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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
HEALTH MANAGEMENT SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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HEALTH MANAGEMENT SYSTEMS, INC.
401 PARK AVENUE SOUTH
NEW YORK, NEW YORK 10016
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MARCH 29, 2001
The Annual Meeting of Shareholders (the "Meeting") of Health Management
Systems, Inc. (the "Company") will be held at the offices of the Company, 401
Park Avenue South, New York, New York, on March 29, 2001 at 11:00 a.m., Eastern
Standard Time, for the following purposes:
1. To elect four directors to serve for two-year terms expiring at the
annual meeting in 2003 and until their successors are elected and
qualified;
2. To consider and take action on the ratification of the selection of
KPMG LLP as the Company's independent certified public accountants for
fiscal year 2001; and
3. To transact such other business as may properly come before the
Meeting or any adjournments thereof.
Only shareholders of record at the close of business on February 9, 2001
will be entitled to receive notice of and to vote at the Meeting.
Shareholders are cordially invited to attend the Meeting in person. Whether
or not you expect to attend, WE URGE YOU TO READ THE ACCOMPANYING PROXY
STATEMENT AND THEN COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED FORM OF PROXY
IN THE ACCOMPANYING POSTAGE-PREPAID ENVELOPE. It is important that your shares
be represented at the Meeting by virtue of your executed proxies should you be
unable to attend the Meeting in person. Your promptness in responding will
assist us to prepare for the Meeting and to avoid the cost of a follow-up
mailing. If you receive more than one form of proxy because you own shares
registered in different names or at different addresses, each form of proxy
should be completed and returned.
Sincerely,
/s/ KATHY L. ARENDT
Kathy L. Arendt
Secretary
February 23, 2001
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HEALTH MANAGEMENT SYSTEMS, INC.
401 PARK AVENUE SOUTH
NEW YORK, NEW YORK 10016
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MARCH 29, 2001
GENERAL INFORMATION
This Proxy Statement is furnished to shareholders of Health Management
Systems, Inc., a New York corporation (the "Company"), in connection with the
solicitation by the Board of Directors of the Company of proxies for use at its
Annual Meeting of Shareholders (the "Meeting"). The Meeting is scheduled to be
held on Thursday, March 29, 2001, at 11:00 a.m., Eastern Standard Time, at the
offices of the Company, 401 Park Avenue South, New York, New York, and at any
adjournments thereof. It is anticipated that this Proxy Statement and the
enclosed form of proxy will be mailed to shareholders on or about February 23,
2001.
At the Meeting, shareholders will be asked to vote upon: (1) the election
of four directors; (2) the ratification of the selection of independent
certified public accountants for fiscal year 2001; and (3) such other business
as may properly come before the Meeting and at any adjournments thereof.
VOTING RIGHTS AND VOTES REQUIRED
The close of business on February 9, 2001 has been fixed as the record date
(the "Record Date") for the determination of shareholders entitled to receive
notice of and to vote at the Meeting. As of the close of business on such date,
the Company had outstanding and entitled to vote 17,832,431 shares of common
stock, par value $0.01 per share (the "Common Stock").
A majority of the outstanding shares of Common Stock must be represented in
person or by proxy at the Meeting in order to constitute a quorum for the
transaction of business. The record holder of each share of Common Stock
entitled to vote at the Meeting will have one vote for each share so held.
Directors are elected by a plurality of the votes cast. Shareholders may
not cumulate their votes. The four candidates receiving the highest number of
votes will be elected. In tabulating the votes, votes withheld in connection
with the election of one or more nominees and broker nonvotes will be
disregarded and will have no effect on the outcome of the vote.
The affirmative vote of the holders of a majority of the shares of Common
Stock represented at the Meeting in person or by proxy and entitled to vote
thereat will be required to ratify the selection of the Company's independent
certified public accountants. In determining whether this proposal has received
the requisite number of affirmative votes, abstentions and broker nonvotes will
be disregarded and will have no effect on the outcome of the vote.
VOTING OF PROXIES
If the accompanying proxy is properly executed and returned, the shares
represented by the proxy will be voted at the Meeting as specified in the proxy.
If no instructions are specified, the shares represented by any properly
executed proxy will be voted FOR the election of the nominees listed below under
"Election of Directors" and FOR the ratification of the selection of independent
certified public accountants.
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REVOCATION OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by a
shareholder at any time before it is exercised by written notice to the
Secretary of the Company, by timely notice of a properly executed proxy bearing
a later date delivered to the Company, or by voting in person at the Meeting.
SOLICITATION OF PROXIES
The Company will bear the cost of this solicitation, including amounts paid
to banks, brokers, and other record owners to reimburse them for their expenses
in forwarding solicitation material regarding the Meeting to beneficial owners
of Common Stock. The solicitation will be by mail, with the material being
forwarded to the shareholders of record and certain other beneficial owners of
Common Stock by the Company's officers and other regular employees (at no
additional compensation). Such officers and employees may also solicit proxies
from shareholders by personal contact, by telephone, or by other means if
necessary in order to assure sufficient representation at the Meeting.
Mellon Investor Services L.L.C. has been retained to receive and tabulate
proxies and to provide representatives to act as inspectors of election for the
Meeting.
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MATTERS SUBJECT TO SHAREHOLDER VOTE
1. ELECTION OF DIRECTORS
Pursuant to the Company's by-laws, the Board of Directors of the Company is
currently divided into two classes, with one class standing for election each
year for two-year terms. The terms of four directors, including one director
appointed at the end of fiscal year 2000, will expire at the Meeting.
Accordingly, the term of the four nominees listed below, if elected at the
Meeting, will expire at the 2003 annual meeting. The terms of the other current
directors listed below will expire at the 2002 annual meeting.
The four persons designated by the Board of Directors as nominees for
election as directors with terms expiring at the 2003 annual meeting are William
F. Miller III, William W. Neal, Ellen A. Rudnick and Richard H. Stowe.
Unless a contrary direction is indicated, it is intended that proxies
received will be voted for the election as directors of the four nominees to
serve for two-year terms expiring at the 2003 annual meeting, and in each case
until their successors are elected and qualified. In the event any nominee for
director declines or is unable to serve, the proxies may be voted for a
substitute nominee selected by the Board of Directors. The Board of Directors
expects that each nominee named in the following table will be available for
election.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES.
SERVED AS
DIRECTOR
NAME POSITION WITH THE COMPANY OR PRINCIPAL OCCUPATION FROM
- ---- ------------------------------------------------- ---------
Nominees for directors for two-year terms ending in 2003:
William F. Miller III.................. Chairman, President, and Chief Executive Officer 2000
of the Company
William W. Neal........................ Managing Principal of Piedmont Venture Partners, 1989
an investment firm
Ellen A. Rudnick....................... Executive Director, Entrepreneurship Program, 1997
University of Chicago Graduate School of Business
Richard H. Stowe....................... Private Investor and Senior Advisor to Capital 1989
Counsel LLC, an asset management firm
Directors continuing in office until 2002:
Randolph G. Brown...................... Chairman and Chief Executive Officer of One Inc., 1998
a surgery center management company
Robert V. Nagelhout.................... President of the Company's Software Division 1996
Galen D. Powers........................ Senior Founder and President of Powers, Pyles, 1992
Sutter & Verville, P.C., a law firm
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EXECUTIVE OFFICERS AND DIRECTORS
Certain information is set forth below with respect to the executive
officers and directors of the Company as of February 9, 2001:
NAME POSITION
- ---- --------
William F. Miller III.................. Chairman, President, and Chief Executive Officer
Alan L. Bendes......................... Senior Vice President and Chief Financial Officer
Richard B. Brown....................... President, Revenue Services Division
Lewis D. Levetown...................... Vice President, Human Resources
Robert V. Nagelhout.................... President, Software Division, and Director
Randolph G. Brown...................... Director
William W. Neal........................ Director
Galen D. Powers........................ Director
Ellen A. Rudnick....................... Director
Richard H. Stowe....................... Director
WILLIAM F. MILLER III, 51, joined the Company in October 2000 as its
President, Chief Executive Officer, and director. On December 14, 2000, Mr.
Miller was elected Chairman of the Board. From 1983 through 1999, Mr. Miller
served as President and Chief Operating Officer of EmCare Holdings, Inc., a
leading national healthcare services firm which was acquired in 1997 by Laidlaw,
Inc. From 1980 through 1983, Mr. Miller served as Administrator and Chief
Operating Officer of Vail Mountain Medical. Prior to 1980, Mr. Miller served in
various capacities at various hospital facilities. Mr. Miller is currently a
director of LinCare, Inc, a provider of respiratory and infusion therapy and
durable medical equipment to patients in the home, and several private
companies.
ALAN L. BENDES, 47, joined the Company during fiscal year 1999 as its
Senior Vice President and Chief Financial Officer. From 1997 to January 1999,
Mr. Bendes served as an independent business consultant and on staff for
wireless and internet technology companies. From 1987 through 1996, Mr. Bendes
served as Vice President -- Finance and Administration, Chief Financial Officer,
Treasurer, and Secretary for United States Paging Corporation (at the time a
publicly held company and currently a wholly-owned subsidiary of MCI Worldcom).
From 1985 through 1987, Mr. Bendes was the Chief Financial and Operations
Officer of Toscany Imports, Ltd., a distributor of glassware and giftware and a
subsidiary of Alco Standard Corporation. From 1980 through 1984, Mr. Bendes
served as Chief Financial Officer of Meinhard Commercial Corporation, the
factoring subsidiary of CIT Corporation. From 1974 through 1980, he was a member
of KPMG LLP's audit staff.
RICHARD B. BROWN, JR., 45, joined the Company during fiscal year 1999 and
serves as President of the Company's Revenue Services Division. From 1995
through 1998, Mr. Brown held operational and strategic planning positions with
Coastal Physicians Group and Oxford Specialty Management, a start-up venture
wholly-owned by Oxford Health Plan. From 1977 to 1994, Mr. Brown worked for
International Business Machines Corporation ("IBM"), including four years as a
Principal in the Healthcare Practice of the IBM Consulting Group.
LEWIS D. LEVETOWN, 58, has been Vice President of Human Resources of the
Company since 1988. From 1982 until he joined the Company, he was Senior Vice
President, Human Resources for Automated Data Processing, Inc. ("ADP").
ROBERT V. NAGELHOUT, 46, serves as President of the Company's Health Care
microsystems, Inc. ("HCm") subsidiary, a position he held since HCm's
acquisition by the Company in February 1995. He
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became the President of the Company's Software Division in December 1999. From
November 1997 through December 1999, Mr. Nagelhout served as the Company's Chief
Operating Officer. Prior to co-founding HCm in 1983, he served as a consultant
at Ernst & Whinney (now Ernst & Young).
RANDOLPH G. BROWN, 58, was appointed a director of the Company in May 1998.
Mr. Brown has served as Chairman and Chief Executive Officer of One Inc., a
developer and manager of refractive and cataract surgery centers in New York,
since August 1999. Previously, Mr. Brown had been an independent business
consultant since November 1996, principally as a venture partner with
Morgenthaler Venture Partners. From July 1987 through October 1996, Mr. Brown
served in various senior executive capacities, including Chairman, President and
Chief Executive Officer, for Medaphis Corporation, a provider of accounts
receivable management services to hospital-affiliated physicians and hospitals.
From 1978 through 1987, Mr. Brown was employed in various management positions
by Humana Inc., at that time a provider of integrated healthcare delivery
services.
WILLIAM W. NEAL, 68, has been Managing Principal of Piedmont Venture
Partners since July 1996. From 1989 to April 1996, he served as Chief Executive
Officer of Broadway and Seymour, a company that provides software and computer
systems to the banking industry. From 1985 through July 1989, he was a general
partner of Welsh, Carson, Anderson & Stowe ("WCAS"), an investment firm. Mr.
Neal was Senior Vice President -- Marketing of ADP from 1984 to 1985 and a Group
President of ADP from 1978 to 1984. He served as a director of ADP from 1982
until 1985.
GALEN D. POWERS, 64, is the senior founder and has served as President of
Powers, Pyles, Sutter & Verville P.C., a Washington, D.C. law firm specializing
in healthcare and hospital law, since he founded the firm in 1983. Mr. Powers
was the first chief counsel of the federal Health Care Financing Administration
and has served as a director and the President of the National Health Lawyers
Association.
ELLEN A. RUDNICK, 50, is Executive Director and Clinical Professor of the
Entrepreneurship Program at the University of Chicago Graduate School of
Business. She also serves as Chairman of CEO Advisors, Inc. a privately held
consulting firm. From 1993 until 1999, Ms. Rudnick served as Chairman of Pacific
Biometrics, Inc., a publicly held healthcare biodiagnostics company and its
predecessor, Bioquant. From 1990 to 1992, she was President and Chief Executive
Officer of Healthcare Knowledge Resources ("HKR"), a privately held healthcare
information technology corporation, and subsequently served as President of
HCIA, Inc. ("HCIA") following the acquisition of HKR by HCIA. From 1975 to 1990,
Ms. Rudnick served in various positions at Baxter Health Care Corporation,
including Corporate Vice President and President of its Management Services
Division.
RICHARD H. STOWE, 57, is a private investor and Senior Advisor to Capital
Counsel LLC, an asset management firm. From 1979 until 1998, Mr. Stowe was a
general partner of WCAS. Prior to 1979, he was a Vice President in the venture
capital and corporate finance groups of New Court Securities Corporation (now
Rothschild Inc.). Mr. Stowe is also a director of MedQuist, Inc., a provider of
medical record transcription services.
DIRECTORS' FEES
Non-employee directors are paid $1,500 for each regularly scheduled Board
of Directors meeting, $500 for each regularly scheduled committee meeting, and
$250 for each special Board of Directors or committee meeting which they attend,
and are reimbursed for expenses incurred in attending meetings. Each non-
employee director is also granted options annually to purchase 1,500 shares of
Common Stock under the Company's 1995 Non-Employee Director Stock Option Plan
and may be awarded additional options under
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the Company's 1999 Long-Term Incentive Stock Plan. In light of the increasing
time demands on the Board of Directors during the Company's strategic planning
and restructuring initiatives, as of December 15, 2000, William W. Neal, Ellen
A. Rudnick, and Galen D. Powers were each granted options under the Company's
1999 Long-Term Incentive Stock Plan to purchase 25,000 shares of Common Stock,
at an exercise price of $1.07 per share (the fair market value of the Common
Stock on such date). Each option vested on the date of grant as to 8,334 shares.
Each option will vest as to the remaining 16,666 shares in two equal annual
installments, commencing one year from the date of grant. In addition, based
upon the significant involvement required in divestiture assessment and
operational re-engineering, as of December 15, 2000, Richard H. Stowe and
Randolph G. Brown were each granted options under the Company's 1999 Long-Term
Incentive Stock Plan to purchase 150,000 shares of Common Stock, at an exercise
price of $1.07 per share. Each option vested on the date of grant as to 30,000
shares. Each option will vest as to an additional 45,000 shares on the first
anniversary of its grant, and will vest as to the remaining 75,000 shares
thereafter in eight equal quarterly installments.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors held six meetings during fiscal year 2000. Each
director attended at least 75% of the aggregate of the total number of meetings
of (a) the Board of Directors, and (b) the committees on which the director
served.
The committees of the Board of Directors consist of an Audit and Compliance
Committee and a Compensation Committee.
AUDIT AND COMPLIANCE COMMITTEE. The Audit and Compliance Committee
recommends to the Board of Directors the annual appointment of independent
certified public accountants with whom the Committee reviews audit fees, the
scope and timing of the audit, the adequacy of internal controls, and any other
services rendered. The functions of the Audit and Compliance Committee also
include review of corporate compliance and related matters. The Audit and
Compliance Committee is currently comprised of Messrs. Powers and Brown and will
expand to include a third independent director during fiscal year 2001. The
Audit and Compliance Committee held four meetings during fiscal year 2000.
COMPENSATION COMMITTEE. The Compensation Committee reviews and recommends
the compensation and bonuses of the executives of the Company. The Compensation
Committee also administers the Company's 1999 Long-Term Incentive Stock Plan,
Employee Stock Purchase Plan, and 1995 Non-Employee Director Stock Option Plan.
The Compensation Committee is comprised of Messrs. Neal and Stowe and held two
meetings during fiscal year 2000.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Pursuant to Section 16(a) of the Securities Exchange Act of 1934 (the
"Exchange Act") and the rules issued thereunder, the Company's executive
officers and directors are required to file with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc. reports of
ownership and changes in ownership of Common Stock. Copies of such reports are
required to be furnished to the Company. Based solely on review of the copies of
such reports furnished to the Company, or written representations that no other
reports were required, the Company believes that during fiscal year 2000 all of
its executive officers and directors complied with the requirements of Section
16(a), except that Paul J. Kerz, a former officer and director of the Company,
did not timely report his disposition of 262,666 shares of Common Stock, which
were repurchased directly by the Company, pursuant to his separation from the
Company in October 2000;
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and Richard H. Stowe, a director of the Company, did not timely file the annual
Form 5 with respect to his acquisition of 1,500 options to purchase Common Stock
for the fiscal year ending October 31, 2000.
ADDITIONAL INFORMATION REGARDING COMPENSATION OF EXECUTIVE OFFICERS AND
DIRECTORS IS PROVIDED ON PAGES 10 THROUGH 16 OF THIS PROXY STATEMENT.
RATIFICATION OF THE SELECTION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors, in accordance with the recommendation of the Audit
and Compliance Committee, has selected, subject to ratification by the
shareholders, KPMG LLP, independent certified public accountants, to audit the
consolidated financial statements of the Company and its subsidiaries for fiscal
year 2001. KPMG LLP has audited the Company's financial statements since fiscal
year 1981.
AUDIT FEES
The aggregate fees billed and expected to be billed by KPMG LLP for the
audit of the Company's annual financial statements for fiscal year 2000 and the
reviews of the financial statements included in the Company's Form 10-Qs for
that fiscal year are expected to be approximately $175,000. The final amount of
such bills is still subject to review by KPMG LLP and review and approval by the
Company and its Audit and Compliance Committee.
ALL OTHER FEES
The aggregate Other fees billed by KPMG LLP for work performed in fiscal
year 2000 for audits of the Company's employee benefit plans and an SAS 70
system certification were approximately $85,000. The Company's Audit and
Compliance Committee considered whether the provision of such other services was
compatible with maintaining KPMG LLP's independence.
The Company expects representatives of KPMG LLP to attend the Meeting, to
be available to respond to appropriate questions from shareholders, and to have
the opportunity to make a statement if so desired.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE
SELECTION OF KPMG LLP AS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR FISCAL
YEAR 2001.
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ADDITIONAL INFORMATION
STOCK OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of February 9, 2001 by (a) each person known by the
Company to be the beneficial owner of more than 5% of the outstanding shares of
Common Stock, (b) each executive officer identified in the Summary Compensation
Table below, (c) each director and nominee for director, and (d) all executive
officers and directors as a group. Except as otherwise noted, the named
shareholder had sole voting and investment power with respect to such
securities.
NAME AMOUNT PERCENTAGE
- ---- --------- ----------
Heartland Advisors, Inc.
789 North Water Street
Milwaukee, WI 53202-3508.................................. 2,336,400 13.1%
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue
Santa Monica, CA 90401-1038............................... 1,253,925 7.0%
William F. Miller III(a).................................... 550,000 3.1%
Paul J. Kerz(b)............................................. 474,632 2.7%
Alan L. Bendes(c)........................................... 42,000 *
Richard B. Brown(d)......................................... 8,750 *
Lewis D. Levetown(e)........................................ 14,738 *
Robert V. Nagelhout(f)...................................... 166,140 *
Randolph G. Brown(g)........................................ 37,250 *
William W. Neal(h).......................................... 53,255 *
Galen D. Powers(i).......................................... 30,769 *
Ellen A. Rudnick(j)......................................... 20,084 *
Richard H. Stowe(k)......................................... 98,864 *
All executive officers and directors as a group (eleven
persons)(l)............................................... 1,496,482 8.2%
- ---------------
* denotes percentage of ownership is less than 1%
(a) Mr. Miller became the Company's President, Chief Executive Officer, and a
director, effective October 2, 2000 and was elected Chairman of the Board on
December 14, 2000.
(b) Includes 84,828 shares of Common Stock owned by members of the family of Mr.
Kerz or trusts for the benefit of such family members, as to which Mr. Kerz
disclaims beneficial ownership. Mr. Kerz resigned as President and Chief
Executive Officer of the Company, effective October 2, 2000 and as Chairman
of the Board and a director of the Company, effective December 12, 2000.
(c) Includes outstanding options to purchase 42,000 shares of Common Stock that
are currently exercisable or will become exercisable before April 30, 2001.
(d) Includes outstanding options to purchase 8,750 shares of Common Stock that
are currently exercisable or will become exercisable before April 30, 2001.
(e) Includes outstanding options to purchase 7,000 shares of Common Stock that
are currently exercisable or will become exercisable before April 30, 2001.
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(f) Includes 6,000 shares of Common Stock held in trusts for the benefit of
family members, as to which Mr. Nagelhout disclaims beneficial ownership.
Also includes outstanding options to purchase 110,500 shares of Common
Stock that are currently exercisable or will become exercisable before
April 30, 2001.
(g) Includes outstanding options to purchase 37,250 shares of Common Stock that
are currently exercisable or will become exercisable before April 30, 2001.
(h) Includes 27,980 shares of Common Stock owned by members of the family of Mr.
Neal, as to which Mr. Neal disclaims beneficial ownership. Also includes
outstanding options to purchase 20,834 shares of Common Stock that are
currently exercisable or will become exercisable before April 30, 2001.
(i) Includes 237 shares of Common Stock owned by members of the family of Mr.
Powers, as to which Mr. Powers disclaims beneficial ownership. Also
includes outstanding options to purchase 30,532 shares of Common Stock that
are currently exercisable or will become exercisable before April 30, 2001.
(j) Includes outstanding options to purchase 17,084 shares of Common Stock that
are currently exercisable or will become exercisable before April 30, 2001.
(k) Includes outstanding options to purchase 42,500 shares of Common Stock that
are currently exercisable or will become exercisable before April 30, 2001.
(l) Includes outstanding options to purchase 316,450 shares of Common Stock
that are currently exercisable or will become exercisable before April 30,
2001.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation for the
fiscal years ended October 31, 2000, 1999, and 1998 awarded to or earned by the
current and former Chief Executive Officer and by each of the other four most
highly compensated executive officers of the Company.
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
FISCAL -------------------------------- STOCK OPTION
NAME AND PRINCIPAL POSITION YEARS SALARY BONUS OTHER(A) AWARDED(B)
- --------------------------- ------ -------- ------ ---------- -------------
William F. Miller III(c).............. 2000 $ 33,333 $ -- $ -- --
Chairman, President, and 1999 -- -- -- --
Chief Executive Officer 1998 -- -- -- --
Paul J. Kerz(d)....................... 2000 364,000 -- 1,655,100 --
Former Chairman, President and 1999 364,000 -- 3,500 95,000
Chief Executive Officer 1998 364,000 75,000 6,867 --
Alan L. Bendes(e)..................... 2000 215,000 -- 5,100 --
Senior Vice President and 1999 197,000 40,000 3,500 105,000
Chief Financial Officer 1998 -- -- -- --
Richard B. Brown(e)................... 2000 221,667 -- 5,100 5,000
President, Revenue Services Division 1999 200,000 40,000 3,247 75,000
1998 -- -- -- --
Lewis D. Levetown..................... 2000 165,000 -- 4,738 2,000
Vice President, Human Resources 1999 165,000 5,000 3,500 20,000
1998 165,000 14,000 7,112 4,000
Robert V. Nagelhout................... 2000 312,000 -- 13,678 10,000
President, Software Division 1999 312,000 -- 11,338 80,000
1998 312,000 65,000 10,830 86,170
- ---------------
(a) Includes matching contributions under the Company's 401(k) Plan.
(b) Excludes December 15, 2000, awards to each of Messrs. Bendes, Brown, and
Levetown of 65,000 options to purchase Common Stock at an exercise price of
$1.07 per share and the January 10, 2001, award to Mr. Miller of 750,000
options to purchase Common Stock at an exercise price of $1.31 per share.
(c) Mr. Miller joined the Company as its President, Chief Executive Officer, and
a director as of October 2, 2000 and was elected Chairman of the Board on
December 14, 2000. Mr. Miller's annual base salary is $400,000.
(d) Mr. Kerz resigned as the Company's President and Chief Executive Officer as
of October 2, 2000, and as Chairman of the Board and a director effective
December 12, 2000. Other compensation includes amounts paid to Mr. Kerz
pursuant to his separation from the Company.
(e) Messrs. Bendes and Brown joined the Company during fiscal year 1999.
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EMPLOYMENT AGREEMENTS
On October 2, 2000, Mr. Miller entered into an employment agreement (the
"Agreement") with the Company. The Agreement provides for his employment through
October 2, 2003 (the "Employment Term") (subject to earlier termination in
certain circumstances as described below), at a base salary of $400,000 per
year. Mr. Miller is eligible to receive bonus compensation from the Company in
respect of each fiscal year (or portion thereof) during the Employment Term, in
each case as may be determined by the Board of Directors of the Company in its
sole discretion on the basis of performance-based or such other criteria as may
be established from time to time by the Board of Directors of the Company. Mr.
Miller shall receive a minimum bonus from the Company in respect of each of the
first two fiscal years (or portion thereof) occurring during the Employment Term
(pro rated for any portion of a fiscal year occurring during the Employment
Term), of $80,000 and $40,000 for the fiscal years ending October 31, 2001 and
2002, respectively, payable on the December 15 following the end of such fiscal
year.
On January 10, 2001, as a condition of Mr. Miller's employment, the
Company's Accelerated Claims Processing, Inc. subsidiary, a Delaware
corporation, provided the financing for Mr. Miller to purchase directly from the
Company 550,000 shares of the Company's common stock. The loan, in the principal
amount of $721,785, bears interest at the rate of 6.5% per annum, and is payable
annually in two equal installments commencing January 9, 2002. The loan is a
full recourse loan and is secured by the purchased shares and the shares
issuable upon the exercise of stock options. Also in connection with his
employment, the Compensation Committee granted Mr. Miller, effective January 10,
2001, 750,000 options to purchase shares of the Company's Common Stock at an
exercise price of $1.31 per share, vesting as to 100,000 shares on the first
anniversary of its grant, and the remaining 650,000 shares vesting thereafter in
eight equal quarterly installments. These options were not granted pursuant to
the Company's 1999 Long-Term Incentive Stock Plan and, therefore, the shares of
Common Stock issuable upon the exercise of these options are "restricted
securities" within the meaning of the federal securities laws.
If the Company terminates Mr. Miller's employment without "cause" or if his
employment ceases within 45 days of a change in control of the Company (both as
defined in the Agreement), Mr. Miller will be entitled to a continuation of
salary and group medical insurance for 24 months following termination of
employment. In addition, certain of his unvested options accelerate and certain
restrictions on his Common Stock are eliminated in the case of a change in
control, as defined in the respective agreements.
On January 2, 1999, Mr. Bendes entered into an agreement with the Company
confirming his employment as a Senior Vice President and the Chief Financial
Officer of the Company effective February 1, 1999. Pursuant to this agreement,
Mr. Bendes' initial minimum salary was set at $215,000 per annum. In addition,
Mr. Bendes was granted options under the Company's 1999 Long-Term Incentive
Stock Plan to purchase 105,000 shares of Common Stock at an exercise price of
$4.70 per share, of which 21,000 options vested on the grant date; an additional
21,000 vested on January 31, 2000; and the remaining 63,000 options vest on
January 31, 2003 subject to partial acceleration upon realization of certain
annual performance measures by the Company. If the Company terminates Mr.
Bendes' employment without cause, or if his employment ceases due to either a
change in control of the Company (both as defined in the agreement) or a
relocation of the Company's New York City offices more than 25 miles from its
current location, Mr. Bendes will be entitled to a continuation of salary and
group medical insurance for 12 months following termination of employment, as
well as acceleration of certain of his unvested options.
In February 2001, in connection with the Company's strategic planning and
divestiture initiatives, the Company entered into an arrangement entitling Mr.
Nagelhout to a guaranteed bonus of $156,000 for fiscal
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year 2001, payable in January 2002 , subject to earlier payment under certain
circumstances. In addition, if the Company terminates Mr. Nagelhout's employment
without cause or if his employment ceases under certain circumstances due to a
change in control, Mr. Nagelhout will also be entitled to a continuation of
salary for six months following termination of employment. If the Company
terminates Mr. Nagelhout's employment due to a change in control requiring his
relocation to offices more than 50 miles from his current location, Mr.
Nagelhout will be entitled to a continuation of salary for three months
following termination of employment.
STOCK OPTIONS
The Company's 1999 Long-Term Incentive Stock Plan allows grants of stock
options and other rights relating to its Common Stock. In general, whether
exercising stock options is profitable depends on the relationship between the
Common Stock's market price and the option's exercise price, as well as on the
optionee's investment decisions. Options that are "in the money" on a given date
can become "out of the money" if prices change on the stock market. For these
reasons, the Company believes that placing a current value on outstanding
options is highly speculative and may not represent the true benefit, if any,
that may be realized by the optionee. The following two tables give more
information on stock options.
The following table sets forth selected option grant information for the
fiscal year ended October 31, 2000 with respect to options awarded to the
current and former Chief Executive Officer and each of the other four most
highly compensated executive officers of the Company.
OPTION GRANTS IN LAST FISCAL YEAR(A)
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
RATES
OF STOCK PRICE
NUMBER % OF TOTAL APPRECIATION
TYPE OF OF OPTIONS EXERCISE FOR OPTION TERM
OPTION OPTIONS GRANTED TO PRICE PER EXPIRATION ---------------------
NAME GRANTED GRANTED EMPLOYEES(B) SHARE DATE 5%(C) 10%(C)
- ---- ------- ------- ------------ --------- ---------- -------- --------
William F. Miller III...... -- -- -- $ -- -- $ -- $ --
Paul J. Kerz............... -- -- -- -- -- -- --
Alan L. Bendes............. -- -- -- -- -- -- --
Richard B. Brown........... ISO 5,000 1% 4.59 11/30/09 14,433 36,576
Lewis D. Levetown.......... ISO 2,000 -- 4.59 11/30/09 5,773 14,631
Robert V. Nagelhout........ ISO 10,000 2% 4.59 11/30/09 28,866 73,153
- ---------------
(a) Excludes December 15, 2000, awards to each of Messrs. Bendes, Brown, and
Levetown of 65,000 options to purchase Common Stock at an exercise price of
$1.07 per share and the January 10, 2001, award to Mr. Miller of 750,000
options to purchase Common Stock at an exercise price of $1.31 per share.
(b) Represents individual grant as a percentage of total options issued in
fiscal year 2000.
(c) The hypothetical potential appreciation shown in these columns reflects the
required calculations at compounded annual rates of 5% and 10% set by the
Securities and Exchange Commission, and therefore is not intended to
represent either historical appreciation or anticipated future price
appreciation of the Common Stock.
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The following table sets forth selected stock option exercise information
as of October 31, 2000 and for the fiscal year then ended relating to the
current and former Chief Executive Officer and each of the other four most
highly compensated executive officers of the Company.
STOCK OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END STOCK OPTION
VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END(A)
ACQUIRED ON VALUE ---------------------------- ------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ------------ --------------
William F. Miller III...... -- -- -- -- $ -- $ --
Paul J. Kerz............... -- -- -- -- -- --
Alan L. Bendes............. -- -- 42,000 63,000 -- --
Richard B. Brown........... -- -- 8,750 71,250 -- --
Lewis D. Levetown.......... -- -- 7,000 18,000 -- --
Robert V. Nagelhout........ -- -- 110,500 79,500 -- --
- ---------------
(a) Value of unexercised "in-the-money" options is determined by multiplying the
number of shares subject to such options by the difference between the
exercise price per share and $1.50, the average of the high and low price
per share of the Common Stock on the Nasdaq-Amex National Market System on
October 31, 2000.
The following table sets forth selected information regarding the Company's
Employee Stock Purchase Plan as of October 31, 2000.
EMPLOYEE STOCK PURCHASE PLAN
-----------------------------------
NUMBER OF SHARES VALUE OF SHARES
NAME OF INDIVIDUAL OR GROUP PURCHASED(A) PURCHASED(B)
- --------------------------- ---------------- ---------------
William F. Miller III....................................... -- $ --
Paul J. Kerz(c)............................................. -- --
Alan L. Bendes.............................................. -- --
Richard B. Brown............................................ -- --
Lewis D. Levetown........................................... 7,682 (52,238)
Robert V. Nagelhout......................................... 7,606 (49,515)
All current executive officers as a group................... 15,288 (101,753)
All current employees, other than executive officers, as a
group..................................................... 360,490 $(1,968,275)
- ---------------
(a) Represents the cumulative number of shares of Common Stock purchased by
employee.
(b) Calculated as the difference between the purchase price per share paid by
employees and $1.50, the closing price of the Common Stock on the
Nasdaq-Amex National Market System on October 31, 2000 multiplied by the
cumulative number of shares purchased by the employees. Amounts in
parentheses indicate the purchase prices exceeded the market value at
October 31, 2000.
(c) Mr. Kerz was not eligible to participate in this Plan because his beneficial
ownership of the outstanding Common Stock exceeded 5% at January 1, 2000,
the beginning of the Employee Stock Purchase Plan 2000 calendar year. Mr.
Kerz resigned as the Company's President and Chief Executive Officer as of
October 2, 2000, and as Chairman of the Board and a director effective
December 12, 2000.
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401(K) PLAN
Effective November 1, 1997, the Company established a 401(k) Plan to
replace its terminated profit sharing plan. This new 401(k) Plan permits an
employee to contribute a portion of the employee's compensation, subject to
certain limitations. At its discretion, the Company may make annual
contributions to the 401(k) Plan for the benefit of participating employees. For
the fiscal years ended October 31, 2000, 1999, and 1998, 401(k) Plan expense was
$1,120,000, $1,102,000, and $959,000, respectively. For the fiscal year ended
October 31, 2000, $5,100 was contributed on behalf of each of Messrs. Bendes,
Brown and Kerz, $4,738 was contributed on behalf of Mr. Levetown, and $2,340 was
contributed on behalf of Mr. Nagelhout. Mr. Nagelhout's participation in the
Company's 401(k) Plan commenced on January 1, 2000, when the Company adopted a
unified company-wide 401(k) plan. In addition during the fiscal year ending
October 31, 2000, Mr. Nagelhout was a participant under the 401(k) Plan of the
Company's HCm subsidiary, which was valued at the end of each calendar year.
That 401(k) Plan was terminated on December 31, 1999. For the calendar year
ended December 31, 1999, $11,338 was contributed on behalf of Mr. Nagelhout
under the HCm 401(k) plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised of Richard H. Stowe and William W.
Neal, each of whom is a non-employee director of the Company. No member of this
Committee was at any time during fiscal year 2000 or at any other time an
officer or employee of the Company. No executive officer of the Company served
on the Compensation Committee of another entity or on any other committee of the
board of directors of another entity performing similar functions during the
Company's last fiscal year.
Notwithstanding contrary statements set forth in any of the Company's
previous filings under the Securities Act of 1933 (the "Securities Act") or the
Exchange Act that might incorporate future filings, including this Proxy
Statement, the Compensation Committee report, the Audit and Compliance Committee
Report and the performance graph set forth below shall not be incorporated by
reference into such future filings.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report provides an explanation of the philosophy underlying the
Company's executive compensation program and details on how decisions were
implemented during fiscal year 2000 regarding the compensation paid to the
Company's executive officers.
The Company's mission is to be a significant provider of quality products
and services in the markets it serves. To support this and other strategic
objectives as approved by the Board of Directors and to provide adequate returns
to the shareholders, the Company must compete for, attract, develop, motivate,
and retain top quality executive talent at the corporate office and operating
business units of the Company during periods of both favorable and unfavorable
business conditions.
The Company's executive compensation program is a critical management tool
in achieving this goal. "Pay for performance" is the underlying philosophy for
the Company's executive compensation program. Consistent with this philosophy,
the program has been carefully conceived and is independently administered by
the Compensation Committee (the "Committee") of the Board of Directors, which is
comprised entirely of non-employee directors. The program is designed to link
executive pay to corporate performance, including share price, recognizing that
there is not always a direct correlation in the short-term between executive
performance and share price.
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The program is designed and administered to:
- reward individual and team achievements that contribute to the attainment
of the Company's business goals; and
- provide a balance of total compensation opportunities, including salary,
bonus, and longer-term cash and equity incentives, that are competitive
with similarly situated companies and reflective of the Company's
performance.
In seeking to link executive pay to corporate performance, the Committee
believes that the most appropriate measure of corporate performance is the
increase in long-term shareholder value, which involves improving such
quantitative performance measures as revenue, net income, cash flow, operating
margins, earnings per share, and return on shareholders' equity. The Committee
may also consider qualitative corporate and individual factors which it believes
bear on increasing the long-term value of the Company to its shareholders. These
include: (i) the development of competitive advantages; (ii) the ability to deal
effectively with the growing complexity of the Company's businesses; (iii)
success in developing business strategies, managing costs, and improving the
quality of the Company's products and services as well as customer satisfaction;
(iv) execution of divestitures, acquisitions, and strategic partnerships, (v)
implementation of operating efficiencies, and (vi) the general performance of
individual job responsibilities.
The Company's executive compensation program consists of: (i) a base
salary; (ii) an annual bonus; and (iii) a long-term incentive represented by
stock options.
COMPENSATION OF EXECUTIVE OFFICERS
Salary. In determining the amount of compensation to be paid to the
executive officers of the Company, the Committee adheres to long established
compensation policies of the Company pursuant to which executive compensation is
determined. Base salary determinants include the prevailing rate of compensation
for positions of like responsibility in the particular geographic area, the
level of the executive's compensation in relation to other executives of the
Company with the same, more, or less responsibilities, and the tenure of the
individual. To ensure both competitiveness and appropriateness of base salaries,
the Company retains professional consultants on a periodic basis to update the
job classification and pay scale structure pursuant to which individual
executives (and the remainder of the Company's employees) are classified and the
pay ranges with which their jobs are associated.
Bonus. Bonuses are intended to reward both overall corporate performance
and an individual's participation in attaining such performance. From time to
time, bonuses are also awarded to augment base salary when a determination has
been made that an executive's salary is not competitive in light of the factors
discussed above.
Stock Options. The longer-term component of the Company's executive
compensation program consists of stock options. The options generally permit the
option holder to buy the number of shares of the underlying Common Stock (an
"option exercise") at a price equal to or greater than the market price of the
stock at the time of grant. Thus, the options generally gain value only to the
extent the stock price exceeds the option exercise price during the life of the
option. Generally a portion of the options vest over a period of several years
and expire no later than ten years after grant. Stock options are granted upon
the recommendation of management and approval of the Committee based upon their
subjective evaluation of the appropriate amount for the level and amount of
responsibility of each executive officer. In fiscal year 2000, certain stock
options that were awarded to two of the five executive officers are subject to a
performance-based vesting schedule.
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These options vested 25 percent on the Grant Date and the remaining 75 percent
will vest on October 31, 2003, subject to accelerated vesting of all or a
portion of the total options upon realization of certain annual performance
measures. All options whose vesting has not otherwise been accelerated pursuant
to the foregoing will vest on October 31, 2003, subject only to the continued
employment by the Company of the optionee.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Determination of the Company's compensation of Paul J. Kerz, the Company's
former Chief Executive Officer and founder, took into account the factors
described above as pertinent to the remainder of the Company's executives and
employees, while also taking into consideration the proprietary nature of the
Company's business and efforts expended in connection with development of the
Company's strategy and product development activities. The Committee also took
into account (i) Mr. Kerz's strategic contributions to the Company, and (ii) the
amount of Mr. Kerz's compensation relative to chief executive officers of
comparable companies. In determining the terms of Mr. Kerz's separation from the
Company, the Committee took into account (i) Mr. Kerz's tenure with the Company
since its inception, (ii) his contributions to the Company and potential value
in the future, and (iii) the separation arrangements of chief executive officers
of comparable companies.
Determination of the Company's compensation of William F. Miller III, the
Company's current Chief Executive Officer, takes into account the factors
described above as pertinent to the remainder of the Company's executives and
employees, while also taking into consideration the proprietary nature of the
Company's business and efforts expended in connection with development of the
Company's strategy and product development activities. The Committee also took
into account (i) the need for Mr. Miller to implement a new strategic plan,
including, a restructuring and reengineering of the Company's information
systems and infrastructure, and (ii) the amount of Mr. Miller's compensation
relative to chief executive officers of comparable companies.
OTHER
Section 162(m) of the Internal Revenue Code prohibits the Company from
deducting any compensation in excess of $1,000,000 paid to certain of its
executive officers, except to the extent that such compensation is paid pursuant
to a shareholder approved plan upon the attainment of specified performance
objectives. The Committee believes that tax deductibility is an important
factor, but not the sole factor, to be considered in setting executive
compensation policy. Accordingly, the Committee generally intends to take such
reasonable steps as are required to avoid the loss of a tax deduction due to
Section 162(m), but reserves the right, in appropriate circumstances, to pay
amounts which are not deductible.
COMPENSATION COMMITTEE
Richard H. Stowe
William W. Neal
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REPORT OF AUDIT AND COMPLIANCE COMMITTEE
In accordance with a written charter, a copy of which is attached to this
proxy statement as Attachment A, adopted by the Audit and Compliance Committee
(the "Committee"), of the Board of Directors (the "Board"), the Committee, among
its other duties, assists the Board in fulfilling its responsibility for
oversight of the quality and integrity of the accounting, auditing, and
financial reporting practices of the Company. During fiscal year 2000, the
Committee met four times. The Committee discussed the interim financial
information contained in each quarterly earnings announcement with the Company's
Chief Financial Officer and independent auditors prior to public release.
In discharging its oversight responsibility as to the audit process, the
Committee obtained from the independent auditors a formal written statement
describing all relationships between the auditors and the Company that might
bear on the auditors' independence consistent with Independence Standards Board
Standard No. 1, "Independence Discussions with Audit Committees," discussed with
the auditors any relationships that may impact their objectivity and
independence and satisfied itself as to the auditor's independence. The
Committee also discussed with senior management, including the Chief Financial
Officer of the Company, and the independent auditors the quality and adequacy of
the Company's internal controls and organization, responsibilities, and budget.
The Committee reviewed with both the independent auditors and the Company's
Chief Financial Officer their audit plans, audit scope and identification of
audit risks.
The Committee discussed and reviewed with the independent auditors all
communications required by generally accepted auditing standards, including
those described in Statement on Auditing Standards No. 61, as amended,
"Communications with Audit Committees" and, with and without management present,
discussed and reviewed the results of the independent auditors' examination of
the financial statements.
The Committee reviewed the audited financial statements of the Company as
of and for the fiscal year ended October 31, 2000 with management and the
independent auditors. Management has the responsibility for the preparation of
the Company's financial statements and the independent auditors have the
responsibility for the examination of those statements.
Based on the above mentioned review and discussions with management and the
independent auditors, the Committee recommended to the Board that the Company's
audited financial statements be included in its Annual Report on Form 10-K for
the fiscal year ended October 31, 2000, for filing with the Securities and
Exchange Commission. The Committee also recommended the reappointment, subject
to shareholder approval, of the independent auditors and the Board concurred in
such recommendation.
AUDIT AND COMPLIANCE COMMITTEE
Galen D. Powers
Randolph G. Brown
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SHAREHOLDER RETURN PERFORMANCE GRAPHS
The graph presented below provides a comparison between the cumulative
total shareholder return (assuming the reinvestment of dividends) on the Common
Stock since the Company's initial public offering on December 17, 1992 and the
Nasdaq U.S. companies index, the Nasdaq computer and data processing service
companies index, and the Nasdaq health service companies index, over the same
period. The graph assumes the investment of $100 in the Common Stock and each of
the indices.
[PERFORMANCE GRAPH]
HMSY NASDAQ COMPOSITE NASDAQ HC NASDAQ INFO
---- ---------------- --------- -----------
Dec-92 100 100 100 100
Oct-93 141.53 115.12 102.16 107.12
Oct-94 189.06 115.73 129.79 128.96
Oct-95 319.79 155.83 133.61 196.82
Oct-96 352.32 183.94 153.12 228.22
Oct-97 97.45 242.09 167.21 307.92
Oct-98 104.95 270.82 130.04 396
Oct-99 63.27 457.85 93.25 744.03
Oct-00 22.49 516.07 128.14 795.8
CERTAIN TRANSACTIONS
During October 1998, the Company's HSA subsidiary, a Delaware corporation,
made two loans to Paul J. Kerz, an officer and director of HSA, who was also, at
the time, the Company's Chairman and Chief Executive Officer. One loan, in the
principal amount of $500,000, was secured by a pledge of 162,666 shares of the
Company's common stock owned by Mr. Kerz, while the other loan, in the principal
amount of $250,000, was unsecured. Both loans bore interest at the rate of
5.3125% per annum, payable semi-annually commencing April 30, 1999, and were due
as to principal and all then accrued but unpaid interest on October 31, 2000.
During October 1999, HSA (i) extended the due date of both loans to December 31,
2001 and (ii) increased the total principal amount of the unsecured loan to
$1,000,000, of which a total of $400,000 was outstanding as of October 31, 1999.
During November 1999, Mr. Kerz drew down the remaining $600,000 of the unsecured
loan. In addition, the interest rate on the amended loans was increased to
5.9686% per annum. The loans were repaid in full from a portion of the
compensation received by Mr. Kerz under the terms of a separation agreement as
of October 2, 2000. Pursuant to the terms of separation, Mr. Kerz received
separation compensation of $1,500,000 and an additional payment of $150,000 in
exchange for his agreement not-to-compete with the Company through April 2006.
In addition, the Company purchased 262,666 shares of his common stock at fair
market value, will provide full salary continuation for two years, a consulting
arrangement for $50,000 per year thereafter until April 2006, health insurance
coverage for the related periods, and Mr. Kerz surrendered all of his
unexercised stock options.
OTHER BUSINESS
As of the date of this Proxy Statement, the Board of Directors knows of no
business to be presented at the Meeting other than as set forth herein. If other
matters properly come before the Meeting, the persons named as proxies will vote
on such matters in their discretion.
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SHAREHOLDER PROPOSALS FOR 2002 ANNUAL MEETING
Any shareholder proposals intended to be presented at the Company's 2002
Annual Meeting of Shareholders must be received by the Secretary, Health
Management Systems, Inc., 401 Park Avenue South, New York, New York 10016, no
later than October 26, 2001, in order to be considered for inclusion in the
Company's Proxy Statement and form of proxy relating to such Meeting. Moreover,
with regard to any proposal by a shareholder not seeking to have such proposal
included in the Proxy Statement but seeking to have such proposal considered at
the 2002 Annual Meeting, if such shareholder fails to notify the Company in the
manner set forth above of such proposal no later than January 8, 2002, then the
persons appointed as proxies may exercise their discretionary voting authority
if the proposal is considered at the 2002 Annual Meeting notwithstanding that
shareholders have not been advised of the proposal in the Proxy Statement for
the 2002 Annual Meeting. Any proposals submitted by shareholders must comply in
all respects with (i) the rules and regulations of the Securities and Exchange
Commission, (ii) the provisions of the Company's Certificate of Incorporation
and by-laws, and (iii) New York law.
ANNUAL REPORT
The Company's 2000 Annual Report on Form 10-K is concurrently being mailed
to shareholders. The Annual Report contains consolidated financial statements of
the Company and its subsidiaries and the report thereon of KPMG LLP, independent
certified public accountants.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ KATHY L. ARENDT
Kathy L. Arendt
Secretary
Dated: February 23, 2001
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, SHAREHOLDERS ARE
URGED TO COMPLETE, SIGN, DATE, AND RETURN THE ACCOMPANYING FORM OF PROXY IN THE
ENCLOSED ENVELOPE.
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ATTACHMENT A
AUDIT AND COMPLIANCE COMMITTEE CHARTER
I. PURPOSES
The primary functions of the Audit and Compliance Committee are to assist
the Board of Directors in fulfilling its oversight responsibilities with respect
to both financial reports and compliance with federal and state laws relating to
health care programs:
(a) by reviewing the financial reports and other financial information
provided by the Corporation to any governmental body or the public; the
Corporation's systems of internal controls regarding finance and accounting
that management and the Board have established; and the Corporation's
auditing, accounting and financial reporting processes generally; and
(b) by overseeing the operation of the Corporation's Corporate
Compliance Program providing for adherence to health care related laws,
regulations, and guidance.
Consistent with these functions, the Audit and Compliance Committee will
encourage continuous improvement of, and will foster adherence to, the
Corporation's policies, procedures and practices at all levels. The Audit and
Compliance Committee's primary duties and responsibilities are to:
- serve as an independent and objective party to monitor the Corporation's
financial reporting process and internal control system;
- review and appraise the audit efforts of the Corporation's independent
accountants;
- provide an open avenue of communication among the independent
accountants, financial and senior management and the Board of Directors;
- present to the Board of Directors, as appropriate, such measures and
recommend such actions as may be necessary or desirable to assist the
Corporation in conducting its activities in full compliance with the
Corporation's Corporate Compliance Program and all applicable laws,
regulations, and policies, as well as the Code of Ethics; and
- provide a vehicle for communication between the Board of Directors and
management of the Corporation regarding compliance issues involving the
Corporation and its affiliated organizations.
The Audit and Compliance Committee will primarily fulfill these
responsibilities by carrying out the activities enumerated in Section IV of this
Charter.
II. COMPOSITION
The Audit and Compliance Committee shall be comprised of three or more
directors as determined by the Board, each of whom shall be independent
directors, within the meaning of Rule 4200(a)(15) of the Marketplace Rules of
The Nasdaq Stock Market, Inc. All members of the Committee shall have a working
familiarity with basic finance and accounting practices (including an
understanding of the Corporation's balance sheet, income statement, and cash
flow statement), and at least one member of the Committee shall have accounting
or related financial management expertise. The members of the Committee shall be
appointed by the Board at the annual organizational meeting of the Board and
shall remain as members until their successors are appointed, subject to their
earlier resignation or removal by the Board. Unless a
A-1
23
Chairperson is elected by the full Board, the members of the Committee may
designate a Chairperson by majority vote of the full Committee.
III. MEETINGS
The Committee shall meet at least four times annually, or more frequently
as circumstances dictate. As part of its job to foster open communication, the
Committee should meet at least annually with management and the independent
accountants in separate executive sessions to discuss any matters that the
Committee or each of these groups believe should be discussed privately. In
addition, the Committee or at least its Chairperson should meet with the
independent accountants and management quarterly to review the Corporation's
financial statements consistent with IV.4. below.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties, the Audit and Compliance
Committee shall:
DOCUMENTS/REPORTS REVIEW
1. Review and reassess the Audit and Compliance Committee Charter on an
annual basis.
2. Review the Corporation's annual financial statements and any reports or
other financial information submitted to any governmental body, or the public,
including any certification, report, opinion, or review rendered by the
independent accountants.
3. Review with financial management and the independent accountants the
interim financial statements included in each of the Corporation's Forms 10-Q
prior to its filing or prior to the release of earnings. The Chairperson of the
Committee may represent the entire Committee for purposes of this review.
INDEPENDENT ACCOUNTANTS
4. Recognizing that the independent accountant's ultimate accountability is
to the Board and the Committee, as representatives of the Corporation's
shareholders, the Board and the Committee shall be ultimately responsible for
selecting, evaluating, and, where appropriate, replacing the independent
accountants (and for nominating the independent accountants to be proposed for
shareholder approval in any proxy statement). In addition, the Committee shall
review and approve the fees and other compensation to be paid to the independent
accountants. On an annual basis, the Committee shall review and discuss with the
independent accountants all significant relationships the independent
accountants have with the Corporation to determine the accountants' independence
and shall take all appropriate action to oversee the independence of the
independent accountants.
5. Periodically consult with the independent accountants out of the
presence of management about internal controls and the completeness and accuracy
of the Corporation's financial statements.
FINANCIAL REPORTING PROCESSES
6. In consultation with the independent accountants review the integrity of
the Corporation's financial reporting processes, both internal and external.
7. Consider the independent accountants' judgments about the quality and
appropriateness of the Corporation's accounting principles as applied in its
financial reporting.
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24
8. Consider and approve, if appropriate, major changes to the Corporation's
auditing and accounting principles and practices as suggested by the independent
accountants or management.
AUDIT AND COMPLIANCE COMMITTEE REPORT
9. Ensure that the Audit and Compliance Committee Charter is included as an
appendix to the Corporation's proxy statement at least once every three years.
10. Provide annual reports, to be included in the Corporation's proxy
statements, stating:
a. the name of each member of the Audit and Compliance Committee;
b. the independence of each member of the Audit and Compliance
Committee, as defined by Section II of this Charter;
c. whether the Audit and Compliance Committee has reviewed and
discussed the audited financial statements with management;
d. whether the Audit and Compliance Committee has discussed with the
independent accountants the matters required to be discussed by Statement
on Auditing Standards No. 61;
e. whether the Audit and Compliance Committee has received from the
independent accountants written disclosures regarding the accountants'
independence as required by Independence Standards Board Standard No. 1;
and
f. whether, based on items (c) through (e), the Audit and Compliance
Committee recommended to the Board of Directors that the audited financial
statements be included in the Corporation's Annual Report on Form 10-K for
the last fiscal year for filing with the Securities and Exchange
Commission.
PROCESS IMPROVEMENT
11. Establish regular and separate systems of reporting to the Audit and
Compliance Committee by each of management and the independent accountants
regarding any significant judgments made in management's preparation of the
financial statements and the view of each as to appropriateness of such
judgments.
12. Following completion of the annual audit, review separately with each
of management and the independent accountants any significant difficulties
encountered during the course of the audit, including any restrictions on the
scope of work or access to required information.
13. Review any significant disagreement among management and the
independent accountants in connection with the preparation of the financial
statements.
14. Review with the independent accountants and management the extent to
which changes or improvements in financial or accounting practices, as approved
by the Audit and Compliance Committee, have been implemented. (This review
should be conducted at an appropriate time subsequent to implementation of
changes or improvements, as decided by the Committee.)
ETHICAL AND LEGAL COMPLIANCE
15. Establish, review and update periodically a written Code of Ethical
Conduct and ensure that management has established a system to enforce this
Code.
A-3
25
16. Review at each of its meetings management's monitoring of the
Corporation's compliance with the Corporation's Corporate Compliance Program and
Code of Ethical Conduct, and ensure that management has the proper review system
in place to ensure that Corporation's business practices conform to the highest
standards of legal and ethical conduct.
17. Review, with the Corporation's counsel, legal compliance matters
including corporate securities trading policies.
18. Review, with the Corporation's counsel, any legal matter that could
have a significant impact on the Corporation's financial statements.
19. Perform any other activities consistent with this Charter, the
Corporation's By-laws and governing law, as the Committee or the Board deems
necessary or appropriate.
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26
HEALTH MANAGEMENT SYSTEMS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints William F. Miller III and Alan L. Bendes, and any
one of them, as proxies, to vote all shares of Common Stock of Health
Management Systems, Inc. (the "Company") held of record by the undersigned as
of February 9, 2001, the record date with respect to this solicitation, at the
Annual Meeting of Shareholders of the Company to be held at 401 Park Avenue
South, New York, New York 10016 on Thursday, March 29, 2001, at 11:00 A.M. and
any adjournments thereof, upon the following matters:
(OVER)
* FOLD AND DETACH HERE *
27
ELECTION OF DIRECTORS: NOMINEES: William F. Miller III, William W. Neal, 2. Ratification of the selection
Ellen A. Rudnick and Richard H. Stowe of KPMG LLP as the Company's
FOR ALL NOMINEES WITHHOLD -------------------------------------------------- independent accountants for the
LISTED TO THE RIGHT AUTHORITY FOR, except for the following nominee(s) fiscal year ending October 31, 2001.
(EXCEPT AS MARKED TO VOTE FOR ALL
TO THE CONTRARY) NOMINEES LISTED FOR AGAINST ABSTAIN
TO THE RIGHT
------- ------- ------- ------- -------
1. To transact such other business as may properly come before THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
the meeting or any adjournment thereof. DIRECTED BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS
GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2 ABOVE.
IF ANY NOMINEE DECLINES OR IS UNABLE TO SERVE AS A DIRECTOR,
THEN THE PERSONS NAMED AS PROXIES SHALL HAVE FULL DISCRETION
TO VOTE FOR ANY OTHER PERSON DESIGNATED BY THE BOARD OF
DIRECTORS.
Signature Signature Date
------------------------------------------------ ----------------------------------------------------- ----------
NOTE: Please sign as name appears hereon, joint owners should each sign. When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such.
* FOLD AND DETACH HERE *
Annual
Meeting Of
HEALTH MANAGEMENT SYSTEMS, INC. Shareholders
March 29, 2001, 11:00 am
401 Park Avenue South
New York, New York 10016