Use these links to rapidly review the document
TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
Amendment No. 1
ý |
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2014 |
||
Or |
||
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission File Number 000-50194
HMS HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization) |
11-3656261
(I.R.S. Employer Identification No.) |
|
5615 High Point Drive, Irving, TX (Address of principal executive offices) |
|
75038 (Zip Code) |
(Registrant's
telephone number, including area code)
(214) 453-3000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
---|---|---|
Common Stock $0.01 par value | NASDAQ Global Select Market |
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ý | Accelerated Filer o |
Non-Accelerated Filer
o
(Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No ý
The aggregate market value of the registrant's common stock held by non-affiliates as of June 30, 2014, the last business day of the registrant's most recently completed second quarter was $1.8 billion based on the last reported sale price of the registrant's Common Stock on the NASDAQ Global Select Market on that date.
There were 88,540,272 shares of common stock outstanding as of April 15, 2015.
Documents Incorporated by Reference
None.
HMS HOLDINGS CORP. AND SUBSIDIARIES
AMENDMENT NO. 1 TO THE ANNUAL REPORT ON FORM 10-K
2
This Amendment No. 1 to the Annual Report on Form 10-K/A (the "Amendment") amends the Registrant's Annual Report on Form 10-K for the year ended December 31, 2014 (the "Annual Report"), as filed by the Registrant with the Securities and Exchange Commission ("SEC") on March 2, 2015 (the "Original Filing"), and is being filed solely to replace Part III, Items 10 through Item 14 and to include additional exhibits to the Exhibit Index referenced in Item 15 of the Original Filing, which includes the Certifications to the Amendment. The reference in the Original Filing to the incorporation by reference of the Registrant's definitive proxy statement into Part III of the Annual Report on Form 10-K is hereby deleted.
For purposes of this Amendment, and in accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (i) Items 10 through 14 in the Original Filing have been amended and restated in their entirety and (ii) the Exhibit Index in the Original Filing has been amended to include the new exhibits set forth herein. Except as specifically provided herein, this Amendment does not reflect events occurring after the filing of the Original Filing and no attempt has been made in this Amendment to modify or update other disclosures as presented in the Original Filing. Accordingly, this Amendment should be read in conjunction with the Original Filing and any filings with the SEC made thereafter.
3
Item 10. Directors, Executive Officers and Corporate Governance.
Board of Directors
The following table sets forth information with respect to our Board of Directors, including the composition of our four standing Committees: Audit, Compensation, Compliance and Nominating & Governance.
Name
|
Age | Position | Committee Memberships | ||||
---|---|---|---|---|---|---|---|
Craig R. Callen |
59 | Class I Director |
Compensation
Nominating & Governance |
||||
Robert M. Holster (2) |
68 | Chairman and Class I Director | |||||
William C. Lucia (2) |
57 | President, Chief Executive Officer and Class I Director | |||||
Daniel N. Mendelson (3) |
50 | Class II Director |
Compensation
Compliance Nominating & Governance |
||||
William F. Miller III |
65 | Class II Director | |||||
Ellen A. Rudnick |
64 | Class II Director |
Audit
(1)
Compliance Nominating & Governance |
||||
Bart M. Schwartz |
68 | Class I Director |
Audit
Compliance (1) Nominating & Governance |
||||
Richard H. Stowe (3) |
71 | Class II Director |
Compensation
(1)
Nominating & Governance (1) |
||||
Cora M. Tellez (4) |
65 | Class II Director |
Audit
Nominating & Governance |
The Board of Directors believes that the combination of the business and professional experience of our directors and the diversity of their areas of expertise has been a contributing factor to its effectiveness and provides a valuable resource to management. The majority of our Board has over five years of service with us and four of our non-employee directors, Ms. Rudnick and Messrs. Holster, Miller and Stowe, have each served on our Board for more than ten years. During their tenure, our directors have gained considerable institutional knowledge about the Company and its operations. Given the growth of our
4
business and the rapidly changing healthcare environment, this continuity of service and development of institutional knowledge enables our Board to be more efficient and more effective in developing strategy and long-term plans for the Company.
A description of the specific experience, qualifications, attributes and skills that led our Board of Directors to conclude that each member of the Board of Directors should serve as a director follows the biographical information of each director below.
Class II: Directors Whose Terms Expire in 2015
William F. Miller III has served as one of our directors since October 2000. In 2013, Mr. Miller joined KKR Advisors, a global investment firm, as healthcare industry advisor. From 2006 to 2013, Mr. Miller was a partner at Highlander Partners, a private equity group in Dallas, Texas focused on investments in healthcare products, services and technology. From October 2000 to April 2005, Mr. Miller served as our Chief Executive Officer and from December 2000 to April 2006, Mr. Miller served as our Chairman. From 1983 to 1999, Mr. Miller served as President and Chief Operating Officer of EmCare Holdings, Inc., a national healthcare services firm focused on the provision of emergency physician medical services. From 1980 to 1983, Mr. Miller served as Administrator/Chief Operating Officer of Vail Mountain Medical. Mr. Miller also serves as a director of several private companies. From 1997 to 2012, Mr. Miller served as a director of Lincare Holdings, Inc.
Mr. Miller brings to the Board of Directors both a thorough understanding of our business and the healthcare industry and extensive experience in the financial markets. His significant operational experience, both at HMS and at EmCare Holdings, makes him well-positioned to provide the Company with insight on financial, operational and strategic issues.
Daniel N. Mendelson has served as one of our directors since February 2013. Mr. Mendelson is the Chief Executive Officer and Chairman of Avalere Health, a strategic advisory company which he founded in 2000. From 1998 to 2000, Mr. Mendelson served as Associate Director for Health at the White House Office of Management and Budget (OMB) in Washington, D.C. Prior to joining OMB, Mr. Mendelson served as Senior Vice President and Director of the Medical Technology practice at The Lewin Group. He is also on faculty at the Wharton School of Business at the University of Pennsylvania and serves as a director of Champions Oncology. From 2005 to 2013, Mr. Mendelson served as a director of Coventry Healthcare and from 2007 to 2011 he served as a director of PharMerica Corporation.
Mr. Mendelson brings over 20 years of experience with government healthcare programs, healthcare policy and business to the Board and is a recognized leader in healthcare policy. This expertise is complemented by his extensive operational and public company board experience, which make him well-positioned to serve as the Chair of the Nominating & Governance Committee and as a member of the Compensation and Compliance Committees. In addition, given that healthcare in the United States is continuously evolving, Mr. Mendelson's background and expertise is very valuable as we adapt our business to meet these changes.
Ellen A. Rudnick has served as one of our directors since 1997. Since 1999, Ms. Rudnick has served as Executive Director and Clinical Professor of the Polsky Center for Entrepreneurship, University of Chicago Booth School of Business. From 1993 to 1999, Ms. Rudnick served as Chairman of Pacific Biometrics, Inc., a publicly held healthcare biodiagnostics company and its predecessor, Bioquant, which she co-founded. From 1990 to 1992, she served as 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. Ms. Rudnick also serves as a director of Patterson Companies, Inc. and First Midwest Bancorp, Inc.
5
Ms. Rudnick brings to the Board of Directors extensive business understanding and demonstrated management expertise, having served in key leadership positions at a number of healthcare companies. Ms. Rudnick has a comprehensive understanding of the operational, financial and strategic challenges facing companies and knows how to make businesses work effectively and efficiently. Her management experience and service on other public company boards has provided her with a thorough understanding of the financial and other issues facing large companies, making her particularly valuable as the Chair of our Audit Committee and as a member of our Compliance and Nominating & Governance Committees.
Richard H. Stowe has served as one of our directors since 1989. Mr. Stowe is a general partner of Health Enterprise Partners LP, a private equity firm. From 1999 to 2005, Mr. Stowe was a private investor, a senior advisor to the predecessor funds to Health Enterprise Partners, and a senior advisor to Capital Counsel LLC, an asset management firm. From 1979 until 1998, Mr. Stowe was a general partner of Welsh, Carson, Anderson & Stowe. 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 several private and not-for-profit companies and educational institutions.
Mr. Stowe brings 40 years of financial, capital markets and investment experience to our Board of Directors. Mr. Stowe's background and extensive experience make him well-positioned to serve as the Chair of the Compensation Committee, a member of the Nominating & Governance Committee and as our Lead Independent Director. Mr. Stowe has effectively carried out his responsibilities as Chair for several of our Board committees and is well-respected by the independent directors. The Board believes that Mr. Stowe is highly qualified and will be successful as our Lead Independent Director.
Cora M. Tellez has served as one of our directors since October 2012. Ms. Tellez is the President and Chief Executive Officer of Sterling HSA, an independent health savings accounts administrator which she founded in 2004. Prior to starting Sterling HSA, Ms. Tellez served as President of the health plans division of Health Net, Inc., an insurance provider. She later served as President of Prudential's western health care operations, CEO of Blue Shield of California, Bay Region and Regional Manager for Kaiser Permanente of Hawaii. Ms. Tellez serves on the board of directors of several private and not-for-profit companies. From 2004 to 2007, Ms. Tellez served as a director of First Consulting Group.
Ms. Tellez brings over 25 years of healthcare policy and operations experience to the Board. Her public company operational, financial and corporate governance experience is a valuable resource for our Board and makes her well-positioned to serve as a member of the Audit, Compliance and Nominating & Governance Committees and as our Audit Committee Financial Expert.
Class I: Directors Whose Terms Expire in 2016
Craig R. Callen has served as one of our directors since October 2013. Mr. Callen is a Senior Advisor at Crestview Partners, a private equity firm with over $4.0 billion under management. From 2004 to 2007, Mr. Callen was Senior Vice President and Head of Strategic Planning and Business Development and a member of the Executive Committee for Aetna, Inc. In his role at Aetna, Mr. Callen reported directly to the Chairman and CEO and was responsible for oversight and development of Aetna's corporate strategy, including mergers and acquisitions. During his tenure, Mr. Callen and his team led the acquisitions of seven companies, investing over $2.0 billion, broadening Aetna's revenue, global presence, product line, targeted markets and participation in government programs. Prior to joining Aetna, Mr. Callen was a Managing Director and Head of U.S. Healthcare Investment Banking at Credit Suisse First Boston and Co-Head of Healthcare Investment Banking at Donaldson, Lufkin & Jenrette. Mr. Callen serves on the board of directors of Omega Healthcare Investors, Inc. and Symbion, Inc., a Crestview portfolio company. Previously he served on the boards of Sunrise Senior Living Inc. and Kinetic Concepts Inc. Mr. Callen holds a B.S./B.A. from Boston University and an MBA from Harvard Business School.
Mr. Callen brings 20 years of healthcare investment banking experience and corporate development expertise to our Board, which are invaluable to us as we evaluate, develop and implement new solutions for
6
clients. His extensive experience in a corporate setting and as an advisor to public/private healthcare companies positions him well to serve on the Compensation and Nominating & Governance Committees.
Robert M. Holster has served as one of our directors since May 2005, as Non-Executive Chairman from March 2009 to December 2010, and as Chairman of our Board from April 2006 to July 2015. Since 2001, Mr. Holster has held senior executive level positions with us, including serving as our Chief Executive Officer from May 2005 to February 2009 and as our President and Chief Operating Officer from April 2001 to May 2005. In March 2009, Mr. Holster stepped down as our Chief Executive Officer but remained an employee of the Company through December 2010. Previously, Mr. Holster served as our Executive Vice President from 1982 through 1993 and as one of our directors from 1989 through 1996. Mr. Holster previously served in a number of executive positions including Chief Executive Officer of HHL Financial Services, Inc., Chief Financial Officer of Macmillan, Inc. and Controller of Pfizer Laboratories, a division of Pfizer, Inc.
Mr. Holster served as a member of our management team and that of our predecessor, Health Management Systems, Inc., for an aggregate of over 20 years, including serving as our Chief Executive Officer for four years and as our President and Chief Operating Officer for four years. On April 24, 2015, Mr. Holster stepped down from his role as Chairman, effective as of the date of the 2015 Annual Meeting. Mr. Holster will remain on our Board and continue to work closely with Mr. Lucia to ensure a seamless transition of board leadership to Mr. Lucia. As a director who has served in the combined role as the Chairman and Chief Executive Officer of our Company, Mr. Holster will be able to provide guidance to Mr. Lucia on matters such as the Company's risk profile, long-term strategy and potential growth opportunities while offering the Board a unique insight into the Company's challenges, operations, and strategic opportunities. Given his extensive history with the Company and past experience as the Company's former Chairman and Chief Executive Officer, Mr. Holster brings an unmatched depth of industry and Company-specific experience to our Board.
William C. Lucia has served as our President and Chief Executive Officer since March 2009 and as one of our directors since May 2008. On April, 24, 2015, Mr. Lucia was appointed Chairman of the Board, to replace Mr. Holster effective as of the date of the 2015 Annual Meeting. From May 2005 to March 2009, Mr. Lucia served as our President and Chief Operating Officer, gaining critical insights into how to manage and grow our business in a complex and dynamic healthcare environment. Since joining us in 1996, Mr. Lucia has held several positions with us, including: President of our subsidiary, Health Management Systems, Inc., from 2002 to 2009; President of our Payor Services Division from 2001 to 2002; Vice President and General Manager of our Payor Services Division from 2000 to 2001; Vice President of our Business Office Services from 1999 to 2000; Chief Operating Officer of our former subsidiary Quality Medical Adjudication, Incorporated (QMA) and Vice President of West Coast Operations from 1998 to 1999; Vice President and General Manager of QMA from 1997 to 1998; and Director of Information Systems for QMA from 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 of the Life Management Institute Program through LOMA, an international association through which insurance and financial services companies around the world engage in research and educational activities to improve company operations.
With over 19 years of experience with the Company working across multiple divisions and his prior experience in the insurance industry, Mr. Lucia brings to our Board in-depth knowledge of the Company and the healthcare and insurance industries, the evolving healthcare landscape and the array of challenges to be faced and demonstrates an ability to formulate and implement key strategic initiatives, making him well-positioned to lead our management team and provide essential insight and guidance to the Board as our Chairman.
7
Bart M. Schwartz has served as one of our directors since July 2010. Mr. Schwartz currently serves as the Chairman and Chief Executive Officer of SolutionPoint International, LLC, which provides an integrated array of business intelligence, security and compliance, identity assurance and situational awareness solutions. In 2003, Mr. Schwartz founded his own law firm, which specializes in, among other areas, conducting independent investigations, monitoring and Independent Private Sector Inspector General engagements and developing, auditing and implementing compliance programs. From 1991 to 2003, Mr. Schwartz served as the Chief Executive Officer of Decision Strategies, an internationally recognized investigative and security firm, which was sold to SPX Corporation in 2001. Mr. Schwartz has over 30 years' experience managing domestic and international investigations, prosecutions and assessments for clients in both the public and private sectors.
Mr. Schwartz brings extensive legal and compliance experience to our Board, which is particularly valuable as we continue to expand our business. Mr. Schwartz's background makes him well-positioned to serve as the Chair of the Compliance Committee and as a member of the Audit and Nominating & Governance Committees.
Audit Committee and Audit Committee Financial Expert
We have a separately-designated standing Audit Committee which consists of Ms. Rudnick (Chair), Mr. Schwartz and Ms. Tellez. The Board of Directors has determined that each member of the Audit Committee is an independent director, as defined in the NASDAQ Stock Market, Inc. Marketplace Rules (the "NASDAQ Marketplace Rules") and the independence requirements contemplated by Rule 10A-3 under the Exchange Act, and meets NASDAQ's financial knowledge and sophistication requirements. In addition, the Board has determined that Ms. Tellez qualifies as an "audit committee financial expert," as such term is defined in Item 407(d)(5)(ii) of Regulation S-K.
Material Changes to the Procedures for Recommending Nominees to the Board of Directors
There have been no material changes to the procedures described by which security holders may recommend nominees to our Board of Directors as described in our Proxy Statement for our 2014 Annual Meeting, filed with the SEC on April 30, 2014 (the "2014 Proxy Statement").
Executive Officers
The following table sets forth certain information with respect to each person who currently serves as one of our executive officers as of the date of this Amendment. Our executive officers are elected annually by our Board of Directors and generally serve at the discretion of our Board of Directors. There are no arrangements or understandings between any of our executive officers and any other person pursuant to which they were selected as an officer. None of our directors and/or executive officers is related to any other director and/or executive officer of HMS or any of its subsidiaries by blood, marriage or adoption.
Name
|
Age | Position | |||
---|---|---|---|---|---|
William C. Lucia |
57 | President and Chief Executive Officer | |||
Eugene V. DeFelice |
56 | Executive Vice President, General Counsel and Corporate Secretary | |||
Cynthia Nustad |
44 | Executive Vice President and Chief Information Officer | |||
Jeffrey S. Sherman |
49 | Executive Vice President, Chief Financial Officer and Treasurer | |||
Tracy A. South |
56 | Chief Administrative Officer and Executive Vice President, Human Resources | |||
Semone Wagner |
51 | Executive Vice President, Operations | |||
Douglas M. Williams |
56 | Division President, Markets |
The principal occupations for the last five years, as well as certain other biographical information, for each of our current executive officers are set forth below.
8
William C. Lucia has served as our President and Chief Executive Officer since March 2009 and as one of our directors since May 2008. In addition, Mr. Lucia has been appointed by the Board of Directors to serve as Chairman of the Board, effective as of the date of the 2015 Annual Meeting. From May 2005 to March 2009, Mr. Lucia served as our President and Chief Operating Officer. Since joining us in 1996, Mr. Lucia has held several positions with us, including: President of our subsidiary, Health Management Systems, Inc. from 2002 to 2009; President of our Payor Services Division from 2001 to 2002; Vice President and General Manager of our Payor Services Division from 2000 to 2001; Vice President of our Business Office Services from 1999 to 2000; Chief Operating Officer of our former subsidiary Quality Medical Adjudication, Incorporated (QMA) and Vice President of West Coast Operations from 1998 to 1999; Vice President and General Manager of QMA from 1997 to 1998; and Director of Information Systems for QMA from 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 of the Life Management Institute Program through LOMA, an international association through which insurance and financial services companies around the world engage in research and educational activities to improve company operations.
Eugene V. DeFelice has served as our Executive Vice President, General Counsel and Corporate Secretary since March 2014. Mr. DeFelice has more than 30 years of legal experience, 20 years of which has been in corporate healthcare and technology. From September 2010 to March 2014, Mr. DeFelice served as Vice President, General Counsel and Corporate Secretary for Barnes & Noble, Inc. and was responsible for all legal matters. From November 2006 to August 2010, he served as Senior Vice President, General Counsel and Corporate Secretary of Savvis Inc., a global information technology service provider. Prior to Savvis, he held various general counsel and other legal positions, as well as operational roles, in several healthcare and technology companies, and also spent approximately nine years at Hoffmann-LaRoche in progressively senior positions.
Cynthia Nustad has served as our Executive Vice President and Chief Information Officer since February 2011. Ms. Nustad has over 17 years of management experience in the healthcare information technology industry. From January 2005 to January 2011, Ms. Nustad served as Vice President of Architecture and Technology for Regence (Blue Cross Blue Shield), where she was responsible for servicing a large corporation across multiple sites and states. From May 2002 to December 2004, Ms. Nustad served as the Vice President of Software Development and Product Management for OAO Healthcare Solutions, Inc. (OAO). During her tenure at OAO, Ms. Nustad managed, from inception to commercialization, the strategic development of a flagship platform and database-independent managed care benefits and claims processing system designed for healthcare plans, self-insured employer groups and government agenciesamong others. Prior to OAO, Ms. Nustad held leadership roles at e-MedSoft.com and WellPoint Health Networks.
Jeffrey S. Sherman has served as our Executive Vice President, Chief Financial Officer and Treasurer since September 2014. Mr. Sherman has over 25 years of experience in healthcare operations, strategic planning and financial performance in senior financial executive positions. Prior to joining HMS, Mr. Sherman served as Executive Vice President and Chief Financial Officer of AccentCare, a healthcare delivery organization, from September 2013 to August 2014. From April 2009 to September 2013, he served as Executive Vice President and Chief Financial Officer of Lifepoint Hospitals, Inc. From September 2005 until April 2009, Mr. Sherman served as Vice President and Treasurer of Tenet Healthcare, where he managed all aspects of corporate finance, including cash flow management and capital structure, and was responsible for risk management. Mr. Sherman served in various capacities for Tenet and its predecessor company since 1990, including as a hospital chief financial officer and regional vice president.
Tracy A. South has served as our Chief Administrative Officer and Executive Vice President, Human Resources, since May 2014. She served as our Senior Vice President of Human Resources from December
9
2011 to May 2014. Ms. South has over 20 years of executive-level human resources experience, including at national healthcare organizations. From 2003 to 2011, Ms. South served as the Senior Vice President, Chief Human Resources Officer at Mosaic Sales Solutions, a privately-held full-service marketing agency in Irving, Texas. She built that company's North America Human Resources department, focusing on attracting and training a dispersed workforce of over 10,000 employees hired to represent world-class brands at retail, in the community and online. In her role, Ms. South oversaw Talent Acquisition, HR Services and Organizational Effectiveness. Ms. South also served as Vice President of Human Resources for Tenet Healthcare, initially for the Central Northeast Division, which included 38 hospitals and over 40,000 employees, and subsequently at the corporate level. Prior to Tenet, she led the Human Resources department for Aetna US Healthcare, where she oversaw a broad range of functions and designed human resources strategies to align with business practice areas.
Semone Wagner has served as our Executive Vice President of Operations since April 2013, responsible for our core operations, including the coordination of benefits service line. Ms. Wagner has extensive experience in healthcare claims processing, operations and reengineering. She has a track record for leading change, driving quality performance and reducing unit costs in complex operating environments. Prior to joining HMS, Ms. Wagner served as Senior Vice President of Claim Operations at United HealthCare (UHC), where she oversaw the operations for all business lines and major platforms processing over 500 million claims annually. Under her leadership, the company achieved industry-leading performance levels, earning the American Medical Association designation for the industry's best claim operation in 2011 and 2012.
Douglas M. Williams has served as our Division President of Markets since January 2015, responsible for leading the state and federal government and commercial markets, sales and marketing. From December 2013 to January 2015, he served as our Division President of Commercial Solutions, responsible for leading our commercial product and business development strategy. Mr. Williams has over 25 years of experience in healthcare information technology, sales, and operations. From 2010 to 2013, Mr. Williams served as Chief Information Officer of Aveta, which was acquired by Optum Inc. in 2012. From 2008 to 2010, he served as a Healthcare Partner with Protiviti, Inc., where he built a healthcare consulting practice. From 2006 to 2008, he served as Senior Vice President of the Payer Business Unit at MedeAnalytics, where he was responsible for building the sales team and significantly expanding the company's sales pipeline. Mr. Williams' healthcare consulting background also includes serving as a Global Healthcare Partner for IBM, where he was responsible for developing and managing IBM's global healthcare practice.
Section 16(A) Beneficial Ownership Reporting Compliance
Pursuant to Section 16(a) of the Exchange Act, as amended, our executive officers, directors and persons owning more than 10% of a registered class of our equity securities are required to file reports of ownership and changes in ownership of common stock with the SEC. Copies of such reports are required to be furnished to us.
Based solely on a 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 2014, all of our executive officers and directors complied with the requirements of Section 16(a), except that (i) due to administrative error, 1 report covering 1 transaction was not timely reported by each of Mr. Donabauer and Ms. Wagner, and (ii) 5 late reports from 2009 through 2013, covering an aggregate of 14 transactions involving a change in beneficial ownership from direct holdings to indirect holdings through a series of gifts of shares to a revocable family trust for which Mr. Lucia serves as trustee were not timely reported by Mr. Lucia. All of such reports were promptly filed on behalf of the respective officers upon learning of the unreported transactions.
10
Code of Ethics
As previously disclosed, on July 31, 2014, our Board of Directors approved certain amendments to the Company's Code of Conduct, Code of Conduct for Designated Senior Financial Managers and Code of Ethics to harmonize the codes and integrate them into one document (the "Amended Code of Conduct") applicable to all of our directors, officers and employees, including all of the Company's subsidiaries' employees, officers, directors, contractors, contingent workers and business affiliates. No substantive amendment to any element of the "code of ethics" definition enumerated in Item 406(b) of Regulation S-K was effectuated as a result of these amendments. A copy of the Amended Code of Conduct is publicly available on our website under the "Investor Relations"/"Corporate Governance" section at: http://investor.hms.com/governance.cfm and can also be obtained free of charge by sending a request to our Corporate Secretary at 5615 High Point Drive, Irving, Texas 75038. We intend to disclose any future amendments or waivers to the provisions of the Amended Code of Conduct that relate to our principal executive officer, principal financial officer, principal accounting officer, controller or persons performing similar functions by filing such information on a Current Report on Form 8-K with the SEC within four business days, to the extent such filing is required by the NASDAQ Marketplace Rules; otherwise, we will disclose such amendments or waivers by posting such information on our website.
Item 11. Executive Compensation.
Compensation Discussion and Analysis
Introduction
This Compensation Discussion and Analysis ("CD&A"), describes our 2014 executive compensation program and should be read in conjunction with the compensation tables and related narrative descriptions that follow those tables. In particular, this CD&A explains how the Compensation Committee of the Board of Directors made its compensation decisions for our named executive officers for 2014.
For 2014, our named executive officers are:
On March 10, 2014, Mr. Hosp tendered his resignation as our Executive Vice President, Chief Financial and Administrative Officer, which was effective June 6, 2014. Mr. Donabauer served as interim Principal Financial Officer and interim Treasurer from June 6, 2014 through September 8, 2014, the date that Mr. Sherman joined the Company.
2014 Say-on-Pay Vote
At the Company's 2014 Annual Meeting of Stockholders, approximately 99% of the votes cast on the say-on-pay proposal were in favor of our executive compensation program described in our 2014 Proxy Statement. The Compensation Committee believes that this vote affirms stockholders' support of the Company's general approach to executive compensation, and therefore, did not change its compensation
11
philosophy as it made decisions for 2014. As market practices on executive compensation policies evolve, the Compensation Committee will continue to evaluate and, if needed, make changes to our executive compensation program to ensure that the program continues to reflect our pay-for-performance compensation philosophy and objectives. The Compensation Committee will also continue to consider the outcome of the Company's say-on-pay votes when making future compensation decisions for executive officers.
Executive Summary
2014 Financial Performance Overview
The following is an overview of our financial performance for the year ended December 31, 2014.
A reconciliation of the non-GAAP measure adjusted EBITDA is set forth on Annex A of this Amendment.
Key Compensation Actions
The following highlights key decisions and actions during 2014 and early 2015 regarding our executive compensation practices and program. These decisions and actions were made with the advice of the Compensation Committee's independent consultant, Frederic W. Cook & Co., Inc. ("F.W. Cook") (see "Role of Compensation Consultant" below) and are discussed in greater detail elsewhere in this CD&A.
12
practices, the Board adopted stock ownership guidelines, as well as a "clawback" policy applicable to certain cash and equity compensation, to help protect against malfeasance risk.
Philosophy, Objectives and Principles of Our Executive Compensation Program
Our mission is to work passionately to increase the value of the healthcare system so healthcare dollars can benefit more people. To support this mission and other strategic objectives as approved by the Board and to provide adequate returns to stockholders, we must compete for, attract, develop, motivate and retain top quality executive talent at the corporate and operating business unit levels 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. The program is designed and administered to:
13
short and long-term incentives) and choosing financial metrics that we believe drive long-term stockholder value.
Pay-For-Performance
We design our compensation programs to make a meaningful amount of target total direct compensation (salary, plus target annual incentive compensation, plus long-term incentives) dependent on the achievement of performance objectives. In the tables that follow, we compare the target total direct compensation for our Chief Executive Officer in each of the last three fiscal years (Table 1) to the corresponding amounts that were paid or that may be considered realizable (based on the methodology described below) as of December 31, 2014 (Table 2).
Table 1 below presents our President and Chief Executive Officer's salary, incentive bonus opportunity at the target level, stock awards and option awards for each of the last three fiscal years. In Table 1, the stock award and option award amounts reflect the grant date fair value of each such award (at the target level with respect to the stock awards for 2013 and 2014, which were subject to performance-vesting criteria), the same value at which such awards are required, under applicable SEC regulations, to be reflected in the Summary Compensation Table included in this Amendment.
Table 1Target Total Direct CompensationChief Executive Officer
Fiscal Year
|
Salary
($) |
Short-Term
(Cash) Incentive (STIP) Opportunity at Target ($) |
Stock
Awards ($) |
Option
Awards ($) |
Target Total
Direct Compensation ($) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2014 |
650,000 | 650,000 | 1,412,490 | 737,497 | 3,449,987 | |||||||||||
2013 |
650,000 | 650,000 | 674,988 | 1,200,000 | 3,174,988 | |||||||||||
2012 |
650,000 | 650,000 | | 1,200,000 | 2,500,000 | |||||||||||
| | | | | | | | | | | | | | | | |
3-Year Totals |
1,950,000 | 1,950,000 | 2,087,478 | 3,137,497 | 9,124,975 |
Table 2 below illustrates how our performance affected payouts and realization of the target total direct compensation that was available to our President and Chief Executive Officer.
Table 2Total Direct Compensation That May Be Considered Realizable at 12/31/2014 as a Percentage of Target Total Direct CompensationChief Executive Officer
Fiscal Year
|
Salary ($) |
Short-
Term (Cash) Incentive (STIP) Payout ($) (1) |
Value of
Stock Awards at 12/31/2014 ($) (2) |
Intrinsic
Value of Option Awards at 12/31/2014 ($) (3) |
Total
Direct Compensation at 12/31/2014 ($) |
Total Direct
Compensation at 12/31/2014 as a percentage of Target Total Direct Compensation (%) |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2014 |
650,000 | 468,000 | 1,426,844 | | 2,544,844 | 74 | |||||||||||||
2013 |
650,000 | | 496,494 | | 1,146,494 | 36 | |||||||||||||
2012 |
650,000 | | | | 650,000 | 26 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
3-Year Totals |
1,950,000 | 468,000 | 1,923,338 | | 4,341,338 | ||||||||||||||
Percent of Corresponding Amount in Table 1 |
100 | % | 24 | % | 92 | % | 0% | 48 | % | 48 | % |
14
achievement in comparison to the performance objectives that were part of our annual incentive compensation program, payouts to our President and Chief Executive Officer over the past three fiscal years amounted to approximately 24% of the aggregate target short-term cash incentive compensation for such period.
The foregoing tables illustrate that our annual and long-term incentive programs over the past three fiscal years have been designed to make a meaningful amount of our President and Chief Executive Officer's target total direct compensation dependent on the achievement of performance objectives and have resulted in actual compensation significantly less than the target amount.
Key Governance Features of Our Executive Compensation Program
Our executive compensation programs reflect a number of best practices implemented by the Compensation Committee and the Board of Directors in recent years, including:
Management and the Compensation Committee
Role of Management
Our President and Chief Executive Officer together with our Chief Financial Officer and Executive Vice President of Human Resources develop recommendations regarding the design of our executive compensation program. In addition, they are involved in setting the financial and strategic objectives that,
15
subject to the approval of the Board and the Compensation Committee, are used as the performance measures for the short and long-term incentive plans. Our Chief Financial Officer provides the Compensation Committee with financial information relevant to determining the achievement of performance objectives and related annual cash incentive compensation. As part of its review process, the Compensation Committee receives from our President and Chief Executive Officer a compensation recommendation and assessment of performance against individual objectives, for each other named executive officer and recommendations regarding base salary and short and long-term incentives.
Role of Compensation Committee
Our executive compensation program is administered by the Compensation Committee. The Compensation Committee determines and approves total executive remuneration based on its review and evaluation of recommendations presented by our President and Chief Executive Officer and the advice of F.W. Cook. Our President and Chief Executive Officer does not participate in the Compensation Committee's deliberations or decisions with regard to his own compensation.
Compensation Consultant and Peer Group Analysis
Role of Compensation Consultant
The Compensation Committee has retained F.W. Cook as its independent compensation consultant to provide advice and guidance with respect to executive compensation. F.W. Cook reports directly to the Compensation Committee and the Compensation Committee oversees the fees paid for F.W. Cook's services. The Compensation Committee uses F.W. Cook to review management's executive compensation recommendations with the instruction that F.W. Cook is to advise the Compensation Committee independent of management and to provide such advice for the benefit of the Company and its stockholders. F.W. Cook does not provide any consulting services to the Company beyond its role as a consultant to the Compensation Committee. The Compensation Committee has assessed the independence of F.W. Cook pursuant to SEC rules and concluded that no conflict of interest exists that would prevent F.W. Cook from serving as an independent consultant to the Compensation Committee.
F.W. Cook provided the following services to the Compensation Committee in 2014:
Peer Group Compensation Analysis
When evaluating our executive compensation program, our Compensation Committee measures our program against that of a peer group of public companies that is developed with guidance from F.W. Cook. This peer group, which is reviewed annually by the Compensation Committee, consists of companies the Compensation Committee believes are generally comparable to us in size, financial profile and scope of operations and, in certain cases, against which the Compensation Committee believes we compete for executive talent.
16
Certain executive compensation decisions for 2014 were based in part on benchmarking data from the peer group established by the Compensation Committee in October 2013. Companies included in this peer group for purposes of establishing 2014 executive compensation levels through October 2014 were: Accretive Health, Inc., Acxiom Corp, Allscripts-Misys Healthcare Solutions Inc., AthenaHealth, Inc., Bottomline Technologies (de), Inc., DealerTrack Technologies,Inc., ExlService Holdings, Inc., Fair Isaac Corp, MAXIMUS, Inc., MedAssets, Inc., Medidata Solutions, Inc., NeuStar, Inc., Quality Systems, Inc., Tyler Technologies, Inc. and WEX, Inc. (collectively, the "2013 Peer Group"). This peer group reflects (relative to the Company's prior year peer group) the removal of Concur Technologies, Inc. and MICROS Systems, Inc. because of their difference in size relative to us.
The chart below compares HMS's revenue, net income, EBITDA and market capitalization to the median of our 2013 Peer Group at the time the 2013 Peer Group was established. Note that although our revenue and market capitalization are below the peer median, our net income and EBITDA are above the peer median.
(in millions)
(1)
|
HMS |
2013 Peer
Group Median |
|||||
---|---|---|---|---|---|---|---|
Revenue |
$ | 489 | $ | 671 | |||
Net Income (2) |
$ | 48 | $ | 38 | |||
EBITDA |
$ | 151 | $ | 109 | |||
Market Capitalization (3) |
$ | 1,887 | $ | 2,103 |
In November 2014, the Committee, with guidance from F.W. Cook, reviewed the Company's peer group and determined that a majority of the peer group generally continues to be reasonable from both size and business model perspectives. Based on its annual review, the Committee updated the Company's peer group to include the following companies: Acxiom Corp, Allscripts-Misys Healthcare Solutions Inc., AthenaHealth, Inc., Bottomline Technologies (de), Inc., DealerTrack Technologies,Inc., ExlService Holdings, Inc., Fair Isaac Corp, MAXIMUS, Inc., MedAssets, Inc., Medidata Solutions, Inc., NeuStar, Inc., Omnicell, Inc., Quality Systems, Inc., Tyler Technologies, Inc. and WEX, Inc. (collectively, the "2014 Peer Group"). This peer group reflects (relative to the Company's prior peer group) the addition of Omnicell, Inc., a comparably-sized health care technology company, and the removal of Accretive Health because of its delisiting from the New York Stock Exchange in March 2014. We believe these changes maintain the Company's size positioning against the peer group within the median range, consistent with our overall total direct target compensation philosophy.
The chart below compares HMS's revenue, net income, EBITDA and market capitalization to the median revenue, net income, EBITDA and market capitalization for our 2014 Peer Group. Note that
17
although our revenue and market capitalization are below the median, our net income and EBITDA are above the peer median.
(in millions)
(1)
|
HMS |
2014 Peer
Group Median |
|||||
---|---|---|---|---|---|---|---|
Revenue |
$ | 467 | $ | 672 | |||
Net Income (2) |
$ | 32 | $ | 29 | |||
EBITDA |
$ | 117 | $ | 107 | |||
Market Capitalization (3) |
$ | 1,654 | $ | 1,946 |
2014 Competitive Review
During the fourth quarter of 2014, the Compensation Committee retained F.W. Cook to conduct a competitive review of the overall compensation packages of our named executive officers (the "2014 Competitive Review"). The analysis was based on a review of the compensation of our named executive officers to similarly situated executives in the 2014 Peer Group. While we generally aim to set each named executive officer's target total direct compensation between the median and 75 th percentile of the levels paid to similarly situated executives in our peer group, such data is intended to serve as one of several reference points to assist the Compensation Committee in its discussions and deliberation. The Compensation Committee reserves flexibility to vary from this positioning based on a variety of factors including prior year compensation targets, the named executive officer's overall performance, changes in roles or responsibilities, and prior year short- and long-term incentive payments.
As part of the 2014 Competitive Review, the Compensation Committee reviewed (i) a competitive analysis of the target total direct compensation of the named executive officers, including base salary and short and long-term incentives, (ii) an analysis of our 2013 actual compensation levels for the named executive officers and our performance relative to the peer group companies and (iii) a competitive assessment of our aggregate long-term incentive grant practices, including a review of share usage (shares granted in equity plans as a percentage of weighted average shares outstanding), potential dilution relative to peer group practice and fair value transfer that measures the aggregate value of long-term incentives in absolute dollars and as a percent of market capitalization.
18
2014 Executive Compensation Elements
The primary elements of our executive compensation program are as follows:
| | | | |
Element
|
Type | Objective | ||
---|---|---|---|---|
Annual Base Salary |
Fixed cash compensation for performing day-to-day responsibilities | Recognizes skills, experience and responsibilities | ||
Annual Short-Term Incentive Compensation |
Cash compensation awards based on the achievement of short-term financial goals and other strategic objectives measured over a specific year |
Promotes and rewards short-term corporate performance and achievement of our strategic objectives |
||
Annual Long-Term Incentive Compensation |
Restricted stock units
|
Builds executive stock ownership, retains executives and aligns compensation with the achievement of our long-term financial goals of creating stockholder value and our strategic objectives as measured over multi-year periods |
In addition, we generally also provide salary and benefit continuation payments that are only payable if an executive officer's employment is terminated under specific circumstances. These benefits, which provide reasonable income protection in the event an executive officer's employment is terminated without cause or, following a change in control, an executive officer resigns for good reason, support our executive retention goal and encourages executive independence and objectivity in considering a potential change in control transaction.
The Compensation Committee does not have a formal or informal policy or target for allocating compensation between cash and non-cash compensation, or among the different forms of non-cash compensation. In allocating compensation between cash and non-cash forms, we, after reviewing information provided by F.W. Cook, determine what we believe in our business judgment is the appropriate level with respect to each of the various compensation components.
For 2014, the Compensation Committee re-evaluated the structure of our short-term (cash) incentive program and long-term incentive compensation and determined to implement a number of changes to establish increased linkage between metrics, goal-setting and incentive payouts and the Company's overall strategic goals, increase participant accountability, and balance annual and long-term results. These changes include modifying the Company's annual short-term (cash) incentive plan to include a portion based on the Company's achievement of non-financial strategic objectives and revising the equity mix of long-term incentive compensation.
Base Salary
Base salary is used to recognize the experience, skills, knowledge and responsibilities of our employees, including our named executive officers. The key factors in determining base salary are the competitive rate among our peers for positions of like responsibility and the level of the named executive officer's salary in relation to other employees within the Company with similar responsibilities and tenure.
19
The Compensation Committee reviews base salaries annually and, if appropriate, makes adjustments to reflect market levels generally every two years after taking into account individual responsibilities, performance and experience and the recommendations of the Chief Executive Officer. For 2014, the base salaries for Messrs. Lucia and Hosp and Ms. Nustad remained at $650,000, $450,000 and $425,000, respectively. With respect to Ms. Wagner, the Committee increased her base salary in March 2014, from $450,000 to $475,000 based on her significant contributions and increased scope of responsibilities as Executive Vice President of Operations, the recommendation of the Chief Executive Officer and the benchmarking data provided by F.W. Cook. In March 2014, Mr. Donabauer received a merit increase from $245,000 to $252,350 to recognize his performance, contributions and achievements in 2013. Both Mr. DeFelice and Mr. Sherman joined the Company during 2014, and their base salaries were established at $425,000 and $500,000, respectively.
Annual Short-Term (Cash) Incentive Compensation
The Compensation Committee awards annual short-term cash incentive compensation to our named executive officers in accordance with specific performance criteria established each year and based on the extent to which those criteria were achieved. The Compensation Committee believes that this element of our executive compensation program promotes the Company's performance-based compensation philosophy by providing named executive officers with direct financial incentives for achieving specific short-term performance goals. Performance criteria for the annual short-term cash incentive awards are established and awards are ultimately made in a manner intended to reward both overall corporate performance and an individual's participation in attaining such performance. Our annual short-term cash incentive awards are paid in cash, ordinarily in a single payment in the first quarter following the completion of the fiscal year.
Our Board of Directors has adopted, and our stockholders have approved, the HMS Holdings Corp. Annual Incentive Compensation Plan ("AIP") to provide key executives incentive awards that are intended to qualify as performance-based compensation and that are intended to be deductible for federal income tax purposes under the Internal Revenue Code of 1986 (the "Code"). The AIP is entirely objective. Participants in the AIP are eligible to receive a maximum bonus award of $2,000,000, subject to the Compensation Committee's authority to use negative discretion, if the predetermined objective goal for the fiscal year is met. EBITDA was selected as the performance metric under the AIP for fiscal year 2014 because it is a primary reporting metric for the Company. EBITDA is calculated based on generally accepted accounting principles (GAAP) income before income taxes to exclude the effects of interest, depreciation and amortization of intangible assets, as reported in our financial statements for the year ended December 31, 2014. All of the named executive officers other than Mr. Donabauer were participants under the AIP for fiscal 2014.
In February 2014, the Compensation Committee established the 2014 Short-Term (Cash) Incentive Plan ("2014 STIP"). The 2014 STIP operates as a sub plan under our stockholder approved AIP. This plan within a plan structure is designed to preserve deductibility under Section 162(m) of the Code, while giving the Compensation Committee the flexibility to grant awards that reflect financial and strategic achievements based on both objective and subjective criteria. The Compensation Committee established performance goals for each executive officer under the 2014 STIP that were used to determine actual bonus amounts that were paid in 2015, which are below the officers' maximum award under the AIP, if applicable.
Awards under the 2014 STIP were made from a bonus pool sized based on the aggregate target incentive opportunity for all eligible employees. Generally, an employee's target annual incentive opportunity is established based on the employees' management level within the Company and is
20
expressed as a percentage of annual base salary. The target annual incentive opportunities approved by the Compensation Committee for our named executive officers are as follows:
Named Executive Officer
|
Target Incentive Opportunity (as
a % of base salary) |
|||
---|---|---|---|---|
W. Lucia |
100 | % | ||
J. Sherman |
65 | % | ||
E. DeFelice |
65 | % | ||
K. Wagner |
65 | % | ||
C. Nustad |
65 | % | ||
W. Hosp (1) |
65 | % | ||
J. Donabauer |
50 | % |
2014 Performance Goals
For 2014, with input from F.W. Cook, the Compensation Committee determined to redesign the short-term (cash) incentive program, which was historically funded based solely on achievement of financial objectives, to include both financial and non-financial objectives. The Compensation Committee established revenue and adjusted EBITDA as the financial metrics under the 2014 STIP. We believe that revenue and adjusted EBITDA are strong indicators of our overall financial performance and are key indicators used by industry analysts to evaluate our operating performance. We define adjusted EBITDA, which is a non-GAAP measure, as earnings before interest, taxes, depreciation, amortization, and stock based compensation. In addition to the financial objectives, the Compensation Committee established certain strategic objectives under the 2014 STIP in order to motivate participants to achieve the overall short-term strategic goals of the Company. Weightings then were established for each of the three performance metrics for 201450% for adjusted EBITDA, 25% for revenue and 25% for strategic objectives, as well as specific performance targets for revenue and adjusted EBITDA. The adjusted EBITDA target for 2014 was $123.0 million. The revenue target for 2014 was $443.0 million.
The bonus pool under the 2014 STIP was funded based on the level of achievement of each of the performance objectives. As illustrated in the charts below, the applicable percentage of the bonus target to be paid varies with the Company's level of achievement of its adjusted EBITDA target and revenue target. Payout levels for the portions of the incentive award subject to achievement of these financial objectives were limited to 200% of target.
Percent of Target
Achieved |
Bonus Multiple | |
---|---|---|
<85% |
| |
85% |
0.5 | |
86% - 99% |
Payout is a straight line from 0.5 to 1.0 | |
100% |
1.0 | |
101% - 130% (1) |
Payout is a straight line from 1.0 to 2.0 | |
| | |
21
Percent of Target
Achieved |
Bonus Multiple | |
---|---|---|
<90% |
| |
90% |
0.5 | |
90% - 99% |
Payout is a straight line from 0.5 to 1.0 | |
100% |
1.0 | |
101% - 120% (1) |
Payout is a straight line from 1.0 to 2.0 | |
| | |
In addition to financial objectives, the following strategic objectives were established for 2014 to align our objectives with those of our customers, stockholders and employees:
The level of achievement of the strategic objectives is determined in the Compensation Committee's sole discretion.
When considering whether the Company has achieved its goals for payouts under the pre-existing terms of the short-term (cash) incentive program, the Compensation Committee may determine to exclude certain significant unplanned items that may distort the Company's performance and that were largely out of the control of management. This practice helps ensure that our senior executives will be fairly treated and remain engaged and motivated and will not be unduly influenced in their day-to-day decision-making because they would neither benefit nor be penalized as a result of certain unexpected and uncontrollable or strategic events that may positively or negatively affect the performance goals in the short-term.
2014 Short-Term (Cash) Incentive Compensation Calculation
The named executive officers' 2014 incentive awards generally were determined by applying the predefined financial and strategic objectives weightings in the following formula:
For 2014, the Company had adjusted EBITDA of $101.2 million and revenue of $443.2 million. In determining the cash bonus amounts to be paid to the named executive officers for services performed in 2014, the Compensation Committee approved adjustments to the 2014 financial targets to exclude the Medicare RAC revenue due to the significant uncertainty with the related procurement and award process, which was substantially beyond the control of management, and an adjustment to the adjusted EBITDA
22
calculation to exclude the impact of 2014 legal fees incurred in connection with Public Consulting Group, Inc. ("PCG") litigation. The Compensation Committee determined that the facts giving rise to the PCG litigation were substantially outside of the control of current management and that the facts and circumstances underlying the litigation occurred in the past, prior to the employment of the management team (other than Mr. Lucia), and were related to the intervening wrongful acts of third parties. Additional considerations included fairness to the Company's management and employees and employee morale. These adjustments resulted in adjusted EBITDA of $107.4 million and adjusted revenue of $421.2 million, or 87.1% and 95.0% achievement of the respective financial objectives. In addition, the Compensation Committee determined that 100.0% of the strategic objectives for 2014 were met. Based on the Company's achievement level of each of the pre-determined performance objectives, the bonus pool under the 2014 STIP was funded at 72% of the target bonus pool.
Performance Objectives
|
Performance
Objective Weighting |
Bonus
Pool at Target |
Achievement
of Performance Objective |
Computed
Bonus Pool |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
(in thousands)
|
|
(in thousands)
|
|||||||||
Adjusted EBITDA |
50 | % | $ | 5,677 | 87.1 | % | $ | 3,234 | |||||
Revenue |
25 | % | $ | 2,838 | 95.0 | % | $ | 2,141 | |||||
Strategic Objectives |
25 | % | $ | 2,838 | 100.0 | % | $ | 2,838 | |||||
| | | | | | | | | | | | | |
Totals |
100 | % | $ | 11,353 | $ | 8,213 | |||||||
| | | | | | | | | | | | | |
% of Bonus Payout |
72% of target |
Below is a comparison of target bonus amounts to actual bonus amounts paid to the named executive officers under the 2014 STIP.
Named Executive Officer
|
Target Bonus |
Actual
Percentage of Target Bonus Paid |
Actual Bonus (1) | |||||||
---|---|---|---|---|---|---|---|---|---|---|
W. Lucia |
$ | 650,000 | 72 | % | $ | 468,000 | ||||
J. Sherman |
$ | 325,000 | 48 | % | $ | 155,000 | ||||
E. DeFelice |
$ | 276,250 | 72 | % | $ | 198,000 | ||||
K. Wagner |
$ | 308,750 | 86 | % | $ | 265,000 | ||||
C. Nustad |
$ | 276,250 | 72 | % | $ | 200,000 | ||||
J. Donabauer |
$ | 126,175 | 75 | % | $ | 95,000 | ||||
W. Hosp (2) |
$ | 292,500 | | |
The actual bonus amounts for each of Messrs. Lucia and DeFelice and Ms. Nustad were determined by multiplying each officer's target bonus by 72%, the percentage of bonus payout calculated above. Mr. DeFelice's bonus was not pro-rated for a partial year of employment, pursuant to his employment agreement with the Company. Mr. Sherman joined the Company in September 2014 and was guaranteed a minimum bonus for the 2014 plan year of $150,000, pursuant to his employment agreement with the Company. Taking into consideration the recommendation of the President and Chief Executive Officer, the Compensation Committee approved a bonus of $155,000 for Mr. Sherman. In determining the amount of Ms. Wagner's bonus for 2014, the Compensation Committee considered her contribution to the Company's achievement of its overall strategic plan, and her individual contributions to the operations unit relative to the Company's other business areas, which, among other achievements, include increasing
23
operational efficiency and improving employee engagement scores for 2014, in addition to the pre-established financial and strategic objectives, and determined to increase her award payment above the 72% payout level by $42,700. The amount of Mr. Donabauer's bonus for 2014 was determined in the President and Chief Executive Officer's discretion, pursuant to delegated authority by the Compensation Committee. The President and Chief Executive Officer determined to increase Mr. Donabauer's bonus payment above the 72% payout level based on his roles as interim Principal Financial Officer and interim Treasurer during part of 2014. Mr. Hosp was not eligible to receive a bonus for 2014 because he was not employed by the Company on the date the bonuses were paid.
Annual Long-Term Incentive Compensation
We believe that equity grants provide our named executive officers with a strong link to our long-term performance in order to create an ownership culture and help to align their interests with those of our stockholders.
In accordance with our Fourth Amended and Restated 2006 Stock Plan (the "2006 Stock Plan"), we set the exercise price of all stock options equal to the closing price of our common stock on the NASDAQ Global Select Market on the day of the grant. Accordingly, a stock option grant will provide a return to the executive officer only in the following circumstances, outside of a change in control: (i) the executive officer remains employed during the vesting period, (ii) the performance conditions (which relate to 50% of the stock option grant) are achieved, and (iii) the market price of our common stock appreciates from the option's exercise price. As a result, stock options strongly support our objective of ensuring that pay is aligned with changes in stockholder value.
In addition to stock options, we previously have issued restricted stock awards and in more recent years, restricted stock unit awards, under the 2006 Stock Plan to support the goal of retaining our named executive officers and to further align the interests of our executives with stockholders by increasing their stock ownership. Because restricted stock and restricted stock units awarded to executives generally vest in installments over time, these awards will provide a return to the executive only if the executive remains employed during the vesting period. We also align pay with performance by establishing performance conditions with respect to all or a portion of the awards. With respect to any portion of an award subject to performance conditions, the award will provide a return to the executive only if the Company achieves its objectives. The value of the restricted stock awards and restricted stock unit awards granted to the executive increases or decreases as the market price of our common stock increases or decreases, further supporting our objective of ensuring that pay is aligned with changes in stockholder value.
How Awards Are Granted
The Compensation Committee historically has awarded two annual grants of equity at its regularly scheduled meetings held during the first and fourth quarters of the year. The dates of the regularly scheduled meetings are determined in advance, typically during the fourth quarter of the preceding year. At these regularly scheduled meetings, the Committee will meet with management and F.W. Cook to discuss and consider award determination, and if approved, the Committee will establish a grant date that is two business days after the date that the Company will file its next quarterly report on Form 10-Q or annual report on Form 10-K, as applicable, as well as the award amounts and terms of the awards for the executive officers.
For purposes of determining equity awards for our other named executive officers, our President and Chief Executive Officer presents the Compensation Committee with his recommendations for the other executive officers. With respect to our President and Chief Executive Officer, the Committee considers the Company's performance and relative stockholder return and the awards given to the President and Chief Executive Officer in past years. The Committee also seeks guidance from F.W. Cook as to appropriateness of grant amounts, vesting schedules and performance conditions in light of market practices based on
24
benchmarking data from our peer group companies. These equity awards are granted based upon the Compensation Committee's subjective evaluation of the appropriate grant depending upon the level of responsibility of each named executive officer and competitive positioning among our peer group companies.
In addition to grants that are approved at the regularly scheduled meetings, the Compensation Committee approves off-cycle initial equity grants to attract and retain key new hires based on management's negotiations with the new hire candidate. These off-cycle grants are generally effective as of the date the new hire commences employment with the Company and are subject to time-based vesting.
2014 Competitive Review
In October 2014, the Compensation Committee evaluated the long-term incentive compensation component of the executive compensation program. With the guidance of F.W. Cook, the Committee reviewed the Company's long-term incentive grant practices, including a review of share usage (shares granted in equity plans as a percentage of weighted average shares outstanding), potential dilution relative to peer group practice and fair value transfer that measures the aggregate value of long-term incentives in absolute dollars and as a percent of market capitalization.
Taking into consideration F.W. Cook's recommendations, the Committee established a target amount for total long-term compensation at a slightly higher level than previous years in order to maintain competitive market levels for recently recruited management with more experience to help the Company achieve its growth objectives and to encourage retention in light of the uncertainty of the Medicare RAC contract award process and volatility in the Company's stock price.
2014 Long-Term Incentive Compensation
For the 2014 fiscal year, in making its determinations with respect to granting annual long-term incentives, the Compensation Committee considered F.W. Cook's recommendations based on the 2014 Competitive Review (with respect to the fourth quarter 2014 grants) and peer group benchmarking data and the recommendations of the President and Chief Executive Officer (other than with respect to his own incentives), in addition to several objective factors, including comparative share ownership of similarly-situated executives, the Company's financial performance, the amount of equity previously awarded, the vesting of such awards and the retention value of the award. In determining amounts of long-term incentive compensation to be awarded, no fixed or specific mathematical weighting was applied to the subjective or the objective assessment of the named executive officers' individual achievements.
For 2014, the Committee continued its prior year practice of awarding an annual grant of restricted stock units in the first fiscal quarter and an annual equity grant in the fourth fiscal quarter.
First Quarter 2014 Grants. On March 5, 2014, the Committee awarded an equity grant to (i) Mr. Lucia 33,399 of restricted stock units, (ii) Mr. Hosp 17,318 of restricted stock units, (iii) Mr. Donabauer 7,422 of restricted stock units, (iv) Ms. Wagner 24,740 of restricted stock units, and (v) Ms. Nustad 19,792 of restricted stock units, based on the closing price of our common stock of $20.21 on the NASDAQ Global Select Market on that date, provided that the Company achieved positive operating income before taxes for the fiscal year ending December 31, 2014. The vesting period of restricted stock units for the first quarter 2014 grant was reduced from five years to four years from the date of the grant to align with the market practices of our peer group companies and to match the period after which stock option awards are fully vested and exercisable.
Fourth Quarter 2014 Grants. In November 2014, with advice from F.W. Cook, the Committee determined to make certain changes to the mix of equity for the fourth quarter annual equity award. Specifically, the Committee shifted from an award of 100 percent stock options to an equal value weighting of non-qualified stock options and restricted stock units. The Committee believes that the mix of stock
25
options and restricted stock units is appropriate because the two forms of awards together represent a balanced approach that reinforces our emphasis on pay for performance because the numbers of shares earned depends on the performance against pre-defined goals and the value of the shares fluctuates based on the stock price.
In addition, in November 2014 the Committee determined that 50% of the value of their fourth quarter annual long-term incentive awards would be time-based and 50% would be performance-based with vesting tied solely to our stock price. The Committee believes that this mix of vesting supports several important objectives, including compensating named executive officers for achievement of long-term goals tied to business strategy through the use of performance-based vesting, rewarding named executive officers for sustained increases in stock price and ensuring the overall cost of the program is aligned with compensation realized by named executive officers and performance delivered to stockholders. The Committee believes that restricted stock units provide a retention incentive, enhance executive stock ownership, and align the interests of our executives with the interests of our stockholders. However, the Committee believes that allocating a portion of restricted stock units to performance goals would continue to offer a strong retention incentive while reinforcing the Company's long-term focus.
On November 12, 2014, the following named executive officers received restricted stock unit awards as follows: (i) Mr. Lucia was awarded 34,096 restricted stock units, (ii) Mr. Sherman was awarded 15,603 restricted stock units, (iii) Mr. DeFelice was awarded 9,246 restricted stock units, (iv) Ms. Wagner was awarded 13,291 restricted stock units, (v) Ms. Nustad was awarded 11,558 restricted stock units, and (vi) Mr. Donabauer was awarded 2,080 restricted stock units, based on the closing price of our common stock of $21.63 on the NASDAQ Global Select Market on that date.
On November 12, 2014, the following named executive officers received an award of non-qualified stock options to purchase shares of our common stock as follows: (i) Mr. Lucia was awarded 97,231 non-qualified stock options, (ii) Mr. Sherman was awarded 44,495 non-qualified stock options, (iii) Mr. DeFelice was awarded 26,367 non-qualified stock options, (iv) Ms. Wagner was awarded 37,903 non-qualified stock options, (v) Ms. Nustad was awarded 32,959 non-qualified stock options and (vi) Mr. Donabauer was awarded 5,932 non-qualified stock options.
Early 2015 Compensation Actions
Combination of Annual Long-Term Incentive Grants into One Annual Grant
In the past, we granted long-term incentive compensation in two annual grants during the first and fourth quarters. Beginning in 2015, we determined instead to combine the two annual equity grants made during the first and fourth fiscal quarters into one annual grant during the first fiscal quarter in order to align the timing of annual grants to follow the determination and review of the prior year's financial results. This timing allows us to evaluate an executive's total compensation for the full year at one time while simplifying the annual equity award process.
Limited New Executive Perquisites
In order to enhance the Company's ability to recruit and retain highly qualified executive talent, on February 6, 2015, and based on input from F.W. Cook, we determined to offer Guaranteed Standard Issue, or individual disability income insurance, to employees of the Company earning more than $300,000 in annualized base salary, as well as financial counseling services to the President and Chief Executive Officer and any officers of the Company who report directly to the President and Chief Executive Officer. We believe these benefits are comparable to benefits offered by companies of a similar size to ours. Each of the named executive officers, other than Mr. Donabauer, is eligible to receive these benefits.
26
Other Elements of Compensation Available to all Employees
Benefits and Other Compensation
We maintain broad-based benefits that are provided to all employees, including health and dental insurance, life and disability insurance and a 401(k) plan. Our named executive officers are eligible to participate in all of our employee benefit plans, in each case on the same basis as other employees. The Company matches 100% of participant contributions to our 401(k) plan up to 3% of their eligible compensation and 50% of the next 2% of their eligible compensation contributed to the 401(k) plan, up to a maximum of $10,200 per annum for 2014.
Severance and Change-in-Control Benefits
To enable us to offer competitive total compensation packages to our senior executives, as well as to ensure the ongoing retention of these individuals when considering transactions that may create uncertainty as to their future employment with us, in 2011, the Compensation Committee approved standardizing the terms of employment of our senior executives, which included providing consistent separation and change-in-control protection.
Based on information provided by F.W. Cook, the Committee believes that the protection afforded by the revised terms of employment described above provides a level of benefits that are estimated to be within a reasonable range based on competitive practices with respect to comparable positions. We believe that the benefits provided under these agreements are consistent with the Company's objective of attracting and retaining highly qualified executives and provide reasonable assurance so that our senior executives are not distracted from their duties during the uncertainty that may accompany a possible change in control.
We have provided detailed information about Mr. Lucia's employment agreement and our agreements with the other named executive officers and the benefits provided to Mr. Lucia and the other named executive officers under their respective agreements, along with estimates of the value of such benefits under various circumstances, under the caption "Potential Payments upon Termination of Employment or Change-in-Control" below.
Stock Ownership Guidelines for Executive Officers
With the Board's approval, in October 2014, we adopted stock ownership guidelines for our directors and executive officers to help ensure that they each maintain an equity stake in the Company, and by doing so, appropriately link their interests with those of other stockholders. The guidelines for executive officers are based on a multiple of the executive's base salary.
Title
|
Value of Shares to
be Owned |
|
---|---|---|
Chief Executive Officer | 5 X Base Salary | |
Other Executive Officers |
|
2 X Base Salary |
Each executive has five years from the date he or she becomes subject to these guidelines to meet his or her target. Shares that satisfy the stock ownership guidelines include stock owned outright, directly or indirectly, restricted stock or restricted stock units, and deferred stock units. Management monitors compliance with these guidelines on an annual basis.
Clawback Policy
In October 2014, the Board adopted a clawback policy that covers each current and former executive officer of the Company and applies to all forms of executive incentive compensation. Our clawback policy provides that the Board (or a Board committee) is authorized to recover from any current or former
27
executive officer any bonus, incentive compensation or equity-based compensation gains resulting from certain misconduct occurring after January 1, 2015 that causes a restatement of our Company's financial statements. The Board is required to review all circumstances and actions causing such restatement and to take action as it deems appropriate. We are monitoring this policy to ensure that it is consistent with applicable laws, and to the extent that the SEC adopts rules for clawback policies, we will revise our policy to reflect any necessary changes.
Prohibition on Hedging and Pledging
Our Insider Trading Policy prohibits our employees and directors from, among many other actions, purchasing our securities on margin, borrowing against our securities held in a margin account, pledging our securities as collateral for a loan and entering into hedging and derivative transactions with respect to our securities.
Tax Considerations
Code Section 162(m) prohibits us from deducting from taxable income any compensation in excess of $1 million paid to our President and Chief Executive Officer and the three other most highly compensated named executive officers employed at the end of the year (other than our Chief Financial Officer), except to the extent that such compensation is paid pursuant to a stockholder approved plan upon the attainment of specified performance objectives. The Compensation Committee believes that tax deductibility is an important factor, but not the sole factor, to be considered in setting executive compensation policy. Accordingly, the Compensation Committee periodically reviews the potential consequences of Section 162(m) and generally intends to take such reasonable steps as are required to avoid the loss of a tax deduction due to Section 162(m). However, the Compensation Committee may, in its judgment, authorize compensation payments or arrangements that do not comply with the exemptions in Section 162(m) when it believes that such payments are appropriate to attract and retain executive talent.
28
The following table sets forth the cash and non-cash compensation awarded to or earned by our named executive officers for the fiscal years ended December 31, 2014, 2013 and 2012. Information for 2013 and 2012 is not provided for Messrs. Sherman and DeFelice because they were not employed by the Company until 2014, and information for 2012 is not provided for Ms. Wagner because she was not employed by the Company until 2013. In accordance with the rules of the SEC, information for 2013 and 2012 is not provided for Mr. Donabauer because he did not serve as an executive officer of the Company during any part of those years.
Name and Principal
Position |
Year |
Salary
($) |
Bonus
($) |
Stock
Awards (1) ($) |
Option
Awards (2) ($) |
Non-
Equity Incentive Plan Compensation ($) |
All Other
Compensation (3) ($) |
Total
Compensation ($) |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
William C. Lucia |
2014 | 650,000 | | 1,412,490 | 737,497 | 468,000 | 10,400 | 3,278,387 | |||||||||||||||||
President and Chief |
2013 | 650,000 | | 674,988 | 1,200,000 | | 10,200 | 2,535,188 | |||||||||||||||||
Executive Officer |
2012 | 650,000 | | | 1,200,000 | | 10,000 | 1,860,000 | |||||||||||||||||
Jeffrey S. Sherman |
2014 |
136,538 |
(4) |
355,000 |
337,493 |
1,087,493 |
|
|
1,916,524 |
||||||||||||||||
EVP, Chief Financial |
2013 | | | | | | | | |||||||||||||||||
Officer and Treasurer |
2012 | | | | | | | | |||||||||||||||||
Eugene V. DeFelice |
2014 |
312,211 |
(5) |
50,000 |
399,990 |
399,992 |
198,000 |
178,189 |
(6) |
1,538,382 |
|||||||||||||||
EVP, General Counsel |
2013 | | | | | | | | |||||||||||||||||
and Corporate Secretary |
2012 | | | | | | | | |||||||||||||||||
Cynthia Nustad |
2014 |
421,731 |
|
649,996 |
249,994 |
200,000 |
10,400 |
1,532,121 |
|||||||||||||||||
EVP and Chief |
2013 | 378,413 | | 524,020 | 469,327 | | 10,200 | 1,381,960 | |||||||||||||||||
Information Officer |
2012 | 350,000 | | 31,236 | 93,743 | | | 474,979 | |||||||||||||||||
Semone Wagner |
2014 |
470,192 |
|
787,480 |
287,494 |
265,000 |
13,677 |
1,823,843 |
|||||||||||||||||
EVP, Operations |
2013 | 337,500 | (7) | 50,000 | 499,981 | 450,000 | | 6,923 | 1,344,404 | ||||||||||||||||
|
2012 | | | | | | | | |||||||||||||||||
Walter D. Hosp |
2014 |
205,962 |
(8) |
|
349,997 |
(10) |
|
|
234,979 |
(9) |
790,938 |
||||||||||||||
Former EVP and |
2013 | 445,833 | | 499,990 | 425,000 | | 7,337 | 1,378,160 | |||||||||||||||||
Chief Financial Officer |
2012 | 425,000 | | | 424,995 | | 10,000 | 859,995 | |||||||||||||||||
Joseph M. Donabauer |
2014 |
248,025 |
63,087 |
194,989 |
44,994 |
95,000 |
10,505 |
656,600 |
|||||||||||||||||
SVP and Controller and |
2013 | | | | | | | | |||||||||||||||||
Former Interim Principal |
2012 | | | | | | | | |||||||||||||||||
Financial Officer and |
|||||||||||||||||||||||||
Interim Treasurer |
29
Narrative Discussions to Summary Compensation Table and Grants of Plan-Based Awards Table
The following discussion supplements the information provided in the Summary Compensation Table that precedes this discussion and the Grants of Plan Based Awards Table that follows this discussion.
Salary
The amounts reported in the "Salary" column in the Summary Compensation Table consist of base salary earned in the respective fiscal year. Annual base salaries for 2014 for each of the named executive officers other than Ms. Wagner and Mr. Donabauer were as follows: $650,000 for Mr. Lucia; $500,000 for Mr. Sherman; $425,000 for Mr. DeFelice; $425,000 for Ms. Nustad; and $450,000 for Mr. Hosp. In March 2014, Ms. Wagner's annual base salary was increased from $450,000 to $475,000 and Mr. Donabauer's annual base salary was increased from $245,000 to $252,350.
Bonus
The amounts reported in the "Bonus" column in the Summary Compensation Table for 2014 are based on the following factors.
Jeffrey S. Sherman. Mr. Sherman was guaranteed a minimum bonus payment for 2014 of $150,000, pursuant to his employment agreement with the Company. In February 2015, the Compensation Committee awarded Mr. Sherman a bonus for 2014 of $155,000. In addition, Mr. Sherman received a sign-on bonus of $200,000 in 2014, pursuant to the terms of his employment agreement.
Eugene V. DeFelice. Mr. DeFelice received a sign-on bonus of $50,000 in 2014, pursuant to the terms of his employment agreement with the Company.
Joseph M. Donabauer. Mr. Donabauer entered into a Retention Agreement with the Company in April 2014, pursuant to which Mr. Donabauer is entitled to receive, among other things, $126,175 in two equal installments, subject to certain conditions. Mr. Donabauer received the first installment of $63,087 in 2014.
Stock and Option Awards
First Quarter 2014 Awards. On March 5, 2014, the Compensation Committee awarded a grant pursuant to the 2006 Stock Plan to (i) Mr. Lucia 33,399 of restricted stock units, (ii) Mr. Hosp 17,318 of restricted stock units, (iii) Mr. Donabauer 7,422 of restricted stock units, (iv) Ms. Wagner 24,740 of restricted stock units, and (v) Ms. Nustad 19,792 of restricted stock units, based on the closing price of our common stock of $20.21 on the NASDAQ Global Select Market on that date, provided that the Company achieved positive operating income before taxes for the fiscal year ending December 31, 2014. Based on the Company's audited financial statements included in its Annual Report for the fiscal year ending December 31, 2014, the Company achieved the performance condition and, as a result, the restricted stock units will vest in 25% increments, with the first 25% vesting on the first anniversary of the grant date and the remainder vesting ratably on the second, third, and fourth anniversaries of the grant date.
Fourth Quarter 2014 Awards. On November 12, 2014, the following named executive officers received restricted stock unit awards pursuant to the 2006 Stock Plan as follows: (i) Mr. Lucia was awarded 34,096
30
restricted stock units, (ii) Mr. Sherman was awarded 15,603 restricted stock units, (iii) Mr. DeFelice was awarded 9,246 restricted stock units, (iv) Ms. Wagner was awarded 13,291 restricted stock units, (v) Ms. Nustad was awarded 11,558 restricted stock units, and (vi) Mr. Donabauer was awarded 2,080 restricted stock units, based on the closing price of our common stock of $21.63 on the NASDAQ Global Select Market on that date. The restricted stock units vest as follows: 50% vests ratably over a three year period beginning on November 12, 2015, and the remaining 50% vests upon the Company's achievement of the following performance condition: the Company's average closing price per share must be at least 25% higher than the closing price on the grant date for a period of 30 consecutive trading days preceding the first, second or third anniversaries of the grant date. If the performance condition is met prior to the first anniversary of the grant date, one-third of the performance RSUs will vest in three equal installments on the first, second and third anniversaries of the grant date; if the performance condition is met after the first anniversary but prior to the second anniversary of the grant date, two-thirds of the performance RSUs will vest on the second anniversary of the grant date and one-third will vest on the third anniversary of the grant date; if the performance condition is met after the second anniversary but prior to the third anniversary of the grant date, 100% of the performance RSUs will vest on the third anniversary of the grant date. If the performance condition is not achieved before the third anniversary of the grant date, the performance RSUs will be forfeited. The named executive officer must remain employed by the Company as of each exercise date.
On November 12, 2014, the following named executive officers received an award of non-qualified stock options to purchase shares of our common stock pursuant to the 2006 Stock Plan as follows: (i) Mr. Lucia was awarded 97,231 non-qualified stock options, (ii) Mr. Sherman was awarded 44,495 non-qualified stock options, (iii) Mr. DeFelice was awarded 26,367 non-qualified stock options, (iv) Ms. Wagner was awarded 37,903 non-qualified stock options, (v) Ms. Nustad was awarded 32,959 non-qualified stock options and (vi) Mr. Donabauer was awarded 5,932 non-qualified stock options. The exercise price for these stock options was $21.63 per share. These stock options are exercisable over seven years and vest as follows: 50% vests ratably over a three-year period beginning on November 12, 2015, and the remaining 50% vests upon the Company's achievement of the following performance condition: the Company's average closing price per share must be at least 25% higher than the exercise price for a period of 30 consecutive trading days preceding the first, second or third anniversaries of the grant date. If the performance condition is achieved prior to the first anniversary of the grant date, the performance option shares become exercisable in three equal installments on the first, second and third anniversaries of the grant date. If the performance condition is achieved after the first anniversary but prior to the second anniversary, two-thirds of the performance option shares vest on the second anniversary of the grant date and the remainder vests on the third anniversary of the grant date. If the performance condition is met after the second anniversary but prior to the third anniversary of the grant date, then 100% of the performance option shares vest on the third anniversary of the grant date. If the performance condition is not achieved before the third anniversary of the grant date, the performance option shares will be forfeited. The named executive officer must remain employed by the Company as of each exercise date.
New Hire Grants
The Compensation Committee approved initial equity grants under the 2006 Stock Plan to Messrs. DeFelice and Sherman upon commencement of their employment, pursuant to their respective employment agreements with the Company. On March 24, 2014, Mr. DeFelice was granted an equity award valued at $400,000 on the date of grant, consisting of 29,078 non-qualified stock options valued at $200,000 on the date of grant and 9,980 restricted stock units valued at $200,000 on the date of grant. On September 8, 2014, Mr. Sherman was granted an equity award consisting of 103,591 non-qualified stock options valued at $750,000 on the date of grant. Assuming continued employment, the options have a seven-year term and the options and RSUs will vest annually over a four year period beginning on the first anniversary of the date of grant.
31
See "Grants of Plan Based Awards, for the year ended December 31, 2014" for information regarding the stock and option awards granted in 2014 and "Potential Payments upon Employment Termination and Change-in-Control" for additional information regarding matters that could affect the vesting of such stock and option awards.
Non-Equity Incentive Plan Compensation
The amounts set forth in this column reflect the amounts paid to our named executive officers as part of their annual short-term (cash) incentive compensation, as discussed above under the heading "Compensation Discussion and Analysis," which precedes the Summary Compensation Table. Each named executive officer has a targeted annual short-term (cash) incentive award opportunity that is based on a percentage of his/her base salary for the fiscal year and which is earned based on the achievement of pre-determined short-term financial and non-financial goals measured over the year. Mr. DeFelice's annual short-term cash incentive award for 2014 was not pro-rated for a partial year of service, pursuant to the terms of his employment agreement with the Company.
Post-Employment Payments
On March 10, 2014, in connection with accepting Mr. Hosp's resignation, the Company entered into a Letter Agreement with him regarding his transition and separation from the Company (the "Letter Agreement"). The Letter Agreement supersedes Mr. Hosp's employment agreement with the Company, dated April 30, 2012. Under the terms of the Letter Agreement and subject to certain conditions, Mr. Hosp was eligible to receive, among other things: (i) severance of six months of his current base salary of $450,000, to be paid in equal installments over a six month period in accordance with the Company's normal payroll practices, and (ii) a lump sum equal to six months of the difference between the COBRA coverage premium for the same type of medical, dental and vision coverage he is receiving and his employee contribution. Mr. Hosp was paid a severance payment of $225,000 in 2014, pursuant to the Letter Agreement.
32
Grants of Plan-Based Awards for the Year Ended December 31, 2014
The following table provides information concerning each grant of an award made to our named executive officers in fiscal year 2014 under our AIP, 2014 STIP, and 2006 Stock Plan.
33
34
Outstanding Equity Awards at December 31, 2014
|
Option Awards | Stock Awards | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name
|
Number of
Securities Underlying Unexercised Options (#) Exercisable |
Number of
Securities Underlying Unexercised Options (#) Unexercisable |
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
Option
Exercise Price ($) |
Option
Expiration Date |
Number
of Shares or Units of Stock That Have Not Vested (#) |
Market
Value of Shares or Units of Stock That Have Not Vested (1) ($) |
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) |
Equity
Incentive Plan Awards: Market of Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) |
|||||||||||||||||||
W. Lucia |
23,990 | | 3.15 | 5/4/2016 | 27,393 | (2) | 579,088 | |||||||||||||||||||||
|
289,005 | | 3.66 | 6/26/2016 | 23,486 | (3) | 496,494 | |||||||||||||||||||||
|
60,000 | | 12.61 | 10/1/2016 | 33,399 | (4) | 706,055 | |||||||||||||||||||||
|
30,000 | | 19.77 | 9/30/2017 | 17,048 | (5) | 360,395 | 17,048 | (5) | 360,395 | ||||||||||||||||||
|
71,628 | | | 22.95 | 9/30/2018 | |||||||||||||||||||||||
|
42,733 | 21,367 | (6) | | 27.79 | 10/4/2019 | ||||||||||||||||||||||
|
28,694 | 57,389 | (7) | 86,083 | (7) | 21.36 | 11/14/2020 | |||||||||||||||||||||
|
| 48,615 | (8) | 48,616 | (8) | 21.63 | 11/11/2021 | |||||||||||||||||||||
J. Sherman |
|
103,591 |
(9) |
|
20.71 |
9/8/2021 |
7,801 |
(5) |
164,913 |
7,802 |
(5) |
164,934 |
||||||||||||||||
|
| 22,247 | (8) | 22,248 | (8) | 21.63 | 11/11/2021 | |||||||||||||||||||||
E. DeFelice |
|
29,078 |
(11) |
|
20.04 |
3/23/2021 |
9,980 |
(10) |
210,977 |
|||||||||||||||||||
|
| 13,183 | (8) | 13,184 | (8) | 21.63 | 11/11/2021 | 4,623 | (5) | 97,730 | 4,623 | (5) | 97,730 | |||||||||||||||
S. Wagner |
10,760 |
21,521 |
(7) |
32,281 |
(7) |
21.36 |
11/14/2020 |
13,651 |
(12) |
288,582 |
||||||||||||||||||
|
| 18,951 | (8) | 18,952 | (8) | 21.63 | 11/11/2021 | 24,740 | (4) | 523,004 | ||||||||||||||||||
|
6,645 | (5) | 140,475 | 6,646 | (5) | 140,496 | ||||||||||||||||||||||
C. Nustad |
8,435 |
2,812 |
(15) |
|
22.47 |
2/8/2018 |
375 |
(13) |
7,928 |
|||||||||||||||||||
|
22,384 | | | 22.95 | 9/30/2018 | 17,397 | (3) | 367,773 | ||||||||||||||||||||
|
6,676 | 3,339 | (6) | | 27.79 | 10/4/2019 | 375 | (14) | 7,928 | |||||||||||||||||||
|
6,678 | 3,338 | (7) | | 27.79 | 10/4/2019 | 19,792 | (4) | 418,403 | |||||||||||||||||||
|
9,564 | 19,130 | (7) | 28,694 | (7) | 21.36 | 11/14/2020 | 5,779 | (5) | 122,168 | 5,779 | (5) | 122,168 | |||||||||||||||
|
| 16,479 | (8) | 16,480 | (8) | 21.63 | 11/11/2021 | |||||||||||||||||||||
W. Hosp (16) |
180,000 |
|
|
6.37 |
3/1/2015 |
18,263 |
(2) |
386,080 |
||||||||||||||||||||
|
75,000 | | | 8.00 | 5/30/2015 | 17,397 | (3) | 367,773 | ||||||||||||||||||||
|
48,000 | | | 12.61 | 5/30/2015 | |||||||||||||||||||||||
|
24,000 | | | 19.77 | 5/30/2015 | |||||||||||||||||||||||
|
25,369 | | | 22.95 | 5/30/2015 | |||||||||||||||||||||||
|
15,134 | 7,568 | (6) | | 27.79 | 5/30/2015 | ||||||||||||||||||||||
|
10,162 | 20,325 | (7) | 30,488 | (7) | 21.36 | 5/30/2015 | |||||||||||||||||||||
J. Donabauer |
1,322 |
|
|
19.77 |
9/30/2017 |
375 |
7,928 |
|||||||||||||||||||||
|
5,596 | | | 22.95 | 9/30/2018 | 1,856 | (3) | 39,236 | ||||||||||||||||||||
|
6,676 | 3,339 | (6) | | 27.79 | 10/4/2019 | 1,170 | (14) | 24,734 | |||||||||||||||||||
|
5,380 | 10,760 | (7) | | (7) | 21.36 | 11/14/2020 | 7,422 | (4) | 156,901 | ||||||||||||||||||
|
| 2,966 | (8) | 2,966 | (8) | 21.63 | 11/11/2021 | 1,040 | (5) | 21,986 | 1,040 | (5) | 21,986 |
35
36
2014 Option Exercises and Stock Vested
The following table sets forth certain information concerning the stock options exercised and stock awards that vested for our named executive officers during the year ended December 31, 2014.
|
Option Awards | Stock Awards | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name
|
Number of
Shares Acquired on Exercise (#) |
Value
Realized on Exercise (1) ($) |
Number of
Shares Acquired on Vesting (#) |
Value
Realized on Vesting (2) ($) |
|||||||||
W. Lucia |
94,668 | 1,721,411 | 37,682 | 821,907 | |||||||||
J. Sherman |
| | | | |||||||||
C. Nustad |
| | 1,658 | 35,050 | |||||||||
S. Wagner |
| | 4,550 | 87,406 | |||||||||
E. DeFelice |
| | | | |||||||||
J. Donabauer |
| | 2,114 | 44,221 | |||||||||
W. Hosp |
| | 28,319 | 616,464 |
Potential Payments Upon Termination of Employment or Change in Control
The following information and table set forth the additional amounts payable to each of our named executive officers in the event of a termination of employment as a result of involuntary termination, resignation for Good Reason (as defined below), resignation for Good Reason following a Change in Control (as defined below) and involuntary termination following a Change in Control. Given that Mr. Hosp, our former Executive Vice President and Chief Financial and Administrative Officer, resigned effective June 6, 2014, he is not included in the table.
Assumptions and General Principles
Set forth below are the assumptions and general principles used to calculate the amounts payable to each named executive officer in each circumstance set forth in the table. The actual amounts to be paid to the named executive officer can only be determined at the time the named executive officer's employment terminates or upon a Change in Control.
37
determined to pay (as set forth in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table).
In addition, we have entered into a Nonsolicitation, Proprietary and Confidential Information and Developments Agreement (the "Restrictive Covenants Agreement") with each of our named executive officers. Under the terms of the Restrictive Covenants Agreements, in Mr. Lucia's case, for the 24 months following the termination of his employment for any reason, and in the case of the other named executive officers, for the 12 months following the termination of his/her employment for any reason, the named executive officer is generally prohibited from: (i) engaging or assisting others in engaging in any business or enterprise in the United States that competes with the Company's business, products or services, (ii) soliciting or diverting or attempting to solicit or divert the business of any of the Company's current or prospective clients, (iii) soliciting, recruiting or inducing or attempting to solicit, recruit or induce any Company employee or independent contractor to leave the Company's employ (or, in some situations, hire), and (iv) disclosing or utilizing for the benefit of any entity other than the Company, any system or product development ideas discussed/explored, even if not implemented, during the named executive officer's employment with the Company. The Restrictive Covenants Agreement also sets forth certain obligations with respect to proprietary and confidential information and developments and inventions.
Definitions from Award Agreements/2006 Stock Plan
38
Definitions from Employment Agreements
39
combined voting power of the then-outstanding securities entitled to vote in the election of directors, respectively, of the resulting or acquiring corporation in substantially the same proportions as their initial ownership and (y) no Person beneficially owns 50.01%, or more, of the then-outstanding shares of common stock of the acquiring corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote in the election of directors (except if such ownership existed prior to the Business Combination); or
With the definitions subject to further limitations if necessary to conform to Section 409A of the Code.
Named Executive Officer and Type of Payment
|
Involuntary
Termination |
Resignation
For Good Reason |
Resignation
For Good Reason Following a Change in Control |
Involuntary
Termination Following a Change in Control |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
W. Lucia, President & Chief Executive Officer (1)(2) |
|||||||||||||
Cash severance |
$ | 1,300,000 | $ | 1,300,000 | $ | 1,300,000 | $ | 1,300,000 | |||||
Bonus payment |
$ | 1,300,000 | $ | 1,300,000 | $ | 1,300,000 | $ | 1,300,000 | |||||
Continued health insurance coverage (3) |
$ | 17,497 | $ | 17,497 | $ | 17,497 | $ | 17,497 | |||||
Restricted Stock (4) |
$ | 2,502,426 | $ | 2,502,426 | $ | 2,502,426 | $ | 2,502,426 | |||||
Stock Options (5) |
| | | | |||||||||
Total |
$ |
5,119,923 |
$ |
5,119,923 |
$ |
5,119,923 |
$ |
5,119,923 |
|||||
J. Sherman, EVP, Chief Financial Officer and Treasurer (6)(7) |
|
|
|
|
|||||||||
Cash severance |
$ | 500,000 | $ | 500,000 | | $ | 500,000 | ||||||
Continued health insurance coverage (8) |
$ | 12,069 | $ | 12,069 | | $ | 12,069 | ||||||
Restricted Stock (4) |
| | $ | 329,691 | $ | 329,691 | |||||||
Stock Options (5) |
| | $ | 44,544 | $ | 44,544 | |||||||
Total |
$ |
512,069 |
$ |
512,069 |
$ |
374,235 |
$ |
886,304 |
|||||
E. DeFelice, EVP, General Counsel and Corporate Secretary (6)(7)(9) |
|
|
|
|
|||||||||
Cash severance |
$ | 425,000 | $ | 425,000 | $ | 425,000 | $ | 425,000 | |||||
Continued health insurance coverage (8) |
$ | 12,837 | $ | 12,837 | $ | 12,837 | $ | 12,837 | |||||
Restricted Stock (4) |
| | $ | 406,245 | $ | 406,245 | |||||||
Stock Options (5) |
| | $ | 31,986 | $ | 31,986 | |||||||
Total |
$ |
437,837 |
$ |
437,837 |
$ |
876,068 |
$ |
876,068 |
|||||
S. Wagner, EVP, Operations (6)(9) |
|
|
|
|
|||||||||
Cash severance |
$ | 475,000 | | $ | 475,000 | $ | 475,000 | ||||||
Continued health insurance coverage (8) |
$ | 3,691 | | $ | 3,691 | $ | 3,691 | ||||||
Restricted Stock (4) |
| | $ | 1,092,040 | $ | 1,092,040 | |||||||
Stock Options (5) |
| | | | |||||||||
Total |
$ |
478,691 |
|
$ |
1,570,731 |
$ |
1,570,731 |
40
Named Executive Officer and Type of Payment
|
Involuntary
Termination |
Resignation
For Good Reason |
Resignation
For Good Reason Following a Change in Control |
Involuntary
Termination Following a Change in Control |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
C. Nustad, EVP and Chief Information Officer (6)(9) |
|||||||||||||
Cash severance |
$ | 425,000 | | $ | 425,000 | $ | 425,000 | ||||||
Continued health insurance coverage (8) |
$ | 12,069 | | $ | 12,069 | $ | 12,069 | ||||||
Restricted Stock (4) |
| | $ | 1,045,871 | $ | 1,045,871 | |||||||
Stock Options (5) |
| | | | |||||||||
Total |
$ |
437,069 |
|
$ |
1,482,940 |
$ |
1,482,940 |
||||||
J. Donabauer, SVP , Controller, Assistance Treasurer and Interim Principal Financial Officer and Interim Treasurer (6) |
|
|
|
|
|||||||||
Cash severance (10) |
$ | 378,525 | | | | ||||||||
Continued health insurance coverage (8) |
$ | 12,069 | | | | ||||||||
Restricted Stock (4) |
| | $ | 272,640 | $ | 272,640 | |||||||
Stock Options (5) |
| | | | |||||||||
Total |
$ |
390,594 |
|
$ |
272,640 |
$ |
272,640 |
41
which is the closing sales price per share of our common stock reported on The NASDAQ Global Select Market on that date ($21.14), less the consideration paid by the recipient for the award ($0.01 per share).
42
Executive Employment Agreements
See " Potential Payments Upon Termination of Employment or Change in Control " above for definitions of capitalized terms used below.
Employment Agreement with William C. LuciaPresident and Chief Executive Officer
Effective March 1, 2015, we entered into a second amendment to the Executive Employment Agreement (which was first amended on April 30, 2013) with William C. Lucia, our President and Chief Executive Officer on substantially the same terms as his prior agreement which expired on February 28, 2015. Unless earlier terminated, this agreement will terminate on February 28, 2018. Mr. Lucia is eligible to receive bonus compensation from us in respect of each fiscal year (or portion thereof) during the term of his employment, in each case as may be determined by our Compensation Committee in its sole discretion on the basis of performance or such other criteria as may be established from time to time by the Compensation Committee in its sole discretion. Mr. Lucia's annualized base salary remains at $650,000 and his target bonus remains at 100% of his base salary.
If we terminate Mr. Lucia's employment without Cause, in connection with a Change in Control (as defined in the agreement) or otherwise, or if his employment ceases because of his disability or if he terminates his employment with Good Reason (as defined in the agreement), then provided Mr. Lucia executes and does not revoke a separation agreement and release and complies with the Restrictive Covenants Agreement, he will be entitled to receive cash severance in an amount equal to (i) 24 times his monthly base salary paid ratably in equal installments over a 24 month period (unless his termination/resignation is in connection with a Change in Control, in which case the payment will be in a single lump sum), (ii) twice a bonus component that will vary depending upon whether the bonus for the year of termination is intended to be "performance-based" compensation and the performance is satisfied or whether the bonus is under a different program, in which case it will be his target bonus and will be paid on the same schedule as (i) above (unless his termination/resignation is in connection with a Change in Control, in which case the payment will be in a single lump sum), (iii) continued health coverage for 24 months or until he becomes eligible for health coverage from another employer, whichever is earlier, and (iv) Mr. Lucia will be treated as continuing in service for purposes of the vesting of any equity award until the earliest of: (x) the end of the Noncompetition Period (as defined in Mr. Lucia's Restrictive Covenants Agreement), (y) the last of the applicable vesting dates under such awards, or (z) the termination or violation of the Restrictive Covenants Agreement.
In addition, under the amended terms of Mr. Lucia's agreement, if we terminate Mr. Lucia's employment without Cause or Mr. Lucia resigns for Good Reason, and such termination occurs within a six-month period before a Change in Control, Mr. Lucia will receive a cash payment equal to the excess of the amount he would have received for such equity awards if he were continuing in service as of the date of the Change in Control and terminated immediately thereafter over the amount actually received, paid in a single lump sum payment at the time provided in the agreement. In the event that any payments and benefits, including any benefits provided to Mr. Lucia or for Mr. Lucia's benefit under the agreement or any other Company plan or agreement, become subject to the excise tax under Section 4999 of the Code, such payments and benefits will be "cut-back" to an amount that is less than such amount that would cause the excise tax to the extent that such reduction would result in Mr. Lucia retaining a larger amount on an after-tax basis.
Employment Agreements with Other Named Executive Officers
We have employment agreements that are at-will, subject to certain notice and/or severance provisions, with Messrs. Sherman, DeFelice and Donabauer and Mses. Nustad and Wagner.
On March 10, 2014, Mr. Hosp tendered his resignation as our Executive Vice President, Chief Financial Officer. Mr. Hosp remained in his position through a transition period and the effective date of
43
his resignation was June 6, 2014. We entered into a Letter Agreement with Mr. Hosp in connection with his separation from the Company, which is described in more detail below. The Letter Agreement supersedes Mr. Hosp's employment agreement.
Our employment agreements with the other named executive officer sets forth his/her initial annualized base salary as follows: (i) Mr. Sherman at $500,000, (ii) Mr. DeFelice at $425,000, (iii) Ms. Nustad at $350,000, (iv) Ms. Wagner at $450,000, and (v) Mr. Donabauer at $252,350, subject to increase from time to time by the Board or the Compensation Committee. In addition, under the terms of these agreements, these named executive officers are eligible to receive bonus compensation from us in respect of each fiscal year (or portion thereof) during the term of their employment, in each case as may be determined by our Compensation Committee in its sole discretion on the basis of such performance-based or other criteria as it determines appropriate. For 2014, the targeted annual short-term (cash) incentive award opportunity for Messrs. Sherman and DeFelice and Mses. Nustad and Wagner were 65% of his/her base salary and Mr. Donabauer's target was 50% of his base salary.
If we terminate either Messrs. Sherman's or DeFelice's or Mses. Nustad's or Wagner's employment without Cause, in connection with a Change in Control or otherwise, then provided he/she executes and does not revoke a separation agreement and release and complies with the Restrictive Covenants Agreement, the executive will be entitled to receive (i) cash severance in an amount equal to 12 times his/her monthly base salary paid ratably in equal installments over a 12 month period, (ii) a lump sum amount equal to 12 times the difference between the monthly COBRA coverage premium for the same type of medical and dental coverage the executive is receiving as of the date his/her employment ends and his/her then monthly employee contribution, which amount may be used for any purpose and (iii) any earned but unpaid annual bonus for the calendar year preceding the calendar year in which his/her employment ends. If within 24 months following a Change in Control, Mr. DeFelice's or Mses. Nustad's or Wagner's employment is terminated without Cause or he/she resigns for Good Reason (as defined under the terms of their employment agreements), provided he/she executes a separation agreement and release and complies with the Restrictive Covenants Agreement, he/she will receive the amounts set forth in (i) above in a single lump sum payment, rather than in installments as applies outside of a Change in Control.
Letter Agreement with Walter D. HospFormer Executive Vice President and Chief Financial Officer
In connection with Mr. Hosp's resignation, we entered into a Letter Agreement with him dated March 10, 2014. Under the terms of the Letter Agreement and in exchange for remaining an employee through June 6, 2014 and complying with the requirements of the Letter Agreement, including performing certain transition duties and providing a full release of claims, we paid Mr. Hosp: (i) severance of six months of his current base salary of $450,000, to be paid in equal installments over a six month period in accordance with our normal payroll practices, and (ii) a lump sum equal to six months of the difference between the COBRA coverage premium for the same type of medical, dental and vision coverage he is receiving and his employee contribution (collectively, the "Separation Payments"). In addition, based upon our receipt and non-revocation of a release from Mr. Hosp, any outstanding, but not fully vested options and restricted stock units granted to him prior to January 1, 2014, continued to vest through February 28, 2015 and his then-vested options remain exercisable through May 29, 2015.
Retention Agreement with Joseph M. DonabauerSenior Vice President, Controller, and Former Interim Principal Financial Officer and Interim Treasurer
In light of certain organizational changes to the Finance Department, in April 2014, we entered into a Retention Agreement with Mr. Donabauer in his capacity as Vice President and Controller. We entered into this agreement to secure Mr. Donabauer's employment and to retain his services during the reorganization. Under the terms of the Retention Agreement, Mr. Donabauer received a total retention amount of $126,175. Provided that Mr. Donabauer's employment continued through certain qualifying
44
dates and the Company had not terminated his employment for cause and Mr. Donabauer had not voluntarily resigned his employment, one-half of the retention amount was payable on September 12, 2014 and the remaining one-half was payable on March 13, 2015. In addition, in the event that we eliminate or relocate Mr. Donabauer's position as Vice President/Controller to the Dallas, Texas area and Mr. Donabauer is unable to continue his employment due to the relocation, Mr. Donabauer would receive additional cash severance in an amount equal to six times his monthly base salary, thereby qualifying as a termination without Cause under his employment agreement. The explicit purpose of this Retention Agreement is to identify the conditions of Mr. Donabauer's separation from the Company. As such, all other terms and conditions in Mr. Donabauer's Employment Agreement and Restrictive Covenants Agreement remain the same.
Compensation Committee Report
The Compensation Committee of the Board of Directors (the "Board") of HMS Holdings Corp. (the "Company") has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on this review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Amendment and in the Company's Proxy Statement for its 2015 Annual Stockholders' Meeting, as applicable.
By the Compensation Committee of the Board of Directors of HMS Holdings Corp.
Richard H. Stowe, Chair
Craig R. Callen Daniel N. Mendelson |
The information contained in the Compensation Committee Report shall not be deemed to be "soliciting material" or to be "filed" with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate it by reference in such filing.
Director Compensation
The Compensation Committee has the responsibility for recommending to the Board of Directors the form and amount of compensation for directors, which are subject to review and adjustment by the Board of Directors from time to time. Directors who are employed by the Company do not receive compensation for their service on the Board of Directors. Directors who are not our employees (non-employee directors) receive cash and equity-based compensation for their services as a director. All of our directors are reimbursed for reasonable expenses incurred in connection with attendance at meetings of the Board of Directors or its committees.
Standard Compensation Arrangements for Non-Employee Directors
Effective from September 2012 through March 2015, non-employee directors received the following compensation for their service on the Board of Directors.
Cash Compensation
We provided our non-employee directors with the following annual cash compensation:
45
All cash compensation, unless deferred by a director pursuant to the Director Deferred Compensation Plan, is paid in quarterly installments in arrears.
Equity-Based Compensation
We provided our non-employee directors an annual equity award under the 2006 Stock Plan consisting of an equal number of non-qualified stock options and restricted stock units, with an aggregate value of $100,000 on the date of grant. The number of stock options and restricted stock units awarded is calculated based on the grant date fair value as computed in accordance with FASB guidance on stock-based compensation, except that no assumption for forfeitures would be included. Annual equity awards to our non-employee directors are made in the fourth quarter of the fiscal year and vest quarterly in equal installments over a one year period.
Compensation of our Non-Employee Chairman of the Board
Mr. Holster, in his capacity as Chairman of the Board, also received (i) an annual cash retainer of $41,000 and (ii) annual equity compensation consisting of an equal number of non-qualified stock options and restricted stock units with an aggregate value of $94,000 on the date of grant, which vest quarterly in equal installments over a one year period commencing on December 31 of the year of the grant. The number of stock options and restricted stock units awarded is calculated based on the grant date fair value computed in accordance with FASB guidance on stock-based compensation, except that no assumption for forfeitures would be included.
Director Deferred Compensation Plan
Each of our non-employee directors is eligible to participate in our Director Deferred Compensation Plan, under which the non-employee director may elect to defer all or part of his or her cash retainer fees and annual restricted stock unit grants until the termination of his or her service as a member of the Board for any reason. The amount of any cash compensation deferred by a non-employee director is converted into a number of deferred stock units, determined based upon the closing price of our common stock on the NASDAQ Global Select Market on the date such fees would otherwise have been payable, and credited to a deferred compensation account maintained in his or her name. Deferred restricted stock unit grants are converted on a share-for-share basis into deferred stock units on the date such restricted stock units would otherwise have been payable and also credited to the non-employee director's account. The account will be credited with additional deferred stock units, also based on such average market value, upon the payment date for any dividends declared on our common stock. On January 10th of the year following a director's termination of service, the amounts accumulated in the deferred compensation account will be distributed in the form of common stock under the 2006 Stock Plan equal to the number of whole deferred stock units in the account and cash in lieu of any fractional shares.
46
The following table sets forth the deferred stock units held by our non-employee directors as of December 31, 2014.
April 2015 Non-Employee Director Compensation Changes
In February 2015, the Compensation Committee reviewed the design and competitive positions of non-employee director compensation with the assistance of its independent compensation consultant, F.W. Cook. After reviewing peer company market data supplied by F.W. Cook, the Compensation Committee recommended and the Board approved certain changes to the cash and equity-based compensation for non-employee directors based on competitive and evolving governance practices. Taking into account these changes, our total non-employee director compensation, on a "per director" basis and excluding chair and lead independent director retainers, remains below the median level of our peer group companies. In particular, the Board approved the following changes, effective on April 1, 2015:
Stock Ownership Guidelines for Directors
In October 2014, the Board established significant stock ownership guidelines for our directors upon the recommendation of the Compensation Committee's independent compensation consultant, F.W. Cook. The Board believes the guidelines will encourage directors to accumulate a meaningful ownership stake in the Company over time to strengthen alignment of their interests with the long-term interests of stockholders. Non-employee directors are expected to own shares of Company common stock that have a market value of at least five times their annual cash retainer. For purposes of complying with the guidelines, a director's holdings include shares owned outright, directly or indirectly, restricted stock or restricted stock units, and deferred stock units. Each director is required to satisfy the stock ownership guidelines applicable to them by October 30, 2019 or within five years after first becoming subject to the guidelines.
47
2014 Director Compensation
The following table sets forth compensation earned by each of our non-employee directors for services as a director during 2014.
|
|
|
|
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | |
Name
(1)
|
Fees Earned
or Paid in Cash (2) ($) |
Stock
Awards (3) ($) |
Option
Awards (4) ($) |
Total
($) |
|||||||||
Craig R. Callen |
50,000 | 74,018 | 25,956 | 149,974 | |||||||||
Robert M. Holster |
91,000 | 143,602 | 50,357 | 284,959 | |||||||||
Daniel N. Mendelson |
50,000 | 74,018 | 25,956 | 149,974 | |||||||||
William F. Miller III |
50,000 | 74,018 | 25,956 | 149,974 | |||||||||
Ellen A. Rudnick |
70,000 | 74,018 | 25,956 | 169,974 | |||||||||
Bart M. Schwartz |
65,000 | 74,018 | 25,956 | 164,974 | |||||||||
Richard H. Stowe |
80,000 | 74,018 | 25,956 | 179,974 | |||||||||
Cora M. Tellez |
50,000 | 74,018 | 25,956 | 149,974 |
48
amounts in this column represent the grant date fair value of that stock option grant computed in accordance with FASB guidance on stock-based compensation. The relevant assumptions made in the valuations may be found in Note 11 of the Notes to the Consolidated Financial Statements in our Annual Report. These amounts do not correspond to the actual value that may be realized by the directors with respect to these awards.
Compensation Committee Interlocks and Insider Participation
During 2014, the members of our Compensation Committee were Richard H. Stowe, Craig R. Callen and Daniel N. Mendelson. None of Messrs. Stowe, Callen or Mendelson has ever been an officer or employee of the Company. None of the current or prior members of the Compensation Committee had a related person transaction involving the Company during the year ended December 31, 2014. During 2014, none of our executive officers (i) served as a member of the board of directors or compensation committee (or equivalent entity) of any other entity that had one or more of its executive officers serving as a member of our Compensation Committee or (ii) served as a member of the compensation committee (or equivalent entity) of any other entity that had one or more of its executive officers serving as a member of our Board of Directors.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Equity Compensation Plan Information
The following table summarizes information about our equity compensation plans as of December 31, 2014. For additional information about our equity compensation plans see Note 11"Stock-Based Compensation" " in our Notes to the Consolidated Financial Statements in Item 8 of our Annual Report.
Plan Category
|
Number of
securities to be issued upon exercise of outstanding options, warrants and rights (a) |
Weighted-
average exercise price of outstanding options, warrants and rights (b) |
Number of
securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Equity compensation plans approved by stockholders (1) |
4,599,635 | $ | 15.35 | 5,945,337 | ||||||
Equity compensation plans not approved by stockholders (2) |
180,000 | $ | 6.37 | | ||||||
HDI plans not approved by stockholders (3) |
230,447 | $ | 21.86 | 251,214 | ||||||
| | | | | | | | | | |
Total |
5,010,082 | |||||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
49
Security Ownership of Certain Beneficial Owners and Management
The following tables set forth information known to us with respect to the beneficial ownership of our common stock as of April 15, 2015 by (i) each of our directors and nominees for Class II director, (ii) Messrs. Lucia, Sherman, DeFelice, Hosp and Donabauer and Mses. Nustad and Wagner, whom we refer to in this Amendment as our named executive officers, (iii) all of our directors and current executive officers as a group and (iv) each person (or group of affiliated persons) known by us to be the beneficial owner of more than 5% of our common stock.
The tables are based upon information supplied to us by directors, executive officers and principal stockholders and filings under the Exchange Act, as amended. We have based our calculation of the percentage of beneficial ownership on 88,540,272 shares of our common stock outstanding as of April 15, 2015, unless otherwise noted. The beneficial ownership reported in the following tables is determined in accordance with the applicable rules of the SEC and does not necessarily indicate beneficial ownership for any other purpose. For purposes of the following tables, an entity or individual is considered the beneficial owner of shares of common stock if he or she has the right to acquire within 60 days of April 15, 2015, such common stock and directly or indirectly has or shares voting power or investment power, as defined in the rules of the SEC, with respect to such shares.
Unless otherwise noted and subject to applicable community property laws, to our knowledge each stockholder named in the following table possesses sole voting and investment power over the shares listed. The address of each person listed in the table is c/o HMS Holdings Corp., 5615 High Point Drive, Irving, TX 75038. To our knowledge, as of April 15, 2015, none of our officers or directors has pledged any of the shares that they respectively beneficially own as security.
50
Security Ownership of Management
Name of Beneficial Owner
|
Number of
Outstanding Shares of Common Stock |
Number of
Shares of Common Stock Acquirable Within 60 Days (1) |
Percent of
Class |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Directors and Nominees for Director (who are not Officers): |
||||||||||
Craig R. Callen |
7,000 | 10,480 | * | |||||||
Robert M. Holster |
364,974 | (2) | 57,074 | * | ||||||
Daniel N. Mendelson |
5,240 | 10,440 | * | |||||||
William F. Miller |
135,636 | (3) | 44,267 | * | ||||||
Ellen A. Rudnick |
15,680 | 66,836 | * | |||||||
Bart M. Schwartz |
11,928 | 25,501 | * | |||||||
Richard H. Stowe |
75,000 | 85,801 | * | |||||||
Cora M. Tellez |
580 | 21,292 | * | |||||||
Named Executive Officers: |
||||||||||
Eugene V. DeFelice |
2,680 | 7,269 | * | |||||||
Joseph M. Donabauer |
3,365 | 18,974 | * | |||||||
Walter D. Hosp |
12,750 | (4) | 74,665 | * | ||||||
William C. Lucia |
282,275 | (5) | 527,383 | * | ||||||
Cynthia Nustad |
7,611 | 56,549 | * | |||||||
Jeffrey S. Sherman |
0 | 0 | * | |||||||
Semone Wagner |
9,436 | 10,760 | * | |||||||
All current directors and executive officers as a group (15 persons) (6) |
925,874 | 963,388 | 2.1 | % |
51
Based on review of filings with the SEC and review of stockholders of record, the following entities hold more than 5% of our outstanding shares of common stock.
Security Ownership of Certain Beneficial Owners
Name and Address of Beneficial Owner
|
Number of
Outstanding Shares of Common Stock |
Percent of
Class |
|||||
---|---|---|---|---|---|---|---|
BlackRock, Inc. (1) |
7,322,870 | 8.3 | % | ||||
Clifton Park Capital Management, LLC (2) |
5,930,000 | 6.8 | % | ||||
Franklin Resources, Inc. (3) |
4,408,663 | 5.0 | % | ||||
RS Investment Management Co. LLC (4) |
6,092,911 | 6.9 | % | ||||
T. Rowe Price Associates, Inc. (5) |
4,903,069 | 5.5 | % | ||||
The Vanguard Group (6) |
5,480,378 | 6.2 | % | ||||
William Blair & Company, LLC (7) |
6,481,059 | 7.4 | % |
52
According to the Schedule 13G, the clients of RS Investment Management Co., including investment companies registered under the Investment Company Act of 1940 and separately managed accounts, have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the common stock of HMS. To the knowledge of RS Investment Management Co., no individual client has an interest of more than five percent of the class of securities reported. RS Investment Management's principal business address is One Bush Street, Suite 900, San Francisco, CA 94104.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Review, Approval and Ratification of Transactions with Related Persons
The Audit Committee's Charter provides that the Audit Committee shall review all transactions with related persons on an ongoing basis for potential conflict of interest situations and that all such transactions must be approved by the Audit Committee.
Our Board of Directors has adopted a written Related Person Transaction Policy (as amended and approved by the Board in October 2014) to assist the Board in reviewing proposed transactions between the Company and certain individuals deemed to be "related persons." The policy applies to our executive officers, directors, director nominees and 5% stockholders (and their immediate family members), each of whom we refer to as a "related person," and governs the review of any transaction, arrangement or relationship in which we are a participant, the amount involved exceeds $120,000 and a related person has a direct or indirect material interest. We refer to such a transaction, arrangement or relationship as a "related person transaction."
53
A related person must notify the Corporate Secretary of any plan to enter into, extend or modify any transaction with the Company or its affiliate that could be a related person transaction. The policy calls for the proposed transaction with a related person to be reviewed and, if deemed appropriate, approved by the Audit Committee prior to entry into the transaction. Under the policy, any related person transactions that are ongoing in nature and previously approved by the Audit Committee will be reviewed annually.
A transaction with a related person reviewed under the policy will be considered approved or ratified if it is authorized by the Audit Committee after full disclosure of the related person's interest in the transaction. The Audit Committee will review and consider all relevant information regarding the transaction, including the impact on a director's independence or a Board committee's composition in the event the related person is a director, as it deems appropriate under the circumstances.
The Audit Committee may approve or ratify the transaction only if the Audit Committee determines that, under all of the circumstances, the transaction is in, or is not inconsistent with, the best interests of the Company. In connection with approving a transaction with a related person, the Audit Committee may impose any conditions on the transaction that it deems appropriate. All related person transactions will be disclosed in applicable SEC filings to the extent required by the Securities Act of 1933 and the Exchange Act and related rules and regulations.
Board Determination of Independence
A majority of our Board of Directors must be comprised of "independent directors" in accordance with the NASDAQ Marketplace Rules. Under Rule 5605(a)(2) of the NASDAQ Marketplace Rules, a director will only qualify as an "independent director" if, in the opinion of our Board of Directors, that person does not have a relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Based on its review of the applicable independence standards and answers to annual questionnaires completed by the directors, our Board of Directors has determined that each of Messrs. Holster, Callen, Mendelson, Miller, Schwartz and Stowe and Mses. Rudnick and Tellez is an "independent director" as defined under the NASDAQ Marketplace Rules.
Item 14. Principal Accounting Fees and Services.
Fees of Independent Registered Public Accountants during Fiscal Years 2014 and 2013
In addition to retaining KPMG to audit our financial statements, from time to time, we engage KPMG to perform other services. The following table sets forth the aggregate fees billed by KPMG in connection with the services rendered during the past two fiscal years. All fees set forth below were pre-approved by the Audit Committee of the Board of Directors.
Type of Fee
|
2014 | 2013 | |||||
---|---|---|---|---|---|---|---|
Audit Fees (1) |
$ | 940,000 | $ | 873,667 | |||
Tax Fees (2) |
$ | 118,002 | $ | 60,594 | |||
| | | | | | | |
Total Fees for Services Provided |
$ | 1,058,002 | $ | 934,261 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
54
Audit Committee Pre-Approval Policies and Procedures
In accordance with its Charter, the Audit Committee pre-approves all audit and permissible non-audit services provided by our independent registered public accounting firm.
Prior to the annual engagement of our independent registered public accounting firm, the Audit Committee pre-approves all services to be provided. During the year, circumstances may arise when it may become necessary to engage the independent registered public accounting firm for additional services. In such circumstances, our senior management seeks approval of the non-audit services that it recommends the Audit Committee engage the independent registered public accounting firm to provide for the fiscal year. A budget, estimating the specific non-audit service spending for the fiscal year, is provided to the Audit Committee along with the request. The Audit Committee will be regularly informed of the non-audit services actually provided by the independent auditor pursuant to this pre-approval process.
55
The Exhibits are set forth on the Exhibit Index on page 58 and incorporated herein by reference.
56
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this Amendment No. 1 to the Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
HMS Holdings Corp.
(Registrant) |
||||
By: |
|
/s/ WILLIAM C. LUCIA William C. Lucia Chief Executive Officer (Principal Executive Officer and Duly Authorized Officer) |
|
|
Date: April 30, 2015
Pursuant to the requirements of the Securities Exchange Act of 1934, this Amendment No. 1 to the Annual Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures
|
Title
|
Date
|
||
---|---|---|---|---|
|
|
|
|
|
/s/ WILLIAM C. LUCIA
William C. Lucia |
President, Chief Executive Officer and Director (Principal Executive Officer) | April 30, 2015 | ||
/s/ JEFFREY S. SHERMAN Jeffrey S. Sherman |
|
Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) |
|
April 30, 2015 |
57
HMS Holdings Corp. and Subsidiaries
Exhibit Index
Exhibit
Number |
Description | ||
---|---|---|---|
10.47 | * | Employment Agreement between Cynthia Nustad and HMS Business Services, Inc. dated May 15, 2012. | |
|
10.48 |
* |
Employment Agreement between Eugene V. DeFelice and HMS Holdings Corp. dated February 26, 2014. |
|
10.49 |
* |
Employment Agreement between Joseph M. Donabauer and HMS Business Services, Inc. dated April 2, 2014. |
|
10.50 |
* |
Retention Agreement between Joseph M. Donabauer and HMS Holdings Corp. dated April 28, 2014. |
|
31.4 |
* |
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer of HMS Holdings Corp., as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
31.5 |
* |
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer of HMS Holdings Corp., as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
58
ANNEX A
HMS HOLDINGS CORP. AND SUBSIDIARIES
(in thousands)
(unaudited)
Reconciliation of Net income to EBITDA and adjusted EBITDA
|
Year Ended
December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2014 | 2013 | |||||
Net income |
$ | 13,947 | $ | 39,997 | |||
Net interest expense |
7,874 | 12,387 | |||||
Income taxes |
12,383 | 25,593 | |||||
Depreciation and amortization, net of deferred financing costs, included in net interest expense |
53,598 | 54,991 | |||||
| | | | | | | |
Earnings before interest, taxes, depreciation and amortization (EBITDA) |
87,802 | 132,968 | |||||
Stock-based compensation expense |
13,356 | 11,997 | |||||
| | | | | | | |
Adjusted EBITDA |
$ | 101,158 | $ | 144,965 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Exhibit 10.47
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the Agreement ) is made as of 5/15/2012 by and between HMS Business Services, Inc., a New York corporation ( HMS ), and Cynthia Nustad, an individual ( you ) (and, together with HMS, the Parties ) to provide services as directed, to the entities comprising the Company (HMS Holdings Corp. ( HMS Holdings and with HMS, and their respective subsidiaries and affiliates, the Company )). It replaces your offer letter of employment with the Company dated December 29, 2010.
WHEREAS, the Company wishes to continue to employ you and you wish to continue to be employed by the Company.
NOW THEREFORE, in consideration of your acceptance of continued employment under the revised terms set forth in this Agreement, the Parties agree to be bound by the terms contained in this Agreement as follows:
1. Engagement .
(a) Effective April 23, 2012 (the Effective Date ), the Company will continue to employ you as as Chief Information Officer of HMS Business Services, Inc. You will also serve as a Senior Vice President and Chief Information Officer of HMS Holdings Corp. You acknowledge that the Company organizes itself across multiple entities and that your being assigned to work directly for HMS Holdings or for one of its subsidiaries or affiliates will not, in and of itself, breach this Agreement.
(b) You will report directly to the Chief Executive Officer of HMS Holdings or his or her designee ( Supervisor ). You will have the responsibilities, duties and authorities specified from time to time by your Supervisor which will generally be commensurate with executives at a similar level of entities of similar size and character to the Company. You also agree if so requested to serve as an officer and director of subsidiaries of HMS Holdings.
2. Commitment. During the Employment Period (as defined in Section 3 below), you must devote your full working time and attention to the Company. During the Employment Period, you must not engage in any employment, occupation, consulting or other similar activity without your Supervisors prior written consent; provided, however, that you may (i) serve in any capacity with any professional, community, industry, civic (including governmental boards), educational, charitable, or other non-profit organization, (ii) serve on any for-profit entity board, with the prior written consent of your Supervisor, and (iii) subject to HMS Holdings conflict of interest policies, make investments in other businesses and manage your and your familys personal investments and legal affairs; provided that any such activities described in clauses (i)-(iii) above do not materially interfere with the performance of your duties for the Company and do not otherwise violate this Agreement or any other written agreement between the Company and you. You will perform your services under this Agreement primarily at the Companys offices in Irving, Texas or at such place or places as you and the Company may agree. You understand and agree that your employment will require travel from time to time in a manner consistent with Company policy.
3. Employment Period . HMS hereby agrees to continue to employ you and you hereby accept continued employment with HMS upon the revised terms set forth in this Agreement, for the period commencing on the Effective Date and ending when and as provided in Section 6 (the Employment Period ).
4. Cash and Bonus .
(a) Base Salary. You will continue to receive a base salary at a monthly rate of $29,166.66, annualizing to $350,000.00 annualized (as may be adjusted under this Agreement, the Base Salary ). The Company will pay your Base Salary periodically in arrears not less frequently than monthly in accordance with the Companys regular payroll practices as in effect from time to time (which currently provide for bi-weekly payments). The Board of Directors of HMS Holdings (the Holdings Board ) or its Compensation Committee (the Compensation Committee ) will review your Base Salary periodically and may adjust your Base Salary at that time..
(b) Bonus . You will be eligible to receive bonus compensation (the Bonus ) from the Company in respect of each fiscal year (or portion thereof) during the Employment Period, in each case as the Compensation Committee may determine in its sole discretion on the basis of such performance based or other criteria as it determines appropriate. Your target bonus will equal 50% of your Base Salary. The Compensation Committee will review your target bonus periodically and may adjust your target bonus at that time. The Bonus, if any, will be paid when other executives receive their bonuses under comparable arrangements, but, in any event, between January 1 and March 15 of the year following the year with respect to which it is earned.
5. Employee Benefits .
(a) Employee Welfare and Retirement Plans. You will, to the extent eligible, be entitled to participate at a level commensurate with your position in all employee welfare benefit and retirement plans and programs the Company provides to its executives in accordance with the terms thereof as in effect from time to time. The Company may change or terminate the benefits at any time.
(b) Business Expenses. Upon submission of appropriate documentation in accordance with Company policies, the Company will promptly pay, or reimburse you for, all reasonable business expenses that you incur in performing your duties under this Agreement, including travel, entertainment, professional dues and subscriptions, as long as such expenses are reimbursable under the Companys policies. Any payments or expenses provided in this Section 5(b) will be paid in accordance with Section 7(c).
(c) Paid Time Off. You will earn paid time off (PTO) at the rate of 18 hours per month (annualized to 27 days per year), or such greater number as the Company determines from time to time for its senior executive officers, provided that any carryover from year to year will be subject to the Companys generally applicable policies.
6. Termination of Employment.
(a) General . Subject in each case to the provisions of this Section 6 and the other provisions of this Agreement relating to our respective rights and obligations upon termination of your employment, nothing in this Agreement interferes with or limits in any way the Companys or your right to terminate your employment at any time, for any reason or no reason, and nothing in this Agreement confers on you any right or obligation to continue in the Companys employ. The Company, in its sole discretion, may elect to terminate your employment immediately at any time subject to compliance with any obligations it has under this Section 6. If your employment ceases for any or no reason, you (or your estate, as applicable) will be entitled to receive (in addition to any compensation and benefits you are entitled to receive under Section 6(b) or 6(c) below): (i) any earned but unpaid Base Salary and, to the extent consistent with general Company policy, accrued but unused paid time off through and including the date of termination of your employment to be paid in accordance with the Companys regular payroll practices and with applicable law but no later than the next regularly scheduled pay period, (ii) except as provided in Section 6(d), any earned but unpaid annual Bonus for the calendar year preceding the calendar year in which your employment ends, to be paid on the date such annual Bonus otherwise would
have been paid if your employment had continued, (iii) unreimbursed business expenses in accordance with the Companys policies for which expenses you have provided appropriate documentation, to be paid in accordance with Section 7(c), and (iv) any amounts or benefits to which you are then entitled under the terms of the benefit plans then sponsored by the Company in accordance with their terms (and not accelerated to the extent acceleration does not satisfy Section 409A of the Internal Revenue Code of 1986, as amended ( Section 409A of the Code )). Notwithstanding any other provision in this Agreement to the contrary, you will be entitled to severance, if any, solely through the terms of this Section 6, unless another Holdings Board approved written agreement between you and the Company expressly provides otherwise.
(b) Termination Without Cause. If during the employment period the Company terminates your employment without Cause (defined below) in addition to the amounts described in Section 6(a), the Company will pay to you the following, subject to compliance with Section 6(b)(iii):
(i) Cash Severance . The Company will pay to you in cash an amount equal to 12 times your monthly Base Salary, paid ratably in equal installments over a 12 month period beginning in the first payroll period following the Release Effective Date (as defined below) (or such later date required by Section 7) in accordance with the Companys standard payroll policies and procedures and in a manner consistent with Section 7;
(ii) Benefits . The Company will pay you a lump sum amount equal to 12 times the difference between the monthly COBRA coverage premium for the same type of medical and dental coverage (single, family, or other) you are receiving as of the date your employment ends and your then monthly employee contribution. This payment will be taxable and subject to withholding. You may use the amount received for any purpose.
(iii) Release . To receive any severance benefits provided for under this Agreement or otherwise, you must deliver to the Company a separation agreement and general release of claims on the form the Company provides (releasing all releasable claims other than to payments under Section 6 or outstanding equity and including obligations to cooperate with the Company and reaffirming your obligations under the Restrictive Covenants Agreement (as defined below)), which agreement and release must become irrevocable within 60 days (or such earlier date as the release provides) following the date of your termination of employment. Benefits under Section 6(b)(i) and (ii) will be paid or commence in the first regular payroll beginning after the release becomes effective, subject to any delays required by Section 7; provided, however , that if the last day of the 60 day period for an effective release falls in the calendar year following the year of your date of termination, the severance payments will be paid or begin no earlier than January 1 of such subsequent calendar year. The date on which your release of claims becomes effective is the Release Effective Date . You must continue to comply with the Restrictive Covenants Agreement to continue to receive severance benefits.
(c) Change in Control . If, within 24 months following a Change in Control, the Company terminates your employment without Cause or you resign for Good Reason, in addition to the benefits described in Section 6(b)(ii) above and subject to the release required under Section 6(b)(iii), you will receive the cash severance described in Section 6(b)(i), paid in a single lump sum on the Release Effective Date in accordance With the Companys standard payroll policies and procedures (or such later date as either Section 6(b)(iii) or 7(a) requires). For the purpose of this Agreement, Change in Control means:
(i) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the Exchange Act ) (a Person ) of beneficial ownership of any capital stock of HMS Holdings if, after such
acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act) 50.01 % or more of either (x) the then-outstanding shares of common stock of HMS Holdings (the Outstanding Company Common Stock ) or (y) the combined voting power of the then-outstanding securities of HMS Holdings entitled to vote generally in the election of directors (the Outstanding Company Voting Securities ); provided, however, that for purposes of this subsection (A) any acquisition directly from the Company will not be a Change in Control, nor will any acquisition by any individual, entity, or group pursuant to a Business Combination (as defined below) that complies with subclauses (x) and (y) of clause (ii) of this definition;
(ii) the consummation of a merger, consolidation, reorganization, recapitalization or share exchange involving HMS Holdings or a sale or other disposition of all or substantially all (i.e. in excess of 85%) of the assets of HMS Holdings (a Business Combination ), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (x) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include a corporation that as a result of such transaction owns HMS Holdings or substantially all of HMS Holdings assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the Acquiring Corporation ) in substantially the same proportions as their ownership of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively, immediately prior to such Business Combination and (y) no Person beneficially owns, directly or indirectly, 50.01 % or more of the then-outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or
(iii) a change in the composition of the Holdings Board that results, during any one year period, in the Continuing Directors (as defined below) no longer constituting a majority of the Holdings Board (or, if applicable, the Board of Directors of a successor corporation to HMS Holdings), where the term Continuing Director means at any date a member of the Holdings Board (x) who was a member of the Holdings Board on the Effective Date or (y) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Holdings Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (y) any individual whose initial assumption of office after the Effective Date occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Holdings Board;
provided that, where required by Section 409A, the event that occurs is also a change in the ownership or effective control of a corporation, or a change in the ownership of a substantial
portion of the assets of a corporation as defined in Treasury Reg. § 1.409A-3(i)(5).
(d) Termination for Cause, Voluntary Resignation.
(i) General . If, during the Employment Period, the Company terminates your employment for Cause, or you resign from your employment (other than for Good Reason as and when provided in Section 6(c) above), you will be entitled only to the payments described in Section 6(a) (excluding on a termination for Cause, clause (ii) of Section 6(a)), unless applicable law otherwise requires payment. You may resign, other than for Good Reason, at any time and for any reason, by giving at least 30 days prior written notice to the Company. The Company may choose to respond to such notice of resignation by ending your active employment during the Notice Period, in which event you would remain an employee of the Company through the remainder of the Notice Period and continue to receive your Base Salary, less applicable deductions, and continue vesting under any outstanding equity grants through the end of the Notice Period. You will have no further right to receive any other compensation or benefits after such termination or resignation of employment, except as determined in accordance with the terms of the employee benefit plans or programs of the Company or as required by law.
(ii) Definitions .
(I) Cause . For purposes of this Agreement, Cause means any of the following: your (i) fraud with respect to the Company; (ii) material misrepresentation to any regulatory agency, governmental authority, outside or internal auditors, internal or external Company counsel, or the Holdings Board concerning the operation or financial status of the Company; (iii) theft or embezzlement of assets of the Company; (iv) your conviction, or plea of guilty or nolo contendere to any felony (or to a felony charge reduced to a misdemeanor), or, with respect to your employment, to any misdemeanor (other than a traffic violation); (v) material failure to follow the Companys conduct and ethics policies that have been provided or made available to you; (vi) material breach of this Agreement or the Restrictive Covenants Agreement; and/or (vii) continued failure to attempt in good faith to perform your duties as reasonably assigned by your Supervisor at the time. Before terminating your employment for Cause under clauses (v) (vii) above, the Company will specify in writing to you the nature of the act, omission, refusal, or failure that it deems to constitute Cause and, if the Company reasonably considers the situation to be correctable, give you 30 days after you receive such notice to correct the situation (and thus avoid termination for Cause), unless the Holdings Board agrees to further extend the time for correction. You agree that the Company will have discretion exercised in a reasonable manner to determine whether your correction is sufficient. Nothing in this definition prevents the Company from removing you from your position with the Company at any time and for any reason.
(II) Good Reason . For purposes of this Agreement, Good Reason means, the occurrence, without your prior written consent, of any of the following events: (i) any material diminution in your authority, duties or responsibilities with the Company; (ii) a requirement that you report to an officer other than your then current Supervisor if the result is that your new Supervisor has materially diminished authority, duties, or responsibilities in comparison with your prior supervisor; (iii) a material reduction in your Base Salary; (iv) the Companys requiring you to perform your principal services primarily in a geographic area more than 50 miles from both the Companys offices in Dallas, Texas and its principal headquarters in New York, New York (or such other place of primary employment for you at which you have agreed to provide such services); or (v) a material breach by the Company of any material provision of this Agreement. No
resignation will be treated as resignation for Good Reason unless (x) you have given written notice to the Company of your intention to terminate your employment for Good Reason, describing the grounds for such action, no later than 90 days after the first occurrence of such circumstances, (y) you have provided the Company with at least 30 days in which to cure the circumstances, and (z) if the Company is not successful in curing the circumstance, you end your employment within 30 days following the cure period in (y). If the Company informs you that it will not treat your resignation as for Good Reason, you may withdraw the resignation and remain employed (provided that you do so before the original notice of resignation becomes effective) or may proceed and dispute the Companys decision.
(e) Death or Disability. Your employment hereunder will terminate immediately upon your death or Disability. Disability means the Company based upon appropriate medical evidence, determines you have become physically or mentally incapacitated so as to render you incapable of performing your usual and customary duties, with or without a reasonable accommodation, for 180 or more days, whether or not consecutive, during any 12 month period. You are also disabled if you are found to be disabled within the meaning of the Companys long-term disability insurance coverage as then in effect (or would be so found if you applied for the coverage or benefits). Employment termination under this subsection is not covered by Section 6(b) or 6(c), and you or your heirs will receive only the benefits and compensation in Section 6(a) (together, as applicable, with any life or disability insurance payments). Nothing in this Section 6(e) prevents the Company from removing you from your position with the Company or, under Section 6(b),6(c) or 6(d), from terminating your employment at any time, subject to compliance with those subsections.
(f) Further Effect of Termination on Board and Officer Positions . If your employment ends for any reason, you agree that you will cease immediately to hold any and all officer or director positions you then have with the Company, absent a contrary direction from the Holdings Board (which may include either a request to continue such service or a direction to cease serving upon notice). You hereby irrevocably appoint the Company to be your attorney-in-fact to execute any documents and do anything in your name to effect your ceasing to serve as a director and officer of the Company, should you fail to resign following a request from the Company to do so. You will not be required to sign, and the Company will not sign on your behalf without your consent, documents effecting your ceasing to serve as a director that characterize your cessation of employment differently than the manner in which it is effected through Section 6 above. A written notification signed by a director or duly authorized officer of the Company that any instrument, document or act falls within the authority conferred by this subsection will be conclusive evidence that it does so. The Company will prepare any documents, pay any filing fees, and bear any other expenses related to this Section.
7. Effect of Section 409A of the Code .
(a) Six Month Delay . If and to the extent any portion of any payment, compensation or other benefit provided to you in connection with your employment termination is determined to constitute nonqualified deferred compensation within the meaning of Section 409A and you are a specified employee as defined in Section 409A(a)(2)(B)(i), as determined by the Company in accordance with its procedures, by which determination you hereby agree that you are bound, such portion of the payment, compensation or other benefit shall not be paid before the earlier of (i) the expiration of the six month period measured from the date of your separation from service (as determined under Section 409A) or (ii) the tenth day following the date of your death following such separation from service (the New Payment Date ). The aggregate of any payments that otherwise would have been paid to you during the period between the date of separation from service and the New Payment Date shall be paid to
you in a lump sum in the first payroll period beginning after such New Payment Date, and any remaining payments will be paid on their original schedule.
(b) General 409A Principles . For purposes of this Agreement, a termination of employment will mean a separation from service as defined in Section 409A. For purposes of this Agreement, each amount to be paid or benefit to be provided will be construed as a separate identified payment for purposes of Section 409A, and any payments that are due within the short term deferral period as defined in Section 409A or are paid in a manner covered by Treas. Reg. Section 1.409A-1(b)(9)(iii) will not be treated as deferred compensation unless applicable law requires otherwise. Neither the Company nor you will have the right to accelerate or defer the delivery of any such payments or benefits except to the extent specifically permitted or required by Section 409A. This Agreement is intended to comply with the provisions of Section 409A and this Agreement shall, to the extent practicable, be construed in accordance therewith. Terms defined in this Agreement will have the meanings given such terms under Section 409A if and to the extent required to comply with Section 409A. In any event, the Company makes no representations or warranty and will have no liability to you or any other person if any provisions of or payments under this Agreement are determined to constitute deferred compensation subject to Code Section 409A but not to satisfy the conditions of that section.
(c) Expense Timing . Payments with respect to reimbursements of business expenses will be made in the ordinary course in accordance with the Companys procedures (generally within 45 days after you have submitted appropriate documentation) and, in any case, on or before the last day of the calendar year following the calendar year in which the relevant expense is incurred. The amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year. The right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.
8. Restrictive Covenants . In connection with signing this Agreement, you are signing a Noncompetition, Nonsolicitation, Proprietary and Confidential Information and Developments Agreement (the Restrictive Covenants Agreement ), which addresses your responsibilities to the Company in connection with confidentiality, transfer and protection of intellectual property, noncompetition, nonsolicitation of employees and customers, and nondisparagement.
9 . Miscellaneous .
(a) Notices . All notices required or permitted under this Agreement must be in writing and will be deemed effective upon personal delivery or three business days following deposit in a United States Post Office, by certified mail, postage prepaid, or one business day after it is sent for next-business day delivery via a reputable nationwide overnight courier service in the case of notice to the Company at its then principal headquarters, and in the case of notice to you to the current address on file with the Company. Notice to the Company must include a separate notice to the General Counsel of HMS Holdings. Either Party may change the address to which notices are to be delivered by giving notice of such change to the other Party in the manner set forth in this Section 9(a).
(b) No Mitigation . You are not required to seek other employment or otherwise mitigate the value of any severance benefits contemplated by this Agreement, nor will any such benefits be reduced by any earnings or benefits that you may receive from any other source. Notwithstanding any other provision of this Agreement, any sum or sums paid under this Agreement will be in lieu of any amounts to which you may otherwise be entitled under the terms of any severance plan, policy, program, agreement or other arrangement sponsored by the Company or an affiliate of the Company.
(c) Waiver of Jury Trial . TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, THE PARTIES HEREBY WAIVE, AND
COVENANT THAT THEY WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR OTHER PROCEEDING ARISING IN WHOLE OR IN PART UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE RELEASE IT CONTEMPLATES, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, THE PARTIES AGREE THAT ANY PARTY MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG THE PARTIES IRREVOCABLY TO WAIVE THEIR RIGHTS TO TRIAL BY JURY IN ANY PROCEEDING WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT OR TO ANY OF THE MATTERS CONTEMPLATED UNDER THIS AGREEMENT, RELATING TO YOUR EMPLOYMENT, OR COVERED BY THE CONTEMPLATED RELEASE.
(d) Severability. Each provision of this Agreement must be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. Moreover, if an arbitrator or a court of competent jurisdiction determines any of the provisions contained in this Agreement to be unenforceable because the provision is excessively broad in scope, whether as to duration, activity, geographic application, subject or otherwise, it will be construed, by limiting or reducing it to the extent legally permitted, so as to be enforceable to the extent compatible with then applicable law to achieve the intent of the Parties.
(e) Assignment. This Agreement will be binding upon and will inure to the benefit of (i) your heirs, beneficiaries, executors and legal representatives upon your death and (ii) any successor of the Company. Any such successor of the Company will be treated as substituted for the Company under the terms of this Agreement for all purposes. The Company may assign this Agreement without your consent, and such an assignment will not terminate your employment for purposes of triggering your entitlement to severance; provided, however, that if such an assignment provides a basis for you to resign for Good Reason after a Change in Control, you may resign for Good Reason, and you will be entitled to severance, if any, subject to the terms of Section 6. You specifically agree that any assignment may include rights under the Restrictive Covenants Agreement without requiring your consent; provided , however , that an assignment that occurs after the termination of your employment will not expand in any manner the scope of the Restrictive Covenants Agreement. As used herein, successor will mean any person, firm, corporation or other business entity that at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company.
None of your rights to receive any form of compensation payable under this Agreement will be assignable or transferable except through a testamentary disposition or by the laws of descent and distribution upon your death or as provided in Section 9(k). Any attempted assignment, transfer, conveyance or other disposition (other than as aforesaid) of any interest in your rights to receive any form of compensation hereunder will be null and void: provided, however, that notwithstanding the foregoing, you will be allowed to transfer vested shares subject to stock options (other than incentive stock options within the meaning of Section 422 of the Code) or the vested portion of other equity awards consistent with the rules for transfers to family members as defined in Securities Act Form S-8. Any other attempted assignment, transfer, conveyance or other disposition of any interest in your rights to receive any form of compensation hereunder will be null and void.
(f) No Oral Modification, Waiver, Cancellation or Discharge. This Agreement may only be amended, canceled or discharged or any obligations thereunder waived through a writing signed by you and the Chair of the Compensation Committee or any executive officer of the Company (other than you) duly authorized either by the Holdings Board or the Compensation Committee.
(g) No Conflict of Interest . You confirm that you have fully disclosed to HMS Holdings and the other entities in the Company, to the best of your knowledge, all circumstances under which you, your immediate family and other persons who reside in your household have or may have a conflict of interest with the Company. You further agree to fully disclose to the Company any such circumstances that might arise during your employment upon your becoming aware of such circumstances.
(h) Other Agreements . You hereby represent that your performance of all the terms of this Agreement and the performance of your duties as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by you in confidence or in trust prior to your employment with the Company. You also represent that you are not a party to or subject to any restrictive covenants, legal restrictions, policies, commitments or other agreements in favor of any entity or person that would in any way preclude, inhibit, impair or limit your ability to perform your obligations under this Agreement, including noncompetition agreements or nonsolicitation agreements, and you further represent that your performance of the duties and obligations under this Agreement does not violate the terms of any agreement to which you are a party. You agree that you will not enter into any agreement or commitment or agree to any policy that would prevent or hinder your performance of duties and obligations under this Agreement.
(i) Disclosure of this Agreement . You acknowledge that the Company may provide persons or entities who may employ or engage you with a copy of the Restrictive Covenants Agreement (or portions thereof) to highlight your continuing obligations to the Company. You also acknowledge that the Company may be obligated to disclose the entire Agreement or any portion thereof to satisfy applicable laws and regulations.
(j) Survivorship. The respective rights and obligations of the Company and you hereunder will survive any termination of your employment to the extent necessary to preserve the intent of such rights and obligations.
(k) Beneficiaries . You will be entitled, to the extent applicable law permits, to select and change the beneficiary or beneficiaries to receive any compensation or benefit payable hereunder upon your death by giving the Company written notice thereof in a manner consistent with the terms of any applicable plan documents. If you die, severance then due or other amounts due hereunder will be paid to your designated beneficiary or beneficiaries or, if none are designated or none survive you, your estate.
(l) Withholding. The Company will be entitled to withhold, or cause to be withheld, any amount of federal, state, city or other withholding taxes or other amounts either required by law or authorized by you with respect to payments made to you in connection with your employment.
(m) Company Policies . References in this Agreement to Company policies and procedures are to those policies and procedures in effect at the Effective Date, as the Company may amend them from time to time.
(n) Governing Law; Dispute Resolution. This Agreement must be construed, interpreted, and governed in accordance with the laws of the State of Texas without reference to rules relating to conflict of law. In case of any controversy or claim arising out of or related to this Agreement or relating to your employment (including claims relating to employment discrimination), except as expressly excluded herein, each Party agrees to give the other Party notice of an intent to seek arbitration under this Agreement and 10 days to reach a resolution. Should resolution of any controversy or claim not be reached following provision of notice and a reasonable opportunity to cure, then the dispute shall be settled by arbitration under the American Arbitration Associations National Rules for the Resolution of Employment Disputes (the National Rules ). A single arbitrator shall be selected in accordance with
the National Rules and the costs of such arbitration shall be shared equally between the parties. The dispute will be arbitrated in Dallas, Texas, absent mutual agreement of the Parties to another venue. Any claim or controversy not submitted to arbitration in accordance with this Section 9(n) (other than as provided under the Restrictive Covenants Agreement) will be waived, and thereafter no arbitrator, arbitration panel, tribunal, or court will have the power to rule or make any award on any such claim or controversy. In determining a claim or controversy under this Agreement and in making an award, the arbitrator must consider the terms and provisions of this Agreement, as well as all applicable federal, state, or local laws. The award rendered in any arbitration proceeding held under this Section 9(n) shall be final and binding and judgment upon the award may be entered in any court having jurisdiction thereof. Claims for workers compensation or unemployment compensation benefits are not covered by this Section 9(n). Also not covered by this Section 9(n) are claims by the Company or by you for temporary restraining orders, preliminary injunctions or permanent injunctions (equitable relief) in cases in which such equitable relief would be otherwise authorized by law or pursuant to the Restrictive Covenants Agreement. The Company will be responsible for paying any filing fee of the sponsoring organization and the fees and costs of the arbitrator; provided, however, that if you initiate the claim, you will contribute an amount equal to the filing fee you would have incurred to initiate a claim in the court of general jurisdiction in the State of Texas. Each party will pay for its own costs and attorneys fees, if any. Without limiting the provisions of this Section 9(n), the Company and you agree that the decision as to whether a party is the prevailing party in an arbitration, or a legal proceeding that is commenced in connection therewith will be made in the sole discretion of the arbitrator or, if applicable, the court and the arbitrator may award reasonable attorneys fees, costs and expenses.
Any action, suit or other legal proceeding with respect to equitable relief that is excluded from arbitration must be commenced only in a court of the State of Texas (or, if appropriate, a federal court located within the State of Texas), and the Company and you each consent to the jurisdiction of such a court. With respect to any such court action, the Parties hereto (a) submit to the personal jurisdiction of such courts; (b) consent to service of process by the means specified under Section 9(a); and (c) waive any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction, inconvenient forum, or service of process.
(o) Interpretation. The parties agree that this Agreement will be construed without regard to any presumption or rule requiring construction or interpretation against the drafting party. References in this Agreement to include or including should be read as though they said without limitation or equivalent forms.
(p) Entire Agreement. This Agreement and any documents referred to herein represent the entire agreement of the Parties and will supersede any and all previous contracts, arrangements or understandings between the Company and you.
Signatures on Page Following
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed and you have hereunto set your hand to be effective as of the dates below.
|
|
HMS Business Services, Inc. |
|
|
|
|
|
|
|
|
|
05/01/2012 |
|
By: |
/s/ WILLIAM C. LUCIA |
Date |
|
William C Lucia |
|
|
|
President |
|
|
|
|
|
|
|
|
|
|
|
Cynthia Nustad |
|
|
|
|
|
|
|
|
|
04/23/2012 |
|
/s/ CYNTHIA NUSTAD |
|
Date |
|
|
Exhibit 10.48
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the Agreement ) is made as of February 26, 2014 by and between HMS Holdings Corp., a Delaware corporation ( HMS Holdings ), and Eugene DeFelice, an individual ( you ) (and, together with HMS Holdings, the Parties ) to provide services, as directed, to the entities comprising the Company (HMS Holdings and its subsidiaries and affiliates, the Company )).
WHEREAS, the Company wishes to employ you, and you wish to be employed by the Company.
NOW THEREFORE, in consideration of your acceptance of employment, the Parties agree to be bound by the terms contained in this Agreement as follows:
1. Engagement .
(a) Effective March 24, 2014 (the Effective Date ), the Company will employ you as Executive Vice President, General Counsel and Corporate Secretary. The Company may obtain background reports both pre-employment and from time to time during your employment with the Company, as necessary. (b) You will report directly to the Chief Executive Officer of HMS Holdings ( Supervisor ). You will have the responsibilities, duties and authorities specified from time to time by your Supervisor, which will generally be commensurate your title and executives, at a similar level, of entities of similar size and character to the Company. You also agree, if so requested, to serve as an officer and director of subsidiaries of HMS Holdings.
2. Commitment. During the Employment Period (as defined in Section 3 below), you must devote your full working time and attention to the Company. During the Employment Period, you must not engage in any employment, occupation, consulting or other similar activity without your Supervisors prior written consent; provided , however , that you may (i) serve in any capacity with any professional, community, industry, civic (including governmental boards), educational, charitable, or other non-profit organization, (ii) serve on any for-profit entity board, with the prior written consent of your Supervisor, and (iii) subject to HMS Holdings conflict of interest policies, make investments in other businesses and manage your and your familys personal investments and legal affairs; provided that any such activities described in clauses (i)-(iii) above do not materially interfere with the performance of your duties for the Company and do not otherwise violate this Agreement or any other written agreement between the Company and you. You will perform your services under this Agreement primarily at the Companys offices in, Irving, TX or at such place or places as you and the Company may agree. You understand and agree that your employment will require travel from time to time in a manner consistent with Company policy.
3. Employment Period . HMS Holdings hereby agrees to employ you and you hereby accept employment with HMS Holdings upon the terms set forth in this Agreement, for the period commencing on the Effective Date and ending when and as provided in Section 6 (the Employment Period ).
4. Cash, Bonus & Equity Compensation .
(a) Base Salary. You will receive a base salary at a monthly rate of $35,416.67, annualizing to $425,000 (as may be increased under this Agreement, the Base Salary ). The Company will pay your Base Salary periodically in arrears not less frequently than monthly in accordance with the Companys regular payroll practices as in effect from time to time (which currently provide for bi-weekly payments). The Board of Directors of HMS Holdings (the Holdings Board ) or its Compensation Committee (the Compensation Committee ) will review your Base Salary periodically and may increase your Base Salary at that time..
(b) Bonus . You will be eligible to receive bonus compensation (the Bonus ) from the Company in respect of each fiscal year (or portion thereof) during the Employment Period, in each
case as the Compensation Committee may determine in its sole discretion on the basis of such performance based or other criteria as it determines appropriate. Your target bonus will equal 65% of your Base Salary. The Compensation Committee will review your target bonus periodically and may increase your target bonus at that time. The Bonus, if any, will be paid when other executives receive their bonuses under comparable arrangements but, in any event, between January 1 and March 15 of the year following the year with respect to which it is earned. The Bonus, if any, for 2014 shall not be pro-rated.
(c) Initial Equity Grant . As soon as practicable after the Effective Date, and subject to Compensation Committee approval, HMS Holdings will grant you an equity award to be valued at $400,000.00 on the date of grant, consisting of $200,000.00 in the form of nonqualified stock options and $200,000.00 in the form of restricted stock units ( RSUs ), each with respect to the HMS Holdings common stock (the Common Stock ). The value for the options will be determined using the HMS Holdings standard Black-Scholes assumptions applied as of the date of grant and the value for the RSUs will be determined by dividing the target value for the RSUs by the HMS Holdings fair market value on the date of grant, using the closing price of the HMS Holdings common stock on the NASDAQ Global Market on the date of grant. The equity grants will be under and subject to the terms of the HMS Holdings Fourth Amended and Restated 2006 Stock Plan (the 2006 Plan ) and will contain HMS Holdings customary terms and conditions for such grants, subject to the express provisions in this subsection. Assuming continued employment, the options under the grant will have a seven year term and the options and RSUs will vest on an annual basis over a four year period following the date of grant (beginning with 25% of their respective grants on the first anniversary).
(d) Sign On Bonus . On or around Ninety (90) days following the date your employment begins, you will also receive a special bonus of $50,000 (the Sign On Bonus ). You agree that you will repay a prorata portion of the Sign On Bonus within 10 days after your employment ends if your employment ends before the first anniversary of the Effective Date because of a termination for Cause or your resignation (other than a resignation for Good Reason) (as defined below). The proration will be determined based on reducing the amount owed by a proportionate part of the full 12 months as you complete each month of service.
(e) Relocation. You will be provided relocation assistance through a Company-selected relocation firm to assist in your move (as well as the move of your family and personal property) from your current location to the Dallas-Fort Worth area by December 1, 2015. The Company will reimburse up to $175,000.00 for reasonable costs and expenses related to or arising out of your relocation except as provided herein. This shall include, for example, house hunting, temporary living and storage, transportation of goods and personal property, closing costs, realtor commissions, and airfare. It shall not however include any reimbursement for loss on your home or mortgage origination fees associated with the purchase of a new home. Should your employment with the Company terminate for Cause or should you resign other than for Good Reason (each as defined below) within twelve (12) months of your receipt of the final reimbursement payment for the Move, you agree that you will repay the Company for the full amount of relocation assistance paid to you (the Repayment Amount ), including through a deduction from your final paycheck or as otherwise permitted by applicable law. Your signature on this Agreement will serve as your authorization to the Company to deduct the Repayment Amount, if permitted by applicable law, from your final paycheck.
5. Employee Benefits .
(a) Employee Welfare and Retirement Plans. You will, to the extent eligible, be entitled to participate at a level commensurate with your position in all employee welfare benefit and retirement plans and programs the Company provides to its executives in accordance with the terms thereof as in effect from time to time. The Company may change or terminate the benefits at any time.
(b) Business Expenses. Upon submission of appropriate documentation in accordance with Company policies, the Company will promptly pay, or reimburse you for, all reasonable business expenses that you incur in performing your duties under this Agreement, including travel, entertainment, professional dues and subscriptions, as long as such expenses are reimbursable under the Companys policies. Any payments or expenses provided in this Section 5(b) will be paid in accordance with Section 7(c).
(c) Paid Time Off. You will earn paid time off (PTO) at the rate of 18 hours per month (annualized to 27 days per year), or such greater number as the Company determines from time to time for its senior executive officers, provided that any carryover from year to year will be subject to the Companys generally applicable policies. Additionally, you will be entitled to take the week vacation in July 2014.
6. Termination of Employment.
(a) General . Subject in each case to the provisions of this Section 6 and the other provisions of this Agreement relating to our respective rights and obligations upon termination of your employment, nothing in this Agreement interferes with or limits in any way the Companys or your right to terminate your employment at any time, for any reason or no reason, and nothing in this Agreement confers on you any right or obligation to continue in the Companys employ. The Company, in its sole discretion, may elect to terminate your employment immediately at any time subject to compliance with any obligations it has under this Section 6. If your employment ceases for any or no reason, you (or your estate, as applicable) will be entitled to receive (in addition to any compensation and benefits you are entitled to receive under Section 6(b) or 6(c) below): (i) any earned but unpaid Base Salary and, to the extent consistent with general Company policy, accrued but unused paid time off through and including the date of termination of your employment to be paid in accordance with the Companys regular payroll practices and with applicable law but no later than the next regularly scheduled pay period, (ii) except as provided in Section 6(d), any earned but unpaid annual Bonus for the calendar year preceding the calendar year in which your employment ends, to be paid on the date such annual Bonus otherwise would have been paid if your employment had continued, (iii) unreimbursed business expenses in accordance with the Companys policies for which expenses you have provided appropriate documentation, to be paid in accordance with Section 7(c), and (iv) any amounts or benefits to which you are then entitled under the terms of the benefit plans then sponsored by the Company in accordance with their terms (and not accelerated to the extent acceleration does not satisfy Section 409A of the Internal Revenue Code of 1986, as amended ( Section 409A of the Code )). Notwithstanding any other provision in this Agreement to the contrary, you will be entitled to severance, if any, solely through the terms of this Section 6, unless another Holdings Board-approved written agreement between you and the Company expressly provides otherwise.
(b) Termination Without Cause. If, during the Employment Period, the Company terminates your employment without Cause or if you terminate for Good Reason (each as defined below), in addition to the amounts described in Section 6(a), the Company will pay to you the following, subject to compliance with Section 6(b)(iii):
(i) Cash Severance . The Company will pay to you in cash an amount equal to 12 times your monthly Base Salary, paid ratably in equal installments over a 12 month period beginning in the first payroll period following the Release Effective Date (as defined below) (or such later date required by Section 7) in accordance with the Companys standard payroll policies and procedures and in a manner consistent with Section 7;
(ii) Benefits . The Company will pay you a lump sum amount equal to 12 times the difference between the monthly COBRA coverage premium for the same type of medical and dental coverage (single, family, or other) you are receiving as of the date your
employment ends and your then monthly employee contribution. This payment will be taxable and subject to withholding. You may use the amount received for any purpose.
(iii) Release . To receive any severance benefits provided for under this Agreement or otherwise, you must deliver to the Company a separation agreement and general release of claims on the form the Company provides (releasing all releasable claims other than to payments under Section 6 or outstanding equity and including obligations to cooperate with the Company and reaffirming your obligations under the Restrictive Covenants Agreement (as defined below)), which agreement and release must become irrevocable within 60 days (or such earlier date as the release provides) following the date of your termination of employment. Benefits under Section 6(b)(i) and (ii) will be paid or commence in the first regular payroll beginning after the release becomes effective, subject to any delays required by Section 7; provided, however , that if the last day of the 60 day period for an effective release falls in the calendar year following the year of your date of termination, the severance payments will be paid or begin no earlier than January 1 of such subsequent calendar year. The date on which your release of claims becomes effective is the Release Effective Date . You must continue to comply with the Restrictive Covenants Agreement to continue to receive severance benefits.
(c) Change in Control . If, within 24 months following a Change in Control, the Company terminates your employment without Cause or you resign for Good Reason, in addition to the benefits described in Section 6(b)(ii) above and subject to the release required under Section 6(b)(iii), you will receive the cash severance described in Section 6(b)(i), paid in a single lump sum on the Release Effective Date in accordance with the Companys standard payroll policies and procedures (or such later date as either Section 6(b)(iii) or 7(a) requires). For the purpose of this Agreement, Change in Control means:
(i) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the Exchange Act ) (a Person ) of beneficial ownership of any capital stock of HMS Holdings if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act) 50.01% or more of either (x) the then-outstanding shares of common stock of HMS Holdings (the Outstanding Company Common Stock ) or (y) the combined voting power of the then-outstanding securities of HMS Holdings entitled to vote generally in the election of directors (the Outstanding Company Voting Securities ); provided, however , that for purposes of this subsection (A) any acquisition directly from the Company will not be a Change in Control, nor will any acquisition by any individual, entity, or group pursuant to a Business Combination (as defined below) that complies with subclauses (x) and (y) of clause (ii) of this definition;
(ii) the consummation of a merger, consolidation, reorganization, recapitalization or share exchange involving HMS Holdings or a sale or other disposition of all or substantially all (i.e., in excess of 85%) of the assets of HMS Holdings (a Business Combination ), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (x) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include a corporation that as a result of such transaction owns HMS Holdings or substantially all of HMS Holdings assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the Acquiring Corporation ) in substantially the same proportions as their ownership of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, respectively, immediately prior to such Business Combination and (y) no Person beneficially owns, directly or indirectly, 50.01% or more of the then-outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or
(iii) a change in the composition of the Holdings Board that results, during any one year period, in the Continuing Directors (as defined below) no longer constituting a majority of the Holdings Board (or, if applicable, the Board of Directors of a successor corporation to HMS Holdings), where the term Continuing Director means at any date a member of the Holdings Board (x) who was a member of the Holdings Board on the Effective Date or (y) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Holdings Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however , that there shall be excluded from this clause (y) any individual whose initial assumption of office after the Effective Date occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Holdings Board;
provided that, where required by Section 409A, the event that occurs is also a change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation as defined in Treasury Reg. § 1.409A-3(i)(5).
(d) Termination for Cause, Voluntary Resignation.
(i) General . If, during the Employment Period, the Company terminates your employment for Cause, or you resign from your employment (other than for Good Reason), you will be entitled only to the payments described in Section 6(a) (excluding, on a termination for Cause, clause (ii) of Section 6(a)), unless applicable law otherwise requires payment. You may resign, other than for Good Reason, at any time and for any reason, by giving at least 30 days prior written notice to the Company. The Company may choose to respond to such notice of resignation by ending your active employment during the Notice Period, in which event you would remain an employee of the Company through the remainder of the Notice Period and continue to receive your Base Salary, less applicable deductions, and continue vesting under any outstanding equity grants through the end of the Notice Period. You will have no further right to receive any other compensation or benefits after such termination or resignation of employment, except as determined in accordance with the terms of the employee benefit plans or programs of the Company or as required by law.
(ii) Definitions .
(I) Cause . For purposes of this Agreement, Cause means any of the following: your (i) fraud with respect to the Company; (ii) material misrepresentation to any regulatory agency, governmental authority, outside or internal auditors, internal or external Company counsel, or the Holdings Board concerning the operation or financial status of the Company; (iii) theft or embezzlement of assets of the Company; (iv) your conviction, or plea of guilty or nolo contendere to any felony (or to a felony charge reduced to a misdemeanor), or, with respect to your employment, to any misdemeanor (other than a traffic violation); (v) material failure to follow the Companys conduct and ethics policies that have been provided or made available to you; (vi) material breach of this Agreement or the Restrictive Covenants Agreement; and/or (vii) continued failure to
attempt in good faith to perform your duties as reasonably assigned by your Supervisor at the time. Before terminating your employment for Cause under clauses (v) (vii) above, the Company will specify in writing to you the nature of the act, omission, refusal, or failure that it deems to constitute Cause and, if the Company reasonably considers the situation to be correctable, give you 30 days after you receive such notice to correct the situation (and thus avoid termination for Cause), unless the Holdings Board agrees to further extend the time for correction. You agree that the Company will have discretion exercised in a reasonable manner to determine whether your correction is sufficient. Nothing in this definition prevents the Company from removing you from your position with the Company at any time and for any reason.
(II) Good Reason . For purposes of this Agreement, Good Reason means, the occurrence, without your prior written consent, of any of the following events: (i) any material diminution in your authority, duties or responsibilities with the Company; (ii) a requirement that you report to an officer other than your then current Supervisor if the result is that your new Supervisor has materially diminished authority, duties, or responsibilities in comparison with your prior supervisor; (iii) a material reduction in your Base Salary or Target Bonus percentage; (iv) the Companys requiring you to perform your principal services primarily in a geographic area more than 50 miles from the Companys offices in Dallas, Texas (or such other place of primary employment for you at which you have agreed to provide such services); or (v) a material breach by the Company of any material provision of this Agreement. No resignation will be treated as resignation for Good Reason unless (x) you have given written notice to the Company of your intention to terminate your employment for Good Reason, describing the grounds for such action, no later than 90 days after the first occurrence of such circumstances, (y) you have provided the Company with at least 30 days in which to cure the circumstances, and (z) if the Company is not successful in curing the circumstance, you end your employment within 30 days following the cure period in (y). If the Company informs you that it will not treat your resignation as for Good Reason, you may withdraw the resignation and remain employed (provided that you do so before the original notice of resignation becomes effective) or may proceed and dispute the Companys decision.
(e) Death or Disability. Your employment hereunder will terminate immediately upon your death or Disability. Disability means the Company based upon appropriate medical evidence, determines you have become physically or mentally incapacitated so as to render you incapable of performing your usual and customary duties, with or without a reasonable accommodation, for 180 or more days, whether or not consecutive, during any 12 month period. You are also disabled if you are found to be disabled within the meaning of the Companys long-term disability insurance coverage as then in effect (or would be so found if you applied for the coverage or benefits). Employment termination under this subsection is not covered by Section 6(b) or 6(c), and you or your heirs will receive only the benefits and compensation in Section 6(a) (together, as applicable, with any life or disability insurance payments). Nothing in this Section 6(e) prevents the Company from removing you from your position with the Company or, under Section 6(b), 6(c), or 6(d), from terminating your employment at any time, subject to compliance with those subsections.
(f) Further Effect of Termination on Board and Officer Positions . If your employment ends for any reason, you agree that you will cease immediately to hold any and all officer or director positions you then have with the Company, absent a contrary direction from the Holdings Board (which may include either a request to continue such service or a direction to cease serving upon notice). You hereby irrevocably appoint the Company to be your attorney-in-fact to execute any documents and do anything in your name to effect your ceasing to serve as a director and officer of the Company, should you fail to resign following a request from the Company to do so. You will not be required to sign, and
the Company will not sign on your behalf without your consent, documents effecting your ceasing to serve as a director that characterize your cessation of employment differently than the manner in which it is effected through Section 6 above. A written notification signed by a director or duly authorized officer of the Company that any instrument, document or act falls within the authority conferred by this subsection will be conclusive evidence that it does so. The Company will prepare any documents, pay any filing fees, and bear any other expenses related to this Section.
7. Effect of Section 409A of the Code .
(a) Six Month Delay . If and to the extent any portion of any payment, compensation or other benefit provided to you in connection with your employment termination is determined to constitute nonqualified deferred compensation within the meaning of Section 409A and you are a specified employee as defined in Section 409A(a)(2)(B)(i), as determined by the Company in accordance with its procedures, by which determination you hereby agree that you are bound, such portion of the payment, compensation or other benefit shall not be paid before the earlier of (i) the expiration of the six month period measured from the date of your separation from service (as determined under Section 409A) or (ii) the tenth day following the date of your death following such separation from service (the New Payment Date ). The aggregate of any payments that otherwise would have been paid to you during the period between the date of separation from service and the New Payment Date shall be paid to you in a lump sum in the first payroll period beginning after such New Payment Date, and any remaining payments will be paid on their original schedule.
(b) General 409A Principles . For purposes of this Agreement, a termination of employment will mean a separation from service as defined in Section 409A. For purposes of this Agreement, each amount to be paid or benefit to be provided will be construed as a separate identified payment for purposes of Section 409A, and any payments that are due within the short term deferral period as defined in Section 409A or are paid in a manner covered by Treas. Reg. Section 1.409A-1(b)(9)(iii) will not be treated as deferred compensation unless applicable law requires otherwise. Neither the Company nor you will have the right to accelerate or defer the delivery of any such payments or benefits except to the extent specifically permitted or required by Section 409A. This Agreement is intended to comply with the provisions of Section 409A and this Agreement shall, to the extent practicable, be construed in accordance therewith. Terms defined in this Agreement will have the meanings given such terms under Section 409A if and to the extent required to comply with Section 409A. In any event, the Company makes no representations or warranty and will have no liability to you or any other person if any provisions of or payments under this Agreement are determined to constitute deferred compensation subject to Code Section 409A but not to satisfy the conditions of that section.
(c) Expense Timing . Payments with respect to reimbursements of business expenses will be made in the ordinary course in accordance with the Companys procedures (generally within 45 days after you have submitted appropriate documentation) and, in any case, on or before the last day of the calendar year following the calendar year in which the relevant expense is incurred. The amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year. The right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.
8. Restrictive Covenants . In connection with signing this Agreement, you are signing a Noncompetition, Nonsolicitation, Proprietary and Confidential Information and Developments Agreement (the Restrictive Covenants Agreement ), which addresses your responsibilities to the Company in connection with confidentiality, transfer and protection of intellectual property, noncompetition, nonsolicitation of employees and customers, and nondisparagement.
9 . Miscellaneous .
(a) Notices . All notices required or permitted under this Agreement must be in writing and will be deemed effective upon personal delivery or three business days following deposit in a United States Post Office, by certified mail, postage prepaid, or one business day after it is sent for next-business day delivery via a reputable nationwide overnight courier service in the case of notice to the Company at its then principal headquarters, and in the case of notice to you to the current address on file with the Company. Notice to the Company must include a separate notice to the General Counsel of HMS Holdings. Either Party may change the address to which notices are to be delivered by giving notice of such change to the other Party in the manner set forth in this Section 9(a).
(b) No Mitigation . You are not required to seek other employment or otherwise mitigate the value of any severance benefits contemplated by this Agreement, nor will any such benefits be reduced by any earnings or benefits that you may receive from any other source. Notwithstanding any other provision of this Agreement, any sum or sums paid under this Agreement will be in lieu of any amounts to which you may otherwise be entitled under the terms of any severance plan, policy, program, agreement or other arrangement sponsored by the Company or an affiliate of the Company.
(c) Waiver of Jury Trial . TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, THE PARTIES HEREBY WAIVE, AND COVENANT THAT THEY WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR OTHER PROCEEDING ARISING IN WHOLE OR IN PART UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE RELEASE IT CONTEMPLATES, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, THE PARTIES AGREE THAT ANY PARTY MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG THE PARTIES IRREVOCABLY TO WAIVE THEIR RIGHTS TO TRIAL BY JURY IN ANY PROCEEDING WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT OR TO ANY OF THE MATTERS CONTEMPLATED UNDER THIS AGREEMENT, RELATING TO YOUR EMPLOYMENT, OR COVERED BY THE CONTEMPLATED RELEASE.
(d) Severability. Each provision of this Agreement must be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. Moreover, if an arbitrator or a court of competent jurisdiction determines any of the provisions contained in this Agreement to be unenforceable because the provision is excessively broad in scope, whether as to duration, activity, geographic application, subject or otherwise, it will be construed, by limiting or reducing it to the extent legally permitted, so as to be enforceable to the extent compatible with then applicable law to achieve the intent of the Parties.
(e) Assignment. This Agreement will be binding upon and will inure to the benefit of (i) your heirs, beneficiaries, executors and legal representatives upon your death and (ii) any successor of the Company. Any such successor of the Company will be treated as substituted for the Company under the terms of this Agreement for all purposes. The Company may assign this Agreement without your consent to a successor company in connection with a Change in Control, and such an assignment will not automatically terminate your employment for purposes of triggering your entitlement to severance; provided , however , that if such an assignment provides a basis for you to resign for Good Reason, you may resign for Good Reason, and you will be entitled to severance, if any, subject to the terms of Section 6. You specifically agree that any assignment may include rights under the Restrictive Covenants Agreement without requiring your consent; provided , however , that an assignment that occurs
after the termination of your employment will not expand in any manner the scope of the Restrictive Covenants Agreement. As used herein, successor will mean any person, firm, corporation or other business entity that at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company.
None of your rights to receive any form of compensation payable under this Agreement will be assignable or transferable except through a testamentary disposition or by the laws of descent and distribution upon your death or as provided in Section 9(k). Any attempted assignment, transfer, conveyance or other disposition (other than as aforesaid) of any interest in your rights to receive any form of compensation hereunder will be null and void; provided , however , that notwithstanding the foregoing, you will be allowed to transfer vested shares subject to stock options (other than incentive stock options within the meaning of Section 422 of the Code) or the vested portion of other equity awards consistent with the rules for transfers to family members as defined in Securities Act Form S-8. Any other attempted assignment, transfer, conveyance or other disposition of any interest in your rights to receive any form of compensation hereunder will be null and void.
(f) No Oral Modification, Waiver, Cancellation or Discharge. This Agreement may only be amended, canceled or discharged or any obligations thereunder waived through a writing signed by you and the Chair of the Compensation Committee or any executive officer of the Company (other than you) duly authorized either by the Holdings Board or the Compensation Committee.
(g) No Conflict of Interest . You confirm that you have fully disclosed to HMS Holdings and the other entities in the Company, to the best of your knowledge, all circumstances under which you, your immediate family and other persons who reside in your household have or may have a conflict of interest with the Company. You further agree to fully disclose to the Company any such circumstances that might arise during your employment upon your becoming aware of such circumstances.
(h) Other Agreements . You hereby represent that your performance of all the terms of this Agreement and the performance of your duties as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by you in confidence or in trust prior to your employment with the Company. You also represent that you are not a party to or subject to any restrictive covenants, legal restrictions, policies, commitments or other agreements in favor of any entity or person that would in any way preclude, inhibit, impair or limit your ability to perform your obligations under this Agreement, including noncompetition agreements or nonsolicitation agreements, and you further represent that your performance of the duties and obligations under this Agreement does not violate the terms of any agreement to which you are a party. You agree that you will not enter into any agreement or commitment or agree to any policy that would prevent or hinder your performance of duties and obligations under this Agreement.
(i) Disclosure of this Agreement . You acknowledge that the Company may provide persons or entities who may employ or engage you with a copy of the Restrictive Covenants Agreement (or portions thereof) to highlight your continuing obligations to the Company. You also acknowledge that the Company may be obligated to disclose the entire Agreement or any portion thereof to satisfy applicable laws and regulations.
(j) Survivorship. The respective rights and obligations of the Company and you hereunder will survive any termination of your employment to the extent necessary to preserve the intent of such rights and obligations.
(k) Beneficiaries. You will be entitled, to the extent applicable law permits, to select and change the beneficiary or beneficiaries to receive any compensation or benefit payable hereunder upon your death by giving the Company written notice thereof in a manner consistent with the terms of
any applicable plan documents. If you die, severance then due or other amounts due hereunder will be paid to your designated beneficiary or beneficiaries or, if none are designated or none survive you, your estate.
(l) Withholding. The Company will be entitled to withhold, or cause to be withheld, any amount of federal, state, city or other withholding taxes or other amounts either required by law or authorized by you with respect to payments made to you in connection with your employment.
(m) Company Policies . References in this Agreement to Company policies and procedures are to those policies and procedures in effect at the Effective Date, as the Company may amend them from time to time.
(n) Governing Law; Dispute Resolution. This Agreement must be construed, interpreted, and governed in accordance with the laws of the State of Texas without reference to rules relating to conflict of law. In case of any controversy or claim arising out of or related to this Agreement or relating to your employment (including claims relating to employment discrimination), except as expressly excluded herein, each Party agrees to give the other Party notice of an intent to seek arbitration under this Agreement and 10 days to reach a resolution. Should resolution of any controversy or claim not be reached following provision of notice and a reasonable opportunity to cure, then the dispute shall be settled by arbitration, under the American Arbitration Associations National Rules for the Resolution of Employment Disputes (the National Rules ). A single arbitrator shall be selected in accordance with the National Rules, and the costs of such arbitration shall be shared equally between the parties. The dispute will be arbitrated in Dallas, TX, absent mutual agreement of the Parties to another venue. Any claim or controversy not submitted to arbitration in accordance with this Section 9(n) (other than as provided under the Restrictive Covenants Agreement) will be waived, and thereafter no arbitrator, arbitration panel, tribunal, or court will have the power to rule or make any award on any such claim or controversy. In determining a claim or controversy under this Agreement and in making an award, the arbitrator must consider the terms and provisions of this Agreement, as well as all applicable federal, state, or local laws. The award rendered in any arbitration proceeding held under this Section 9(n) shall be final and binding and judgment upon the award may be entered in any court having jurisdiction thereof. Claims for workers compensation or unemployment compensation benefits are not covered by this Section 9(n). Also not covered by this Section 9(n) are claims by the Company or by you for temporary restraining orders, preliminary injunctions or permanent injunctions (equitable relief) in cases in which such equitable relief would be otherwise authorized by law or pursuant to the Restrictive Covenants Agreement. The Company will be responsible for paying any filing fee of the sponsoring organization and the fees and costs of the arbitrator; provided, however, that if you initiate the claim, you will contribute an amount equal to the filing fee you would have incurred to initiate a claim in the court of general jurisdiction in the State of Texas. Each party will pay for its own costs and attorneys fees, if any. Without limiting the provisions of this Section 9(n), the Company and you agree that the decision as to whether a party is the prevailing party in an arbitration, or a legal proceeding that is commenced in connection therewith will be made in the sole discretion of the arbitrator or, if applicable, the court and the arbitrator or court may award reasonable attorneys fees, costs and expenses.
Any action, suit or other legal proceeding with respect to equitable relief that is excluded from arbitration must be commenced only in a court of the State of Texas (or, if appropriate, a federal court located within the State of Texas), and the Company and you each consent to the jurisdiction of such a court. With respect to any such court action, the Parties hereto (a) submit to the personal jurisdiction of such courts; (b) consent to service of process by the means specified under Section 9(a); and (c) waive any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction, inconvenient forum, or service of process.
(o) Interpretation. The parties agree that this Agreement will be construed without regard to any presumption or rule requiring construction or interpretation against the drafting party. References in this Agreement to include or including should be read as though they said without limitation or equivalent forms. The parties further agree that notwithstanding any provision in this or any other agreement, including without limitation the Non-competition, Non-solicitation, Proprietary and Confidential Information and Developments Agreement, that any post-employment non-competition provisions shall only be enforceable to the extent permitted (and to the extent the signature of such an agreement is permitted) pursuant to Texas Rule 5.06 of the Texas Disciplinary Rules of Professional Conduct for attorneys.
(p) Entire Agreement. This Agreement and any documents referred to herein represent the entire agreement of the Parties and will supersede any and all previous contracts, arrangements or understandings between the Company and you.
Signatures on Page Following
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed and you have hereunto set your hand to be effective as of the dates below.
|
|
HMS Holdings Corp. |
|
|
|
|
|
|
|
|
|
02/27/2014 |
|
By: |
/s/ WILLIAM C. LUCIA |
Date |
|
William C. Lucia |
|
|
|
President |
|
|
|
|
|
|
|
|
|
|
|
Eugene DeFelice |
|
|
|
|
|
|
|
|
|
02/26/2014 |
|
/s/ EUGENE V. DEFELICE |
|
Date |
|
|
Exhibit 10.49
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the Agreement ) is made as of April 2, 2014 by and between HMS Business Services Inc., a Delaware corporation ( HMS ), and Joseph Donabauer, an individual ( you ) (and, together with HMS, the Parties ) to provide services, as directed, to the entities comprising the Company (HMS Holdings Corp. ( HMS Holdings and with HMS, and their respective subsidiaries and affiliates)). It replaces your terms of employment with the Company dated August 1, 2012.
WHEREAS, the Company wishes to continue to employ you and you wish to continue to be employed by the Company.
NOW THEREFORE, in consideration of your acceptance of continued employment, under the revised terms set forth in this Agreement, the Parties agree to be bound by the terms contained in this Agreement as follows:
1. Engagement . Effective March 31,, 2014 (the Effective Date ), but subject to Section 9(l), the Company will continue to employ you as SVP, Corporate Controller of HMS. You acknowledge that the Company organizes itself across multiple entities and that your being assigned to work directly for HMS Holdings or for one of its subsidiaries or affiliates will not, in and of itself, breach this Agreement. You will report directly to the Chief Financial Officer (CFO) or his or her designee ( Supervisor ).
2. Commitment. During the Employment Period (as defined in Section 3 below), you must devote your full working time and attention to the Company. During the Employment Period, you must not engage in any employment, occupation, consulting or other similar activity without your Supervisors prior written consent. You will perform your services under this Agreement primarily at the Companys offices in New York or at such place or places as you and the Company may agree. You understand and agree that your employment will require travel from time to time in a manner consistent with Company policy.
3. Employment Period . HMS hereby agrees to continue to employ you and you hereby accept continued employment with HMS upon the revised terms set forth in this Agreement, for the period commencing on the Effective Date and ending when and as provided in Section 6 (the Employment Period ).
4. Cash and Bonus .
(a) Base Salary. You will continue to receive a base salary at a monthly rate of $21,029.16, annualizing to $252,350.00 (as may be adjusted under this Agreement, the Base Salary ). The Company will pay your Base Salary periodically in arrears not less frequently than monthly in accordance with the Companys regular payroll practices as in effect from time to time (which currently provide for bi-weekly payments). The Company will review your Base Salary periodically and may adjust your Base Salary at that time..
(b) Bonus . You will be eligible to receive bonus compensation (the Bonus ) from the Company in respect of each fiscal year (or portion thereof) during the Employment Period, in each case as the Company may determine on the basis of such performance based or other criteria as it determines appropriate. The target bonus for your position is 50%.
5. Employee Benefits .
(a) Employee Welfare, Equity Compensation, and Retirement Plans. You will, to the extent eligible, be entitled to participate at a level commensurate with your position in all employee equity compensation plans and welfare benefit and retirement plans and programs the Company provides to its employees in accordance with the terms thereof as in effect from time to time. The Company may change or terminate the benefits at any time.
(b) Business Expenses. Upon submission of appropriate documentation in accordance with Company policies, the Company will promptly pay, or reimburse you for, all reasonable business expenses that you incur in performing your duties under this Agreement, including travel, entertainment, professional dues and subscriptions, as long as such expenses are reimbursable under the Companys policies. Any payments or expenses provided in this Section 5(b) will be paid in accordance with Section 7(c).
(c) Paid Time Off. You will earn paid time off (PTO) at the rate of 18 hours per month (annualized to 27 days per year), or such greater number as the Company determines from time to time, provided that any carryover from year to year will be subject to the Companys generally applicable policies.
6. Termination of Employment.
(a) General . Subject in each case to the provisions of this Section 6 and the other provisions of this Agreement relating to our respective rights and obligations upon termination of your employment, nothing in this Agreement interferes with or limits in any way the Companys or your right to terminate your employment at any time, for any reason or no reason, and nothing in this Agreement confers on you any right or obligation to continue in the Companys employ. The Company, in its sole discretion, may elect to terminate your employment immediately at any time subject to compliance with any obligations it has under this Section 6. If your employment ceases for any or no reason, you (or your estate, as applicable) will be entitled to receive (in addition to any compensation and benefits you are entitled to receive under Section 6(b) below): (i) any earned but unpaid Base Salary and, to the extent consistent with general Company policy, accrued but unused paid time off through and including the date of termination of your employment to be paid in accordance with the Companys regular payroll practices and with applicable law but no later than the next regularly scheduled pay period, (ii) unreimbursed business expenses in accordance with the Companys policies for which expenses you have provided appropriate documentation, to be paid in accordance with Section 7(c), and (iii) any amounts or benefits to which you are then entitled under the terms of the benefit plans then sponsored by the Company in accordance with their terms (and not accelerated to the extent acceleration does not satisfy Section 409A of the Internal Revenue Code of 1986, as amended ( Section 409A of the Code )). Notwithstanding any other provision in this Agreement to the contrary, you will be entitled to severance, if any, solely through the terms of this Section 6, unless another written agreement between you and the Company (and approved by the head of the Companys Human Resources Department) expressly provides otherwise.
(b) Termination Without Cause. If, during the Employment Period, the Company terminates your employment without Cause (defined below), in addition to the amounts described in Section 6(a), the Company will pay to you the following, subject to compliance with Section 6(b)(iii):
(i) Cash Severance . The Company will pay to you in cash an amount equal to twelve times your monthly Base Salary, paid ratably in equal installments over a twelve month period beginning in the first payroll period following the Release Effective Date (as defined below) (or such later date required by Section 7) in accordance with the Companys standard payroll policies and procedures and in a manner consistent with Section 7;
(ii) Benefits . The Company will pay you a lump sum amount equal to twelve times the difference between the monthly COBRA coverage premium for the same type of medical and dental coverage (single, family, or other) you are receiving as of the date your employment ends and your then monthly employee contribution. This payment will be taxable and subject to withholding. You may use the amount received for any purpose.
(iii) Release . To receive any severance benefits provided for under this Agreement or otherwise, you must deliver to the Company a separation agreement and general release of claims on the form the Company provides (releasing all releasable claims other than to payments under Section 6 or outstanding equity and including obligations to cooperate with the Company and reaffirming your obligations under the Restrictive Covenants Agreement (as defined below)), which agreement and release must become irrevocable within 60 days (or such earlier date as the release provides) following the date of your termination of employment. Benefits under Section 6(b)(i) and (ii) will be paid or commence in the first regular payroll beginning after the release becomes effective, subject to any delays required by Section 7; provided, however , that if the last day of the 60 day period for an effective release falls in the calendar year following the year of your date of termination, the severance payments will be paid or begin no earlier than January 1 of such subsequent calendar year. The date on which your release of claims becomes effective is the Release Effective Date . You must continue to comply with the Restrictive Covenants Agreement to continue to receive severance benefits.
(c) Termination for Cause, Voluntary Resignation.
(i) General . If, during the Employment Period, the Company terminates your employment for Cause, or you resign from your employment, you will be entitled only to the payments described in Section 6(a), unless applicable law otherwise requires payment. You may resign at any time and for any reason, by giving at least 30 days prior written notice to the Company (the Notice Period ). The Company may choose to respond to such notice of resignation by ending your employment (and any further compensation) during the Notice Period. You will have no further right to receive any other compensation or benefits after such termination or resignation of employment, except as determined in accordance with the terms of the employee benefit plans or programs of the Company or as required by law.
(ii) Cause . For purposes of this Agreement, Cause means any of the following: your (i) fraud with respect to the Company; (ii) material misrepresentation to any regulatory agency, governmental authority, outside or internal auditors, internal or external Company counsel, or the HMS Holdings Board of Directors (the HMS Holdings Board concerning the operation or financial status of the Company; (iii) theft or embezzlement of assets of the Company; (iv) your conviction, or plea of guilty or nolo contendere to any felony (or to a felony charge reduced to a misdemeanor), or, with respect to your employment, to any misdemeanor (other than a traffic violation); (v) material failure to follow the Companys conduct and ethics policies that have been provided or made available to you; (vi) material breach of this Agreement or the Restrictive Covenants Agreement; and/or (vii) continued failure to attempt in good faith to perform your duties as reasonably assigned by your Supervisor at the time. Before terminating your employment for Cause under clauses (v) (vii) above, the Company will specify in writing to you the nature of the act, omission, refusal, or failure that it deems to constitute Cause and, if the Company reasonably considers the situation to be correctable, give you 30 days after you receive such notice to correct the situation (and thus avoid termination for Cause), unless the HMS Holdings Board agrees to further extend the time for correction. You agree that the Company will have discretion exercised in a reasonable manner to determine whether your correction is sufficient. Nothing in this definition prevents the Company from removing you from your position with the Company at any time and for any reason.
(d) Death or Disability. Your employment hereunder will terminate immediately upon your death or Disability. Disability means the Company based upon appropriate medical evidence, determines you have become physically or mentally incapacitated so as to render you incapable of performing your usual and customary duties, with or without a reasonable accommodation, for 120 or more days, whether or not consecutive, during any 12 month period. You are also disabled if you are found to be disabled within the meaning of the Companys long-term disability insurance coverage as then in effect (or would be so found if you applied for the coverage or benefits). Employment termination under this subsection is not covered by Section 6(b), and you or your heirs will receive only the benefits and compensation in Section 6(a) (together, as applicable, with any life or disability insurance payments). Nothing in this Section 6(d) prevents the Company from removing you from your position with the Company or, under Section 6(b) or 6(c), from terminating your employment at any time, subject to compliance with those subsections.
7. Effect of Section 409A of the Code .
(a) Six Month Delay . If and to the extent any portion of any payment, compensation or other benefit provided to you in connection with your employment termination is determined to constitute nonqualified deferred compensation within the meaning of Section 409A and you are a specified employee as defined in Section 409A(a)(2)(B)(i), as determined by the Company in accordance with its procedures, by which determination you hereby agree that you are bound, such portion of the payment, compensation or other benefit shall not be paid before the earlier of (i) the expiration of the six month period measured from the date of your separation from service (as determined under Section 409A) or (ii) the tenth day following the date of your death following such separation from service (the New Payment Date ). The aggregate of any payments that otherwise would have been paid to you during the period between the date of separation from service and the New Payment Date shall be paid to you in a lump sum in the first payroll period beginning after such New Payment Date, and any remaining payments will be paid on their original schedule.
(b) General 409A Principles . For purposes of this Agreement, a termination of employment will mean a separation from service as defined in Section 409A. For purposes of this Agreement, each amount to be paid or benefit to be provided will be construed as a separate identified payment for purposes of Section 409A, and any payments that are due within the short term deferral period as defined in Section 409A or are paid in a manner covered by Treas. Reg. Section 1.409A-1(b)(9)(iii) will not be treated as deferred compensation unless applicable law requires otherwise. Neither the Company nor you will have the right to accelerate or defer the delivery of any such payments or benefits except to the extent specifically permitted or required by Section 409A. This Agreement is intended to comply with the provisions of Section 409A and this Agreement shall, to the extent practicable, be construed in accordance therewith. Terms defined in this Agreement will have the meanings given such terms under Section 409A if and to the extent required to comply with Section 409A. In any event, the Company makes no representations or warranty and will have no liability to you or any other person if any provisions of or payments under this Agreement are determined to constitute deferred compensation subject to Code Section 409A but not to satisfy the conditions of that section.
(c) Expense Timing . Payments with respect to reimbursements of business expenses will be made in the ordinary course in accordance with the Companys procedures (generally within 45 days after you have submitted appropriate documentation) and, in any case, on or before the last day of the calendar year following the calendar year in which the relevant expense is incurred. The amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year. The right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.
8. Restrictive Covenants . In connection with signing this Agreement, you are signing a Noncompetition, Nonsolicitation, Proprietary and Confidential Information and Developments Agreement (the Restrictive Covenants Agreement ), which addresses your responsibilities to the Company in connection with confidentiality, transfer and protection of intellectual property, noncompetition, nonsolicitation of employees and customers, and nondisparagement.
9 . Miscellaneous .
(a) Notices . All notices required or permitted under this Agreement must be in writing and will be deemed effective upon personal delivery or three business days following deposit in a United States Post Office, by certified mail, postage prepaid, or one business day after it is sent for next-business day delivery via a reputable nationwide overnight courier service in the case of notice to the Company at its then principal headquarters, and in the case of notice to you to the current address on file with the Company. Notice to the Company must include a separate notice to the General Counsel of HMS Holdings. Either Party may change the address to which notices are to be delivered by giving notice of such change to the other Party in the manner set forth in this Section 9(a).
(b) No Mitigation . You are not required to seek other employment or otherwise mitigate the value of any severance benefits contemplated by this Agreement, nor will any such benefits be reduced by any earnings or benefits that you may receive from any other source. Notwithstanding any other provision of this Agreement, any sum or sums paid under this Agreement will be in lieu of any amounts to which you may otherwise be entitled under the terms of any severance plan, policy, program, agreement or other arrangement sponsored by the Company or an affiliate of the Company.
(c) Waiver of Jury Trial . TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, THE PARTIES HEREBY WAIVE, AND COVENANT THAT THEY WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR OTHER PROCEEDING ARISING IN WHOLE OR IN PART UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE RELEASE IT CONTEMPLATES, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, THE PARTIES AGREE THAT ANY PARTY MAY FILE A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG THE PARTIES IRREVOCABLY TO WAIVE THEIR RIGHTS TO TRIAL BY JURY IN ANY PROCEEDING WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT OR TO ANY OF THE MATTERS CONTEMPLATED UNDER THIS AGREEMENT, RELATING TO YOUR EMPLOYMENT, OR COVERED BY THE CONTEMPLATED RELEASE.
(d) Severability. Each provision of this Agreement must be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. Moreover, if an arbitrator or a court of competent jurisdiction determines any of the provisions contained in this Agreement to be unenforceable because the provision is excessively broad in scope, whether as to duration, activity, geographic application, subject or otherwise, it will be construed, by limiting or reducing it to the extent legally permitted, so as to be enforceable to the extent compatible with then applicable law to achieve the intent of the Parties.
(e) Assignment. This Agreement will be binding upon and will inure to the benefit of (i) your heirs, beneficiaries, executors and legal representatives upon your death and (ii) any successor of the Company. Any such successor of the Company will be treated as substituted for the Company under the terms of this Agreement for all purposes. The Company may assign this Agreement without
your consent, and such an assignment will not terminate your employment for purposes of triggering your entitlement to severance. You specifically agree that any assignment may include rights under the Restrictive Covenants Agreement without requiring your consent; provided , however , that an assignment that occurs after the termination of your employment will not expand in any manner the scope of the Restrictive Covenants Agreement. As used herein, successor will mean any person, firm, corporation or other business entity that at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. Any attempted assignment, transfer, conveyance or other disposition of any interest in your rights to receive any form of compensation hereunder will be null and void.
(f) No Oral Modification, Waiver, Cancellation or Discharge. This Agreement may only be amended, canceled or discharged or any obligations thereunder waived through a writing signed by you and any duly authorized executive officer of the Company.
(g) No Conflict of Interest . You confirm that you have fully disclosed to HMS Holdings and the other entities in the Company, to the best of your knowledge, all circumstances under which you, your immediate family and other persons who reside in your household have or may have a conflict of interest with the Company. You further agree to fully disclose to the Company any such circumstances that might arise during your employment upon your becoming aware of such circumstances.
(h) Other Agreements . You hereby represent that your performance of all the terms of this Agreement and the performance of your duties as an employee of the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by you in confidence or in trust prior to your employment with the Company. You also represent that you are not a party to or subject to any restrictive covenants, legal restrictions, policies, commitments or other agreements in favor of any entity or person that would in any way preclude, inhibit, impair or limit your ability to perform your obligations under this Agreement, including noncompetition agreements or nonsolicitation agreements, and you further represent that your performance of the duties and obligations under this Agreement does not violate the terms of any agreement to which you are a party. You agree that you will not enter into any agreement or commitment or agree to any policy that would prevent or hinder your performance of duties and obligations under this Agreement.
(i) Survivorship. The respective rights and obligations of the Company and you hereunder will survive any termination of your employment to the extent necessary to preserve the intent of such rights and obligations.
(j) Withholding. The Company will be entitled to withhold, or cause to be withheld, any amount of federal, state, city or other withholding taxes or other amounts either required by law or authorized by you with respect to payments made to you in connection with your employment.
(k) Company Policies . References in this Agreement to Company policies and procedures are to those policies and procedures in effect at the Effective Date, as the Company may amend them from time to time.
(l) Background Checks. The Companys offer of continued at-will employment is contingent upon your authorization and successful completion of background checks, reference checks, and drug testing. You may be required to execute authorizations for the Company and/or their third party vendor to obtain consumer reports and/or investigative consumer reports and use them in conducting background checks and drug testing as a condition to your ongoing employment.
(m) Governing Law; Dispute Resolution. The Parties agree that the Federal Arbitration Act, 9 U.S.C. §1 et seq. and the National Rules (as defined below) shall apply to the
interpretation and enforcement of this Agreement. The laws of the State of Texas shall govern the substantive merits of any legal dispute set forth herein, without regard to conflicts of law provisions. In case of any controversy or claim arising out of or related to this Agreement or relating to your employment (including claims relating to employment discrimination), except as expressly excluded herein, each Party agrees to give the other Party notice of an intent to seek arbitration under this Agreement and 10 days to reach a resolution. Should resolution of any controversy or claim not be reached following provision of notice and a reasonable opportunity to cure, then the dispute (including the arbitrability of the dispute itself) shall be settled by arbitration under the American Arbitration Associations National Rules for the Resolution of Employment Disputes (the National Rules ). A single arbitrator shall be selected in accordance with the National Rules. The dispute will be arbitrated in Dallas, Texas, absent mutual agreement of the Parties to another venue. Any claim or controversy not submitted to arbitration in accordance with this Section 9(m) (other than as provided under the Restrictive Covenants Agreement) will be waived, and thereafter no arbitrator, arbitration panel, tribunal, or court will have the power to rule or make any award on any such claim or controversy. In determining a claim or controversy under this Agreement and in making an award, the arbitrator must consider the terms and provisions of this Agreement, as well as all applicable federal, state, or local laws. The award rendered in any arbitration proceeding held under this Section 9(m) shall be final and binding and judgment upon the award may be entered in any court having jurisdiction thereof. Claims for workers compensation or unemployment compensation benefits are not covered by this Section 9(m). Also not covered by this Section 9(m) are claims by the Company or by you for temporary restraining orders, preliminary injunctions or permanent injunctions (equitable relief) in cases in which such equitable relief would be otherwise authorized by law or pursuant to the Restrictive Covenants Agreement. The Company will be responsible for paying any filing fee of the sponsoring organization and the fees and costs of the arbitrator; provided, however, that if you initiate the claim, you will contribute an amount equal to the filing fee you would have incurred to initiate a claim in the court of general jurisdiction in the State of Texas. Each party will pay for its own costs and attorneys fees, if any, provided that the arbitrator or court, as applicable, may award reasonable costs and expenses in favor of the prevailing party. The Company and you agree that the decision as to whether a party is the prevailing party in an arbitration, or a legal proceeding that is commenced in connection therewith will be made in the sole discretion of the arbitrator or, if applicable, the court.
Any action, suit or other legal proceeding with respect to equitable relief that is excluded from arbitration above must be commenced only in a court of the State of Texas (or, if appropriate, a federal court located within the State of Texas), and the Company and you each consent to the jurisdiction of such a court. With respect to any such court action, the Parties hereto (a) submit to the personal jurisdiction of such courts; (b) consent to service of process by the means specified under Section 9(a); and (c) waive any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction, inconvenient forum, or service of process.
(n) Interpretation. The parties agree that this Agreement will be construed without regard to any presumption or rule requiring construction or interpretation against the drafting party. References in this Agreement to include or including should be read as though they said without limitation or equivalent forms.
(o) Entire Agreement. This Agreement and any documents referred to herein represent the entire agreement of the Parties and will supersede any and all previous contracts, arrangements or understandings between the Company and you.
Signatures on Page Following
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed and you have hereunto set your hand to be effective as of the dates below.
|
|
HMS |
|
|
|
|
|
|
|
|
|
04/02/2014 |
|
By: |
/s/ TRACY SOUTH |
Date |
|
|
Tracy South |
|
|
|
|
|
|
|
|
|
|
Joseph Donabauer |
|
|
|
|
|
|
|
|
|
04/02/2014 |
|
/s/ JOSEPH DONABAUER |
|
Date |
|
|
Exhibit 10.50
RETENTION AGREEMENT
HMS Holdings Corporation (HMS) is currently making organizational changes to its Finance Department. Hence, HMS, and its direct and indirect subsidiaries, corporate and other affiliates, and their successors and assigns are entering into this Retention Agreement with Vice President/Controller for HMS Business Services, Inc. Joseph Donabauer (Donabauer) in light of those changes, because it is important to make that transition as smooth as possible, and to minimize any business disruption caused by the reorganization.
Accordingly, for and in consideration of those concerns, HMS agrees to pay Donabauer a gross Retention Amount of $126,175.00, as described by the following schedule:
A. One-half of the Retention Amount, or $63,087.50 if Donabauers employment continues through September 12, 2014, and HMS has not terminated Donabauers employment for cause or Donabauer has not voluntarily resigned his employment, as stipulated by Paragraph 6(c) of Donabauers Employment Agreement with HMS effective August 1, 2012.
B. The remaining balance of the Retention Amount of $126,175.00 or $63,087.50 if Donabauers employment continues through March 13, 2015 and HMS has not terminated Donabauers employment for cause or Donabauer has not voluntarily resigned his employment, as stipulated by Paragraph 6(c) of Donabauers Employment Agreement with HMS effective August 1, 2012.
HMS agrees to pay Donabauer the applicable Retention Amounts within 10 days after each qualifying dates, that is, $63,087.50 for the September 12, 2014 deadline; and the second half of the Retention Amount, $63,087.50, for the March 13, 2015 deadline.
In addition, if HMS eliminates or relocates Donabauers position as Vice President/Controller to the Dallas, Texas area and he is unable to relocate in order to continue in that position, HMS will pay Donabauer an additional 6 months of severance, on top of the 6 months of severance he would otherwise receive, thereby qualifying as a termination without cause from Paragraph 6(b)(i) of Donabauers Employment Agreement with HMS effective August 1, 2012.
This Retention Agreement does nothing to alter the terms and conditions of the Noncompetition, Nonsolicitation, Proprietary and Confidential Information and Developments Agreement the Parties executed on August 1, 2012. Moreover, this Retention Agreement is incorporated by reference into the Noncompetition, Nonsolicitation, Proprietary and Confidential Information and Developments Agreement the Parties executed on August 1, 2012, and is intended merely as a supplement thereto. The explicit purpose of this Retention Agreement is only meant to identify the conditions of Donabauers separation from HMS.
This Retention Agreement does nothing to alter the terms and conditions of HMS paying Donabauer his salary and benefits of his current employment as a Vice President/Controller of HMS throughout his tenure, or any other benefit of Donabauers employment that the Parties previously agreed to.
This Retention Agreement will be governed by and construed as a sealed instrument under and in accordance with the laws of the State of Texas without regard to conflicts of law provisions. Any action, suit or other legal proceeding that is commenced to resolve any matter arising under or relating to any provision of this Retention Agreement must be commenced only in a court of the State of Texas (or, if
appropriate, a federal court located within the State of Texas) and the Company and Donabauer each consent to the jurisdiction of such a court. With respect to any such court action, the Company and Donabauer agree to (a) submit to the personal jurisdiction of such courts; (b) consent to service of process by the means specified in Attachment A; and (c) waive any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction, inconvenient forum, or service of process. The Company and Donabauer each hereby irrevocably waives any right to a trial by jury in any action, suit or other legal proceeding arising under or relating to any other provision of this Retention Agreement.
Attachment A
Addresses for Notice
Any notice required pursuant to this Retention Agreement shall be sent via registered mail, return receipt requested, or overnight mail with delivery confirmation to the following addresses:
If to the Company: |
|
HMS, 5615 High Point Drive, Irving, Texas 75038 |
|
|
Attention, Tracy South |
|
|
|
If to You: |
|
Joseph Donabauer, 5 Stafford Terrace, Parsippany, NJ 07054 |
[ REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ]
YOU ACKNOWLEDGE THAT YOU HAVE CAREFULLY READ THIS AGREEMENT AND UNDERSTAND AND AGREE TO ALL OF THE PROVISIONS IN THIS AGREEMENT.
Witness our hands and seals
|
HMS Holdings Corporation |
|
|
|
|
|
By: |
/s/ TRACY SOUTH |
|
|
Tracy South, SVP Human Resources |
|
|
|
|
Date: |
04/28/2014 |
|
|
|
|
Joseph Donabauer |
|
|
|
|
|
/s/ JOSEPH DONABAUER |
|
|
|
|
|
Date: |
04/28/2014 |
Exhibit 31.4
Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer of HMS Holdings Corp., as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, William C. Lucia, certify that:
1. I have reviewed this Amendment No. 1 to the Annual Report on Form 10-K/A of HMS Holdings Corp.; and
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
Date: April 30, 2015
|
/s/ WILLIAM C. LUCIA |
|
William C. Lucia |
|
President and Chief Executive Officer |
|
(Principal Executive Officer) |
Exhibit 31.5
Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer of HMS Holdings Corp., as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Jeffrey S. Sherman, certify that:
1. I have reviewed this Amendment No. 1 to the Annual Report on Form 10-K/A of HMS Holdings Corp.; and,
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
Date: |
April 30, 2015 |
/s/ JEFFREY S. SHERMAN |
|
Jeffrey S. Sherman |
|
|
Executive Vice President, Chief Financial Officer |
|
|
and Treasurer |
|
|
(Principal Financial Officer) |