UNITED STATES
SECURIT IES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
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 |
|
11-3656261 |
(State or Other Jurisdiction of Incorporation or Organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
5615 High Point Drive, Irving, TX |
|
75038 |
(Address of principal executive offices) |
|
(Zip Code) |
(Registrants Telephone Number, Including Area Code)
(214) 453-3000
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 x 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 (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, 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. (Check one):
Large accelerated filer x |
|
Accelerated filer o |
|
|
|
Non-accelerated filer o |
|
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 x
As of May 6, 2015, there were approximately 88,514,512 shares of the registrants common stock (par value $0.01 per share) outstanding.
HMS HOLDINGS CORP. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2015
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. From time to time, we also provide forward-looking statements in other materials we release to the public, as well as oral forward-looking statements. Such statements give our expectations or forecasts of future events; they do not relate strictly to historical or current facts.
We have tried, wherever possible, to identify such statements by using words such as anticipate, estimate, expect, project, intend, plan, believe, will, target, seek, forecast and similar expressions and references to guidance. In particular, these include statements relating to future actions, business plans, objectives and prospects, future operating or financial performance or results of current and anticipated services, acquisitions and the performance of companies we have acquired, sales efforts, expenses, interest rates and the outcome of contingencies, such as financial results.
We cannot guarantee that any forward-looking statement will be realized. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. We caution you, therefore, against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K and Part II of this Form 10-Q, and in particular, the risks discussed under the heading Risk Factors in Part I, Item 1A of our Annual Report on Form 10-K and Part II, Item 1A of this Form 10-Q and those discussed in other documents we file with the Securities and Exchange Commission.
Any forward-looking statements made by us in this Quarterly Report on Form 10-Q speak only as of the date on which they are made. Factors or events that could cause actual results to differ may emerge from time to time and it is not possible for us to predict all of them. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. You are advised, however, to consult any further disclosures we make on related subjects in our filings with the Securities and Exchange Commission, including but not limited to our Current Reports on Form 8-K.
PART I - Financial Information
Item 1. Consolidated Financial Statements
HMS HOLDINGS CORP. AND SUBSIDIARIES
(in thousands, except share and per share amounts)
|
|
March 31, |
|
December 31, |
|
||
|
|
2015 |
|
2014 |
|
||
|
|
(unaudited) |
|
|
|
||
Assets |
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
133,546 |
|
$ |
133,116 |
|
Accounts receivable, net of allowance for doubtful accounts of $1,478 and $1,898, respectively, and estimated allowance for appeals of $5,473 and $4,824 at March 31, 2015 and December 31, 2014, respectively |
|
166,445 |
|
157,101 |
|
||
Prepaid expenses |
|
12,793 |
|
11,810 |
|
||
Prepaid income taxes |
|
4,541 |
|
5,142 |
|
||
Deferred tax assets |
|
5,021 |
|
7,811 |
|
||
Other current assets |
|
2,588 |
|
2,639 |
|
||
Total current assets |
|
324,934 |
|
317,619 |
|
||
Property and equipment, net |
|
110,438 |
|
116,027 |
|
||
Goodwill |
|
361,468 |
|
361,468 |
|
||
Intangible assets, net |
|
69,501 |
|
74,578 |
|
||
Deferred financing costs, net |
|
6,436 |
|
6,957 |
|
||
Other assets |
|
4,486 |
|
4,339 |
|
||
Total assets |
|
$ |
877,263 |
|
$ |
880,988 |
|
|
|
|
|
|
|
||
Liabilities and Stockholders Equity |
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
||
Accounts payable, accrued expenses and other liabilities |
|
$ |
42,200 |
|
$ |
54,549 |
|
Estimated liability for appeals |
|
36,986 |
|
36,799 |
|
||
Total current liabilities |
|
79,186 |
|
91,348 |
|
||
Long-term liabilities: |
|
|
|
|
|
||
Revolving credit facility |
|
197,796 |
|
197,796 |
|
||
Deferred tax liabilities |
|
48,227 |
|
50,853 |
|
||
Deferred rent |
|
5,648 |
|
5,037 |
|
||
Other liabilities |
|
2,814 |
|
2,864 |
|
||
Total long-term liabilities |
|
254,485 |
|
256,550 |
|
||
Total liabilities |
|
333,671 |
|
347,898 |
|
||
Commitments and contingencies (Note 8) |
|
|
|
|
|
||
Stockholders equity: |
|
|
|
|
|
||
Preferred stock $0.01 par value; 5,000,000 shares authorized; none issued |
|
|
|
|
|
||
Common stock $0.01 par value; 125,000,000 shares authorized; 95,031,690 shares issued and 88,505,385 shares outstanding at March 31, 2015; 94,511,444 shares issued and 87,985,139 shares outstanding at December 31, 2014 |
|
948 |
|
943 |
|
||
Capital in excess of par value |
|
320,189 |
|
313,214 |
|
||
Retained earnings |
|
267,469 |
|
263,947 |
|
||
Treasury stock, at cost: 6,526,305 shares at March 31, 2015 and at December 31, 2014 |
|
(45,014 |
) |
(45,014 |
) |
||
Total stockholders equity |
|
543,592 |
|
533,090 |
|
||
Total liabilities and stockholders equity |
|
$ |
877,263 |
|
$ |
880,988 |
|
See accompanying notes to the unaudited consolidated financial statements.
HMS HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share amounts)
(unaudited)
|
|
Three months ended |
|
||||
|
|
March 31, |
|
||||
|
|
2015 |
|
2014 |
|
||
|
|
|
|
|
|
||
Revenue |
|
$ |
110,324 |
|
$ |
104,707 |
|
|
|
|
|
|
|
||
Cost of services: |
|
|
|
|
|
||
Compensation |
|
42,726 |
|
46,921 |
|
||
Data processing |
|
10,045 |
|
9,224 |
|
||
Occupancy |
|
4,007 |
|
3,960 |
|
||
Direct project costs |
|
10,478 |
|
7,673 |
|
||
Other operating costs |
|
6,738 |
|
5,483 |
|
||
Amortization of acquisition related software and intangible assets |
|
7,047 |
|
7,160 |
|
||
Total cost of services |
|
81,041 |
|
80,421 |
|
||
|
|
|
|
|
|
||
Selling, general and administrative expenses |
|
21,302 |
|
16,489 |
|
||
Total operating expenses |
|
102,343 |
|
96,910 |
|
||
|
|
|
|
|
|
||
Operating income |
|
7,981 |
|
7,797 |
|
||
|
|
|
|
|
|
||
Interest expense |
|
(1,954 |
) |
(2,079 |
) |
||
Interest income |
|
11 |
|
24 |
|
||
Income before income taxes |
|
6,038 |
|
5,742 |
|
||
Income taxes |
|
2,516 |
|
2,389 |
|
||
|
|
|
|
|
|
||
Net income and comprehensive income |
|
$ |
3,522 |
|
$ |
3,353 |
|
|
|
|
|
|
|
||
Basic income per common share: |
|
|
|
|
|
||
Net income per common share basic |
|
$ |
0.04 |
|
$ |
0.04 |
|
|
|
|
|
|
|
||
Diluted income per common share: |
|
|
|
|
|
||
Net income per common share diluted |
|
$ |
0.04 |
|
$ |
0.04 |
|
|
|
|
|
|
|
||
Weighted average shares: |
|
|
|
|
|
||
Basic |
|
88,246 |
|
87,436 |
|
||
Diluted |
|
88,624 |
|
87,935 |
|
See accompanying notes to the unaudited consolidated financial statements
HMS HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
For the Three Months Ended March 31, 2015
(in thousands, except share amounts)
(unaudited)
|
|
Common Stock |
|
Capital in |
|
|
|
Treasury Stock |
|
Total |
|
|||||||||
|
|
# of Shares
|
|
Par Value |
|
Excess of Par
|
|
Retained
|
|
# of
|
|
Amount |
|
Stockholders
|
|
|||||
Balance at December 31, 2014 |
|
94,511,444 |
|
$ |
943 |
|
$ |
313,214 |
|
$ |
263,947 |
|
6,526,305 |
|
$ |
(45,014 |
) |
$ |
533,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income and comprehensive income |
|
|
|
|
|
|
|
3,522 |
|
|
|
|
|
3,522 |
|
|||||
Stock-based compensation expense |
|
|
|
|
|
3,245 |
|
|
|
|
|
|
|
3,245 |
|
|||||
Exercise of stock options |
|
442,585 |
|
4 |
|
3,269 |
|
|
|
|
|
|
|
3,273 |
|
|||||
Vesting of restricted stock awards and units, net of shares withheld for employee tax |
|
77,661 |
|
1 |
|
(597 |
) |
|
|
|
|
|
|
(596 |
) |
|||||
Excess tax benefit from exercise of stock options |
|
|
|
|
|
1,448 |
|
|
|
|
|
|
|
1,448 |
|
|||||
Shortfall due to exercise of stock options and vesting of restricted stock units |
|
|
|
|
|
(310 |
) |
|
|
|
|
|
|
(310 |
) |
|||||
Deferred tax asset reversal for unexercised stock options |
|
|
|
|
|
(80 |
) |
|
|
|
|
|
|
(80 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance at March 31, 2015 |
|
95,031,690 |
|
$ |
948 |
|
$ |
320,189 |
|
$ |
267,469 |
|
6,526,305 |
|
$ |
(45,014 |
) |
$ |
543,592 |
|
See accompanying notes to the unaudited consolidated financial statements.
HMS HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
Three months ended
|
|
||||
|
|
2015 |
|
2014 |
|
||
Operating activities: |
|
|
|
|
|
||
Net income and comprehensive income |
|
$ |
3,522 |
|
$ |
3,353 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
||
Depreciation and amortization of property and equipment |
|
8,163 |
|
8,003 |
|
||
Amortization of intangible assets |
|
5,077 |
|
5,147 |
|
||
Amortization of deferred financing costs |
|
521 |
|
521 |
|
||
Stock-based compensation expense |
|
3,245 |
|
2,940 |
|
||
Excess tax benefit from exercised stock options |
|
(1,448 |
) |
(854 |
) |
||
Deferred income taxes |
|
(226 |
) |
(967 |
) |
||
Allowance for doubtful accounts and bad debt write-offs |
|
229 |
|
(4,159 |
) |
||
Loss on disposal of fixed assets |
|
10 |
|
|
|
||
Change in fair value of contingent consideration |
|
|
|
6 |
|
||
Changes in operating assets and liabilities: |
|
|
|
|
|
||
Accounts receivable |
|
(10,205 |
) |
(490 |
) |
||
Prepaid expenses |
|
(983 |
) |
1,292 |
|
||
Prepaid income taxes |
|
2,049 |
|
2,829 |
|
||
Other current assets |
|
51 |
|
(42 |
) |
||
Other assets |
|
(147 |
) |
(125 |
) |
||
Accounts payable, accrued expenses and other liabilities |
|
(10,772 |
) |
(3,057 |
) |
||
Estimated liability for appeals |
|
819 |
|
6,927 |
|
||
Net cash provided by (used in) operating activities |
|
(95 |
) |
21,324 |
|
||
Investing activities: |
|
|
|
|
|
||
Purchases of land, property and equipment |
|
(2,513 |
) |
(4,208 |
) |
||
Investment in capitalized software |
|
(721 |
) |
(649 |
) |
||
Net cash used in investing activities |
|
(3,234 |
) |
(4,857 |
) |
||
Financing activities: |
|
|
|
|
|
||
Repayment of revolving credit facility |
|
|
|
(35,000 |
) |
||
Proceeds from exercise of stock options |
|
3,273 |
|
2,532 |
|
||
Excess tax benefit from exercised stock options |
|
1,448 |
|
854 |
|
||
Payments of tax withholdings on behalf of employees for net-share settlement for restricted stock awards and units |
|
(596 |
) |
(1,088 |
) |
||
Payments on capital lease obligations |
|
(366 |
) |
(413 |
) |
||
Payments on contingent consideration |
|
|
|
(428 |
) |
||
Net cash provided by (used in) financing activities |
|
3,759 |
|
(33,543 |
) |
||
Net increase (decrease) in cash and cash equivalents |
|
430 |
|
(17,076 |
) |
||
Cash and cash equivalents at beginning of period |
|
133,116 |
|
93,366 |
|
||
Cash and cash equivalents at end of period |
|
$ |
133,546 |
|
$ |
76,290 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
||
Cash paid for income taxes |
|
$ |
656 |
|
$ |
419 |
|
Cash paid for interest |
|
$ |
2,826 |
|
$ |
1,188 |
|
Supplemental disclosure of noncash activities: |
|
|
|
|
|
||
Accrued property and equipment purchases |
|
$ |
959 |
|
$ |
584 |
|
Decrease in appeals liability for lost appeals offset with a reduction in accounts receivable |
|
$ |
632 |
|
$ |
13,772 |
|
See accompanying notes to the unaudited consolidated financial statements.
HMS HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2015 and 2014
(unaudited)
1. Basis of Presentation
The accompanying unaudited Consolidated Financial Statements of HMS Holdings Corp., its subsidiaries and its affiliates (we, our and us) have been prepared in accordance with United States Generally Accepted Accounting Principles (U.S. GAAP), for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments necessary for a fair presentation of our financial position at March 31, 2015, the results of our operations for the three months ended March 31, 2015 and 2014 and cash flows for the three months ended March 31, 2015 and 2014. Interim unaudited financial statements are prepared on a basis consistent with our annual financial statements. The financial statements included herein should be read in conjunction with the financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2014, which we refer to as our Annual Report. There have been no significant changes to our critical accounting policies since December 31, 2014.
The preparation of our unaudited consolidated financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, primarily accounts receivable, intangible assets, accrued expenses, estimated allowance for appeals and estimated liability for appeals, the disclosure of contingent liabilities at the date of the unaudited consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Our actual results could differ from those estimates.
These unaudited consolidated financial statements include our accounts and transactions and those of our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Certain reclassifications were made to prior period amounts to conform to the current period presentation.
2. Summary of Significant Accounting Policies
As of March 31, 2015, we have accrued an estimated liability for appeals and estimated allowance for appeals based on our historical experience with this activity under our customers contracts. Any future changes to any of our customer contracts, including further modifications to the transition plan for incumbent Medicare recovery audit contractors, may require us to apply different assumptions that could affect our estimated liability for future periods. We similarly accrue an allowance against accounts receivable related to fees yet to be collected, based on the same estimates used to establish the estimated liability for appeals of fees received. Our inability or failure to correctly estimate or accrue the estimated liabilities and allowance for appeals or accounts receivable could adversely affect our revenue in current or future periods.
Estimated liability for appeals and estimated allowance for appeals as of March 31, 2015 are as follows ( in thousands ):
Balance, December 31, 2013 |
|
$ |
55,791 |
|
Provision |
|
16,822 |
|
|
Appeals found in providers favor (1) |
|
(30,990 |
) |
|
Balance, December 31, 2014 |
|
41,623 |
(2) |
|
Provision |
|
2,321 |
|
|
Appeals found in providers favor (1) |
|
(1,485 |
) |
|
Balance, March 31, 2015 |
|
$ |
42,459 |
(2) |
(1) Includes appeals, closures or other adjustments.
(2) Includes $5,473 and $4,824 related to estimated allowance for appeals that apply to uncollected accounts receivable as of March 31, 2015 and December 31, 2014, respectively.
In the first quarter of 2015, within our estimated allowance for appeals found in favor of providers, $0.4 million was activity associated with our Medicare Recovery Audit Contractor (RAC) contract with the Centers for Medicare & Medicaid Services (CMS) resulting in an accounts receivable charge-off with CMS. In the first quarter of 2014, our estimated allowance for appeals found in favor of providers was $16.7 million, of which, $13.5 million was activity associated with our Medicare RAC contract resulting in an accounts receivable charge-off with CMS.
Allowance for doubtful accounts as of March 31, 2015 is as follows ( in thousands ):
Balance, December 31, 2013 |
|
$ |
916 |
|
Provision |
|
6,085 |
|
|
Recoveries |
|
(17 |
) |
|
Charge-offs |
|
(5,086 |
) |
|
Balance, December 31, 2014 |
|
1,898 |
|
|
Charge-offs and other |
|
(420 |
) |
|
Balance, March 31, 2015 |
|
$ |
1,478 |
|
Our financial instruments are categorized into a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument. In the event the fair value is not readily available or determinable, the financial instrument is carried at cost and referred to as a cost method investment. The evaluation of whether an investments fair value is less than cost is determined by using a disclosed fair value estimate, if one is available, otherwise, it is determined by evaluating whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of the investment (an impairment indicator). We are not aware of any identified events or change in circumstances that would have a significant adverse effect on the carrying value of our cost method investments. Financial instruments recorded at fair value on our unaudited consolidated balance sheets are categorized as follows:
· Level 1: Observable inputs such as quoted prices in active markets;
· Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
· Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
Goodwill, representing the excess of acquisition costs over the fair value of assets and liabilities of acquired businesses, is subject to a periodic assessment for impairment in accordance with Accounting Standards Codification (ASC) 350Intangibles, Goodwill and Other. We assess goodwill for impairment on an annual basis as of June 30 of each year or more frequently if an event occurs or changes in circumstances would more likely than not reduce the fair value of a reporting unit below its carrying amount. Our assessment of goodwill impairment is at the HMS Holdings Corp. entity level as we operate as a single reporting unit.
We have the option to perform a qualitative assessment to determine if impairment is more likely than not to have occurred. If we can support the conclusion that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then we would not need to perform the two-step impairment test for that reporting unit. If we cannot support such a conclusion, or we do not elect to perform the qualitative assessment, then the first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill.
There are no impairment charges related to goodwill for any of the periods presented.
The carrying amounts for our cash equivalents, accounts receivable, accounts payable, accrued expenses and revolving credit facility approximate fair value.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) that amends the FASB ASC by creating a new Topic 606, Revenue from Contracts with Customers . The new guidance will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance on revenue recognition throughout the Industry Topics of the Codification.
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
In addition, an entity should disclose sufficient qualitative and quantitative information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2016, including interim periods within such annual reporting periods. Early adoption is not permitted. This amendment is to be either retrospectively adopted to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this ASU recognized at the date of initial application. We are currently evaluating the impact of the adoption of this guidance to our consolidated financial statements.
In June 2014, FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (ASU 2014-12). ASU 2014-12 brings consistency to the accounting for share-based payment awards that require a specific performance target to be achieved in order for employees to become eligible to vest in the awards. Effective January 1, 2015, we adopted the provisions of ASU 2014-12. The adoption of this guidance did not have a material effect on our consolidated financial statements.
In April 2015, FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03). ASU 2015-03 simplifies the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by ASU 2015-03. ASU 2015-03 is effective for annual reporting periods beginning after December 15, 2015, including interim periods within such annual reporting periods with early adoption permitted. ASU 2015-03 is to be retrospectively adopted to each prior reporting period presented. We do not expect the adoption of this guidance to have a material effect on our consolidated financial statements.
3. Intangible Assets
Intangible assets consisted of the following at March 31, 2015 and December 31, 2014 ( in thousands ):
|
|
Gross Value |
|
Accumulated
|
|
Net Book
|
|
Useful
|
|
|||
March 31, 2015 |
|
|
|
|
|
|
|
|
|
|||
Customer relationships |
|
$ |
102,755 |
|
$ |
(47,568 |
) |
$ |
55,187 |
|
5-10 years |
|
Restrictive covenants |
|
18,000 |
|
(12,309 |
) |
5,691 |
|
3-7 years |
|
|||
Trade name |
|
17,000 |
|
(8,377 |
) |
8,623 |
|
3-5 years |
|
|||
|
|
$ |
137,755 |
|
$ |
(68,254 |
) |
$ |
69,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
December 31, 2014 |
|
|
|
|
|
|
|
|
|
|||
Customer relationships |
|
$ |
102,755 |
|
$ |
(44,020 |
) |
$ |
58,735 |
|
5-10 years |
|
Restrictive covenants |
|
18,000 |
|
(11,394 |
) |
6,606 |
|
3-7 years |
|
|||
Trade name |
|
17,000 |
|
(7,763 |
) |
9,237 |
|
3-5 years |
|
|||
|
|
$ |
137,755 |
|
$ |
(63,177 |
) |
$ |
74,578 |
|
|
|
Estimated amortization expense for intangible assets is expected to approximate the following ( in thousands ):
Year Ending December 31, |
|
|
|
|
Remainder of 2015 |
|
$ |
15,193 |
|
2016 |
|
19,933 |
|
|
2017 |
|
16,613 |
|
|
2018 |
|
15,993 |
|
|
2019 |
|
1,582 |
|
|
Thereafter |
|
187 |
|
|
For the three months ended March 31, 2015 and 2014, amortization expense related to intangible assets was $5.1 million and $5.2 million, respectively.
4. Income Taxes
Our effective tax rate increased to 41.7% for the three months ended March 31, 2015 from41.6% for the three months ended March 31, 2014, primarily due to changes in state apportionments and permanent differences. The principal differences between the statutory rate and our effective rate are state taxes and permanent differences.
During the three months ended March 31, 2015, we utilized $3.9 million in tax deductions arising from stock-based compensation, which resulted in an excess tax benefit of $1.4 million that was recorded to capital in excess of par value and an offsetting reduction to taxes payable.
As of March 31, 2015 and 2014, the total amount of unrecognized tax benefits was approximately $1.4 million and $1.5 million, respectively (net of the federal benefit for state issues) that, if recognized, would favorably affect our future effective tax rate. As of March 31, 2015 and 2014, the accrued liability for interest expense and penalties related to unrecognized tax benefits was $0.3 million and $0.2 million, respectively. We include interest expense and penalties in the provision for income taxes in the unaudited Consolidated Statements of Comprehensive Income. The amount of interest expense (net of federal and state income tax benefits) and penalties in the unaudited Consolidated Statements of Comprehensive Income for the three months ended March 31, 2015 and 2014 was immaterial. We do not expect any significant change in unrecognized tax benefits during the next twelve months.
We file income tax returns with the U.S. Federal government and various state jurisdictions. We are no longer subject to U.S. Federal income tax examinations for years before 2011. We operate in a number of state and local jurisdictions, most of which have never audited our records. Accordingly, we are subject to state and local income tax examinations based upon the various statutes of limitations in each jurisdiction. We are currently being examined by the State of New York.
5. Credit Agreement
In May 2013, we entered into a $500 million five-year, amended and restated revolving credit agreement (2013 Credit Agreement) with certain financial institutions and Citibank, N.A. as Administrative Agent. No principal payments were made against our revolving credit facility during the three months ended March 31, 2015. During the three months ended March 31, 2014, we made principal payments of $35.0 million. The $197.8 million principal balance of our revolving credit facility is due in May 2018.
The 2013 Credit Agreement provides for an initial $500 million revolving credit facility, and, under specified circumstances, the revolving credit facility can be increased or one or more incremental term loan facilities can be added, provided that the incremental credit facilities do not exceed in the aggregate the sum of (a) $75 million plus (b) an additional amount not less than $25 million, so long as our total secured leverage ratio, calculated giving pro forma effect to the requested incremental borrowing and other customary and appropriate pro forma adjustment events, including any permitted acquisitions, is no greater than 2.5:1.0. The amount available to borrow is based on certain borrowing base calculations found in our 2013 Credit Agreement. The 2013 Credit Agreement is collateralized by our assets.
The 2013 Credit Agreement contains certain customary representations and warranties, affirmative and negative covenants, and events of default. The 2013 Credit Agreement requires us to comply, on a quarterly basis, with certain principal financial covenants, including a maximum consolidated leverage ratio reducing from 3.50:1.00 to 3.25:1.00 over the next five years and a minimum interest coverage ratio of 3.00:1.00. As of March 31, 2015, we were in compliance with all of the terms of the 2013 Credit Agreement.
The interest rates applicable to the revolving credit facility are, at our option, either (a) the LIBOR multiplied by the statutory reserve rate plus an interest margin ranging from 1.50% to 2.25% based on our consolidated leverage ratio, or (b) a base rate (which is equal to the greatest of (a) Citibanks prime rate, (b) the federal funds effective rate plus 0.50% and (c) the one-month LIBOR plus 1.00% plus an interest margin ranging from 0.50% to 1.25% based on our consolidated leverage ratio). The applicable interest rate was 2.26% at March 31, 2015. We pay an unused commitment fee on the revolving credit facility during the term of the 2013 Credit Agreement ranging from 0.375% to 0.50% per annum based on our consolidated leverage ratio.
Our obligations under the 2013 Credit Agreement may be accelerated upon the occurrence of an event of default, which includes customary events of default including, without limitation, payment defaults, failures to perform affirmative covenants, failure to refrain from actions or omissions prohibited by negative covenants, the inaccuracy of representations or warranties, cross-defaults, bankruptcy and insolvency related defaults, defaults relating to judgments, defaults due to certain ERISA related events and a change of control default.
The interest expense and the commitment fees on the unused portion of our revolving credit facility are as follows ( in thousands ):
|
|
|
|||||
|
|
2015 |
|
2014 |
|
||
Interest expense |
|
$ |
1,027 |
|
$ |
1,164 |
|
Commitment fees |
|
$ |
372 |
|
$ |
328 |
|
At March 31, 2015 and December 31, 2014, the unamortized balance of deferred origination fees and debt issue costs were $6.4 million and $6.9 million, respectively. For the three months ended March 31, 2015 and 2014, we amortized $0.5 million and $0.5 million, respectively, of interest expense related to our deferred origination fees and debt issue costs.
Although we expect that operating cash flows will continue to be a primary source of liquidity for our operating needs, the revolving credit facility may be used for general corporate purposes, including acquisitions, available for future cash flow needs, if necessary.
As part of our contractual agreement with a customer, we have an outstanding irrevocable letter of credit or Letter of Credit for $4.6 million, which we established against the revolving credit facility.
6. Earnings Per Share
Basic income per share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted income per share is calculated by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding during the period. Our dilutive common share equivalents consist of stock options and restricted stock awards and units.
The following table reconciles the basic to diluted weighted average common shares outstanding using the treasury stock method ( in thousands, except per share data ):
Basic and diluted
|
|
Three months ended
|
|
||||
|
|
2015 |
|
2014 |
|
||
Net income |
|
$ |
3,522 |
|
$ |
3,353 |
|
|
|
|
|
|
|
||
Weighted average common shares outstanding basic |
|
88,246 |
|
87,436 |
|
||
Plus: net effect of dilutive stock options |
|
181 |
|
336 |
|
||
Plus: net effect of dilutive restricted stock awards and units |
|
197 |
|
163 |
|
||
Weighted average common shares outstanding diluted |
|
88,624 |
|
87,935 |
|
||
Income per common share basic |
|
$ |
0.04 |
|
$ |
0.04 |
|
Income per common share diluted |
|
$ |
0.04 |
|
$ |
0.04 |
|
For the three months ended March 31, 2015 and 2014, 2,940,897 and 1,434,314 stock options, respectively, were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive. For the three months ended
March 31, 2015 and 2014, 71,192 and 25,541 restricted stock units, respectively, were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive.
7. Stock-Based Compensation
Total stock-based compensation expense charged as a selling, general and administrative expense in our unaudited Consolidated Statements of Comprehensive Income related to our stock compensation plans was $3.2 million and $2.9 million for the three months ended March 31, 2015 and March 31, 2014, respectively.
Stock Options
Presented below is a summary of our stock option activity for the three months ended March 31, 2015 ( in thousands, except for weighted average exercise price and weighted average remaining contractual terms ):
|
|
Shares |
|
Weighted
|
|
Weighted
|
|
Aggregate
|
|
||
|
|
|
|
|
|
|
|
|
|
||
Outstanding at December 31, 2014 |
|
4,101 |
|
$ |
18.72 |
|
|
|
|
|
|
Granted |
|
1,088 |
|
16.77 |
|
|
|
|
|
||
Exercised |
|
(443 |
) |
7.40 |
|
|
|
|
|
||
Forfeited |
|
(295 |
) |
23.03 |
|
|
|
|
|
||
Expired |
|
(25 |
) |
24.48 |
|
|
|
|
|
||
Outstanding at March 31, 2015 |
|
4,426 |
|
19.06 |
|
5.12 |
|
$ |
5,959 |
|
|
Expected to vest at March 31, 2015 |
|
2,499 |
|
19.78 |
|
6.36 |
|
4 |
|
||
Exercisable at March 31, 2015 |
|
1,871 |
|
$ |
18.06 |
|
3.42 |
|
$ |
5,955 |
|
For awards subject to service-based vesting conditions, we recognize stock-based compensation expense, net of estimated forfeitures, equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting term. For awards subject to both performance and service-based vesting conditions, we recognize stock-based compensation expense using the straight-line recognition method when it is probable that the performance condition will be achieved. Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
The fair value of each option grant with service-based vesting conditions was estimated using the Black-Scholes pricing models. The performance share awards granted in 2014 and 2015 are market condition awards as attainment is based on the performance of our common stock for the relevant performance period. These awards were valued on the date of grant using a Monte Carlo simulation model.
Expected volatilities are calculated based on the historical volatility of our common stock. Management monitors stock option exercises and employee termination patterns to estimate forfeiture rates within the valuation model. Separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected holding period of options represents the period of time that options granted are expected to be outstanding. The expected terms of options granted are based on our historical experience for similar types of stock option awards. The risk-free interest rate is based on U.S. Treasury Notes.
The weighted average grant-date fair value per share of the stock options granted during the three months ended March 31, 2015 and 2014 was $5.89 and $6.88, respectively. We estimated the fair value of each stock option grant on the date of grant using a Black-Scholes option-pricing model and the weighted-average assumptions set forth in the following table:
|
|
Three months ended
|
|
||
|
|
2015 |
|
2014 |
|
Expected dividend yield |
|
|
|
|
|
Risk-free interest rate |
|
1.44% |
|
1.65% |
|
Expected volatility |
|
38.29% |
|
37.08% |
|
Expected life |
|
4.88 years |
|
4.81 years |
|
During the three months ended March 31, 2015 and 2014, we issued 0.4 million shares and 0.3 million shares, respectively, of our common stock upon the exercise of outstanding stock options and received proceeds of $3.3 million and $2.5 million, respectively.
For the three months ended March 31, 2015 and 2014, stock-based compensation expense for stock options was $1.4 million and approximately $1.9 million, respectively.
We recognized excess income tax benefit of approximately $1.4 million and $0.9 million from the exercise of stock options in our unaudited Consolidated Statements of Comprehensive Income for the three months ended March 31, 2015 and 2014, respectively.
The total intrinsic value of options exercised (the difference in the market price of our common stock on the exercise date and the price paid by the optionees to exercise the options) for the three months ended March 31, 2015 and 2014 was approximately $5.4 million and $3.0 million, respectively.
As of March 31, 2015, there was approximately $14.5 million of total unrecognized compensation cost, adjusted for estimated forfeitures, related to stock options outstanding, which is expected to be recognized over a weighted-average period of 1.58 years.
Restricted Stock Units
Our non-employee members of our Board of Directors and certain employees have received restricted stock units under the Fourth Amended and Restated 2006 Stock Plan (the 2006 Stock Plan). The fair value of restricted stock units is estimated based on the closing sale price of our common stock on the NASDAQ Global Select Market on the date of issuance. The total number of restricted stock units expected to vest is adjusted by estimated forfeiture rates. Shares withheld to pay taxes upon the vesting of restricted stock units are retired.
For the three months ended March 31, 2015, we granted 589,497 restricted stock units with an aggregate fair market value of $9.9 million.
For the three months ended March 31, 2015 and 2014, stock-based compensation expense for restricted stock units was $1.8 million and $1.0 million, respectively.
At March 31, 2015, 1.3 million restricted stock units remained unvested and there was approximately $20.8 million of unamortized compensation cost related to these restricted stock units, which is expected to be recognized over the remaining weighted-average vesting period of 1.74 years.
A summary of the status of our restricted stock units and of changes in restricted stock units outstanding under the 2006 Stock Plan for the three months ended March 31, 2015 is as follows ( in thousands, except for weighted average grant date fair value per unit ):
|
|
Number
|
|
Weighted
|
|
|
Outstanding balance at December 31, 2014 |
|
910 |
|
$ |
22.84 |
|
Granted |
|
589 |
|
16.76 |
|
|
Vesting of restricted stock units, net of shares withheld for taxes |
|
(88 |
) |
24.03 |
|
|
Shares withheld for taxes |
|
(35 |
) |
24.03 |
|
|
Forfeitures |
|
(83 |
) |
24.96 |
|
|
Outstanding balance at March 31, 2015 |
|
1,293 |
|
$ |
19.82 |
|
Restricted Stock Awards
We did not issue restricted stock awards during the three months ended March 31, 2015. There was no stock-based compensation expense related to previously granted stock awards for the three months ended March 31, 2015. Stock-based compensation expense related to previously granted restricted stock units was $0.1 million for the three months ended March 31, 2014.
8. Commitments and Contingencies
Legal Proceedings
From time to time, we may be subject to investigations, legal proceedings and other disputes arising in the ordinary course of our business, including but not limited to regulatory audits, billing and contractual disputes and employment-related matters. We record accruals for outstanding legal matters when we believe it is probable that a loss will be incurred and the amount can be reasonably estimated. We evaluate, on a quarterly basis, developments in legal matters that could affect the amount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. If a loss contingency is not both probable and estimable, we do not establish an accrued liability. None of our accruals for outstanding legal matters are material in the aggregate to our financial position.
Our contractual relationships, including those with federal and state government entities, subject our operations, billing and business practices to scrutiny and audit, including by multiple agencies and levels of government, as well as to frequent transitions and changes in the personnel responsible for oversight of our contractual performance. From time to time, we may have contractual disputes with our customers arising from differing interpretations of contractual provisions that define our rights, obligations, scope of work or terms of payment, and with associated claims of liability for inaccurate or improper billing for reimbursement of contract fees, or for sanctions or damages for alleged performance deficiencies. Resolution of such disputes may involve litigation or may require that we accept some amount of loss or liability in order to avoid customer abrasion, negative marketplace perceptions and other disadvantageous results that could adversely affect our business, financial condition, results of operations and cash flows.
Kern Health Systems : In August 2011, in the Superior Court of the State of California, County of Los Angeles, Kern Health Systems (KHS or Plaintiff) sought to recover in excess of $7.0 million exclusive of interest, attorney fees and costs, against Allied Management Group Special Investigation Unit, Inc. (AMG), Dennis Demetre, and Lori Lewis (collectively, Defendants), jointly and severally, on causes of action for breach of contract, professional negligence, intentional misrepresentation, negligent misrepresentation and unfair business practices under the California Business and Professions Code. On June 9, 2014, the jury issued its verdict in favor of all Defendants, and against KHS, on all causes of action except negligent misrepresentation. On that cause of action, the jury issued a verdict against all Defendants, jointly and severally, in the sum of $1.38 million. The negligent misrepresentation verdict was based on representations to KHS allegedly made by AMG and former owner Dennis Demetre in the spring of 2008, prior to our acquisition of AMG. We believe that the jury erroneously awarded damages based on an error inasmuch as the jury unanimously found that Defendants (through Demetre) made the negligent misrepresentation to KHS while having reasonable grounds for believing the representation to be true. Based on the jurys verdict, we believe we are properly characterized as the prevailing party on the breach of contract claim. AMG has filed an appeal of the verdict and is seeking to recover its attorney fees and costs in the sum of approximately $2.3 million. We have not recorded an obligation on this matter at this time, as we have appealed this decision and believe it is probable that we will prevail on the appeal of this matter, although there are risks and uncertainties related to any litigation, including appeals, and neither we nor our counsel can assure litigation results. Pending the appeal process, we were required to obtain a surety bond in the amount of 150% of the final judgment amount, or approximately $2.2 million, which was collateralized by a cash deposit and is reflected in Other current
assets on our unaudited Consolidated Balance Sheet at March 31, 2015.
Dennis Demetre and Lori Lewis : In July 2012, two of AMGs former owners, Dennis Demetre and Lori Lewis, filed an action in the Supreme Court of the State of New York, claiming an undetermined amount of damages alleging that various actions unlawfully deprived Demetre and Lewis of the acquisition earn-out portion of the purchase price of AMG under the applicable Stock Purchase Agreement (the SPA) and that we had breached certain contractual provisions under the SPA. Demetre and Lewis filed a second amended complaint with two causes of action for breach of contract. We filed a counter claim for breach of contract arising out of Demetres and Lewiss failure to indemnify us for costs, including attorney fees arising out of our defense of the KHS action described above and for fraud arising out of Demetres and Lewiss misrepresentations concerning capabilities of their software platform. This case continues in the discovery phase. We believe we have a meritorious defense and will continue to defend this matter vigorously, although there are risks and uncertainties related to any litigation.
Restrictive Covenants and Trade Secret Actions in Texas and New York : We are the plaintiff in lawsuits filed in August 2014, entitled HMS Holdings Corp., et al. v. Public Consulting Group, Inc., James Gambino, and Jason Ramos, in the District Court of Dallas County, Texas, Cause No. DC-14-09047 (the Texas Action), and HMS Holdings Corp., et al. v. Matthew Arendt, Sean Curtin, and Danielle Lange, in the New York State Supreme Court, Albany County, Index No. A00754/2014 (the New York Action). These suits allege that, in the violation of their respective contractual, statutory and common law obligations to us, defendant Public Consulting Group, Inc. and defendants former HMS employees Gambino, Ramos, Arendt, Curtin and Lange unlawfully misappropriated our confidential, proprietary and trade secret information, as well as our employee and customer relationships. The lawsuits seek damages and injunctive relief and assert causes of action including breach of contract, breach of fiduciary duty and misappropriation of trade secrets. At the Texas Courts direction, an agreed temporary restraining order was entered, under which, among other things, the defendants are prohibited from using our confidential information, and must return any of our information. There can be no assurances that this will be adequate to protect our confidential or trade secret information. Both the Texas and New York Actions are currently in the discovery phase. Additionally, we have sought injunctions in both the Texas and New York Actions. The defendants have claimed, among other things, that we are not entitled to such injunctive relief, and that certain information which we believe to be confidential and/or trade secret information is not entitled to protection. A decision on that issue has not yet been issued by either court. Additionally, we, through discovery in the lawsuits and forensic investigation, have uncovered what we believe to be the wrongful destruction of evidence by one or more defendants and have sought judicial relief. To date, this issue has not been decided. The Texas Court has set an initial trial date for March 2016.
9. Subsequent Events
In connection with the preparation of these unaudited Consolidated Financial Statements, an evaluation of subsequent events was performed through the date these unaudited Consolidated Financial Statements were issued and there are no other events that have occurred that would require adjustments to or disclosure in our unaudited Consolidated Financial Statements.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
We begin Managements Discussion and Analysis of Financial Condition and Results of Operations with a business overview discussion. We then present the critical accounting policies that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results followed by a discussion of our results of operations. We provide an analysis of our liquidity and capital resources, including discussions of our sources of capital, cash flows and financial commitments, and present the effects of recent accounting pronouncements.
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the other sections of this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the Securities and Exchange Commission (SEC). In addition to historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in Part II, Item 1A. Risk Factors and in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the SEC.
Business Overview
We operate in the U.S. healthcare insurance benefit cost containment marketplace. We provide coordination of benefits services to government and private healthcare payers and sponsors to ensure that the responsible party pays healthcare claims. Our payment integrity services ensure that healthcare claims billed are accurate and appropriate. Together, these various services help customers recover amounts from liable third parties; prevent future improper payments; reduce fraud, waste and abuse; and ensure regulatory compliance.
Our customers are government health agencies, including CMS, and commercial health plans, government and private employers, child support agencies, and other healthcare payers and sponsors.
As of March 31, 2015, we served CMS, the Veterans Health Administration (VHA), 45 state Medicaid programs and the District of Columbia. We also provided services to approximately 230 commercial customers and supported their multiple lines of business; including Medicaid managed care, Medicare Advantage, and group and individual health. We also served as a subcontractor for certain business outsourcing and technology firms.
We have grown both organically and through targeted acquisitions. Initially, we provided coordination of benefits services to state Medicaid agencies. When Medicaid began to delegate members to managed care organizations, we began providing similar coordination of benefits services to those plans. We launched our payment integrity services in 2007 and have since acquired several businesses to expand our service offerings. In 2009, we began providing cost containment services for Medicare with our acquisition of IntegriGuard, LLC, which is now doing business as our wholly owned subsidiary HMS Federal, providing fraud, waste and abuse analytical services to the Medicare program, VHA and the Department of Defense. In 2009 and 2010, we began providing cost containment services to large self-funded employers through our acquisitions of Verify Solutions, Inc. and Chapman Kelly, Inc. In 2011, we expanded our payment integrity services among federal, state and commercial payers with our acquisition of HealthDataInsights, Inc. (HDI). HDI provides improper payment identification services for government and commercial health plans, and is the Medicare RAC in CMS Region D, covering 17 states and three U.S. territories. In December 2012, we extended our workers compensation recovery services to commercial health plans through our asset purchase of MedRecovery Management, LLC (MRM).
Healthcare Environment
In March 2010, the Patient Protection and Affordable Care Act (ACA) was signed into law and in June 2012, the U.S. Supreme Court upheld the constitutionality of the ACA, ruling that the federal government could not condition continued receipt of a states existing Medicaid funding on its agreement to implement Medicaid expansion. As of March 2015, 29 states and the District of Columbia have committed to expanding their Medicaid programs and/or have begun to implement Medicaid expansion. Based on CMS National Health Expenditure (NHE) Projections for 2013-2023, in 2015, Medicare programs will cover approximately 54 million people and Medicaid/CHIP programs will cover approximately 76 million people.
As enrollment in these government healthcare programs continues to grow, there is increased pressure on states to contain the growth of state and federal Medicaid spending and to provide more access to healthcare for low-income individuals. According to the CMS NHE Projections for 2013-2023, Medicare programs are projected to spend approximately $633 billion in 2015, an increase of $17 billion compared to the amount spent in 2014. In 2015, Medicaid/CHIP programs are projected to spend
approximately $556 billion, an increase of $35 billion compared to the amount spent in 2014. In response to the budgetary pressure facing the states and the rising cost of care and the number of beneficiaries, the use of managed care arrangements in Medicaid continues to grow. In addition, states are expanding the use of managed care organizations to new regions within the state or are using managed care arrangements to serve beneficiaries with more complex conditions. Of the 30 Medicaid programs that are expanding under the ACA, all but three currently contract in some form with comprehensive managed care organizations to administer benefits to their Medicaid members.
Another result of the ACA is the increasing complexity in determining eligibility, as well as the shifting of members from Medicaid government premium subsidies through the health insurance exchange marketplaces and potentially back to Medicaid due to changes in income.
Customers
On April 30, 2015, we entered into a contract extension with our largest customer, the New Jersey Department of Human Services, to extend our relationship for an additional three months through July 31, 2015. We will continue to provide services to this customer under the same terms and conditions as the original contract, which expired on April 30, 2015. We are currently in the process of reprocuring this contract. Our failure to reprocure this contract would have a material adverse effect on our financial condition, results of operations and cash flows.
Our Medicare RAC contract with CMS is through our wholly-owned subsidiary HDI. This contract, after a series of contract modifications, will expire on December 31, 2015 and requires us to assist CMS with the appeals process through April 30, 2017. In February 2013, CMS began the reprocurement process for the Medicare RAC Program contracts. Following the denial of protests with respect to the initial Request for Quote (RFQ) and issuance of new RFQs for CMS Regions 1, 2 and 4, HDI and one of HDIs prospective competitors protested certain terms of the new RFQs, which protests were denied by the Government Accountability Office (GAO) in April 2014. HDIs prospective competitor subsequently filed a lawsuit at the U.S. Court of Federal Claims challenging the terms of the solicitations for CMS Regions 1, 2 and 4 and seeking an injunction against CMS. In August 2014, the U.S. Court of Federal Claims entered judgment in favor of the GAO and HDIs prospective competitor appealed to the U.S. Court of Appeals for the Federal Circuit. In September 2014, the U.S. Court of Federal Claims granted a stay that prohibited CMS from awarding contracts for CMS Regions 1, 2 and 4 pending the outcome of the appeal. On March 10, 2015, the U.S. Court of Appeals for the Federal Circuit issued a decision in favor of HDIs prospective competitor and remanded the matter back to the lower court for further proceedings consistent with the decision. The timing of the new Medicare RAC contract awards remains uncertain.
In connection with the Medicare RAC contract, in August 2014, CMS announced it would settle with hospitals willing to withdraw inpatient status claims currently pending in the appeals process by offering to pay hospitals 68% for all eligible claims that they have billed to Medicare. Although we accrue an estimated liability for appeals based on the amount of fees that are subject to appeals, closures or other adjustments, which we estimate are probable of being returned to providers following a successful appeal, and we similarly accrue an allowance against accounts receivables related to fees yet to be collected, the impact of CMS settlement offer to hospitals remains uncertain and our financial condition and results of operations could be adversely affected if we are required to return certain fees we have already been paid under HDIs existing Medicare RAC contract or we are unable to collect fees for audits we have already performed. We have been engaged in ongoing communications with CMS regarding the potential impact of the hospital settlement on fees that we have been, or are due to be paid and our respective positions with respect to the resolution of the matter, which remains uncertain at this time. There could be a material negative impact on our revenue if under the current Medicare RAC contract, HDI is unable to obtain full payments for properly provided services or is required to repay a portion of prior fees associated with the hospital settlement program, or if future fees payable to HDI by CMS are reduced.
Critical Accounting Policies
Since the date of our Annual Report on Form 10-K for the year ended December 31, 2014, there have been no changes to our critical accounting policies. Refer to the items disclosed as our Critical Accounting Policies in Part II, Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the SEC.
SUMMARY OF OPERATING RESULTS
Three Months Ended March 31, 2015 Compared to Three Months Ended March 31, 2014
The following table sets forth, for the periods indicated, certain items in our unaudited Consolidated Statements of Comprehensive Income expressed as a percentage of revenue:
|
|
Three months ended
|
|
||
|
|
2015 |
|
2014 |
|
Revenue |
|
100.0 |
% |
100.0 |
% |
Cost of services: |
|
|
|
|
|
Compensation |
|
38.7 |
|
44.8 |
|
Data processing |
|
9.1 |
|
8.8 |
|
Occupancy |
|
3.6 |
|
3.8 |
|
Direct project costs |
|
9.5 |
|
7.4 |
|
Other operating costs |
|
6.1 |
|
5.2 |
|
Amortization of acquisition related software and intangible assets |
|
6.4 |
|
6.8 |
|
Total cost of services |
|
73.4 |
|
76.8 |
|
Selling, general, and administrative expenses |
|
19.3 |
|
15.7 |
|
Total operating expenses |
|
92.7 |
|
92.6 |
|
Operating income |
|
7.3 |
|
7.4 |
|
Interest expense |
|
(1.8 |
) |
(1.9 |
) |
Interest income |
|
0.0 |
|
0.0 |
|
Other income, net |
|
0.0 |
|
0.0 |
|
Income before income taxes |
|
5.5 |
|
5.5 |
|
Income taxes |
|
(2.3 |
) |
(2.3 |
) |
Net income and comprehensive income |
|
3.2 |
% |
3.2 |
% |
Revenue for the three months ended March 31, 2015 was $110.3 million, an increase of $5.6 million, or 5.3%, compared to revenue of $104.7 million for the three months ended March 31, 2014. This increase resulted from a $15.6 million increase in revenue related to changes in the yield and scope of projects from existing customers and differences in the timing of when customer projects were completed in the current quarter compared to the same quarter in the prior year. For the three months ended March 31, 2015, an additional $1.4 million in revenue was generated from new customers. These increases were offset by an $8.3 million decrease related to the transitional revenue from the Medicare RAC contract and a $3.1 million decrease related to contract expirations.
Compensation expense as a percentage of revenue was 38.7% for the three months ended March 31, 2015, compared to 44.8% for the three months ended March 31, 2014. Compensation expense was $42.7 million for the current quarter, a decrease of $4.2 million, or 9.0%, compared to compensation expense of $46.9 million for the same quarter in the prior year. This decrease reflects a $3.0 million decline in salary and overtime expense, a $0.6 million decrease in variable compensation and a $0.5 million decrease in severance expense. During the three months ended March 31, 2015, we averaged 2,008 employees, a 12.5% decrease compared to our average of 2,295 employees during the quarter ended March 31, 2014. The reduction in headcount is related to efficiencies in labor achieved, outsourcing certain non-core work previously performed by employees to vendors or subcontractors, reductions related to Medicare RAC support warranted from a business point of view by the reduction in that contract, and various other reductions related to employee terminations in the prior fiscal year.
Data processing expense as a percentage of revenue was 9.1% for the three months ended March 31, 2015, compared to 8.8% for the three months ended March 31, 2014. Data processing expense was $10.0 million for the current quarter, an increase of $0.8 million, or 8.7%, over data processing expense of $9.2 million for the same quarter in the prior year. Continuous improvements to our technology infrastructure and developments in transaction processing resulted in higher expenses in the current quarter. These increases reflected additional software costs of $0.6 million primarily related to software maintenance and amortization of capitalized software and additional data and related communication costs of $0.4 million. These increases were partially offset by a $0.2 million decrease in equipment maintenance costs.
Occupancy expense as a percentage of revenue was 3.6% for the three months ended March 31, 2015, compared to 3.8% for the three months ended March 31, 2014. Occupancy expense was $4.0 million for both the current quarter and the same quarter in the prior year. Beginning in fiscal year 2015, the cost of unoccupied office space in any of our locations is reflected within Selling, general, and administrative expense.
Direct project expense as a percentage of revenue was 9.5% for the three months ended March 31, 2015, compared to 7.4% for the three months ended March 31, 2014. Direct project expense for the current quarter was $10.5 million, an increase of $2.8 million, or 36.4%, compared to direct project expense of $7.7 million for the same quarter in the prior year. This increase primarily resulted from additional subcontractor fees of $2.2 million relating to the outsourcing of verifications and operations support functions that were formerly performed by full time employees. Other expense increases included additional data conversion and data costs of $0.4 million and incremental lockbox expense of $0.2 million.
Other operating costs as a percentage of revenue were 6.1% for the three months ended March 31, 2015, compared to 5.2% for the three months ended March 31, 2014. Other operating costs for the current quarter were $6.7 million, an increase of $1.2 million, or 21.8%, compared to other operating costs of $5.5 million for the same quarter in the prior year. This increase primarily resulted from a $1.6 million increase in temporary personnel expense and a $0.3 million increase in subcontracting fees, primarily in the areas of IT support for innovation initiatives, data onboarding development and program integrity support. These increases were partially offset by a $0.4 million decrease in printing and postage expenses, a $0.2 million decrease in travel expense and a $0.1 million decrease in recruiting and employee relocation expenses.
Amortization of acquisition-related software and intangible assets as a percentage of revenue was 6.4% for the three months ended March 31, 2015, compared to 6.8% for the three months ended March 31, 2014. Amortization of acquisition-related software and intangible assets for the current quarter was $7.0 million, compared to amortization expense of $7.2 million for the same quarter in the prior year. This expense consists primarily of amortization of customer relationships, trade names and software. This decrease primarily resulted from certain of our intangible assets becoming fully amortized in the prior fiscal year.
Selling, general, and administrative expense as a percentage of revenue was 19.3% for the three months ended March 31, 2015 compared to 15.7% for the three months ended March 31, 2014. Selling, general, and administrative expense for the current quarter was $21.3 million, an increase of $4.8 million, or 29.1%, compared to $16.5 million for the same quarter in the prior year. This increase resulted from a $3.3 million increase in legal expenses primarily related to our action against Public Consulting Group, Inc. and certain former employees, which was not yet filed in the first quarter of last year, a $0.7 million increase in occupancy expense and a $0.4 million increase in compensation expense. These increases were partially offset by a decrease of $0.3 million in data processing expense. During the three months ended March 31, 2015, we averaged 220 employees in the sales, general and administrative group, a 0.9% increase over our average of 218 employees in that group during the same quarter in the prior year. See Legal Proceedings in Note 8 - Commitments and Contingencies in our Notes to the Consolidated Financial Statements in Part I, Item 1. Consolidated Financial Statements for additional information.
Operating income for the three months ended March 31, 2015 was $8.0 million, an increase of $0.2 million, or 2.6%, compared to operating income of $7.8 million for the three months ended March 31, 2014.
Interest expense was $2.0 million for the three months ended March 31, 2015, compared to $2.1 million for the three months ended March 31, 2014. Interest expense represents borrowings under our revolving credit facility, amortization of deferred financing costs, commitment fees for our revolving credit facility and issuance fees for our Letter of Credit. The $0.1 million decrease compared to the same quarter in the prior year primarily relates to a $0.1 million reduction in interest on our revolving debt, which was the result of a $35.0 million payment on our principal balance made at the end of the first quarter of 2014. Interest income was $11,000 for the current quarter, compared to interest income of $24,000 for the same quarter in the prior year. There was no other income in the current quarter, compared to net other income of $23,000 in the same quarter in the prior year related to net tenant income for leases associated with our Irving, Texas building.
We recorded income tax expense of $2.5 million for the three months ended March 31, 2015, compared to income tax expense of $2.4 million for the three months ended March 31, 2014, an increase of $0.1 million. Income before taxes increased $0.3 million for the current quarter over income before taxes for the same quarter in the prior year, which caused an increase in tax expense of $0.1 million. Our effective tax rate increased to 41.7% for the current quarter from 41.6% for the same quarter in the prior year, primarily due to a change in state apportionments and permanent differences. The principal difference between the statutory rate and our effective rate are state taxes and permanent differences.
Net income and comprehensive income of $3.5 million for the three months ended March 31, 2015 represents an increase of $0.1 million compared to net income and comprehensive income for the three months ended March 31, 2014 of $3.4 million.
Off-Balance Sheet Arrangements
Other than our Letter of Credit, we do not have any off-balance sheet arrangements.
Liquidity and Capital Resources
The following tables, which should be read in conjunction with our unaudited Consolidated Statements of Cash Flows, represent the cash and cash equivalents and working capital at March 31, 2015 and December 31, 2014, respectively, and a summary of our cash flows as of March 31, 2015 and 2014, respectively:
(in thousands) |
|
March 31, 2015 |
|
December 31, 2014 |
|
||
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
133,546 |
|
$ |
133,116 |
|
Working capital |
|
$ |
245,748 |
|
$ |
226,271 |
|
A summary of our cash flows is as follows:
|
|
Three months ended
|
|
||||
(in thousands) |
|
2015 |
|
2014 |
|
||
Net cash provided by (used in) operating activities |
|
$ |
(95 |
) |
$ |
21,324 |
|
Net cash used in investing activities |
|
(3,234 |
) |
(4,857 |
) |
||
Net cash provided by (used in) financing activities |
|
3,759 |
|
(33,543 |
) |
||
Net increase (decrease) in cash and cash equivalents |
|
$ |
430 |
|
$ |
(17,076 |
) |
We believe that our cash generating capability and financial condition, together with our funds available under our 2013 Credit Agreement, will be adequate to meet our operating, investing and financing needs. Our principal sources of cash are cash flows from operations and the available borrowing capacity of cash from our revolving credit facility. The primary uses of cash are compensation expenses, data processing, direct project costs and selling, general and administration expenses. Other sources of cash include proceeds from the exercise of stock options and tax benefits associated with stock option exercises. We expect that operating cash flows will continue to be a primary source of liquidity for our operating needs
We rely on operating cash flows and cash and cash equivalent balances to provide for our liquidity requirements. We believe that we have the ability to obtain both short-term and long-term loans to meet our financing needs for the foreseeable future. Due to our significant cash flows, access to capital markets and availability of our revolving credit facility under the 2013 Credit Agreement, we continue to believe that we have the ability to meet our liquidity needs for the foreseeable future, which include:
· the working capital requirements of our operations;
· investments in our business;
· business development activities; and
· repayment of our revolving credit facility under our 2013 Credit Agreement.
In connection with our appeal process in the matter of Kern Health Systems, on September 30, 2014 we obtained a surety bond in the amount of approximately $2.2 million, which was collateralized by a cash deposit and reflected in Other current assets on our unaudited Consolidated Balance Sheet at March 31, 2015. See Note 8 - Commitments and Contingencies in our Notes to the Consolidated Financial Statements in Part I, Item 1. Consolidated Financial Statements.
Cash Flows from Operating Activities
Net cash used in operating activities for the three months ended March 31, 2015 was $0.1 million, a decrease of $21.4 million as compared to net cash provided by operating activities of $21.3 million for the three months ended March 31, 2014.
The results of operations after non-cash adjustments to net income contributed cash inflows of $19.1 million for the current quarter as compared to a contribution of cash inflows of $14.0 million for the same quarter in the prior year. The $5.1 million increase primarily resulted from a $4.4 million decrease in allowance for doubtful accounts related to the transitional reduction in revenue from the Medicare RAC contract. Changes in working capital contributed cash outflows of $19.2 million primarily as a result of a $10.2 million increase in accounts receivable and a $10.7 million decrease in accounts payable, accrued expenses and other liabilities. These changes were primarily offset by a $2.0 million decrease in prepaid income taxes.
For the three months ended March 31, 2015, revenue was $110.3 million, an increase of $5.6 million compared to revenue of $104.7 million for the three months ended March 31, 2014. The number of Day Sales Outstanding (DSO) increased by 10 days to 136 days as of March 31, 2015, as compared to 126 days as of December 31, 2014. The increase in DSOs was primarily driven by the following: (i) an increase in Medicare RAC accounts receivable due to technical difficulties with the CMS portal utilized to create invoices and bill CMS that was resolved in the second quarter of 2015; (ii) lower revenue per day in the current quarter as compared to revenue per day in the fourth quarter of 2014; and (iii) an increase in accounts receivable due to processing delays with two large commercial clients.
These factors may result in higher accounts receivable balances and higher DSOs in future periods, which would reduce net cash from operating activities in those periods. We do not anticipate collection issues with these accounts receivable, however, nor do we expect that any extended collections will materially impact our liquidity.
The majority of our customer relationships have been in place for several years. Our future operating cash flows could be adversely affected by a decrease in a demand for our services, delayed payments from customers or if one or more contracts with our largest customers is terminated or not re-awarded.
Cash Flows from Investing Activities
Net cash used in investing activities for the three months ended March 31, 2015 was $3.2 million, a $1.7 million decrease compared to net cash used in investing activities of $4.9 million for the three months ended March 31, 2014. The decrease primarily related to a $1.7 million decrease in purchases of property and equipment, partially offset by a $0.1 million increase in investment in capitalized software.
Cash Flows from Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2015 was $3.8 million, a $37.3 million increase from net cash used in financing activities of $33.5 million for the three months ended March 31, 2014. This increase was primarily attributed to a $35.0 million reduction in payments toward the principal outstanding on our revolving credit facility.
Contractual Obligations
There have been no material changes in our contractual obligations as presented in our Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the SEC.
Recently Issued Accounting Pronouncements
See Recently Issued Accounting Pronouncements in Note 2 of the Notes to the unaudited Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
At March 31, 2015, we were not a party to any derivative financial instruments. We conduct all of our business in U.S. currency and hence do not have direct foreign currency risk. We are exposed to changes in interest rates, primarily with respect to our revolving credit facility under our 2013 Credit Agreement. If the effective interest rate for all of our variable rate debt were to increase by 100 basis points (1%), our annual interest expense would increase by a maximum of $2.0 million based on our debt balances at March 31, 2015. Further, we currently invest substantially all of our excess cash in short-term investments, primarily money market accounts, where returns effectively reflect current interest rates. As a result market interest rate changes may impact our interest income or expense. The impact will depend on variables such as the magnitude of rate changes and the level of borrowings or excess cash balances. We do not consider this risk to be material. We manage such risk by continuing to evaluate the best investment rates available for short-term, high quality investments.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by Rule 13a-15(b) under the Exchange Act, management, with the participation of our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as of March 31, 2015. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report.
There have been no changes in our internal control over financial reporting identified in connection with the evaluation of our controls performed during the three months ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
From time to time, we may be subject to investigations, legal proceedings and other disputes arising in the ordinary course of our business, including but not limited to regulatory audits, billing and contractual disputes and employment-related matters. We record accruals for outstanding legal matters when we believe it is probable that a loss will be incurred and the amount can be reasonably estimated. We evaluate, on a quarterly basis, developments in legal matters that could affect the amount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. If a loss contingency is not both probable and estimable, we do not establish an accrued liability. None of our accruals for outstanding legal matters are material in the aggregate to our financial position.
Our contractual relationships, including those with federal and state government entities, subject our operations, billing and business practices to scrutiny and audit, including by multiple agencies and levels of government, as well as to frequent transitions and changes in the personnel responsible for oversight of our contractual performance. From time to time, we may have contractual disputes with our customers arising from differing interpretations of contractual provisions that define our rights, obligations, scope of work or terms of payment, and with associated claims of liability for inaccurate or improper billing for reimbursement of contract fees, or for sanctions or damages for alleged performance deficiencies. Resolution of such disputes may involve litigation or may require that we accept some amount of loss or liability in order to avoid customer abrasion, negative marketplace perceptions and other disadvantageous results that could adversely affect our business, financial condition, results of operations and cash flows.
Kern Health Systems : In August 2011, in the Superior Court of the State of California, County of Los Angeles, Kern Health Systems (KHS or Plaintiff) sought to recover in excess of $7.0 million exclusive of interest, attorney fees and costs, against Allied Management Group Special Investigation Unit, Inc. (AMG), Dennis Demetre, and Lori Lewis (collectively, Defendants), jointly and severally, on causes of action for breach of contract, professional negligence, intentional misrepresentation, negligent misrepresentation and unfair business practices under the California Business and Professions Code.
On June 9, 2014, the jury issued its verdict in favor of all Defendants, and against KHS, on all causes of action except negligent misrepresentation. On that cause of action, the jury issued a verdict against all Defendants, jointly and severally, in the sum of $1.38 million. The negligent misrepresentation verdict was based on representations to KHS allegedly made by AMG and former owner Dennis Demetre in the spring of 2008, prior to our acquisition of AMG. We believe that the jury erroneously awarded damages based on an error inasmuch as the jury unanimously found that Defendants (through Demetre) made the negligent misrepresentation to KHS while having reasonable grounds for believing the representation to be true. Based on the jurys verdict, we believe we are properly characterized as the prevailing party on the breach of contract claim. AMG has filed an appeal of the verdict and is seeking to recover its attorney fees and costs in the sum of approximately $2.3 million. We have not recorded an obligation on this matter at this time, as we have appealed this decision and believe it is probable that we will prevail on the appeal of this matter, although there are risks and uncertainties related to any litigation, including appeals, and neither we nor our counsel can assure litigation results. Pending the appeal process, we were required to obtain a surety bond in the amount of 150% of the final judgment amount, or approximately $2.2 million, which was collateralized by a cash deposit and is reflected in Other current assets on our unaudited Consolidated Balance Sheet at March 31, 2015.
Dennis Demetre and Lori Lewis : In July 2012, two of AMGs former owners, Dennis Demetre and Lori Lewis, filed an action in the Supreme Court of the State of New York, claiming an undetermined amount of damages alleging that various actions unlawfully deprived Demetre and Lewis of the acquisition earn-out portion of the purchase price of AMG under the applicable Stock Purchase Agreement (the SPA) and that we had breached certain contractual provisions under the SPA. Demetre and Lewis filed a second amended complaint with two causes of action for breach of contract. We filed a counter claim for breach of contract arising out of Demetres and Lewiss failure to indemnify us for costs, including attorney fees arising out of our defense of the KHS action described above and for fraud arising out of Demetres and Lewiss misrepresentations concerning capabilities of their software platform. This case continues in the discovery phase. We believe we have a meritorious defense and will continue to defend this matter vigorously, although there are risks and uncertainties related to any litigation.
Restrictive Covenants and Trade Secret Actions in Texas and New York : We are the plaintiff in lawsuits filed in August 2014, entitled HMS Holdings Corp., et al. v. Public Consulting Group, Inc., James Gambino, and Jason Ramos, in the District Court of Dallas County, Texas, Cause No. DC-14-09047 (the Texas Action), and HMS Holdings Corp., et al. v. Matthew Arendt, Sean Curtin, and Danielle Lange, in the New York State Supreme Court, Albany County, Index No. A00754/2014 (the New York Action). These suits allege that, in the violation of their respective contractual, statutory and common law obligations to us, defendant Public Consulting Group, Inc. and defendants former HMS employees Gambino, Ramos, Arendt, Curtin and Lange unlawfully misappropriated our confidential, proprietary and trade secret information, as well as our employee and customer relationships. The lawsuits seek damages and injunctive relief and assert causes of action including breach of contract, breach of fiduciary duty and misappropriation of trade secrets. At the Texas Courts direction, an agreed temporary restraining order was entered, under which, among other things, the defendants are prohibited from using our confidential information, and must return any of our information. There can be no assurances that this will be adequate to protect our confidential or trade secret information. Both the Texas and New York Actions are currently in the discovery phase. Additionally, we have sought injunctions in both the Texas and New York Actions. The defendants have claimed, among other things, that we are not entitled to such injunctive relief, and that certain information which we believe to be confidential and/or trade secret information is not entitled to protection. A decision on that issue has not yet been issued by either court. Additionally, we, through discovery in the lawsuits and forensic investigation, have uncovered what we believe to be the wrongful destruction of evidence by one or more defendants and have sought judicial relief. To date, this issue has not been decided. The Texas Court has set an initial trial date for March 2016.
Risks that could have a negative impact on our business, financial condition, results of operations or cash flows include, without limitation, the risk factors set forth below: (i) variations in our results of operations; (ii) changes in the U.S. healthcare environment and steps we take in anticipation of such changes; (iii) regulatory, budgetary or political actions that affect procurement practices; (iv) our ability to retain customers or the loss of one or more major customers, including through our failure to procure or reprocure a current or future contract or related delays, or the reduction in scope or early termination of one or more of our significant contracts; (v) our ability to effectively manage our growth to execute on our business plans and to achieve our guidance, including but not limited to achieving non-Medicare margin expansion or the anticipated year-over-year increase in commercial revenue will not be achieved; (vi) the negative or reduced growth rate of spending on Medicaid/Medicare, simplification of the healthcare payment process or programmatic changes that diminish the scope of benefits; (vii) whether CMS will support or change the RAC program and reduce future fees, or require repayment of certain prior fees associated with its hospital settlement program due to an interpretation of contract terms by HDI or otherwise; (viii) customer dissatisfaction or early termination of contracts triggering significant costs or liabilities; (ix) the development by competitors of new or superior products or services; (x) the emergence of new competitors, or the development by our customers of in-house capacity to perform the services we offer; (xi) all the risks inherent in the development, introduction, and implementation of new products and services;
(xii) our failure to comply with laws and regulations governing health data or to protect such data from theft and misuse; (xiii) our ability to maintain effective information systems and protect them from damage, interruption or breach; (xiv) restrictions on our ability to bid on/perform certain work due to other work we currently perform; (xv) our ability to successfully integrate any acquisitions and the risk that such acquisitions will not result in the anticipated benefits; (xvi) our ability to continue to secure contracts through the competitive bidding process and to accurately predict the cost and time to complete such contracts; (xvii) our compliance with the covenants and obligations under the terms of our revolving credit facility and our ability to generate sufficient cash to cover our interest and principal payments thereunder; (xviii) unanticipated changes in our effective tax rates; (xix) the risk of security breaches of our technology systems and networks; (xx) negative results of government or customer reviews, audits or investigations to verify our compliance with contracts and applicable laws and regulations; (xxi) the impact of lawsuits, including our ability to prevail on appeals or to recover attorneys fees or expenses, or claims related to contracts, subcontracts, employment matters or compliance with laws and regulations; (xxii) our failure to properly remediate any future weaknesses or deficiencies or maintain proper and effective controls; (xxiii) the potential that we are unable to meet our liquidity needs; (xxiv) the risk that our efforts to protect intellectual property rights, confidential and proprietary information, or confidential or proprietary information of others in our possession, will not be adequate. A more detailed description of our risk factors can be found in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 2, 2015.
The risks described in our Annual Report on Form 10-K, as updated by our quarterly reports on Form 10-Q, are not the only risks that we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may also materially adversely affect our business, financial condition, results of operations or cash flows.
The exhibits filed as part of this Quarterly Report on Form 10-Q are listed on the Exhibit Index immediately following the Signatures.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 11, 2015 |
HMS HOLDINGS CORP. |
|
|
|
|
|
|
|
|
By: |
/s/ WILLIAM C. LUCIA |
|
|
William C. Lucia |
|
|
President and Chief Executive Officer and Duly |
|
|
Authorized Officer |
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
By: |
/s/ JEFFREY S. SHERMAN |
|
|
Jeffrey S. Sherman |
|
|
Executive Vice President, Chief Financial Officer and Treasurer |
|
|
(Principal Financial Officer) |
HMS Holdings Corp. and Subsidiaries
Exhibit
|
|
Description |
|
|
|
10.1* |
|
Form of 2015 Executive Non-Qualified Stock Option Agreement under the 2006 Stock Plan. |
|
|
|
10.2* |
|
Form of 2015 Executive Restricted Stock Unit Agreement under the 2006 Stock Plan. |
|
|
|
10.3* |
|
Form of 2015 Senior Vice President Non-Qualified Stock Option Agreement under the 2006 Stock Plan. |
|
|
|
10.4* |
|
Form of 2015 Senior Vice President Restricted Stock Unit Agreement under the 2006 Stock Plan. |
|
|
|
31.1* |
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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 |
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31.2* |
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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 |
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32.1 |
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Section 1350 Certification of the Principal Executive Officer of HMS Holdings Corp., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2 |
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Section 1350 Certification of the Principal Financial Officer of HMS Holdings Corp., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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101.INS* |
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XBRL Instance Document |
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101.SCH* |
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XBRL Taxonomy Extension Schema Document |
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101.CAL* |
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XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF* |
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XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB* |
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XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE* |
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XBRL Taxonomy Extension Presentation Linkbase Document |
Indicates a management contract or compensatory plan, contract or arrangement
* Filed herewith
Furnished herewith
Exhibit 10.1
2015 EXECUTIVE NQSO AGREEMENT
<Participant Full Name>
Dear <Participant First Name>
Congratulations, you have been awarded a stock option grant in recognition of your contributions to the success of HMS Holdings Corp. (the Company ) and its Affiliates. A stock option grant gives you the right to purchase a specific number of shares of the Companys common stock at a fixed price, assuming that you satisfy conditions of the Companys Fourth Amended and Restated 2006 Stock Plan (the Plan ) and the implementing agreement. We would like you to have an opportunity to share in the continued success of the Company through this stock option grant under the Plan. The following represents a brief description of your grant. Additional details regarding your award are provided in the attached Nonqualified Stock Option Agreement (the Grant Agreement ) and in the Plan.
Stock Option Grant Summary:
Date of Grant |
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March 4, 2015 |
Option Shares |
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<Number of Shares Granted> |
Exercise Price per Share |
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$ |
Exercisability |
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One-sixth of the Option Shares on each of the first, second and third anniversaries of the Date of Grant, with the remainder becoming exercisable as provided in Exhibit A to the Grant Agreement. Each of those dates is an Exercisability Date . |
Term Expiration Date |
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· You have been granted a nonqualified stock option to purchase Shares of the Companys common stock. The total number of Shares under your grant is in the chart above under Option Shares and the price per share is under Exercise Price per Share.
· The potential value of your stock option grant increases if the price of the Companys stock increases, but you also have to continue to provide services to the Company (except as the Grant Agreement provides) to actually receive such value. Of course, the value of the stock may go up and down over time.
· You cant exercise the stock option (actually purchase the shares) until it becomes exercisable. Your stock option becomes exercisable as provided in the chart above under Exercisability, assuming you remain an employee of or member of the Board of Directors of the Company and subject to the terms in the Grant Agreement.
· Whether or not you decide to exercise your stock option and purchase the stock is your decision, and, you have until the stock option expires (which will be no later than the seventh anniversary of the Date of Grant but can end earlier in various situations) to make that decision.
· Once you have purchased the Shares, you will own them and may decide whether to hold the stock, sell the stock or give the stock to someone as a gift.
You can access the Merrill Lynch portal updates and information: https://www29.benefits.ml.com/login/login.aspx. Please email IR@hms.com with any questions.
HMS HOLDINGS CORP.
NONQUALIFIED STOCK OPTION GRANT AGREEMENT FOR EXECUTIVES
HMS Holdings Corp. (the Company ) has granted you an option (the Option ) under the HMS Holdings Corp. Fourth Amended and Restated 2006 Stock Plan (as it may be amended from time to time) (the Plan ). The Option lets you purchase a specified number (the Option Shares ) of Shares of the Companys common stock, at a specified price per Share (the Exercise Price ).
The individualized communication you received (the Cover Letter ) provides the details for your Option. It specifies the number of Option Shares, the Exercise Price, the Date of Grant, the schedule for exercisability, and the latest date the Option will expire (the Term Expiration Date ).
The Option is subject in all respects to the applicable provisions of the Plan. This Grant Agreement does not cover all of the rules that apply to the Option under the Plan; please refer to the Plan document. Capitalized terms are defined either further below in this grant agreement (the Grant Agreement ) or in the Plan.
The Plan document is available on the Merrill Lynch website. The Prospectus for the Plan, the Companys S-8, Annual Report on Form 10-K, and other filings the Company makes with the Securities and Exchange Commission are available for your review under the Investor Relations tab on the Companys web site. You may also obtain paper copies of these documents upon request to the Companys Investor Relations department (IR@HMS.com).
Neither the Company nor anyone else is making any representations or promises regarding the duration of your service, exercisability of the Option, the value of the Companys stock or of this Option, or the Companys prospects. The Company is not providing any advice regarding tax consequences to you or regarding your decisions regarding the Option; you agree to rely only upon your own personal advisors.
NO ONE MAY SELL, TRANSFER, OR DISTRIBUTE THE OPTION OR THE SECURITIES THAT MAY BE PURCHASED UPON EXERCISING THE OPTION WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO HMS HOLDINGS CORP. OR OTHER INFORMATION AND REPRESENTATIONS SATISFACTORY TO IT THAT SUCH REGISTRATION IS NOT REQUIRED.
In addition to the Plans terms and restrictions, the following terms and restrictions apply:
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Option Exercisability |
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While your Option remains in effect under the Option Expiration section, you may exercise any exercisable portions of the Option (and buy the Option Shares) under the timing rules of this section, provided that you may not exercise the Option for fewer than 100 full shares at any particular time unless fewer than 100 remain unexercised. |
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The Option will become exercisable on the schedule provided in the Cover Letter to this Grant Agreement assuming that through each Exercisability Date, (i) if you received the Option in your capacity as an employee of the Company, you remain an employee or (ii) if you received the Option in your capacity as a member of the Companys Board, you remain a member of the Companys Board. Any fractional shares will be carried forward to the following Exercisability Date, unless the Committee selects a different treatment. For purposes of this Grant Agreement, employment with the Company will include employment with any Affiliate whose employees are then eligible to receive Awards under the Plan. Unless the Committee determines otherwise, if an entity employing you ceases to be an Affiliate, your employment with the Company will be treated as ended even though you continue to be employed by that entity. |
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Exercisability will accelerate fully on your disability or death, including with respect to the Performance Option Shares (as defined below). For this purpose, disability means permanent and total disability as defined by Section 22(e)(3) of the Code. Exercisability will continue and increase (until fully exercisable) over the two years following your date of Retirement. Retirement for this purpose means cessation of service on or after attaining age 60 and completing five years of service with the Company. |
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Change in Control |
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If a Change in Control occurs, your Option will be treated as provided in Section 11 of the Plan if, within 24 months following the Change in Control, your employment or service ends on a termination without cause (as determined by the Committee or the Board), provided also that the Option will remain outstanding for 12 months following such termination but not beyond the Term Expiration Date. |
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Option Expiration |
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The Option will expire no later than the close of business on the Term Expiration Date. Unexercisable portions of the Option expire immediately when you cease to be employed (unless you are concurrently remaining or becoming a member of the Board, or, for a Board member, concurrently remaining or becoming an employee of the Company). If the Company terminates your employment or service for cause, the Option will immediately expire without regard to whether it is then exercisable. |
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Exercisable portions of the Option remain exercisable until the first to occur of the following (the Final Exercise Date ), each as defined further in the Plan or the Grant Agreement: |
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· Three months (measured to the corresponding date in the month) after your employment (or directorship) ends if you resign or if the Company terminates your employment or service without cause (as determined under the Plan), except as provided above under Change in Control |
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· For death or Disability, the first anniversary of the date employment or service ends |
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· For Retirement, the end of the second year following your date of Retirement |
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· The Term Expiration Date |
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The Committee can override the expiration provisions of this Grant Agreement. |
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Method of Exercise and Payment for Shares |
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Subject to this Grant Agreement and the Plan, you may exercise the Option only by providing a written notice (or notice through another previously approved method, which could include a web-based or voice- or e-mail system) to the Secretary of the Company or to whomever the Committee designates, received on or before the date the Option expires. Each such notice must satisfy whatever then-current procedures apply to that Option and must contain such representations (statements from you about your situation) as the Company requires. You must, at the same time, pay the Exercise Price using one or more of the following methods: |
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Cash/Check |
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cash or check in the amount of the Exercise Price payable to the order of the Company; |
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Cashless Exercise |
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an approved cashless exercise method, including directing the Company to send the stock certificates (or other acceptable evidence of ownership) to be issued under the Option to a licensed broker acceptable to the Company as your agent in exchange for the brokers tendering to the Company cash (or acceptable cash equivalents) equal to the Exercise Price and, if you so elect, any required tax withholdings; |
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Net Exercise |
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by delivery of a notice of net exercise to or as directed by the Company, as a result of which you will receive (i) the number of shares underlying the portion of the Option being exercised less (ii) such number of shares as is equal to (A) the aggregate Exercise Price for the portion of the Option being exercised divided by (B) the Fair Market Value on the date of exercise; |
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Stock |
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if permitted by the Committee, by delivery of Shares owned by you, valued at their Fair Market Value, provided (i) applicable law then permits such method of payment, (ii) you owned such Shares, if acquired directly from the Company, for such minimum period of time, if any, as the Committee may establish in its discretion, and (iii) the Shares are not subject to any repurchase, forfeiture, unfulfilled vesting, or other similar restrictions; or |
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any combination of the above permitted forms for payment. |
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Withholding |
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Issuing the Option Shares is contingent on satisfaction of all obligations with respect to required tax or other required withholdings (for example, in the U.S., Federal, state, and local taxes). The Company may take any action permitted under Section 14(c) of the Plan to satisfy such obligation, including satisfying the tax obligations by (i) reducing the number of Option Shares to be issued to you in connection with any exercise of the Option by that number of Option Shares (valued at their Fair Market Value on the date of exercise) that would equal all taxes required to be withheld (at their minimum withholding levels), (ii) accepting payment of the withholdings from a broker in connection with a Cashless |
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Exercise of the Option or directly from you, or (iii) taking any other action under Section 14(c) of the Plan. If a fractional share remains after deduction for required withholding, the Company will pay you the value of the fraction in cash. |
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Compliance with Law |
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You may not exercise the Option if the Companys issuing stock upon such exercise would violate any applicable Federal or state securities laws or other laws or regulations. You may not sell or otherwise dispose of the Option Shares in violation of applicable law. As part of this prohibition, you may not use the Cashless Exercise methods if the Companys insider trading policy then prohibits you from selling to the market. |
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Additional Conditions to Exercise |
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The Company may postpone issuing and delivering any Option Shares for so long as the Company determines to be advisable to satisfy the following: |
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its completing or amending any securities registration or qualification of the Option Shares or its or your satisfying any exemption from registration under any Federal or state law, rule, or regulation; |
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its receiving proof it considers satisfactory that a person seeking to exercise the Option after your death is entitled to do so; |
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your complying with any requests for representations under the Plan; and |
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your complying with any Federal, state, or local tax withholding obligations. |
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Additional Representations from You |
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If you exercise the Option at a time when the Company does not have a current registration statement (generally on Form S-8) under the Securities Act of 1933 (the Act ) that covers issuances of shares to you, you must comply with the following before the Company will issue the Option Shares to you. You must |
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represent to the Company, in a manner satisfactory to the Companys counsel, that you are acquiring the Option Shares for your own account and not with a view to reselling or distributing the Option Shares; and |
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agree that you will not sell, transfer, or otherwise dispose of the Option Shares unless: |
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a registration statement under the Act is effective at the time of disposition with respect to the Option Shares you propose to sell, transfer, or otherwise dispose of; or |
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the Company has received an opinion of counsel or other information and representations it considers satisfactory to the effect that, because of Rule 144 under the Act or otherwise, no registration under the Act is required. |
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No Effect on Employment or Other Relationship |
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Nothing in this Grant Agreement restricts the Companys rights or those of any of its Affiliates to terminate your employment or other relationship at any time and for any or no reason. The termination of employment or other relationship, whether by the Company or any of its Affiliates or otherwise, and regardless of the reason for such termination, has the consequences provided for under the Plan and any applicable employment or severance agreement or plan. |
Not a Stockholder |
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You understand and agree that the Company will not consider you a stockholder for any purpose with respect to any of the Option Shares until you have exercised the Option, paid for the shares, and received evidence of ownership. |
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No Effect on Running Business |
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You understand and agree that the existence of the Option will not affect in any way the right or power of the Company or its stockholders to make or authorize any adjustments, recapitalizations, reorganizations, or other changes in the Companys capital structure or its business, or any merger or consolidation of the Company, or any issuance of bonds, debentures, preferred or other stock, with preference ahead of or convertible into, or otherwise affecting the Companys common stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether or not of a similar character to those described above. |
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Governing Law |
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The laws of the State of New York will govern all matters relating to the Option, without regard to the principles of conflict of laws. |
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Restrictive Covenants Clawback |
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If the Board or the Committee determines, in its sole discretion, that you violated or are violating any of the Restrictive Covenants set forth below under the section titled Restrictive Covenants, the Option will immediately terminate without regard to whether it is then Vested in whole or in part. In addition, the Board or the Committee may, in its sole discretion, require from you payment or transfer to the Company of the Gain from the Option, where the Gain consists of the greatest of (i) the value of the Option Shares on the date, within the Recovery Measurement Period, on which you exercised the Option with respect to such Option Shares, (ii) the value of the Option Shares received upon exercise during the Recovery Measurement Period, as determined on the date of the request by the Committee to pay or transfer, (iii) the gross (before tax) proceeds you received from any sale of the Option Shares during the Recovery Measurement Period, and (iv) if transferred without sale during the Recovery Measurement Period, the value of the Option Shares when so transferred. The Board or the Committee may determine the recoupment method in its sole discretion for any portion of the Option transferred (where permitted) before being exercised. The Recovery Measurement Period means the 12 months before the date of the determination of violation. The provisions in this section are essential economic conditions to the Companys grant of the Option to you. By acknowledging receipt of the grant of the Option hereunder, you agree that the Company may deduct from any amounts it owes you from time to time (such as any severance or other payments owed following a termination of employment, as well as any other amounts owed to you by the Company, as permitted by applicable law) to the extent of any amounts you owe the Company under this Restrictive Covenants Clawback section. |
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You acknowledge that you would not be receiving the Option described herein but for your agreement to comply with the Restrictive Covenants. Likewise, you acknowledge that you would be unjustly enriched if you violate the Restrictive Covenants, while being able to retain some or all of the Option Shares or the gain associated with them. Furthermore, you acknowledge and agree that the damages for your breach of the Restrictive Covenants are not subject to calculation and that the remedies set forth in this Restrictive Covenants Clawback section, therefore, will only reimburse the Company for a portion of the damage done. For this reason, the Company shall be entitled to recover |
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1% of the outstanding stock of a publicly-held company will not, by itself, violate this provision. For purposes of this Grant Agreement, you agree that the Company does business throughout and plans to do business throughout the United States; |
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(ii) Solicit Clients, Customers, or Accounts . You will not, either alone or in association with others, actually or attempt to solicit, divert, or take away the business or patronage of any of the Companys clients, customers, or accounts, or prospective clients, customers, or accounts, that the Company contacted, solicited, or served while you were employed by the Company or about which you have Proprietary Information, provided that this provision does not prevent you from soliciting clients, customers, or accounts (if you are not using Proprietary Information to do so) for purposes that are not in actual or potential competition with the Company; |
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(iii) Solicit or Hire Company Employees and Independent Contractors . You will not, either alone or in association with others, actually or attempt to (x) solicit, recruit or induce any Company employee or independent contractor to leave the Companys service or (y) solicit, recruit, hire, or engage as an employee or independent contractor any individual whom the Company employed or engaged at any time while you were employed by the Company, except for an individual whose employment or other service relationship with the Company ended at least six months before the date of your action; and/or |
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(iv) Disclose or Utilize Product Development. You will not, either alone or in association with others, disclose to, or utilize for the benefit of, any entity other than the Company, any systems or product development ideas, concepts, or strategies that you or others in communication with you explored, generated, initiated, or discussed for potential implementation during your employment with the Company, even if the Company has not implemented such ideas, concepts, or strategies by the time your employment with the Company ends. |
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For the purposes of subsection (ii) Solicit Clients, Customers, or Accounts , the terms customer, client, or account as applied to governmental agencies will mean the agency or department for which any of the products or services of the Company are sold or performed during the applicable period, any related program office, and any agency, department, or office that succeeds to the functions of any agency, department, or office to which the Company then provides or within the preceding 12 months provided goods or services (to the extent that the successor replaces part or all of the customer or client to which the Company provided goods or services). |
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General |
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To the extent that you and the Company agree at any time to enter into separate agreements containing restrictive covenants with different or inconsistent terms than those contained herein, you and the Company acknowledge and agree that such different or inconsistent terms shall not in any way affect or have relevance to the Restrictive Covenants contained herein, and the terms of these Restrictive Covenants do not supersede or amend any others currently or in the future in place. |
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By accepting this Option grant, you agree that the provisions of this Restrictive Covenants section (and the related Restrictive Covenants Clawback section) are reasonable and necessary to protect the legitimate interests of the Company. |
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Notices |
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Any notice you give to the Company must follow the procedures then in effect. If no other procedures apply, you must send your notice in writing by hand or by mail to the office of the Companys Secretary (or to the Chair of the Committee if you are then serving as the sole Secretary). If mailed, you should address it to the Companys Secretary (or the Chair of the Committee) at the Companys then corporate headquarters, unless the Company directs optionees to send notices to another corporate department or to a third party administrator or specifies another method of transmitting notice. The Company and the Committee will address any notices to you using its standard electronic communications methods or at your office or home address as reflected on the Companys personnel or other business records. You and the Company may change the address for notice by like notice to the other, and the Company can also change the address for notice by general announcements to optionees. |
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Amendment |
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Subject to any required action by the Committee or the stockholders of the Company, the Company may cancel the Option and provide a new Award in its place, provided that the Award so replaced will satisfy all of the requirements of the Plan as of the date such new Award is made and no such action will adversely affect the Option to the extent then exercisable. |
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Plan Governs |
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Wherever a conflict may arise between the terms of this Grant Agreement and the terms of the Plan, the terms of the Plan will control. The Committee may adjust the number of Option Shares and the Exercise Price and other terms of the Option from time to time as the Plan provides. |
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EXHIBIT A
The exercisability of 50% of the Shares covered by the Option (the Performance Option Shares ) is subject to the following conditions:
A. Service Condition
The Performance Option Shares will become exercisable according to the applicable schedule described in Paragraph C below, provided you remain employed by the Company as of each applicable exercisability date set forth below.
B. Performance Conditions
1. The Companys average closing price per Share as reported on the NASDAQ Global Select Market during at least one measurement period (as described below) must be at least 25% higher than the Exercise Price per Share specified in the Stock Option Grant Summary.
2. The measurement period will consist of the applicable trading days in any consecutive 30 (thirty) calendar day period preceding the first, second and/or third anniversaries of the Date of Grant.
3. On each anniversary of the Date of Grant (or as promptly as practicable thereafter), the Company will calculate the average closing price for the applicable measurement periods preceding such date in order to determine if the performance condition has been satisfied.
C. Exercisability
1. Performance Condition Achieved prior to First Anniversary of Date of Grant . If the performance condition is achieved prior to the first anniversary of the Date of Grant, the Performance Option Shares will become exercisable in equal installments pursuant to the following schedule:
Exercisability Date |
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Proportion of Performance Option Shares Exercisable as
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1 st anniversary of Date of Grant |
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One-third of the Performance Option Shares |
2 nd anniversary of Date of Grant |
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One-third of the Performance Option Shares |
3 rd anniversary of Date of Grant |
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One-third of the Performance Option Shares |
2. Performance Condition Achieved after First Anniversary but before Second Anniversary of the Date of Grant . If the performance condition is achieved after the first anniversary but before the second anniversary of the Date of Grant, the Performance Option Shares will become exercisable pursuant to the following schedule:
Exercisability Date |
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Proportion of Performance Option Shares Exercisable as
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1 st anniversary of Date of Grant |
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-0- |
2 nd anniversary of Date of Grant |
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Two-thirds of the Performance Option Shares |
3 rd anniversary of Date of Grant |
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One-third of the Performance Option Shares |
3. Performance Condition Achieved after Second Anniversary but before Third Anniversary of the Date of Grant . If the performance condition is achieved after the second anniversary but before the third anniversary of the Date of Grant, the Performance Option Shares will become fully exercisable as of such third anniversary pursuant to the following schedule:
Exercisability Date |
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Proportion of Performance Option Shares Exercisable as
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1 st anniversary of Date of Grant |
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-0- |
2 nd anniversary of Date of Grant |
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-0- |
3 rd anniversary of Date of Grant |
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100% of the Performance Option Shares |
4. Performance Condition Not Achieved before the Third Anniversary of the Date of Grant. Except in the event of death, Disability or a Change of Control prior to the third anniversary of the Date of Grant (in which case the terms set forth in the Grant Agreement will apply and, for the avoidance of doubt, the performance condition will no longer be applicable), if the performance condition is not achieved by the third anniversary of the Date of Grant, no portion of the Performance Option Shares will become exercisable and the Performance Option Shares shall be forfeited.
Exhibit 10.2
2015 EXECUTIVE RSU AGREEMENT
<Participant Full Name>
Dear <Participant First Name>
Congratulations, you have been awarded restricted stock units ( RSUs ) in recognition of your contributions to the success of HMS Holdings Corp. (the Company ) and its Affiliates. A restricted stock unit entitles you to receive a share of the Companys common stock at a future date, assuming that you satisfy conditions of the Companys Fourth Amended and Restated 2006 Stock Plan (the Plan ) and the implementing agreement. We would like you to have an opportunity to share in the continued success of the Company through these RSUs under the Plan. The following represents a brief description of your grant. Additional details regarding your award are provided in the attached Restricted Stock Unit Agreement (the Grant Agreement ) and in the Plan.
Restricted Stock Unit Grant Summary:
Date of Grant |
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March 4, 2015 |
RSU Shares |
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<Number of Shares Granted> |
Vesting Schedule |
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One-sixth of the RSU Shares shall vest on the first, second and third anniversaries of the date of the Grant, with the remainder vesting as provided in Exhibit A to the Grant Agreement. Each of those dates is a Vesting Date . |
· You have been granted RSUs for Shares of the Companys common stock for the total number of Shares specified under RSU Shares in the chart above.
· The potential value of your RSUs increases if the price of the Companys stock increases, but you also have to continue to provide services to the Company (except as the Grant Agreement provides) to actually receive such value. Of course, the value of the stock may go up and down over time.
· You will not receive the Shares represented by the RSUs unless and until the RSUs vest. Your RSUs vest as provided in the chart above under Vesting, assuming you remain an employee of the Company and subject to the terms in the Grant Agreement.
· Once you have received the Shares, you will own them and may decide whether to hold the stock, sell the stock or give the stock to someone as a gift.
You can access the Merrill Lynch portal updates and information: https://www29.benefits.ml.com/login/login.aspx. Please email IR@hms.com with any questions.
HMS HOLDINGS CORP.
RESTRICTED STOCK UNIT GRANT AGREEMENT FOR EXECUTIVES
HMS Holdings Corp. (the Company ) has granted you restricted stock units (the RSUs ) under the HMS Holdings Corp. Fourth Amended and Restated 2006 Stock Plan (as it may be amended from time to time) (the Plan ). Each RSU lets you receive a Share (an RSU Share ) of the Companys common stock, upon satisfaction of the conditions to receipt.
The individualized communication you received (the Cover Letter ) provides the details for your RSUs. It specifies the number of RSU Shares, the Date of Grant, and the schedule for vesting, with the related vesting dates ( Vesting Dates ).
The RSUs are subject in all respects to the applicable provisions of the Plan. This Grant Agreement does not cover all of the rules that apply to the RSUs under the Plan; please refer to the Plan document. Capitalized terms are defined either further below in this grant agreement (the Grant Agreement ) or in the Plan.
The Plan document is available on the Merrill Lynch website. The Prospectus for the Plan, the Companys S-8, Annual Report on Form 10-K, and other filings the Company makes with the Securities and Exchange Commission are available for your review under the Investor Relations tab on the Companys web site. You may also obtain paper copies of these documents upon request to the Companys Investor Relations department (IR@HMS.com).
Neither the Company nor anyone else is making any representations or promises regarding the duration of your service, vesting of the RSUs, the value of the Companys stock or of these RSUs, or the Companys prospects. The Company is not providing any advice regarding tax consequences to you or regarding your decisions regarding the RSUs; you agree to rely only upon your own personal advisors.
NO ONE MAY SELL, TRANSFER, OR DISTRIBUTE THE RSUS OR THE SECURITIES THAT MAY BE RECEIVED UNDER THEM WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO HMS HOLDINGS CORP. OR OTHER INFORMATION AND REPRESENTATIONS SATISFACTORY TO IT THAT SUCH REGISTRATION IS NOT REQUIRED.
In addition to the Plans terms and restrictions, the following terms and restrictions apply:
Vesting Schedule |
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Your RSUs become nonforfeitable ( Vested ) as provided in the Cover Letter to this Grant Agreement, assuming that through each Vesting Date, (i) if you received the RSUs in your capacity as an employee of the Company, you continue in service as an employee or (ii) if you received the RSUs in your capacity as a member of the Companys Board, you continue in service as a member of the Companys Board. Any fractional shares will be carried forward to the following Vesting Date, unless the Committee selects a different treatment. For purposes of this Grant Agreement, employment with the Company will include employment with any Affiliate whose employees are then eligible to receive Awards under the Plan. Unless the Committee determines otherwise, if an entity employing you ceases to be an Affiliate, your employment with the Company will be treated as ended even though you continue to be employed by that entity. |
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Vesting will accelerate fully on your disability or death, including with respect to the Performance RSU Shares (as defined below). For this purpose, disability means permanent and total disability as defined by Section 22(e)(3) of the Code. |
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If your employment or service ends as a result of Retirement, you will be treated as continuing in service for vesting purposes until the earlier to occur of (x) the second anniversary of your Retirement and (y) the last of the applicable Vesting Dates. Retirement for this purpose means cessation of employment or service on or after attaining age 60 and completing five years of service with the Company. |
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Change in Control |
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If a Change in Control occurs, your RSUs will be treated as provided in Section 11 of the Plan if, within 24 months following the Change in Control, your employment or service ends on (i) a termination without cause (as determined by the Committee or the Board) or (ii) Retirement. |
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Termination for Cause |
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If the Company terminates your employment or service for cause, the RSUs will immediately terminate without regard to whether they are then Vested in whole or in part. |
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Distribution Date |
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Subject to any overriding provisions in the Plan, you will receive a distribution of the Shares equivalent to your Vested RSU Shares as soon as practicable following the date(s) on which you become Vested (with the actual date being the Distribution Date ) and, in any event, no later than 30 days following an applicable Vesting Date, unless the Committee determines that you may make a timely deferral election to defer distribution to a later date and you have made such an election (in which case the deferred date will be the Distribution Date ). |
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Vesting that accelerates after a Change in Control will only accelerate the Distribution Date if and to the extent permitted under Section 409A of the Code. |
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Restrictions and Forfeiture |
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You may not sell, assign, pledge, encumber, or otherwise transfer any interest ( Transfer ) in the RSU Shares until the RSU Shares are distributed to you. Any attempted Transfer that precedes the Distribution Date is invalid. |
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Unless the Committee determines otherwise or the Grant Agreement provides otherwise, if your employment or service with the Company terminates for any |
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reason before your RSUs are Vested, then you will forfeit the unvested RSUs (and the Shares to which they relate) to the extent that the RSUs do not otherwise vest as a result of the termination, pursuant to the rules in the Vesting Schedule section. The forfeited RSUs will then immediately revert to the Company. You will receive no payment for the RSUs if you forfeit them. |
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Taxes and Withholding |
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The RSUs provide tax deferral, meaning that the RSU Shares are not taxable until you actually receive the RSU Shares on or around the Distribution Date. You will then owe taxes at ordinary income tax rates as of the Distribution Date at the Shares value. If you are an employee of the Company, you may owe FICA and HI (Social Security and Medicare) taxes before the Distribution Date. |
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Issuing the Shares under the RSUs is contingent on satisfaction of all obligations with respect to required tax or other required withholdings (for example, in the U.S., Federal, state, and local taxes). The Company may take any action permitted under Section 14(c) of the Plan to satisfy such obligation, including satisfying the tax obligations by (i) reducing the number of RSU Shares to be issued to you by that number of RSU Shares (valued at their Fair Market Value on the date of distribution) that would equal all taxes required to be withheld (at their minimum withholding levels), (ii) accepting payment of the withholdings from a broker in connection with a sale of the RSU Shares or directly from you, or (iii) taking any other action under Section 14(c) of the Plan. If a fractional share remains after deduction for required withholding, the Company will pay you the value of the fraction in cash. |
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Compliance with Law |
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The Company will not issue the RSU Shares if doing so would violate any applicable Federal or state securities laws or other laws or regulations. You may not sell or otherwise dispose of the RSU Shares in violation of applicable law. |
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Additional Conditions to Receipt |
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The Company may postpone issuing and delivering any RSU Shares for so long as the Company determines to be advisable to satisfy the following: |
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its completing or amending any securities registration or qualification of the RSU Shares or its or your satisfying any exemption from registration under any Federal or state law, rule, or regulation; |
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its receiving proof it considers satisfactory that a person seeking to receive the RSU Shares after your death is entitled to do so; |
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your complying with any requests for representations under the Plan; and |
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your complying with any Federal, state, or local tax withholding obligations. |
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Additional Representations from You |
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If the vesting provisions of the RSUs are satisfied and you are entitled to receive RSU Shares at a time when the Company does not have a current registration statement (generally on Form S-8) under the Securities Act of 1933 (the Act ) that covers issuances of shares to you, you must comply with the following before the Company will issue the RSU Shares to you. You must |
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represent to the Company, in a manner satisfactory to the Companys counsel, that you are acquiring the RSU Shares for your own account and not with a view to reselling or distributing the RSU Shares; and |
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agree that you will not sell, transfer, or otherwise dispose of the RSU Shares unless: |
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a registration statement under the Act is effective at the time of disposition with respect to the RSU Shares you propose to sell, transfer, or otherwise dispose of; or |
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the Company has received an opinion of counsel or other information and representations it considers satisfactory to the effect that, because of Rule 144 under the Act or otherwise, no registration under the Act is required. |
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No Effect on Employment or Other Relationship |
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Nothing in this Grant Agreement restricts the Companys rights or those of any of its Affiliates to terminate your employment or other relationship at any time and for any or no reason. The termination of employment or other relationship, whether by the Company or any of its Affiliates or otherwise, and regardless of the reason for such termination, has the consequences provided for under the Plan and any applicable employment or severance agreement or plan. |
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Limited Status |
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You understand and agree that the Company will not consider you a stockholder for any purpose with respect to the RSU Shares, unless and until the RSU Shares have been issued to you on the Distribution Date. You will not receive dividends with respect to the RSUs, but the Company will credit additional whole or fractional RSUs to this Grant equal to the result of dividing (i) the product of the total number of RSUs credited to you under this Grant on the record date for such dividend (and not yet distributed in Shares) and the per share amount of such dividend by (ii) the Fair Market Value of one Share on the date such dividend is paid by the Company to stockholders. The additional RSUs will be or become Vested to the same extent as the RSUs that resulted in the crediting of such additional Units and may be paid out in cash or Shares under the timing rules provided in Section 8(e) of the Plan. |
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Voting |
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You may not vote the RSUs. You may not vote the RSU Shares unless and until the Shares are distributed to you. |
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No Effect on Running Business |
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You understand and agree that the existence of the RSUs will not affect in any way the right or power of the Company or its stockholders to make or authorize any adjustments, recapitalizations, reorganizations, or other changes in the Companys capital structure or its business, or any merger or consolidation of the Company, or any issuance of bonds, debentures, preferred or other stock, with preference ahead of or convertible into, or otherwise affecting the Companys common stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether or not of a similar character to those described above. |
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Section 409A |
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The RSUs are intended to comply with the requirements of Section 409A and must be construed consistently with that section. Notwithstanding anything in the Plan or this Grant Agreement to the contrary, if the RSUs Vest in connection with your separation from service within the meaning of Section 409A, as determined by the Company), and if (x) you are then a specified employee within the meaning of Section 409A at the time of such separation from service (as determined by the Company, by which determination you agree you are |
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bound) and (y) the distribution of RSU Shares under such RSUs will result in the imposition of additional tax under Section 409A if distributed to you within the six month period following your separation from service, then the distribution under such accelerated RSUs will not be made until the earlier of (i) the date six months and one day following the date of your separation from service or (ii) the 10 th day after your date of death. Neither the Company nor you shall have the right to accelerate or defer the delivery of any such RSU Shares or benefits except to the extent specifically permitted or required by Section 409A. In no event may the Company or you defer the delivery of the RSU Shares beyond the date specified in the Distribution Date section, unless such deferral complies in all respects with Treasury Regulation Section 1.409A-2(b) related to subsequent changes in the time or form of payment of nonqualified deferred compensation arrangements, or any successor regulation. In any event, the Company makes no representations or warranty and shall have no liability to you or any other person, if any provisions of or distributions under this Grant Agreement are determined to constitute deferred compensation subject to Section 409A but not to satisfy the conditions of that section. |
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Unsecured Creditor |
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The RSUs create a contractual obligation on the part of the Company to make a distribution of the RSU Shares at the time provided for in this Grant Agreement. Neither you nor any other party claiming an interest in deferred compensation hereunder shall have any interest whatsoever in any specific assets of the Company. Your right to receive distributions hereunder is that of an unsecured general creditor of Company. |
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Governing Law |
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The laws of the State of New York will govern all matters relating to the RSUs, without regard to the principles of conflict of laws. |
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Restrictive Covenants Clawback |
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If the Board or the Committee determines, in its sole discretion, that you violated or are violating any of the Restrictive Covenants set forth below under the section titled Restrictive Covenants, the RSUs will immediately terminate without regard to whether they are then Vested in whole or in part. In addition, the Board or the Committee may, in its sole discretion, require from you payment or transfer to the Company of the Gain from the RSUs, where the Gain consists of the greatest of (i) the value of the RSU Shares on the applicable Distribution Date on which you received them within the Recovery Measurement Period, (ii) the value of the RSU Shares received during the Recovery Measurement Period, as determined on the date of the request by the Committee to pay or transfer, (iii) the gross (before tax) proceeds you received from any sale of the RSU Shares during the Recovery Measurement Period, and (iv) if transferred without sale during the Recovery Measurement Period, the value of the RSU Shares when so transferred. The Recovery Measurement Period means the 12 months before the date of the determination of violation. The provisions in this section are essential economic conditions to the Companys grant of RSUs to you. By receiving the grant of RSUs hereunder, you agree that the Company may deduct from any amounts it owes you from time to time (such as any severance or other payments owed following a termination of employment, as well as any other amounts owed to you by the Company, as permitted by applicable law) to the extent of any amounts you owe the Company under this Restrictive Covenants Clawback section. |
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You acknowledge that you would not be receiving the RSUs described herein but for your agreement to comply with the Restrictive Covenants. Likewise, you acknowledge that you would be unjustly enriched if you violate the Restrictive |
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Covenants, while being able to retain some or all of the RSUs or the gain associated with them. Furthermore, you acknowledge and agree that the damages for your breach of the Restrictive Covenants are not subject to calculation and that the remedies set forth in this Restrictive Covenants Clawback section, therefore, will only reimburse the Company for a portion of the damage done. For this reason, the Company shall be entitled to recover from you any and all damages Company has suffered and, in addition, Company will be entitled to injunctive relief. The parties agree that the forfeiture of the RSUs and payments described in this section are expressly not Companys exclusive or sole remedy. |
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This remedy is in addition to any other remedies that the Company may have available in law or equity with respect to breaches of the Restrictive Covenants below. It is also in addition to, and not in substitution for, any other clawback policies that may be adopted from time to time, including any required by Federal law, such as under Section 304 of the Sarbanes-Oxley Act of 2002 or the Dodd-Frank Wall Street Reform and Consumer Protection Act. |
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Payment is due in cash or cash equivalents within 10 days after the Board or the Committee provides notice to you that it is enforcing this clawback. Payment will be calculated on a gross basis, without reduction for taxes or commissions. The Company may, but is not required to, accept retransfer of shares in lieu of cash payments. |
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Restrictive Covenants |
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In consideration of the terms of this RSU award and your access to Proprietary Information (as defined below), you agree to the Restrictive Covenants set forth below. |
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Confidential Information |
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You have or will be given access to and provided with sensitive, confidential, proprietary and/or trade secret information (collectively, Proprietary Information ) in the course of your employment. Examples of Proprietary Information include inventions, new product or marketing plans, business strategies and plans, merger and acquisition targets, financial and pricing information, software of the Company in various stages of development, including computer programs in source code and binary code form, software designs, specifications, programming aids (including library subroutines and productivity tools), programming languages, interfaces, visual displays, technical documentation, user manuals, data files and databases of the Company, analytical models, customer/client lists and information, and supplier and vendor lists and information. You agree not to disclose or use Proprietary Information, either during or after your employment with the Company, except as necessary to perform your duties or as the Company may consent in writing. |
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Non-competition and Non-solicitation |
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You agree that while the Company employs you and for a period of 12 months after your employment ends for any reason, you will not directly or indirectly (whether as an owner, partner, officer, employee, director, investor, lender, consultant, independent contractor or otherwise) do any of the following: |
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(i) Compete. In the geographical area where the Company does business or, at the time your employment ends, plans to do business, you will not engage or assist others in |
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engaging in any business or enterprise that competes with the Companys business, including any business or enterprise that develops, designs, produces, manufactures, markets, licenses, sells, renders, or provides any product or service that competes with any product or service actually or planned to be developed, designed, produced, manufactured, marketed, licensed, sold, rendered, or provided by the Company while you are or were employed by the Company; provided that your passive ownership of not more than 1% of the outstanding stock of a publicly-held company will not, by itself, violate this provision. For purposes of this Grant Agreement, you agree that the Company does business throughout and plans to do business throughout the United States; |
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(ii) Solicit Clients, Customers, or Accounts . You will not, either alone or in association with others, actually or attempt to solicit, divert, or take away the business or patronage of any of the Companys clients, customers, or accounts, or prospective clients, customers, or accounts, that the Company contacted, solicited, or served while you were employed by the Company or about which you have Proprietary Information, provided that this provision does not prevent you from soliciting clients, customers, or accounts (if you are not using Proprietary Information to do so) for purposes that are not in actual or potential competition with the Company; |
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(iii) Solicit or Hire Company Employees and Independent Contractors . You will not, either alone or in association with others, actually or attempt to (x) solicit, recruit or induce any Company employee or independent contractor to leave the Companys service or (y) solicit, recruit, hire, or engage as an employee or independent contractor any individual whom the Company employed or engaged at any time while you were employed by the Company, except for an individual whose employment or other service relationship with the Company ended at least six months before the date of your action; and/or |
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(iv) Disclose or Utilize Product Development. You will not, either alone or in association with others, disclose to, or utilize for the benefit of, any entity other than the Company, any systems or product development ideas, concepts, or strategies that you or others in communication with you explored, generated, initiated, or discussed for potential implementation during your employment with the Company, even if the Company has not implemented such ideas, concepts, or strategies by the time your employment with the Company ends. |
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For the purposes of subsection (ii) Solicit Clients, Customers, or Accounts , the terms customer, client, or account as applied to governmental agencies will mean the agency or department for which any of the products or services of the Company are sold or performed during the applicable period, any related program office, and any agency, department, or office that succeeds to the functions of any agency, department, or office to which the Company then provides or within the preceding 12 months provided goods or services (to the extent that the successor replaces part or all of the customer or client to which the Company provided goods or services). |
General |
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To the extent that you and the Company agree at any time to enter into separate agreements containing restrictive covenants with different or inconsistent terms than those contained herein, you and the Company acknowledge and agree that such different or inconsistent terms shall not in any way affect or have relevance to the Restrictive Covenants contained herein, and the terms of these Restrictive Covenants do not supersede or amend any others currently or in the future in place. |
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By accepting this RSU award, you agree that the provisions of this Restrictive Covenants section (and the related Restrictive Covenants Clawback section) are reasonable and necessary to protect the legitimate interests of the Company. |
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Notices |
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Any notice you give to the Company must follow the procedures then in effect. If no other procedures apply, you must send your notice in writing by hand or by mail to the office of the Companys Secretary (or to the Chair of the Committee if you are then serving as the sole Secretary). If mailed, you should address it to the Companys Secretary (or the Chair of the Committee) at the Companys then corporate headquarters, unless the Company directs Plan participants to send notices to another corporate department or to a third party administrator or specifies another method of transmitting notice. The Company and the Committee will address any notices to you using its standard electronic communications methods or at your office or home address as reflected on the Companys personnel or other business records. You and the Company may change the address for notice by like notice to the other, and the Company can also change the address for notice by general announcements to Plan participants. |
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Amendment |
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Subject to any required action by the Committee or the stockholders of the Company, the Company may cancel the RSUs and provide a new Award in its place, provided that the Award so replaced will satisfy all of the requirements of the Plan as of the date such new Award is made and no such action will adversely affect the RSUs to the extent then Vested. |
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Plan Governs |
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Wherever a conflict may arise between the terms of this Grant Agreement and the terms of the Plan, the terms of the Plan will control. The Committee may adjust the number of RSU Shares and other terms of the RSUs from time to time as the Plan provides. |
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EXHIBIT A
The vesting of 50% of the RSUs (the Performance RSUs ) is subject to the following conditions:
A. Service Condition
The Performance RSUs will vest according to the applicable schedule described in Paragraph C below, provided you remain employed by the Company as of each applicable vesting date set forth below.
B. Performance Conditions
1. The Companys average closing price per Share as reported on the NASDAQ Global Select Market during at least one measurement period (as described below) must be at least 25% higher than the closing price per Share as reported on the NASDAQ Global Select Market on the Date of Grant.
2. The measurement period will consist of the applicable trading days in any consecutive 30 (thirty) calendar day period preceding the first, second and/or third anniversaries of the Date of Grant.
3. On each anniversary of the Date of Grant (or as promptly as practicable thereafter), the Company will calculate the average closing price for the applicable measurement periods preceding such date in order to determine if the performance condition has been satisfied.
C. Vesting
1. Performance Condition Achieved prior to First Anniversary of Date of Grant . If the performance condition is achieved prior to the first anniversary of the Date of Grant, the Performance RSUs will vest in equal installments pursuant to the following schedule:
Vesting Date |
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Proportion of Performance RSUs that will vest as of
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1 st anniversary of Date of Grant |
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One-third of the Performance RSUs |
2 nd anniversary of Date of Grant |
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One-third of the Performance RSUs |
3 rd anniversary of Date of Grant |
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One-third of the Performance RSUs |
2. Performance Condition Achieved after First Anniversary but before Second Anniversary of the Date of Grant . If the performance condition is achieved after the first anniversary but before the second anniversary of the Date of Grant, the Performance RSUs will vest pursuant to the following schedule:
Vesting Date |
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Proportion of Performance RSUs that will vest as of
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1 st anniversary of Date of Grant |
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- 0 - |
2 nd anniversary of Date of Grant |
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Two-thirds of the Performance RSUs |
3 rd anniversary of Date of Grant |
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One-third of the Performance RSUs |
3. Performance Condition Achieved after Second Anniversary but before Third Anniversary of the Date of Grant . If the performance condition is achieved after the second anniversary but before the third anniversary of the Date of Grant, the Performance RSUs will become fully vested as of such third anniversary pursuant to the following schedule:
Vesting Date |
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Proportion of Performance RSUs that will vest as of
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1 st anniversary of Date of Grant |
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- 0 - |
2 nd anniversary of Date of Grant |
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- 0 - |
3 rd anniversary of Date of Grant |
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100% of the Performance RSUs |
4. Performance Condition Not Achieved before the Third Anniversary of the Date of Grant. Except in the event of death, Disability or a Change of Control prior to the third anniversary of the Date of Grant (in which case the terms set forth in the Grant Agreement will apply and, for the avoidance of doubt, the performance condition will no longer be applicable), if the performance condition is not achieved by the third anniversary of the Date of Grant, no portion of the Performance RSUs will vest and the Performance RSUs shall be forfeited.
Exhibit 10.3
2015 SENIOR VICE PRESIDENT NQSO AGREEMENT
<Participant Full Name>
Dear <Participant First Name>
Congratulations, you have been awarded a stock option grant in recognition of your contributions to the success of HMS Holdings Corp. (the Company ) and its Affiliates. A stock option grant gives you the right to purchase a specific number of shares of the Companys common stock at a fixed price, assuming that you satisfy conditions of the Companys Fourth Amended and Restated 2006 Stock Plan (the Plan ) and the implementing agreement. We would like you to have an opportunity to share in the continued success of the Company through this stock option grant under the Plan. The following represents a brief description of your grant. Additional details regarding your award are provided in the attached Nonqualified Stock Option Agreement (the Grant Agreement ) and in the Plan.
Stock Option Grant Summary:
Date of Grant |
March 4, 2015 |
Option Shares |
<Number of Shares Granted> |
Exercise Price per Share |
$ |
Exercisability |
One-sixth of the Option Shares on each of the first, second and third anniversaries of the Date of Grant, with the remainder becoming exercisable as provided in Exhibit A to the Grant Agreement. Each of those dates is an Exercisability Date . |
Term Expiration Date |
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· You have been granted a nonqualified stock option to purchase Shares of the Companys common stock. The total number of Shares under your grant is in the chart above under Option Shares and the price per share is under Exercise Price per Share.
· The potential value of your stock option grant increases if the price of the Companys stock increases, but you also have to continue to provide services to the Company (except as the Grant Agreement provides) to actually receive such value. Of course, the value of the stock may go up and down over time.
· You cant exercise the stock option (actually purchase the shares) until it becomes exercisable. Your stock option becomes exercisable as provided in the chart above under Exercisability, assuming you remain an employee of or member of the Board of Directors of the Company and subject to the terms in the Grant Agreement.
· Whether or not you decide to exercise your stock option and purchase the stock is your decision, and, you have until the stock option expires (which will be no later than the seventh anniversary of the Date of Grant but can end earlier in various situations) to make that decision.
· Once you have purchased the Shares, you will own them and may decide whether to hold the stock, sell the stock or give the stock to someone as a gift.
You can access the Merrill Lynch portal updates and information: https://www29.benefits.ml.com/login/login.aspx. Please email IR@hms.com with any questions.
HMS HOLDINGS CORP.
NONQUALIFIED STOCK OPTION GRANT AGREEMENT FOR SENIOR VICE PRESIDENTS
HMS Holdings Corp. (the Company ) has granted you an option (the Option ) under the HMS Holdings Corp. Fourth Amended and Restated 2006 Stock Plan (as it may be amended from time to time) (the Plan ). The Option lets you purchase a specified number (the Option Shares ) of Shares of the Companys common stock, at a specified price per Share (the Exercise Price ).
The individualized communication you received (the Cover Letter ) provides the details for your Option. It specifies the number of Option Shares, the Exercise Price, the Date of Grant, the schedule for exercisability, and the latest date the Option will expire (the Term Expiration Date ).
The Option is subject in all respects to the applicable provisions of the Plan. This Grant Agreement does not cover all of the rules that apply to the Option under the Plan; please refer to the Plan document. Capitalized terms are defined either further below in this grant agreement (the Grant Agreement ) or in the Plan.
The Plan document is available on the Merrill Lynch website. The Prospectus for the Plan, the Companys S-8, Annual Report on Form 10-K, and other filings the Company makes with the Securities and Exchange Commission are available for your review under the Investor Relations tab on the Companys web site. You may also obtain paper copies of these documents upon request to the Companys Investor Relations department (IR@HMS.com).
Neither the Company nor anyone else is making any representations or promises regarding the duration of your service, exercisability of the Option, the value of the Companys stock or of this Option, or the Companys prospects. The Company is not providing any advice regarding tax consequences to you or regarding your decisions regarding the Option; you agree to rely only upon your own personal advisors.
NO ONE MAY SELL, TRANSFER, OR DISTRIBUTE THE OPTION OR THE SECURITIES THAT MAY BE PURCHASED UPON EXERCISING THE OPTION WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO HMS HOLDINGS CORP. OR OTHER INFORMATION AND REPRESENTATIONS SATISFACTORY TO IT THAT SUCH REGISTRATION IS NOT REQUIRED.
In addition to the Plans terms and restrictions, the following terms and restrictions apply:
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Option Exercisability |
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While your Option remains in effect under the Option Expiration section, you may exercise any exercisable portions of the Option (and buy the Option Shares) under the timing rules of this section, provided that you may not exercise the Option for fewer than 100 full shares at any particular time unless fewer than 100 remain unexercised. |
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The Option will become exercisable on the schedule provided in the Cover Letter to this Grant Agreement assuming that through each Exercisability Date, (i) if you received the Option in your capacity as an employee of the Company, you remain an employee or (ii) if you received the Option in your capacity as a member of the Companys Board, you remain a member of the Companys Board. Any fractional shares will be carried forward to the following Exercisability Date, unless the Committee selects a different treatment. For purposes of this Grant Agreement, employment with the Company will include employment with any Affiliate whose employees are then eligible to receive Awards under the Plan. Unless the Committee determines otherwise, if an entity employing you ceases to be an Affiliate, your employment with the Company will be treated as ended even though you continue to be employed by that entity. |
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Exercisability will accelerate fully on your disability or death, including with respect to the Performance Option Shares (as defined below). For this purpose, disability means permanent and total disability as defined by Section 22(e)(3) of the Code. Exercisability will continue and increase (until fully exercisable) over the two years following your date of Retirement. Retirement for this purpose means cessation of service on or after attaining age 60 and completing five years of service with the Company. |
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Change in Control |
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If a Change in Control occurs, your Option will be treated as provided in Section 11 of the Plan if, within 24 months following the Change in Control, your employment or service ends on a termination without cause (as determined by the Committee or the Board), provided also that the Option will remain outstanding for 12 months following such termination but not beyond the Term Expiration Date. |
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Option Expiration |
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The Option will expire no later than the close of business on the Term Expiration Date. Unexercisable portions of the Option expire immediately when you cease to be employed (unless you are concurrently remaining or becoming a member of the Board, or, for a Board member, concurrently remaining or becoming an employee of the Company). If the Company terminates your employment or service for cause, the Option will immediately expire without regard to whether it is then exercisable. |
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Exercisable portions of the Option remain exercisable until the first to occur of the following (the Final Exercise Date ), each as defined further in the Plan or the Grant Agreement: |
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· Three months (measured to the corresponding date in the month) after your employment (or directorship) ends if you resign or if the Company terminates your employment or service without cause (as determined under the Plan), except as provided above under Change in Control |
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· For death or Disability, the first anniversary of the date employment or service ends |
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· For Retirement, the end of the second year following your date of Retirement |
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· The Term Expiration Date |
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The Committee can override the expiration provisions of this Grant Agreement. |
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Method of Exercise and Payment for Shares |
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Subject to this Grant Agreement and the Plan, you may exercise the Option only by providing a written notice (or notice through another previously approved method, which could include a web-based or voice- or e-mail system) to the Secretary of the Company or to whomever the Committee designates, received on or before the date the Option expires. Each such notice must satisfy whatever then-current procedures apply to that Option and must contain such representations (statements from you about your situation) as the Company requires. You must, at the same time, pay the Exercise Price using one or more of the following methods: |
Cash/Check |
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cash or check in the amount of the Exercise Price payable to the order of the Company; |
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Cashless
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an approved cashless exercise method, including directing the Company to send the stock certificates (or other acceptable evidence of ownership) to be issued under the Option to a licensed broker acceptable to the Company as your agent in exchange for the brokers tendering to the Company cash (or acceptable cash equivalents) equal to the Exercise Price and, if you so elect, any required tax withholdings; |
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Net Exercise |
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by delivery of a notice of net exercise to or as directed by the Company, as a result of which you will receive (i) the number of shares underlying the portion of the Option being exercised less (ii) such number of shares as is equal to (A) the aggregate Exercise Price for the portion of the Option being exercised divided by (B) the Fair Market Value on the date of exercise; |
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Stock |
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if permitted by the Committee, by delivery of Shares owned by you, valued at their Fair Market Value, provided (i) applicable law then permits such method of payment, (ii) you owned such Shares, if acquired directly from the Company, for such minimum period of time, if any, as the Committee may establish in its discretion, and (iii) the Shares are not subject to any repurchase, forfeiture, unfulfilled vesting, or other similar restrictions; or |
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any combination of the above permitted forms for payment. |
Withholding |
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Issuing the Option Shares is contingent on satisfaction of all obligations with respect to required tax or other required withholdings (for example, in the U.S., Federal, state, and local taxes). The Company may take any action permitted under Section 14(c) of the Plan to satisfy such obligation, including satisfying the tax obligations by (i) reducing the number of Option Shares to be issued to you in connection with any exercise of the Option by that number of Option Shares (valued at their Fair Market Value on the date of exercise) that would equal all taxes required to be withheld (at their minimum withholding levels), (ii) accepting payment of the withholdings from a broker in connection with a Cashless |
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Exercise of the Option or directly from you, or (iii) taking any other action under Section 14(c) of the Plan. If a fractional share remains after deduction for required withholding, the Company will pay you the value of the fraction in cash. |
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Compliance with Law |
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You may not exercise the Option if the Companys issuing stock upon such exercise would violate any applicable Federal or state securities laws or other laws or regulations. You may not sell or otherwise dispose of the Option Shares in violation of applicable law. As part of this prohibition, you may not use the Cashless Exercise methods if the Companys insider trading policy then prohibits you from selling to the market. |
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Additional Conditions to Exercise |
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The Company may postpone issuing and delivering any Option Shares for so long as the Company determines to be advisable to satisfy the following: |
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its completing or amending any securities registration or qualification of the Option Shares or its or your satisfying any exemption from registration under any Federal or state law, rule, or regulation; |
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its receiving proof it considers satisfactory that a person seeking to exercise the Option after your death is entitled to do so; |
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your complying with any requests for representations under the Plan; and |
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your complying with any Federal, state, or local tax withholding obligations. |
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Additional Representations from You |
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If you exercise the Option at a time when the Company does not have a current registration statement (generally on Form S-8) under the Securities Act of 1933 (the Act ) that covers issuances of shares to you, you must comply with the following before the Company will issue the Option Shares to you. You must |
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represent to the Company, in a manner satisfactory to the Companys counsel, that you are acquiring the Option Shares for your own account and not with a view to reselling or distributing the Option Shares; and |
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agree that you will not sell, transfer, or otherwise dispose of the Option Shares unless: |
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a registration statement under the Act is effective at the time of disposition with respect to the Option Shares you propose to sell, transfer, or otherwise dispose of; or |
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the Company has received an opinion of counsel or other information and representations it considers satisfactory to the effect that, because of Rule 144 under the Act or otherwise, no registration under the Act is required. |
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No Effect on Employment or Other Relationship |
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Nothing in this Grant Agreement restricts the Companys rights or those of any of its Affiliates to terminate your employment or other relationship at any time and for any or no reason. The termination of employment or other relationship, whether by the Company or any of its Affiliates or otherwise, and regardless of the reason for such termination, has the consequences provided for under the Plan and any applicable employment or severance agreement or plan. |
Not a Stockholder |
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You understand and agree that the Company will not consider you a stockholder for any purpose with respect to any of the Option Shares until you have exercised the Option, paid for the shares, and received evidence of ownership. |
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No Effect on Running Business |
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You understand and agree that the existence of the Option will not affect in any way the right or power of the Company or its stockholders to make or authorize any adjustments, recapitalizations, reorganizations, or other changes in the Companys capital structure or its business, or any merger or consolidation of the Company, or any issuance of bonds, debentures, preferred or other stock, with preference ahead of or convertible into, or otherwise affecting the Companys common stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether or not of a similar character to those described above. |
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Governing Law |
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The laws of the State of New York will govern all matters relating to the Option, without regard to the principles of conflict of laws. |
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Restrictive Covenants Clawback |
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If the Board or the Committee determines, in its sole discretion, that you violated or are violating any of the Restrictive Covenants set forth below under the section titled Restrictive Covenants, the Option will immediately terminate without regard to whether it is then Vested in whole or in part. In addition, the Board or the Committee may, in its sole discretion, require from you payment or transfer to the Company of the Gain from the Option, where the Gain consists of the greatest of (i) the value of the Option Shares on the date, within the Recovery Measurement Period, on which you exercised the Option with respect to such Option Shares, (ii) the value of the Option Shares received upon exercise during the Recovery Measurement Period, as determined on the date of the request by the Committee to pay or transfer, (iii) the gross (before tax) proceeds you received from any sale of the Option Shares during the Recovery Measurement Period, and (iv) if transferred without sale during the Recovery Measurement Period, the value of the Option Shares when so transferred. The Board or the Committee may determine the recoupment method in its sole discretion for any portion of the Option transferred (where permitted) before being exercised. The Recovery Measurement Period means the 12 months before the date of the determination of violation. The provisions in this section are essential economic conditions to the Companys grant of the Option to you. By acknowledging receipt of the grant of the Option hereunder, you agree that the Company may deduct from any amounts it owes you from time to time (such as any severance or other payments owed following a termination of employment, as well as any other amounts owed to you by the Company, as permitted by applicable law) to the extent of any amounts you owe the Company under this Restrictive Covenants Clawback section. |
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You acknowledge that you would not be receiving the Option described herein but for your agreement to comply with the Restrictive Covenants. Likewise, you acknowledge that you would be unjustly enriched if you violate the Restrictive Covenants, while being able to retain some or all of the Option Shares or the gain associated with them. Furthermore, you acknowledge and agree that the damages for your breach of the Restrictive Covenants are not subject to calculation and that the remedies set forth in this Restrictive Covenants Clawback section, therefore, will only reimburse the Company for a portion of the damage done. For this reason, the Company shall be entitled to recover |
Confidential Information |
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You have or will be given access to and provided with sensitive, confidential, proprietary and/or trade secret information (collectively, Proprietary Information ) in the course of your employment. Examples of Proprietary Information include inventions, new product or marketing plans, business strategies and plans, merger and acquisition targets, financial and pricing information, software of the Company in various stages of development, including computer programs in source code and binary code form, software designs, specifications, programming aids (including library subroutines and productivity tools), programming languages, interfaces, visual displays, technical documentation, user manuals, data files and databases of the Company, analytical models, customer/client lists and information, and supplier and vendor lists and information. You agree not to disclose or use Proprietary Information, either during or after your employment with the Company, except as necessary to perform your duties or as the Company may consent in writing. |
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Non-competition and Non-solicitation |
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You agree that while the Company employs you and for a period of 12 months after your employment ends for any reason, you will not directly or indirectly (whether as an owner, partner, officer, employee, director, investor, lender, consultant, independent contractor or otherwise) do any of the following: |
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(i) Compete. In the geographical area where the Company does business or, at the time your employment ends, plans to do business, you will not engage or assist others in engaging in any business or enterprise that competes with the Companys business, including any business or enterprise that develops, designs, produces, manufactures, markets, licenses, sells, renders, or provides any product or service that competes with any product or service actually or planned to be developed, designed, produced, manufactured, marketed, licensed, sold, rendered, or provided by the Company while you are or were employed by the Company; provided that your passive ownership of not more than |
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1% of the outstanding stock of a publicly-held company will not, by itself, violate this provision. For purposes of this Grant Agreement, you agree that the Company does business throughout and plans to do business throughout the United States; |
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(ii) Solicit Clients, Customers, or Accounts . You will not, either alone or in association with others, actually or attempt to solicit, divert, or take away the business or patronage of any of the Companys clients, customers, or accounts, or prospective clients, customers, or accounts, that the Company contacted, solicited, or served while you were employed by the Company or about which you have Proprietary Information, provided that this provision does not prevent you from soliciting clients, customers, or accounts (if you are not using Proprietary Information to do so) for purposes that are not in actual or potential competition with the Company; |
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(iii) Solicit or Hire Company Employees and Independent Contractors . You will not, either alone or in association with others, actually or attempt to (x) solicit, recruit or induce any Company employee or independent contractor to leave the Companys service or (y) solicit, recruit, hire, or engage as an employee or independent contractor any individual whom the Company employed or engaged at any time while you were employed by the Company, except for an individual whose employment or other service relationship with the Company ended at least six months before the date of your action; and/or |
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(iv) Disclose or Utilize Product Development. You will not, either alone or in association with others, disclose to, or utilize for the benefit of, any entity other than the Company, any systems or product development ideas, concepts, or strategies that you or others in communication with you explored, generated, initiated, or discussed for potential implementation during your employment with the Company, even if the Company has not implemented such ideas, concepts, or strategies by the time your employment with the Company ends. |
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For the purposes of subsection (ii) Solicit Clients, Customers, or Accounts , the terms customer, client, or account as applied to governmental agencies will mean the agency or department for which any of the products or services of the Company are sold or performed during the applicable period, any related program office, and any agency, department, or office that succeeds to the functions of any agency, department, or office to which the Company then provides or within the preceding 12 months provided goods or services (to the extent that the successor replaces part or all of the customer or client to which the Company provided goods or services). |
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General |
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To the extent that you and the Company agree at any time to enter into separate agreements containing restrictive covenants with different or inconsistent terms than those contained herein, you and the Company acknowledge and agree that such different or inconsistent terms shall not in any way affect or have relevance to the Restrictive Covenants contained herein, and the terms of these Restrictive Covenants do not supersede or amend any others currently or in the future in place. |
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By accepting this Option grant, you agree that the provisions of this Restrictive Covenants section (and the related Restrictive Covenants Clawback section) are reasonable and necessary to protect the legitimate interests of the Company. |
Notices |
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Any notice you give to the Company must follow the procedures then in effect. If no other procedures apply, you must send your notice in writing by hand or by mail to the office of the Companys Secretary (or to the Chair of the Committee if you are then serving as the sole Secretary). If mailed, you should address it to the Companys Secretary (or the Chair of the Committee) at the Companys then corporate headquarters, unless the Company directs optionees to send notices to another corporate department or to a third party administrator or specifies another method of transmitting notice. The Company and the Committee will address any notices to you using its standard electronic communications methods or at your office or home address as reflected on the Companys personnel or other business records. You and the Company may change the address for notice by like notice to the other, and the Company can also change the address for notice by general announcements to optionees. |
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Amendment |
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Subject to any required action by the Committee or the stockholders of the Company, the Company may cancel the Option and provide a new Award in its place, provided that the Award so replaced will satisfy all of the requirements of the Plan as of the date such new Award is made and no such action will adversely affect the Option to the extent then exercisable. |
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Plan Governs |
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Wherever a conflict may arise between the terms of this Grant Agreement and the terms of the Plan, the terms of the Plan will control. The Committee may adjust the number of Option Shares and the Exercise Price and other terms of the Option from time to time as the Plan provides. |
EXHIBIT A
The exercisability of 50% of the Shares covered by the Option (the Performance Option Shares ) is subject to the following conditions:
A. Service Condition
The Performance Option Shares will become exercisable according to the applicable schedule described in Paragraph C below, provided you remain employed by the Company as of each applicable exercisability date set forth below.
B. Performance Conditions
1. The Companys average closing price per Share as reported on the NASDAQ Global Select Market during at least one measurement period (as described below) must be at least 25% higher than the Exercise Price per Share specified in the Stock Option Grant Summary.
2. The measurement period will consist of the applicable trading days in any consecutive 30 (thirty) calendar day period preceding the first, second and/or third anniversaries of the Date of Grant.
3. On each anniversary of the Date of Grant (or as promptly as practicable thereafter), the Company will calculate the average closing price for the applicable measurement periods preceding such date in order to determine if the performance condition has been satisfied.
C. Exercisability
1. Performance Condition Achieved prior to First Anniversary of Date of Grant . If the performance condition is achieved prior to the first anniversary of the Date of Grant, the Performance Option Shares will become exercisable in equal installments pursuant to the following schedule:
Exercisability Date |
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Proportion of Performance Option Shares Exercisable as
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1 st anniversary of Date of Grant |
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One-third of the Performance Option Shares |
2 nd anniversary of Date of Grant |
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One-third of the Performance Option Shares |
3 rd anniversary of Date of Grant |
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One-third of the Performance Option Shares |
2. Performance Condition Achieved after First Anniversary but before Second Anniversary of the Date of Grant . If the performance condition is achieved after the first anniversary but before the second anniversary of the Date of Grant, the Performance Option Shares will become exercisable pursuant to the following schedule:
Exercisability Date |
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Proportion of Performance Option Shares Exercisable as
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1 st anniversary of Date of Grant |
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-0- |
2 nd anniversary of Date of Grant |
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Two-thirds of the Performance Option Shares |
3 rd anniversary of Date of Grant |
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One-third of the Performance Option Shares |
3. Performance Condition Achieved after Second Anniversary but before Third Anniversary of the Date of Grant . If the performance condition is achieved after the second anniversary but before the third anniversary of the Date of Grant, the Performance Option Shares will become fully exercisable as of such third anniversary pursuant to the following schedule:
Exercisability Date |
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Proportion of Performance Option Shares Exercisable as
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1 st anniversary of Date of Grant |
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-0- |
2 nd anniversary of Date of Grant |
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-0- |
3 rd anniversary of Date of Grant |
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100% of the Performance Option Shares |
4. Performance Condition Not Achieved before the Third Anniversary of the Date of Grant. Except in the event of death, Disability or a Change of Control prior to the third anniversary of the Date of Grant (in which case the terms set forth in the Grant Agreement will apply and, for the avoidance of doubt, the performance condition will no longer be applicable), if the performance condition is not achieved by the third anniversary of the Date of Grant, no portion of the Performance Option Shares will become exercisable and the Performance Option Shares shall be forfeited.
Exhibit 10.4
2015 SENIOR VICE PRESIDENT RSU AGREEMENT
<Participant Full Name>
Dear <Participant First Name>
Congratulations, you have been awarded restricted stock units ( RSUs ) in recognition of your contributions to the success of HMS Holdings Corp. (the Company ) and its Affiliates. A restricted stock unit entitles you to receive a share of the Companys common stock at a future date, assuming that you satisfy conditions of the Companys Fourth Amended and Restated 2006 Stock Plan (the Plan ) and the implementing agreement. We would like you to have an opportunity to share in the continued success of the Company through these RSUs under the Plan. The following represents a brief description of your grant. Additional details regarding your award are provided in the attached Restricted Stock Unit Agreement (the Grant Agreement ) and in the Plan.
Restricted Stock Unit Grant Summary:
Date of Grant |
March 4, 2015 |
RSU Shares |
<Number of Shares Granted> |
Vesting Schedule |
One-sixth of the RSU Shares shall vest on the first, second and third anniversaries of the date of the Grant, with the remainder vesting as provided in Exhibit A to the Grant Agreement. Each of those dates is a Vesting Date . |
· You have been granted RSUs for Shares of the Companys common stock for the total number of Shares specified under RSU Shares in the chart above.
· The potential value of your RSUs increases if the price of the Companys stock increases, but you also have to continue to provide services to the Company (except as the Grant Agreement provides) to actually receive such value. Of course, the value of the stock may go up and down over time.
· You will not receive the Shares represented by the RSUs unless and until the RSUs vest. Your RSUs vest as provided in the chart above under Vesting, assuming you remain an employee of the Company and subject to the terms in the Grant Agreement.
· Once you have received the Shares, you will own them and may decide whether to hold the stock, sell the stock or give the stock to someone as a gift.
You can access the Merrill Lynch portal updates and information: https://www29.benefits.ml.com/login/login.aspx. Please email IR@hms.com with any questions.
HMS HOLDINGS CORP.
RESTRICTED STOCK UNIT GRANT AGREEMENT FOR SENIOR VICE PRESIDENTS
HMS Holdings Corp. (the Company ) has granted you restricted stock units (the RSUs ) under the HMS Holdings Corp. Fourth Amended and Restated 2006 Stock Plan (as it may be amended from time to time) (the Plan ). Each RSU lets you receive a Share (an RSU Share ) of the Companys common stock, upon satisfaction of the conditions to receipt.
The individualized communication you received (the Cover Letter ) provides the details for your RSUs. It specifies the number of RSU Shares, the Date of Grant, and the schedule for vesting, with the related vesting dates ( Vesting Dates ).
The RSUs are subject in all respects to the applicable provisions of the Plan. This Grant Agreement does not cover all of the rules that apply to the RSUs under the Plan; please refer to the Plan document. Capitalized terms are defined either further below in this grant agreement (the Grant Agreement ) or in the Plan.
The Plan document is available on the Merrill Lynch website. The Prospectus for the Plan, the Companys S-8, Annual Report on Form 10-K, and other filings the Company makes with the Securities and Exchange Commission are available for your review under the Investor Relations tab on the Companys web site. You may also obtain paper copies of these documents upon request to the Companys Investor Relations department (IR@HMS.com).
Neither the Company nor anyone else is making any representations or promises regarding the duration of your service, vesting of the RSUs, the value of the Companys stock or of these RSUs, or the Companys prospects. The Company is not providing any advice regarding tax consequences to you or regarding your decisions regarding the RSUs; you agree to rely only upon your own personal advisors.
NO ONE MAY SELL, TRANSFER, OR DISTRIBUTE THE RSUS OR THE SECURITIES THAT MAY BE RECEIVED UNDER THEM WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO HMS HOLDINGS CORP. OR OTHER INFORMATION AND REPRESENTATIONS SATISFACTORY TO IT THAT SUCH REGISTRATION IS NOT REQUIRED.
In addition to the Plans terms and restrictions, the following terms and restrictions apply:
Vesting Schedule |
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Your RSUs become nonforfeitable ( Vested ) as provided in the Cover Letter to this Grant Agreement, assuming that through each Vesting Date, (i) if you received the RSUs in your capacity as an employee of the Company, you continue in service as an employee or (ii) if you received the RSUs in your capacity as a member of the Companys Board, you continue in service as a member of the Companys Board. Any fractional shares will be carried forward to the following Vesting Date, unless the Committee selects a different treatment. For purposes of this Grant Agreement, employment with the Company will include employment with any Affiliate whose employees are then eligible to receive Awards under the Plan. Unless the Committee determines otherwise, if an entity employing you ceases to be an Affiliate, your employment with the Company will be treated as ended even though you continue to be employed by that entity. |
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Vesting will accelerate fully on your disability or death, including with respect to the Performance RSU Shares (as defined below). For this purpose, disability means permanent and total disability as defined by Section 22(e)(3) of the Code. |
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If your employment or service ends as a result of Retirement, you will be treated as continuing in service for vesting purposes until the earlier to occur of (x) the second anniversary of your Retirement and (y) the last of the applicable Vesting Dates. Retirement for this purpose means cessation of employment or service on or after attaining age 60 and completing five years of service with the Company. |
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Change in Control |
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If a Change in Control occurs, your RSUs will be treated as provided in Section 11 of the Plan if, within 24 months following the Change in Control, your employment or service ends on (i) a termination without cause (as determined by the Committee or the Board) or (ii) Retirement. |
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Termination for Cause |
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If the Company terminates your employment or service for cause, the RSUs will immediately terminate without regard to whether they are then Vested in whole or in part. |
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Distribution Date |
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Subject to any overriding provisions in the Plan, you will receive a distribution of the Shares equivalent to your Vested RSU Shares as soon as practicable following the date(s) on which you become Vested (with the actual date being the Distribution Date ) and, in any event, no later than 30 days following an applicable Vesting Date, unless the Committee determines that you may make a timely deferral election to defer distribution to a later date and you have made such an election (in which case the deferred date will be the Distribution Date ). |
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Vesting that accelerates after a Change in Control will only accelerate the Distribution Date if and to the extent permitted under Section 409A of the Code. |
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Restrictions and Forfeiture |
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You may not sell, assign, pledge, encumber, or otherwise transfer any interest ( Transfer ) in the RSU Shares until the RSU Shares are distributed to you. Any attempted Transfer that precedes the Distribution Date is invalid. |
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Unless the Committee determines otherwise or the Grant Agreement provides otherwise, if your employment or service with the Company terminates for any |
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reason before your RSUs are Vested, then you will forfeit the unvested RSUs (and the Shares to which they relate) to the extent that the RSUs do not otherwise vest as a result of the termination, pursuant to the rules in the Vesting Schedule section. The forfeited RSUs will then immediately revert to the Company. You will receive no payment for the RSUs if you forfeit them. |
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Taxes and Withholding |
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The RSUs provide tax deferral, meaning that the RSU Shares are not taxable until you actually receive the RSU Shares on or around the Distribution Date. You will then owe taxes at ordinary income tax rates as of the Distribution Date at the Shares value. If you are an employee of the Company, you may owe FICA and HI (Social Security and Medicare) taxes before the Distribution Date. |
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Issuing the Shares under the RSUs is contingent on satisfaction of all obligations with respect to required tax or other required withholdings (for example, in the U.S., Federal, state, and local taxes). The Company may take any action permitted under Section 14(c) of the Plan to satisfy such obligation, including satisfying the tax obligations by (i) reducing the number of RSU Shares to be issued to you by that number of RSU Shares (valued at their Fair Market Value on the date of distribution) that would equal all taxes required to be withheld (at their minimum withholding levels), (ii) accepting payment of the withholdings from a broker in connection with a sale of the RSU Shares or directly from you, or (iii) taking any other action under Section 14(c) of the Plan. If a fractional share remains after deduction for required withholding, the Company will pay you the value of the fraction in cash. |
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Compliance with Law |
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The Company will not issue the RSU Shares if doing so would violate any applicable Federal or state securities laws or other laws or regulations. You may not sell or otherwise dispose of the RSU Shares in violation of applicable law. |
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Additional Conditions to Receipt |
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The Company may postpone issuing and delivering any RSU Shares for so long as the Company determines to be advisable to satisfy the following: |
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its completing or amending any securities registration or qualification of the RSU Shares or its or your satisfying any exemption from registration under any Federal or state law, rule, or regulation; |
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its receiving proof it considers satisfactory that a person seeking to receive the RSU Shares after your death is entitled to do so; |
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your complying with any requests for representations under the Plan; and |
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your complying with any Federal, state, or local tax withholding obligations. |
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Additional Representations from You |
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If the vesting provisions of the RSUs are satisfied and you are entitled to receive RSU Shares at a time when the Company does not have a current registration statement (generally on Form S-8) under the Securities Act of 1933 (the Act ) that covers issuances of shares to you, you must comply with the following before the Company will issue the RSU Shares to you. You must |
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represent to the Company, in a manner satisfactory to the Companys counsel, that you are acquiring the RSU Shares for your own account and not with a view to reselling or distributing the RSU Shares; and |
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agree that you will not sell, transfer, or otherwise dispose of the RSU Shares unless: |
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a registration statement under the Act is effective at the time of disposition with respect to the RSU Shares you propose to sell, transfer, or otherwise dispose of; or |
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the Company has received an opinion of counsel or other information and representations it considers satisfactory to the effect that, because of Rule 144 under the Act or otherwise, no registration under the Act is required. |
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No Effect on Employment or Other Relationship |
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Nothing in this Grant Agreement restricts the Companys rights or those of any of its Affiliates to terminate your employment or other relationship at any time and for any or no reason. The termination of employment or other relationship, whether by the Company or any of its Affiliates or otherwise, and regardless of the reason for such termination, has the consequences provided for under the Plan and any applicable employment or severance agreement or plan. |
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Limited Status |
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You understand and agree that the Company will not consider you a stockholder for any purpose with respect to the RSU Shares, unless and until the RSU Shares have been issued to you on the Distribution Date. You will not receive dividends with respect to the RSUs, but the Company will credit additional whole or fractional RSUs to this Grant equal to the result of dividing (i) the product of the total number of RSUs credited to you under this Grant on the record date for such dividend (and not yet distributed in Shares) and the per share amount of such dividend by (ii) the Fair Market Value of one Share on the date such dividend is paid by the Company to stockholders. The additional RSUs will be or become Vested to the same extent as the RSUs that resulted in the crediting of such additional Units and may be paid out in cash or Shares under the timing rules provided in Section 8(e) of the Plan. |
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Voting |
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You may not vote the RSUs. You may not vote the RSU Shares unless and until the Shares are distributed to you. |
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No Effect on Running Business |
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You understand and agree that the existence of the RSUs will not affect in any way the right or power of the Company or its stockholders to make or authorize any adjustments, recapitalizations, reorganizations, or other changes in the Companys capital structure or its business, or any merger or consolidation of the Company, or any issuance of bonds, debentures, preferred or other stock, with preference ahead of or convertible into, or otherwise affecting the Companys common stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether or not of a similar character to those described above. |
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Section 409A |
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The RSUs are intended to comply with the requirements of Section 409A and must be construed consistently with that section. Notwithstanding anything in the Plan or this Grant Agreement to the contrary, if the RSUs Vest in connection with your separation from service within the meaning of Section 409A, as determined by the Company), and if (x) you are then a specified employee within the meaning of Section 409A at the time of such separation from service (as determined by the Company, by which determination you agree you are |
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bound) and (y) the distribution of RSU Shares under such RSUs will result in the imposition of additional tax under Section 409A if distributed to you within the six month period following your separation from service, then the distribution under such accelerated RSUs will not be made until the earlier of (i) the date six months and one day following the date of your separation from service or (ii) the 10 th day after your date of death. Neither the Company nor you shall have the right to accelerate or defer the delivery of any such RSU Shares or benefits except to the extent specifically permitted or required by Section 409A. In no event may the Company or you defer the delivery of the RSU Shares beyond the date specified in the Distribution Date section, unless such deferral complies in all respects with Treasury Regulation Section 1.409A-2(b) related to subsequent changes in the time or form of payment of nonqualified deferred compensation arrangements, or any successor regulation. In any event, the Company makes no representations or warranty and shall have no liability to you or any other person, if any provisions of or distributions under this Grant Agreement are determined to constitute deferred compensation subject to Section 409A but not to satisfy the conditions of that section. |
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Unsecured Creditor |
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The RSUs create a contractual obligation on the part of the Company to make a distribution of the RSU Shares at the time provided for in this Grant Agreement. Neither you nor any other party claiming an interest in deferred compensation hereunder shall have any interest whatsoever in any specific assets of the Company. Your right to receive distributions hereunder is that of an unsecured general creditor of Company. |
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Governing Law |
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The laws of the State of New York will govern all matters relating to the RSUs, without regard to the principles of conflict of laws. |
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Restrictive Covenants Claw back |
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If the Board or the Committee determines, in its sole discretion, that you violated or are violating any of the Restrictive Covenants set forth below under the section titled Restrictive Covenants, the RSUs will immediately terminate without regard to whether they are then Vested in whole or in part. In addition, the Board or the Committee may, in its sole discretion, require from you payment or transfer to the Company of the Gain from the RSUs, where the Gain consists of the greatest of (i) the value of the RSU Shares on the applicable Distribution Date on which you received them within the Recovery Measurement Period, (ii) the value of the RSU Shares received during the Recovery Measurement Period, as determined on the date of the request by the Committee to pay or transfer, (iii) the gross (before tax) proceeds you received from any sale of the RSU Shares during the Recovery Measurement Period, and (iv) if transferred without sale during the Recovery Measurement Period, the value of the RSU Shares when so transferred. The Recovery Measurement Period means the 12 months before the date of the determination of violation. The provisions in this section are essential economic conditions to the Companys grant of RSUs to you. By receiving the grant of RSUs hereunder, you agree that the Company may deduct from any amounts it owes you from time to time (such as any severance or other payments owed following a termination of employment, as well as any other amounts owed to you by the Company, as permitted by applicable law) to the extent of any amounts you owe the Company under this Restrictive Covenants Clawback section. |
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You acknowledge that you would not be receiving the RSUs described herein but for your agreement to comply with the Restrictive Covenants. Likewise, you acknowledge that you would be unjustly enriched if you violate the Restrictive |
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engaging in any business or enterprise that competes with the Companys business, including any business or enterprise that develops, designs, produces, manufactures, markets, licenses, sells, renders, or provides any product or service that competes with any product or service actually or planned to be developed, designed, produced, manufactured, marketed, licensed, sold, rendered, or provided by the Company while you are or were employed by the Company; provided that your passive ownership of not more than 1% of the outstanding stock of a publicly-held company will not, by itself, violate this provision. For purposes of this Grant Agreement, you agree that the Company does business throughout and plans to do business throughout the United States; |
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(ii) Solicit Clients, Customers, or Accounts . You will not, either alone or in association with others, actually or attempt to solicit, divert, or take away the business or patronage of any of the Companys clients, customers, or accounts, or prospective clients, customers, or accounts, that the Company contacted, solicited, or served while you were employed by the Company or about which you have Proprietary Information, provided that this provision does not prevent you from soliciting clients, customers, or accounts (if you are not using Proprietary Information to do so) for purposes that are not in actual or potential competition with the Company; |
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(iii) Solicit or Hire Company Employees and Independent Contractors . You will not, either alone or in association with others, actually or attempt to (x) solicit, recruit or induce any Company employee or independent contractor to leave the Companys service or (y) solicit, recruit, hire, or engage as an employee or independent contractor any individual whom the Company employed or engaged at any time while you were employed by the Company, except for an individual whose employment or other service relationship with the Company ended at least six months before the date of your action; and/or |
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(iv) Disclose or Utilize Product Development. You will not, either alone or in association with others, disclose to, or utilize for the benefit of, any entity other than the Company, any systems or product development ideas, concepts, or strategies that you or others in communication with you explored, generated, initiated, or discussed for potential implementation during your employment with the Company, even if the Company has not implemented such ideas, concepts, or strategies by the time your employment with the Company ends. |
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For the purposes of subsection (ii) Solicit Clients, Customers, or Accounts , the terms customer, client, or account as applied to governmental agencies will mean the agency or department for which any of the products or services of the Company are sold or performed during the applicable period, any related program office, and any agency, department, or office that succeeds to the functions of any agency, department, or office to which the Company then provides or within the preceding 12 months provided goods or services (to the extent that the successor replaces part or all of the customer or client to which the Company provided goods or services). |
General |
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To the extent that you and the Company agree at any time to enter into separate agreements containing restrictive covenants with different or inconsistent terms than those contained herein, you and the Company acknowledge and agree that such different or inconsistent terms shall not in any way affect or have relevance to the Restrictive Covenants contained herein, and the terms of these Restrictive Covenants do not supersede or amend any others currently or in the future in place. |
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By accepting this RSU award, you agree that the provisions of this Restrictive Covenants section (and the related Restrictive Covenants Clawback section) are reasonable and necessary to protect the legitimate interests of the Company. |
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Notices |
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Any notice you give to the Company must follow the procedures then in effect. If no other procedures apply, you must send your notice in writing by hand or by mail to the office of the Companys Secretary (or to the Chair of the Committee if you are then serving as the sole Secretary). If mailed, you should address it to the Companys Secretary (or the Chair of the Committee) at the Companys then corporate headquarters, unless the Company directs Plan participants to send notices to another corporate department or to a third party administrator or specifies another method of transmitting notice. The Company and the Committee will address any notices to you using its standard electronic communications methods or at your office or home address as reflected on the Companys personnel or other business records. You and the Company may change the address for notice by like notice to the other, and the Company can also change the address for notice by general announcements to Plan participants. |
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Amendment |
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Subject to any required action by the Committee or the stockholders of the Company, the Company may cancel the RSUs and provide a new Award in its place, provided that the Award so replaced will satisfy all of the requirements of the Plan as of the date such new Award is made and no such action will adversely affect the RSUs to the extent then Vested. |
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Plan Governs |
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Wherever a conflict may arise between the terms of this Grant Agreement and the terms of the Plan, the terms of the Plan will control. The Committee may adjust the number of RSU Shares and other terms of the RSUs from time to time as the Plan provides. |
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EXHIBIT A
The vesting of 50% of the RSUs (the Performance RSUs ) is subject to the following conditions:
A. Service Condition
The Performance RSUs will vest according to the applicable schedule described in Paragraph C below, provided you remain employed by the Company as of each applicable vesting date set forth below.
B. Performance Conditions
1. The Companys average closing price per Share as reported on the NASDAQ Global Select Market during at least one measurement period (as described below) must be at least 25% higher than the closing price per Share as reported on the NASDAQ Global Select Market on the Date of Grant.
2. The measurement period will consist of the applicable trading days in any consecutive 30 (thirty) calendar day period preceding the first, second and/or third anniversaries of the Date of Grant.
3. On each anniversary of the Date of Grant (or as promptly as practicable thereafter), the Company will calculate the average closing price for the applicable measurement periods preceding such date in order to determine if the performance condition has been satisfied.
C. Vesting
1. Performance Condition Achieved prior to First Anniversary of Date of Grant . If the performance condition is achieved prior to the first anniversary of the Date of Grant, the Performance RSUs will vest in equal installments pursuant to the following schedule:
Vesting Date |
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Proportion of Performance RSUs that will vest as of
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1 st anniversary of Date of Grant |
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One-third of the Performance RSUs |
2 nd anniversary of Date of Grant |
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One-third of the Performance RSUs |
3 rd anniversary of Date of Grant |
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One-third of the Performance RSUs |
2. Performance Condition Achieved after First Anniversary but before Second Anniversary of the Date of Grant . If the performance condition is achieved after the first anniversary but before the second anniversary of the Date of Grant, the Performance RSUs will vest pursuant to the following schedule:
Vesting Date |
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Proportion of Performance RSUs that will vest as of
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1 st anniversary of Date of Grant |
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- 0 - |
2 nd anniversary of Date of Grant |
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Two-thirds of the Performance RSUs |
3 rd anniversary of Date of Grant |
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One-third of the Performance RSUs |
3. Performance Condition Achieved after Second Anniversary but before Third Anniversary of the Date of Grant . If the performance condition is achieved after the second anniversary but before the third anniversary of the Date of Grant, the Performance RSUs will become fully vested as of such third anniversary pursuant to the following schedule:
Vesting Date |
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Proportion of Performance RSUs that will vest as of
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1 st anniversary of Date of Grant |
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- 0 - |
2 nd anniversary of Date of Grant |
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- 0 - |
3 rd anniversary of Date of Grant |
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100% of the Performance RSUs |
4. Performance Condition Not Achieved before the Third Anniversary of the Date of Grant. Except in the event of death, Disability or a Change of Control prior to the third anniversary of the Date of Grant (in which case the terms set forth in the Grant Agreement will apply and, for the avoidance of doubt, the performance condition will no longer be applicable), if the performance condition is not achieved by the third anniversary of the Date of Grant, no portion of the Performance RSUs will vest and the Performance RSUs shall be forfeited.
Exhibit 31.1
Certification
I, William C. Lucia, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of HMS Holdings Corp.;
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;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: May 11, 2015 |
/s/ WILLIAM C. LUCIA |
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William C. Lucia |
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Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 31.2
Certification
I, Jeffrey S. Sherman, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of HMS Holdings Corp.;
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;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: May 11, 2015 |
/ s/ JEFFREY S. SHERMAN |
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Jeffrey S. Sherman |
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Chief Financial Officer |
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(Principal Financial Officer) |
Exhibit 32.1
Certification Pursuant To 18 U.S.C. Section 1350 As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of HMS Holdings Corp. (the Company ) on Form 10-Q for the period ended March 31, 2015 as filed with the Securities and Exchange Commission (the Report ), I, William C. Lucia, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ WILLIAM C. LUCIA |
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William C. Lucia |
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Chief Executive Officer |
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(Principal Executive Officer) |
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May 11, 2015 |
A signed original of this written statement required by Section 906 has been provided to HMS Holdings Corp. and will be retained by HMS Holdings Corp. and furnished to the Securities and Exchange Commission or its staff upon request. This written statement accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission, and will not be incorporated by reference into any filing of HMS Holdings Corp. under the Securities Act of 1933 or the Securities Exchange Act of 1934, irrespective of any general incorporation language contained in such filing.
Exhibit 32.2
Certification Pursuant To 18 U.S.C. Section 1350 As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of HMS Holdings Corp. (the Company ) on Form 10-Q for the period ended March 31, 2015 as filed with the Securities and Exchange Commission (the Report ), I, Jeffrey S. Sherman, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ JEFFREY S. SHERMAN |
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Jeffrey S. Sherman |
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Chief Financial Officer |
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(Principal Financial Officer) |
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May 11, 2015 |
A signed original of this written statement required by Section 906 has been provided to HMS Holdings Corp. and will be retained by HMS Holdings Corp. and furnished to the Securities and Exchange Commission or its staff upon request. This written statement accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission, and will not be incorporated by reference into any filing of HMS Holdings Corp. under the Securities Act of 1933 or the Securities Exchange Act of 1934, irrespective of any general incorporation language contained in such filing.