DEF 14A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO.
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Filed by the Registrant [X]
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Preliminary Proxy Statement
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Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Soliciting Material Pursuant to
Section 240.14a-11(c) or Section 240.14a-2. |
HMS HOLDINGS CORP.
(Name of Registrant as Specified In Its
Charter)
(Name of Person(s) Filing Proxy Statement, if
other than Registrant)
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Check box if any part of the fee is offset as provided by Exchange Act Rule
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previously. Identify the previous filing by registration statement number,
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HMS
HOLDINGS CORP.
401 Park Avenue South
New York, New York 10016
Notice
of Annual Meeting of Shareholders to be held June 6,
2006
The Annual Meeting of Shareholders (the Meeting) of HMS Holdings
Corp. will be held at our offices located at 401 Park Avenue
South, New York, New York, on June 6, 2006 at
10:00 a.m., Eastern Daylight Time, for the following
purposes:
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To elect three directors to serve for two-year terms expiring at
the annual meeting in 2008 and until their successors are
elected and qualified;
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To consider and take action on the proposed adoption of our 2006
Stock Plan;
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To consider and take action on the ratification of the selection
of KPMG LLP as our independent certified public accountants for
fiscal year 2006; and
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To transact such other business as may properly come before the
Meeting or any adjournments thereof.
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Only shareholders of record at the close of business on
April 17, 2006 will be entitled to receive notice of and to
vote at the Meeting and at any adjournments of the Meeting.
Shareholders are cordially invited to attend the 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 in the
accompanying postage-prepaid envelope. It is important
that your shares be represented at the Meeting by virtue of your
executed proxies should you be unable to attend the Meeting in
person. Your promptness in responding will assist us to prepare
for the 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.
Sincerely,
Laura Jo Snyder-Cruz
Secretary
May 9, 2006
TABLE OF CONTENTS
HMS
HOLDINGS CORP.
401 Park Avenue South
New York, New York 10016
PROXY
STATEMENT
Annual Meeting of Shareholders
To Be Held June 6, 2006
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 Meeting is scheduled to be
held on Tuesday, June 6, 2006, 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 9, 2006.
At the Meeting, shareholders will be asked to vote upon:
(1) the election of three directors; (2) the proposed
adoption of our 2006 Stock Plan; (3) the ratification of
the selection of independent certified public accountants for
fiscal year 2006; and (4) such other business as may
properly come before the Meeting and at any adjournments thereof.
Voting
Rights and Votes Required
The close of business on April 17, 2006 has been fixed as
the Record Date for the determination of shareholders entitled
to receive notice of and to vote at the Meeting. As of the close
of business on such date, we had outstanding and entitled to
vote 20,351,651 shares of Common Stock, par value
$0.01 per share. Because many shareholders cannot attend
the Meeting in person, it is necessary that a large number 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 will close at 11:59 p.m.
Eastern Daylight Time on June 5, 2006. 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
Meeting must be represented in person or by proxy at the 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 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 three 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
Meeting by the holders of Common Stock represented at the
Meeting in person or by proxy and entitled to vote will be
required to ratify the proposed adoption of our 2006 Stock Plan
and the selection of our independent certified public
accountants. 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 ratify the 2006 Stock Plan and the selection of
independent certified 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 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 ratification
of the proposed 2006 Stock Plan and FOR the ratification
of the selection of independent certified public accountants.
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 Meeting.
Solicitation
of Proxies
We will bear the cost of this solicitation, including amounts
paid to banks, brokers, and other record owners to reimburse
them for their expenses in forwarding solicitation materials
regarding the Meeting to beneficial owners of Common Stock. The
solicitation will be by mail, with the materials being forwarded
to shareholders of record and certain other beneficial owners of
Common Stock by our officers and other regular employees (at no
additional compensation). Such officers and employees may also
solicit proxies from shareholders by personal contact, by
telephone, or by other means if necessary in order to assure
sufficient representation at the Meeting.
Mellon Investor Services LLC has been retained to receive and
tabulate proxies and to provide representatives to act as
inspectors of election for the Meeting.
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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. The terms of four directors will
expire at the Meeting, and one director, Randolph G. Brown, has
indicated he will not be a nominee for reelection at the
Meeting. Accordingly, the terms of the three nominees listed
below, if elected at the Meeting, will expire at the 2008 annual
meeting. The terms of the other current directors listed below
will expire at the 2007 annual meeting.
The three persons designated by the Board of Directors as
nominees for election as directors with terms expiring at the
2008 annual meeting are Robert M. Holster, James T. Kelly and
Galen D. Powers.
Unless a contrary direction is indicated, it is intended that
proxies received will be voted for the election as directors of
the three nominees, to serve for two-year terms expiring at the
2008 annual meeting, and in each case until their successors are
elected and qualified. 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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Served as
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Director
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Name
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Position with the Company or
Principal Occupation
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from
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Nominees for directors for
two-year terms ending in 2008:
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Robert M. Holster
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Our Chairman and Chief Executive
Officer.
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2005
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James T. Kelly
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Private Investor. Formerly
Chairman of the Board and Chief Executive Officer of Lincare
Holdings, Inc., a provider of oxygen and respiratory therapy
services to patients in the home.
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2001
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Galen D. Powers
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Senior Founder of Powers, Pyles,
Sutter & Verville, P.C., a healthcare law firm;
Director of MedCath, which owns and operates acute care
hospitals that specialize in cardiovascular disease.
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1992
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Directors continuing in office
until 2007:
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William F. Miller III
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Private Investor.(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 Graduate
School of Business.
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1997
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Richard H. Stowe
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Private Investor. Senior Advisor
to Capital Counsel LLC, an asset management firm.
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1989
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Mr. Millers employment will continue through
December 31, 2007 and he will serve as an executive of the
Company.
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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 15, 2006:
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Name
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Position
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Robert M. Holster(4)
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Chairman and Chief Executive
Officer
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William C. Lucia
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President and Chief Operating
Officer
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Thomas G. Archbold
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Chief Financial Officer
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Randolph G. Brown
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Director
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James T. Kelly(1)(2)(4)
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Director
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William F. Miller III(4)
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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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Richard H. Stowe(1)(2)(3)(4)
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Director
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As of April 15, 2006, 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 |
Robert M. Holster, 59, re-joined us in April of 2001 as
President and Chief Operating Officer, was appointed our Chief
Executive Officer effective May 1, 2005 and has served as a
director since 2005. On April 4, 2006, Mr. Holster was
elected Chairman of the Board. From 1993 through 1998,
Mr. Holster served as President and Chief Executive Officer
of HHL Financial Services, Inc., at the time one of the
nations largest healthcare accounts receivable management
companies. From 1998 to 2000, Mr. Holster served as Trustee
of the HHL Trust. Previously, Mr. Holster served as our
Executive Vice President from 1982 through 1993 and as one of
our directors from 1989 through 1996. Prior to 1982,
Mr. Holster served in a number of executive positions
including Chief Financial Officer of Macmillan, Inc. and
Controller of Pfizer Laboratories, a division of Pfizer, Inc.
Mr. Holster is currently a director of Hi-Tech Pharmacal,
Inc. and Varsity Group Inc.
William C. Lucia, 48, appointed President and Chief
Operating Officer effective May 1, 2005, joined us in 1996.
Mr. Lucia has held several positions with us including:
President, Health Management Systems, Inc. subsidiary, 2002 to
2005; President, Payor Services Division, 2001 to 2002; Vice
President and General Manager, Payor Services Division, 2000 to
2001; Vice President, Business Office Services, 1999 to 2000;
Chief Operating Officer of Quality Medical Adjudication,
Incorporated (QMA) (formerly a wholly-owned subsidiary of ours)
and Vice President of West Coast Operations, 1998 to 1999; Vice
President and General Manager of QMA, 1997 to 1998; and Director
of Information Systems for QMA, 1996 to 1997. 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).
Thomas G. Archbold, 46, was appointed our Chief Financial
Officer on January 12, 2005. Previously,
Mr. Archbold served as Interim Chief Financial Officer
since April 2004 and had joined us in August 2002 as
Vice President of Finance and Controller. Prior to joining
us, from 1999 through 2001, he was Chief Financial
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Officer of Langer Inc., a publicly traded healthcare device
manufacturer, and served as the Controller of several
manufacturing companies. He was in the audit practice of
Ernst & Young LLP for more than nine years, including
four years as a Senior Manager.
Randolph G. Brown, 63, has served as a director since
1998. Mr. Brown is a private investor who formerly served
as Chairman and Chief Executive Officer of One-Inc., a developer
and manager of refractive and cataract surgery centers in New
York, from August of 1999 until he sold the business in October
2001. Previously, Mr. Brown had been an independent
business consultant since November 1996, principally as a
venture partner with Morgenthaler Venture Partners. From July
1987 through October 1996, Mr. Brown served in various
senior executive positions, including Chairman, President and
Chief Executive Officer for Medaphis Corporation, a provider of
accounts receivable management services to hospital-affiliated
physicians and hospitals. From 1978 to 1987, Mr. Brown
served in various management positions with Humana Inc., at that
time a provider of integrated healthcare delivery services.
James T. Kelly, 59, has served as a director since
December 2001. Mr. Kelly is a private investor who formerly
served as the Chief Executive Officer of Lincare Holdings, Inc.,
one of the nations largest providers of oxygen and other
respiratory therapy services to patients in the home, from 1986
through 1996, and served as Chairman of the Board from 1994
through 2000. Prior to becoming Lincares Chief Executive
Officer, Mr. Kelly served in a number of positions within
the Mining and Metals Division of Union Carbide Corporation.
Mr. Kelly is currently a director of American Dental
Partners, Inc. and several private companies.
William F. Miller III, 56, Director, joined us in
October of 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 was our Chairman of the Board. 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. From 1980 through 1983, Mr. Miller served
as Administrator/Chief Operating Officer of Vail Mountain
Medical. Prior to 1980, Mr. Miller served in various
management positions as CFO, and CEO of various investor owned
hospital facilities. Mr. Miller is currently a director of
Lincare Holdings, Inc. and AMN Healthcare, Inc.
William W. Neal, 74, 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), an investment 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, 69, has served as a director since 1992.
Mr. Powers is the 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, and a number of private companies in the healthcare
field.
Ellen A. Rudnick, 55, has served as a director since
1997. Ms. Rudnick is an Executive Director and Clinical
Professor of the Michael P. Polsky Entrepreneurship Center,
University of Chicago Graduate School of Business. 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
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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 also serves on the Boards of Liberty Mutual
Insurance Company, Patterson Companies and First Midwest Bank.
Richard H. Stowe, 62, has served as a director since
1989. Mr. Stowe is a private investor and 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 in the venture capital and
corporate finance groups of New Court Securities Corporation
(now Rothschild, Inc.). Mr. Stowe is also a director of
MedQuist, Inc., a provider of medical record transcription
services and several private companies.
Resignations
Randolph G. Brown, who has served us as a director since
1998, will retire as a director effective as of the 2006 Annual
Meeting.
Directors
Fees
We pay non-employee directors $2,500 quarterly and $1,500 for
each special Board of Directors or committee meeting that they
attend, and reimburse them for expenses incurred in attending
those meetings.
10b5-1
Plans
Our policy regarding securities trades by company executive
officers and directors permits sales of our securities under
plans instituted pursuant to Securities and Exchange Commission
(SEC)
Rule 10b5-1.
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. Other
officers and directors may adopt plans pursuant to
Rule 10b5-1
in the future.
Committees
and Meetings of the Board of Directors
The Board of Directors is composed of a majority of independent
directors (as independence is defined in the rules of The NASDAQ
Stock Market). The Board of Directors held 9 meetings during
fiscal year 2005. 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. Two directors attended our 2005
Annual Meeting.
During 2005 the committees of the Board of Directors consisted
of an Audit Committee, a Compensation Committee and a Compliance
Committee. Prior to March 3, 2004, the Audit and Compliance
Committees were joined as one committee. The charters of all
Board Committees, the Companys Code of Ethics and Code of
Conduct for Designated Senior Financial Managers are available
on our website at www.hmsholdings.com. In April 2006 the Board
of Directors established a Nominating Committee, which
committees charter is attached as Annex 2 to this
Proxy Statement.
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Audit Committee. The Audit Committee currently
consists of Messrs. Brown (Chairman), Kelly and Stowe.
Following the Meeting, the Audit Committee will consist of
Mr. Kelly, Ms. Rudnick and Mr. Stowe and
Mr. Kelly will serve as its Chairman. The Board has
determined that all members of the Audit Committee are
independent directors under the rules of The NASDAQ Stock Market
and that each of them 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 SEC) and that he is independent of
management, as such term is defined in item 7(d)(3)(iv) of
Schedule 14A under the Securities Exchange Act of 1934.
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 10 meetings during fiscal year 2005.
Compensation Committee. The Compensation
Committee reviews and recommends the compensation and bonuses of
our executives. The Compensation Committee also administered our
1999 Long-Term Incentive Stock Plan and will administer our 2006
Stock Plan if adopted by the shareholders at the Meeting. The
Compensation Committee is comprised of Messrs. Stowe
(Chairman), Kelly and Neal. The Compensation Committee held
4 meetings during fiscal year 2005. The Board has
determined that all members of the Compensation Committee are
independent directors under the rules of The NASDAQ Stock Market.
Compliance Committee. The Compliance Committee
consists of Mr. Powers (Chairman), Ms. Rudnick and
Mr. Stowe. 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 2005.
Nominating Committee. The Nominating
Committee, which was established in April 2006, consists of the
full Board and Ms. Rudnick serves as Chairperson.
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 ultimate
responsibility for selection of director nominees resides with
the Board of Directors.
Director
Nominations
The Board of Directors did not have a standing nominating
committee or committee performing similar functions in 2005,
although it currently has such a committee. The entire Board of
Directors, upon the recommendation of a majority of the
independent directors (as independence is defined in the rules
of The NASDAQ Stock Market), selected the current nominees for
election to the Board.
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
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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 independent directors 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 independent directors evaluate these candidates
by reviewing their biographical information and qualifications
and checking the candidates references. Qualified nominees
are interviewed by at least one independent director.
Appropriate candidates meet with a majority of the independent
directors, and using the input from such interviews and the
information obtained by them, the independent directors 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 independent directors 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 is posted on
our website at www.hmsholdings.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 five business days of the change or waiver.
Compliance
with Section 16(a) of the Securities Exchange Act of
1934
Pursuant to Section 16(a) of the Securities Exchange Act of
1934 (the Exchange Act) and the rules issued thereunder, our
executive officers and directors are required to file with the
SEC and the National Association of Securities Dealers, Inc.
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 2005, all of our executive
officers and directors complied with the requirements of
Section 16(a).
Additional information regarding compensation of executive
officers and directors is provided on pages 17 through 26
of this Proxy Statement.
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2.
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PROPOSED
ADOPTION OF THE 2006 STOCK PLAN
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On April 4, 2006, the Compensation Committee of the Board
of Directors adopted the HMS Holdings Corp. 2006 Stock Plan (the
2006 Plan). The Board of Directors approved the 2006 Plan on
April 4, 2006, subject to shareholder approval at the
Annual Meeting. The Committee reviewed the Companys
current 1999 Long-Term Incentive Stock Plan (the 1999 Plan).
Based on this review, the Committee determined that an
insufficient number of shares are available under this plan to
enable the Committee to provide future grants of stock options
and other stock awards to our employees.
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In 1999, the shareholders of Health Management Systems, Inc.
adopted the 1999 Plan and authorized 4,751,356 shares for
award thereunder. We assumed the 1999 Plan in connection with
our reorganization as a holding company. In 2003 our
shareholders authorized a 1,500,000 share increase in the
number of shares reserved for issuance under the 1999 Plan, to
6,251,356 shares. As of March 31, 2006, a total of
246,615 of those shares remained available for award.
As of March 31, 2006 we had a total of 4,229,630 stock
options outstanding under our 1999 Plan and our 1995
Non-Employee Director Stock Option Plan (which plan has expired
by its terms on October 31, 2004). The weighted average
exercise price of these options is $3.51 per share, and
they have a weighted average term during which they may be
exercised of 6.34 years.
If the 2006 Plan is approved by our shareholders, we will
terminate the 1999 Plan, and no further options or awards will
be granted under the 1999 Plan.
The Board believes that by allowing us to continue to offer our
employees long-term, performance-based compensation through the
2006 Plan, we will continue to be able to attract, motivate and
retain experienced and highly qualified employees who will
contribute to our financial success.
The 2006 Plan provides for the granting of stock options, stock
awards, stock appreciation rights, performance-contingent awards
and other equity-based awards to our employees. The 2006 Plan
does not permit the repricing of options without shareholder
approval or the granting of discounted options, and does not
contain an evergreen provision.
Provisions have been included to meet the requirements for
deductibility of executive compensation under
Section 162(m) of the Internal Revenue Code of 1986, as
amended (the Code), with respect to options and other awards by
qualifying payments under the Plan as performance-based
compensation.
The 2006 Plan also will provide the flexibility to grant
equity-based awards to our non-employee Directors.
The following is a brief description of the 2006 Plan. The full
text of this Plan 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 2006 Plan is in the best interests of the Company and our
shareholders.
|
|
|
Plan Term |
|
If approved by our shareholders, the 2006 Plan will become
effective as of the date of such approval and no awards will be
made under the 2006 Plan after the tenth anniversary of the date
of such approval, unless terminated earlier by the Board or the
Committee. |
|
Eligible for grants |
|
All employees of the Company and its subsidiaries as well as the
Companys non-employee directors will be eligible to
participate in the 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.
Currently, 75 employees and directors participate in the 1999
Plan. |
|
Awards available |
|
Incentive and Nonqualified Stock Options (Stock
Options).
|
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|
Stock Appreciation Rights (SARs).
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Restricted Stock Awards.
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9
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Performance Awards.
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Share Awards.
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Phantom Stock Awards.
|
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Shares Authorized |
|
1,000,000 shares of Common Stock, counted and subject to
adjustments, as described below. |
|
Share Counting Method |
|
Stock Options and SARs count as one share.
Combination Tandem SAR and Stock Option where
exercise of one results in cancellation of the
other count as one share in the aggregate.
|
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|
|
Restricted Stock Award, Performance Share, Share
Award and Phantom Stock Awards count as 1.8 shares.
|
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Shares tendered in payment of the exercise price of
a Stock Option do not increase the number of shares authorized.
|
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Shares withheld to satisfy tax withholding
obligation are not added to the shares authorized.
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All shares covered by a SAR, to the extent exercised
and whether or not shares of Common Stock are actually issued
upon exercise of the right, are considered issued or transferred
pursuant to the 2006 Plan. |
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The total number of shares covering granted stock-settled SARs
will be counted against the pool of available shares under the
2006 Plan, not just the net shares issued upon exercise. |
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Individual Limitations |
|
In any year, no individual may receive Awards covering more than
200,000 shares of Common Stock (counted as described above). |
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Repricing Prohibited |
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No adjustments or reduction of the exercise price of any
outstanding Awards in the event of a decline in stock price is
permitted without approval by our shareholders or as otherwise
specifically provided under the 2006 Plan. The prohibition
includes: |
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Reducing the exercise price of outstanding
Awards and
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Canceling outstanding Awards in connection with
regranting Awards at a lower price to the same individual.
|
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Special Provisions for Stock Options |
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Number granted |
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Determined by the Committee. |
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Exercise Price |
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Not less than fair market value of a share of stock on grant
date. |
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The fair market value is the average of the high and
low prices of our Common Stock as reported on The NASDAQ Stock
Market on the grant date.
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Vesting and Exercise Periods |
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As determined by the Committee. However, |
10
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If a grantees employment is terminated for
misconduct, as determined by the Company, all rights under the
Stock Option expire immediately.
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The term of Stock Options may not exceed ten years.
|
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Limits on Incentive Stock Options |
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In general, Incentive Stock Options (ISOs) must satisfy
requirements prescribed by the Code to qualify for special tax
treatment. Therefore, |
|
|
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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.
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If any grant is made in excess of the limits
provided in the Code, the grant automatically becomes a
Nonqualified Stock Option.
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Dividend Equivalents |
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Dividends are neither paid nor accumulated on Stock Option. |
|
Special Provisions for SARs |
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SARs may be issued singly (Stand Alone SAR) or in combination
with an option (Tandem SAR). SARs may be paid in shares, cash or
a combination of shares and cash. |
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|
|
A Tandem SAR entitles its grantee to surrender the
Stock Option which 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 price (the Spread) multiplied by the
number of shares covered by the Stock Option which 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 it 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. |
|
Dividend Equivalents |
|
Dividends are neither paid nor accumulated on SARs. |
|
Special Provisions for Restricted Stock Awards |
|
Restricted Stock Awards actual 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 |
11
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receive the shares, cash or combination thereof under the
Restricted Stock Award. |
|
|
|
If employment or service as a director ends before the
Restricted Period ends, the Restricted Stock Award will
terminate. |
|
|
|
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
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. |
|
|
|
All restrictions imposed under the Restricted Stock 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. |
|
|
|
Payouts of Restricted Stock Awards may be in the form of shares
of Common Stock, cash or any combination of shares and cash as
determined by the Committee. |
|
Dividend Equivalents |
|
The Committee may at the time of grant provide that dividends
during the Restricted Period are paid or accumulated, or are
neither paid nor accumulated. |
|
Vesting |
|
Restricted Stock Awards will have a vesting period of at least
three years. |
|
Special Provisions for Performance Share Awards |
|
The Committee will determine the period for which a Performance
Share Award is made (Award Period) and the Performance goals.
Recipients of Performance Share 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: |
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Share price
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Pre-tax profits
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Earnings per share
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Return on stockholders equity
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Return on assets,
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Sales
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Net income |
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Total shareholder return
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12
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For a Performance Share 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. |
|
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. |
|
|
|
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. |
|
Dividend Equivalents |
|
The Committee may at the time of grant provide that dividends or
dividend equivalents during the Award Period are paid or
accumulated, or neither paid nor accumulated. |
|
Vesting |
|
Performance Awards 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. |
|
Dividend Equivalents |
|
The Committee may at the time of grant provide that dividends or
dividend equivalents are paid or accumulated, or neither paid
nor accumulated. |
Other
Information
Administration of the Plan. The 2006 Plan will
be 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 Securities
Exchange Act of 1934 (the Exchange Act). To the extent permitted
by law, the Committee may delegate certain of its authority in
accordance with the 2006 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 Plan will be
conclusive and bind all parties.
Change in Control. In the event of a change in
control of the Company (as defined in the 2006 Plan) Stock
Options and SARs will become 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.
13
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 Plan; the individual award maximums
and maximum share limits described in the 2006 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 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 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 Plan without stockholder
approval where the absence of approval would cause the 2006 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.
United
States Income Tax Consequences.
The federal income tax consequences of the 2006 Plan under
current federal tax laws and regulations are summarized in the
following discussion. The summary deals with general tax
principles applicable to the 2006 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 Plan, or state, local or
non-U.S. taxes.
Incentive Stock Options (ISOs). In general, an
optionee realizes no taxable income upon the grant or exercise
of an ISO. However, the exercise of an ISO may result in an
alternative minimum tax liability to the optionee. With certain
exceptions, a disposition of shares purchased under an ISO
within two years from the date of grant or within one year after
exercise produces ordinary income to the optionee (and a
deduction to the Company) equal to the value of the shares at
the time of exercise less the exercise price. Any additional
gain recognized in the disposition is treated as a capital gain
for which the Company is not entitled to a deduction. If the
optionee does not dispose of the shares until after the
expiration of these one- and two-year holding periods, any gain
or loss recognized upon a subsequent sale is treated as a
long-term capital gain or loss for which the Company is not
entitled to a deduction. In general, an ISO that is exercised by
the optionee more than three months after termination of
employment is treated as a non-incentive stock option (NSO).
ISOs are also treated as NSOs to the extent they first become
exercisable by an individual in any calendar year for shares
having a fair market value (determined as of the date of grant)
in excess of $100,000.
Non-Incentive Stock Options (NSOs). In
general, in the case of a NSO, the optionee has no taxable
income at the time of grant but realizes income in connection
with exercise of the option in an amount equal to the excess (at
the time of exercise) of the fair market value of the shares
acquired upon exercise over the exercise price; a corresponding
deduction is available to the Company; and upon a subsequent
sale or exchange of the shares, any recognized gain or loss
after the date of exercise is treated as capital gain or loss
for which the Company is not entitled to a deduction.
Restricted Stock and other Awards Subject to a Substantial
Risk of Forfeiture. If shares subject to an award
are nontransferable and subject to a substantial risk of
forfeiture, the participant generally will not recognize income
(and the Company will not become entitled to a tax deduction)
until the shares become transferable or not subject to
14
a substantial risk of forfeiture (whichever occurs first), and
the amount of income (or deduction) will be equal to the excess
of (i) the fair market value of the shares on the date
income is recognized over (ii) the amount, if any, paid for
the shares by the participant. However, under Section 83 of
the Code, the participant may make a so-called 83(b)
election at the time of the award to recognize taxable income at
that time. Assuming no other applicable limitations, the amount
and timing of the deduction available to the Company will
correspond to the income recognized by the participant.
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. The Company generally will be
entitled to a tax deduction in the same amount.
Under the so-called golden parachute provisions of
the Code, the accelerated vesting of awards in connection with a
change in control of the Company may be required to be valued
and taken into account in determining whether participants have
received compensatory payments, contingent on the change in
control, in excess of certain limits. If these limits are
exceeded, a substantial portion of amounts payable to the
participant, including income recognized by reason of the grant,
vesting or exercise of awards under the 2006 Plan, may be
subject to an additional 20% federal tax and may be
nondeductible to the Company.
Section 409A. The American Jobs Creation
Act of 2004 added Section 409A to the Code, generally
effective January 1, 2005. The IRS has so far issued only
limited guidance on the interpretation of this new law.
Section 409A covers most programs that defer the receipt of
compensation to a succeeding year. It provides strict rules for
elections to defer (if any) and for timing of payouts. There are
significant penalties placed on the individual employee for
failure to comply with Section 409A. However, it does not
impact our ability to deduct deferred compensation.
Section 409A does not apply to ISOs, NSOs and SARs (that
are not discounted) and restricted stock (provided there is no
deferral of income beyond the vesting date).
Section 409A may apply to restricted stock units,
performance units and performance shares. Any such grants will
continue to be taxed at vesting.
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 one of our most highly compensated executive 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 performance criteria, as
established and certified by a committee consisting solely of
two or more outside directors.
Stock
Price
On April 17, 2006, the closing price of our Common Stock on
The NASDAQ Stock Market was $7.98.
15
New
Plan Benefits
Since the Committee in its sole discretion will authorize
awards, it is not possible to determine the benefits or amounts
that will be received by any particular employee or group of
employees in the future under the 2006 Plan. Information about
stock options awarded during fiscal year 2005 under the 1999
Plan to the executive officers named in the Summary Compensation
Table Information appears at page 19 of this Proxy
Statement under the heading Options Granted in the Last
Year.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
APPROVAL OF THE PROPOSED ADOPTION OF THE 2006 STOCK PLAN.
3. RATIFICATION
OF THE SELECTION OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS
The Board of Directors, in accordance with the recommendation of
the Audit Committee, has selected, subject to ratification by
shareholders, KPMG LLP, independent certified public
accountants, to audit our consolidated financial statements for
fiscal year 2006. 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 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 Certified 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 2005 and 2004, fees in connection with
services rendered by KPMG LLP, the Companys independent
auditors, were as follows:
|
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|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Audit fees
|
|
$
|
447,000
|
|
|
$
|
541,100
|
|
Audit related fees
|
|
|
6,400
|
|
|
|
31,500
|
|
Tax fees
|
|
|
|
|
|
|
|
|
All other fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fees
|
|
$
|
453,400
|
|
|
$
|
572,600
|
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|
|
|
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|
|
|
|
|
Audit fees are those fees for professional services rendered in
connection with the audits of our consolidated financial
statements for the years ended December 31, 2005 and 2004
and the review of our quarterly condensed consolidated financial
statements on
Form 10-Q.
Audit related fees consisted of services rendered in connection
with the sale of our Accordis Inc. subsidiary.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
PROPOSAL TO RATIFY THE SELECTION OF KPMG LLP AS INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS FOR FISCAL YEAR 2006.
16
ADDITIONAL
INFORMATION
Stock
Ownership
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of March 31, 2006
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 investment power with respect to such securities.
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Name
|
|
Amount
|
|
|
Percentage
|
|
|
AMVESCAP PLC(a)
|
|
|
2,894,399
|
|
|
|
13.7
|
%
|
11 Devonshire Square London EC2M
4YR England
|
|
|
|
|
|
|
|
|
Wells Fargo & Company(b)
|
|
|
2,281,154
|
|
|
|
10.8
|
%
|
420 Montgomery Street
San Francisco, CA 94104
|
|
|
|
|
|
|
|
|
Babson Capital Management LLC(c)
|
|
|
1,781,682
|
|
|
|
8.4
|
%
|
One Memorial Drive Cambridge, MA
02142-1300
|
|
|
|
|
|
|
|
|
Dimensional Fund Advisors
Inc.(d)
|
|
|
1,030,394
|
|
|
|
4.9
|
%
|
1299 Ocean Avenue,
11th Floor, Santa Monica, CA 90401
|
|
|
|
|
|
|
|
|
William F. Miller III(e)
|
|
|
1,190,095
|
|
|
|
5.5
|
%
|
Robert M. Holster(f)
|
|
|
1,183,310
|
|
|
|
5.3
|
%
|
William C. Lucia(g)
|
|
|
407,528
|
|
|
|
1.9
|
%
|
Thomas G. Archbold(h)
|
|
|
105,065
|
|
|
|
*
|
|
Randolph G. Brown(i)
|
|
|
90,250
|
|
|
|
*
|
|
James T. Kelly(j)
|
|
|
300,000
|
|
|
|
1.4
|
%
|
William W. Neal(k)
|
|
|
155,720
|
|
|
|
*
|
|
Galen D. Powers(l)
|
|
|
80,237
|
|
|
|
*
|
|
Ellen A. Rudnick(m)
|
|
|
126,500
|
|
|
|
*
|
|
Richard H. Stowe(n)
|
|
|
202,062
|
|
|
|
1.0
|
%
|
All executive officers and
directors as a group (10 persons)(o)
|
|
|
3,840,767
|
|
|
|
16.0
|
%
|
|
|
|
* |
|
denotes percentage of ownership is less than 1%. |
|
(a) |
|
The number of shares of Common Stock beneficially owned is based
upon information on a Schedule 13G/A filed by AMVESCAP PLC
with the SEC as of December 31, 2005. Such shares are held
by the following entities in the respective amounts listed: AIM
Advisors, Inc. 2,371,209; AIM Capital Management, Inc. 499,790;
INVESCO Taiwan Limited. 23,400. |
|
(b) |
|
The number of shares of Common Stock beneficially owned is based
upon information on a Schedule 13G/A filed by Wells
Fargo & Company with the SEC as of December 31,
2005. |
|
(c) |
|
The number of shares of Common Stock beneficially owned is based
upon information on a Schedule 13G filed by Babson Capital
Management LLC with the SEC as of December 31, 2005. |
|
(d) |
|
According to its Schedule 13G/A for the year ended
December 31, 2005, Dimensional Fund Advisors Inc. is a
registered investment advisor which furnishes investment advice
to four investment companies registered |
17
|
|
|
|
|
under the Investment Company Act of 1940, and serves as
investment manager to certain other commingled group trusts and
separate accounts. The shares of Common Stock are owned by these
funds. |
|
(e) |
|
Includes outstanding options to purchase 586,000 shares
(75,000 of which are held in trust by members of the family of
Mr. Miller, as to which Mr. Miller disclaims beneficial
ownership) of Common Stock that are currently exercisable or
will become exercisable before May 30, 2006. Also includes
6,000 shares of Common Stock owned by members of the family
of Mr. Miller, as to which Mr. Miller disclaims
beneficial ownership. |
|
(f) |
|
Includes outstanding options to purchase 1,090,000 shares
of Common Stock that are currently exercisable or will become
exercisable before May 30, 2006. Also includes
35,996 shares of Common Stock owned by members of the
family of Mr. Holster, as to which Mr. Holster
disclaims beneficial ownership. |
|
(g) |
|
Includes outstanding options to purchase 400,834 shares of
Common Stock that are currently exercisable or will become
exercisable before May 30, 2006. |
|
(h) |
|
Includes outstanding options to purchase 96,668 shares of
Common Stock that are currently exercisable or will become
exercisable before May 30, 2006. |
|
(i) |
|
Includes outstanding options to purchase 90,250 shares of
Common Stock that are currently exercisable or will become
exercisable before May 30, 2006. |
|
(j) |
|
Includes outstanding options to purchase 290,000 shares of
Common Stock that are currently exercisable or will become
exercisable before May 30, 2006. Also includes
10,000 shares of Common Stock owned by members of the
family of Mr. Kelly, as to which Mr. Kelly disclaims
beneficial ownership. |
|
(k) |
|
Includes 69,279 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 82,000 shares of Common Stock that are currently
exercisable or will become exercisable before May 30, 2006,
60,000 of which are held by a family member, as to which
Mr. Neal disclaims beneficial ownership. |
|
(l) |
|
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 80,000 shares of Common Stock that are currently
exercisable or will become exercisable before May 30, 2006. |
|
(m) |
|
Includes outstanding options to purchase 123,500 shares of
Common Stock that are currently exercisable or will become
exercisable before May 30, 2006. |
|
(n) |
|
Includes 2,250 shares of Common Stock owned by members of
the family of Mr. Stowe, as to which Mr. Stowe disclaims
beneficial ownership. Also includes outstanding options to
purchase 152,500 shares of Common Stock that are currently
exercisable or will become exercisable before May 30, 2006. |
|
(o) |
|
Includes outstanding options to purchase 2,991,752 shares
of Common Stock that are currently exercisable or will become
exercisable before May 30, 2006. |
18
Summary
Compensation Table
The following table sets forth the cash and non-cash
compensation for the three years ended December 31, 2005
awarded to or earned by our Chief Executive Officer and by each
of our other three most highly compensated executive officers.
We only have three other executive officers.
|
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Long-Term
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|
|
Compensation
|
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Annual Compensation
|
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Awards
|
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Other
|
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Securities
|
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Fiscal
|
|
|
|
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|
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Annual
|
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Underlying
|
|
|
All Other
|
|
Name and Principal
Position
|
|
Year
|
|
|
Salary ($)
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|
|
Bonus ($)
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|
Compensation ($)
|
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Options
|
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Compensation ($)(a)
|
|
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William F. Miller III(b)
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2005
|
|
|
$
|
400,000
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|
|
$
|
|
|
|
$
|
|
|
|
|
150,000
|
|
|
$
|
606,300
|
|
Chairman until April
2006,
|
|
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2004
|
|
|
|
400,000
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|
|
|
178,400
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|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
and Chief Executive
Officer
|
|
|
2003
|
|
|
|
400,000
|
|
|
|
200,000
|
(b)
|
|
|
|
|
|
|
100,000
|
|
|
|
6,000
|
|
until May 2005
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Robert M. Holster(c)(g)
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2005
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|
|
|
378,635
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|
|
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210,000
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|
|
|
|
|
|
|
150,000
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|
|
|
6,300
|
|
President and
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|
|
2004
|
|
|
|
325,000
|
|
|
|
144,387
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
Chief Operating
Officer
|
|
|
2003
|
|
|
|
325,000
|
|
|
|
162,500
|
|
|
|
|
|
|
|
100,000
|
|
|
|
6,000
|
|
William C. Lucia(d)(g)
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|
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2005
|
|
|
|
278,366
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|
|
|
155,000
|
|
|
|
|
|
|
|
125,000
|
|
|
|
6,300
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|
President, Health
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|
|
2004
|
|
|
|
225,000
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|
|
|
124,000
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|
|
|
|
|
|
|
|
|
|
|
6,000
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|
Management Systems,
Inc.
|
|
|
2003
|
|
|
|
225,000
|
|
|
|
132,500
|
|
|
|
|
|
|
|
50,000
|
|
|
|
6,000
|
|
Thomas G. Archbold(e)(f)
|
|
|
2005
|
|
|
|
200,000
|
|
|
|
88,000
|
|
|
|
|
|
|
|
50,000
|
|
|
|
11,534
|
|
Senior Vice President
and
|
|
|
2004
|
|
|
|
172,519
|
|
|
|
67,100
|
|
|
|
|
|
|
|
25,000
|
|
|
|
1,612
|
|
Chief Financial
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
(a) |
|
Includes matching contributions under our 401(k) Plan and in
2005 for Mr. Miller a lump-sum payment of $600,000 in lieu of
our two-year severance obligations and in lieu of any other
bonus under our bonus plans for 2005. |
|
(b) |
|
Mr. Miller joined us as Chief Executive Officer and a
director as of October 2, 2000, serving as Chief Executive
Officer through May 1, 2005 and as Chairman of the Board
through April 4, 2006. |
|
(c) |
|
Mr. Holster joined us as President and Chief Operating
Officer during 2001 and was appointed Chief Executive Officer
effective May 1, 2005 and Chairman of the Board on
April 4, 2006. |
|
(d) |
|
Mr. Lucia joined us in 1996 and was appointed President and
Chief Operating Officer effective May 1, 2005. |
|
(e) |
|
Mr. Archbold joined us in 2002, was appointed Interim Chief
Financial Officer on April 22, 2004 and was named Chief
Financial Officer on January 12, 2005. |
|
(f) |
|
Includes reimbursed non-business travel expense of $5,274. |
|
(g) |
|
In accordance with SEC rules, disclosure is omitted where total
Other Annual Compensation aggregates less than
$50,000. In lieu of reimbursing Messrs. Holster and Lucia
for hotel business expenses in New York, during 2005 the Company
has paid $30,967 and $31,908 for temporary lodging for each of
Mr. Holster and Mr. Lucia respectively. We reported these
amounts as taxable income for Messrs. Holster and Lucia.
Because the aggregate amount for each recipient was less than
$50,000, the amount paid by us is not included in Other
Annual Compensation. |
19
Employment
Agreements
William F. Miller III Director
On November 4, 2003, we amended our employment agreement
with Mr. Miller, which was originally entered into on
October 2, 2000 (the Miller Agreement). The Miller
Agreement provided for his employment through October 2,
2006 (the Employment Term) (subject to earlier termination in
certain circumstances as described below), at a base salary of
$400,000 per year. Mr. Miller was eligible to receive
bonus compensation from us in respect of each fiscal year (or
portion thereof) during the Employment Term, 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.
On January 10, 2001, as a condition of
Mr. Millers employment, our former Accelerated Claims
Processing, Inc. subsidiary, a Delaware corporation, provided
the financing for Mr. Miller to purchase directly from us
550,000 shares of Common Stock. The loan, in the principal
amount of $721,785, bore interest at the rate of 6.5% per
annum, and was payable annually in two equal installments
commencing January 2002. The loan was a full recourse loan and
was secured by the purchased shares and the shares issuable upon
the exercise of stock options. Bonuses otherwise payable to
Mr. Miller were applied to pay the first and second
installments of principal and interest on Mr. Millers
note to us in January 2002 and 2003, respectively. The loan is
now fully repaid.
Also in connection with his employment, on January 10,
2001, the Compensation Committee granted Mr. Miller options
to purchase 750,000 shares of Common Stock at an exercise
price of $1.31 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
650,000 shares vesting thereafter in eight equal quarterly
installments. These options were not granted pursuant to our
1999 Long-Term Incentive Stock Plan.
If we terminated Mr. Millers employment without
cause or if his employment ceased within
45 days of a change in control of us (both as
defined in the Miller Agreement), Mr. Miller would have
been entitled to a continuation of salary for 24 months and
group medical insurance for 36 months following termination
of employment. In addition, certain of his unvested options
would have accelerated and certain restrictions on his Common
Stock would have been eliminated in the case of a change in
control.
Effective January 2006 the Miller Agreement was amended and
restated. As so amended and restated, the Miller Agreement
provides that the term of Mr. Millers employment will be
extended through December 31, 2007 and that he will serve
as an executive. Mr. Miller will assist 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.
In lieu of the two-year severance obligations and in lieu of any
other bonus under our bonus plans for 2005, the Miller Agreement
provides for a lump-sum payment to Mr. Miller of $600,000,
which we paid upon execution of the Miller Agreement. The Miller
Agreement provides for a base salary of $100,000 per annum,
through the end of the employment term.
Under the terms of the Miller Agreement, our obligations to pay
compensation will terminate upon a voluntary termination by
Mr. Miller or upon our termination of Mr. Miller for
cause (as defined in the Miller Agreement), but
Mr. Millers compensation through December 31,
2007 will be payable in the event of any other termination.
Mr. Millers health insurance benefits will be
provided by us through December 31, 2008, unless he
voluntarily terminates his employment with us or we terminate
his employment for cause.
20
Non-competition, non-solicitation and non-interference covenants
will apply to Mr. Miller through December 31, 2009 or,
if sooner, two years after the termination of employment.
Robert M. Holster Chief Executive Officer
On February 11, 2004, we amended our employment agreement
with Mr. Holster, which was originally entered into on
March 31, 2001 (the Holster Agreement). The Holster
Agreement provides for his employment through April 2, 2007
(the Holster Employment Term) (subject to earlier termination in
certain circumstances as described below), at a base salary of
$325,000 per year. Effective May 1, 2005, with his
promotion to Chief Executive Officer, Mr. Holsters base
salary was increased to $400,000 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 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.
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
1999 Long-Term Incentive Stock Plan.
If we terminate Mr. Holsters employment without
cause or if his employment ceases within
45 days of a change in control of us (both as defined in
the Holster Agreement), Mr. Holster 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.
William C. Lucia President and Chief Operating
Officer
On January 1, 2003, Mr. Lucia entered into an
employment agreement (the Lucia Agreement) with us. The Lucia
Agreement provides for his employment through January 1,
2006 (the Lucia Employment Term) (subject to earlier termination
in certain circumstances as described below), at a base salary
of $225,000 per year. Effective May 1, 2005, with his
promotion to President and Chief Operating Officer,
Mr. Lucias base salary was increased to
$300,000 per year. 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 50% of base salary, in each case as may be determined by our
Board of Directors in its sole discretion on the basis of
meeting Health Management Systems business objectives
established from time to time by our Board of Directors.
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.
In January 2006, the Lucia Agreement was amended to provide that
if we terminate Mr. Lucias employment without
cause or if his employment ceases because of his
death or disability, Mr. Lucia will be entitled to a
continuation of salary and group medical insurance for
24 months following termination of employment.
Thomas G. Archbold Chief Financial Officer
In January 2006 we entered into an Amended and Restated
Agreement (the Archbold Agreement) with Thomas G. Archbold, our
Chief Financial Officer. The Archbold Agreement provides for
twelve months of severance pay and continued health benefits in
the event that Mr. Archbolds employment with us is
terminated without cause. In addition, certain of his unvested
options accelerate in the case of a change in control.
21
Stock
Options
Our 1999 Long-Term Incentive Stock Plan allows grants of stock
options and other rights relating to our Common Stock. In
general, whether exercising stock options is profitable depends
on the relationship between the Common Stocks market price
and the options exercise price, as well as on the
optionees investment decisions. Options that are in
the money on a given date can become out of the
money if prices change on the stock market. For these
reasons, we believe that placing a current value on outstanding
options is highly speculative and may not represent the true
benefit, if any, that may be realized by the optionee. The
following two tables give more information on stock options.
Options
Granted in the Last Year
The following table sets forth selected option grant information
for the year ended December 31, 2005 with respect to
options awarded to our Chief Executive Officer and each of our
three other most highly compensated executive officers.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential Realizable Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at Assumed
|
|
|
|
|
|
|
Number
|
|
|
% of Total
|
|
|
|
|
|
|
|
|
Annual Rates of
|
|
|
|
Type of
|
|
|
of
|
|
|
Options
|
|
|
Exercise
|
|
|
|
|
|
Stock Price Appreciations
|
|
|
|
Option
|
|
|
Options
|
|
|
Granted to
|
|
|
Price Per
|
|
|
Expiration
|
|
|
for Option Term(b)
|
|
Name
|
|
Granted
|
|
|
Granted
|
|
|
Employees(a)
|
|
|
Share
|
|
|
Date
|
|
|
5%
|
|
|
10%
|
|
|
William F. Miller III
|
|
|
NQ
|
|
|
|
120,841
|
|
|
|
5.3
|
%
|
|
$
|
6.95
|
|
|
|
4/14/2015
|
|
|
$
|
528,174
|
|
|
$
|
1,338,497
|
|
|
|
|
ISO
|
|
|
|
29,159
|
|
|
|
22.0
|
%
|
|
|
6.95
|
|
|
|
4/14/2015
|
|
|
|
127,449
|
|
|
|
322,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
27.3
|
%
|
|
|
|
|
|
|
|
|
|
|
655,623
|
|
|
|
1,661,477
|
|
Robert M. Holster
|
|
|
NQ
|
|
|
|
120,841
|
|
|
|
5.3
|
%
|
|
$
|
6.95
|
|
|
|
4/14/2015
|
|
|
$
|
528,174
|
|
|
$
|
1,338,497
|
|
|
|
|
ISO
|
|
|
|
29,159
|
|
|
|
22.0
|
%
|
|
|
6.95
|
|
|
|
4/14/2015
|
|
|
|
127,449
|
|
|
|
322,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
27.3
|
%
|
|
|
|
|
|
|
|
|
|
|
655,623
|
|
|
|
1,661,477
|
|
William C. Lucia
|
|
|
NQ
|
|
|
|
88,838
|
|
|
|
6.6
|
%
|
|
$
|
6.95
|
|
|
|
4/14/2015
|
|
|
$
|
388,294
|
|
|
$
|
984,015
|
|
|
|
|
ISO
|
|
|
|
36,162
|
|
|
|
16.1
|
%
|
|
|
6.95
|
|
|
|
4/14/2015
|
|
|
|
158,057
|
|
|
|
400,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,000
|
|
|
|
22.7
|
%
|
|
|
|
|
|
|
|
|
|
|
546,351
|
|
|
|
1,384,564
|
|
Thomas G. Archbold
|
|
|
NQ
|
|
|
|
28,922
|
|
|
|
5.3
|
%
|
|
$
|
6.95
|
|
|
|
4/14/2015
|
|
|
$
|
126,412
|
|
|
$
|
320,354
|
|
|
|
|
ISO
|
|
|
|
21,078
|
|
|
|
3.8
|
%
|
|
|
6.95
|
|
|
|
4/14/2015
|
|
|
|
92,128
|
|
|
|
233,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
9.1
|
%
|
|
|
|
|
|
|
|
|
|
|
218,540
|
|
|
|
553,825
|
|
As of March 31, 2006 we had a total of 4,229,630 stock
options outstanding under our 1999 Plan and our 1995
Non-Employee Director Stock Option Plan (which plan has expired
by its terms on October 31, 2004). The weighted average
exercise price of these options is $3.51 per share, and
they have a weighted average term during which they may be
exercised of 6.34 years.
22
Stock
Options Exercised in the Last Year and
Related Period-ended Stock Option Values
The following table sets forth selected stock option exercise
information for the year ended December 31, 2005 and the
number and value of stock options as of December 31, 2005
relating to our Chief Executive Officer and each of our other
three most highly compensated executive officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
Number of Unexercised
|
|
|
Value of Unexercised
|
|
|
|
Acquired on
|
|
|
Value
|
|
|
Options at Period-End
|
|
|
Options at
Period-End(a)
|
|
Name
|
|
Exercise
|
|
|
Realized
|
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
William F. Miller III
|
|
|
|
|
|
$
|
|
|
|
|
1,100,000
|
|
|
|
100,000
|
|
|
$
|
6,125,750
|
|
|
$
|
65,000
|
|
Robert M. Holster
|
|
|
|
|
|
|
|
|
|
|
1,050,000
|
|
|
|
100,000
|
|
|
|
5,895,250
|
|
|
|
65,000
|
|
William C. Lucia
|
|
|
|
|
|
|
|
|
|
|
364,167
|
|
|
|
83,333
|
|
|
|
1,489,684
|
|
|
|
54,166
|
|
Thomas G. Archbold
|
|
|
|
|
|
|
|
|
|
|
71,688
|
|
|
|
41,666
|
|
|
|
203,254
|
|
|
|
31,499
|
|
|
|
|
(a) |
|
Value of unexercised in the money options is
determined by multiplying the number of shares subject to such
options by the difference between the exercise price per share
and $7.60, the closing price per share of the Common Stock on
The NASDAQ Stock Market on December 31, 2005. |
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, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
Number of Securities
|
|
|
|
|
|
Remaining Available for
|
|
|
|
to be Issued Upon
|
|
|
Weighted-Average
|
|
|
Future Issuance Under
|
|
|
|
Exercise of Outstanding
|
|
|
Exercise Price of
|
|
|
Equity Compensation Plans
|
|
|
|
Warrants,
|
|
|
Outstanding Warrants,
|
|
|
(Excluding Securities
|
|
|
|
Options and Rights
|
|
|
Options and Rights
|
|
|
Reflected in Column (a)
|
|
Plan Category
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity Compensation Plans approved
by Shareholders(1)
|
|
|
3,672,462
|
|
|
$
|
4.02
|
|
|
|
246,615
|
|
Equity Compensation Plans not
approved by Shareholders(2)
|
|
|
1,450,000
|
|
|
$
|
1.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,122,462
|
|
|
$
|
3.24
|
|
|
|
246,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This includes options to purchase shares outstanding:
(i) under the 1999 Long-Term Incentive Plan, (ii) the
1995 Non-Employee Director Stock Option Plan, and
(iii) 250,000 options approved by shareholders and granted
to a director in June 2002. |
|
(2) |
|
Options issued under plans not approved by the shareholders
include (i) 750,000 options granted in January 2001 to our
Chairman and former Chief Executive Officer in connection with
his joining us, and (ii) 700,000 options granted in March
2001 to our Chief Executive Officer in connection with his
joining us. |
23
Stock
Option Plan Activity Through March 31, 2006
Presented below is a summary of the Companys options for
the three months ended March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31, 2006
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Outstanding at
beginning of period
|
|
|
5,122
|
|
|
$
|
3.24
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(890
|
)
|
|
|
1.91
|
|
Forfeitures
|
|
|
(2
|
)
|
|
|
15.31
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
end of period
|
|
|
4,230
|
|
|
$
|
3.51
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information for stock options
outstanding at March 31, 2006 (in thousands, except per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
Range of
|
|
|
Number
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Exercise
|
|
|
Outstanding as of
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
Prices
|
|
|
March 31, 2006
|
|
|
contractual Life
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
$
|
1.07
|
|
|
|
192
|
|
|
|
4.71
|
|
|
$
|
1.07
|
|
|
|
192
|
|
|
$
|
1.07
|
|
|
1.19
|
|
|
|
690
|
|
|
|
5.00
|
|
|
|
1.19
|
|
|
|
690
|
|
|
|
1.19
|
|
|
1.31-1.74
|
|
|
|
299
|
|
|
|
4.98
|
|
|
|
1.47
|
|
|
|
299
|
|
|
|
1.47
|
|
|
2.48
|
|
|
|
671
|
|
|
|
5.88
|
|
|
|
2.48
|
|
|
|
671
|
|
|
|
2.48
|
|
|
2.76-3.10
|
|
|
|
592
|
|
|
|
7.54
|
|
|
|
2.96
|
|
|
|
592
|
|
|
|
2.96
|
|
|
3.41-4.59
|
|
|
|
655
|
|
|
|
6.53
|
|
|
|
3.54
|
|
|
|
655
|
|
|
|
3.54
|
|
|
5.88-6.44
|
|
|
|
537
|
|
|
|
5.68
|
|
|
|
6.39
|
|
|
|
364
|
|
|
|
6.38
|
|
|
6.95-23.00
|
|
|
|
594
|
|
|
|
8.81
|
|
|
|
7.10
|
|
|
|
208
|
|
|
|
7.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.07-$23.00
|
|
|
|
4,230
|
|
|
|
6.34
|
|
|
$
|
3.51
|
|
|
|
3,671
|
|
|
$
|
3.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
Committee Interlocks and Insider Participation
The Compensation Committee is comprised of Richard H. Stowe,
William W. Neal, and James T. Kelly, each of whom is a
non-employee director of the Company. No member of this
Committee was at any time during fiscal year 2005 or at any
other time an officer or employee of ours. None of our executive
officers served on the Compensation Committee of another entity
or on any other committee of the Board of Directors of another
entity performing similar functions during our last fiscal year.
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, the Audit Committee Report and the performance
graph set forth below shall not be incorporated by reference
into such future filings.
24
Compensation
Committee Report on Executive Compensation
This report provides an explanation of the philosophy underlying
our executive compensation program and details on how decisions
were implemented during fiscal year 2005 regarding the
compensation paid to our executive officers.
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 to link
executive pay to corporate performance, including share price,
recognizing that there is not always a direct correlation in the
short-term between executive performance and share price.
The program is designed and administered to:
|
|
|
|
|
reward individual and team achievements that contribute to the
attainment of our business goals; and
|
|
|
|
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.
|
In seeking to link executive pay to corporate performance, the
Compensation Committee believes that the most appropriate
measure of corporate performance is the increase in long-term
shareholder value, which involves improving such quantitative
performance measures as revenue, net income, cash flow,
operating margins, earnings per share, and return on
shareholders equity. The Compensation Committee may also
consider qualitative corporate and individual factors which it
believes bear on increasing our long-term value to our
shareholders. These include: (i) revenue growth;
(ii) increases in operating income; (iii) the
attainment of specific financial goals; (iv) the
development of competitive advantages; (v) the ability to
deal effectively with the growing complexity of our businesses;
(vi) success in developing business strategies, managing
costs, and improving the quality of our services as well as
customer satisfaction; (vii) execution of divestitures,
business unit closures, acquisitions, and strategic
partnerships, (viii) implementation of operating
efficiencies, and (ix) the general performance of
individual job responsibilities.
Our executive compensation program consists of: (i) a base
salary; (ii) an annual bonus; and (iii) a long-term
incentive represented by stock options.
Compensation
of Executive Officers
Salary. 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.
25
Bonus. Bonuses are intended to reward both
overall corporate performance and an individuals
participation in attaining such performance. From time to time,
bonuses are also awarded to augment base salary when a
determination has been made that an executives salary is
not competitive in light of the factors discussed above.
Stock Options. The longer-term component of
our executive compensation program consists of stock options.
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. Generally, a
portion of the options vest over a period of several years and
expire no later than ten years after grant. 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.
Compensation
of the Chief Executive Officer
Determination of our compensation of Robert M. Holster, our
Chief Executive Officer during fiscal year 2005, 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
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.
Other
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 generally intends to
take such reasonable steps as are required to avoid the loss of
a tax deduction due to Section 162(m), but reserves the
right, in appropriate circumstances, to pay amounts which are
not deductible.
COMPENSATION COMMITTEE
Richard H. Stowe, Chairman
James T. Kelly
William W. Neal
26
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 2005, the Audit Committee met 10 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 consistent with Independence
Standards Board Standard No. 1, Independence
Discussions with Audit Committees, discussed with the
auditors any relationships that may impact their objectivity and
independence and satisfied itself as to 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 our audited financial statements as
of and for the fiscal year ended December 31, 2005 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 our audited financial statements
be included in our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005, for filing
with the SEC. The Committee also recommended the reappointment,
subject to shareholder approval, of the independent auditors and
the Board concurred in such recommendation.
AUDIT COMMITTEE
Randolph G. Brown, Chairman
James T. Kelly
Richard H. Stowe
27
Shareholder
Return Performance Graphs
The graph presented below provides a comparison between the
cumulative total shareholder return (assuming the reinvestment
of dividends) on the Common Stock since December 2000 and The
NASDAQ U.S. companies index, The NASDAQ computer and data
processing service companies index, and The NASDAQ health
service companies index, over the same period. The graph assumes
the investment of $100 in the Common Stock and in each of the
indices.
Total
Return
PERFORMANCE GRAPH
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HMSY
|
|
|
Nasdaq US Composite
|
|
|
Nasdaq Computer & Data
Processing Services Stocks
|
|
|
Nasdaq Health Services
Stocks
|
|
|
|
|
|
|
|
|
|
|
Dec-00
|
|
|
100
|
|
|
|
100
|
|
|
|
100
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec-01
|
|
|
210
|
|
|
|
79
|
|
|
|
81
|
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec-02
|
|
|
240
|
|
|
|
55
|
|
|
|
56
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec-03
|
|
|
267
|
|
|
|
82
|
|
|
|
73
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec-04
|
|
|
600
|
|
|
|
89
|
|
|
|
80
|
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec-05
|
|
|
507
|
|
|
|
91
|
|
|
|
83
|
|
|
|
247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain
Relationships
Galen D. Powers, a director since 1992, is the 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 annual fees we have paid to PPSV have not been
reportable under applicable SEC rules. As required by the
current listing standards of The NASDAQ Stock Market, we review
all related party transactions for potential conflict of
interest situations on an ongoing basis and all such
transactions must be approved by our Audit Committee.
Other
Business
As of the date of this Proxy Statement, the Board of Directors
knows of no business to be presented at the Meeting other than
as set forth herein. If other matters properly come before the
Meeting, the persons named as proxies will vote on such matters
in their discretion.
28
Shareholder
Proposals for 2007 Annual Meeting
Any shareholder proposals intended to be presented at our 2007
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 February 6, 2007 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 2007 Annual
Meeting, if such shareholder fails to notify us in the manner
set forth above of such proposal no later than March 25,
2007 then the persons appointed as proxies may exercise their
discretionary voting authority if the proposal is considered at
the 2007 Annual Meeting notwithstanding that shareholders have
not been advised of the proposal in the Proxy Statement for the
2007 Annual Meeting. Any proposals submitted by shareholders
must comply in all respects with (i) the rules and
regulations of the SEC, (ii) the provisions of our
certificate of incorporation and by-laws, and
(iii) applicable New York law.
Annual
Report
Our 2005 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 certified public accountants.
BY ORDER OF THE BOARD OF DIRECTORS
Laura Jo Snyder-Cruz
Secretary
Dated: May 9, 2006
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.
29
Annex 1
HMS
HOLDINGS CORP.
2006
STOCK PLAN
Section 1. Purpose
The purpose of the HMS Holdings Corp. 2006 Stock Plan (the
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 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, Performance Share,
dividend equivalent or any other right, interest or option
relating to Shares granted pursuant to the provisions of the
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 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 20% 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; 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 80% 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,
1
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 Plan 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, the higher of (A) the highest reported sales
price, regular way, of such Share in any transaction reported on
the Nasdaq National Market during the
60-day
period prior to and including the date of a Change in Control or
(B) if the Change in Control is the result of a tender or
exchange offer or a corporate transaction, the highest price per
such Share paid in such tender or exchange offer or corporate
transaction; provided, however, that in the case of Options and
Stock Appreciation Rights relating to Options, the Change in
Control Price shall be the Fair Market Value of such Share on
the date such Option or Stock Appreciation Right is exercised or
deemed exercised pursuant to Section 11(b). 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 [insert], 2006,
the date this Plan is effective.
(n) Employee shall mean any employee of the
Company or any Affiliate. For any and all purposes under this
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 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 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 average of the high and low
trading prices for the Shares as reported on the Nasdaq National
Market for that date or, if no such prices are
2
reported for that date, the average of the high and low trading
prices 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 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 Plan.
(u) Performance Award shall have the meaning
set forth in Section 9 of the Plan.
(v) Performance Goals shall have the meaning
set forth in Section 9 of the Plan.
(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 Plan.
(y) Performance Units shall have the meaning
set forth in Section 9 of the 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 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) Section 16 Participant shall have the
meaning set forth in Section 16 of the Plan.
(gg) Shares shall mean the shares of common
stock of the Company.
(hh) Spread shall have the meaning set forth in
Section 7 of the Plan.
(ii) Stand Alone SAR shall have the meaning set
forth in Section 7 of the Plan.
(hh) Stock Appreciation Right shall have the
meaning set forth in Section 7 of the Plan.
3
(kk) Tandem SAR shall have the meaning set
forth in Section 7 of the Plan.
(ll) 1999 Plan shall mean the Companys
1999 Long-Term Incentive Stock Plan.
Section 3. Administration
The 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 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 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 Plan
shall be deferred either automatically or at the election of the
Participant; (g) interpret and administer the Plan and any
instrument or agreement entered into under the Plan;
(h) establish such rules and regulations and appoint such
agents as it shall deem appropriate for the proper
administration of the Plan; and (i) make any other
determination and take any other action that the Committee deems
necessary or desirable for administration of the Plan. The
Committee may, in its sole and absolute discretion, and subject
to the provisions of the Plan, from time to time delegate any or
all of its authority to administer the Plan to any other persons
or committee as it deems necessary or appropriate for the proper
administration of the 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 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 Plan and Awards under the Plan, including
the right to construe disputed or doubtful 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 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 Plan as it shall
deem appropriate.
Upon the approval of the 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 Plan
(a) Subject to adjustment as provided in Section 4(c),
a total of 1,000,000 Shares shall be authorized for
issuance pursuant to Awards granted under the Plan. Any Shares
issued in connection with Awards other than Options and Stock
Appreciation Rights shall be counted against the 1,000,000 limit
described above as one and eight tenths (1.8) Shares for every
one Share issued in connection with such Award or by which the
Award is valued by reference. No Participant under this Plan
shall be granted Options, Stock Appreciation Rights or other
Awards
4
(counted, as described above, as one and eight tenths (1.8)
Shares awarded for every one Share issued in connection with
such Award or by which the Award is valued by reference) in any
calendar year covering more than 500,000 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, stock split,
reverse stock split, spin-off or similar transaction or other
change in corporate structure affecting the Shares, such
adjustments and other substitutions shall be made to the Plan
and to Awards as the Committee, in its sole discretion, deems
equitable or appropriate, including, without limitation, such
adjustments in the aggregate number, class and kind of
securities that may be delivered under the 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 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.
(d) Any Shares that are not purchased or awarded under an
Award that has terminated or lapsed, either by its terms or
pursuant to the exercise, in whole or in part, of an Award
granted under the Plan may be used for the further grant of
Awards.
(e) Notwithstanding anything to the contrary:
(a) Shares tendered in payment of the exercise price of an
Option shall not be added to the maximum share limitations
described above; (b) Shares withheld by the Company to
satisfy the tax withholding obligation shall not be added to the
maximum share limitations described above; and (c) all
shares covered by a Stock Appreciation Right, to the extent that
it is exercised and whether or not Shares are actually issued
upon exercise of the right, shall be considered issued or
transferred pursuant to the Plan.
(f) With respect to the issuance of Stock Appreciation
Rights that may be settled in stock, the number of Shares
available for Awards under the Plan will be reduced by the total
number of Stock Appreciation Rights so granted. Stock
Appreciation Rights that may be settled in cash only will not
reduce the number of Shares available for award under the 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 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 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 Plan. The
Board shall set the terms
5
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 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 ten years from the
grant. The Committee may, subsequent to the granting of any
Option, extend the term thereof, but in no event shall the
extended term exceed ten 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, in Shares, 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 Plan shall be exercised through such
procedure 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. The Committee may
establish rules and procedures to permit an option holder to
defer recognition of gain upon the exercise of an Option.
(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
exercisability 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
6
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.
(h) No dividend equivalents. Anything in
the 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 ten years from the grant.
(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 therefor 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 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 Plan to the contrary notwithstanding, no dividends or
dividend equivalents may be paid on Stock Appreciation Rights.
Section 8.
Restricted Stock Awards
The Committee may make Restricted Stock Awards to a Participant,
which Shares 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 must remain an Employee or a Director of
the Company during a period designated by the Committee
7
(Restricted Period) in order to receive the Shares,
cash or combination thereof under the Restricted Stock 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 shall terminate and any Shares 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 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, 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 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 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, provide
that any dividends declared on Shares during the Restricted
Period or dividend equivalents be (i) paid to the
Participant, or (ii) accumulated 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.
(f) Performance Goals. The Committee may
designate whether any Restricted Stock 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 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 will lapse at such time or times, and on
such conditions, as the Committee may specify. However, no
Restricted Stock Awards shall be awarded with a vesting period
less than three years from the date of grant. The foregoing
limitation shall not apply to Performance Awards under
Section 9 of the Plan, which will have a minimum vesting
period of one year.
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). 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 Share Award grant the period of time for which
a Performance Share Award is made (Award Period).
The Committee also shall establish performance objectives
(Performance Goals) to be met by the Company
8
or its subsidiary during the Award Period as a condition to
payment of the Performance Award. The Performance Goals may
include share price, pre-tax profits, earnings per share, return
on stockholders equity, return on assets, sales, net
income, total stockholder return or any combination of the
foregoing or, solely for an Award not intended to constitute
performance-based compensation under
Section 162(m) of the Code, any other financial or other
measurement established by the Committee. The Performance Goals
may include minimum and optimum objectives or a single set of
objectives.
(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 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.
(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, or (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, or (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 the Committee or Board shall determine otherwise
at the time of grant with respect to a particular Award, and
notwithstanding any other provision of the Plan to the contrary,
in the event a Participants employment
9
or service is involuntarily terminated without 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,
and 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 shall lapse, and such Restricted Stock
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
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 Plan at any time and
may from time to time amend or revise the terms of the 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 Plan without stockholder approval where the absence of
such approval would cause the 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 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.
Section 13. Transferability
Each Incentive Stock Option granted under the Plan shall not be
transferable other than by will or the laws of descent and
distribution; each other Award granted under the Plan will not
be transferable or assignable by the
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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 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 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 Plan.
(b) Nothing in the 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 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 (to
the extent the Participant has owned the surrendered shares for
less than six months if such a limitation is necessary to avoid
a charge to the Company for financial reporting purposes), 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 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 Plan or any Award granted under the 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 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.
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(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 Plan.
(i) The provisions of the 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 Plan is or becomes or is deemed
invalid, illegal or unenforceable in any jurisdiction, or would
disqualify the 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 Plan, it shall
be stricken and the remainder of the Plan shall remain in full
force and effect.
(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 Plan.
(l) Anything to the contrary in the 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 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 Plan
The 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 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 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 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.
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Annex 2
CHARTER
OF THE NOMINATING COMMITTEE
OF THE BOARD OF DIRECTORS
OF HMS HOLDINGS CORP.
Purpose
The Nominating Committee of the Board of Directors (the
Board) of HMS Holdings Corp. (the
Company) is appointed by the Board (1) to
assist the Board by identifying individuals qualified to become
Board members, (2) to recommend to the Board the director
nominees for the next annual meeting of shareholders;
(3) to recommend to the Board the Corporate Governance
Guidelines applicable to the Company; (4) to lead the Board
in its annual review of the Boards performance; and
(5) to recommend to the Board director nominees for each
committee.
Committee
Membership
The Nominating Committee shall consist of no fewer than three
members. The members of the Nominating Committee shall satisfy
the independence requirements of the NASDAQ Stock Market with
respect to nominating committees.
The members of the Nominating Committee shall be appointed and
replaced by the Board.
Committee
Authority and Responsibilities
1. The Nominating Committee shall have the sole authority
to retain and terminate any search firm to be used to identify
director candidates and shall have sole authority to approve the
search firms fees and other retention terms. The
Nominating Committee shall also have authority to obtain advice
and assistance from internal or external legal, accounting or
other advisors.
2. The Nominating Committee shall assess the capabilities
of the Board, develop criteria for actively seeking new
individuals qualified to become Board members and to make
recommendations to the Board regarding Board composition and
prospective candidates.
3. The Nominating Committee shall annually review and make
recommendations to the Board with respect to the compensation
and benefits of directors, including under any incentive
compensation plans and equity-based compensation plans.
4. The Nominating Committee shall receive comments from all
directors and report annually to the Board with an assessment of
the Boards performance, to be discussed with the full
Board following the end of each fiscal year.
5. The Nominating Committee shall initially create and
recommend for adoption by the Board corporate governance
guidelines for the Company and, on an annual basis thereafter,
review and reassess the adequacy of these guidelines and
recommend any proposed changes to the Board for approval.
6. The Nominating Committee may form and delegate authority
to subcommittees when appropriate.
7. The Nominating Committee shall make regular reports to
the Board.
8. The Nominating Committee shall review and reassess the
adequacy of this Charter annually and recommend any proposed
changes to the Board for approval. The Nominating Committee
shall annually review its own performance.
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Please Mark Here for
Address Change or Comments
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SEE REVERSE SIDE |
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FOR all nominees
listed (except as indicated to the contrary) |
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WITHHOLD
AUTHORITY
to vote for all
nominees listed |
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ELECTION OF DIRECTORS: |
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Approval of the proposed Adoption of the 2006
Stock Plan. |
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Nominees: |
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01. Robert M. Holster, 02. James T. Kelly |
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Ratification of the selection of KPMG LLP as
the Companys independent accountants for
the fiscal year ending December 31, 2006. |
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03. Galen D. Powers |
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If you wish to withhold authority to vote for any individual nominee, write that
nominees name in the space below. |
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To transact such other business as may properly come before the
meeting or any adjournment thereof. |
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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.
5 FOLD AND DETACH HERE 5
Vote by Internet or Telephone or Mail
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.
Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.
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Internet
http://www.proxyvoting.com/hmsy
Use the internet to vote your proxy.
Have your proxy card in hand when
you access the web site.
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Telephone
1-866-540-5760
Use any touch-tone telephone to
vote your proxy. Have your proxy
card in hand when you call.
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Mail
Mark, sign and date
your proxy card and
return it in the
enclosed postage-paid envelope.
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If you vote your proxy by Internet or by telephone,
you do NOT need to mail back your proxy card.
You can view the Annual Report and Proxy Statement
on the Internet at www.hmsholdings.com
HMS HOLDINGS CORP.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Robert M. Holster and Thomas G. Archbold, 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 17, 2006, 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 Tuesday June 6, 2006, 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)
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Address Change/Comments(Mark the corresponding box on the reverse side) |
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5 FOLD AND DETACH HERE 5
HMS HOLDINGS CORP.
Annual Meeting of Shareholders
June 6, 2006
401 Park Avenue South
New York, NY 10016