☒
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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11-3656261
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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5615 High Point Drive
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Irving
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TX
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75038
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(Address of principal executive offices)
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(Zip Code)
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Title of each class
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Trading Symbol
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Name of each exchange on which registered
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Common Stock $0.01 par value
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HMSY
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The Nasdaq Stock Market LLC
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Nasdaq Global Select Market
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Large accelerated filer
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☒
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Accelerated filer
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☐
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Non-accelerated filer
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☐
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Smaller reporting company
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☐
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Emerging growth company
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☐
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Page
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ACA
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Patient Protections and Affordable Care Act, as amended by the Health Care and Education
Reconciliation Act
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ACO
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Accountable Care Organization
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ADR
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Additional Documentation Request
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ASC
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Accounting Standards Codification
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ASO
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Administrative Service Only
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ASU
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Accounting Standards Update
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CHIP
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Children's Health Insurance Program
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CMS
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Centers for Medicare & Medicaid Services
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CMS NHE
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CMS National Health Expenditures
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COB
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Coordination of benefits
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COSO
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Committee of Sponsoring Organizations of the Treadway Commission
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Credit Agreement
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The Amended and Restated Credit Agreement dated as of May 3, 2013, as amended by Amendment No. 1 to Amended and Restated Credit Agreement dated as of March 8, 2017, and as further amended by Amendment No. 2 to Amended and Restated Credit Agreement, dated as of December 19, 2017, by and among HMS Holdings Corp. the Guarantors party thereto, the Lenders party thereto and Citibank, N.A. as Administrative Agent
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DSO
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Days sales outstanding
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ERISA
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Employment Retirement Income Security Act of 1974
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Exchange Act
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Securities Exchange Act of 1934, as amended
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FASB
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Financial Accounting Standards Board
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Form 10-Q
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HMS Holdings Corp. Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019
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HIPAA
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Health Insurance Portability and Accountability Act of 1996
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HITECH
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Health Information Technology for Economic and Clinical Health Act
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IRC
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Internal Revenue Code
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IRS
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U.S. Internal Revenue Service
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LIBO Rate
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London Interbank Offered Rate (or any successor rate determined in accordance with the Credit Agreement)
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MCO
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Managed Care Organization
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PBM
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Pharmacy Benefit Manager
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PHI
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Protected health information
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PHM
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Population Health Management
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PI
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Payment Integrity
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PMPM
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Per Member Per Month
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PMPY
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Per Member Per Year
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R&D Credit
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U.S. Research and Experimentation Tax Credit pursuant to IRC Section 41
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RAC
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Recovery Audit Contractor
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RFP
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Request for proposal
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ROU
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Right-of-use
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SEC
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U.S. Securities and Exchange Commission
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Securities Act
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Securities Act of 1933, as amended
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Section 199 Deduction
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U.S. Production Activities Deduction pursuant to IRC Section 199
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SG&A
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Selling, general and administrative
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TPL
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Third-party liability
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U.S. GAAP
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United States Generally Accepted Accounting Principles
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2006 Stock Plan
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HMS Holdings Corp. Fourth Amended and Restated 2006 Stock Plan, as amended by Amendment No. 1 to the HMS Holdings Corp. Fourth Amended and Restated 2006 Stock Plan dated as of February 16, 2017
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2016 Omnibus Plan
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HMS Holdings Corp. 2016 Omnibus Incentive Plan
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2017 Tax Act
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Tax Cuts and Jobs Act of 2017
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2018 Form 10-K
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HMS Holdings Corp. Annual Report on Form 10-K for the year ended December 31, 2018
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2019 Omnibus Plan
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HMS Holdings Corp. 2019 Omnibus Incentive Plan
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401(k) Plan
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HMS Holdings Corp. 401(k) Plan
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▪
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our ability to execute our business plans or growth strategy;
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▪
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our ability to innovate, develop or implement new or enhanced solutions or services;
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▪
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the nature of investment and acquisition opportunities we are pursuing, and the successful execution of such investments and acquisitions;
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▪
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our ability to successfully integrate acquired businesses and realize synergies;
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▪
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significant competition for our solutions and services;
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▪
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variations in our results of operations;
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▪
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our ability to accurately forecast the revenue under our contracts and solutions;
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▪
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our ability to protect our systems from damage, interruption or breach, and to maintain effective information and technology systems and networks;
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▪
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our ability to protect our intellectual property rights, proprietary technology, information processes and know-how;
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▪
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our failure to maintain a high level of customer retention or the unexpected reduction in scope or termination of key contracts with major customers;
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▪
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customer dissatisfaction or our non-compliance with contractual provisions or regulatory requirements;
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▪
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our failure to meet performance standards triggering significant costs or liabilities under our contracts;
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▪
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our inability to manage our relationships with data sources and suppliers;
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▪
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our reliance on subcontractors and other third party providers and parties to perform services;
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▪
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our ability to continue to secure contracts and favorable contract terms through the competitive bidding process;
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▪
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pending or threatened litigation;
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▪
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unfavorable outcomes in legal proceedings;
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▪
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our success in attracting and retaining qualified employees and members of our management team;
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▪
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our ability to generate sufficient cash to cover our interest and principal payments under our credit facility;
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▪
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unexpected changes in tax laws, regulations or guidance and unexpected changes in our effective tax rate;
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▪
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unanticipated increases in the number or amount of claims for which we are self-insured;
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▪
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accounting changes or revisions;
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▪
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changes in the U.S. healthcare environment or healthcare financing system, including regulatory, budgetary or political actions that affect healthcare spending or the practices and operations of healthcare organizations;
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▪
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our failure to comply with applicable laws and regulations governing individual privacy and information security or to protect such information from theft and misuse;
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▪
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our ability to comply with current and future legal and regulatory requirements;
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▪
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negative results of government or customer reviews, audits or investigations;
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▪
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state or federal limitations related to outsourcing of certain government programs or functions;
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▪
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restrictions on bidding or performing certain work due to perceived conflicts of interests;
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▪
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the market price of our common stock and lack of dividend payments; and
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▪
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anti-takeover provisions in our corporate governance documents.
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June 30,
2019 |
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December 31,
2018 |
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Assets
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(unaudited)
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Current assets:
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Cash and cash equivalents
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$
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268,677
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$
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178,946
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Accounts receivable, net of allowance of $12,808 and $13,683, at June 30, 2019 and December 31, 2018, respectively
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199,932
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206,772
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Prepaid expenses
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20,348
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19,970
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Income tax receivable
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9,431
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18,817
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Deferred financing costs, net
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564
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564
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Other current assets
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225
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240
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Total current assets
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499,177
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425,309
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Property and equipment, net
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86,607
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94,435
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Goodwill
|
487,617
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487,617
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Intangible assets, net
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62,463
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67,140
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Operating lease right-of-use assets
|
18,940
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—
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Deferred financing costs, net
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1,391
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1,673
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Other assets
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3,544
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2,344
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Total assets
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$
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1,159,739
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$
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1,078,518
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Liabilities and Shareholders' Equity
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Current liabilities:
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Accounts payable, accrued expenses and other liabilities
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$
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71,330
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$
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74,902
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Estimated liability for appeals
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2,948
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21,723
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Total current liabilities
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74,278
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96,625
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Long-term liabilities:
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Revolving credit facility
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240,000
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240,000
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Operating lease liabilities
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17,245
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—
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Net deferred tax liabilities
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23,073
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|
18,485
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Other liabilities
|
7,173
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|
10,012
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Total long-term liabilities
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287,491
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|
268,497
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Total liabilities
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361,769
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|
365,122
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Commitments and contingencies
|
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Shareholders' equity:
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|
||||
Preferred stock -- $0.01 par value; 5,000,000 shares authorized; none issued
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—
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—
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Common stock -- $0.01 par value; 175,000,000 shares authorized;101,014,406 shares issued and 87,350,498 shares outstanding at June 30, 2019; 98,924,501 shares issued and 85,261,664 shares outstanding at December 31, 2018
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1,010
|
|
|
989
|
|
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Capital in excess of par value
|
461,559
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|
|
425,748
|
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Retained earnings
|
470,977
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|
422,235
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|
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Treasury stock, at cost: 13,663,194 shares at June 30, 2019 and December 31, 2018
|
(135,576
|
)
|
|
(135,576
|
)
|
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Total shareholders' equity
|
797,970
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|
|
713,396
|
|
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Total liabilities and shareholders' equity
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$
|
1,159,739
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|
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$
|
1,078,518
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
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2019
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2018
|
|
2019
|
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2018
|
||||||||
Revenue
|
$
|
168,182
|
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$
|
146,791
|
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$
|
316,135
|
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$
|
288,216
|
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Cost of services:
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|||||||
Compensation
|
58,322
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55,188
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|
115,775
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|
111,267
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|
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Direct project and other operating expenses
|
20,742
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17,959
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|
40,941
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|
34,607
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|
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Information technology
|
12,316
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|
|
14,240
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|
|
25,420
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|
|
26,503
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|
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Occupancy
|
4,052
|
|
|
4,014
|
|
|
8,131
|
|
|
8,397
|
|
||||
Amortization of acquisition related software and intangible assets
|
4,166
|
|
|
9,621
|
|
|
8,332
|
|
|
17,753
|
|
||||
Total cost of services
|
99,598
|
|
|
101,022
|
|
|
198,599
|
|
|
198,527
|
|
||||
Selling, general and administrative expenses
|
28,036
|
|
|
26,532
|
|
|
57,282
|
|
|
58,530
|
|
||||
Settlement expense
|
—
|
|
|
20,000
|
|
|
—
|
|
|
20,000
|
|
||||
Total operating expenses
|
127,634
|
|
|
147,554
|
|
|
255,881
|
|
|
277,057
|
|
||||
Operating income/(loss)
|
40,548
|
|
|
(763
|
)
|
|
60,254
|
|
|
11,159
|
|
||||
Interest expense
|
(2,853
|
)
|
|
(3,034
|
)
|
|
(5,702
|
)
|
|
(5,682
|
)
|
||||
Interest income
|
966
|
|
|
188
|
|
|
2,080
|
|
|
308
|
|
||||
Income/(loss) before income taxes
|
38,661
|
|
|
(3,609
|
)
|
|
56,632
|
|
|
5,785
|
|
||||
Income taxes
|
9,561
|
|
|
(242
|
)
|
|
7,890
|
|
|
2,761
|
|
||||
Net income/(loss)
|
$
|
29,100
|
|
|
$
|
(3,367
|
)
|
|
$
|
48,742
|
|
|
$
|
3,024
|
|
|
|
|
|
|
|
|
|
|
|||||||
Basic income per common share:
|
|
|
|
|
|
|
|
|
|||||||
Net income/(loss) per common share -- basic
|
$
|
0.34
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.56
|
|
|
$
|
0.04
|
|
Diluted income per common share:
|
|
|
|
|
|
|
|
|
|||||||
Net income/(loss) per common share -- diluted
|
$
|
0.33
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.55
|
|
|
$
|
0.04
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|||||||
Basic
|
85,956
|
|
|
83,231
|
|
|
86,524
|
|
|
83,222
|
|
||||
Diluted
|
87,858
|
|
|
83,231
|
|
|
88,843
|
|
|
84,837
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||
Common Stock and paid-in capital
|
|
|
|
|
|
|
|
||||||||
Balance, beginning of period
|
$
|
454,087
|
|
|
$
|
376,737
|
|
|
$
|
426,737
|
|
|
$
|
369,686
|
|
Exercise of stock options
|
3,859
|
|
|
2,246
|
|
|
26,998
|
|
|
2,390
|
|
||||
Stock-based compensation expense
|
4,802
|
|
|
4,714
|
|
|
15,781
|
|
|
14,208
|
|
||||
Vesting of restricted stock units, net of shares withheld for employee tax
|
(179
|
)
|
|
(97
|
)
|
|
(6,947
|
)
|
|
(2,684
|
)
|
||||
Balance, end of period
|
462,569
|
|
|
383,600
|
|
|
462,569
|
|
|
383,600
|
|
||||
Retained earnings
|
|
|
|
|
|
|
|
|
|
||||||
Balance, beginning of period
|
441,877
|
|
|
373,982
|
|
|
422,235
|
|
|
366,164
|
|
||||
Net income/(loss)
|
29,100
|
|
|
(3,367
|
)
|
|
48,742
|
|
|
3,024
|
|
||||
Cumulative effect of accounting changes
|
—
|
|
|
—
|
|
|
—
|
|
|
1,427
|
|
||||
Balance, end of period
|
470,977
|
|
|
370,615
|
|
|
470,977
|
|
|
370,615
|
|
||||
Treasury stock
|
|
|
|
|
|
|
|
|
|
||||||
Balance, beginning of period
|
(135,576
|
)
|
|
(135,576
|
)
|
|
(135,576
|
)
|
|
(129,621
|
)
|
||||
Purchase of treasury stock
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,955
|
)
|
||||
Balance, end of period
|
(135,576
|
)
|
|
(135,576
|
)
|
|
(135,576
|
)
|
|
(135,576
|
)
|
||||
Total shareholders' equity
|
$
|
797,970
|
|
|
$
|
618,639
|
|
|
$
|
797,970
|
|
|
$
|
618,639
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Shares issued
|
|
|
|
|
|
|
|
|
|
||||||
Balance, beginning of period
|
100,745,077
|
|
|
96,876,154
|
|
|
98,924,501
|
|
|
96,536,251
|
|
||||
Exercise of stock options
|
242,723
|
|
|
141,991
|
|
|
1,686,408
|
|
|
151,034
|
|
||||
Vesting of restricted stock units, net of shares withheld for employee tax
|
26,606
|
|
|
32,963
|
|
|
403,497
|
|
|
363,823
|
|
||||
Balance, end of period
|
101,014,406
|
|
|
97,051,108
|
|
|
101,014,406
|
|
|
97,051,108
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||||
Treasury Stock
|
|
|
|
|
|
|
|
|
|
||||||
Balance, beginning of period
|
13,663,194
|
|
|
13,663,194
|
|
|
13,663,194
|
|
|
13,279,393
|
|
||||
Purchase of treasury stock
|
—
|
|
|
—
|
|
|
—
|
|
|
383,801
|
|
||||
Balance, end of period
|
13,663,194
|
|
|
13,663,194
|
|
|
13,663,194
|
|
|
13,663,194
|
|
|
Six Months Ended
June 30, |
||||||
|
2019
|
|
2018
|
||||
Operating activities:
|
|
|
|
||||
Net income
|
$
|
48,742
|
|
|
$
|
3,024
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
||||
Depreciation and amortization of property, equipment and software
|
15,989
|
|
|
16,758
|
|
||
Amortization of intangible assets
|
4,677
|
|
|
12,774
|
|
||
Amortization of deferred financing costs
|
282
|
|
|
282
|
|
||
Stock-based compensation expense
|
15,781
|
|
|
14,208
|
|
||
Deferred income taxes
|
4,588
|
|
|
(3,900
|
)
|
||
Noncash lease expense
|
2,366
|
|
|
—
|
|
||
Release of estimated liability for appeals, net
|
(10,478
|
)
|
|
(8,436
|
)
|
||
Changes in operating assets and liabilities:
|
|
|
|
||||
Accounts receivable
|
(2,062
|
)
|
|
(3,654
|
)
|
||
Prepaid expenses
|
(378
|
)
|
|
63
|
|
||
Other current assets
|
15
|
|
|
570
|
|
||
Other assets
|
(1,200
|
)
|
|
(29
|
)
|
||
Income taxes receivable
|
9,386
|
|
|
(5,324
|
)
|
||
Accounts payable, accrued expenses and other liabilities
|
(7,235
|
)
|
|
(2,546
|
)
|
||
Operating lease liabilities
|
(2,952
|
)
|
|
—
|
|
||
Estimated liability for appeals
|
605
|
|
|
(99
|
)
|
||
Net cash provided by operating activities
|
78,126
|
|
|
23,691
|
|
||
Investing activities:
|
|
|
|
||||
Purchases of property and equipment
|
(945
|
)
|
|
(2,455
|
)
|
||
Investment in capitalized software
|
(7,465
|
)
|
|
(10,173
|
)
|
||
Net cash used in investing activities
|
(8,410
|
)
|
|
(12,628
|
)
|
||
Financing activities:
|
|
|
|
||||
Proceeds from exercise of stock options
|
26,998
|
|
|
2,390
|
|
||
Payments of tax withholdings on behalf of employees for net-share settlements
|
(6,947
|
)
|
|
(2,684
|
)
|
||
Payments on capital lease obligations
|
(36
|
)
|
|
—
|
|
||
Purchases of treasury stock
|
—
|
|
|
(5,955
|
)
|
||
Net cash provided by/(used in) financing activities
|
20,015
|
|
|
(6,249
|
)
|
||
Net increase in cash and cash equivalents
|
89,731
|
|
|
4,814
|
|
||
Cash and Cash Equivalents
|
|
|
|
||||
Cash and cash equivalents at beginning of year
|
178,946
|
|
|
83,313
|
|
||
Cash and cash equivalents at end of period
|
$
|
268,677
|
|
|
$
|
88,127
|
|
|
|
|
|
||||
Supplemental disclosure of cash flow information:
|
|
|
|
||||
Cash (refunds received)/paid for income taxes, net of refunds
|
$
|
(6,509
|
)
|
|
$
|
11,472
|
|
Cash paid for interest
|
$
|
5,524
|
|
|
$
|
4,916
|
|
|
|
|
|
||||
Supplemental disclosure of non-cash activities:
|
|
|
|
||||
Change in balance of accrued property and equipment purchases
|
$
|
250
|
|
|
$
|
1,082
|
|
|
Three Months Ended
|
Six Months Ended
|
||||||||||||
|
June 30, 2019
|
|
June 30, 2018
|
June 30, 2019
|
|
June 30, 2018
|
||||||||
Coordination of Benefits
|
$
|
105,094
|
|
|
$
|
100,755
|
|
$
|
210,945
|
|
|
$
|
192,507
|
|
Payment Integrity
|
49,121
|
|
|
31,192
|
|
76,847
|
|
|
69,833
|
|
||||
Population Health Management
|
13,967
|
|
|
14,844
|
|
28,343
|
|
|
25,876
|
|
||||
Total
|
$
|
168,182
|
|
|
$
|
146,791
|
|
$
|
316,135
|
|
|
$
|
288,216
|
|
|
Three Months Ended
|
Six Months Ended
|
||||||||||||
|
June 30, 2019
|
|
June 30, 2018
|
June 30, 2019
|
|
June 30, 2018
|
||||||||
Commercial
|
$
|
79,044
|
|
|
$
|
80,493
|
|
$
|
155,303
|
|
|
$
|
152,278
|
|
State
|
65,180
|
|
|
58,815
|
|
126,922
|
|
|
113,435
|
|
||||
Federal
|
23,958
|
|
|
7,483
|
|
33,910
|
|
|
22,503
|
|
||||
Total
|
$
|
168,182
|
|
|
$
|
146,791
|
|
$
|
316,135
|
|
|
$
|
288,216
|
|
|
June 30,
2019 |
|
December 31,
2018 |
||||
Accounts receivable
|
$
|
212,740
|
|
|
$
|
220,455
|
|
Allowance
|
(12,808
|
)
|
|
(13,683
|
)
|
||
Accounts receivable, net
|
$
|
199,932
|
|
|
$
|
206,772
|
|
|
June 30,
2019 |
|
December 31,
2018 |
||||
Balance--beginning of period
|
$
|
13,683
|
|
|
$
|
14,799
|
|
Provision
|
7,717
|
|
|
20,453
|
|
||
Charge-offs
|
(8,592
|
)
|
|
(21,569
|
)
|
||
Balance--end of period
|
$
|
12,808
|
|
|
$
|
13,683
|
|
|
Gross Carrying Amount
|
|
Accumulated
Amortization
|
|
Net Carrying Amount
|
|
Weighted Average Amortization Period in Years
|
||||||
June 30, 2019
|
|
|
|
|
|
|
|
||||||
Customer relationships
|
$
|
68,290
|
|
|
$
|
(18,936
|
)
|
|
$
|
49,354
|
|
|
12.5
|
Intellectual property
|
21,700
|
|
|
(8,606
|
)
|
|
13,094
|
|
|
3.7
|
|||
Trade names
|
136
|
|
|
(128
|
)
|
|
8
|
|
|
0.2
|
|||
Restrictive covenants
|
133
|
|
|
(126
|
)
|
|
7
|
|
|
0.2
|
|||
Total
|
$
|
90,259
|
|
|
$
|
(27,796
|
)
|
|
$
|
62,463
|
|
|
|
|
Gross Carrying Amount
|
|
Accumulated
Amortization
|
|
Net Carrying Amount
|
|
Weighted Average Amortization Period in Years
|
||||||
December 31, 2018
|
|
|
|
|
|
|
|
||||||
Customer relationships
|
$
|
156,790
|
|
|
$
|
(104,740
|
)
|
|
$
|
52,050
|
|
|
12.8
|
Intellectual property
|
21,700
|
|
|
(6,670
|
)
|
|
15,030
|
|
|
4.1
|
|||
Trade names
|
16,246
|
|
|
(16,215
|
)
|
|
31
|
|
|
0.7
|
|||
Restrictive covenants
|
263
|
|
|
(234
|
)
|
|
29
|
|
|
0.7
|
|||
Total
|
$
|
194,999
|
|
|
$
|
(127,859
|
)
|
|
$
|
67,140
|
|
|
|
Year ending December 31,
|
Amortization
|
|
|
2019 (excluding the six months ended June 30, 2019)
|
$
|
4,568
|
|
2020
|
7,613
|
|
|
2021
|
7,197
|
|
|
2022
|
7,197
|
|
|
2023
|
4,822
|
|
|
Thereafter
|
31,066
|
|
|
Total
|
$
|
62,463
|
|
|
June 30,
2019 |
|
December 31,
2018 |
||||
Accounts payable, trade
|
$
|
11,774
|
|
|
$
|
12,394
|
|
Accrued compensation and other
|
26,735
|
|
|
42,833
|
|
||
Accrued operating expenses
|
26,301
|
|
|
19,675
|
|
||
Current portion of lease liabilities
|
6,520
|
|
|
—
|
|
||
Total accounts payable, accrued expenses and other liabilities
|
$
|
71,330
|
|
|
$
|
74,902
|
|
|
Original
RAC contract
|
|
RAC 4
contract
|
|
Commercial contracts
|
|
Total
|
||||||||
Balance at December 31, 2018
|
$
|
19,380
|
|
|
$
|
20
|
|
|
$
|
2,323
|
|
|
$
|
21,723
|
|
Provision
|
—
|
|
|
604
|
|
|
5,135
|
|
|
5,739
|
|
||||
Appeals found in providers favor
|
—
|
|
|
(309
|
)
|
|
(4,825
|
)
|
|
(5,134
|
)
|
||||
Release of liability
|
(19,380
|
)
|
|
—
|
|
|
—
|
|
|
(19,380
|
)
|
||||
Balance at June 30, 2019
|
$
|
—
|
|
|
$
|
315
|
|
|
$
|
2,633
|
|
|
$
|
2,948
|
|
▪
|
a base rate determined by reference to the greatest of (a) the prime or base commercial lending rate of the administrative agent as in effect on the relevant date, (b) the federal funds effective rate plus 0.50% and (c) the one-month London Interbank Offered Rate (or any successor rate determined in accordance with the Credit Agreement) (“LIBO Rate”) plus 1.00%, plus an interest margin ranging from 0.50% to 1.00% based on the Company’s consolidated leverage ratio for the applicable period; or
|
▪
|
an adjusted LIBO Rate, equal to the LIBO Rate for the applicable interest period multiplied by the statutory reserve rate (equal to (x) one divided by (y) one minus the aggregate of the maximum reserve percentage (including any marginal, special, emergency or supplemental reserves) established by the Board of Governors of the Federal Reserve System of the United States), plus an interest margin ranging from 1.50% to 2.00% based on the Company’s consolidated leverage ratio for the applicable period.
|
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
||||||||||||
|
2019
|
|
2018
|
2019
|
|
2018
|
||||||||
Interest expense
|
$
|
2,524
|
|
|
$
|
2,627
|
|
$
|
5,050
|
|
|
$
|
4,697
|
|
Commitment fees
|
160
|
|
|
239
|
|
316
|
|
|
477
|
|
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
||||||||||||
|
2019
|
|
2018
|
2019
|
|
2018
|
||||||||
Net income/(loss)
|
$
|
29,100
|
|
|
$
|
(3,367
|
)
|
$
|
48,742
|
|
|
$
|
3,024
|
|
|
|
|
|
|
|
|
||||||||
Weighted average common shares outstanding-basic
|
85,956
|
|
|
83,231
|
|
86,524
|
|
|
83,222
|
|
||||
Plus: net effect of dilutive stock options and restricted stock units
|
1,902
|
|
|
—
|
|
2,319
|
|
|
1,615
|
|
||||
Weighted average common shares outstanding-diluted
|
87,858
|
|
|
83,231
|
|
88,843
|
|
|
84,837
|
|
||||
Net income/(loss) per common share -- basic
|
$
|
0.34
|
|
|
$
|
(0.04
|
)
|
$
|
0.56
|
|
|
$
|
0.04
|
|
Net income/(loss) per common share -- diluted
|
$
|
0.33
|
|
|
$
|
(0.04
|
)
|
$
|
0.55
|
|
|
$
|
0.04
|
|
|
Three Months Ended
June 30, |
Six Months Ended
June 30, |
||||||||||||
|
2019
|
|
2018
|
2019
|
|
2018
|
||||||||
Cost of services-compensation
|
$
|
2,720
|
|
|
$
|
1,673
|
|
$
|
6,843
|
|
|
$
|
4,236
|
|
Selling, general and administrative
|
2,082
|
|
|
3,041
|
|
8,938
|
|
|
9,972
|
|
||||
Total
|
$
|
4,802
|
|
|
$
|
4,714
|
|
$
|
15,781
|
|
|
$
|
14,208
|
|
|
Number of Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average-
Remaining
Contractual
Terms
|
|
Aggregate
Intrinsic
Value
|
|||||
Outstanding balance at December 31, 2018
|
4,402
|
|
|
$
|
17.07
|
|
|
|
|
|
||
Granted
|
622
|
|
|
38.72
|
|
|
|
|
|
|||
Exercised
|
(1,686
|
)
|
|
16.01
|
|
|
|
|
|
|||
Forfeitures
|
(140
|
)
|
|
19.31
|
|
|
|
|
|
|||
Expired
|
—
|
|
|
—
|
|
|
|
|
|
|||
Outstanding balance at June 30, 2019
|
3,198
|
|
|
$
|
21.79
|
|
|
6.86
|
|
$
|
37,514
|
|
Expected to vest at June 30, 2019
|
1,045
|
|
|
$
|
28.12
|
|
|
8.98
|
|
$
|
7,507
|
|
Exercisable at June 30, 2019
|
1,728
|
|
|
$
|
16.91
|
|
|
5.13
|
|
$
|
26,745
|
|
|
Six Months Ended
June 30, |
||||
|
2019
|
|
2018
|
||
Expected dividend yield
|
0
|
%
|
|
0
|
%
|
Risk-free interest rate
|
2.5
|
%
|
|
2.7
|
%
|
Expected volatility
|
40.9
|
%
|
|
42.4
|
%
|
Expected life (years)
|
6.35
|
|
|
6.00
|
|
|
Number of
Units
|
|
Weighted Average
Grant Date Fair
Value per Unit
|
|||
Outstanding balance at December 31, 2018
|
1,488
|
|
|
$
|
17.60
|
|
Granted
|
460
|
|
|
34.10
|
|
|
Vesting of restricted stock units, net of units withheld for taxes
|
(403
|
)
|
|
16.49
|
|
|
Units withheld for taxes
|
(200
|
)
|
|
16.49
|
|
|
Forfeitures
|
(82
|
)
|
|
18.92
|
|
|
Outstanding balance at June 30, 2019
|
1,263
|
|
|
$
|
25.74
|
|
|
Three Months Ended
June 30, 2019 |
|
Six Months Ended
June 30, 2019 |
||||
|
|
|
|
||||
Operating lease cost
|
$
|
1,658
|
|
|
$
|
3,314
|
|
|
|
|
|
||||
Finance lease cost:
|
|
|
|
||||
Amortization of right-of-use assets
|
$
|
30
|
|
|
$
|
38
|
|
Interest on lease liabilities
|
$
|
4
|
|
|
$
|
5
|
|
Total finance lease cost
|
$
|
34
|
|
|
$
|
43
|
|
|
Six Months Ended
June 30, 2019 |
||
|
|
||
Cash paid for amounts included in measurement of lease liabilities:
|
|
||
Operating cash flows from operating leases
|
$
|
3,700
|
|
Operating cash flows from finance leases
|
$
|
4
|
|
Financing cash flows from finance leases
|
$
|
36
|
|
Right-of-use assets obtained in exchange for new lease liabilities:
|
|
||
Operating leases
|
$
|
163
|
|
Finance leases
|
$
|
331
|
|
|
June 30, 2019
|
||
Operating Leases
|
|
||
Operating lease right-of-use assets
|
$
|
18,940
|
|
|
|
||
Other current liabilities
|
$
|
6,301
|
|
Operating lease liabilities
|
$
|
17,245
|
|
Total operating lease liabilities
|
$
|
23,546
|
|
|
|
||
Finance Leases
|
|
||
Other Assets
|
$
|
656
|
|
|
|
||
Other current liabilities
|
$
|
219
|
|
Other long-term liabilities
|
$
|
440
|
|
Total finance leases liabilities
|
$
|
659
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
▪
|
over 40 state Medicaid programs;
|
▪
|
approximately 350 health plans, including 22 of the top 25 health plans nationally (based on membership) in support of their multiple lines of business, including Medicaid managed care, Medicare Advantage and group and individual health;
|
▪
|
over 160 private employers;
|
▪
|
CMS, the Centers for Disease Control and Prevention, and the Department of Veterans Affairs; and
|
▪
|
PBMs, third-party administrators and other risk-bearing entities, including independent practice associations, hospital systems, ACOs and specialty care organizations.
|
▪
|
Revenue of $168.2 million increased $21.4 million, or 14.6% over the same quarter in 2018; and
|
▪
|
Operating income of $40.6 million increased by $41.3 million as compared to operating loss of $0.7 million in the same quarter of the prior year.
|
|
|
Three Months Ended
|
|
|
|
|
|||||||||
dollars in millions
|
|
June 30,
|
|
$ Change
|
|
% Change
|
|||||||||
|
|
2019
|
|
2018
|
|
2019 vs 2018
|
|||||||||
Revenue
|
|
$
|
168.2
|
|
|
$
|
146.8
|
|
|
$
|
21.4
|
|
|
14.6
|
%
|
Cost of services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Compensation
|
|
58.3
|
|
|
55.2
|
|
|
3.1
|
|
|
5.6
|
|
|||
Direct project and other operating expenses
|
|
20.7
|
|
|
17.9
|
|
|
2.8
|
|
|
15.6
|
|
|||
Information technology
|
|
12.3
|
|
|
14.2
|
|
|
(1.9
|
)
|
|
(13.4
|
)
|
|||
Occupancy
|
|
4.1
|
|
|
4.0
|
|
|
0.1
|
|
|
2.5
|
|
|||
Amortization of acquisition related software and intangible assets
|
|
4.2
|
|
|
9.7
|
|
|
(5.5
|
)
|
|
(56.7
|
)
|
|||
Total cost of services
|
|
99.6
|
|
|
101.0
|
|
|
(1.4
|
)
|
|
(1.4
|
)
|
|||
Selling, general and administrative expenses
|
|
28.0
|
|
|
26.5
|
|
|
1.5
|
|
|
5.7
|
|
|||
Settlement expense
|
|
—
|
|
|
20.0
|
|
|
(20.0
|
)
|
|
(100.0
|
)
|
|||
Total operating expenses
|
|
127.6
|
|
|
147.5
|
|
|
(19.9
|
)
|
|
(13.5
|
)
|
|||
Operating income/(loss)
|
|
40.6
|
|
|
(0.7
|
)
|
|
41.3
|
|
|
5,900.0
|
|
|||
Interest expense
|
|
(2.9
|
)
|
|
(3.1
|
)
|
|
0.2
|
|
|
6.5
|
|
|||
Interest income
|
|
1.0
|
|
|
0.2
|
|
|
0.8
|
|
|
400.0
|
|
|||
Income/(loss) before income taxes
|
|
38.7
|
|
|
(3.6
|
)
|
|
42.3
|
|
|
1,175.0
|
|
|||
Income taxes
|
|
9.6
|
|
|
(0.2
|
)
|
|
9.8
|
|
|
4,900.0
|
|
|||
Net income/(loss)
|
|
$
|
29.1
|
|
|
$
|
(3.4
|
)
|
|
$
|
32.5
|
|
|
955.9
|
%
|
▪
|
By solution, which consists of coordination of benefits and analytical services, and included in analytical services are our payment integrity and population health management solutions:
|
o
|
Coordination of benefits revenue increased $4.3 million or 4.3% which was attributable to incremental services and yield increases provided to existing customers in our cost avoidance and post payment recovery business.
|
o
|
Payment integrity revenue increased $17.9 million or 57.4% primarily due to $10.5 million increase in revenue from the Company's release of its remaining estimated liability and net receivables relating to the original Medicare RAC contract during the second quarter of 2019. The Company has determined that there is no further contractual obligation to CMS with respect to the original Medicare RAC contract as of June 30, 2019.
|
o
|
Population health management revenue decreased $0.8 million or 5.4%.
|
▪
|
By market:
|
o
|
Commercial health plan market revenue decreased $1.5 million or 1.9%, which was primarily attributable to the decrease in Population health management revenue.
|
o
|
Federal government market revenue increased $16.5 million or 220.0% compared to the prior year quarter primarily due to the $10.5 million original Medicare RAC reserve release described above.
|
o
|
State government market revenue increased by $6.4 million or 10.9%, which was attributable to expanded scopes and yield improvements.
|
▪
|
Compensation expense increased by $3.1 million primarily due to a reduction in capitalized software related projects, an increase in variable compensation costs and an increase stock compensation expense.
|
▪
|
Direct project and other operating costs increased by $2.8 million due to increased labor and services utilized to support revenue generating activities.
|
▪
|
Information technology expense decreased by $1.9 million due to a decrease in software maintenance and license costs and amortization of internally developed software assets.
|
▪
|
Amortization of acquisition related software and intangible assets decreased by $5.5 million due to certain intangible assets becoming fully amortized in prior periods.
|
▪
|
Compensation expense in 2019 decreased by $1.1 million primarily due to a decrease in stock compensation expense,which resulted from a reduction in stock options vesting for SG&A related retirement eligible employees.
|
▪
|
Professional and consulting fees increased $1.2 million compared to the prior year as the Company leveraged additional external resources and expertise for certain activities during the second quarter of 2019.
|
▪
|
Revenue of $316.1 million increased $27.9 million, or 9.7% over the same period in 2018; and
|
▪
|
Operating income of $60.2 million increased by $49.0 million as compared to operating income of $11.2 million in the same period in 2018.
|
|
|
Six Months Ended
|
|
|
|
|
|||||||||
dollars in millions
|
|
June 30,
|
|
$ Change
|
|
% Change
|
|||||||||
|
|
2019
|
|
2018
|
|
2019 vs 2018
|
|||||||||
Revenue
|
|
$
|
316.1
|
|
|
$
|
288.2
|
|
|
$
|
27.9
|
|
|
9.7
|
%
|
Cost of services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Compensation
|
|
115.8
|
|
|
111.3
|
|
|
4.5
|
|
|
4.0
|
|
|||
Direct project and other operating expenses
|
|
40.9
|
|
|
34.5
|
|
|
6.4
|
|
|
18.6
|
|
|||
Information technology
|
|
25.4
|
|
|
26.5
|
|
|
(1.1
|
)
|
|
(4.2
|
)
|
|||
Occupancy
|
|
8.1
|
|
|
8.4
|
|
|
(0.3
|
)
|
|
(3.6
|
)
|
|||
Amortization of acquisition related software and intangible assets
|
|
8.4
|
|
|
17.8
|
|
|
(9.4
|
)
|
|
(52.8
|
)
|
|||
Total cost of services
|
|
198.6
|
|
|
198.5
|
|
|
0.1
|
|
|
0.1
|
|
|||
Selling, general and administrative expenses
|
|
57.3
|
|
|
58.5
|
|
|
(1.2
|
)
|
|
(2.1
|
)
|
|||
Settlement expense
|
|
—
|
|
|
20.0
|
|
|
(20.0
|
)
|
|
(100.0
|
)
|
|||
Total operating expenses
|
|
255.9
|
|
|
277.0
|
|
|
(21.1
|
)
|
|
(7.6
|
)
|
|||
Operating income
|
|
60.2
|
|
|
11.2
|
|
|
49.0
|
|
|
437.5
|
|
|||
Interest expense
|
|
(5.7
|
)
|
|
(5.7
|
)
|
|
—
|
|
|
—
|
|
|||
Interest income
|
|
2.1
|
|
|
0.3
|
|
|
1.8
|
|
|
600.0
|
|
|||
Income before income taxes
|
|
56.6
|
|
|
5.8
|
|
|
50.8
|
|
|
875.9
|
|
|||
Income taxes
|
|
7.9
|
|
|
2.8
|
|
|
5.1
|
|
|
182.1
|
|
|||
Net income
|
|
$
|
48.7
|
|
|
$
|
3.0
|
|
|
$
|
45.7
|
|
|
1,523.3
|
%
|
▪
|
By solution, which consists of coordination of benefits and analytical services, and included in analytical services are our payment integrity and population health management solutions:
|
o
|
Coordination of benefits revenue increased $18.5 million or 9.6% which was attributable to incremental services and yield increases provided to existing customers in our cost avoidance and post payment recovery business.
|
o
|
Payment integrity revenue increased $7.0 million or 10.0% primarily due to a $9.5 million increase in Medicare RAC revenue, which included a $2.1 million increase in revenue from the release of the Company's remaining estimated liability and net receivables relating to the original Medicare RAC contract as described above.
|
o
|
Population health management revenue increased $2.4 million or 9.3% due to year over year growth in the Eliza business.
|
▪
|
By market:
|
o
|
Commercial health plan market revenue increased $3.0 million or 2.0%, which was primarily attributable to year over year growth in the Eliza business and incremental services and yield increases provided to existing customers in our cost avoidance business.
|
o
|
Federal government market revenue increased $11.4 million or 50.7% compared to the prior year due to a $9.5 million increase in Medicare RAC revenue, which included an incremental increase in revenue of $2.1 million related to the original Medicare RAC contract as described above.
|
o
|
State government market revenue increased by $13.5 million or 11.9%, which was attributable to expanded scopes and yield improvements.
|
▪
|
Compensation expense increased by $4.5 million primarily due to a reduction in capitalized software related projects, an increase in stock compensation expense due to stock option vestings for COS related retirement eligible employees.
|
▪
|
Direct project and other operating costs increased by $6.4 million due to increased labor and services utilized to support revenue generating activities.
|
▪
|
Information technology expense decreased by $1.1 million primarily due a reduction in third party data costs and hosting services.
|
▪
|
Amortization of acquisition related software and intangible assets decreased by $9.4 million primarily related to certain intangible assets becoming fully amortized in prior periods, including certain customer relationships, trade names and software related intangibles.
|
▪
|
Compensation expense in 2019 decreased by $3.0 million primarily as a result of a decrease in salaries and benefits, as well as stock compensation expense due to a reduction in stock options vesting for SG&A related retirement eligible employees.
|
▪
|
Professional and consulting fees increased $1.7 million compared to the prior year as the Company leveraged additional external resources and expertise for certain activities during 2019 .
|
|
June 30, 2019
|
|
December 31, 2018
|
||||
Cash and cash equivalents
|
$
|
268,677
|
|
|
$
|
178,946
|
|
Working capital
|
$
|
424,899
|
|
|
$
|
328,684
|
|
Available borrowings under credit facility
|
$
|
253,500
|
|
|
$
|
253,500
|
|
|
Six Months Ended June 30,
|
||||||
2019
|
|
2018
|
|||||
Net cash provided by operating activities
|
$
|
78,126
|
|
|
$
|
23,691
|
|
Net cash used in investing activities
|
(8,410
|
)
|
|
(12,628
|
)
|
||
Net cash provided by/(used in) financing activities
|
20,015
|
|
|
(6,249
|
)
|
||
Net increase in cash and cash equivalents
|
$
|
89,731
|
|
|
$
|
4,814
|
|
▪
|
the working capital requirements of our operations;
|
▪
|
investments in our business;
|
▪
|
business development activities; and
|
▪
|
repurchases of common stock.
|
Exhibit
Number
|
|
Description
|
|
|
|
3.1
|
|
|
|
|
|
3.2
|
|
|
|
|
|
10.1
|
|
|
|
|
|
10.2
|
|
|
|
|
|
10.3
|
|
|
|
|
|
10.4
|
|
|
|
|
|
10.5
|
|
|
|
|
|
31.1
|
|
|
|
|
|
31.2
|
|
|
|
|
|
32.1
|
|
|
|
|
|
32.2
|
|
101.INS
|
|
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
|
101.SCH
|
|
Inline XBRL Taxonomy Extension Schema Document
|
101.CAL
|
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document
|
101.DEF
|
|
Inline XBRL Taxonomy Extension Definition Linkbase Document
|
101.LAB
|
|
Inline XBRL Taxonomy Extension Label Linkbase Document
|
101.PRE
|
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document
|
†
|
Indicates a management contract or compensatory plan, contract or arrangement
|
*
|
The certifications attached hereto as Exhibit 32.1 and Exhibit 32.2 are furnished with this Form 10-Q and shall not be deemed “filed” by the Company for purposes of Section 18 of the Exchange Act
|
Date:
|
August 5, 2019
|
|
HMS HOLDINGS CORP.
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ William C. Lucia
|
|
|
|
|
William C. Lucia
President and Chief Executive Officer
(Principal Executive Officer)
|
|
|
|
|
|
|
|
|
By:
|
/s/ Jeffrey S. Sherman
|
|
|
|
|
Jeffrey S. Sherman
Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
|
Date of Grant
|
<Date of Grant>
|
Option Shares
|
<Number of Shares Covered by the Option Granted>
|
Option Exercise Price per Share
|
$<Exercise Price per Share>
|
Exercisability
|
[One-fourth/One-third] of the Option Shares shall vest and become exercisable on each of the first, second[, third and fourth/and third] anniversaries of the Date of Grant. Each of those dates is an “Exercisability Date.”
|
Option Expiration Date
|
<Date of tenth anniversary of the Date of Grant>
|
Participant Management-Level
|
<Management level of Participant at Date of Grant>
|
•
|
You have been granted a nonqualified stock option (the “Option”) to purchase shares of the Company’s common stock (“Shares”). The total number of Shares covered by the Option granted to you is in the chart above under “Option Shares” and the price per share is under “Option Exercise Price per Share.”
|
•
|
The potential value of your stock option award increases if the price of the Company’s stock increases, but you also have to continue to provide services to the Company (except as the Award Agreement provides) to actually receive such value. Of course, the value of the stock may go up and down over time.
|
•
|
You cannot exercise the Option (actually purchase Shares) until it becomes exercisable. Your stock option becomes exercisable as provided in the chart above under “Exercisability,” assuming you remain an employee or a member of the Board of Directors of the Company through each Exercisability Date and subject to the terms in the Award Agreement.
|
•
|
Additional details regarding your stock option award are provided in the Plan and the Award Agreement.
|
•
|
Whether or not you decide to exercise your stock option and purchase the Shares is your decision, and you have until the stock option expires (which will be no later than the tenth 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.
|
Option
|
While the Option remains in effect under the Option Expiration section below,
|
Exercisability
|
you may exercise any exercisable portions of the Option (and buy the Option Shares) under the timing rules of this section.
|
Change in
|
In addition to any terms under your employment or separation agreement, if
|
Control
|
applicable, in the event a Change in Control occurs, the Option will be treated as provided in Section 11 of the Plan (and, if applicable, your employment or separation agreement) if within 24 months following the Change in Control, your employment or service ends on (i) a termination without Gross Misconduct or (ii) a resignation for good reason as specified under your employment agreement, if applicable, provided also that the Option will remain outstanding for twelve months following such termination but not beyond the Option Expiration Date.
|
Option Expiration
|
The Option will expire no later than the close of business on the Option Expiration Date. Unless otherwise specified in your employment or separation agreement, this Award Agreement, or the Committee determines otherwise, 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 Gross Misconduct, the Option will immediately expire without regard to whether it is then exercisable. “Gross Misconduct” for purposes of this Award Agreement: (i) shall have the same meaning as “cause” in your employment or separation agreement if you have an employment or separation agreement with the Company and cause is defined in such agreement; or (ii) if you do not have an
|
•
|
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 Gross Misconduct, except as provided above under the Change in Control section;
|
•
|
For death or disability, the first anniversary of the date employment or service ends;
|
•
|
For Retirement, the second anniversary of your Retirement; or
|
•
|
The Option Expiration Date.
|
Method of
|
Subject to this Award Agreement and the Plan, you may exercise the Option only
|
Exercise and
|
by providing a written notice (or notice through another previously approved
|
Payment for
|
method, which could include a voice- or web-based, other electronic, or e-mail
|
Shares
|
system) to the Corporate Secretary of the Company or the Corporate Secretary’s designee, 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 Option Exercise Price using one or more of the following methods:
|
Cash/Check
|
by cash or check in the amount of the Option Exercise Price payable to the order of the Company;
|
Net Exercise
|
by delivery of a notice of “net exercise” to us 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 (x) the aggregate Option Exercise Price for the portion of the Option being exercised divided by (y) the Fair Market Value on the date of exercise;
|
Stock
|
if permitted by the Committee, by delivery of Shares that you already own having a Fair Market Value equal to the Option Exercise Price on the date of exercise, provided that (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
|
Withholding
|
The issuance of the Option Shares is contingent on satisfaction of all obligations with respect to required tax or other required withholdings (for example, in the United States, any applicable Federal, state, and local taxes). The Company may take any action permitted under Section 14(c) of the Plan to satisfy such obligation, including, as permitted by the Committee, satisfying the tax obligations by (i) reducing the number of Option Shares to be issued to you in connection with any exercise of such Option by the 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, except as otherwise permitted by the Committee or the Board), (ii) accepting payment of the withholdings directly from you or from a broker in connection with a Cashless Exercise of the Option (as set forth above under Cashless Exercise), or (iii) taking any other action under Section 14(c) of the Plan.
|
Compliance
|
You may not exercise the Option if the Company’s issuing stock upon such
|
with Law
|
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 Company’s insider trading policy then prohibits you from selling to the market.
|
Additional
|
The Company may postpone issuing and delivering any Option Shares for so
|
Conditions
|
long as the Company determines to be advisable to satisfy the following:
|
Additional
|
If you exercise the Option at a time when the Company does not have a current
|
Representations
|
registration statement (generally on Form S-8) under the Securities Act of 1933
|
from You
|
(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 —
|
No Effect on
|
Nothing in this Award Agreement restricts the Company’s rights or those of any
|
Employment
|
of its Affiliates to terminate your employment or other relationship at any time and
|
or Other
|
for any or no reason. The termination of employment or other relationship,
|
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 Shareholder
|
You understand and agree that (i) no dividends or Dividend Equivalents will be paid on the Option and (ii) the Company will not consider you a shareholder for any purpose (including, without limitation, the right to vote or receive dividends on the shares) with respect to any of the Option Shares until you have exercised the Option, paid for the shares, and received evidence of ownership.
|
No Effect on
|
You understand and agree that the existence of the Option will not affect in any
|
Running Business
|
way the right or power of the Company or its shareholders to make or authorize any adjustments, recapitalizations, reorganizations, or other changes in the Company’s 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 Shares 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.
|
Governing Law
|
The laws of the State of Delaware will govern all matters relating to the Option, without regard to the principles of conflict of laws, except as otherwise specified herein or in an appendix attached hereto.
|
Clawbacks
|
The Committee may cancel this Option if you have engaged in or are engaging in activity that is in conflict with or adverse to the interest of the Company while employed by or providing services to the Company or any subsidiary, including fraud or conduct contributing to any financial restatements or irregularities. The Committee may cause you to forfeit any compensation, gain or other value realized thereafter on the vesting or exercise of the Option or the sale of Shares
|
Restrictive
|
Attached to this Award Agreement is Appendix A regarding your applicable
|
Covenants
|
“Restrictive Covenants” (as defined therein). Your confirmation of receipt of this Option provides your consent to the Restrictive Covenants and to the additional clawback rules set forth in Appendix A.
|
Notices
|
Unless the Company specifies another method of transmitting notice, any notice to the Company under this Award Agreement must be sent in writing, by hand or by mail, to the office of the Company’s Corporate Secretary at the Company’s then corporate headquarters. The Company will address any notices to you using its standard electronic communications methods, or to your current office or home address, as reflected in the Company’s personnel or other business records. You and the Company may change the address for notice by like notice to the other, and the Company may also change the address for notice by general announcements to the Plan participants.
|
Amendment
|
The Committee may amend the Option without your consent provided that it concludes such amendment is not materially adverse to you, is required for compliance with Section 409A, or is permitted under Section 12 of the Plan.
|
Plan Governs
|
Wherever a conflict may arise between the terms of this Award Agreement and the terms of the Plan, the terms of the Plan will control. The Committee may adjust the number of Option Shares, the Option Exercise Price, and other terms of the Option from time to time as the Plan provides.
|
Electronic
|
You, by your electronic execution of this Award Agreement, agree to the terms
|
Execution of
|
and conditions contained herein, including the terms set forth in Appendix A,
|
Award Agreement
|
and further agree to execute any documents requested by the Company required to effect the issuance of stock to you in connection with your exercise of the Option.
|
•
|
Proprietary Information and Developments
|
•
|
Non-solicitation (all employees)
|
•
|
Non-competition (executive vice presidents, senior vice presidents, vice presidents and directors)
|
Vice Presidents and above
|
As an executive vice president, senior vice president or vice president, you agree that while the Company employs you and for a period of twelve 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), 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 Company’s 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 Appendix A, you agree that the Company does business throughout and plans to do business throughout the United States.
|
Director-level employees
|
As a director, you agree that while the Company employs you and for a period of six 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), 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 Company’s 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 Appendix A, you agree that the Company does business throughout and plans to do business throughout the United States.
|
•
|
General
|
Date of Grant
|
<Date of Grant>
|
Option Shares
|
<Number of Shares Covered by the Option Granted>
|
Option Exercise Price per Share
|
$<Exercise Price per Share>
|
Exercisability
|
______________________. Each of those dates is an “Exercisability Date”.
|
Option Expiration Date
|
<Date of tenth anniversary of the Date of Grant>
|
•
|
You have been granted a nonqualified stock option (the “Option”) to purchase shares of the Company’s common stock (“Shares”). The total number of Shares covered by the Option granted to you is in the chart above under “Option Shares” and the price per share is under “Option Exercise Price per Share.”
|
•
|
The potential value of your stock option award increases if the price of the Company’s stock increases, but you also have to continue to provide services to the Company (except as the Award Agreement provides) to actually receive such value. Of course, the value of the stock may go up and down over time.
|
•
|
You cannot exercise the Option (actually purchase Shares) until it becomes exercisable. Your stock option becomes exercisable as provided in the chart above under “Exercisability,” assuming you remain a member of the Board of Directors of the Company or an employee of the Company through each Exercisability Date and subject to the terms in the Award Agreement.
|
•
|
Additional details regarding your stock option award are provided in the Plan and the Award Agreement.
|
•
|
Whether or not you decide to exercise your stock option and purchase the Shares is your decision, and you have until the stock option expires (which will be no later than the tenth 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.
|
Option
|
While the Option remains in effect under the Option Expiration section below,
|
Exercisability
|
you may exercise any exercisable portions of the Option (and buy the Option Shares) under the timing rules of this section.
|
Change in Control
|
In the event a Change in Control occurs, the Option will be treated as provided in Section 11 of the Plan if within 24 months following the Change in Control, your service ends on a termination without Gross Misconduct, provided also that the Option will remain outstanding for twelve months following such termination but not beyond the Option Expiration Date.
|
Option Expiration
|
The Option will expire no later than the close of business on the Option Expiration Date. Unless the Committee determines otherwise, unexercisable portions of the Option expire immediately when you cease to be a Director (unless you are concurrently remaining or becoming an employee, or, for an employee, concurrently remaining or becoming a member of the Board). If the Company terminates your service for Gross Misconduct, the Option will immediately expire without regard to whether it is then exercisable. “Gross Misconduct” for purposes of this Award Agreement shall mean the occurrence of one of the following events: (A) your conviction or plea of guilty or nolo contendere to any felony (or to a felony charge reduced to a misdemeanor), (B) theft or embezzlement of assets of the Company or an Affiliate, or (C) violation of the terms of any non-competition, non-disclosure, confidentiality or similar obligation or agreement with respect to the Company or any Affiliate to which the Plan participant is a party.
|
•
|
Three months (measured to the corresponding date in the month) after your employment (or directorship) ends if you resign or if the Company terminates
|
•
|
For death or disability, the first anniversary of the date your service ends;
|
•
|
For Retirement, the second anniversary of your Retirement; or
|
•
|
The Option Expiration Date.
|
Method of
|
Subject to this Award Agreement and the Plan, you may exercise the Option only
|
Exercise and
|
by providing a written notice (or notice through another previously approved
|
Payment for
|
method, which could include a voice- or web-based, other electronic, or e-mail
|
Shares
|
system) to the Corporate Secretary of the Company or the Corporate Secretary’s designee, 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 Option Exercise Price using one or more of the following methods:
|
Cash/Check
|
by cash or check in the amount of the Option Exercise Price payable to the order of the Company;
|
Net Exercise
|
by delivery of a notice of “net exercise” to us 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 (x) the aggregate Option Exercise Price for the portion of the Option being exercised divided by (y) the Fair Market Value on the date of exercise;
|
Stock
|
if permitted by the Committee, by delivery of Shares that you already own having a Fair Market Value equal to the Option Exercise Price on the date of exercise, provided that (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
|
Withholding
|
The issuance of the Option Shares is contingent on satisfaction of all obligations with respect to required tax or other required withholdings (for example, in the
|
Compliance
|
You may not exercise the Option if the Company’s issuing stock upon such
|
with Law
|
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 Company’s insider trading policy then prohibits you from selling to the market.
|
Additional
|
The Company may postpone issuing and delivering any Option Shares for so
|
Conditions
|
long as the Company determines to be advisable to satisfy the following:
|
Additional
|
If you exercise the Option at a time when the Company does not have a current
|
Representations
|
registration statement (generally on Form S-8) under the Securities Act of 1933
|
from You
|
(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 —
|
No Effect on
|
Nothing in this Award Agreement restricts the Company’s rights or those of any
|
Employment
|
of its Affiliates to terminate your employment or other relationship at any time or
|
Other
|
and for any or no reason. The termination of employment or other relationship,
|
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 Shareholder
|
You understand and agree that (i) no dividends or Dividend Equivalents will be paid on the Option and (ii) the Company will not consider you a shareholder for any purpose (including, without limitation, the right to vote or receive dividends on the shares) with respect to any of the Option Shares until you have exercised the Option, paid for the shares, and received evidence of ownership.
|
No Effect on
|
You understand and agree that the existence of the Option will not affect in any
|
Running Business
|
way the right or power of the Company or its shareholders to make or authorize any adjustments, recapitalizations, reorganizations, or other changes in the Company’s 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 Shares 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.
|
Governing Law
|
The laws of the State of Delaware will govern all matters relating to the Option, without regard to the principles of conflict of laws.
|
Clawbacks
|
The Committee may cancel this Option if you have engaged in or are engaging in activity that is in conflict with or adverse to the interest of the Company while employed by or providing services to the Company or any subsidiary, including fraud or conduct contributing to any financial restatements or irregularities. The Committee may cause you to forfeit any compensation, gain or other value realized thereafter on the vesting or exercise of the Option or the sale of Shares acquired under the Option, and must promptly repay such amounts to the Company. You agree that the Committee may require you to promptly repay to the Company any amount in excess of what you should have received under the terms of the Option for any reason (including without limitation by reason of a financial restatement, mistake in calculations or other administrative error). Furthermore, to the extent required by applicable law (including, without limitation, Section 304 of the Sarbanes-Oxley Act and Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act) and/or the rules and regulations of NASDAQ or any other securities exchange or inter-dealer quotation service on which the Shares are listed or quoted, or if so required pursuant to a written policy adopted by the Company, the Option shall be subject (including on a retroactive basis) to clawback, forfeiture or similar requirements.
|
Notices
|
Unless the Company specifies another method of transmitting notice, any notice to the Company under this Award Agreement must be sent in writing, by hand or by mail, to the office of the Company’s Corporate Secretary at the Company’s then corporate headquarters. The Company will address any notices to you using its standard electronic communications methods, or to your current office or home address, as reflected in the Company’s personnel or other business r
|
Amendment
|
The Committee may amend the Option without your consent provided that it concludes such amendment is not materially adverse to you, is required for compliance with Section 409A, or is permitted under Section 12 of the Plan.
|
Plan Governs
|
Wherever a conflict may arise between the terms of this Award Agreement and the terms of the Plan, the terms of the Plan will control. The Committee may adjust the number of Option Shares, the Option Exercise Price, and other terms of the Option from time to time as the Plan provides.
|
Electronic
|
You, by your electronic execution of this Award Agreement, agree to the terms
|
Execution of
|
and conditions contained herein and further agree to execute any documents
|
Award Agreement
|
requested by the Company required to effect the issuance of stock to you in connection with your exercise of the Option.
|
Date of Grant
|
<Date of Grant>
|
Option Shares
|
<Number of Shares Covered by the Option Granted>
|
Option Exercise Price per Share
|
$<Exercise Price per Share>
|
Exercisability
|
[One-fourth/One-third] of the Option Shares shall vest and become exercisable on each of the first, second[, third and fourth/and third] anniversaries of the Date of Grant. Each of those dates is an “Exercisability Date.”
|
Option Expiration Date
|
<Date of tenth anniversary of the Date of Grant>
|
Participant Management-Level
|
<Management level of Participant at Date of Grant>
|
•
|
You have been granted a nonqualified stock option (the “Option”) to purchase shares of the Company’s common stock (“Shares”). The total number of Shares covered by the Option granted to you is in the chart above under “Option Shares” and the price per share is under “Option Exercise Price per Share.”
|
•
|
The potential value of your stock option award increases if the price of the Company’s stock increases, but you also have to continue to provide services to the Company (except as the Award Agreement provides) to actually receive such value. Of course, the value of the stock may go up and down over time.
|
•
|
You cannot exercise the Option (actually purchase Shares) until it becomes exercisable. Your stock option becomes exercisable as provided in the chart above under “Exercisability,” assuming you remain an employee or a member of the Board of Directors of the Company through each Exercisability Date and subject to the terms in the Award Agreement.
|
•
|
Additional details regarding your stock option award are provided in the Plan and the Award Agreement.
|
•
|
Whether or not you decide to exercise your stock option and purchase the Shares is your decision, and you have until the stock option expires (which will be no later than the tenth 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.
|
Option
|
While the Option remains in effect under the Option Expiration section below,
|
Exercisability
|
you may exercise any exercisable portions of the Option (and buy the Option Shares) under the timing rules of this section.
|
Change in
|
In addition to any terms under your employment or separation agreement, if
|
Control
|
applicable, in the event a Change in Control occurs, the Option will be treated as provided in Section 11 of the Plan (and, if applicable, your employment or separation agreement) if within 24 months following the Change in Control, your employment or service ends on (i) a termination without Gross Misconduct or (ii) a resignation for good reason as specified under your employment agreement, if applicable, provided also that the Option will remain outstanding for twelve months following such termination but not beyond the Option Expiration Date.
|
Option Expiration
|
The Option will expire no later than the close of business on the Option Expiration Date. Unless otherwise specified in your employment or separation agreement, this Award Agreement, or the Committee determines otherwise, 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 Gross Misconduct, the Option will immediately expire without regard to whether it is then exercisable. “Gross Misconduct” for purposes of this Award Agreement: (i) shall have the same meaning as “cause” in your employment or separation agreement if you have an employment or separation agreement with the Company and cause is defined in such agreement; or (ii) if you do not have an
|
•
|
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 Gross Misconduct, except as provided above under the Change in Control section;
|
•
|
For death or disability, the first anniversary of the date employment or service ends;
|
•
|
For Retirement, the second anniversary of your Retirement; or
|
•
|
The Option Expiration Date.
|
Method of
|
Subject to this Award Agreement and the Plan, you may exercise the Option only
|
Exercise and
|
by providing a written notice (or notice through another previously approved
|
Payment for
|
method, which could include a voice- or web-based, other electronic, or e-mail
|
Shares
|
system) to the Corporate Secretary of the Company or the Corporate Secretary’s designee, 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 Option Exercise Price using one or more of the following methods:
|
Cash/Check
|
by cash or check in the amount of the Option Exercise Price payable to the order of the Company;
|
Net Exercise
|
by delivery of a notice of “net exercise” to us 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 (x) the aggregate Option Exercise Price for the portion of the Option being exercised divided by (y) the Fair Market Value on the date of exercise;
|
Stock
|
if permitted by the Committee, by delivery of Shares that you already own having a Fair Market Value equal to the Option Exercise Price on the date of exercise, provided that (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
|
Withholding
|
The issuance of the Option Shares is contingent on satisfaction of all obligations with respect to required tax or other required withholdings (for example, in the United States, any applicable Federal, state, and local taxes). The Company may take any action permitted under Section 14(c) of the Plan to satisfy such obligation, including, as permitted by the Committee, satisfying the tax obligations by (i) reducing the number of Option Shares to be issued to you in connection with any exercise of such Option by the 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, except as otherwise permitted by the Committee or the Board), (ii) accepting payment of the withholdings directly from you or from a broker in connection with a Cashless Exercise of the Option (as set forth above under Cashless Exercise), or (iii) taking any other action under Section 14(c) of the Plan.
|
Compliance
|
You may not exercise the Option if the Company’s issuing stock upon such
|
with Law
|
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 Company’s insider trading policy then prohibits you from selling to the market.
|
Additional
|
The Company may postpone issuing and delivering any Option Shares for so
|
Conditions
|
long as the Company determines to be advisable to satisfy the following:
|
Additional
|
If you exercise the Option at a time when the Company does not have a current
|
Representations
|
registration statement (generally on Form S-8) under the Securities Act of 1933
|
from You
|
(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 —
|
No Effect on
|
Nothing in this Award Agreement restricts the Company’s rights or those of any
|
Employment
|
of its Affiliates to terminate your employment or other relationship at any time and
|
or Other
|
for any or no reason. The termination of employment or other relationship,
|
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 Shareholder
|
You understand and agree that (i) no dividends or Dividend Equivalents will be paid on the Option and (ii) the Company will not consider you a shareholder for any purpose (including, without limitation, the right to vote or receive dividends on the shares) with respect to any of the Option Shares until you have exercised the Option, paid for the shares, and received evidence of ownership.
|
No Effect on
|
You understand and agree that the existence of the Option will not affect in any
|
Running Business
|
way the right or power of the Company or its shareholders to make or authorize any adjustments, recapitalizations, reorganizations, or other changes in the Company’s 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 Shares 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.
|
Governing Law
|
The laws of the State of Delaware will govern all matters relating to the Option, without regard to the principles of conflict of laws, except as otherwise specified herein or in an appendix attached hereto.
|
Clawbacks
|
The Committee may cancel this Option if you have engaged in or are engaging in activity that is in conflict with or adverse to the interest of the Company while employed by or providing services to the Company or any subsidiary, including fraud or conduct contributing to any financial restatements or irregularities. The Committee may cause you to forfeit any compensation, gain or other value realized thereafter on the vesting or exercise of the Option or the sale of Shares
|
Restrictive
|
Attached to this Award Agreement is Appendix A regarding your applicable
|
Covenants
|
“Restrictive Covenants” (as defined therein). Your confirmation of receipt of this Option provides your consent to the Restrictive Covenants and to the additional clawback rules set forth in Appendix A.
|
Notices
|
Unless the Company specifies another method of transmitting notice, any notice to the Company under this Award Agreement must be sent in writing, by hand or by mail, to the office of the Company’s Corporate Secretary at the Company’s then corporate headquarters. The Company will address any notices to you using its standard electronic communications methods, or to your current office or home address, as reflected in the Company’s personnel or other business records. You and the Company may change the address for notice by like notice to the other, and the Company may also change the address for notice by general announcements to the Plan participants.
|
Amendment
|
The Committee may amend the Option without your consent provided that it concludes such amendment is not materially adverse to you, is required for compliance with Section 409A, or is permitted under Section 12 of the Plan.
|
Plan Governs
|
Wherever a conflict may arise between the terms of this Award Agreement and the terms of the Plan, the terms of the Plan will control. The Committee may adjust the number of Option Shares, the Option Exercise Price, and other terms of the Option from time to time as the Plan provides.
|
Electronic
|
You, by your electronic execution of this Award Agreement, agree to the terms
|
Execution of
|
and conditions contained herein, including the terms set forth in Appendix A,
|
Award Agreement
|
and further agree to execute any documents requested by the Company required to effect the issuance of stock to you in connection with your exercise of the Option.
|
•
|
Proprietary Information and Developments
|
•
|
Non-solicitation (all employees)
|
•
|
Non-competition (executive vice presidents, senior vice presidents, vice presidents and directors)
|
Vice Presidents and above
|
As an executive vice president, senior vice president or vice president, you agree that while the Company employs you and for a period of twelve 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), 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 Company’s 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 Appendix A, you agree that the Company does business throughout and plans to do business throughout the United States.
|
Director-level employees
|
As a director, you agree that while the Company employs you and for a period of six 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), 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 Company’s 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 Appendix A, you agree that the Company does business throughout and plans to do business throughout the United States.
|
•
|
General
|
Date of Grant
|
<Date of Grant>
|
RSU Shares
|
<Number of Shares Covered by the RSUs Granted>
|
Vesting
|
________________________. Each of those dates is a “Vesting Date”.
|
•
|
You have been granted RSUs for shares of the Company’s common stock (“Shares”) 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 Company’s stock increases, but you also have to continue to provide services to the Company (except as the Award 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 a member of the Board of Directors of the Company or an employee of the Company through each Vesting Date and subject to the terms in the Award 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.
|
•
|
Additional details regarding your RSU award are provided in the Plan and the Award Agreement.
|
Vesting
|
Your RSUs become nonforfeitable (“Vested”) as provided in the Award Notice,
|
Change in
|
In the event a Change in Control occurs, the RSUs will be treated as provided in
|
Control
|
Section 11 of the Plan if within 24 months following the Change in Control, your service ends on (i) a termination without Gross Misconduct or (ii) Retirement.
|
to Misconduct
|
the RSUs will immediately terminate without regard to whether they are then Vested in whole or in part. “Gross Misconduct” for purposes of this Award Agreement shall mean the occurrence of one of the following events: (A) your conviction or plea of guilty or nolo contendere to any felony (or to a felony charge reduced to a misdemeanor), (B) theft or embezzlement of assets of the Company or an Affiliate, or (C) violation of the terms of any non-competition, non-disclosure, confidentiality or similar obligation or agreement with respect to the Company or any Affiliate to which the Plan participant is a party.
|
Distribution Date
|
Subject to any overriding provisions in the Plan, you will receive a distribution of the shares of common stock of the Company (“Shares”) equivalent to your Vested RSU Shares as soon as practicable following the date(s) on which they 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”).
|
Taxes and
|
The RSUs provide tax deferral, meaning that the RSU Shares are not taxable
|
Withholding
|
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.
|
Compliance
|
The Company will not issue the RSU Shares if doing so would violate any
|
with Law
|
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.
|
Additional
|
The Company may postpone issuing and delivering any RSU Shares for so
|
Conditions
|
long as the Company determines to be advisable to satisfy the following:
|
Additional
|
If the vesting provisions of the RSUs are satisfied and you are entitled to receive
|
Representations
|
RSU Shares at a time when the Company does not have a current registration
|
from You
|
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 —
|
No Effect on
|
Nothing in this Award Agreement restricts the Company’s rights or those of any
|
Employment
|
of its Affiliates to terminate your employment or other relationship at any time and
|
or Other
|
for any or no reason. The termination of employment or other relationship,
|
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.
|
Limited Status
|
You understand and agree that the Company will not consider you a shareholder 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 shareholders. 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.
|
Voting
|
You may not vote the RSUs. You may not vote the RSU Shares unless and until the Shares are distributed to you or for your account.
|
No Effect on
|
You understand and agree that the existence of the RSUs will not affect in any
|
Running Business
|
way the right or power of the Company or its shareholders to make or authorize any adjustments, recapitalizations, reorganizations, or other changes in the Company’s 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 Shares 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.
|
Section 409A
|
The RSUs are intended to comply with the requirements of Section 409A and
|
Unsecured
|
The RSUs create a contractual obligation on the part of the Company to make
|
Creditor
|
a distribution of the RSU Shares at the time provided for in this Award 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.
|
Governing Law
|
The laws of the State of Delaware will govern all matters relating to the RSUs without regard to the principles of conflict of laws.
|
Clawbacks
|
The Committee may cancel these RSUs if you have engaged in or are engaging in activity that is in conflict with or adverse to the interest of the Company while employed by or providing services to the Company or any subsidiary, including fraud or conduct contributing to any financial restatements or irregularities. The Committee may cause you to forfeit any compensation, gain or other value realized thereafter on the vesting or settlement of these RSUs or the sale of Shares acquired in respect of the RSUs, and must promptly repay such amounts to the Company. You agree that the Committee may require you to promptly repay to the Company any amount in excess of what you should have received under the terms of the RSUs for any reason (including without limitation by reason of a financial restatement, mistake in calculations or other administrative error). Furthermore, to the extent required by applicable law (including, without limitation, Section 304 of the Sarbanes-Oxley Act and Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act) and/or the rules and regulations of NASDAQ or any other securities exchange or inter-dealer quotation service on which the Shares are listed or quoted, or if so required pursuant to a written policy adopted by the Company, these RSUs shall be subject (including on a retroactive basis) to clawback, forfeiture or similar requirements.
|
Notices
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Unless the Company specifies another method of transmitting notice, any notice to the Company under this Award Agreement must be sent in writing, by hand or by mail, to the office of the Company’s Corporate Secretary at the Company’s then corporate headquarters. The Company will address any notices to you u
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Amendment
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The Committee may amend the RSUs without your consent provided that it concludes such amendment is not materially adverse to you, is required for compliance with Section 409A, or is permitted under Section 12 of the Plan.
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Plan Governs
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Wherever a conflict may arise between the terms of this Award 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.
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Electronic
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You, by your electronic execution of this Award Agreement, agree to the terms
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Execution of
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and conditions contained herein and further agree to execute any documents
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Award Agreement
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requested by the Company required to effect to effect the conversion of the RSUs into Shares.
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1.
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I have reviewed this Quarterly Report on Form 10-Q of HMS Holdings Corp.;
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2.
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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;
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3.
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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;
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4.
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The registrant’s 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:
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5.
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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Date: August 5, 2019
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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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1.
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I have reviewed this Quarterly Report on Form 10-Q of HMS Holdings Corp.;
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2.
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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;
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3.
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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;
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4.
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The registrant’s 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:
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5.
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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Date: August 5, 2019
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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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/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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August 5, 2019
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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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August 5, 2019
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