| 4. | to transact such other business as may properly come before the meeting. |
In reliance on SEC rules which allow issuers to make proxy materials available to shareholders on the Internet, we are mailing our shareholders a notice instead of paper copies of our proxy statement and our annual report. The notice contains instructions on how to access those documents on the Internet. The notice also contains instructions on how shareholders can receive a paper copy of our proxy materials, including the proxy statement, our 20162018 annual report and a form of proxy card. Whether or not you plan to attend the meeting, we request that you vote as soon as possible. By the Order of the Board of Directors, | | | | | By the Order of the Board of Directors,
| | | | |  
| | | | Nashville, Tennessee | | Robert A. Frist, Jr. | April 12, 201710, 2019 | | Chief Executive Officer |
PROXY STATEMENT TABLE OF CONTENTS
INFORMATION ABOUT THE ANNUALANNUAL MEETING AND VOTING Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders Toto Be Held on May 25, 2017:23, 2019: The Company’s Proxy Statement, Proxy Card and 20162018 Annual Report to Shareholders are available to registered and beneficial shareholders at http://www.edocumentview.com/HSTM. This notice is not a form for voting and presents only an overview of the more complete proxy materials, which contain important information. We encourage all shareholders to access and review the proxy materials before voting. These materials were made available to shareholders on April 12, 2017.10, 2019. What is the Purpose of the Annual Meeting? At HealthStream’s Annual Meeting, shareholders will act upon (i) the election of three (3) persons nominated by the Board of Directors (the “Board”) and identified in this proxy statement as Class III directors, (ii) the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017,2019, (iii) the approval, on an advisory basis, of the compensation of the Company’s named executive officers under applicable SEC rules (the “Named Executive Officers”) as described in this proxy statement;statement, and (iv) any other matters that may properly come before the meeting. In addition, our management will respond to questions from shareholders. The Annual Meeting will be held on May 25, 201723, 2019 at the Company’s offices located at 209 10500 11th Ave. South,North, Suite 450,1000, Nashville, TN 37203. The meeting will begin at 2:00 p.m., Central Daylight Time. Directions to the Annual Meeting are provided on the back page of the proxy statement. What are the Board’s Recommendations? Our Board recommends that you vote: FOR the election of each of the nominees set forth in this proxy statement to serve as Class III directors on our Board; FOR the ratification of the appointment of Ernst & Young LLP; and FOR the approval, on an advisory basis, of the compensation of the Company’s Named Executive Officers as described in this proxy statement. What Happens if I Do Not Give Specific Voting Instructions?
Shareholders of Record. If you are a shareholder of record and you: Indicate when voting on the Internet or by telephone that you wish to vote as recommended by the Board; or Sign and return a proxy card without giving specific voting instructions, then the proxy holders will vote your shares in the manner recommended by the Board on all matters presented in this proxy statement. 1
Beneficial Owners of Shares Held in Street Name. If you are a beneficial owner of shares held in street name and do not provide the organization that holds your shares with specific voting instructions, see below under “How do I Vote My Shares if They are Held in the Name of My Broker (Street Name)” for information regarding the impact of not providing such voting instructions. Who May Attend the Annual Meeting? Shareholders of record on March 31, 2017April 3, 2019 may attend the meeting. “Street name” holders will need to bring a copy of a brokerage statement reflecting their ownership of our common stock as of the record date. Cameras and recording devices are not permitted at the meeting. Who is Entitled to Vote at the Annual Meeting? The Board has fixed the close of business on Friday, March 31, 2017Wednesday, April 3, 2019 as the record date. Shareholders of record of our common stock at the close of business on March 31, 2017April 3, 2019 may vote at this meeting. As of the record date, there were 31,839,77632,388,307 shares of our voting common stock outstanding. These shares were held by approximately 10,54710,414 record holders. Every shareholder is entitled to one vote for each share of common stock the shareholder held of record on the record date. Who is Soliciting My Vote? This proxy solicitation is being made and paid for by HealthStream. In addition, we have retained ComputerShare and Georgeson Shareholder Communications to assist in the solicitation. We will pay these entities an aggregate of approximately $1,500 plus out-of-pocket expenses for their assistance. Our directors, officers and other employees not specially employed for this purpose may also solicit proxies by personal interview, mail, telephone, or facsimile. They will not be paid additional remuneration for their efforts. We will also request brokers and other fiduciaries to forward proxy solicitation material to the beneficial owners of shares of the common stock that the brokers and fiduciaries hold of record. We will reimburse them for their reasonable out-of-pocket expenses. On What Matters May I Vote? You may vote on (i) the election of the three (3) persons nominated by the Board and identified in this proxy statement to serve as Class III directors of our Board, (ii) the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017,2019, (iii) the approval, on an advisory basis, of the compensation of the Company’s Named Executive Officers as described in this proxy statement, and (iv) any other matters that may properly come before the meeting. In addition, our management will respond to questions from shareholders. 2
Why Did I Receive a One-Page Notice in the Mail Regarding the Internet Availability of Proxy Materials Instead of a Full Set of Proxy Materials? Pursuant to rules adopted by the SEC, the Company has elected to provide access to its proxy materials via the Internet. Accordingly, the Company is sending a Notice of Internet Availability of Proxy Materials (the “Notice”) to the Company’s shareholders. All shareholders will have the ability to access the proxy materials on the website referred to in the Notice or request to receive a printed set of the proxy materials. Instructions on how to access the proxy materials over the Internet or to request a printed copy may be found in the Notice. In addition, shareholders may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis. I Share an Address With Another Shareholder, and We Received Only One Paper Copy of the Proxy Materials. How May I Obtain an Additional Copy of the Proxy Materials? The Company has adopted a procedure called “householding” in accordance with SEC rules. Under this procedure, the Company is delivering a single copy of the Notice and, if requested, this proxy statement and the Annual Report to multiple shareholders who share the same address unless the Company has received contrary instructions from one or more of the shareholders. This procedure reduces the Company’s printing costs, mailing costs, and fees. Shareholders who participate in householding will continue to be able to access and receive separate proxy cards. Upon written or oral request, the Company will deliver promptly a separate copy of the Notice and, if requested, this proxy statement and the Annual Report to any shareholder at a shared address to which the Company delivered a single copy of any of these documents. To receive a separate copy of the Notice and, if requested, this proxy statement or the Annual Report, shareholders may write or call the Company at the following address and telephone number: HealthStream, Inc. Investor Relations Department 209 10500 11th Avenue SouthNorth
Suite 4501000 Nashville, Tennessee 37203 Telephone Number: (800) 845-1579 How Do I Vote? Your vote is important. Whether or not you plan to attend the meeting in person, we urge you to submit your voting instructions to the Company as soon as possible by voting (1) via the Internet by following the instructions provided in the Notice, (2) by mail, if you requested printed copies of the proxy materials, by filling out the vote instruction form and sending it back in the envelope provided, (3) by telephone, if you requested printed copies of the proxy materials, by calling the toll free number found on the proxy card or (4) in person at the meeting. If you requested printed copies of the proxy materials, and properly sign and return your proxy card and return it in the prepaid envelope, your shares will be voted as you direct. If you requested printed copies of the proxy materials, and return your signed proxy card but do not mark the boxes showing how you wish to vote, your shares will be voted FORin the proposals.manner recommended by the Board on all matters presented in this proxy statement. You have the right to revoke your proxy at any time before the meeting by: | • | | notifying our Senior Vice President, Business Development and General Counsel, Michael M. Collier, at 209 10500 11th Avenue South,North, Suite 450,1000, Nashville, TN 37203; |
voting in person; or
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duly submitting a proxy bearing a later date. The deadline for shareholders of record to submit voting instructions by telephone or the Internet is 11:59 p.m., Eastern Daylight Savings Time, on Wednesday, May 24, 2017.22, 2019. If your shares are held by your broker, often referred to as in “street name,” your broker, bank, trustee, or other nominee will provide you with materials and instructions for voting your shares, which may allow you to use the internet or a toll-free telephone number to vote your shares. The deadline for “street name” holders to submit voting instructions by telephone or the Internet is 11:59 p.m., Eastern Daylight Savings Time, on Wednesday, May 24, 2017.22, 2019. How Can I Get Electronic Access to the Proxy Materials? The Notice will provide you with instructions regarding how to: View on the Internet the Company’s proxy materials for the Annual Meeting; and Instruct the Company to send future proxy materials to you by email. The Company’s proxy materials are also available on the Company’s website at www.healthstream.com. Choosing to receive future proxy materials by email will save the Company the cost of printing and mailing documents to you and will reduce the impact of the Company’s annual meetings on the environment. If you choose to receive future proxy materials by email, you will receive an email message next year with instructions containing a link to those materials and a link to the proxy voting website. Your election to receive proxy materials by email will remain in effect until you terminate it. How Will Voting on Any Other Business be Conducted? We do not know of any business to be considered at the 20172019 Annual Meeting other than (i) the election of three (3) persons nominated by the Board and identified in this proxy statement as Class III directors, (ii) the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017,2019, and (iii) the approval, on an advisory basis, of the compensation of the Company’s Named Executive Officers as described in this proxy statement. Our Bylaws require shareholders of the Company to give advance notice of any proposal intended to be presented at any annual meeting. The deadline for this notice for the 20172019 Annual Meeting has passed, and we did not receive any such notice made in compliance with our Bylaws. If any other business iswere to be properly presented at the Annual Meeting, your signed proxy card gives authority to Robert A. Frist, Jr., our Chief Executive Officer, and Gerard M. Hayden, Jr.,Scott A. Roberts, our Interim Chief Financial Officer, or either of them, to vote on such matters at their discretion. In addition, our management will respond to questions from shareholders at the 20172019 Annual Meeting. 4
What is a “Quorum”? A “quorum” is a majority of our outstanding shares of common stock. The shares may be present at the meeting or represented by proxy. There must be a quorum for business to be conducted at the meeting. Proxies received but marked as abstentions and broker non-votes will be included in the calculation of the number of shares considered to be present at the meeting. What Vote is Required to Approve Each Item? Each of the director nominees must receive affirmative votes from a plurality of the shares voting to be elected. The ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 20172019 will be approved if the number of shares of Company common stock cast “FOR” such proposal exceed the number of shares of Company common stock cast “AGAINST” such proposal. The approval, on an advisory basis, of the compensation of the Company’s Named Executive Officers as described in this proxy statement will be approved if the number of shares of Company common stock voted “FOR” such proposal exceeds the number of shares of Company common stock voted “AGAINST” such proposal. What are My Voting Options on the Proposals? With respect to Proposal 1, you havemay vote FOR or WITHHOLD your vote with respect to each of the three choices. You may: Vote for all of the(3) nominees set forth in this proxy statement to serve as Class II directors of the Board;
Withhold your vote for all of the nominees set forth in this proxy statement to serve as Class III directors on our Board; or
Board. Vote for all of such nominees except those nominees you specifically identify in respect of which you elect to withhold your vote.
With respect to Proposals 2 and 3, you may vote FOR the proposal, AGAINST the proposal or you may elect to ABSTAIN from voting. What is the Effect of Abstentions? If you attend the meeting or send in your signed proxy card but abstain from voting on the proposals, you will be counted for purposes of determining whether a quorum exists. So long as a quorum is present, abstaining from any of the matters being voted on at the 20172019 Annual Meeting will have no effect on whether any such matter is approved. How do I Vote My Shares if They are Held in the Name Of My Broker (Street Name)? If your shares are held in the name of your broker, bank or other nominee, often referred to as in “street name,” you will receive a form from your broker, bank or other nominee seeking instruction as to how your shares should be voted. New York Stock Exchange (“NYSE”) Rule 452 (“Rule 452”) provides that brokers, banks and other nominees may not exercise their voting discretion on specified non-routine matters without receiving instructions from the beneficial owner of the shares. Because Rule 452 applies specifically to securities brokers, virtually all of whom are governed by NYSE rules, Rule 452 applies to all companies listed on a national stock exchange including companies (such as the Company) listed on the NASDAQNasdaq Stock Market. Therefore, if you do not issue instructions to your broker, bank or other nominee, your broker, bank or other nominee will not be allowed to exercise his 5
or her voting discretion on proposal one, the election of directors, or proposal three, the non-binding advisory vote on executive compensation, or proposal four, the non-binding advisory vote on the frequency of future advisory votes regarding executive compensation, and will return a proxy card with no vote (the “non-vote”) on those proposals. Broker non-votes will be counted for the purpose of determining the presence of a quorum, but will not impact the outcome of proposals one, three or four. For proposal two, the ratification of the independent registered public accounting firm, absent receiving instructions from you, your broker may vote your shares at his or her discretion on your behalf. What is the Effect of a Broker Non-Vote? So long as a quorum is present, a broker non-vote will have no effect on whether proposals one, three or threefour are approved. Can I Change My Vote? If you are a shareholder of record, you may revoke your proxy by doing one of the following: If you requested printed copies of the proxy materials, by sending a written notice of revocation to the Secretary of the Company that must be received prior to the Annual Meeting, stating that you revoke your proxy; If you requested printed copies of the proxy materials, by signing a later-dated proxy card and submitting it so that it is received prior to the Annual Meeting in accordance with the instructions included in the proxy card; If you requested printed copies of the proxy materials and voted by telephone, by calling the toll free number found on the proxy card and submitting another vote by telephone; If you previously voted by internet pursuant to instructions set forth in the Notice, by submitting another vote over the internet pursuant to such instructions; or By attending the Annual Meeting and voting your shares in person before your proxy is exercised at the Annual Meeting. If you hold your shares in “street name”, your broker, bank or other nominee will provide you with instructions on how to revoke your proxy. Who Will Count the Votes? A representative of our transfer agent, ComputerShare, Canton, Massachusetts, will count the votes. Where Can I Find the Voting Results? We will announce the voting results at the Annual Meeting. We also will report the voting results on Form 8-K, which we expect to file with the Securities and Exchange Commission, or the SEC, within four business days following the meeting. 6
When are Shareholder Proposals Due in Order to be Included in Our Proxy Statement for the 20182020 Annual Meeting? Any shareholder proposals to be considered for inclusion in next year’s proxy statement under Exchange Act Rule 14a-8 must be submitted in writing to Secretary, HealthStream, Inc., 209 10500 11th Avenue South,North, Suite 450,1000, Nashville, Tennessee 37203, prior to the close of business on December 13, 201712, 2019 and otherwise comply with the requirements of Rule 14a-8. What is the Deadline for Submitting Other Business or Nominations for the 20182020 Annual Meeting? If you bring business before the 20182020 annual meeting which is not the subject of a proposal for inclusion in the proxy statement under Rule 14a-8, or if you want to submit a director nomination, our Bylaws require that you deliver notice in proper written form to our Secretary by February 24, 2018,23, 2020, but not before January 25, 201824, 2020 (or, if the 20182020 annual meeting is called for a date not within 30 days of May 25, 2018,23, 2020, the notice must be received not earlier than the 120th day prior to such annual meeting and not later than the 90th day prior to such annual meeting or, if the first public disclosure of the date of such annual meeting is less than 100 days prior to such annual meeting, the 10th day following the day on which public disclosure of the date of the annual meeting is first made). If such notice is provided, a nominating shareholder must provide the information required by our Bylaws, including information regarding the nominating shareholder and affiliated persons, and otherwise comply with the terms of our Bylaws. In addition, if such notice is in relation to a proposed director nominee, the notice must include certain biographical information regarding the proposed nominee, a completed written questionnaire with respect to such proposed nominee regarding the background and qualifications of the proposed nominee (which questionnaire will be provided by the Secretary of the Company upon request), the proposed nominee’s written consent to nomination and the additional information set forth in our Bylaws. Who Should I Contact if I Have Questions? If you have any questions about the Annual Meeting or these proxy materials, please contact Michael M. Collier, our Senior Vice President, Business Development and General Counsel, or Mollie Condra, our Vice President of Communications, Research and Investor Relations, at 209 10500 11th Avenue South,North, Suite 450,1000, Nashville, Tennessee 37203, (615) 301-3100. If you are a registered shareholder and have any questions about your ownership of our common stock, please contact our transfer agent, ComputerShare, at 250 Royall Street, Canton, Massachusetts 02021 and (800) 962-4284. If your shares are held in a brokerage account, please contact your broker. 7
DIRECTORS, EXECUTIVE OFFICERS,OFFICERS, AND CORPORATE GOVERNANCE You can access our Corporate Governance Principles, current committee charters, Lead Independent Director charter, Code of Conduct, Code of Ethics for executive officers and directors and other corporate governance-related information on our website, www.healthstream.com (under the “Corporate Governance” section of the InvestorsInvestor Relations page), or by addressing a written request to HealthStream, Inc., Attention: Secretary, 209 10500 11th Avenue South,North, Suite 450,1000, Nashville, Tennessee 37203. We believe that effective corporate governance is important to our long-term success and our ability to create value for our shareholders. With leadership from our Nominating and Corporate Governance Committee, our Board regularly evaluates regulatory developments and trends in corporate governance to determine whether our policies and practices in this area should be enhanced. The Nominating and Corporate Governance Committee also administers an annual skills assessment process as well as an annual self and peer evaluation process for the Board. In addition, our directors are encouraged to attend director education programs. Directors The Board is divided into three classes (Class I, Class II and Class III). At each annual meeting of shareholders, directors constituting one class are elected for a three-year term. Directors who were elected by the Board to fill a vacancy in a class whose term expires in a later year are elected for a term equal to the remaining term for their respective class. The Fourth Amended and Restated Charter of the Company provides that each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board. The Board currently consists of ten members, of whom Mr. McLaren,Messrs. Dent and Stead and Ms. Rebrovick, and Mr. ShmerlingTate are standing for re-election as Class III Directors as set forth under “Proposal One – Election of Directors.” In addition, the Company’s other Class I director, Dale Polley, is not standing for re-election and will be retiring from service on the Board concurrently with the Annual Meeting to be held on May 23, 2019. The names and certain information about members of the Board are set forth below. | Name | | Age | | Positions with the Company | | Director
Since | | Class and Year in Which Term Will Expire | | Age | | Positions with the Company | | Director Since | | Class and Year in Which Term Will Expire | | Robert A. Frist, Jr. | | 50 | | Chief Executive Officer, President, and Chairman of the Board | | 1990 | | Class III, 2018 | | 52 | | Chief Executive Officer and Chairman of the Board | | 1990 | | Class III, 2021 | | Thompson S. Dent | | 67 | | Director | | 1995 | | Class I, 2019 | | 69 | | Director | | 1995 | | Class I, 2019 | | Frank Gordon | | 54 | | Director | | 2002 | | Class III, 2018 | | 56 | | Director | | 2002 | | Class III, 2021 | | C. Martin Harris, M.D. | | 60 | | Director | | 2010 | | Class III, 2018 | | 62 | | Director | | 2010 | | Class III, 2021 | | Jeffrey L. McLaren | | 50 | | Director | | 1990 | | Class II, 2017 | | 52 | | Director | | 1990 | | Class II, 2020 | | Dale Polley | | 67 | | Director | | 2006 | | Class I, 2019 | | 69 | | Director | | 2006 | | Class I, 2019* | | Linda Rebrovick | | 61 | | Director | | 2001 | | Class II, 2017 | | 63 | | Director | | 2001 | | Class II, 2020 | | Michael Shmerling | | 61 | | Director | | 2005 | | Class II, 2017 | | Michael D. Shmerling | | | 63 | | Director | | 2005 | | Class II, 2020 | | William W. Stead, M.D. | | 68 | | Director | | 1998 | | Class I, 2019 | | 70 | | Director | | 1998 | | Class I, 2019 | | Deborah Taylor Tate | | 60 | | Director | | 2010 | | Class I, 2019 | | 62 | | Director | | 2010 | | Class I, 2019 |
* | As noted above, Mr. Polley is not standing for re-election to the Company’s Board at the Annual Meeting and will be retiring from service on the Board concurrently with the Annual Meeting. |
Robert A. Frist, Jr., one of ourco-founders, co‑founders, has served as our Chief Executive Officer and Chairman of the Board of Directors since 1990. Mr. Frist graduated with a Bachelor of Science in businessBusiness with concentrations in Finance, Economics and Marketing from Trinity University. 8
The Company believes that Mr. Frist’s experience managing the day-to-day operations of the Company’s business, along with his active involvement with the Company since its inception and a comprehensive understanding of the Company’s mission, give him the qualifications and skills to serve as a director. Thompson S. Dent is the Chief Executive Officer and Chairman of the Board of Directors of Urgent Team, LLC, an independent operator of urgent care centers. Mr. Dent is also the co-founder and Chairman of Re:Cognition Health, Ltd. London, England, a Centre of Excellence for neurological problems and with specific expertise in all causes of memory problems and cognitive impairment. He served as executive chairman and chief executive officer of MedTel International Corporation, an international diagnostic imaging company based in Nashville, TN, from 2004 to 2008. Mr. Dent holds a Masters in Healthcare Administration from The George Washington University and a Bachelor’s degree in Business from Mississippi State University. He has served as our lead Independent Director since December 15, 2014. The Company believes that Mr. Dent’s more than thirty-five years of healthcare services industry expertise, including service on numerous healthcare company boards and committees, give him the qualifications and skills to serve as a director.
Frank Gordon has served as managing partner of Crofton Capital LLP, a private equity fund, since 2002. Mr. Gordon currently serves on the board of directors of a number of non-profit organizations.organizations and private companies. Mr. Gordon earned a Bachelor of Science from the University of Texas in Austin and a Masters in Business Administration from Georgia State University. The Company believes that Mr. Gordon’s extensive healthcare business experience, including, but not limited to, service as a director in a management capacity and as an investor with both start-up and well established companies, gives him the qualifications and skills to serve as a director. C. Martin Harris, M.D. is associate vice president of the Health Enterprise and chief business officer of Dell Medical School at the University of Texas at Austin. Dr. Harris previously served as the chief information officer of Cleveland Clinic Foundation in Cleveland, Ohio and also served as a staff physician for Cleveland Clinic Hospital, from June 1996 until November 2016. Dr. Harris received his undergraduate and medical degrees from the University of Pennsylvania. He also holds a Master’s degree in Business Administration in Healthcare Management from The Wharton School of the University of Pennsylvania. Dr. Harris is a Director for Invacare Corporation (NYSE: IVC), a publicly registered leader of home and long-term care medical products, and for Thermo Fisher Scientific (NYSE: TMO), a publicly registered precision healthcare equipment company.company, and Colgate-Palmolive (NYSE:CL), a consumer packaged goods provider. The Company believes that Dr. Harris’ healthcare and business expertise, including his leadership in healthcare information technology, give him the qualifications and skills to serve as a director. Jeffrey L. McLaren is the founder and chief executive officer of Medaxion, Inc., a provider of mobile anesthesia information solutions. Mr. McLaren served as the chief executive officer of SaferSleep, LLC, a provider of anesthesia information management systems from 2004 to 2007. He served as the chief executive officer of Southern Genesis, LLC, a management consulting company from 2003 to 2010. Mr. McLaren, one of our co-founders, served as our President from 1990 to 2000 and as our Chief Product Officer from 1999 to 2000. Mr. McLaren graduated from Trinity University with a Bachelor of Arts in both businessBusiness and philosophy.Philosophy. The Company believes that Mr. McLaren’s extensive healthcare business expertise, along with his intimate knowledge of the Company’s operations, give him the qualifications and skills to serve as a director. 9
Dale Polley retired as a vice chairman and member of the board of directors of First American Corporation and First American National Bank in 2000. In the nine years preceding these positions, Mr. Polley served in various executive management positions at First American, which included serving as its president from 1997 to 1999. Mr. Polley serves on the board of directors of CapStar Bank (NASDAQ:(Nasdaq: CSTR), a public registered financial institution, headquartered in Nashville, Tennessee, as well as several non-profit organizations. Mr. Polley served as a director for Pinnacle Financial Partners, Inc., (NASDAQ:(Nasdaq: PNFP) a public registered financial institution, from 2000 to 2011 and for O’Charley’s, Inc., a publiclypublic registered restaurant company from 2001 until its sale in 2012. Mr. Polley served as a director for the Federal Reserve Bank of Atlanta, Nashville branch, from 1995 to 2001. Mr. Polley earned a Bachelor of Business Administration in accountingAccounting from Memphis State University. The Company believes that Mr. Polley’s financial and business expertise, as well as a diversified background of service as a director on the boards of several other public companies, give him the qualifications and skills to serve as a director. Linda Eskind Rebrovickis a Senior Client PartnerPresident, Impact Corporate Consulting, providing business consulting and Leader, Healthcare Practice, at Morgan Samuels, and is responsible in this capacity for executive and director retained searches.board services. She serves on the BoardBoards of Directors of Guidehouse, LLP and Consensus Point, and Tribridge Enterprises,Inc. and the advisory board of Western Express, Inc. (each of these companies is a private company). Prior to joiningPreviously, she was Chief Executive Officer, Integrated Healing Technologies, and Senior Client Partner, Healthcare and Technology, Morgan Samuels in February 2016,Samuels. Ms. Rebrovick was a candidate in 2015 for the office of Mayor, Metropolitan Nashville and Davidson County Government, and was CEOChief Executive Officer of Consensus Point, a global provider of innovative prediction market research technology solutions, from 2009 to 2014 when she began her mayoral campaign as noted above.
campaign. As Area Vice President of Dell Healthcare, and EVP and Managing Partner, Healthcare, at KPMG Consulting, she was responsible for full-service business consulting, including process improvement, organizational analysis, and implementation of healthcare technology solutions. As the Chief Marketing Officer of BearingPoint, Inc., she led the global marketing organization and managed the successful rebranding of the global consulting business in 40 countries. She began her career with IBM as a Marketing Representative, Marketing Manager, and Business Unit Executive. Ms. Rebrovick holdsearned a BSBachelor of Science in Marketing from Auburn University and was selected as one of their Top 400 Women Graduates of the past 100 years. She serves as co-chair and cofounder, Women Corporate Directors, Tennessee; board member, the Nashville Entrepreneur Center; trustee of the board, Leadership Nashville,Nashville; and she previously served as board chair, Nashville Technology Council. The Company believes that Ms. Rebrovick’s public and private company board and executive experience, technology, market research and sales expertise, and background as a healthcare executive with global management technology and consulting companies, give her the qualifications and skills to serve as a director. Michael D. Shmerling is chairmanChairman of Clearbrook Holdings Corp, a diversified private investment firm. Mr. Shmerling formerly served as the chief operating officer, executive vice presidentChief Operating Officer, Executive Vice President and boardBoard member of Kroll, Inc. and, following its sale to Marsh Inc., as a senior advisor to Marsh Inc. Mr. Shmerling serves on the board of directors of Renasant Corporations (NASDAQ:Corporation (Nasdaq:RNST), the publiclypublic registered parent of the financial institution Renasant Bank, as well as several non-profit organizations. Mr. Shmerling received a Bachelor of Accountancy degree from the University of Oklahoma. He ishas been licensed as a licensed CPA for 42 years (currently inactive). 10
The Company believes that Mr. Shmerling’s financial and business expertise, including a diversified background of managing and directing a variety of public and private companies, give him the qualifications and skills to serve as a director. William W. Stead, M.D. has served as Chief Strategy Officer for Vanderbilt University Medical Center since 2016, when the Medical Center and University transitioned to independent governance structures. Under the previous structure, Dr. Stead served as associate vice chancellor for health affairs of Vanderbilt University from 1991 to 2016, as chief information officer for the Medical Center from 1991 to 2013, and as chief strategy officer for the Medical Center from 2009 to 2016. He is a founding fellow of the American College of Medical Informatics and the American Institute for Engineering in Biology and Medicine and a member of the National Academy of Medicine. He is Chair of the National Committee on Vital and Health Statistics. He served as a presidential appointee to the Systemic Interoperability Commission. He is past chairman, Board of Regents, National Library of Medicine, and past president of the American College of Medical Informatics. Dr. Stead earned a Bachelor of Arts in chemistryChemistry and an M.D. from Duke University. The Company believes that Dr. Stead’s service as chief strategy officer for Vanderbilt University Medical Center, plus memberships in organizations devoted to the study of medical information, give him the qualifications and skills to serve as a director. Deborah Taylor Tate currently serves as the Director of the Administrative Office of the Courts for the State of Tennessee and a member of the American Judges Association and the Conference of State Court Administrators. Ms. Tate also serves as the Judiciary appointee to numerous state boards and commissions, including the Tennessee Consolidated Retirement System board and the State Information Systems Council, which oversees all technology projects for state government agencies. She was most recently appointed Co-Chair of the National Opioid Task Force by the Conference of Chief Justices representing the judiciary of all 50 states in combatting the opioid epidemic. She is a licensed attorney and Rule 31 mediator, who, in addition to her presently held office, also serves as Distinguished Scholar at the Free State Foundation, and Adjunct Lecturer at Vanderbilt School of Nursing. She also currently serves as vice-chairman of the executive committee for the Minoritynational Multicultural Media, Telecommunications and TelecommunicationsInternet Council. She was twice-nominated to the Federal Communications Commission (FCC) by President George W. Bush and unanimously confirmed by the U.S. Senate in 2005. She served as Commissioner of the FCC from 2006 to 2009, serving as chair of two Federal Joint Boards regarding advanced telecommunications services. At the time of her presidential appointment, Ms. Tate was serving as the chairman and director of the Tennessee Regulatory Authority. Her previous state positions also include serving as executive director of the Health Facilities Commission and as senior staff for then-Governor, Senator Lamar Alexander and a Senior policy advisor to Governor Don Sundquist. In addition, she was director of the State and Local Policy Center at Vanderbilt University Institute for Public Policy Studies. She served as chairman of the board of directors for Centerstone, Inc., the largest not-for-profit community mental health provider in the U.S., and presently serves on the national board of directors for the Centerstone Research Institute, the leading infomatics,informatics, analytics and clinical research provider for behavioral healthcare. Ms. Tate also serves as the Judiciary appointee to numerous state boards and commissions, including the Tennessee Consolidated Retirement System board. Ms. Tate received both her undergraduate degree and Juris Doctorate (J.D.) from the University of Tennessee, and also attended Vanderbilt Law School. The Company believes that Ms. Tate’s extensive background in various legal, leadership, and policymaking roles with both healthcare companies as well asand state and federal regulatory agencies gives her the qualifications and skills to serve as a director.
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Board Meetings and Committees Our business is managed under the direction of our Board. Our Board is responsible for establishing our corporate policies and strategic objectives, reviewing our overall performance, and overseeing management’s performance. The Board delegates the conduct of the business to our senior management team. Directors have regular access to senior management. They may also seek independent, outside advice. The Board oversees all major decisions to be made by the Company. The Board holds regular quarterly meetings, an annual strategic planning meeting, and meets on other occasions when required by special circumstances. The Board operates pursuant to our Corporate Governance Principles, a copy of which may be accessed in the “Corporate Governance” section of the InvestorsInvestor Relations page of our website at www.healthstream.com. During 2016,2018, our Board held five meetings, the Audit Committee held eightnine meetings, the Compensation Committee held three meetings, and the Nominating and Corporate Governance Committee held four meetings. Each director attended at least 89100 percent of the 20162018 meetings of the Board and the Board committees on which such director served. On a collective basis, the directors attended approximately 97%100 percent of the meetings of the Board and the Board committees on which such directors served.served during 2018. Our Board has adopted a policy strongly encouraging all of our directors to attend the annual meeting of shareholders. Eight directors attended the annual meeting of shareholders in May 2016.2018. Each of our directors also devotes his or her time and attention to the Board’s standing committees. The Board has established three standing committees consistent with the rules of the Nasdaq Stock Market so that certain areas can be addressed in more depth than may be possible at a full Board meeting. Ad hoc task forces may also be formed from time to time to consider acquisitions or other strategic issues. Each standing committee has a written charter that has been approved by the committee and the Board and that is reviewed at least annually. The committees, their primary functions, and memberships are as follows: Audit Committee. The Audit Committee’s primary duties and responsibilities are oversight of the integrity of HealthStream’s financial reporting process; oversight of our system of internal controls regarding finance, accounting, and legal compliance; oversight of the process utilized by management for identifying, evaluating, and mitigating various risks inherent in the Company’s business; selecting and evaluating the qualification, independence, and performance of our independent registered public accounting firm; monitoring compliance with the Company’s Code of Ethics for executive officers and directors and Code of Conduct; monitoring the reporting hotline; and providing an avenue of communication among the independent registered public accounting firm, management, and the Board. The Audit Committee operates pursuant to the terms of an Audit Committee Charter, a copy of which may be accessed in the “Corporate Governance” section of the InvestorsInvestor Relations page of our website at www.healthstream.com. During 2016,The current members of the Audit Committee are (and the members of the Audit Committee wereduring 2018 were) Dale Polley (chair), Michael D. Shmerling, and C. Martin Harris, M.D. See “Audit Committee Report for 2016.2018.” The Board has determined that all members of the Audit Committee are financially literate under the current listing standards of the NASDAQNasdaq and are independent within the meaning of the listing standards of NASDAQNasdaq and Rule 10A-3 of the Securities Exchange Act. The Board also determined that Dale Polley and Michael D. Shmerling each qualify as an “Audit Committee Financial Expert” as defined by the regulations of the SEC adopted pursuant to the Sarbanes-Oxley Act of 2002. Upon the retirement of Mr. Polley concurrently with the Annual Meeting, the Board intends to appoint a new chair of the Audit Committee in place of Mr. Polley, and also to appoint a new member of the Audit Committee, all in accordance with applicable legal requirements. 12
Compensation Committee. The Compensation Committee has responsibility for reviewing and approving the salaries, bonuses, and other compensation and benefits of our executive officers; evaluating the performance of the Chief Executive Officer; establishing and reviewing Board compensation; reviewing and advising management regarding benefits and other terms and conditions of compensation of management; reviewing the Compensation Discussion and Analysis section of this proxy statement; issuing the Compensation Committee report included in this proxy statement; and administering the Company’s 2000 Stock Incentive Plan (the “2000 Plan”), the Company’s 2010 Stock Incentive Plan (the “2010 Plan”), and the Company’s 2016 Omnibus Incentive Plan (the “2016 Plan”), and any other incentiveincluding cash bonus plans adopted pursuant to the terms of the 2016 Plan for our Named Executive Officers. The Compensation Committee operates pursuant to the terms of a Compensation Committee Charter, a copy of which may be accessed in the “Corporate Governance” section of the InvestorsInvestor Relations page of our website at www.healthstream.com. MembersThe current members of the Compensation Committee are (and the members of the Compensation Committee during 2016 included2018 were) Frank Gordon (chair), Linda Rebrovick, and Jeffrey McLaren, each of whom is independent within the meaning of the listing standards of NASDAQ.Nasdaq. See “Compensation Committee Report for 2016.2018.” Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee provides assistance to the Board in identifying and recommending individuals qualified to serve as directors of the Company, reviews the composition of the Board, reviews and recommends corporate governance policies for the Company, reviews the management succession plan of the Company and annually evaluates the skills and performance of the Board. The Nominating and Corporate Governance Committee operates pursuant to the terms of a Nominating and Corporate Governance Committee Charter, a copy of which may be accessed in the “Corporate Governance” section of the InvestorsInvestor Relations page of our website at www.healthstream.com. MembersThe current members of the Nominating and Corporate Governance Committee are (and the members of the Nominating and Corporate Governance Committee during 2016 included2018 were) Thompson Dent (chair), William W. Stead, M.D., and Deborah Taylor Tate, each of whom is independent within the meaning of the listing standards of NASDAQ.Nasdaq. Our Chairman and Chief Executive Officer proposes the agenda for the Board meetings and presents the agenda to the Nominating and Corporate Governance Committee, which reviews the agenda with our Lead Independent Director and our Chairman and may raise other matters to be included in the agenda or at the meetings. All directors receive the agenda and supporting information in advance of the meetings. Directors may raise other matters to be included in the agenda or at the meetings. Our Chairman and Chief Executive Officer and other members of senior management make presentations to the Board at the meetings and a substantial portion of the meeting time is devoted to the Board’s discussion of and questions regarding these presentations. Executive Sessions The independent directors meet in executive session (i.e. with no members of management present) periodically, in at least two regularly scheduled meetings each year. The Lead Independent Director, or his or her designee, presides at these meetings. Independent Directors The Board has determined that Thompson S. Dent, Frank Gordon, C. Martin Harris, M.D., Jeffrey L. McLaren, Dale Polley, Linda Rebrovick, Michael D. Shmerling, William W. Stead, and Deborah Taylor Tate do not have any relationship that, in the opinion of the Board, would interfere with the exercise of the director’s independent judgment in carrying out the responsibilities of a director and that such directors are “independent” under the listing standards of NASDAQ.Nasdaq. In addition, all of the standing committees of the Board are comprised solely of independent directors as set forth above. Robert A. Frist, Jr., our Chief Executive Officer and President, is not independent under the NASDAQNasdaq listing standards. 13
In making its independence determinations, the Board considered the following ordinary course, non-preferential relationships that existed during the preceding three years with HealthStream and determined that none of the relationships constituted a material relationship between the director and the Company: HealthStream in the ordinary course of business has certain vendor agreements and a reseller and distributor agreement with entities where some of our directors serve as executive officers or board members (Dr. Harris, Dr. Stead and Mr. Dent with regard to vendor agreements, and Ms. Rebrovick with regard to a reseller and distributor agreement)Dent). In each case, the Company considered the types and amounts of commercial dealings between the Company and the organizations with which the directors are affiliated in connection with reaching its conclusion that none of these relationships constituted a material relationship involving the director and the Company. Skills Assessment and Board Evaluation Process The Nominating and Corporate Governance Committee is responsible for assessing the Board’s skills, evaluating director performance, and providing feedback to directors for performance improvement. Further, the Nominating and Corporate Governance Committee annually assesses the skills required of the Board to support appropriate governance and corporate oversight. In connection with these responsibilities, the Nominating and Corporate Governance Committee annually conducts a board skills assessment as well as self and peer evaluations for the full Board. The Board evaluation process includes self and peer reviews, suggestions for individual improvement, and year to year comparison and trend analysis for both individual directors and the Board on a composite basis. The Board annually reviews the results to improve effectiveness of the Board as a whole. The skills assessment and Board evaluation processes are used to determine skill requirements for new director nominations, assess committee assignments, review the qualifications of incumbent directors to determine whether to recommend them to the Board as nominees for re-election, and to facilitate improvement of the effectiveness of the Board. Leadership Structure The Board does not have a policy regarding the separation of the roles of Chief Executive Officer and Chairman of the Board as the Board believes it is in the best interests of the Company to make that determination based on the position and direction of the Company, the membership of the Board, and the background and knowledge of the Chief Executive Officer. The Board has determined that having the Company’sCompany's current Chief Executive Officer serve as Chairman is in the best interest of the Company’sCompany's shareholders at this time. This structure makes the best use of the Chief Executive Officer’sOfficer's extensive knowledge of the Company and its industry, and also facilitates effective communication between the Company’sCompany's management and the Board. The Board also believes that, in light of the combined role of the Chairman and CEOChief Executive Officer at the Company, it is beneficial to the appointment by the Board ofCompany and its investors to have a strong Lead Independent Director with clearly defined roles and responsibilities may benefit the Company and its investors.responsibilities. Robert A. Frist, Jr., our Chief Executive Officer, currently serves as Chairman of the Board. The Board believes that Mr. Frist is best situated to serve as Chairman of the Board because of his extensive knowledge of our business and industry. The Board also believes that having the Chief Executive Officer serve as Chairman of the Board provides an efficient and effective leadership model for us by fostering clear accountability, effective decision making, and alignment of corporate strategy. The Board believes that its current management structure, together with the Lead Independent Director having the duties described below, is in the best interestsinterest of shareholders and strikes an appropriate balance for the Company. 14
Thompson S. Dent serves as Lead Independent Director—a position that, at HealthStream, entails significant responsibility for independent Board leadership as noted in more detail below. During his tenure as a director, Mr. Dent has demonstrated strong leadership skills and independent thinking as well as a deep understanding of the Company’s business. Lead Independent Director The position of Lead Independent Director at HealthStream comes with a clear mandate and significant authority and responsibilities under a Board-approved charter. These responsibilities and authority include the following: presiding at all meetings of the Board at which the Chairman and Chief Executive Officer is not present, including executive sessions of the independent Directors; having the authority to call meetings of the independent Directors; serving as a liaison between the independent Directors and the Chairman and Chief Executive Officer; approving, in consultation with the Chairman and Chief Executive Officer, meeting agenda for the Board; approving the type of information sent to the Board; facilitating the Board’s approval of the number and frequency of Board meetings, and approving meeting schedules to assure that there is sufficient time for discussion of all agenda items; being regularly apprised of inquiries from shareholders and involved in correspondence responding to these inquiries, when appropriate; and being available to meet with major shareholders, upon their reasonable request, to receive input and ensure that such input is communicated to the independent directors and, as appropriate, management. The Charter of the Lead Independent Director can be found on our website at www.healthstream.com (under the “Corporate Governance” section of the InvestorsInvestor Relations page). Risk Oversight The Board believes that an effective risk management system willshould be focused on (1) timely identifyidentifying the material risks that the Company faces, (2) communicatecommunicating necessary information with respect to material risks to senior executives and, as appropriate, to the Board or relevant Board committee, (3) implementimplementing appropriate and responsive risk management strategies consistent with the Company’sCompany's risk profile, and (4) integrateintegrating risk management into Company decision-making. The Board has designated the Audit Committee to take the lead in overseeing risk management, and the Audit Committee makes periodic reports to the Board regarding briefings and reports provided by management and advisors as well as the Audit Committee’sCommittee's own analysis and conclusions regarding the adequacy of the Company’sCompany's risk management processes. A particular area of risk that the Audit Committee evaluates and oversees on a regular basis is that of cyber security. A summary of this review is provided as part of the Audit Committee’s report to the Board during each quarterly Board meeting. In addition, the Board encourages management to promote a corporate culture that incorporates risk management into the Company’sCompany's corporate strategy and day-to-day business operations. The Board also works, with the input of the Company’sCompany's executive officers, to assess and analyze the most likely areas of future risk for the Company. Additionally, on an annual basis the Nominating Governance Committee reviews and recommends an Incident Response Policy for the Board’s approval. The Incident Response Policy is intended to categorize certain risk scenarios, designate members of senior management charged with addressing them, and provide for escalation of certain risk events from management to the appropriate Board Committee or the Board as a whole. 15
In addition to the Audit Committee, the other committees of the Board consider the risks within their areas of responsibility. In this regard, the Compensation Committee considers the risks that may be implicated by our executive compensation programs. Based upon the comprehensive review of the executive compensation programs, the Compensation Committee has concluded that the Company’s executive compensation programs are not reasonably likely to have a material adverse effect on the Company as a whole. Nominating Committee Process and Board Diversity The Nominating and Corporate Governance Committee is responsible for identifying qualified individuals to serve as members of the company’sCompany’s Board as well as reviewing the qualifications and performance of incumbent directors to determine whether to recommend them to the Board as nominees for re-election. In identifying candidates for membership on the Board, the Nominating and Corporate Governance Committee takes into account all factors it considers appropriate, which may include (a) ensuring that the Board, as a whole, is diverse and consists of individuals with various and relevant career experience, relevant technical skills, industry knowledge and experience, financial expertise (including expertise that could qualify a director as an “audit committee financial expert,” as that term is defined by the rules of the SEC), and local or community ties and (b) appropriate qualifications on an individual level, including strength of character, mature judgment, time availability, familiarity with the Company’s business and industry, independence of thought, and an ability to work collegially. The Nominating and Corporate Governance Committee also may consider the extent to which the candidate would fill a present need on the Board. With respect to new candidates for Board service, a full evaluation generally also includes a detailed background check. The Company does not have a formal policy with regard to the consideration of diversity in identifying director nominees, but the Nominating and Corporate Governance Committee strives to nominate directors with a variety of complementary skills and backgrounds so that, as a group, the Board will possess the appropriate talent, skills, and expertise to oversee the Company’sCompany's business. The Nominating and Corporate Governance Committee will consider nominees for the Board recommended by shareholders. Shareholders may propose nominees for consideration by the Nominating and Corporate Governance Committee by submitting the names and supporting information to: General Counsel and Corporate Secretary, HealthStream, Inc., 209 10500 11th Avenue South,North, Suite 450,1000, Nashville, Tennessee 37203. The Nominating and Corporate Governance Committee will only consider candidates who are recommended by shareholders in accordance with the procedures set forth above under “What is the Deadline for Submitting Other Business or Nominations for the 20182020 Annual Meeting?”
Limitations on Other Board Service Our Code of Conduct and Governance Principles provide that a director may not serve on more than two other public company boards without Board approval. Otherwise, we do not believe that our directors should be categorically prohibited from serving on boards and/or board committees of other organizations. Service on boards and/or committees of other organizations must also be consistent with our conflict of interest policy, as set forth in our Code of Conduct and Code of Ethics for executive officers and directors, which, among other things, require a director to provide notice to the Board of his or her acceptance of a nomination to serve on the board of another public company.
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Communication withwith the Board Shareholders may communicate with any of the Company’s directors by writing to them c/o HealthStream, Inc., 209 10500 11th Avenue South,North, Suite 450,1000, Nashville, Tennessee 37203. Shareholders may also communicate with our directors by sending an email to boardofdirectors@healthstream.com. Shareholders may communicate with the chair of any committee by sending an email to auditchair@healthstream.com (Audit Committee), nomgovchair@healthstream.com (Nominating and Corporate Governance Committee), or compchair@healthstream.com (Compensation Committee), or with our outside directors as a group by sending an email to outsidedirectors@healthstream.com. Shareholders may also communicate with the Lead Independent Director by sending an email to LID@healthstream.com. OurMichael M. Collier, Senior Vice President and General Counsel is our Compliance Officer, Michael M. Collier,and he reviews all such correspondence and regularly forwards to the Board a summary of all such correspondence and copies of all correspondence that, in the opinion of the Compliance Officer, deals with the functions of the Board or committees thereof or that he otherwise determines requires their attention. Concerns relating to accounting, financial reporting, internal controls, or auditing matters are immediately brought to the attention of the Company’s Audit Committee and handled in accordance with procedures established by the Audit Committee. Concerns relating to the Board’s overall governance are brought to the immediate attention of the Lead Independent Director and are handled in accordance with procedures established by the Lead Independent Director. Certain Relationships and Related Transactions The Board has adopted a written Related-Party Transaction Policy (the “Policy”) for approval of transactions in which (1) the aggregate amount involved will or may be reasonably expected to exceed $120,000 in any calendar year, (2) the Company or any of its subsidiaries is a participant, and (3) any of our directors, director nominees, executive officers, greater than five percent beneficial owners, or an immediate family member of any of the foregoing individuals (“Related Party”) has or will have a direct or indirect material interest (other than solely as a result of being a director, officer or a less than ten percent beneficial owner of another entity) (“Related-PartyRelated Party Transaction”). A copy of the Policy is availablemay be accessed in the “Corporate Governance” section of the Investor Relations page of our website at www. http://ir.healthstream.com.www.healthstream.com. The Board has determined that the Audit Committee is best suited to review and approve Related Party Transactions. Pursuant to the Policy, the Audit Committee reviews Related Party Transactions and determines whether or not to approve or ratify those Related Party Transactions and may also review and approve transactions with Related Parties that do not constitute a “Related Party Transaction” as defined above as the result of not meeting the dollar or materiality thresholds set forth above. In doing so pursuant to the terms of the Policy, the Audit Committee takes into account, among other factors it deems appropriate: The Related Party’s interest in the Related Party Transaction; The approximate dollar value of the amount involved in the Related Party Transaction; The approximate dollar value of the amount of the Related Party’s interest in the transaction without regard to the amount of any profit or loss; Whether the transaction was undertaken in the ordinary course of business of the Company; Whether the transaction with the Related Party is proposed to be, or was, entered into on terms no less favorable to the Company than terms that could have been reached with an unrelated third party; The purpose of, and the potential benefits to the Company of, the Related Party Transaction; Required public disclosure, if any; and
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| • | Required public disclosure, if any; and |
Any other information regarding the Related Party Transaction or the Related Party in the context of the proposed transaction that would be material to investors in light of the circumstances of the particular transaction. As set forth in the Policy, the Audit Committee has reviewed the types of Related Party Transactions described below and determined that each of the following Related Party Transactions shall be deemed to be pre-approved by the Audit Committee, even if the aggregate amount involved will exceed $120,000, unless otherwise specifically determined by the Audit Committee.Committee: Any employment by the Company of an executive officer of the Company or any of its subsidiaries, as long as the executive officer is not an immediate family member of another executive officer, director, or nominee for director of the Company, and the related compensation is approved (or recommended to the Board for approval) by the Company’s Compensation Committee; Any compensation paid to a director if the compensation is consistent with the Company’s director compensation policies and is required to be reported in the Company’s proxy statement under Item 402 of Regulation S-K promulgated by the SEC; Any transaction with another company at which a Related Party’s only relationship is as an employee (other than an executive officer or director) or beneficial owner of less than ten percent of that company’s equity, if the aggregate amount involved does not exceed the greater of $1,000,000, or two percent of that company’s total annual revenues; Any charitable contribution, grant or endowment by the Company to a charitable organization, foundation or university at which a Related Party’s only relationship is as an employee (other than an executive officer or director), if the aggregate amount involved does not exceed the greater of $1,000,000, or two percent of the charitable organization’s total annual receipts; and Any transaction where the Related Party’s interest arises solely from the ownership of the Company’s Common Stock and all holders of the Company’s common stock received the same benefit on a pro rata basis (e.g., dividends). We areSince January 1, 2018, the Company has not aware ofbeen a participant in any Related Party Transactions entered into between ustransaction, and is not a participant in any currently proposed transaction, with any of our directors, executive officers, greater than five percent beneficial owners or their respective immediate family members which maywould require disclosure under Item 404 of Regulation S-K under the Securities Exchange Act.
Compensation Committee Interlocks and Insider Participation The members of the Compensation Committee are responsible for determining executive compensation and equity-based grants to executive officers. The Compensation Committee was comprised of Frank Gordon, Jeffrey L. McLaren, and Linda Rebrovick during 2016,2018, each of whom is independent within the meaning of the listing standards of NASDAQ.Nasdaq. Other than Mr. McLaren, who served as the Company’s President from 1990 to 2000 and as Chief Product Officer from 1999 to 2000, none of these persons has at any time been an officer or employee of the Company or any of its subsidiaries. In addition, there are no relationships among the Company’s executive officers, members of the Compensation Committee or entities whose executive serves on the Board or the Compensation Committee that require disclosure under applicable SEC rules.
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Code of Conduct The Company has established a Code of Conduct that applies to all directors and employees of HealthStream, Inc. The purpose of the Code of Conduct is, among other things, to provide written standards for our directors and employees that are reasonably designed to support high standards of business and personal ethics in the discharge of their duties. A copy of the Code of Conduct may be accessed in the “Corporate Governance” section of the InvestorsInvestor Relations page of our website at www.healthstream.com. Code of Ethics for Executive Officers and Directors The Company has established a Code of Ethics that applies to all executive officers and directors of HealthStream, Inc., including our principal executive officer, principal financial officer, and principal accounting officer. The purpose of the Code of Ethics is, among other things, to provide written standards that are reasonably designed to deter wrongdoing and to promote: honest and ethical conduct, including ethical handling of actual or apparent conflicts of interest; full, fair, accurate, timely, and understandable disclosure in reports and documents filed with the SEC and other public communications by the Company; compliance with applicable governmental laws, rules and regulations; prompt internal reporting of violations of the code; and accountability for adherence to the Code of Ethics. A copy of the Code of Ethics may be accessed in the “Corporate Governance” section of the InvestorsInvestor Relations page of our website at www.healthstream.com. In addition, the Company intends to post amendments to or waivers, if any, from its Code of Ethics at this location on its website. Succession Planning Annually, during an executive session of our directors, our Board reviews the Company’s succession plan. In preparation for this session, the Nominating and Corporate Governance Committee reviews the Company’s succession plan with our Chairman and Chief Executive Officer. Director Orientation Upon the election of a new director, management and the Nominating and Corporate Governance Committee conduct an orientation session with the new director. During this session, the director is provided with an overview of the Company’s operations, its organizational structure, its products and services, management’s risk assessment, corporate governance documents and guidelines, compliance and reporting requirements, as well as our annual Board calendar. Orientation is further customized for any particular new director to address anticipated committee assignments or specific requests of our directors. Strategic Planning The Board and executive team meet annually to review the Company’s strategic plan. During this session, discussions include a high level review of the Company’s mission and vision as well as the Company’s strategic plan for the next three to five years. Recoupment Policy The Company has established a recoupment policy that allows the Company to recover any incentive compensation awarded or paid to executive officers of the Company in the event that: (i) the Company is required to restate its financial statements due to its material noncompliance with financial reporting requirements under the federal securities laws (other than a restatement to comply with changes in applicable accounting principles), (ii) such executive officer, at any time after the effective date of the recoupment policy and during the three-year period preceding the date on which the Company is required 19
to restate its financial statements, received payment or realized compensation from incentive compensation based on the erroneous financial data, (iii) such executive officer engaged in misconduct, violated the Company’s Code of Conduct or otherwise caused or contributed to the requirement of the restatement and (iv) in the discretion of the Compensation Committee, a lower payment would have been made to the executive officer based upon the restated financial results. In addition, Section 304 of the Sarbanes-Oxley Act of 2002 requires the recovery of incentive awards in certain circumstances. If we are required to restate our financial statements due to material noncompliance with any financial reporting requirements as a result of misconduct, our CEO and CFO will be required under Section 304 of the Sarbanes-Oxley Act to reimburse us for (1) any bonus or other incentive- or equity-based compensation received during the 12 months following the first public issuance of the non-complying document, and (2) any profits realized from the sale of our securities during such 12 month period. In 2015, the SEC issued proposed rules regarding the adoption of “clawback” policies by publicly listed companies in accordance with the requirements of Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). When final SEC rules implementing these requirements have been adopted and become effective, publicly listed companies will be required to adopt a “clawback” policy providing for the recovery of certain incentive-based compensation from the executive officers of the company in the event the company is required to restate its financial statements as a result of material noncompliance of the company with any financial reporting requirements under the securities laws. When final rules under the Dodd-Frank Act are adopted, we expect to revise our existing recoupment policy as necessary to comply with these final SEC rules. Anti-Hedging Policy The Company has established an anti-hedging policy that prohibits the Company’s directors and officers from engaging in hedging or monetization transactions with respect to the Company’s securities. The Board believes that it is inappropriate for directors and officers to hedge or monetize transactions to lock in the value of holdings in the Company’s securities. Such transactions, while allowing the holder to own the Company’s securities without the full risks and rewards of ownership, potentially separate the holder’s interests from those of the public shareholders of the Company. Moreover, certain short-term or speculative transactions in the Company’s securities create the potential for heightened legal risk and/or the appearance of improper or inappropriate conduct involving the Company’s securities. Director Compensation Background. In September 2015, the Compensation Committee engaged Frederic W. Cook & Co., Inc. (“FWC”) as its independent advisor to assist the Compensation Committee in evaluating non-employee director compensation for 2016. Taking into account the feedback of FWC, for 2016, the Compensation Committee determined to eliminate Board and Committee meeting fees (except in extraordinary circumstances such as service on a special committee where the number and/or duration of meetings was anticipated to be significantly above historical expectations) and in lieu of such per meeting fees pay a flat fee for board and committee meeting attendance and participation as noted below. In making this determination, the Compensation Committee determined that paying non-employee directors fees for actual meeting attendance was not the optimal manner of compensating the Company’s non-employee directors going forward as a general practice, and took into account the fact that this change was consistent with the director compensation practices being followed by many U.S. public companies. The Compensation Committee also believed that it would be administratively easier to pay non-employee directors in this manner rather than paying per meeting fees, and that such change would not have an adverse impact on director attendance at Board or committee meeting in light of the fact that meeting fees were not material in amount and the Board is proactive about ensuring that directors attend meetings.
In addition, taking into account the feedback of FWC, the Compensation Committee determined for 2016 to increase the annual retainer paid to non-employee directors by $1,000, to $5,000, and to pay the Compensation Committee Chair an additional annual retainer of $2,000 (the Compensation Committee Chair did not receive any additional retainer in 2015). The Compensation Committee determined for 2016 to make no changes to the additional annual retainer of $7,500 paid to the Audit Committee Chair and Nominating and Corporate Governance Chair.
20162018 Cash Compensation of Directors. During 2016, following the changes noted above,2018, we paid each non-employee director a flat fee of $15,000$20,000 for their board and committee meeting attendance and participation and an annual retainer of $5,000, except for the Audit Committee Chair and Nominating and Corporate Governance Chair, each of whom was paid an additional retainer of $7,500, and the Compensation Committee Chair who was paid an additional retainer of $2,000. These amounts were the same in 2018 as in 2017, except that the flat fee for board and committee meeting attendance was increased from $15,000 in 2017 to $20,000 in 2018.
20162018 Equity Compensation of Directors. During 2016,2018, we granted 3,2242,636 restricted share units (��(“RSUs”) to each non-employee director of the Company. The RSUs vest annually, in three equal increments as of the first, second, and third anniversaries of the grant date pursuant to the provisions of the 20102016 Plan as discussed below. The grant date fair value of the RSUs granted to directors in 20162018 was approximately the same as the grant date fair value of RSUs granted to directors in 2015.2017. Directors must remain in the service of the Company as a director for the RSUs to vest.
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Employee directors are not eligible for any compensation for service on the Board or its committees. Summary of 20162018 Director Compensation. The following table sets forth the compensation for the Company’s non-employee directors during 2016.2018. | | | | | | | | Fees Earned or | | | Stock | | | | | | Name | | Fees Earned or
Paid in Cash ($) | | | Stock
Awards ($) (1) | | | Total ($) | | | Paid in Cash ($) | | | Awards ($) (1) | | | Total ($) | | Thompson S. Dent | | $ | 27,500 | | | $ | 65,125 | | | $ | 92,625 | | | $ | 32,500 | | | $ | 65,109 | | | $ | 97,609 | | Frank Gordon | | | 22,000 | | | | 65,125 | | | | 87,125 | | | | 27,000 | | | | 65,109 | | | | 92,109 | | C. Martin Harris, M.D. | | | 20,000 | | | | 65,125 | | | | 85,125 | | | | 25,000 | | | | 65,109 | | | | 90,109 | | Jeffrey L. McLaren | | | 20,000 | | | | 65,125 | | | | 85,125 | | | | 25,000 | | | | 65,109 | | | | 90,109 | | Dale Polley | | | 27,500 | | | | 65,125 | | | | 92,625 | | | | 32,500 | | | | 65,109 | | | | 97,609 | | Linda Rebrovick | | | 20,000 | | | | 65,125 | | | | 85,125 | | | | 25,000 | | | | 65,109 | | | | 90,109 | | Michael Shmerling | | | 20,000 | | | | 65,125 | | | | 85,125 | | | Michael D. Shmerling | | | | 25,000 | | | | 65,109 | | | | 90,109 | | William W. Stead, M.D. | | | 20,000 | | | | 65,125 | | | | 85,125 | | | | 25,000 | | | | 65,109 | | | | 90,109 | | Deborah Taylor Tate | | | 20,000 | | | | 65,125 | | | | 85,125 | | | | 25,000 | | | | 65,109 | | | | 90,109 | |
(1) | Represents the aggregate grant date fair value of the RSUs granted to non-employee directors in 20162018 computed in accordance with FASB ASC Topic 718. For significant assumptions with regard to such valuation, see Note 11 – Stock Based Compensation in the Notes to Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 20162018 filed with the SEC on February 27, 2017.25, 2019. |
The following table shows the aggregate number of outstanding and unexercised option awards and the number of outstanding RSUs held by each non-employee director at fiscal year-end 2016.2018. | Name | | Option Awards
Outstanding | | | Restricted Share
Unit Awards
Outstanding | | | Option Awards Outstanding | | | Restricted Share Unit Awards Outstanding | | Thompson S. Dent | | | 52,000 | | | | 5,666 | | | | — | | | | 5,554 | | Frank Gordon | | | 52,000 | | | | 5,666 | | | | — | | | | 5,554 | | C. Martin Harris, M.D. | | | 26,250 | | | | 5,666 | | | | — | | | | 5,554 | | Jeffrey L. McLaren | | | 15,000 | | | | 5,666 | | | | — | | | | 5,554 | | Dale Polley | | | — | | | | 5,666 | | | | — | | | | 5,554 | | Linda Rebrovick | | | 46,000 | | | | 5,666 | | | | 15,000 | | | | 5,554 | | Michael Shmerling | | | 7,500 | | | | 5,666 | | | Michael D. Shmerling | | | | — | | | | 5,554 | | William W. Stead, M.D. | | | 15,000 | | | | 5,666 | | | | — | | | | 5,554 | | Deborah Taylor Tate | | | 15,000 | | | | 5,666 | | | | — | | | | 5,554 | |
2017
2019 Director Compensation. For 2017,2019, the Compensation Committee determined to makeincrease the annual flat fee paid to members of the Audit Committee from $20,000 to $22,500. There were no other changes from 20162018 with regard to the amount of payment for annual retainers and flat fees paid to non-employee directors, including committee chairs, for board and committee attendance. For 2017,2019, we granted 2,7662,359 RSUs to each non-employee director of the Company. The grant date fair value of the RSUs granted to directors in 20172019 was approximately the same as the grant date fair value of RSUs granted to directors in 2016.2018. These RSUs will vest annually, in three equal increments as of the first, second and third anniversaries of the grant date.
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Executive Officers The following table sets forth certain information regarding the executive officers of the Company. Information pertaining to Mr. Frist, who is both a director and an executive officer of the Company, is located in the section entitled “Directors.” | | | | | Name | | Position with the Company | | Age | Gerard M. Hayden, Jr. * | | Senior Vice President and Chief Financial Officer | | 64 | J. Edward Pearson | | Senior Vice President and Chief Operating Officer | | 56 | Jeffrey S. DosterD. Cunningham | | Senior Vice President and Chief Technology Officer | | 52 | GerardMichael Sousa | | Senior Vice President and President, Verity, Inc., a HealthStream Company | | 50 | Michael M. Collier | | Senior Vice President, Business Development and General Counsel | | 43 | Trisha L. Coady | | Senior Vice President and General Manager, Clinical Solutions | | 43 | M. Scott McQuigg | | Senior Vice President, hStream Solutions | | 51 | Scott A. Roberts * | | Vice President and Interim Chief Financial Officer | | 42 |
* | Mr. Hayden Jr. | | resigned as our Senior Vice President and Chief Financial Officer | | 62 | J. Edward Pearson | | Senior Vice President and effective February 26, 2019. Mr. Roberts was appointed as Interim Chief OperatingFinancial Officer | | 54 | Thomas Schultz | | Senior Vice President, Sales | | 50 | Michael Sousa | | Senior Vice President and President, Echo, Inc. | | 48 effective February 26, 2019. |
Jeffrey S. Doster joined the Company in May 2008 as Senior Vice President and Chief Technology Officer. He earned undergraduate degrees in both Economics and Business Administration from Towson University, as well as a Master of Business Administration from Loyola College, in Maryland.
Gerard M. Hayden, Jr. joined the Company as Senior Vice Presidentsenior vice president and Chief Financial Officerchief financial officer in May 2008.2008, and served in these positions until resigning effective February 26, 2019 as noted above. He earned a Bachelor of Arts from the University of Notre Dame and a Master of Science from Northeastern University. J. Edward Pearson joined the Company in June 2006 as senior vice president and was promoted to Chief Operating Officerchief operating officer in 2011.2011 and to president on May 15, 2018. He earned a Bachelor of Business Administration in Accounting from Middle Tennessee State University. Thomas SchultzJeffrey D. Cunningham joined the Company in June 2014July 2017 as senior vice president of sales. He worked for Lawson Software, a subsidiary of Infor, Inc., in various sales leadership roles for sixteen years priorand chief technology officer. Prior to joining the Company.Company, he founded and served as chief technology officer and chief strategy officer for Informatics Corporation of America for twelve years. He earned a Bachelor of ArtsScience in Computer Science from St. Mary’sthe University of Minnesota.North Texas.
Michael Sousa joined the Company in October 2004 and served as senior vice president of sales from January 2010 to June 2014. In June 2014, he was promoted to senior vice president of business development. In September 2015, he was named president of Echo, Inc.(now known as Verity, Inc., a HealthStream Company), HealthStream’s Provider Solutions business segment, while continuing to serve as a senior vice president of the Company. He earned a Bachelor of Science degree from Boston College and a Master of Business Administration from Boston University. Michael M. Collier joined the Company in August 2011 as vice president and general counsel, began serving as the vice president of business development and general counsel shortly thereafter, and was promoted to senior vice president of business development and general counsel in July 2017. Mr. Collier also serves as the Company’s Corporate Secretary. He graduated with bachelors and masters degrees in Philosophy and Religion from University of Tennessee-Knoxville and earned a Juris Doctorate (J.D.) from University of California, Berkeley – School of Law.
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Trisha L. Coady joined the Company in January 2014 and served as associate vice president and subsequently vice president and general manager of clinical development solutions from June 2015 to November 2018. In November 2018, she was promoted to senior vice president and general manager of clinical solutions. She earned a Science in Nursing degree from Université de Moncton. M. Scott McQuigg joined the Company in January 2019 as senior vice president of hStream solutions. Prior to joining the Company, he co-founded and served as chief executive officer for GoNoodle for thirteen years. Before this role, he co-founded and served as chief executive officer of HealthLeaders. Scott A. Roberts joined the Company in January 2002 and served in various roles within the finance and accounting department until January 2015, when he was promoted to vice president of finance and accounting. In February 2019, he was appointed as interim Chief Financial Officer, following the resignation of Mr. Hayden. Mr. Roberts earned a bachelor of business administration degree in accounting from Middle Tennessee State University.
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EXECUTIVE COMPENSATIONCOMPENSATION Compensation Discussion and Analysis Executive Summary
Company Performance in 20162018 and Impact on Executive Compensation In 2016,2018, the Company continued its focus on improving patient outcomes through the development of healthcare organizations’ greatest asset: their people. In addition, in August 2016, HealthStream completed the acquisition of Chicago-based Morrisey Associates, a leading healthcare credentialing and privileging company, for a purchase price of approximately $48 million, whichon February 12, 2018, the Company believes will allowdivested its Patient Experience (PX) business to Press Ganey Associates for $65.5 million in cash. This sale of the CompanyPX business resulted in the divestiture of the Company’s patient experience solutions business segment. With the proceeds from this transaction, the Company’s Board of Directors declared a special cash dividend of $1.00 per common share paid on April 3, 2018 to expand its credentialing and privileging product offerings and solutions to healthcare organizations.shareholders of record on March 6, 2018. Below is an overview of the Company’s performance in 20162018 as compared to 2015:2017. All results set forth below are for continuing operations, which exclude the gain on the sale of our PX business as referenced above and the results of operations of such business segment prior to this divestiture. In addition, in accordance with GAAP, 2018 results are presented in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers (ASC 606), whereas results for 2017 are presented in accordance with ASC 605. 8 percent increase in revenue to $226.0$231.6 million; 165 percent increase in Annualized Revenue per Implemented Subscriber to $37.28;
59 percent decrease in operating income to $5.6$15.5 million;
50 percent increase in income from continuing operations to $13.3 million; and | • | 18 percent increase in adjusted EBITDA from continuing operations(1) to $41.5 million. |
56 percent decrease in net income to $38 million; | (1) | Adjusted EBITDA from continuing operations is a non-GAAP financial measure. See Appendix A for a definition of Adjusted EBITDA from continuing operations, an explanation as to why we believe Adjusted EBITDA from continuing operations presents useful information to investors and a reconciliation of Adjusted EBITDA from continuing operations to the most comparable GAAP measure. |
| • | | 12 percent decrease in adjusted EBITDA1 to $29.9 million. |
We ended 20162018 well capitalized with a cash and marketable securities balance of $103.2$168.8 million and full availability of our $50.0 million line of credit. Moreover, while we experienced increases in revenue and Annualized Revenue per Implemented Subscriber as noted above, the decreases in operating income, net income, and adjusted EBITDA in 2016 compared to 2015 were driven in part by declines in ICD-10 readiness training revenues and operating losses associated with the Morrisey Associates acquisition.
Pay actions for Named Executive Officers in 20162018 reflected the results of the Company’s performance and are summarized below. The Company increased base salaries of Named Executive Officers between three and fivetwelve percent in comparison to 20152017 levels. Messrs. Frist, Pearson and HaydenExecutive officers were eligible to receive short term awards in the form of a cash bonus under the Company’s primary bonus planplan. Messrs. Frist and Pearson were eligible to receive a cash bonus equal in an amount equal to up to 40 percent of base salary, Messrs. Hayden and Cunningham were eligible to receive a cash bonus in an amount equal to up to 30 percent of base salary, and Mr. Sousa was eligible to receive a cash bonus in an amount equal to up to 8 percent of base salary, based on the level of attainment of the Company’s non-GAAP operating income (as defined below). Based on the amount of the Company’s non-GAAP operating income in 2016,2018, Messrs. Hayden, Cunningham, Frist, Pearson, and Hayden did not receive anySousa received the maximum cash bonus.bonus under the Company’s primary bonus plan. In addition, Mr. Sousa was eligible to receive aan additional cash bonus equal to up to 4032 percent of his base salary based on the level of attainment of non-GAAP operating income for Verity, Inc., a HealthStream Company (“Verity”) (as defined below). Based on the amount of non-GAAP operating income for Verity in 2018, Mr. Sousa received a cash bonus of approximately 21 percent of base salary. Mr. Sousa’s combined cash bonus was 29 percent of base salary.
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1 | Adjusted EBITDA is a non-GAAP financial measure. See Appendix A for a definition•
| RSUs subject to time-based vesting were granted in the following amounts: 5,325 RSUs granted to each of Adjusted EBITDA, an explanation asRobert A. Frist, Jr., J. Edward Pearson and Michael Sousa and 4,587 RSUs granted to why we believe Adjusted EBITDA presents useful information to investorseach of Gerard M. Hayden, Jr. and a reconciliation of Adjusted EBITDA to the most comparable GAAP measure.Jeffrey D. Cunningham. |
| attainment of non-GAAP operating income for Echo, Inc. (as defined below). Based on the amount of non-GAAP operating income for Echo, Inc. in 2016, Mr. Sousa did not receive any cash bonus. Mr. Schultz does not participate in these cash bonus plans but instead participates in the Company’s sales commission plan and received sales commissions under this plan in 2016 as more specifically noted below.
|
In connection with Mr. Pearson’s promotion to President in May 2018, Mr. Pearson received 35,000 performance-based RSUs, subjectwhich are eligible for vesting in five increments of 10%, 15%, 20%, 25% and 30% in March 2019, 2020, 2021, 2022 and 2023, based on whether the Company has achieved annual financial targets for the fiscal year preceding such vesting. In addition, in connection with Mr. Sousa’s surrender for cancellation of 20,500 performance-based RSUs which remained outstanding and to recognize and promote parity among president roles, Mr. Sousa received 35,000 performance-based RSUs in May 2018 which are eligible for vesting in five increments of 10%, 15%, 20%, 25% and 30% in March 2019, 2020, 2021, 2022 and 2023 based on whether the business unit over which Mr. Sousa is President (currently, Verity) has achieved annual financial targets for the fiscal year preceding such vesting. Mr. Sousa also received a discretionary cash retention and incentive bonus of $75,000 at the same time based vesting were granted inhe received the following amounts: 5,56335,000 performance-based RSUs granted each to Robert A. Frist, Jr., J. Edward Pearson and Michael Sousa; 5,098surrendered the 20,500 performance-based RSUs granted to Gerard M. Hayden, Jr; and 3,826 RSUs granted to Thomas Schultz.described above. RSUs subject to performance-based vesting were granted to Michael Sousa in the following amounts: 4,250 RSUs, the vesting of which is subject to achievement of cumulative performance criteria for Echo, Inc. during a performance period of 2016 to 2019.
Overview of Compensation Process. The Compensation Committee of the Company’s Board is comprised solely of independent directors. The Compensation Committee during 20162018 was comprised of Frank Gordon, Jeffrey McLaren, and Linda Rebrovick, each of whom is independent within the meaning of the listing standards of NASDAQ.Nasdaq. The Compensation Committee is responsible for setting the compensation of the Company’s executive officers, overseeing the Board’s evaluation of the performance of our Chief Executive Officer, and administering the Company’s equity-based and incentive plans for our Named Executive Officers, among other things. The Compensation Committee undertakes these responsibilities pursuant to a written charter adopted by the Compensation Committee, which is reviewed at least annually by the Compensation Committee. The Compensation Committee Charter may be accessed on our website in the “Corporate Governance” section of our InvestorsInvestor Relations page at www.healthstream.com. In September, 2015, theThe Compensation Committee engaged FWCdid not engage any compensation consultant in relation to the Compensation Committee’s evaluation of director and executive officer compensation for 2016. In connection with the engagement of FWC, the Compensation Committee determined that no conflict of interest existed between FWC and the Company (including the Company’s Board members and Company management) pursuant to Item 407(e)(3)(iv) of SEC Regulation S-K. In 2016, neither FWC nor any affiliate of FWC provided any services to the Company or its affiliates apart from FWC’s engagement by the Compensation Committee in relation to 2016 director and executive compensation as described above.2018.
The Compensation Committee annually reviews executive compensation and the Company’s compensation policies to ensure that the Chief Executive Officer and the other executive officers are rewarded appropriately for their contributions to the Company and that the overall compensation strategy supports the objectives and values of our organization, as well as shareholder interests. The Compensation Committee also annually reviews the executive officers’ expense reimbursements with the Company’s Controller. The Compensation Committee solicits the views and recommendations of our Chief Executive Officer when setting the base salaries of each member of the executive team, other than the Chief Executive Officer, given his insight into internal pay equity and positioning issues, as well as executive performance. At a committee meeting typically held during the first quarter of each year, the Chief Executive Officer summarizes his assessment of the performance during the previous year of each member of the executive team, other than the Chief Executive Officer, including his recommendations on compensation for such members of the executive team, other than the Chief Executive Officer. Following the Chief Executive Officer’s presentation and Compensation Committee discussion, the Compensation Committee discusses and approves the compensation for each member of the executive team, other than the Chief Executive Officer, based on competitive considerations, the Chief Executive Officer’s assessment of individual performance, the Company’s overall performance and the executive’s current compensation package. 25
The process is similar for determining the compensation for the Chief Executive Officer, except that the Chief Executive Officer does not provide the Compensation Committee with a recommendation or otherwise participate in discussions regarding his compensation. The Compensation Committee meets to discuss and approve the Chief Executive Officer’s compensation, based on its assessment of the Chief Executive Officer’s performance, the Company’s performance, competitive considerations, and the Chief Executive Officer’s current compensation package.package, and other factors which may be deemed appropriate by the Compensation Committee. The Compensation Committee also solicits comments about the Chief Executive Officer’s performance from the other independent directors. 20162018 Advisory Vote on Executive Compensation. At the Company’s 20162018 annual meeting of shareholders, shareholders holding approximately 98% of the votes cast voted to approve, on an advisory basis, our executive compensation as described in our proxy statement. The Compensation Committee believes this affirmed shareholders’ support of the Company’s approach to executive compensation.
Compensation Philosophy. The fundamental objective of our executive compensation policies is to attract and maintain executive leadership that will execute the Company’s business strategy, uphold the Company’s mission, vision, and values, and deliver results and long-term value to the Company’s shareholders. Accordingly, the Compensation Committee seeks to develop and maintain a compensation structure that will attract, retain, and motivate highly qualified and high-performing executives through compensation that is fair, balanced, aligned with shareholder interests, and linked to overall financial performance. We believe we have a strong “pay for performance” philosophy designed to reward executive officers for maximizing our success, as determined by our performance relative to our financial and operational goals. The Compensation Committee’s compensation philosophy for the executive team emphasizes an overall analysis of the executive’s performance for the past year, projected role and responsibilities for the coming year, required impact on execution of the Company’s strategy, total cash and equity compensation and other factors the Compensation Committee deems appropriate. In addition, while the Compensation Committee may consider information regarding executive compensation paid at companies comparable to the Company as part of a “market check” with the goal of ensuring that the compensation paid to our named executive officers is reasonably competitive in comparison to compensation at such comparable companies, the Compensation Committee does not target or benchmark any element of compensation or the total compensation paid to our named executive officers based on compensation surveys or data or the executive compensation practices of other public companies. Our philosophy also considers employee retention, vulnerability to recruitment by other companies and the difficulty and costs associated with replacing executive talent. Based on these objectives, the Compensation Committee has determined that our Company should provide its executives compensation packages comprised of three primary elements: (i) base salary, which reflects individual performance and is designed to provide a secure level of guaranteed cash compensation; (ii) annual cash bonuses based on the overall financial performance of the Company, and, in the case of Mr. Sousa, the performance of the business segment for which the applicable executive is most directly responsible, in accordance with annual goals established by the Compensation Committee; and (iii) long-term equity-based incentive awards which strengthen the mutuality of interest between executive officers and our shareholders. The specific analysis regarding the components of total executive compensation for 20162018 are described below. The primary components of the 20162018 program were cash compensation, consisting of a base salary and bonuses, and equity incentives, consisting of RSUs.
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Base Salary. We seek to provide base salaries for our executive officers that provide a secure level of guaranteed cash compensation in accordance with their experience, professional status, and job responsibilities. Each year the Compensation Committee reviews and approves a revised annual salary plan for executive officers, taking into account several factors, including prior year salary, responsibilities, tenure, performance, salaries paid by similar companies for comparable positions solely for purposes of a “market check” with the goal of ensuring that the Company’s base salary levels are reasonably competitive compared to base salary levels at similar companies, and the Company’s recent financial performance. The Compensation Committee also made a determination that Messrs. Pearson and Sousa merited a higher percentage increase in base salary in comparison to 2017 in recognition of their significant leadership responsibilities with the Company (and Verity, in the case of Mr. Sousa). Taking these factors into account, the Compensation Committee approved base salaries for the Named Executive Officers in the following amounts: | | | | | | | | | | | | | Name and Title | | 2016 Base
Salary(1) | | | 2015 Base
Salary(1) | | | Percentage
Increase | | Robert A. Frist, Jr., President and Chief Executive Officer | | $ | 310,000 | | | $ | 296,801 | | | | 4.4 | % | J. Edward Pearson, Senior Vice President, Chief Operating Officer | | | 293,000 | | | | 280,446 | | | | 4.5 | % | Gerard M. Hayden, Jr., Senior Vice President, Chief Financial Officer | | | 268,000 | | | | 258,695 | | | | 3.6 | % | Michael Sousa, Senior Vice President and President, Echo, Inc. | | | 283,000 | | | | 270,400 | | | | 4.7 | % | Thomas Schultz, Senior Vice President, Sales | | | 214,000 | | | | 207,000 | | | | 3.4 | % |
| | 2018 Base | | | 2017 Base | | | Percentage | | Name and Title | | Salary(1) | | | Salary(1) | | | Increase | | Robert A. Frist, Jr., Chief Executive Officer | | $ | 335,000 | | | $ | 323,950 | | | | 3.4 | % | J. Edward Pearson, President and Chief Operating Officer | | | 330,000 | | | | 306,185 | | | | 7.8 | % | Gerard M. Hayden, Jr., Senior Vice President, Chief Financial Officer (2) | | | 288,000 | | | | 277,380 | | | | 3.8 | % | Michael Sousa, Senior Vice President and President, Verity, Inc. | | | 330,000 | | | | 295,735 | | | | 11.6 | % | Jeffrey D. Cunningham, Senior Vice President, Chief Technology Officer | | | 284,000 | | | | 275,000 | | | | 3.3 | % |
(1) | Commencing May 1 of each year. |
(2) | Mr. Hayden resigned as our Senior Vice President and Chief Financial Officer effective February 26, 2019. |
Cash Bonuses. In addition to base salary, our cash bonus plan compensation provides our executive officers with the potential for enhanced cash compensation based on the financial performance of the Company. For 2016,Company and, in the case of Mr. Sousa, based on the financial performance of the business unit for which the applicable executive is most responsible. In March 2018, the Compensation Committee established two cash bonus plans, the “Primary Bonus Plan,” which was for Messrs. Frist, Pearson and Haydeneach Named Executive Officer and certain other senior vice presidents and directors of the Company, and the “Echo“Verity Bonus Plan,” which was for certain members of management of Echo, Inc.,Verity, including Mr. Sousa. For the Primary Bonus Plan, the Compensation Committee established performance objectives that would reward certain Named Executive Officers and certain other senior vice presidents and directors of the Company for achieving non-GAAP operating income goals for 20162018 (as defined below). For purposes of this bonus calculation, “non-GAAP operating income” was defined as our consolidated GAAP income from operations before bonuses, excluding acquisition relatedand divestiture expenses incurred duringfor transactions within the calendar year and operating income (loss) from acquisitions and divestitures consummated during the calendar year. The Compensation Committee chose non-GAAP operating income as the measure under the Primary Bonus Plan because it believed that this was a key measure of our operating performance during 20162018 and because it believes that this measure correlates over time with long-term shareholder value. The Primary Bonus Plan for the Named Executive Officers who participate in this plan was structured to pay bonuses in a maximum amount of 8 percent of base salary for Mr. Sousa, 30 percent of base salary for each of these Named Executive Officers, the same maximum percentageMessrs. Hayden and Cunningham, and 40 percent of base salary for Messrs. Frist and Pearson. Mr. Frist’s maximum cash bonus opportunity under the Primary Bonus Plan increased from 30 percent of base salary in 2017 to which these Named40 percent of base salary in 2018 in recognition of Mr. Frist’s significant leadership responsibilities as the Chief Executive Officers were entitledOfficer of the Company. In addition, in connection with Mr. Pearson’s promotion to President in May 2018, the Compensation Committee made a determination to increase Mr. Pearson’s maximum bonus opportunity to 40% from 30% (which was his bonus opportunity for 2017 and the 2018 bonus opportunity initially established for him in 2018). Mr. Sousa’s maximum cash bonus opportunity under our 2015 Cashthe Primary Bonus Plan.Plan increased from zero percent of base salary in 2017 to 8 percent of base salary in 2018 while his total maximum bonus opportunity remained at 40 percent (his maximum bonus opportunity under the Verity Bonus Plan was 40 percent in 2017 and 32 percent in 2018). Messrs. Hayden and Cunningham’s maximum cash bonus opportunity under the Primary Bonus Plan was 30 percent in both 2017 and 2018. 27
In order to receive any payout, the Primary Bonus Plan required achievement by the Company of non-GAAP operating income during 20162018 of $15.3$11.2 million, with a maximum payout requiring achievement of non-GAAP operating income during 20162018 of $17.1$12.7 million. Named Executive Officers were (i) not eligible to receive cash bonuses under the Primary Bonus Plan if the Company achieved non-GAAP operating income of less than $15.3$11.2 million, (ii) eligible to receive a cash bonus of 8 percent for Mr. Sousa, 30 percent for Messrs. Hayden and Cunningham, and 40 percent for Messrs. Frist and Pearson of base salary if the Company achieved at least $17.1$12.7 million of non-GAAP operating income and (iii) eligible to receive an incremental payout between zero and 8 percent for Mr. Sousa, between zero and 30 percent for Messrs. Hayden and Cunningham, and between zero and 40 percent for Messrs. Frist and Pearson, of base salary on a straight-line interpolation basis to the extent the Company achieved non-GAAP operating income between $15.3$11.2 million and $17.1$12.7 million. The bonus payment scale was established with the intent of aligning the interests of our Named Executive Officers with our shareholders, and to incentivize our Executive Officers by funding the bonus pool with a portionincrementally based on the amount of the incrementalnon-GAAP operating income aboveexceeding the Company’s threshold non-GAAP operating income. While the target figures set forth above were originally established by the Compensation Committee utilizing the revenue recognition standard under ASC 605, the Compensation Committee subsequently determined that ASC 606, instead of ASC 605, was the optimal metric for determining whether the target figures set forth above were achieved based on the fact that (following the time at which such target figures were set) the Company reported its 2018 financial results under ASC 606 and provided guidance under ASC 606 beginning with the Company’s first quarter 2018 earnings release, as well as the fact that senior management of the Company had been assessing the Company’s 2018 financial performance as reported under ASC 606. The dollar amounts of the targets, as set forth above, remained unchanged by this determination. The Company’s non-GAAP operating income in 2016,2018, as defined above, approximated $9.1was approximately $16.8 million, which was belowabove the minimummaximum level of $15.3$12.7 million, and therefore the Company did not paypaid the maximum cash bonuses to the Named Executive Officers set forth above under the Primary Bonus Plan. The Compensation Committee established performance objectives under the EchoVerity Bonus Plan that would reward Mr. Sousa and certain members of management of Echo, Inc.Verity for exceeding financial targets with respect to Verity established by the Compensation Committee. The EchoVerity Bonus Plan was structured to provide bonus payouts (as a percentage of base salary) for achieving non-GAAP operating income goals for 20162018 for Echo, Inc.Verity (as defined below). In order to receive any payout, the EchoVerity Bonus Plan required achievement of EchoVerity non-GAAP operating income of $2.2$2.0 million with a maximum payout requiring achievement of $4.1$2.6 million. Non-GAAP operating income for purposes of the EchoVerity Bonus Plan was the EchoVerity business unit’s GAAP operating income adjusted for the business unit’s deferred revenue write-downs andbefore bonuses excluding acquisition related expenses with respect to Echo, Inc.Verity incurred during the year and operating income (loss) from acquisitions consummated during the year with respect to Echo, Inc.Verity. Mr. Sousa was (i) not eligible to receive a cash bonus if Echo, Inc.Verity achieved non-GAAP operating income of less than $2.2$2.0 million, (ii) eligible to receive a cash bonus of 4032 percent of base salary if Echo, Inc.Verity achieved at least $4.1$2.6 million of non-GAAP operating income, and (iii) eligible to receive an incremental payout between zero and 4032 percent of base salary based on straight-line interpolation to the extent that Echo, Inc.Verity achieved non-GAAP operating income between $2.2$2.0 million and $4.1$2.6 million. The target figures for the Verity Bonus Plan set forth above, like those for the Primary Bonus Plan, were originally established by the Compensation Committee utilizing the revenue recognition standard under ASC 605, and, for the same reasons as reflected above regarding the Primary Bonus Plan, the Compensation Committee subsequently determined that ASC 606, instead of ASC 605, was the optimal metric for determining whether the target figures for the Verity Bonus Plan set forth above were achieved. The dollar amounts of the targets, as set forth above, remained unchanged by this determination. 28
The Echo, Inc.Verity non-GAAP operating income in 20162018 was below the minimum level, thereforeapproximately $2.4 million. Therefore, the Company did not pay anypaid a cash bonus of approximately 21 percent to Mr. Sousa under the EchoVerity Bonus Plan. Separate and apart from the Verity Bonus Plan, the Compensation Committee awarded Mr. Schultz does not participateSousa a discretionary cash incentive and retention bonus of $75,000 paid in eitherMay 2018 at the same time that he (along with Mr. Pearson) were awarded 35,000 performance-based RSUs as noted below to recognize their roles as president and to incentivize these executives over a five-year performance period. The Compensation Committee awarded this bonus to Mr. Sousa for retention and incentive purposes in recognition of the Company’s cash bonus plans in lightimportance of Mr. Sousa to the fact that he was eligible to receive sales commissions in 2016 based on a percentageperformance and growth of the value of contracts sold under his supervision. Mr. Schultz received sales commissions of $268,017 in 2016.Verity over this future time horizon. Long-Term Stock-Based Incentive Compensation. As described above, one of our key compensation philosophies is that long-term stock-based incentive compensation should strengthenstrengthens the alignment of the interests of our executive officers with our shareholders. The Compensation Committee believes that the strategy of granting time-based vesting stock awards is in the best interest of the Company and its shareholders, as executive officers only receive the benefit from these awards to the extent they continue their employment with the Company through the vesting period. In addition, the Compensation Committee has approved the grant of performance-based vesting stock awards to certain of our executive officers from time to time (including in 2018). Equity incentive awards are generally granted to our executive officers on an annual basis. Award levels in 20162018 were consistent with the objectives and approaches discussed above, and consistent with the Company’s retention, performance, and shareholder alignment objectives. The Compensation Committee typically approves these awards at its first quarter committee meeting.meeting, and followed this process in 2018 as well. Awards are granted on the date of the committee meeting. The Compensation Committee may also approve additional equity incentive awards in certain special circumstances, such as promotion of an executive officer to a new position, the addition of new executive team members, or in recognition of special contributions or achievements by an executive officer. During 2016,In March 2018, the following time-based RSUs were granted to our Named Executive Officers pursuant to the 20102016 Plan: | | | | | | | | | Name and Title | | Shares Subject to
Time-Based
Vesting RSU
Grant | | | Aggregate Grant Date Fair
Value of Shares Subject to
Time Based Vesting(1) | | Robert A. Frist, Jr., President and Chief Executive Officer | | | 5,663 | | | $ | 114,393 | | J. Edward Pearson, Senior Vice President, Chief Operating Officer | | | 5,663 | | | | 114,393 | | Gerard M. Hayden, Jr. Senior Vice President, Chief Financial Officer | | | 5,098 | | | | 102,980 | | Michael Sousa, Senior Vice President and President, Echo, Inc. | | | 5,663 | | | | 114,393 | | Thomas Schultz, Senior Vice President, Sales | | | 3,826 | | | | 77,285 | |
Name and Title | | Shares Subject to Time-Based Vesting RSU Grant | | | Aggregate Grant Date Fair Value of Shares Subject to Time Based Vesting(1) | | Robert A. Frist, Jr., Chief Executive Officer | | | 5,325 | | | $ | 131,528 | | J. Edward Pearson, President and Chief Operating Officer | | | 5,325 | | | | 131,528 | | Gerard M. Hayden, Jr. Senior Vice President, Chief Financial Officer | | | 4,587 | | | | 113,299 | | Michael Sousa, Senior Vice President and President, Verity, Inc. | | | 5,325 | | | | 131,528 | | Jeffrey D. Cunningham, Senior Vice President, Chief Technology Officer | | | 4,587 | | | | 113,299 | |
(1) | Grant date for share-based payment awards is established once a mutual understanding has been reached regarding the key terms and conditions of such award. |
As reflectedIn recent years, the Compensation Committee has reviewed and approved a long-term equity grant for executive officers, taking into account several factors, including prior year grant date value, responsibilities, tenure, performance, long-term equity incentives awarded by similar companies for comparable positions solely for purposes of a “market check” with the goal of ensuring that the Company’s long term incentive levels are reasonably competitive compared those at similar companies, and the Company’s recent financial performance. The Committee took these factors into account in determining the chart above, theappropriate long-term equity grants for executive officers. The grant date fair value of the time-based awards made to each of the named executive officersNamed Executive Officers as set forth in the chart above was approximately equivalentreflected an increase of ten to fifteen percent of the grant date fair value of time-based awards made to such executive officers in 2015.2017.
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Each RSU represents the contractual right to receive one share of the Company’s common stock. The RSUs are subject to the terms of the 20102016 Plan and the individual grant award agreements. The time-based RSUs vest annually in four increasing increments of 15%, 20%, 30% and 35% as of the first, second, third, and fourth anniversaries of the grant date, respectively, provided that the grantee is employed on such vesting date. Further, vesting is subject to acceleration under certain circumstances as contemplated in the 20102016 Plan and/or the individual grant agreement. During 2016,The Compensation Committee made a determination to grant Mr. Sousa was awarded a total of 4,250Pearson performance-based RSUs underin May 2018 in connection with Mr. Pearson’s promotion to President in recognition of Mr. Pearson’s increased responsibilities and to incentivize Mr. Pearson in connection with the 2016 Plan. These performance-based RSUs (the “4-Year Performance Based RSUs”) will be eligible for vesting in a single increment on March 15, 2020. These 4-Year Performance Based RSUs will vest on such date based on theCompany’s achievement of cumulative four year Internal Rate of Return (“IRR”)key annual performance objectives over the performance period from January 1, 2016, through December 31, 2019 for the Echo, Inc. business (the business segment for whicha five-year time horizon. In connection with this grant, Mr. Sousa serves as president), subject to Mr. Sousa’s continuing employment with the Company as of March 15, 2020. We believe that the target IRR for the Echo, Inc. business required for these 4,250 performance-based RSUs to vest, is a challenging target which reflects the growth we have targeted for the Echo, Inc. business over this performance period.
During 2015, Mr. Sousa was granted 25,000Pearson received 35,000 performance-based RSUs, which wereare eligible for vesting in five increments of 10%, 15%, 20%, 20%, 20%25%, and 25%30% on March 15, 2016, 2017, 2018, 2019, 2020, 2021, 2022, and 2020 (the “Vesting Dates”), respectively, according to2023, based on whether Echo, Inc. achievesthe Company has achieved certain annual financial performance targets (which may include, among other things, operating income, EBITDA and revenue thresholds) for the fiscal year preceding such vesting as determined by the Compensation Committee on an annual basis, subject to Mr. Pearson’s continuing employment as of any such vesting date.
The Compensation Committee also made a determination to grant Mr. Sousa performance-based RSUs in each case,May 2018 to recognize and to promote parity among President roles and to incentivize Mr. Sousa in connection with the attainment by Verity of key annual performance objectives over a five-year time horizon. As part of the Compensation Committee’s determination with respect to this grant (including in connection with determining the amount of the performance-based RSUs to be made to Mr. Sousa), the Compensation Committee took into account Mr. Sousa’s surrender for cancellation of 20,500 performance-based RSUs as noted in greater detail below (which represented all of the outstanding performance-based RSUs held by Mr. Sousa). In addition, the Compensation Committee desired to incentivize Mr. Sousa in his position as President of Verity over a longer time period than the vesting period for the outstanding performance-based RSUs held by Mr. Sousa surrendered for cancellation, which had various performance periods, extending at the latest through December 31, 2020, whereas the newly-granted performance-based RSUs had performance periods extending at the latest through December 31, 2022.In connection with this grant, Mr. Sousa received 35,000 performance-based RSUs in May 2018 which are eligible for vesting in five increments of 10%, 15%, 20%, 25% and 30% on March 15, 2019, 2020, 2021, 2022 and 2023 based on whether the business unit over which Mr. Sousa is President (currently, Verity) has achieved annual financial performance targets (which may include, among other things, operating income, EBITDA and revenue thresholds for Verity) for the fiscal year preceding such vesting as determined by the Compensation Committee on an annual basis, subject to Mr. Sousa’s continuing employment with the Company as of any such Vesting Date. vesting date. Pursuant to this award agreement, Mr. Sousa surrendered the following performance-based RSUs: (i) all of the remaining outstanding 25,000 performance-based RSUs granted to Mr. Sousa in September 2015 (11,250 of which RSUs remained outstanding prior to such cancellation, 5,000 of which RSUs would have been subject to vesting based on 2019 performance and 6,250 of which RSUs would have been subject to vesting based on 2020 performance); (ii) 5,000 performance-based RSUs granted to Mr. Sousa in September 2015, which had a performance period for the five-year period ending December 31, 2019 (all of which RSUs remained outstanding prior to such cancellation); and (iii) 4,250 performance-based RSUs granted to Mr. Sousa in December 2016, which had a performance period for the three-year period ending December 31, 2019 (all of which RSUs remained outstanding prior to such cancellation). During 2016,2018, the performance criteria was established for 5,0003,500 of the sharesperformance-based RSUs granted during 2015,to each of Messrs. Pearson and Sousa, the vesting of which was based on the achievement of performance criteria for 20162018 as described in greater detail below. In accordance with SEC guidance, the 30
Summary Compensation Table set forth below for 20162018 reflects the grant date fair value of 9,250these 3,500 performance-based RSUs (constituting the 4,250 performance-basedfor each of Messrs. Pearson and Sousa. The performance criteria for Mr. Pearson’s 3,500 RSUs granted in 2016 as described in the paragraph above, together with 5,000 of the performance-based RSUs granted in 20152018 which were eligible for vesting based on 2016the performance period in 2018 and for which performance criteria was established in 2016)). The performance criteria for the 5,000 RSUs granted in 2015 which were eligible for vesting based on a performance period in 2016 and for which performance criteria was established in 2016,2018, was based upon Echo, Inc.’sthe achievement of a non-GAAP measure of cash flows,adjusted EBITDA from continuing operations for the Company, defined as Echo, Inc.’s net income (loss), excluding deferred revenue write-downs,from continuing operations before interest, income taxes, stock based compensation, depreciation and amortization, and share-based compensation, less capital expenditures.changes in fair value of cost method investments. The performance criteria for these awards was structured to provide tiered(i) 100% vesting of RSUs for achieving non-GAAP cash flowsadjusted EBITDA from continuing operations for 20162018 greater than or equal to $38.8 million, and (ii) no vesting of RSUs for Echo, Inc. Based on this criteria, Mr. Sousa was (i) not eligible to vest in anyachieving adjusted EBITDA from continuing operations for 2018 below $38.8 million. The Company achieved adjusted EBITDA from continuing operations of these RSUs if Echo, Inc. achieved non-GAAP cash flows of less than $4.8$41.5 million during 2016, (ii) eligible to vest in 50% of these RSUs for achievement of $4.8 million of non-GAAP cash flows during 2016, (iii) eligible to incrementally vest in between 50% and2018. Therefore 100% of these 3,500 RSUs vested for Mr. Pearson for the performance period of 2018.
The performance criteria for Mr. Sousa’s 3,500 RSUs granted in 2018, which were eligible for vesting based on a straight-line interpolation basis if Echo, Inc. achieved non-GAAP cash flows between $4.8the performance period in 2018 and for which performance criteria was established in 2018, was based upon achievement of adjusted EBITDA for Verity, defined as income from continuing operations before interest, income taxes, stock based compensation, depreciation and amortization, and changes in fair value of cost method investments. The performance criteria for these awards was structured to provide (i) 100% vesting of RSUs for achieving adjusted EBITDA for 2018 greater than or equal to $13.6 million, and $5.6(ii) no vesting of RSUs for achieving adjusted EBITDA for 2018 below $13.6 million. Verity achieved adjusted EBITDA of $12.6 million during 2016, and (iv) eligible to vest in 100% of these RSUs if Echo, Inc. achieved at least $5.6 million of non-GAAP cash flows in 2016. Echo, Inc. achieved non-GAAP cash flows below the minimum level during 2016,2018, therefore none of these 5,0003,500 RSUs vested for Mr. Sousa for the performance period of 2016. In addition, pursuant2018. The performance criteria for the remaining 31,500 performance-based RSUs granted to Messrs. Pearson and Sousa in May 2018 will be determined based on the achievement of financial performance criteria on an annual basis as follows: 5,250 shares in 2019, 7,000 shares in 2020, 8,750 shares in 2021, 10,500 shares in 2022. Moreover, Messrs. Pearson and Sousa’s award agreements provide that, to the termsextent that any RSUs do not vest in any year (based on the failure to fully achieve the performance criteria for any such year) (the “Catch-Up RSUs”), any such Catch-Up RSUs that do not vest will be eligible for vesting in connection with the achievement of performance criteria in the next year (but not in succeeding years) as determined by the Compensation Committee (which performance criteria for the Catch-Up RSUs may require the overachievement of the applicable award agreement,performance metric(s) for such year). For Mr. Sousa, since the 3,500 performance-based RSUs awarded to Mr. Sousa in May 2018 which were eligible for vesting based on 2018 did not vest, these 5,000 shares (the “Catch-Up RSUs”)RSUs will continue to be eligible for vesting based on the achievement of catch-up2019 performance based on criteria established in 2019 by the Compensation Committee as noted below. No Catch-UpCommittee. The performance-based RSUs will vest unlessfor Messrs. Pearson and until the maximum performance criteria with respect to Echo, Inc. non-GAAP cash flows for the 5,000 RSUs granted in 2015 which are eligible forSousa vesting based on a performance period in 20172019 and for which performance criteria was established in 2017 is exceeded by an amount equal to the amount by which Echo, Inc. 2016 non-GAAP cash flows failed to achieve the 2016 minimum achievement amount of $4.8 million (the “Catch-Up Threshold Amount”). In the event that our Echo, Inc. 2017 non-GAAP cash flows were to achieve the Catch-Up Threshold Amount, 50% of the Catch-Up RSUs would then vest and the additional 50% would be eligible to vest based on exceeding the Catch-Up Threshold Amount in a tiered manner based on straight-line interpolation, with full vesting of these Catch-Up RSUs occurring in the event that 2017 Echo, Inc. non-GAAP cash flows exceed the Catch-Up Threshold Amount by more than $735,000.
In addition to Mr. Sousa’s eligibility to receive the Catch-Up RSUs as noted above, the performance criteria and shares available for vesting for the remaining 16,250 RSUs granted to Mr. Sousa in 2015 will be determined on an annual basis as follows: 5,000 shares in 2017; 5,000 shares in 2018; and 6,250 shares in 2019. The remaining sharessucceeding years will be reported in the applicable Summary Compensation TablesTable during the year in which the performance criteria will be set by the Committee and the Company is able to determine the grant date fair value.
The Compensation Committee determines the number of RSUs awarded to the executive officers in any year based upon, among other factors, the recommendations of the Chief Executive Officer, prior equity grants, individual and Company performance, our annual budget, retention considerations and the estimated annual financial accounting compensation expense associated with the awards. The weighting of these and other relevant factors is determined on a case-by-case basis for each executive officer so as to reward and incentivize the executive officers for their long-term strategic management of the Company. Perquisites and Other Benefits. Our executive officers are also eligible for benefits generally available to and on the same terms as the Company’s other employees, including a 401(k) Plan match, health insurance, disability insurance, dental insurance, and life insurance.
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Employment Agreement, Severance and Change In Control Agreements.We entered into an employment agreement with Robert A. Frist, Jr., our Chief Executive Officer, on July 21, 2005, which continuedcontinues to be in effect in 2016. effect. The term of Mr. Frist’s employment agreement is automatically extended for successive one year periods unless, on or before a date that is 90 days prior to the expiration of the then current employment term, either the Company or Mr. Frist shall have given written notice to the other of its or his intention not to further extend the employment term, in which case the employment agreement shall expire and terminate at the end of the then current employment term. Mr. Frist is also entitled to participate in any bonus program or stock option plan that is generally available to our officers or senior management. Under his employment agreement, Mr. Frist has agreed not to compete with the Company and not to solicit our customers or employees for one year after his employment is terminated, with limited exceptions. Mr. Frist is entitled to severance benefits if we terminate him without cause. He is also entitled to severance benefits if he resigns for good reason after a change in control, if he resigns upon the occurrence of a material change in the terms of his employment or if he resigns upon the occurrence of a material breach of the employment agreement by the Company. If any such termination occurs, Mr. Frist will be entitled to a severance benefit equal to 1.5 times the most recent salary recommended by our Compensation Committee for him. In addition, if Mr. Frist terminates his employment for good reason after the occurrence of a change in control, all options, shares and other benefits will fully vest immediately. We do not maintain employment, severance, or change in control agreements with any of our other executive officers. Vesting of Equity Awards upon Change of Control. Under the 2000 Plan, the 2010 Plan and the 2016 Plan and the terms of the award agreements entered into in connection therewith, any outstanding equity awards, consisting of options and RSUs, become fully exercisable and immediately vested upon a change of control, as defined in the 2000 Plan, the 2010 Plan and the 2016 Plan, respectively. Compensation Decisions for 2017.2019. In March 2017,2019, the Compensation Committee reviewed the performance and compensation of the executive team, and discussed the grant of equity-based awards to executive officers. The Compensation Committee also established the 20172019 Primary Cash Bonus Plan for Messrs. Frist, Pearson and Haydeneach of the Named Executive Officers and certain other vice presidents and director level employees of the Company. In addition, the 2017 Echo2019 Verity Bonus Plan was established for certain members of management of Echo, Inc.,Verity, including Mr. Sousa. Such bonus plans reflect tiered cash bonuses as a percentage of base salary for exceeding certain levels of performance noted below. Under these plans, consistent with our 20162018 bonus plans, Messrs. Frist and Pearson and Haydenwill be eligible to receive a maximum payout of 40 percent of base salary, Mr. Cunningham will be eligible to receive a maximum payout of 30 percent of base salary, and Mr. Sousa will be eligible to receive a maximum payout of 8 percent of base salary under the 20172019 Primary Cash Bonus Plan based on the Company’s level of attainment of non-GAAP operating income, andincome. In addition, Mr. Sousa will be eligible to receive a maximum payout of 4032 percent of base salary under the 2017 Echo2019 Verity Bonus Plan based on the level of attainment of Echo, Inc.Verity’s non-GAAP operating income. For purposes of the 20172019 Primary Cash Bonus Plan, non-GAAP operating income is defined as our consolidated GAAP income from continuing operations, as adjusted for acquisition relatedacquisition-related expenses incurred during the year and operating income (loss) from acquisitions consummated during the year. Non-GAAP operating income for purposes of the EchoVerity Bonus Plan is the Echo business unit’sVerity’s GAAP operating income as adjusted for acquisition relatedacquisition-related expenses with respect to Echo, Inc.Verity incurred during the year and operating income (loss) from acquisitions consummated during the year with respect to Echo, Inc. Mr. Schultz will continue to be eligible for sales commissions and therefore will not participate in either of the 2017 cash bonus plans.Verity. The Compensation Committee also approved the grant of time-based RSUs to management during the March 20172019 meeting in the amounts set forth below. Such RSUs will vest annually in increasing increments of 15%, 20%, 30% and 35% as of the first, second, third and fourth anniversaries of the grant date, respectively. 32
The table below summarizes the 20172019 base salary levels and 20172019 equity-based incentive awards for the Named Executive Officers. | | | | | | | | | Name and Title | | 2017 Base Salary(1) | | | Restricted Share Units
Subject to Time-Based
Vesting | | Robert A. Frist, Jr., President and Chief Executive Officer | | $ | 323,950 | | | | 4,859 | | J. Edward Pearson, Senior Vice President, Chief Operating Officer | | | 306,185 | | | | 4,859 | | Gerard M. Hayden, Jr., Senior Vice President, Chief Financial Officer | | | 277,380 | | | | 4,375 | | Michael Sousa, Senior Vice President and President, Echo, Inc. | | | 295,735 | | | | 4,859 | | Thomas Schultz, Senior Vice President, Sales | | | 221,490 | | | | 3,283 | |
| | | | | Restricted Share Units Subject to | | Name and Title | | 2019 Base Salary (1) | | | Time-Based Vesting | | Robert A. Frist, Jr., Chief Executive Officer | | $ | 345,050 | | | | 4,764 | | J. Edward Pearson, President and Chief Operating Officer | | | 339,900 | | | | 4,764 | | Gerard M. Hayden, Jr., Senior Vice President, Chief Financial Officer(2) | | | 288,000 | | | | — | | Michael Sousa, Senior Vice President and President, Verity, Inc. | | | 339,900 | | | | 4,764 | | Jeffrey D. Cunningham, Senior Vice President and Chief Technology Officer | | | 292,520 | | | | 4,103 | |
(1) | Effective May 1, 20172018 |
(2) | Mr. Hayden resigned as our Senior Vice President and Chief Financial Officer effective February 26, 2019 and therefore did not receive a 2019 equity-based incentive award and was not an employee of the Company at the time these base salary payments for 2019 went in effect. |
In addition, in March 2017, the Compensation Committee determined that the performance criteria for the 5,000 RSUs granted in 2015 which are eligible for vesting based on 2017 performance period would be Echo, Inc.’s achievement of a non-GAAP measure of cash flows in 2017, defined as Echo, Inc.’s net income (loss) excluding deferred revenue write-downs, before depreciation, amortization and share-based compensation, less capital expenditures.
Tax Deductibility of Compensation. Section 162(m) of the Code generally disallows a corporate deduction for compensation over $1.0 million paid to the Company’s Chief Executive Officer and anycertain other executive officers. Prior to the enactment of the other three most highly compensated executive officers, other thanTax Cuts and Jobs Act (“TCJA”) that was signed into law on December 22, 2017, this limitation did not apply to “qualified performance-based compensation” within the Company’s principal financial officer. The $1.0 million limitation applies to all typesmeaning of compensation, including amounts realized uponSection 162(m). As the exerciseresult of stock options and issuancethe enactment of RSU awards, unless the awards and plan under whichTCJA, the awards are made meetexception of allowing the requirementsfull deductibility of “qualified performance-based compensation” under the terms of the Code and related regulations. no longer applies to compensation paid after January 1, 2018 unless paid pursuant to a written binding contract in effect prior to November 2, 2017. Generally, compensation related to the settlement and payment of RSUs whose vesting is based on the passage of time will not meet those requirements. The Compensation Committee generally intends to design and administer executive compensation programs in a manner that will preserve the deductibility of compensation to the extent applicable paid to our executive officers. However, the Compensation Committee believes that shareholder interests are best served if it retains discretion and flexibility in awarding compensation to our NEOs, even where the compensation paid under such programs may not be fully deductible, and the Compensation Committee may approve the payment of compensation that is outside the deductibility limitations of Section 162(m).
Compensation Committee Report for 20162018 The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis set forth above with our management. Taking this review and discussion into account, the undersigned Compensation Committee members recommended the inclusion of the Compensation Discussion and Analysis in our proxy statement on Schedule 14A for filing with the SEC. Submitted by the Compensation Committee of the Board: Frank Gordon, Compensation Committee Chairman Jeffrey L. McLaren, Compensation Committee Member Linda Rebrovick, Compensation Committee Member The foregoing report of the Compensation Committee shall not be deemed incorporated by reference by any general statement incorporating by reference the proxy statement into any filing under the Securities Act of 1933 or the Securities Exchange Act, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such acts.
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Summary CompensationCompensation Table The following table sets forth information for the fiscal years set forth below regarding the compensation earned by the Named Executive Officers. | | | | | | | | | | | | | | | | | | | | | Non-Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Incentive | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock | | | Option | | | Plan | | | All Other | | | | | | | Name and Principal Position | | Year | | | Salary | | | Bonus | | | Stock
Awards(1) | | Option
Awards(1) | | | Non-Equity
Incentive
Plan
Compensation(2) | | | All Other
Compensation | | Total | | | Year | | Salary | | | Bonus | | | Awards(1) | | | Awards(1) | | | Compensation(2) | | | Compensation | | | Total | | | Robert A. Frist, Jr. | | | 2016 | | | $ | 305,600 | | | $ | — | | | $ | 114,393 | | | $ | — | | | $ | — | | | $ | 3,600 | (3) | | $ | 423,593 | | | 2018 | | $ | 331,317 | | | $ | — | | | $ | 131,528 | | | $ | — | | | $ | 134,000 | | | $ 5,550 | | (3) | $ | 602,395 | | | Chief Executive Officer, President | | | 2015 | | | | 292,315 | | | | — | | | | 114,387 | | | | — | | | | 89,040 | | | | 1,750 | (3) | | 497,492 | | | Chief Executive Officer | | | 2017 | | | 319,300 | | | | — | | | | 114,381 | | | | — | | | | 97,185 | | | | 1,800 | | (3) | | 532,666 | | | | | | 2014 | | | | 278,845 | | | | — | | | | 114,414 | | | | — | | | | 85,001 | | | | — | | | 478,260 | | | 2016 | | | 305,600 | | | | — | | | | 114,393 | | | | — | | | | — | | | | 3,600 | | (3) | | 423,593 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | J. Edward Pearson | | | 2016 | | | | 288,815 | | | | — | | | | 114,393 | | | | — | | | | — | | | | 3,600 | (3) | | 406,808 | | | 2018 | | | 322,062 | | | | — | | | | 234,393 | | (4) | | | | | | 132,000 | | | | 7,350 | | (3) | | 695,805 | | | Senior Vice President | | | 2015 | | | | 276,207 | | | | — | | | | 114,387 | | | | — | | | | 84,134 | | | | 1,750 | (3) | | 476,478 | | | and Chief Operating Officer | | | 2014 | | | | 263,886 | | | | — | | | | 114,414 | | | | — | | | | 80,317 | | | | — | | | 458,617 | | | President and | | | 2017 | | | 299,536 | | | | — | | | | 114,381 | | | | | | | | 91,855 | | | | 1,800 | | (3) | | 507,572 | | | Chief Operating Officer | | | 2016 | | | 288,815 | | | | — | | | | 114,393 | | | | — | | | | — | | | | 3,600 | | (3) | | 406,808 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gerard M. Hayden, Jr. | | | 2016 | | | | 264,898 | | | | — | | | | 102,980 | | | | — | | | | — | | | | 3,600 | (3) | | 371,478 | | | 2018 | | | 284,460 | | | | — | | | | 113,299 | | | | — | | | | 86,400 | | | | 5,550 | | (3) | | 489,709 | | | Senior Vice President | | | 2015 | | | | 255,379 | | | | — | | | | 103,000 | | | | — | | | | 77,609 | | | | 1,750 | (3) | | 437,738 | | | 2017 | | | 274,253 | | | | — | | | | 102,988 | | | | — | | | | 83,214 | | | | 1,800 | | (3) | | 462,255 | | | and Chief Financial Officer | | | 2014 | | | | 246,330 | | | | — | | | | 102,754 | | | | — | | | | 74,622 | | | | — | | | 423,706 | | | 2016 | | | 264,898 | | | | — | | | | 102,980 | | | | — | | | | — | | | | 3,600 | | (3) | | 371,478 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Michael Sousa | | | 2016 | | | | 278,800 | | | | — | | | | 328,273 | (7) | | | — | | | | — | | | | 3,128 | (3) | | 610,201 | | | 2018 | | | 318,578 | | | | 75,000 | (4) | | | 234,393 | | (5) | | — | | | | 95,297 | | | | 5,550 | | (3) | | 728,818 | | | Senior Vice President and President, | | | 2015 | | | | 266,933 | | | | — | | | | 319,137 | (8) | | | — | | | | 108,160 | | | | 1,750 | (3) | | 695,980 | | | 2017 | | | 291,490 | | | | — | | | | 349,781 | | (6) | | — | | | | — | | | | 1,800 | | (3) | | 643,071 | | | Echo, Inc. | | | 2014 | | | | 229,134 | | | | — | | | | 87,450 | | | | — | | | | 45,902 | | | | 148,879 | (4) | | 511,365 | | | Verity, Inc. | | | 2016 | | | 278,800 | | | | — | | | | 328,273 | | (7) | | — | | | | — | | | | 3,128 | | (3) | | 610,201 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thomas Schultz | | | 2016 | | | | 211,667 | | | | — | | | | 77,285 | | | | — | | | | — | | | | 271,617 | (5) | | 560,569 | | | Senior Vice President, Sales | | | 2015 | | | | 205,193 | | | | — | | | | 77,282 | | | | — | | | | — | | | | 226,383 | (5) | | 508,858 | | | | | | 2014 | | | | 108,333 | | | | — | | | | 202,400 | (9) | | | — | | | | — | | | | 95,020 | (6) | | 405,753 | | | Jeffrey D. Cunningham | | | 2018 | | | 281,000 | | | | — | | | | 113,299 | | | | — | | | | 82,500 | | | | 5,550 | | (3) | | 485,049 | | | Senior Vice President | | | 2017 | | | 126,042 | | | | — | | | | 184,320 | | | | — | | | | 37,813 | | | | — | | (3) | | 348,175 | | | and Chief Technology Officer | | | 2016 | (8) | | — | | (8) | | — | | | | — | | (8) | | — | | | | — | | (8) | | — | | (8) | | — | | (8) |
(1) | Represents the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. For significant assumptions with regard to such valuation, see Note 11 – Stock Based Compensation in the Notes to Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 20162018 filed with the SEC on February 27, 2017.25, 2019. |
(2) | Reflect amounts earned during the relevant fiscal year under our Primary Cash Bonus Plan (for Messrs. Frist, Pearson and Hayden) and our Echo, Inc.Verity Bonus Plan for Mr. Sousa. Mr. Schultz is eligible for sales commissions and therefore did not participate in either cash bonus plan. Mr. Schultz’s sales commissions are set forth under the “All Other Compensation” column. See “Compensation Discussion and Analysis – Cash Bonuses” above for additional information. |
(3) | Messrs. Frist, Pearson, Hayden, and Sousa’s otherOther compensation for 20162018, 2017, and 20152016 was composed entirely of matching contributions made by the Company to the Company’s 401(k) plan. |
(4) | Represents sales commissions paidthe discretionary cash incentive and retention bonus awarded to Mr. Sousa in 2014.May 2018, as described in more detail under “Compensation Discussion and Analysis – Cash Bonuses.” |
(5) | Represents the $131,528 grant date fair value of the time-based RSUs granted to Messrs. Pearson and Sousa in 2018, as well as the $102,865 grant date fair value of 3,500 performance-based RSUs granted to Messrs. Pearson and Sousa for which performance criteria was established in 2018, as described in more detail under “Compensation Discussion and Analysis – Long-Term Stock-Based Incentive Compensation”. In accordance with SEC guidance, these amounts for 2018 do not reflect the grant date fair value of the remaining 31,500 performance-based RSUs awarded to Messrs. Pearson and Sousa in 2018 for which the performance criteria was not established during 2018. See “Compensation Discussion and Analysis – Long-Term Stock-Based Incentive Compensation” above for further discussion. |
(6) | Represents the $114,381 grant date fair value of the time-based RSUs granted to Mr. Schultz’s otherSousa in 2017, as well as the $235,400 grant date fair value of 10,000 performance-based RSUs (including 5,000 Catch-Up RSUs (as defined below)) previously granted to Mr. Sousa (constituting 10,000 of the 25,000 performance-based RSUs granted to Mr. Sousa in 2015 eligible for vesting based on 2017 performance and for which performance criteria was established in 2017.) The “Catch-Up RSUs” represented 5,000 performance-based RSUs which were originally eligible for vesting based on 2016 performance and for which performance criteria was originally established in 2016 (and not ultimately satisfied), which subsequently became eligible for vesting in 2017 based on catch-up performance criteria for 2017 established by the Compensation Committee. The grant date fair value of the 5,000 Catch-Up RSUs is included in the Stock Awards column set forth above for 2017 taking into account the fact that such fair value associated with these Catch-Up RSUs was included as a compensation expense for the Company in 2017 under FASB ASC Topic 718. As referenced in footnote 6 below, the grant date fair value of these 5,000 RSUs which were originally eligible for vesting based on 2016 performance and became eligible for vesting in 2017 as Catch-Up RSUs is also included as compensation in the stock awards column for 2016 consistsas referenced in footnote 6 below. In connection with the award of $3,600 relating35,000 performance-based RSUs to matching contributions made by the CompanyMr. Sousa in 2018, Mr. Sousa surrendered for cancellation 20,500 performance-based RSUs previously granted to the Company’s 401(k) plan and $268,017 relating to sales commissions. Mr. Schultz’s other compensationSousa in 2015 consistsand 2016 (which constituted all of $1,750 relating to matching contributions madethe outstanding performance-based RSUs held by Mr. Sousa at the Company to the Company’s 401(k) plan; $203,612 relating to sales commissions;time of such award). See “Compensation Discussion and $21,021 relating to out-of-pocket expenses he incurred to relocate himself and his family from their home in Wisconsin to a new, permanent residence near the Company’s headquarters in Nashville, Tennessee.Analysis – Long-Term Stock-Based Incentive Compensation” for additional information. |
34
(6)(7) | Represents sales commissions paid to Mr. Schultz in 2014. |
(7) | Represents the $114,393 grant date fair value of the time-based RSUs granted to Mr. Sousa in 2016, as well as the $213,880 grant date fair value of 9,250 performance-based RSUs granted to Mr. Sousa (constituting the 4,250 performance-based RSUs granted to Mr. Sousa in 2016 as well as 5,000 of the 25,000 performance-based RSUs granted to Mr. Sousa in 2015 eligible for vesting based on 2016 performance and for which performance criteria was established in 2016,2016. In connection with the award of 35,000 performance-based RSUs to Mr. Sousa in each case as described in more detail under “Compensation Discussion and Analysis – Long-Term Stock-Based Incentive Compensation” above). |
(8) | Represents the $114,387 grant date fair value of the time-based2018, Mr. Sousa surrendered for cancellation 20,500 performance-based RSUs previously granted to Mr. Sousa in 2015 as well asand 2016 (which constituted all of the $204,750 grant date fair value of 8,750outstanding performance-based RSUs held by Mr. Sousa in 2015 at such time), including the 4,250 performance-based RSUs granted to Mr. Sousa in 2015 (constituting 5,000 performance-based RSUs granted to Mr. Sousa in 2015,2016 as well as 3,750 of the 25,000 performance-based RSUs granted to Mr. Sousa in 2015 eligible for vesting based on 2015 performance and for which performance criteria was established in 2015, in each case as described in more detail under “Compensation Discussion and Analysis – Long-Term Stock-Based Incentive Compensation” in our 2016 proxy statement filed on April 14, 2016). In accordance with SEC guidance, this amount for 2015 does not reflect the grant date fair value of 21,250 performance-based RSUs awarded to Mr. Sousa in 2015 for which the performance criteria was not established during 2015.referenced above. See “Compensation Discussion and Analysis – Long-Term Stock-Based Incentive Compensation” above for further discussion.additional information. |
(9)(8) | Mr. Schultz’s 2014 grantCunningham was intended as an inducement to his acceptance of employment withhired in July 2017 and therefore did not receive any compensation from the Company.Company in 2016. |
Grants of Plan-Based Awards – Fiscal Year 20162018 The following table provides information related to plan-based awards granted to the Named Executive Officers during the 20162018 fiscal year. | | | | | | | | | | | | | | | | | | | | | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1) | | | | All Other Stock | | | | | | Name | | Award Type | | Grant
Date | | | Estimated Possible Payouts Under
Non-Equity Incentive Plan Awards(1) | | | All Other
Stock Awards:
Number of
Shares of
Units (#) | | | Grant Date Fair
Value of Stock
Awards ($)(2) | | | | | | Threshold ($) | | | Target ($) | | | Maximum ($) | | | | Award Type | | Grant Date | | | Threshold ($) | | | Target ($) | | | Maximum ($) | | | Awards: Number of Shares of Units (#) | | | Grant Date Fair Value of Stock Awards ($) (2) | | Robert A. Frist, Jr. | | Cash Bonus | | | — | | | | — | | | | — | | | | 93,000 | | | | — | | | | — | | | Cash Bonus | | | — | | | | — | | | | — | | | | 134,000 | | | | — | | | | — | | | | Time-based RSUs(3) | | | 3/17/2016 | | | | — | | | | — | | | | — | | | | 5,663 | | | | 114,393 | | | Time-based RSUs (3) | | 3/15/2018 | | | | — | | | | — | | | | — | | | | 5,325 | | | | 131,528 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | J. Edward Pearson | | Cash Bonus | | | — | | | | — | | | | — | | | | 87,900 | | | | — | | | | — | | | Cash Bonus | | | — | | | | — | | | | — | | | | 132,000 | | | | — | | | | — | | | | | Time-based RSUs (3) | | 3/15/2018 | | | | — | | | | — | | | | — | | | | 5,325 | | | | 131,528 | | | | Time-based RSUs(3) | | | 3/17/2016 | | | | — | | | | — | | | | — | | | | 5,663 | | | | 114,393 | | | Performance-based RSUs (4) | | 7/13/2018 | | | | — | | | | — | | | | — | | | | 3,500 | | | | 102,865 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gerard M. Hayden, Jr. | | Cash Bonus | | | — | | | | — | | | | — | | | | 80,400 | | | | — | | | | — | | | Cash Bonus | | | — | | | | — | | | | — | | | | 86,400 | | | | — | | | | — | | | | Time-based RSUs(3) | | | 3/17/2016 | | | | — | | | | — | | | | — | | | | 5,098 | | | | 102,980 | | | Time-based RSUs (3) | | 3/15/2018 | | | | — | | | | — | | | | — | | | | 4,587 | | | | 113,299 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Michael Sousa | | Cash Bonus | | | — | | | | — | | | | — | | | | 113,200 | | | | — | | | | — | | | Cash Bonus | | | — | | | | — | | | | — | | | | 132,000 | | | | — | | | | — | | | | Time-based RSUs(3) | | | 3/17/2016 | | | | — | | | | — | | | | — | | | | 5,663 | | | | 114,393 | | | Time-based RSUs (3) | | 3/15/2018 | | | | — | | | | — | | | | — | | | | 5,325 | | | | 131,528 | | | | Performance-based RSUs (4) | | | 9/24/2015 | | | | — | | | | — | | | | — | | | | 5,000 | | | | 101,000 | | | Performance-based RSUs (4) | | 7/13/2018 | | | | — | | | | — | | | | — | | | | 3,500 | | | | 102,865 | | | | Performance-based RSUs (5) | | | 12/8/2016 | | | | — | | | | — | | | | — | | | | 4,250 | | | | 112,880 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Jeffrey D. Cunningham | | | Cash Bonus | | | — | | | | — | | | | — | | | | 85,200 | | | | — | | | | — | | | | | | Time-based RSUs (3) | | 3/15/2018 | | | | — | | | | — | | | | — | | | | 4,587 | | | | 113,299 | | Thomas Schultz | | Time-based RSUs(3) | | | 3/17/2016 | | | | — | | | | — | | | | — | | | | 3,826 | | | | 77,285 | | |
(1) | Represents the threshold maximum bonus levels that could have been earned under the Company’s 20162018 Incremental Operating Income Incentive Plans. The plans are described under “Compensation Discussion and Analysis — Cash Bonuses.” The 20162018 Incremental Operating Income Plans do not have a target bonus level. Each Named Executive Officer participating in such plans can be awarded an incremental bonus between zero and the threshold and maximum bonus level.levels provided under such plans. |
(2) | Represents the aggregate fair value computed in accordance with FASB ASC Topic 718. For significant assumptions with regard to such valuation, see Note 11 – Stock Based Compensation in the Notes to Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 20162018 filed with the SEC on February 27, 2017.25, 2019. |
(3) | Each time-based RSU has a value equal to the fair market value of one share of the Company’s common stock. The time-based RSUs granted in 20162018 vest annually in increasing increments of 15%, 20%, 30% and 35% as of the first, second, third and fourth anniversaries of the grant date, respectively. |
(4) | Represents the grant date fair value of 5,0003,500 performance-based RSUs granted to Mr.each of Messrs. Pearson and Sousa in 20152018, which were eligible for vesting in March 20172019 based on 20162018 performance and for which performance criteria was determined in 2016.2018. See “Compensation Discussion and Analysis – Long-Term Stock-Based Incentive Compensation” above for further discussion. Each performance-based RSU has a value equal to the fair market value of one share of the Company’s common stock. These performance-based RSUs vest in accordance with the terms of the award made in 2015,2018, under which provided that 5,0003,500 of the RSUs granted in 20152018 were eligible for vesting in March 20172019 subject to achievement of certain annual financial targets of Echo, Inc.the Company and Verity in 2016. This2018 for Messrs. Pearson and Sousa, respectively. The performance measure of the Company was fully achieved during 2018 such that Mr. Pearson received the 3,500 shares eligible for vesting in March 2019. The performance measure of Verity was not achieved during 2016, and therefore2018, such that Mr. Sousa did not receive any of the 5,0003,500 shares which were eligible for vesting in March 2017. |
(5) | Represents2019. These 3,500 RSUs will remain eligible for vesting in March 2020 based on the grant date fair valueachievement of 4,250catch-up performance criteria for 2019 established by the Company’s Compensation Committee as discussed more fully in the “Compensation Discussion and Analysis – Long-Term Stock-Based Incentive Compensation” section above. These rows do not include the remaining 31,500 performance-based RSUs granted to Mr.Messrs. Pearson and Sousa in 2016, whichduring 2018 as the result of the fact that such performance-based RSUs will vest based on performance criteria established in a single increment on March 15, 2020 subject to the achievement of certain cumulative financial targets of Echo, Inc. over a performance period from 2016 to 2019. Each performance-based RSU has a value equal to the fair market value of one share of the Company’s common stock.2019 and future years. |
35
Outstanding Equity Awards at 20162018 Fiscal Year End The following table provides information related to options and RSUsthe stock awards held by the Named Executive Officers that were outstanding at the end of fiscal year 2016.2018. | | | | | | | | | | | | | | | | | | Option Awards | | | Stock Awards | | | | | Option Awards | | | Stock Awards | | | | | | | | | | | | | | | | | | | | | | | | | Equity Incentive Plan: | | | Equity Incentive Plan Awards: | | Name | | Number of
Securities
Underlying
Unexercised
Options-
Exercisable | | | Number of
Securities
Underlying
Unexercised
Options-
Unexercisable | | | Option
Exercise
Price(1) | | | Option
Expiration
Date(2) | | | Number of
Units of Stock
That Have Not
Vested | | Market Value
of Units of
Stock That
Have Not
Vested(3) | | | Equity
Incentive
Plan Awards:
Number of
Unearned
Units of
Stock That
Have Not
Vested | | Equity
Incentive
Plan Awards:
Market Value
of Unearned
Units of
Stock That
Have Not
Vested(3) | | | Number of Securities Underlying Unexercised Options- Exercisable | | | Number of Securities Underlying Unexercised Options- Unexercisable | | | Option Price Exercise | | | Option Date Expiration | | | Number of Units of Stock That Have Not Vested | | | Market Value of Units of Stock That Have Not Vested(1) | | | Awards: Number of Unearned Units of Stock That Have Not Vested | | | Market Value of Unearned Units of Stock That Have Not Vested(1) | | Robert A. Frist, Jr. | | | — | | | | — | | | | — | | | | — | | | | 13,764 | (4) | | $ | 344,788 | | | | — | | | $ | — | | | | — | | | | — | | | | — | | | | — | | | | 14,701 | | (2) | $ | 355,029 | | | | — | | | $ | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | J. Edward Pearson | | | 20,000 | | | | — | | | $ | 3.58 | | | | 2/11/2018 | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 14,701 | | (3) | | 355,029 | | | | 35,000 | | (7) | | 845,250 | | | | | 25,000 | | | | — | | | $ | 7.66 | | | | 2/11/2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 13,764 | (5) | | 344,788 | | | | — | | | | — | | | | Gerard M. Hayden, Jr. | | | 9,750 | | | | — | | | $ | 3.15 | | | | 5/19/2018 | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 13,028 | | (4) | | 314,626 | | | | | | | | | | | | | 20,000 | | | | — | | | $ | 3.58 | | | | 2/11/2018 | | | | | | | | | | | | | | 25,000 | | | | — | | | $ | 7.66 | | | | 2/11/2019 | | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 12,561 | (6) | | 314,653 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Michael Sousa | | | — | | | | — | | | | — | | | | — | | | | 12,725 | (7) | | 347,929 | | | | 30,500 | (9) | | 833,870 | | | | — | | | | — | | | | — | | | | — | | | | 14,701 | | (5) | | 355,029 | | | | 35,000 | | (8) | | 845,250 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thomas Schultz | | | — | | | | — | | | | — | | | | — | | | | 11,593 | (8) | | 290,405 | | | | — | | | | — | | | Jeffrey D. Cunningham | | | | — | | | | — | | | | — | | | | — | | | | 11,387 | | (6) | | 274,996 | | | | | | | | | |
(1) | The exercise price is the closing price of our common stock on NASDAQ on the date of grant. |
(2) | Options generally vest over four years and expire eight years from the date of grant. |
(3) | The dollar amount was determined by multiplying the number of share units by $25.05$23.16 (the closing price of the Company’s common stock on December 31, 2016)2018). |
(4)(2) | The units of stock that have not vested represent time-based RSUs that were granted on various dates and that vest in the following manner assuming continued employment through the vesting date: 4,671 shares vest March 2017; 3,848 shares vest March 2018; 3,2645,035 shares vest March 2019; and 1,9824,505 shares vest March 2020.2020; 3,297 shares vest March 2021; and 1,864 shares vest March 2022. |
(5)(3) | The units of stock that have not vested represent time-based RSUs that were granted on various dates and that vest in the following manner assuming continued employment through the vesting date: 4,671 shares vest March 2017; 3,848 shares vest March 2018; 3,2645,035 shares vest March 2019; and 1,9824,505 shares vest March 2020.2020; 3,297 shares vest March 2021; and 1,864 shares vest March 2022. |
(6)(4) | The units of stock that have not vested represent time-based RSUs that were granted on various dates and that vest in the following manner assuming continued employment through the vesting date: 4,378 shares vest March 2017; 3,461 shares vest March 2018; 2,9384,501 shares vest March 2019; and 1,7844,014 shares vest March 2020.2020; 2,908 shares vest March 2021; and 1,605 shares vest March 2022. |
(7)(5) | The units of stock that have not vested represent time-based RSUs that were granted on various dates and that vest in the following manner assuming continued employment through the vesting date: 3,956 shares vest March 2017; 3,524 shares vest March 2018; 3,2635,035 shares vest March 2019; and 1,9824,505 shares vest March 2020.2020; 3,297 shares vest March 2021; and 1,864 shares vest March 2022. |
(8)(6) | The units of stock that have not vested represent time-based RSUs that were granted on various dates and that vest in the following manner assuming continued employment through the vesting date: 1,178 shares vest March 2017; 2,400 shares vest in June 2017; 1,671 shares vest March 2018; 2,800 shares vest June 2018; 2,2052,288 shares vest March 2019; and 1,3393,317 shares vest in March 2020.2020; 4,177 shares vest March 2021; and 1,605 shares vest March 2022. |
(9)(7) | The unearned units of stock that have not vested represent 26,25035,000 performance-based RSUs awarded on September 24, 2015 and 4,250 performance-based RSUs awarded on December 8, 2016. 5,000 of these 26,250 performance-based RSUs referenced in the prior sentence were eligible for vesting in March 2017 based on 2016 performance, which performance criteria was not met. These 5,000 performance-based RSUs remain eligible for vesting in March 2018, based on 2017 performance if the Catch-Up Threshold Amount (as defined under “Compensation Discussion and Analysis – Long Term Stock-Based Incentive Compensation” above) is met, which 5,000 performance-based RSUs are referred to as the Catch-Up RSUs and are described in greater detail under “Compensation Discussion and Analysis – Long Term Stock-Based Incentive Compensation” above. Taking this into account, the 30,500May 15, 2018. The 35,000 performance-based RSUs referred to in the chart above vest in the following manner assuming full achievement andof requisite performance criteria and continued employment through the vesting date: 10,000 (including the 5,000 Catch-Up RSUs) vest March 2018; 5,000 vest3,500 were eligible for vesting in March 2019; 5,250 are eligible for vesting in March 2020; 7,000 are eligible for vesting in March 2021; 8,750 are eligible for vesting in March 2022; and 15,50010,500 are eligible for vesting in March 2023. Of the 3,500 RSUs eligible for vesting based on 2018 performance, the relevant performance measure was achieved during 2018, such that Mr. Pearson received all of the 3,500 shares which were eligible for vesting in March 2019. |
(8) | The unearned units of stock that have not vested represent 35,000 performance-based RSUs awarded on May 15, 2018. The 35,000 performance-based RSUs referred to in the chart above vest in the following manner assuming full achievement of requisite performance criteria and continued employment through the vesting date: 3,500 were eligible for vesting in March 2020.2019; 5,250 are eligible for vesting in March 2020; 7,000 are eligible for vesting in March 2021; 8,750 are eligible for vesting in March 2022; and 10,500 are eligible for vesting in March 2023. Of the 3,500 RSUs eligible for vesting based on 2018 performance, the relevant performance measure was not achieved during 2018, such that Mr. Sousa did not receive any of the 3,500 shares which were eligible for vesting in March 2019. These 3,500 performance-based RSUs will remain eligible for vesting in March 2020, based on the achievement of catch-up performance criteria for 2019 established by the Company’s Compensation Committee as discussed more fully in the “Compensation Discussion and Analysis – Long-Term Stock-Based Incentive Compensation” section above. |
36
Options Exercised and StockStock Vested During 20162018 | | | | | | | | | | | | | | | | | | | | Option Awards | | | Stock Awards | | | | | Number of Shares | | | Value Realized | | | Number of Shares | | | Value Realized | | Name | | Acquired on Exercise | | | on Exercise(1) | | | Acquired on Vesting | | | on Vesting(2) | | Robert A. Frist, Jr. | | | — | | | $ | — | | | | 2,955 | | | $ | 59,691 | | J. Edward Pearson | | | — | | | | — | | | | 4,705 | | | | 95,041 | | Gerard M. Hayden, Jr. | | | — | | | | — | | | | 4,558 | | | | 92,072 | | Michael Sousa | | | — | | | | — | | | | 7,457 | | | | 150,631 | | Thomas Schultz | | | — | | | | — | | | | 2,053 | | | | 49,391 | |
The following table provides information related to options and RSUs held by the Named Executive Officers that were exercised or vested during 2018, respectively. | | Option Awards | | | Stock Awards | | | | Number of Shares | | | Value | | | Number of Shares | | | Value | | Name | | Acquired on Exercise | | | Realized on Exercise(1) | | | Acquired on Vesting | | | Realized on Vesting(2) | | Robert A. Frist, Jr. | | | — | | | $ | — | | | | 4,577 | | | $ | 114,288 | | J. Edward Pearson | | | 45,000 | | | | 829,050 | | | | 4,577 | | | | 114,288 | | Gerard M. Hayden, Jr. | | | 54,750 | | | | 1,045,923 | | | | 4,118 | | | | 102,826 | | Michael Sousa | | | — | | | | — | | | | 6,753 | | | | 168,622 | | Jeffrey D. Cunningham | | | — | | | | — | | | | 1,200 | | | | 34,032 | |
(1) | The value realized equals the difference between the option exercise price and the closing price of the Company’s stock on the date of exercise, multiplied by the number of shares to which the exercise relates. |
(2) | The value realized equals the number of shares vested, multiplied by the closing price of the Company’s stock on the vesting date. All of the stock awards which vested in 2018 were time-based RSUs which vested based on the satisfaction of applicable time-based criteria in 2018, except for 2,500 performance-based RSUs for Mr. Sousa which vested based on the satisfaction of performance criteria in 2018. |
Equity Compensation Plan Information The following table sets forth certain information, as of December 31, 2016,2018, concerning shares of the Company’s common stock authorized for issuance under all of the Company’s equity compensation plans: | | | | Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights | | Weighted-average
exercise price of
outstanding options,
warrants and rights(1) | | | Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column (a)) | | | Number of securities to be issued upon exercise of outstanding options, warrants, and rights | | | | | Weighted-average exercise price of outstanding options, warrants, and rights(1) | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | | Plan category | | (a) | | (b) | | | (c) | | | (a) | | | | | (b) | | | (c) | | | | | | | | | | | | | | | Equity compensation plans approved by security holders | | | 728,848 | (2) | | $ | 6.74 | | | | 1,480,728 | | | | 307,825 | | (2) | | | $ | 11.27 | | | 1,111,535 | | | | | | | | | | | | | | | | | Equity compensation plans not approved by security holders | | | — | | | $ | — | | | | — | | | | — | | | | | | | | | — | | | | | | | | | | | | | | | | | Total equity compensation plans | | | 728,848 | | | $ | 6.74 | | | | 1,480,728 | | | 307,825 | | | | $ | 11.27 | | | 1,111,535 | | | | | | | | | | | | |
(1) | The weighted average exercise price is calculated only on the exercise prices of the outstanding options and does not reflect the shares issuable upon vesting of outstanding RSUs, which do not have an exercise price. |
(2) | This number includes 476,10019,000 shares subject to outstanding options and 252,748288,825 shares subject to outstanding RSUs. |
37
Potential Payments Upon TerminationTermination or Change-in-Control As of December 31, 2016,2018, we maintained only one employment agreement for our Named Executive Officers with Robert A. Frist, Jr., our Chief Executive Officer. The term of the agreement automatically extends for successive one year periods unless either party provides 90 days advance notice of their intent not to further extend the then current employment term, in which case the employment agreement shall expire and terminate at the end of the then current employment term. Mr. Frist is entitled to severance benefits if we terminate him without cause; if he resigns for good reason after a change-in-control; if he resigns upon the occurrence of a material change in the terms of his employment; or if he resigns upon the occurrence of a material breach of the agreement by the Company. If any such termination occurs, Mr. Frist will be entitled to a severance benefit equal to 1.5 times the most recent salary recommended by our Compensation Committee for him. In addition, if Mr. Frist terminates his employment for good reason after the occurrence of a change-in-control, all options, shares and other benefits will fully vest immediately. If Mr. Frist is terminated for cause, or because of his death, disability, or voluntary resignation without good reason, he would not be entitled to any compensation or benefits beyond his effective termination date, other than benefits provided through statutory requirements. Under the terms of the 2000 Plan, the 2010 Plan and the 2016 Plan and the respective award agreements underlying such plans, any outstanding stock options or RSUs will become fully vested and options will become exercisable upon a change-in-control (as defined in such plans). Alternatively, under the terms of the 2000 Plan, the 2010 Plan and the 2016 Plan, upon the occurrence of a change-in-control, at the discretion of the Compensation Committee, cash payments may be made in respect of outstanding vested options or RSUs (or unvested options or RSUs, if so determined by the Compensation Committee) based on the difference between the change-in-control price per share of common stock and the per share exercise price, if any, under such award, multiplied by the number of shares of common stock subject to such vested or (if applicable) unvested award. Under the terms of the 2000 Plan, the 2010 Plan and the 2016 Plan, the change-in-control price is to be based on the highest price paid per share for any transaction reported on NASDAQNasdaq at any time during the 60 day period immediately preceding the occurrence of the change-in-control. 38
The following table shows the potential payments described above for our Named Executive Officers:Officers assuming the termination or change-in-control, as applicable, took place on December 31, 2018. In addition, as described above, Mr. Hayden resigned as our Senior Vice President and Chief Financial Officer effective February 26, 2019. In connection with this termination, Mr. Hayden did not receive any payments or benefits from the Company in connection with this termination of his employment within the scope of the table set forth below under SEC rules. | Name | | Termination
without cause,
resignation for
good reason,
or resignation
for good
reason after a
change-in-
control | | | Change-in-
control | | | Involuntary
termination for
cause or
resignation
without good
reason | | | Retirement | | | Death or
disability | | | Termination without cause, resignation for good reason, or resignation for good reason after a change- in-control | | | Change-in- control | | | Involuntary termination for cause or resignation without good reason | | | Retirement | | | Death or disability | | Robert A. Frist, Jr. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash severance(1) | | $ | 465,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 502,500 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Accelerated vesting of stock awards(2) | | | — | | | | 376,308 | | | | — | | | | — | | | | — | | | | — | | | 395,457 | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | J. Edward Pearson | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accelerated vesting of stock awards(2) | | | — | | | | 1,343,508 | | | | — | | | | — | | | | — | | | | — | | | 1,336,957 | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | Gerard M. Hayden, Jr. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accelerated vesting of stock awards(2) | | | — | | | | 1,546,470 | | | | — | | | | — | | | | — | | | | — | | | 350,453 | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | Michael Sousa | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accelerated vesting of stock awards(2) | | | — | | | | 1,181,799 | | | | — | | | | — | | | | — | | | | — | | | 1,336,957 | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | Thomas Schultz | | | | | | | | | | | | Jeffrey D. Cunningham | | | | | | | | | | | | | | | | | | | | | | Accelerated vesting of stock awards(2) | | | — | | | | 316,953 | | | | — | | | | — | | | | — | | | | — | | | 306,310 | | | | — | | | | — | | | | — | |
(1) | Value is based on the employment agreement described above and on Mr. Frist’s salary as of December 31, 2016.2018. |
(2) | Value of stock optionsRSUs is based on the highest price paid for our stock reported on NASDAQNasdaq in the 60 day period prior to December 31, 20162018 of $27.34 per share, less the exercise price of any of such individual’s outstanding in-the-money stock options, multiplied by the total of the outstanding in-the-money stock options for such individual. Value of RSUs is based on the same price mentioned above of $27.34$26.90 per share multiplied by the number of RSU awards outstanding. |
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CEO Pay Ratio As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we have determined a reasonable estimate of the ratio of the total annual compensation for our principal executive officer, Robert A. Frist, Jr., to the median of the annual total compensation of all our employees (other than Mr. Frist) (the “CEO Pay Ratio”). The Company took the following steps to identify the median employee, and to determine the annual total compensation of the median employee and our CEO. We established December 31, 2018 as the determination date of our employee population. As of December 31, 2018, we employed 790 individuals, consisting of 757 full-time and 33 part-time employees. We identified our median employee using gross wages as reported in Box 5 of the Form W-2 of persons employed by us and our subsidiaries for the period beginning January 1, 2018 to December 31, 2018 (“Gross Wages”). Gross Wages as calculated by us generally includes base pay, bonuses, sales commissions and (if applicable) equity compensation. Once the median employee was identified, we calculated the median employee’s total annual compensation based on the Gross Wages of such median employee. We utilized Gross Wages both in identifying the median employee and calculating the total annual compensation of the median employee because we believe such compensation measure is representative of our employee’s compensation, and because we believe that this compensation measures facilitates accessibility and broad comparability in connection with providing this CEO Pay Ratio. No material assumptions or estimates were made to identify the median employee or determine total annual compensation for the median employee, and we did not annualize the compensation of any of our employees. Our calculation of Gross Wages as referenced above does not include elements of our executive compensation package, such as health insurance and certain other benefits that are generally available to all employees. Annual total compensation for our principal executive officer was calculated in accordance with Item 402(c)(2)(x) of Regulation S-K. Similar to our calculation of Gross Wages for our other employees as noted above, our calculation of annual total compensation for our principal executive officer did not include elements of our executive compensation package, such as health insurance and other benefits, that are generally applicable to all employees (such amounts are also not included in the Summary Compensation Table for our principal executive officer in 2018 in accordance with SEC rules). Based on the above approach, we determined that: Mr. Frist’s annual total compensation for 2018 was $602,395 The median of the annual total compensation of all Company employees (excluding Mr. Frist) for 2018 was $81,049 The CEO Pay Ratio for 2018 was 7.4:1 The CEO Pay Ratio set forth above may not be comparable to the pay ratios of other companies in our industry or otherwise because SEC rules allow companies to use estimates, assumptions, and adjustments to identify the median employee and determine the annual total compensation of the median employee that may differ from those used by us in determining the CEO Pay Ratio. 40
STOCK OWNERSHIP OF CERTAIN BENEFICIALBENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information regarding the beneficial ownership of our common stock as of March 31, 20172019 (unless otherwise noted), for: each person who is known by us to beneficially own more than 5% of the outstanding shares of our common stock; each of our directors and nominees; each of our Named Executive Officers; and all of our directors and executive officers as a group. The percentages of shares outstanding provided in the table are based on 31,839,77632,388,307 shares outstanding as of March 31, 2017.2019. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Unless otherwise indicated, each person or entity named in the table has sole voting and investment power, or shares voting and investment power with his or her spouse, with respect to all shares of stock listed as owned by that person. The number of shares shown does not include the interest of certain persons in shares held by family members in their own right. Shares issuable upon exercise of options that are exercisable within 60 days of March 31, 20172019 and RSUs that will vest within 60 days of March 31, 20172019 are considered outstanding for the purpose of calculating the percentage of outstanding shares of our common stock held by the individual, but not for the purpose of calculating the percentage of outstanding shares held by any other individual. The address of each of our directors and executive officers listed below is c/o HealthStream, Inc., 209 10500 11th Avenue South,North, Suite 450,1000, Nashville, Tennessee 37203. | Name | | Number of Shares | | Percent | | | Number of Shares | | | | | Percent | | Robert A. Frist, Jr. | | | 5,642,709 | | | 17.7 | % | | | 5,641,492 | | | | | 17.4% | | FMR LLC | | | 4,760,962 | (1) | | 15.0 | % | | BlackRock, Inc. | | | 2,994,460 | (2) | | 9.4 | % | | | 4,051,752 | | | (1) | | | 12.5% | | Riverbridge Partners LLC | | | 2,238,414 | (3) | | 7.0 | % | | The Vanguard Group | | | 2,132,850 | (4) | | 6.7 | % | | | 2,679,401 | | | (2) | | | 8.3% | | Brown Brothers Harriman & Co. | | | | 1,809,800 | | | (3) | | | 5.6% | | Frank Gordon | | | 297,915 | (5) | | * | | | | 303,635 | | | (4) | | * | | J. Edward Pearson | | | 150,714 | (6) | | * | | | | 160,649 | | | | | * | | Thompson S. Dent | | | 113,700 | (7) | | * | | | | 119,420 | | | | | * | | Michael Shmerling | | | 110,530 | (8) | | * | | | Gerard M. Hayden, Jr. | | | 81,401 | (9) | | * | | | Michael D. Shmerling | | | | 116,250 | | | | | * | | Linda Rebrovick | | | 68,006 | (10) | | * | | | | 52,726 | | | (5) | | * | | Dale Polley | | | 47,006 | | | * | | | | 52,726 | | | | | * | | Gerard M. Hayden, Jr. | | | | 33,173 | | | | | * | | C. Martin Harris, M.D. | | | | 27,143 | | | | | * | | William W. Stead | | | 36,006 | (11) | | * | | | | 26,726 | | | | | * | | C. Martin Harris, M.D. | | | 35,815 | (12) | | * | | | Deborah Taylor Tate | | | 29,856 | (13) | | * | | | | 23,576 | | | | | * | | Jeffrey L. McLaren | | | 28,473 | (14) | | * | | | | 19,193 | | | | | * | | Michael Sousa | | | 25,161 | | | * | | | | 17,418 | | | | | * | | Thomas Schultz | | | 3,134 | | | * | | | All directors and executive officers as a group (15 persons) | | | 6,725,661 | (15) | | 21.1 | % | | Jeffrey D. Cunningham | | | | 1,439 | | | | | * | | All directors and executive officers as a group (16 persons) | | | | 6,611,560 | | (5)(6) | | | 20.4% | |
(1) | Based on a Schedule 13G/A filed February 14, 2017 by FMR LLC and Abigail P. Johnson. FMR LLC and Abigail P. Johnson list their address as 245 Summer Street, Boston, MA 02210, in such filing. FMR LLC has sole voting power with respect to 315,632 shares. FMR LLC and Abigail P. Johnson have sole dispositive power with respect to 4,760,962 shares. |
(2) | Based on a Schedule 13G/A filed January 24, 201728, 2019 by BlackRock, Inc. BlackRock, Inc. lists its address as 55 East 52nd Street, New York, NY 10022,10055, in such filing. BlackRock, Inc. has sole voting power with respect to 2,939,5063,988,757 shares and sole dispositive power with respect to 2,994,4604,051,752 shares. |
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(3)(2) | Based on a Schedule 13G filed January 24, 2017 by Riverbridge Partners LLC. Riverbridge Partners LLC lists its address as 1200 IDS Center, 80 South Eight Street, Minneapolis, MN, 55402, in such filing. Riverbridge Partners LLC has sole voting power with respect to 1,605,434 shares and sole dispositive power with respect to 2,238,414 shares. |
(4) | Based on a Schedule 13G/A filed February 13, 201711, 2019 by The Vanguard Group. The Vanguard Group lists its address as 100 Vanguard Blvd., Malvern, PA 19355, in such filing. The Vanguard Group has sole voting power with respect to 51,14553,565 shares, shared voting power with respect to 1,600 shares, sole dispositive power with respect to 2,081,4052,627,036 shares, and shared dispositive power with respect to 51,44552,365 shares. |
(5)(3) | Based on a Schedule 13G filed on February 14, 2019 by Brown Brothers Harriman & Co. Brown Brothers Harriman & Co. lists is address as 140 Broadway, New York, NY, 10005, in such filing. Brown Brothers Harriman & Co. has sole voting power with respect to 1,809,800 shares and sole dispositive power with respect to 1,809,800 shares. |
(4) | 100,000 of these shares are held by Crofton Capital. Mr. Gordon disclaims beneficial ownership of these shares except to the extent of his pecuniary interest in those shares. 11,386 of these shares are held by The Joel Company. Mr. Gordon disclaims beneficial ownership of these shares except to the extent of his pecuniary interest in those shares. Also includes 52,000 shares issuable upon exercise of options. |
(6)(5) | Includes 45,000 shares issuable upon exercise of options. |
(7) | Includes 52,000 shares issuable upon exercise of options. |
(8) | Includes 7,500 shares issuable upon exercise of options. |
(9) | Includes 54,750 shares issuable upon exercise of options. |
(10) | Includes 46,000 shares issuable upon exercise of options. |
(11) | Includes 15,000 shares issuable upon exercise of options. |
(12)(6) | Includes 26,250 shares issuable upon exercise of options.beneficially owned by Gerard M. Hayden, Jr., who resigned as our Senior Vice President and Chief Financial Officer, effective February 26, 2019. Also includes shares beneficially owned by Scott A. Roberts, who was appointed our interim Chief Financial Officer effective February 26, 2019. |
(13) | Includes 15,000 shares issuable upon exercise of options. |
(14) | Includes 15,000 shares issuable upon exercise of options. |
(15) | Includes 373,500 shares issuable upon exercise of options. |
Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers, directors, and persons who beneficially own more than 10% of the outstanding shares of our common stock to file reports of ownership and changes in ownership with the SEC. Based solely on our review of those reports filed during 20162018 and certain written representations from our officers and directors, we believe that all Section 16 reporting persons timely filed all reports required under Section 16(a) of the Exchange Act, except as follows: 1) Robert A. Frist, Jr., who failed to timely file on Form 5 reporting the disposal of the Company’s common stock in the form of a gift; and 2) Michael Sousa, who failed to timely file one Form 4 reporting the award of RSUs; each failure to timely file was due to an administrative error. Act.
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AUDIT COMMITTEE REPORT FOR 20162018 The Audit Committee of the Board is comprised of three directors who are independent directors under the categorical standards set forth in NASDAQNasdaq Rule 5605(a)(2) and who satisfy the independence requirements under NASDAQNasdaq listing standards and Rule 10A-3 of the Securities Exchange Act. During 2016,The current members of the Audit Committee are (and during 2018, the members of the Audit Committee werewere) Dale Polley, Michael D. Shmerling, and C. Martin Harris, M.D. Mr. Polley is the Chairman of the Committee. In accordance with its written charter, the Audit Committee is charged with oversight of the integrity of HealthStream’s financial reporting process; our system of internal controls regarding finance, accounting, and legal compliance; the qualification, independence, and performance of our independent registered public accounting firm; and the process utilized by management for identifying, evaluating, and mitigating risks inherent in the business. Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls. Among other things, the Audit Committee monitors preparation by our management of quarterly and annual financial reports and interimquarterly earnings releases; reviews Management’s Discussion and Analysis of Financial Condition and Results of Operations prior to the filing of our periodic reports with the SEC; supervises our relationship with our independent registered public accounting firm, including making decisions with respect to appointment or removal, reviewing the scope of audit services, approving audit and non-audit services and annually evaluating the independent registered public accounting firm’s independence; and oversees management’s implementation and maintenance of effective systems of internal accounting and disclosure controls, including review of our policies relating to legal and regulatory compliance. In fulfilling its oversight responsibilities, the Audit Committee reviewed the audited financial statements in the Annual Report with management, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The Audit Committee reviewed with our independent registered public accounting firm, who is responsible for expressing an opinion on the conformity of our audited financial statements with generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed in accordance with the applicable requirements of the Public Company Accounting Oversight Board. In addition, the Audit Committee has discussed with the independent registered public accounting firm their independence from management and the Company, including matters in the written disclosures required by the Public Company Accounting Oversight Board’s applicable requirements, and considered the compatibility of non-audit services with the independent registered public accounting firm’s independence. The Audit Committee discussed with the Company’s independent registered public accounting firm the overall scope and plans for their audit. The Audit Committee meets with the independent registered public accounting firm, with and without management present, to discuss the results of their examinations, their understanding of the Company’s internal controls, and the overall quality of the Company’s financial reporting. 43
In addition to reviewing, evaluating and ensuring the rotation of the lead partner of the independent registered public accounting firm, the Audit Committee obtains and reviews a report from the independent registered public accounting firm regarding (a) the independent registered public accounting firm’s internal quality control procedures, (b) any material issues raised by the most recent quality control review, or peer review of the independent registered public accounting firm, or any material inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the independent registered public accounting firm, and (c) any steps taken to deal withrespond to such issues. In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board (and the Board approved) that the audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 20162018 for filing with the SEC. Dale Polley, Audit Committee Chairman C. Martin Harris, M.D., Audit Committee Member Michael D. Shmerling, Audit Committee Member The foregoing report of the Audit Committee shall not be deemed incorporated by reference by any general statement incorporating by reference the proxy statement into any filing under the Securities Act of 1933 or the Securities Exchange Act, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such acts.
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PROPOSALPROPOSAL ONE - ELECTIONELECTION OF DIRECTORS
The Board has nominated and recommends to the shareholders, Jeffrey L. McLaren, Linda Rebrovick,Thompson S. Dent, William W. Stead, M.D., and Michael Shmerling,Deborah Taylor Tate for election as Class III directors to serve until the annual meeting of shareholders in 20202022 and until such time as their respective successors are duly elected and qualified. Mr. McLaren,Messrs. Dent and Stead and Ms. Rebrovick, and Mr. ShmerlingTate are currently Class III directors of the Company having been previously elected by the shareholders. The Company’s other current Class I director, Mr. Polley, is not standing for re-election at the Annual Meeting. Each of the director nominees must receive affirmative votes from a plurality of the shares voting to be elected. If any of the nominees should become unable to serve as a director, the persons named in the proxy may vote for such other person or persons, if any, as may be designated by the Board, or our Board may choose to reduce its size. Management has no reason to believe that any of the nominees named above will be unable to serve. Certain information with respect to directors who are nominees for election at the Annual Meeting and with respect to continuing directors who are not nominees for election at the Annual Meeting is set forth on pages nine to twelve of this proxy statement. THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE DIRECTOR NOMINEES. DIRECTOR NOMINEES.
PROPOSAL TWO - RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee is directly responsible for and has the ultimate authority for the appointment, compensation, retention, and oversight of the work of our independent registered public accounting firm. The Audit Committee engages in an annual evaluation of the independent registered public accounting firm’s qualifications, including, among other things, assessment of the firm’s quality of service, the firm’s depth of understanding and expertise with respect to our business, the firm’s sufficiency of resources, the appropriateness of the firm’s fees, and the firm’s independence and objectivity. The Audit Committee has appointed Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017.2019. Services provided to the Company and its subsidiaries by Ernst & Young LLP in fiscal 20162018 and 20152017 are described below under “Audit and Non-Audit Fees.” Representatives of Ernst & Young LLP will be present at the Annual Meeting. They will have the opportunity to make a statement if they desire to do so, and we expect that they will be available to respond to questions. Ratification of the appointment of Ernst & Young LLP will be approved if the number of shares of Company common stock cast “FOR” such proposal exceeds the number of shares of Company common stock cast “AGAINST” such proposal. The Audit Committee believes that the retention of Ernst & Young LLP as our independent registered public accounting firm is in the best interest of the Company and our shareholders. If the Company’s shareholders do not ratify the appointment of Ernst & Young LLP, the Audit Committee will reconsider the appointment and may affirm the appointment or retain another independent accounting firm. Even if the appointment is ratified, the Audit Committee may in the future replace Ernst & Young LLP as our independent registered public accounting firm if it is determined that it is in the Company’s best interest to do so.
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THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 2017. 2019.Audit and Non-Audit Fees Audit Fees. Fees for audit services totaled $749,934$725,299 and $598,000$847,279 in 20162018 and 2015,2017, respectively, including fees associated with the audit of our annual financial statements and internal control over financial reporting and the reviews of our quarterly reports on Form 10-Q. In addition, the audit fees for 20162018 and 20152017 also include amounts related to consent procedures in connection with our regulatory filings. Audit-Related Fees. There were no fees paid for audit-related services during 20162018 or 2015.2017. Tax Fees. There were no fees paid for tax services during 20162018 or 2015.2017. All Other Fees. There were noAll other fees paid during 2016 or 2015for miscellaneous services totaled $2,000 in both 2018 and 2017 that were not included in the captions above. Pre-Approval of Audit and Non-Audit Fees The Audit Committee pre-approves all audit and non-audit services provided by our independent registered public accounting firm. In 20162018 and 2015,2017, the Audit Committee approved all audit and non-audit fees disclosed above. The Audit Committee’s pre-approval policy provides for pre-approval by the Audit Committee of specifically defined audit and non-audit services. Unless the specific service has been previously approved with respect to that year, the Audit Committee must approve the permitted service before the independent registered public accounting firm is engaged to perform it. The Audit Committee has delegated to the Chairman of the Audit Committee the authority to approve permitted services provided that the Chairman reports any decisions to the Audit Committee at its next scheduled meeting. PROPOSAL THREE - ADVISORY VOTE ON EXECUTIVE COMPENSATION We are providing our shareholders with the opportunity to cast an advisory, non-binding vote on the executive compensation of our Named Executive Officers (“executive compensation”) in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act. While the vote on this proposal is advisory and non-binding, the Compensation Committee, which is responsible for designing and administering our executive compensation program, highly values the opinions of our shareholders. We will consider the vote of our shareholders when making compensation decisions for the Named Executive Officers in the future. The approval, on an advisory basis, of the compensation of the Company’s Named Executive Officers as described in this proxy statement will be approved if the number of shares of Company common stock voted “FOR” such proposal exceeds the number of shares of Company common stock voted “AGAINST” such proposal. We have described the compensation of the Named Executive Officers under “EXECUTIVE COMPENSATION—COMPENSATION DISCUSSION AND ANALYSIS” and “EXECUTIVE COMPENSATION—SUMMARY COMPENSATION TABLE” sections of this proxy statement. We have a strong “pay for performance” philosophy for our executive compensation program, which is designed to reward executive officers for maximizing our success, as determined by our performance relative to our financial and operational goals. We seek to reward our executives for both near-term and sustained longer-term financial and operating performance as well as leadership excellence. Compensation opportunities are intended to align the economic interests of executives with those of our shareholders and encourage them to remain with the Company for long and productive careers. 46
At the Company’s 20162018 annual meeting of shareholders, shareholders holding approximately 98% of the votes cast voted to approve on an advisory basis, our executive compensation as described in our proxy statement. The Compensation Committee believes this affirmed shareholders’ support of the Company’s approach to executive compensation. The Compensation Committee reviews on an ongoing basis the compensation programs for the Named Executive Officers to ensure that such programs achieve the desired goals of enhancing the long-term total return to our shareholders and building a better company by implementing compensation programs that reward both company-wide and individual performance, aligning our executives’ interests with those of our shareholders, and allowing us to attract and retain talented executives. For additional information regarding our executive compensation, including our 20162018 executive compensation decisions, please see “EXECUTIVE COMPENSATION—COMPENSATION DISCUSSION AND ANALYSIS” beginning on page 24section of this proxy statement. In light of the foregoing considerations, we are asking our shareholders to indicate their approval, on an advisory basis, of the compensation of the Named Executive Officers as disclosed in this proxy statement. Accordingly, we recommend that our shareholders vote “FOR” the following resolution at the 20172019 Annual Meeting of Shareholders: “RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the Named Executive Officers, as disclosed in the Company’s proxy statement for the 20172019 annual meeting of shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosure.”
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE RESOLUTION TO APPROVE, ON AN ADVISORY BASIS, THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT.
GENERAL INFORMATION
Additional Information A copy of our Annual Report on Form 10-K for the year ended December 31, 2016,2018, excluding certain of the exhibits thereto, may be obtained by visiting our website at www.healthstream.com or may be obtained without charge by writing to HealthStream, Inc., Investor Relations Department, 209 10500 11th Avenue South,North, Suite 450,1000, Nashville, Tennessee 37203 or by making an oral request by calling (615) 301-3237. We will furnish any exhibits to our Annual Report on Form 10-K upon the payment of fees equal to our reasonable expenses in furnishing such exhibits. The Company’s Annual Report on Form 10-K and various other filings also may be accessed in the “Corporate Governance” section of the InvestorsInvestor Relations page of our website at www.healthstream.com, or at www.sec.gov. Nashville, Tennessee April 12, 2017 10, 2019Appendix A
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RECONCILIATION OFAppendix A
Reconciliation of GAAP NET INCOME ANDIncome TO ADJUSTED EBITDA This proxy statement presents information regarding adjusted EBITDA from continuing operations, a non-GAAP financial measure which is used by management in analyzing the Company’s financial results and ongoing operational performance.measure. In order to better assess the Company’s financial results, management believes that net income before interest, income taxes, share-based compensation, depreciation and amortization, and changes in fair value of cost method investments (“adjusted EBITDA)EBITDA”) is a useful measure for evaluating the operating performance of the Company because adjusted EBITDA reflects net income adjusted for certain non-cash and non-operating items. Management also believes that adjusted EBITDA from continuing operations is a useful measure for evaluating the operating performance of the Company because such measure excludes the results of operations of the Patient Experience business that we sold in February 2018 and thus reflects the Company’s ongoing business operations and assists in comparing the Company’s results of operations between periods. We believe that adjusted EBITDA isand adjusted EBITDA from continuing operations are also used by many investors to assess the Company’s results from current operations. Adjusted EBITDA is aand adjusted EBITDA from continuing operations are non-GAAP financial measuremeasures and should not be considered as a measuremeasures of financial performance under GAAP. Because adjusted EBITDA isand adjusted EBITDA from continuing operations are not a measurementmeasurements determined in accordance with GAAP, it isthey are susceptible to varying calculations. Accordingly, adjusted EBITDA and adjusted EBITDA from continuing operations, as presented, may not be comparable to other similarly titled measures of other companies. Adjusted EBITDA and adjusted EBITDA from continuing operations should not be considered as a substitute for, or superior to, measures of financial performance which are prepared in accordance with GAAP. Investors are encouraged to review the reconciliations of our GAAP net income to adjusted EBITDA and adjusted EBITDA from continuing operations, which isare set forth below in this Appendix A. | | | | | | | | | | (in 000’s) | | 2016 | | | 2015 | | GAAP net income | | $ | 3,755 | | | $ | 8,621 | | Interest income | | | (574 | ) | | | (401 | ) | Interest expense | | | 102 | | | | 188 | | Income tax provision | | | 2,393 | | | | 5,098 | | Stock based compensation expense | | | 1,968 | | | | 3,280 | | Depreciation and amortization | | | 22,207 | | | | 16,997 | | | | | | | | | | | Adjusted EBITDA | | $ | 29,851 | | | $ | 33,783 | | | | | | | | | | |
(in 000’s) | | 2018 | | | 2017 | | GAAP income from continuing operations | | $ | 13,251 | | | $ | 8,838 | | Interest income | | | (2,444 | ) | | | (870 | ) | Interest expense | | | 130 | | | | 132 | | Income tax provision | | | 3,324 | | | | 1,302 | | Stock based compensation expense | | | 1,777 | | | | 1,736 | | Depreciation and amortization | | | 24,231 | | | | 24,047 | | Change in fair value of cost method investments | | | 1,271 | | | — | | Adjusted EBITDA from continuing operations | | $ | 41,540 | | | $ | 35,185 | |
GAAP net income | | $ | 32,217 | | | $ | 10,004 | | Interest income | | | (2,444 | ) | | | (870 | ) | Interest expense | | | 130 | | | | 131 | | Income tax provision | | | 13,783 | | | | 529 | | Stock based compensation expense | | | 1,686 | | | | 1,852 | | Depreciation and amortization | | | 24,412 | | | | 26,283 | | Change in fair value of cost method investments | | | 1,271 | | | — | | Adjusted EBITDA | | $ | 71,055 | | | $ | 37,929 | |
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Directions to: 209 10500 11th Avenue South,North, Suite 4501000
Nashville, Tennessee 37203 From the South: Take Interstate 65 North. Take exit 209B for Demonbreun Street.209 to merge onto George L Davis Blvd. Turn right onto Demonbreun Street.Charlotte Ave. Turn rightleft onto 1011th Avenue South.North. Our offices will be located on your right-hand side. From the North: Take Interstate 65 South. Continue onto Interstate 24 East. Take Exit 50B to merge ontoStay on Interstate 40 West.65 South. Take exit 209B209 for Demonbreun Street.Charlotte Ave. Turn rightleft onto Demonbreun Street.Charlotte Ave. Turn rightleft onto 10th11th Avenue South.North. Our offices will be located on your right-hand side. From the West: Take Interstate 40 East. Take exit 208A to merge onto Interstate 65 South. Take exit 209B209 for Demonbreun Street.Charlotte Ave. Turn left onto Demonbreun Street.Charlotte Ave. Turn rightleft onto 1011th Avenue South.North. Our offices will be located on your right-hand side. From the East/Nashville International Airport: Take Interstate 40 West. Take exit 209B for Demonbreun Street.209 to merge onto George L Davis Blvd. Turn right onto Demonbreun Street.Charlotte Ave. Turn rightleft onto 10th11th Avenue South.North. Our offices will be located on your right-hand side.
HealthStream IMPORTANT ANNUAL MEETING INFORMATION
Health Stream Ote 000004 ENDORSEMENT_LINE SACKPACKENDORSEMENT_LINE______________ SACKPACK_____________ MR A SAMPLE DESIGNATION (IF ANY) ADD 1 ADD 2 ADD 3 ADD 4 ADD 5 ADD 6 C123456789 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext C123456789 Electronic Voting Instructions Available 24 hours a day, 7 days a week! InsteadYour vote matters – here’s how to vote! You may vote online or by phone instead of mailing your proxy, you may choose one of the voting methods outlined below to vote your proxy. VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. Proxiesthis card. Votes submitted by the Internet or telephoneelectronically must be received by 1:00 a.m.,00am, Central Standard Time, on May 25, 2017. Vote by Internet23, 2019. Online Go to www.investorvote.com/www.envisionreports.com/HSTM Oror scan the QR code with your smartphone Vote by telephone— login details are located in the shaded bar below. Save paper, time and money! Sign up for electronic delivery at www.envisionreports.com/HSTM Phone Call toll free 1-800-652-VOTE (8683) within the USA, US territories and Canada Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. Call toll free1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone Follow the instructions provided by the recorded message Follow the steps outlined on the secure website031ILD 2019 Annual Meeting Proxy Card 1234 5678 9012 345 IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. A Proposals — The Board of Directors recommends that you vote FOR the following proposals: 1. To elect the three (3) nominees as Class II directors to the Board of Directors until the 2020 Annual Meeting of Shareholders and until their respective successors are duly elected and qualified: Mark here torecommend a vote FOR all the nominees Mark here to WITHHOLD vote from all nomineeslisted A and FOR Proposals 2 and 3. 1. Election of Directors: 01 - Thompson S. Dent For Withhold For Withhold For Withhold For Withhold 02 - William W. Stead, M.D. 03 - Deborah Taylor Tate For Against Abstain For Against Abstain 2. To ratify the appointment of Ernst &and Young LLP as the Company’sCompany's independent registered public accounting firm for the fiscal year ending December 31, 2017. 4. To vote in accordance with their best judgment with respect to any other matters which may properly come before the meeting. 01 - Linda Rebrovick - Class II 03 - Jeffrey McLaren - Class II 02 - Michael Shmerling - Class IINon-Voting Items Change of Address — Please print new address below. For All EXCEPT - To withhold a vote for one or more nominees, mark the box to the left and the corresponding numbered box(es) to the right. For Against Abstain2019. 3. To approve, on an advisory basis, the compensation of the Company’sCompany's named executive officers. For Against Abstain Cofficers as disclosed in the proxy statement. 4. To transact such other business as may properly come before the annual meeting. B Authorized Signatures — This section must be completed for your vote to be counted. — Datecount. Please date and Sign Below This Proxy should be marked, dated, and signed by the shareholder(s)sign below. Please sign exactly as hisname(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or her name appears hereon, and returned promptly in the enclosed envelope. Persons signing in a fiduciary capacity should so indicate. If shares are held by joint tenants or as community property, both should sign. If a corporation or partnership,custodian, please sign ingive full corporate or partnership name by an authorized officer.title. Date (mm/dd/yyyy) — Please print date below. Signature 1 — Please keep signature within the box. Signature 2 — Please keep signature within the box. C 1234567890 J N T 1UP X 32167013 2 B V 4 1 4 9 9 1 MR A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE 140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND 02KOZC
2019 Annual Meeting Admission Ticket 2019 Annual Meeting of HealthStream, Inc. Shareholders May 23, 2019, 2:00pm CT 500 11th Avenue, North Suite 1000 Nashville, TN 37203 Upon arrival, please present this admission ticket and photo identification at the registration desk. Important notice regarding the Internet availability of proxy materials for the ShareholderAnnual Meeting to be held on May 25, 2017.of Shareholders. The Proxy Statement, Annual Report & Form10-K arematerial is available at: www.edocumentview.com/www.envisionreports.com/HSTM IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. HealthStream Proxy — HealthStream, Inc. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF HEALTHSTREAM, INC. The undersigned shareholder(s) of HealthStream, Inc., a Tennessee corporation, hereby acknowledges receipt of Small steps make an impact. Help the environment by consenting to receive electronic delivery, sign up at www.envisionreports.com/HSTM Notice of 20172019 Annual Meeting of Shareholders and Proxy Statement, each dated April 12, 2017, and hereby appointsSolicited by Board of Directors for Annual Meeting — May 23, 2019 Robert A. Frist, Jr. and Gerard M. Hayden, Jr., and each of them, proxies and attorneys in fact,Scott A. Roberts, with fullthe power to each of substitution, on behalfare hereby authorized to represent and invote the nameshares of the undersigned, to representwith all the powers which the undersigned would possess if personally present, at the 2017 Annual Meeting of Shareholders of HealthStream, Inc. to be held on Thursday, May 25, 2017 at 2:00 p.m. Central Standard Time, at 209 10th Avenue South, Suite 450, Nashville, Tennessee 37203, and to vote all shares of Common Stock which the undersigned would be entitled to vote if then and there personally present, on the matters set forth herein. This Proxy, when properly executed,23, 2019. Shares represented by this proxy will be voted in accordance with the directions given by the undersigned shareholder(s).shareholder. If no direction is made, itsuch directions are indicated, the Proxies will be votedhave authority to vote FOR the proposals set forth hereinelection of the Board of Directors and asFOR items 2 and 3. In their discretion, the proxies deem advisable onProxies are authorized to vote upon such other mattersbusiness as may properly come before the meeting. PLEASE COMPLETE, DATE, SIGN AND RETURN THIS PROXY PROMPTLY. (Items to be voted appear on reverse side.)side) Proxy — HealthStream, Inc. qIF VOTING BY MAIL, SIGN, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE C Non-Voting Items Change of Address — Please print new address below. Comments — Please print your comments below. |
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