchange offer or a corporate
transaction, the Fair Market Value per Share on the date of the
Change in Control. To the extent the consideration paid in any
such transaction described above consists in full or in part of
securities or other noncash consideration, the value of such
securities or other noncash consideration shall be determined in
the sole discretion of the Committee.
(h) Code shall mean the Internal Revenue
Code of 1986, as amended from time to time, and any successor
thereto.
(i) Committee shall mean the
Compensation Committee of the Board or such other persons or
committee to which it has delegated any authority, as may be
appropriate. A person may serve on the Compensation Committee
only if he or she (i) is a Non-employee
Director for purposes of
Rule 16b-3
under the Exchange Act, and (ii) satisfies the requirements
of an outside director for purposes of
Section 162(m) of the Code.
(j) Company shall mean HMS Holdings
Corp., a New York corporation.
(k) Covered Employee shall mean a
covered employee within the meaning of
Section 162(m)(3) of the Code, or any successor provision
thereto.
(l) Director shall mean a member of the
Board.
(m) Effective Date shall mean
June 6, 2006, the date this Stock Plan is effective.
(n) Employee shall mean any employee of
the Company or any Affiliate. For any and all purposes under
this Stock Plan, the term Employee shall not include
a person hired as an independent contractor, leased employee,
consultant or a person otherwise designated by the Committee,
the Company or an Affiliate at the time of hire as not eligible
to participate in or receive benefits under the Stock Plan or
not on the payroll, even if such ineligible person is
subsequently determined to be a common law employee of the
Company or an Affiliate or otherwise an employee by any
governmental or judicial authority. Unless otherwise determined
by the Committee in its sole discretion, for purposes of the
Stock Plan, an Employee shall be considered to have terminated
employment or services and to have ceased to be an Employee if
his or her employer ceases to be an Affiliate, even if he or she
continues to be employed by such employer.
(o) Exchange Act shall mean the
Securities Exchange Act of 1934, as amended.
(p) Fair Market Value shall mean, with
respect to Shares, as of any date, the closing price of the
Shares as reported on the NASDAQ Global Select Market for that
date or, if no such prices are reported for that date, the
closing price on the next preceding date for which such prices
were reported, unless otherwise determined by the Committee.
(q) Incentive Stock Option shall mean an
Option granted under Section 6 that is intended to meet the
requirements of Section 422 of the Code or any successor
provision thereto.
(r) Nonqualified Stock Option shall mean
either an Option granted under Section 6 that is not
intended to be an Incentive Stock Option or an Incentive Stock
Option that has been disqualified.
(s) Option shall mean any right granted
to a Participant under the Stock Plan allowing such Participant
to purchase Shares at such price or prices and during such
period or periods as the Committee shall determine.
(t) Participant shall mean an Employee
or a non-employee member of the Board who is selected by the
Committee or the Board from time to time in their sole
discretion to receive an Award under the Stock Plan.
(u) Performance Award shall have the
meaning set forth in Section 9 of the Stock Plan.
(v) Performance Goals shall have the
meaning set forth in Section 9 of the Stock Plan.
36
(w) Performance Period shall mean that
period established by the Committee at the time any Performance
Award is granted or at any time thereafter during which any
performance goals specified by the Committee with respect to
such Award are to be measured.
(x) Performance Shares shall have the
meaning set forth in Section 9 of the Stock Plan.
(y) Performance Units shall have the
meaning set forth in Section 9 of the Stock Plan.
(z) Person shall mean any individual,
corporation, partnership, association, limited liability
company, joint-stock company, trust, unincorporated organization
or government or political subdivision thereof.
(aa) Phantom Stock Award shall mean any
right granted to a Participant by the Committee pursuant to
Section 10.
(bb) Renewal Term shall mean the
two-year period beginning on the second anniversary of the
Effective Date and each successive two-year period thereafter.
(cc) Restricted Period shall have the
meaning set forth in Section 8 of the Stock Plan.
(dd) Restricted Stock shall mean any
Share issued with the restriction that the holder may not sell,
transfer, pledge or assign such Share and with such other
restrictions as the Committee, in its sole discretion, may
impose (including, without limitation, any restriction on the
right to vote such Share, and the right to receive any cash
dividends), which restrictions may lapse separately or in
combination at such time or times, in installments or otherwise,
as the Committee may deem appropriate.
(ee) Restricted Stock Award shall mean
an award of Restricted Stock under Section 8.
(ff) Restricted Stock Unit shall mean a
unit that is valued by reference to a Share, which value may be
paid to the Participant by delivery of cash, Shares or such
other property as the Committee shall determine and with such
restrictions as the Committee, in its sole discretion, may
impose and which may lapse separately or in combination at such
time or times, in installments or otherwise, as the Committee
may deem appropriate.
(gg) Restricted Stock Unit Award shall
mean an award of Restricted Stock Units under Section 8.
(hh) Section 16 Participant shall
have the meaning set forth in Section 16 of the Stock Plan.
(ii) Shares shall mean the shares of
common stock of the Company.
(jj) Spread shall have the meaning set
forth in Section 7 of the Stock Plan.
(kk) Stand Alone SAR shall have the
meaning set forth in Section 7 of the Stock Plan.
(ll) Stock Appreciation Right shall have
the meaning set forth in Section 7 of the Stock Plan.
(mm) Tandem SAR shall have the meaning
set forth in Section 7 of the Stock Plan.
(nn) 1999 Plan shall mean the
Companys 1999 Long-Term Incentive Stock Plan.
Section 3. Administration
The Stock Plan shall be administered by the Committee. The
Committee shall have full power and authority, subject to such
orders or resolutions not inconsistent with the provisions of
the Stock Plan as may from time to time be adopted by the Board,
to (a) select the Employees of the Company and its
Affiliates to whom Awards may from time to time be granted
hereunder; (b) determine the type or types of Award to be
granted to each Participant hereunder; (c) determine the
number of Shares to be covered by or relating to each Award
granted hereunder; (d) determine the terms and conditions,
not inconsistent with the provisions of the Stock Plan, of any
Award granted hereunder; (e) determine whether, to what
extent and under what circumstances Awards may be settled in
cash, Shares or other property or canceled or suspended;
(f) determine whether, to what extent, and under what
circumstances payment of cash, Shares, other property and other
amounts payable with respect to an Award made under the Stock
Plan shall be deferred either automatically or at the election
of the Participant; (g) interpret and administer the Stock
Plan and any instrument or agreement entered into under the
Stock Plan; (h) establish such rules and regulations and
appoint such agents as it shall deem appropriate for the proper
administration of the Stock
37
Plan; and (i) make any other determination and take any
other action that the Committee deems necessary or desirable for
administration of the Stock Plan. The Committee may, in its sole
and absolute discretion, and subject to the provisions of the
Stock Plan, from time to time delegate any or all of its
authority to administer the Stock Plan to any other persons or
committee as it deems necessary or appropriate for the proper
administration of the Stock Plan, except that no such delegation
shall be made in the case of Awards intended to be qualified
under Section 162(m) of the Code. The decisions of the
Committee shall be final, conclusive and binding with respect to
the interpretation and administration of the Stock Plan and any
grant made under it. The Committee shall make, in its sole
discretion, all determinations arising in the administration,
construction or interpretation of the Stock Plan and Awards
under the Stock Plan, including the right to construe disputed
or doubtful Stock Plan or Award terms and provisions, and any
such determination shall be conclusive and binding on all
persons, except as otherwise provided by law. A majority of the
members of the Committee may determine its actions and fix the
time and place of its meetings.
Except as provided in Section 12, the Committee shall be
authorized to make adjustments in Performance Award criteria or
in the terms and conditions of other Awards in recognition of
unusual or nonrecurring events affecting the Company or its
financial statements or changes in applicable laws, regulations
or accounting principles. The Committee may correct any defect,
supply any omission or reconcile any inconsistency in the Stock
Plan or any Award in the manner and to the extent it shall deem
desirable to carry it into effect. In the event that the Company
shall assume outstanding employee benefit awards or the right or
obligation to make future such awards in connection with the
acquisition of or combination with another corporation or
business entity, the Committee may, in its discretion, make such
adjustments in the terms of Awards under the Stock Plan as it
shall deem appropriate.
Upon the approval of the Stock Plan by the shareholders of the
Company, the 1999 Plan shall be terminated and of no further
force and effect.
Section 4. Shares Subject
to the Stock Plan
(a) Subject to adjustment as provided in Section 4(c),
a total of 4,000,000 Shares shall be authorized for
issuance pursuant to Awards granted under the Stock Plan. Any
Shares issued in connection with Options and Stock Appreciation
Rights shall be counted against the 4,000,000 limit described
above as (1.0) Share for every one Share issued in connection
with such Award or by which the Award is valued by reference.
Any Shares issued in connection with Awards other than Options
and Stock Appreciation Rights shall be counted against the
4,000,000 limit described above as one and
eighty-five
hundredths (1.85) Shares for every one Share issued in
connection with such Award or by which the Award is valued by
reference. No Participant under this Stock Plan shall be granted
Options, Stock Appreciation Rights or other Awards intended to
comply with the performance-based exception of
Section 162(m) of the Code in any calendar year covering
more than 200,000 Shares, and no Award will be granted to
any Participant who owns more than ten percent of the stock of
the Company within the meaning of Section 422 of the Code.
If an Award is subject to a performance period greater than one
fiscal year, the maximum numbers set forth above will equal the
maximum times the number of years in the performance period. The
foregoing sentence will be construed in a manner consistent with
Section 162(m) of the Code.
(b) Any Shares issued hereunder may consist, in whole or in
part, of authorized and unissued Shares, treasury Shares or
Shares purchased in the open market or otherwise.
(c) In the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, special cash
dividend, stock split, reverse stock split, spin-off or similar
transaction or other change in corporate structure affecting the
Shares, the equitable adjustments and other substitutions shall
be made to the Stock Plan and to Awards as the Committee, in its
sole discretion, deems necessary, including, without limitation,
such adjustments in the aggregate number, class and kind of
securities that may be delivered under the Stock Plan, in the
aggregate or to any one Participant, in the number, class, kind
and option or exercise price of securities subject to
outstanding Awards granted under the Stock Plan (including, if
the Committee deems appropriate, the substitution of similar
options to purchase the shares of, or other awards denominated
in the shares of, another company) as the Committee may
determine to be appropriate in its sole discretion; provided,
however, that the number of Shares subject to any Award shall
always be a whole number and further provided that in no event
may any change be made to an Incentive Stock Option which would
constitute a modification within the meaning of
Section 424(h)(3) of the Code.
38
(d) Any Shares that are not purchased or awarded under an
Award that has terminated or lapsed or has been forfeited,
either by its terms or pursuant to the exercise, in whole or in
part, of an Award granted under the Stock Plan (other than
Shares not issued in connection with the settlement in Shares of
a Stock Appreciation Right) may be used for the further grant of
Awards. In addition, if Shares under an Award are not issued
because the Award is settled in cash, the Shares may be used for
the further grant of Awards. Shares under this paragraph that
may be used for the further grant of Awards shall be added back
as one (1) Share if the Shares were subject to Options or
Stock Appreciation Rights, and (ii) as one and eighty-five
hundredths (1.85) Shares if the Shares were subject to Awards
other than Options or Stock Appreciation Rights.
(e) Notwithstanding anything to the contrary the following
Shares shall not be added to the maximum share limitations
described above: (a) Shares tendered or withheld by the
Company in payment of the exercise price of an Option;
(b) Shares withheld by the Company to satisfy the tax
withholding obligation and (c) Shares reacquired by the
Company on the open market or otherwise using cash proceeds from
the exercise of an Option.
(f) With respect to Stock Appreciation Rights that may be
settled in stock, the number of Shares available for Awards
under the Stock Plan will be reduced by the total number of
Stock Appreciation Rights so granted; provided, however, that to
the extent the Stock Appreciation Rights are settled in cash the
Shares not issued may be used for the further grant of Awards as
provided in paragraph (d) of this Section. Stock
Appreciation Rights that may only be settled in cash will not
reduce the number of Shares available for award under the Stock
Plan.
(g) To the extent consistent with the requirements of
Section 422 of the Code and regulations thereunder, and
with other applicable legal requirements (including applicable
stock exchange requirements), Shares issued under awards of an
acquired company that are converted, replaced, or adjusted in
connection with the acquisition will not reduce the number of
Shares available for Awards under the Stock Plan.
Section 5. Eligibility
Any Employee or non-employee Director shall be eligible to be
selected as a Participant; provided, however, that Incentive
Stock Options shall only be awarded to Employees of the Company,
or a parent or subsidiary, within the meaning of
Section 422 of the Code. Notwithstanding any provision in
this Stock Plan to the contrary, the Board shall have the
authority, in its sole and absolute discretion, to select
non-employee members of the Board as Participants who are
eligible to receive Awards other than Incentive Stock Options
under the Stock Plan. The Board shall set the terms of any such
Awards in its sole and absolute discretion, and the Board shall
be responsible for administering and construing such Awards in
substantially the same manner that the Committee administers and
construes Awards to Employees.
Section 6. Stock
Options
Options may be granted hereunder to any Participant, either
alone or in addition to other Awards granted under the Stock
Plan and shall be subject to the following terms and conditions:
(a) Option Price. The option price per
Share shall be not less than the Fair Market Value of the Shares
on the date the Option is granted.
(b) Period of Stock Option. The period of
each Option shall be fixed by the Committee, provided that the
period for all Options shall not exceed seven years from the
grant date. The Committee may, subsequent to the granting of any
Option, extend the term thereof, but in no event shall the
extended term exceed seven years from the original grant date.
(c) Exercise of Option and Payment
Therefore. No Shares shall be issued until full
payment of the option price has been made. The option price may
be paid in cash or, if the Committee determines, by the
Participant tendering Shares or by the Company withholding
Shares otherwise issuable in connection with the exercise of the
Option, a combination of cash and Shares, or through a cashless
exercise procedure that allows Participants to sell immediately
some or all of the Shares underlying the exercised portion of
the Option in order to generate sufficient cash to pay the
option price. If the Committee approves the use of Shares as a
payment method, the Committee shall establish such conditions as
it deems appropriate for the use of common stock to exercise an
Option. Options awarded under the Stock Plan shall be exercised
through such procedure
39
or program as the Committee may establish or define from time to
time, which may include a designated broker that must be used in
exercising such Options.
(d) First Exercisable Date. The Committee
shall determine how and when Shares covered by an Option may be
purchased. The Committee may establish waiting periods, the
dates on which Options become exercisable or vested and,
subject to paragraph (b) of this section, exercise periods.
The Committee may accelerate the exerciseability of any Option
or portion thereof.
(e) Termination of Employment. Unless
determined otherwise by the Committee, upon the termination of a
Participants employment (for any reason other than gross
misconduct), Option exercise privileges shall be limited to the
Shares that were immediately exercisable at the date of such
termination. The Committee, however, in its discretion, may
provide that any Options outstanding but not yet exercisable
upon the termination of a Participants employment may
become exercisable in accordance with a schedule determined by
the Committee. Such Option exercise privileges shall expire
unless exercised within such period of time after the date of
termination of employment as may be established by the
Committee, but in no event later than the expiration date of the
Option.
(f) Termination Due to Misconduct. If a
Participants employment is terminated for gross
misconduct, as determined by the Company, all rights under the
Option shall expire upon the date of such termination.
(g) Limits on Incentive Stock
Options. Except as may otherwise be permitted by
the Code, an Employee may not receive a grant of Incentive Stock
Options for Shares that would have an aggregate Fair Market
Value in excess of $100,000 (or such other amount as the
Internal Revenue Service may decide from time to time),
determined as of the time that the Incentive Stock Option is
granted, that would be exercisable for the first time by such
person during any calendar year. If any grant is made in excess
of the limits provided in the Code, such grant shall
automatically become a Nonqualified Stock Option. Solely for
purposes of determining whether Shares are available for the
grant of Incentive Stock Options under the Stock Plan, the
maximum aggregate number of Shares that may be issued pursuant
to Incentive Stock Options granted under the Stock Plan shall be
4,000,000 Shares, subject to adjustment as provided in
Section 4(c).
(h) No dividend equivalents. Anything in
the Stock Plan to the contrary notwithstanding, no dividends or
dividend equivalents may be paid on Options.
Section 7. Stock
Appreciation Rights
The Committee may, in its discretion, grant a right to receive
the appreciation in the Fair Market Value of Shares (Stock
Appreciation Right) either singly or in combination with
an underlying Option granted hereunder. Such Stock Appreciation
Right shall be subject to the following terms and conditions and
such other terms and conditions as the Committee may prescribe:
(a) Time and Period of Grant. If a Stock
Appreciation Right is granted with respect to an underlying
Option (a Tandem SAR), it may be granted at the time
of the Option grant or at any time thereafter but prior to the
expiration of the Option grant. At the time the Tandem SAR is
granted the Committee may limit the exercise period for such
Stock Appreciation Right, before and after which period no Stock
Appreciation Right shall attach to the underlying Option. In no
event shall the exercise period for a Tandem SAR exceed the
exercise period for such Option. If a Stock Appreciation Right
is granted without an underlying Option (a Stand Alone
SAR), the period for exercise of the Stock Appreciation
Right shall be set by the Committee. The period of each Stock
Appreciation Right shall be fixed by the Committee, provided
that the period for all Stock Appreciation Rights shall not
exceed seven years from the grant date.
(b) Value of Stock Appreciation Right. A
Participant who is granted a Tandem SAR will be entitled to
surrender the Option which is then exercisable and receive in
exchange therefore an amount equal to the excess of the Fair
Market Value of the Shares on the date the election to surrender
is received by the Company, in accordance with exercise
procedures established by the Company, over the Option price
(the Spread) multiplied by the number of Shares covered by
the Option which is surrendered. A Participant who is granted a
Stand Alone SAR will receive upon exercise of the Stock
Appreciation Right an amount equal to the excess of the Fair
Market Value of the Shares on the date the election to surrender
such Stand Alone SAR is received by
40
the Company, in accordance with exercise procedures established
by the Company, over the Fair Market Value of the Shares on the
date of grant multiplied by the number of Shares covered by the
grant of the Stand Alone SAR. Notwithstanding the foregoing, in
its sole discretion the Committee at the time it grants a Stock
Appreciation Right may provide that the Spread covered by such
Stock Appreciation Right may not exceed a specified amount.
(c) Payment of Stock Appreciation
Right. Payment of a Stock Appreciation Right
shall be in the form of Shares, cash or any combination of
Shares and cash. The form of payment upon exercise of such a
right shall be determined by the Committee either at the time of
grant of the Stock Appreciation Right or at the time of exercise
of the Stock Appreciation Right.
(d) No dividend equivalents. Anything in
the Stock Plan to the contrary notwithstanding, no dividends or
dividend equivalents may be paid on Stock Appreciation Rights.
Section 8. Restricted
Stock Awards and Restricted Stock Unit Awards
The Committee may make Restricted Stock Awards and Restricted
Stock Unit Awards to a Participant, which Awards shall be
subject to the following terms and conditions and such other
terms and conditions as the Committee may prescribe:
(a) Requirement of Employment or Board
Membership. A Participant who is granted a
Restricted Stock Award or Restricted Stock Unit Award must
remain an Employee or a Director of the Company during a period
designated by the Committee (Restricted Period) in
order to receive the Shares, cash or combination thereof under
the Restricted Stock Award or Restricted Stock Unit Award. If
the Participant ceases being an Employee or a Director of the
Company prior to the end of the Restricted Period, the
Restricted Stock Award or Restricted Stock Unit Award shall
terminate and any Shares subject to a Restricted Stock Award
shall be returned immediately to the Company, provided that the
Committee may, at the time of the grant, provide for the
employment or Board membership restriction to lapse with respect
to a portion or portions of the Restricted Stock Award or
Restricted Stock Unit Award at different times during the
Restricted Period. The Committee may, in its discretion, also
provide for such complete or partial exceptions to the
employment or Board membership restriction as it deems equitable.
(b) Restrictions on Transfer and Legend on Stock
Certificates. During the Restricted Period, the
Participant may not sell, assign, transfer, pledge or otherwise
dispose of the Restricted Stock Award or Restricted Stock Unit
Award, including but not limited to any Shares. Any certificate
for Shares issued hereunder shall contain a legend giving
appropriate notice of the restrictions in the Award.
(c) Escrow Agreement. The Committee may
require the Participant to enter into an escrow agreement
providing that any certificates representing the Restricted
Stock Award will remain in the physical custody of an escrow
holder until all restrictions are removed or expire.
(d) Lapse of Restrictions. All
restrictions imposed under the Restricted Stock Award or
Restricted Stock Unit Award shall lapse upon the expiration of
the Restricted Period if the conditions as to employment or
Board membership set forth above have been met. The Participant
shall then be entitled to have the legend removed from any
certificates for Restricted Stock. Restricted Stock Awards and
Restricted Stock Unit Awards may be paid in the form of Shares,
cash or any combination of Shares and cash as determined by the
Committee. The Committee may establish rules and procedures to
permit a Participant to defer recognition of income upon the
expiration of the Restricted Period.
(e) Dividends. The Committee may, in its
discretion, at the time of the Restricted Stock Award or
Restricted Stock Unit Award, provide that any dividends declared
on Shares during the Restricted Period or dividend equivalents
be (i) paid to the Participant, other than with respect to
a Restricted Stock Award or Restricted Stock Unit Award that is
conditioned on the achievement of one or more Performance Goals
(as defined in Section 9(a)), (ii) accumulated or
reinvested in additional Restricted Stock or credited to
additional Restricted Stock Units for the benefit of the
Participant and paid to the Participant only after the
expiration of the Restricted Period or (iii) not paid or
accumulated or reinvested or credited.
41
(f) Performance Goals. The Committee may
designate whether any Restricted Stock Award or Restricted Stock
Unit Award is intended to be performance-based
compensation as that term is used in Section 162(m)
of the Code. Any such Restricted Stock Award or Restricted Stock
Unit Award designated to be performance-based
compensation shall be conditioned on the achievement of
one or more Performance Goals (as defined in Section 9(a)),
to the extent required by Section 162(m).
(g) Vesting. The restrictions on each
Restricted Stock Award or Restricted Stock Unit Award will lapse
at such time or times, and on such conditions, as the Committee
may specify. However, no Restricted Stock Awards or Restricted
Stock Unit Awards shall be awarded with a vesting period of less
than three years from the date of grant if the vesting of such
Restricted Stock Award or Restricted Stock Unit Award is subject
only to continued service with the Company or a subsidiary,
except for Restricted Stock Awards or Restricted Stock Unit
Awards awarded (i) to new hires to replace forfeited awards
from a prior employer, (ii) to non-employee members of the
Board or (iii) in payment of Performance Awards and other
earned cash-based incentive compensation. The foregoing
limitation shall not apply to Performance Awards under
Section 9 of the Stock Plan, which will have a minimum
vesting period of one year. Notwithstanding the preceding two
sentences, the Committee may, in its discretion, accelerate
vesting in the event of the death, disability or retirement of a
Participant or a Change in Control.
Section 9. Performance
Awards
The Committee may grant Awards denominated in Shares
(Performance Shares), or denominated in dollars
(Performance Units) if the performance of the
Company or its subsidiaries during the Award Period (as defined
below) meets certain goals established by the Committee
(Performance Awards). The maximum amount that may be
earned by any Participant for each fiscal year in an Award
Period with respect to Performance Units that are intended to
comply with the performance-based exception under Code
Section 162(m) is $1,500,000. Performance Awards shall be
subject to the following terms and conditions and such other
terms and conditions as the Committee may prescribe:
(a) Award Period and Performance
Goals. The Committee shall determine and include
in a Performance Award grant the period of time for which a
Performance Award is made (Award Period), subject to
a one-year minimum vesting requirement for a Performance Award
denominated in Performance Shares. The Committee also shall
establish performance objectives (Performance Goals)
to be met by the Company or its subsidiary during the Award
Period as a condition to payment of the Performance Award. The
Performance Goals may include net sales; revenue; revenue growth
or product revenue growth; operating income (before or after
taxes); pre- or after-tax income (before or after allocation of
corporate overhead and bonus); earnings per share; net income
(before or after taxes); return on equity; total shareholder
return; return on assets or net assets; appreciation in
and/or
maintenance of the price of the Shares or any other
publicly-traded securities of the Company; market share; gross
profits; earnings (including earnings before taxes, earnings
before interest and taxes or earnings before interest, taxes,
depreciation and amortization); economic value-added models or
equivalent metrics; comparisons with various stock market
indices; reductions in costs; cash flow or cash flow per share
(before or after dividends); return on capital (including return
on total capital or return on invested capital); cash flow
return on investment; improvement in or attainment of expense
levels or working capital levels; operating margins, gross
margins or cash margin; year-end cash; debt reductions;
stockholder equity; research and development achievements;
strategic partnerships or transactions (including in-licensing
and out-licensing of intellectual property; establishing
relationships with commercial entities with respect to the
marketing, distribution and sale of the Companys products
(including with group purchasing organizations, distributors and
other vendors); co-development, co-marketing, profit sharing,
joint venture or other similar arrangements); financing and
other capital raising transactions (including sales of the
Companys equity or debt securities; factoring
transactions; sales or licenses of the Companys assets,
including its intellectual property, whether in a particular
jurisdiction or territory or globally; or through partnering
transactions); and implementation, completion or attainment of
measurable objectives with respect to research, development,
manufacturing, commercialization, products or projects,
production volume levels, acquisitions and divestitures and
recruiting and maintaining personnel.
42
Such Performance Goals also may be based solely by reference to
the Companys performance or the performance of a
subsidiary, division, business segment or business unit of the
Company, or based upon the relative performance of other
companies or upon comparisons of any of the indicators of
performance relative to other companies.
For a Performance Award not intended to constitute
performance-based compensation under
Section 162(m) of the Code, Performance Goals may include
any other financial or other measurement established by the
Committee.
(b) Payment of Performance Awards. The
Committee shall establish the method of calculating the amount
of payment to be made under a Performance Award if the
Performance Goals are met, including the fixing of a maximum
payment. After the completion of an Award Period, the
performance of the Company or its subsidiary shall be measured
against the Performance Goals, and the Committee shall
determine, in accordance with the terms of such Performance
Award, whether all, none or any portion of a Performance Award
shall be paid. The Committee, in its discretion, may elect to
make payment in Shares, cash or a combination of Shares and
cash. Any cash payment shall be based on the Fair Market Value
of Shares on, or as soon as practicable prior to, the date of
payment. The Committee may establish rules and procedures to
permit a Participant to defer recognition of income upon the
attainment of a Performance Award.
(c) Revision of Performance Goals. As to
any Performance Award not intended to constitute
performance-based compensation under Section 162(m)
of the Code, at any time prior to the end of an Award Period,
the Committee may revise the Performance Goals and the
computation of payment if unforeseen events occur which have a
substantial effect on the performance of the Company or its
subsidiary and which, in the judgment of the Committee, make the
application of the Performance Goals unfair unless a revision is
made. For any Performance Award intended to constitute
performance-based compensation under
Section 162(m) of the Code, such revisions must be set
forth in the Award Agreement within the time period required by
Section 162(m).
(d) Requirement of Employment. A
Participant who is granted a Performance Award must remain an
Employee of the Company or its subsidiaries until the completion
of the Award Period in order to be entitled to payment under the
Performance Award; provided that the Committee may, in its
discretion, provide for a full or partial payment where such an
exception is deemed equitable.
(e) Dividends. The Committee may, in its
discretion, at the time of the granting of a Performance Award,
provide that any dividends declared on the Shares during the
Award Period, and which would have been paid with respect to
Performance Shares had they been owned by a Participant, be
(i) paid to the Participant to the extent that the
Performance Shares are earned, (ii) accumulated for the
benefit of the Participant and used to increase the number of
Performance Shares of the Participant or (iii) not paid or
accumulated.
Section 10. Other
Share-Based Awards
The Committee may grant an Award of actual Shares or phantom
Shares (a Phantom Stock Award) to any Employee on
such terms and conditions as the Committee may determine in its
sole discretion. Share Awards may be made as additional
compensation for services rendered by the Employee or may be in
lieu of cash or other compensation to which the Eligible
Employee is entitled from the Company.
The Committee may, in its discretion, at the time of the
Shares Award, provide that any dividends declared on Shares
during any Restricted Period or dividend equivalents be
(i) paid to the Participant, (ii) accumulated for the
benefit of the Participant and paid to the Participant only
after the expiration of any Restricted Period or (iii) not
paid or accumulated.
Section 11. Change
in Control Provisions
(a) Unless provided otherwise in the terms of a particular
Award, and notwithstanding any other provision of the Stock Plan
to the contrary, in the event a Participants employment or
service is involuntarily terminated without
43
cause (as determined by the Committee or Board in its sole
discretion) during the
24-month
period following a Change in Control:
(i) any Options and Stock Appreciation Rights outstanding,
which are not then exercisable and vested, shall become
immediately fully vested and exercisable;
(ii) the restrictions and deferral limitations applicable
to any Restricted Stock Award or Restricted Stock Unit Award
shall lapse, and such Restricted Stock and Restricted Stock
Units shall immediately become free of all restrictions and
limitations and become fully vested and transferable to the full
extent of the original grant;
(iii) all Performance Awards shall be considered to be
earned and payable in full, based on the applicable performance
criteria or, if not determinable, at the target level and any
deferral or other restriction shall lapse and such Performance
Awards shall be immediately settled or distributed; and
(iv) the restrictions and deferral limitations and other
conditions applicable to any other Awards shall immediately
lapse, and any such other Awards shall become free of all
restrictions, limitations or conditions and become fully vested
and transferable to the full extent of the original grant.
(b) Change in Control Cash
Out. Notwithstanding any other provision of the
Stock Plan, in the event of a Change in Control the Committee or
Board may, in its discretion, provide that each Option or Stock
Appreciation Right shall, upon the occurrence of a Change in
Control, be cancelled in exchange for a cash payment to be made
within 60 days of the Change in Control in an amount equal
to the amount by which the Change in Control Price per Share
exceeds the purchase price per Share under the Option or Stock
Appreciation Right multiplied by the number of Shares granted
under the Option or Stock Appreciation Right.
(c) Compliance with Section 409A of the
Code. In the case of an Award providing for the
payment of deferred compensation subject to Section 409A of
the Code, any payment of such deferred compensation by reason of
a Change in Control shall be made only if the Change in Control
is one described in subsection (a)(2)(A)(v) of Section 409A
and the guidance thereunder and shall be paid consistent with
the requirements of Section 409A. If any deferred
compensation that would otherwise be payable by reason of a
Change in Control cannot be paid by reason of the immediately
preceding sentence, it shall be paid as soon as practicable
thereafter consistent with the requirements of
Section 409A, as determined by the Committee.
Section 12. Amendments
and Termination
The Board of Directors may discontinue the Stock Plan at any
time and may from time to time amend or revise the terms of the
Stock Plan as permitted by applicable statutes, except that it
may not, without the consent of the Participants affected,
revoke or alter, in a manner unfavorable to the Participants
granted any Awards hereunder, any Awards then outstanding, nor
may the Board amend the Stock Plan without stockholder approval
where the absence of such approval would cause the Stock Plan to
fail to comply with
Rule 16b-3
under the Exchange Act, or any other requirement of applicable
law or regulation. Notwithstanding the foregoing, without
consent of affected Participants, Awards may be amended, revised
or revoked when necessary to avoid penalties under
Section 409A of the Code. Unless approved by the
Companys stockholders or as otherwise specifically
provided under this Stock Plan, no adjustments or reduction of
the exercise price of any outstanding Awards shall be made in
the event of a decline in stock price, either by reducing the
exercise price of outstanding Awards or through cancellation of
outstanding Awards in connection with regranting of Awards at a
lower price to the same individual, or by canceling an Option or
a Stock Appreciation Right for cash or another Award (other than
in connection with a Change in Control).
Section 13. Transferability
Each Incentive Stock Option granted under the Stock Plan shall
not be transferable other than by will or the laws of descent
and distribution; each other Award granted under the Stock Plan
will not be transferable or assignable by the recipient, and may
not be made subject to execution, attachment or similar
procedures, other than by will or the laws of descent and
distribution or as determined by the Committee in accordance
with the Exchange Act or any other applicable law or regulation.
Notwithstanding the foregoing, the Committee, in its discretion,
may adopt rules permitting the transfer, solely as gifts during
the grantees lifetime, of Options (other than Incentive
Stock Options) to members of a Participants immediate
family or to trusts, family partnerships or similar entities for
the benefit of such immediate family members. For this purpose,
immediate family member means the
44
Participants spouse, parent, child, stepchild, grandchild
and the spouses of such family members. The terms of an Option
shall be final, binding and conclusive upon the beneficiaries,
executors, administrators, heirs and successors of the grantee.
Section 14. General
Provisions
(a) Nothing in the Stock Plan shall be construed to limit
the right of the Company to establish other plans or to pay
compensation to its employees, in cash or property, in a manner
which is not expressly authorized under the Stock Plan.
(b) Nothing in the Stock Plan shall be construed
(i) to limit, impair or otherwise affect the Companys
right or power to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure,
or to merge or consolidate, or dissolve, liquidate, sell or
transfer all or any part of its business or assets, or
(ii) except as provided in Section 12, to limit the
right or power of the Company or its subsidiaries to take any
action which such entity deems to be necessary or appropriate.
(c) The Company and its Affiliates shall be authorized to
withhold from any Award granted or payment due under the Stock
Plan the amount of withholding taxes due in respect of an Award
or payment hereunder and to take such other action as may be
necessary in the opinion of the Company or Affiliate to satisfy
all obligations for the payment of such taxes. The Committee
shall be authorized to establish procedures for election by
Participants to satisfy such obligation for the payment of such
taxes by delivery of or transfer of Shares to the Company, or by
directing the Company to retain Shares (up to the
Employees minimum required tax withholding rate) otherwise
deliverable in connection with the Award.
(d) Any proceeds received by the Company under the Stock
Plan shall be added to the general funds of the Company and
shall be used for such corporate purposes as the Board of
Directors shall direct.
(e) Nothing in the Stock Plan or any Award granted under
the Stock Plan shall be deemed to constitute an employment or
service contract or confer or be deemed to confer on any
Employee or Participant any right to continue in the employ or
service of, or to continue any other relationship with, the
Company or any Affiliate or limit in any way the right of the
Company or any Affiliate to terminate an Employees
employment or Participants service at any time, with or
without cause.
(f) All certificates for Shares delivered under the Stock
Plan pursuant to any Award shall be subject to such
stock-transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any
stock exchange upon which the Shares are then listed, and any
applicable federal or state securities law, and the Committee
may cause a legend or legends to be put on any such certificates
to make appropriate reference to such restrictions.
(g) No Award granted hereunder shall be construed as an
offer to sell securities of the Company, and no such offer shall
be outstanding, unless and until the Committee in its sole
discretion has determined that any such offer, if made, would
comply with all applicable requirements of the U.S. federal
securities laws and any other laws to which such offer, if made,
would be subject.
(h) Any Award shall contain a provision that it may not be
exercised at a time when the exercise thereof or the issuance of
shares thereunder would constitute a violation of any federal or
state law or listing requirements of the NASDAQ National Market
for such shares or a violation of any foreign jurisdiction where
Awards are or will be granted under the Stock Plan.
(i) The provisions of the Stock Plan shall be construed,
regulated and administered according to the laws of the State of
New York without giving effect to principles of conflicts of
law, except to the extent superseded by any controlling federal
statute.
(j) If any provision of the Stock Plan is or becomes or is
deemed invalid, illegal or unenforceable in any jurisdiction, or
would disqualify the Stock Plan or any Award under any law
deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to applicable laws or if
it cannot be construed or deemed amended without, in the
determination of the Committee, materially altering the intent
of the Stock Plan, it shall be stricken and the remainder of the
Stock Plan shall remain in full force and effect.
45
(k) If approved by the Committee in its sole discretion, an
Employees absence or leave because of military or
governmental service, disability or other reason shall not be
considered an interruption of employment for any purpose under
the Stock Plan.
(l) Anything to the contrary in the Stock Plan
notwithstanding, the Committee may (i) offset any Award by
amounts reasonably believed to be owed to the Company by the
Participant and (ii) disallow an Award to be exercised or
otherwise payable during a time when the Company is
investigating reasonably reliable allegations of gross
misconduct by the Participant.
(m) Awards under the Stock Plan are intended either to be
exempt from the rules of Section 409A of the Code or to
satisfy those rules and shall be construed accordingly. However,
the Company shall not be liable to any Participant or other
holder of an Award with respect to any Award-related adverse tax
consequences arising under Section 409A or other provision
of the Code.
Section 15. Term
of Stock Plan
The Stock Plan shall terminate on the tenth anniversary of the
Effective Date, unless sooner terminated by the Board pursuant
to Section 12.
Section 16. Compliance
with Section 16 of the Exchange Act
With respect to Participants subject to Section 16 of the
Exchange Act (Section 16 Participants),
transactions under the Stock Plan are intended to comply with
all applicable conditions of
Rule 16b-3
or its successors under the Exchange Act. To the extent that
compliance with any Stock Plan provision applicable solely to
such Section 16 Participants that is included solely for
purposes of complying with
Rule 16b-3
is not required in order to bring a transaction by such
Section 16 Participant in compliance with
Rule 16b-3,
it shall be deemed null and void as to such transaction, to the
extent permitted by law and deemed advisable by the Committee.
To the extent any provision in the Stock Plan or action by the
Committee involving such Section 16 Participants is deemed
not to comply with an applicable condition of
Rule 16b-3,
it shall be deemed null and void as to such Section 16
Participants, to the extent permitted by law and deemed
advisable by the Committee.
46
Please mark your votes as X indicated in this example FOR all nominees WITHHOLD listed (except as
AUTHORITY indicated to the to vote for all contrary) nominees listed *EXCEPTIONS FOR AGAINST
ABSTAIN 1 . ELECTION OF DIRECTORS 2. Approval of the proposed amendment to the 2006 Stock Plan.
Nominees: 0 1 William F. Miller III 3. Ratification of the selection of KPMG LLP as the 0 2 William
W. Neal Companys independent accountants for the fiscal 0 3 Ellen A. Rudnick year ending
December 31, 2009. 04 Michael A. Stocker 05 Richard H. Stowe 4. To transact such other business
as may properly come before the meeting or any adjournment thereof. (INSTRUCTIONS: To withhold
authority to vote for any individual nominee, mark the Exceptions box and write that nominees
name in the space provided below.) *Exceptions ___Mark Here for Address
Change or Comments SEE REVERSE Signature Signature Date NOTE: Please sign as name appears
hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such. FOLD AND DETACH HERE WE ENCOURAGE YOU TO TAKE
ADVANTAGE OF INTERNET OR TELEPHONE VOTING, BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK.
Internet and telephone voting is available through 11:59 PM Eastern Time the day prior to annual
meeting day. INTERNET http://www.proxyvoting.com/hmsy Use the Internet to vote your proxy. Have
HMS Holdings your proxy card in hand when you access the web site. OR TELEPHONE 1-866-540-5760
Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call. If
you vote your proxy by Internet or by telephone, you do NOT need to mail back your proxy card. To
vote by mail, mark, sign and date your proxy card and return it in the enclosed postage-paid
envelope. Your Internet or telephone vote authorizes the named proxies Important notice regarding
the Internet availability of to vote your shares in the same manner as if you marked, signed and
returned your proxy card. proxy materials for the Annual Meeting of shareholders The Proxy
Statement and the 2008 Annual Report to Stockholders are available at:
http://bnymellon.mobular.net/bnymellon/hmsy 48178 |
HMS HOLDINGS CORP. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The
undersigned appoints William C. Lucia and Walter D. Hosp, and any one of them, as proxies, to vote
all shares of Common Stock of HMS Holdings Corp. (the Company) held of record by the undersigned as
of April 28, 2009, the record date with respect to this solicitation, at the Annual Meeting of
Shareholders of the Company to be held at 401 Park Avenue South, New York, New York 10016 on
Friday, June 12, 2009, at 10:00 A.M. and any adjournments thereof, upon the following matters:
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE UNDERSIGNED
SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3 ON THE
REVERSE HEREOF. IN THEIR DISCRETION, THE PROXIES ARE ALSO AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY COME BEFORE THE MEETING. IF ANY NOMINEE DECLINES OR IS UNABLE TO SERVE AS A
DIRECTOR, THEN THE PROXIES SHALL HAVE FULL DISCRETION TO VOTE FOR ANY OTHER PERSON DESIGNATED BY
THE BOARD OF DIRECTORS. (Continued and to be signed on the reverse side) BNY MELLON SHAREOWNER
SERVICES Address Change/Comments P.O. BOX 3550 (Mark the corresponding box on the reverse side)
SOUTH HACKENSACK, NJ 07606-9250 FOLD AND DETACH HERE HMS HOLDINGS CORP. Annual Meeting of
Shareholders June 12, 2009 401 Park Avenue South New York, NY 10016 Choose MLinkSM for
fast, easy and secure 24/7 online access to your future proxy materials, investment plan
statements, tax documents and more. Simply log on to Investor ServiceDirect® at
www.bnymellon.com/shareowner/isd where step-by-step instructions will prompt you through
enrollment. 48178 |