-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SHvKxTix43dsEptVtKXPrg/IrWoo48Hf3GYMukKdzB8/uMUZ1tSuZ0KTF+FyXoww WxXg5cCRH73wTbUJR9LwpQ== 0000912057-96-004693.txt : 19960320 0000912057-96-004693.hdr.sgml : 19960320 ACCESSION NUMBER: 0000912057-96-004693 CONFORMED SUBMISSION TYPE: PRE 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960514 FILED AS OF DATE: 19960319 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HBO & CO CENTRAL INDEX KEY: 0000310377 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 370986839 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PRE 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-09900 FILM NUMBER: 96536008 BUSINESS ADDRESS: STREET 1: 301 PERIMETER CTR N CITY: ATLANTA STATE: GA ZIP: 30346 BUSINESS PHONE: 4043936000 MAIL ADDRESS: STREET 1: 301 PERIMETER CTR N CITY: ATLANTA STATE: GA ZIP: 30346 PRE 14A 1 PRE 14A PRELIMINARY HBO & COMPANY 301 PERIMETER CENTER NORTH ATLANTA, GEORGIA 30346 NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 14, 1996 To the Stockholders of HBO & Company: Notice is hereby given that the Annual Meeting of Stockholders of HBO & Company will be held on Tuesday, May 14, 1996, at 9:00 A.M., local time, at the offices of the Company at 301 Perimeter Center North, Atlanta, Georgia 30346, for the following purposes: 1. To elect a Board of Directors consisting of nine members to hold office until the next Annual Meeting of Stockholders or until their successors are elected and qualified. 2. To approve the Amendment of the Certificate of Incorporation to increase the number of authorized shares of Common Stock, par value $.05 per share, from 60,000,000 to 250,000,000. 3. To approve the Amendment to the HBO & Company 1993 Stock Option Plan for Nonemployee Directors to provide an initial grant of options to purchase 12,500 shares of Common Stock to newly elected Directors. 4. To approve the Amendment to the HBO & Company 1990 Executive Incentive Plan to increase the number of shares available for awards thereunder by an additional 1,500,000 shares of Common Stock. 5. To ratify the appointment of Arthur Andersen LLP as independent public accountants to audit the accounts of the Company and its subsidiaries for the year ending December 31, 1996. 6. To transact such other business as may properly come before the meeting or any postponement or adjournment thereof. Only stockholders of record at the close of business on March 29, 1996, shall be entitled to notice of, and to vote at, the meeting or any adjournment thereof. A proxy statement and a proxy solicited by the Board of Directors are enclosed herewith. Whether or not you plan to attend the meeting in person, please sign, date and mail your proxy card promptly in the enclosed postage-paid envelope. If you attend the meeting, you may, if you wish, withdraw your proxy and vote in person. By order of the Board of Directors, James A. Gilbert SECRETARY April 4, 1996 IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD BE COMPLETED AND RETURNED PROMPTLY PRELIMINARY HBO & COMPANY 301 PERIMETER CENTER NORTH ATLANTA, GEORGIA 30346 PROXY STATEMENT This proxy statement is furnished in connection with the solicitation by the Board of Directors of HBO & Company (the "Company") of proxies to be used at the Annual Meeting of Stockholders to be held on May 14, 1996. This proxy statement and the accompanying proxy card are being mailed to stockholders on or about April 4, 1996. Any stockholder who executes and delivers a proxy may revoke it at any time prior to its use by executing a later dated proxy. All shares represented by effective proxies will be voted as specified therein, or, if no direction is indicated, they will be voted in favor of each of the proposals set forth in the notice attached hereto, all of which are more fully described herein. Directors are elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of Directors. When a quorum is present at the meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide the action proposed in each matter listed in the accompanying Notice of Annual Meeting of Stockholders except the election of Directors and except that the proposed amendment to the Certificate of Incorporation requires approval by the holders of a majority of the outstanding Common Stock. Abstentions and broker "nonvotes" will be counted as present in determining whether the quorum requirement is satisfied. A broker "nonvote" occurs when a broker holding shares for a beneficial owner votes on one proposal pursuant to discretionary authority or instructions from the beneficial owner, but does not vote on another proposal because the broker has not received instructions from the beneficial owner and does not have discretionary power. The aggregate number of votes entitled to be cast by all stockholders present in person or represented by proxy at the meeting, whether those stockholders vote "For", "Against" or abstain from voting, will be counted for purposes of determining the minimum number of affirmative votes required for approval of such proposals, and the total number of votes cast "For" each of these proposals will be counted for purposes of determining whether sufficient affirmative votes have been cast. An abstention from voting by a stockholder on a proposal has the same effect as a vote "Against" such proposal except with respect to the election of Directors, in which case abstentions will have no effect. Broker "nonvotes" are not counted for purposes of determining whether a proposal has been approved. The cost of soliciting proxies will be borne by the Company. In addition to the use of the mails, Directors, officers and employees of the Company may solicit proxies by telephone, telegraph or personal interview, but will not be compensated for such solicitation. The Company has retained D.F. King & Co., Inc. to assist in the solicitation of proxies for a fee of $9,000 plus expenses. Brokerage houses and other custodians, nominees and fiduciaries will be requested to forward soliciting material to their principals, and the Company will, upon request, reimburse them for the reasonable expense of doing so. Only stockholders of record as of March 29, 1996, are entitled to vote at the meeting. The number of shares of Common Stock outstanding and entitled to vote as of March 29, 1996, was . Each share is entitled to one vote. 1 ELECTION OF DIRECTORS The Bylaws of the Company currently provide that the Board of Directors shall consist of not less than three nor more than fifteen Directors, subject to increase or decrease in such number within legal limits by action of the Board of Directors or the stockholders. There are presently nine Directors. Directors shall be elected to serve until the next Annual Meeting of Stockholders or until their successors are elected and qualified. In the event that any nominee withdraws, or for any reason is unable to serve as a Director, the proxies will be voted for such other person as may be designated by the Board of Directors as a substitute nominee, but in no event will proxies be voted for more than nine nominees. Management of the Company has no reason to believe that any nominee will not continue to be a candidate or will not serve if elected. All of the nominees are currently Directors of the Company. The following sets forth as of March 1, 1996, certain biographical information and business experience for the past five years for each of the nominees: ALFRED C. ECKERT III Mr. Eckert, age 47, has been President of Greenwich Street Capital Partners, Inc., a private investment firm, since January 1994 and has been a Principal of Greycliff Partners, a private investment firm, since December 1991. He was a Partner of Goldman, Sachs & Co., investment bankers, from December 1984 to November 1991. Mr. Eckert is a Director of Georgia Gulf Corporation. He has been a Director of the Company since 1990. HOLCOMBE T. GREEN, JR. Mr. Green, age 56, is the Chairman of the Board of Directors of the Company and has been a Director of the Company since 1987. He served in the capacity of President and Chief Executive Officer of the Company from January 1990 to January 1991. Mr. Green has served as the Chairman and Chief Executive Officer of WestPoint Stevens Inc., a textile manufacturing company, since October 1992. Mr. Green has been the Principal of Green Capital Investors, L.P., a private investment fund, since October 1987. He is also a Director of Georgia Gulf Corporation, Rhodes, Inc., A.D.A.M. Software, Inc. and American Buildings Company. PHILIP A. INCARNATI Mr. Incarnati, age 42, has been President and Chief Executive Officer of McLaren Health Care Corporation, a fully-integrated healthcare delivery system, since June 1989. He has been a Director of the Company since 1995. ALTON F. IRBY III Mr. Irby, age 55, has been a Principal of J O Hambro Magan & Co., investment bankers, since March 1988 and has also served as Deputy Chairman since March 1994. Mr. Irby has been a Director of the Company since 1990.
2 GERALD E. MAYO Mr. Mayo, age 63, has served as Chairman and President of Midland Financial Services, Inc., the holding company for The Midland Life Insurance Company which is the successor to The Midland Mutual Life Insurance Company, a life insurance and annuities company, since December 1994. Mr. Mayo served the predecessor company in similar capacities for over five years. Mr. Mayo is a Director of Huntington BancShares Inc., The Columbia Gas System, Inc. and Borror Corporation. He has been a Director of the Company since 1991. CHARLES W. MCCALL Mr. McCall, age 51, has been President, Chief Executive Officer and a Director of the Company since January 1991. From 1985 until joining the Company, he served as President and Chief Executive Officer of CompuServe, Inc., a computer services and communications company. Mr. McCall is also a Director of EIS International, Inc. and WestPoint Stevens Inc. JAMES V. NAPIER Mr. Napier, age 59, has served as the Chairman of the Board of Directors of Scientific-Atlanta, Inc., a communications equipment manufacturer, since November 1992 and served as Acting Chief Executive Officer from December 1992 to July 1993. From June 1988 to October 1992, he was Chairman and President of Commercial Telephone Group, a telecommunication products company. Mr. Napier has been a private investor since August 1987. Mr. Napier is a Director of Engelhard Corporation, Intelligent Systems Corporation, Vulcan Materials Corporation, Personnel Group of America, Inc., Westinghouse Air Brake Company and Rhodes, Inc. He has been a Director of the Company since 1981. CHARLES E. THOELE Mr. Thoele, age 60, has been a Consultant to Sisters of Mercy Health Systems, a not for profit healthcare system, since February 1991. From July 1986 to January 1991, he served as the Chief Operating Officer and a Director of Sisters of Mercy Health Systems. Mr. Thoele is also a Director of Transcend Services, Inc. He has been a Director of the Company since 1989.
3 DONALD C. WEGMILLER Mr. Wegmiller, age 57, has been President and Chief Executive Officer of Management Compensation Group/HealthCare Compensation, an executive and physician compensation consulting firm, since April 1993. He was Vice Chairman and President of HealthSpan Health Systems Corporation ("HealthSpan") from November 1992 to April 1993. From May 1987 to November 1992, he was President and Chief Executive Officer of Health One Corporation, a healthcare services company that merged with HealthSpan. Mr. Wegmiller is a Director of Medical Graphics Corporation, Possis Medical Corporation, Minnesota Power & Light Company and LifeRate Systems, Inc. He has been a Director of the Company since 1988.
During 1995, the Board of Directors held four meetings. The Company has an Audit Committee, a Stock Option and Compensation Committee and an Executive Committee. The Audit Committee, comprised of Messrs. Incarnati (as of November 14, 1995), Mayo, Napier, and Wegmiller, is responsible for recommending to the Board of Directors the independent public accountants to be retained for the year. The Audit Committee met twice during 1995 with the independent auditors and the Company's management to review internal accounting controls, audit plans and results, and accounting principles and practices. The Stock Option and Compensation Committee, comprised of Messrs. Eckert, Irby and Thoele, met twice during 1995. The Stock Option and Compensation Committee makes recommendations to the Board of Directors concerning the compensation to be paid to all executive officers and Directors and administers the Company's stock option plans. During 1995, the Executive Committee, which acts in the absence of the Board of Directors, held no meetings. The members are Messrs. Green, McCall and Napier. The Company has designated a Nominating Committee composed of Messrs. Green, McCall and Napier. The Nominating Committee will have the responsibility to make recommendations for Board membership, rotation and retirement and will serve as the committee responsible for the Board's policy and corporate governance matters. Inasmuch as the Nominating Committee has not yet met, no procedures regarding recommendations of nominees by stockholders to such committee have yet been adopted. The Company has no other standing committees. During 1995, no member of the Board of Directors attended fewer than 75% of the total of the meetings of the Board of Directors and the committees of which he was a member. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE ABOVE NOMINEES COMPENSATION OF DIRECTORS During 1995, Directors who were not officers of the Company received a retainer of $5,000 per quarter and $1,000 for each Board and/or committee meeting attended, with the exception of the Chairman, Mr. Green, who received $11,000 per quarter plus $1,000 for each Board meeting attended. In addition, nonemployee Directors received annual grants of options to purchase 5,000 shares of Common Stock upon re-election. During 1995, no fees were paid to any Director who was employed by the Company. Officers are appointed by and serve at the pleasure of the Board of Directors. No Director or officer is related to any other Director or officer of the Company. 4 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of March 1, 1996, certain information with respect to all stockholders known to the Company to beneficially own more than five percent of its Common Stock, and information with respect to the Company's Common Stock beneficially owned by each Director of the Company, the executive officers of the Company included in the Summary Compensation Table set forth under the caption "Executive Compensation" and all Directors and executive officers of the Company as a group. Except as otherwise indicated, the stockholders listed in the table have sole voting and investment powers with respect to the Common Stock owned by them.
AMOUNT AND NATURE NAME AND ADDRESS OF BENEFICIAL PERCENT OF BENEFICIAL OWNER OWNERSHIP OF CLASS - -------------------------------------------------- ---------------------- ------------ American Express Financial Corporation 2,517,807(1) 6.25% IDS Tower 10 Minneapolis, Minnesota 55440 FMR Corp. 2,583,250(2) 6.42% 82 Devonshire Street Boston, Massachusetts 02109 Putnam Investments, Inc. 2,598,068(3) 6.45% One Post Office Square Boston, Massachusetts 02109 Alfred C. Eckert III 10,000(4) * Holcombe T. Green, Jr. 614,430(5) 1.53% Philip A. Incarnati -0- * Alton F. Irby III 10,000(4) * Gerald E. Mayo 36,000(4) * Charles W. McCall 683,251(6) 1.7% James V. Napier 29,544(7) * Charles E. Thoele 6,000(8) * Donald C. Wegmiller 5,000(4) * Jay P. Gilbertson 18,378(9) * James A. Gilbert 37,908(10) * Albert J. Bergonzi 7,023(11) * Russell G. Overton 10,734(12) *
5
AMOUNT AND NATURE NAME AND ADDRESS OF BENEFICIAL PERCENT OF BENEFICIAL OWNER OWNERSHIP OF CLASS - -------------------------------------------------- ---------------------- ------------ ADDITIONAL PERSONS WHO SERVED AS EXECUTIVE OFFICERS THROUGH MAY, 1995 Glenn N. Rosenkoetter 8,793(13) * David A. Schenk 7,670(14) * All Directors and Executive Officers as a Group (15 persons) 1,484,731 3.7%
- ------------------------ * Less than 1% (1) According to the joint Schedule 13G as of December 31, 1995, of American Express Company ("AEC") and American Express Financial Corporation ("AEFC"), each of AEC and AEFC has shared voting power with respect to 1,061,907 shares and has shared dispositive power with respect to 2,517,807 shares. Neither has sole voting nor sole dispositive power with respect to such shares. AEC, the parent holding company of AEFC, disclaims beneficial ownership of all such shares. (2) According to the Schedule 13G as of December 31, 1995, of FMR Corp. ("FMR"), FMR has sole dispositive power with respect to all of such shares and sole voting power with respect to 249,850 shares. (3) According to the joint Schedule 13G as of December 31, 1995, of Putnam Investments, Inc, ("PI"), its parent, Marsh & McLennan Companies, Inc. and PI's subsidiaries, Putnam Investment Management, Inc. ("PIM") and The Putnam Advisory Company, Inc. ("PAC"), PAC has shared voting and shared dispositive power with respect to 267,650 and 388,500 of such shares, PIM has shared dispositive power with respect to 2,209,568 of such shares and PI has shared voting and shared dispositive power with respect to 267,650 and 2,598,068 of such shares. (4) Represents shares that may be acquired through the exercise of presently exercisable stock options. (5) Includes 215,000 shares that Mr. Green may acquire through the exercise of presently exercisable stock options; 5,730 shares held in an IRA for the benefit of Mr. Green; 331,650 shares held by a limited partnership of which Mr. Green's wife is a general partner and with respect to which beneficial ownership is disclaimed, except to the extent of his pecuniary interest therein; and 62,050 shares held by HTG Corp. which is wholly owned by Mr. Green. (6) Includes 569,333 shares that may be acquired through the exercise of presently exercisable stock options. (7) Includes 15,000 shares that may be acquired through the exercise of presently exercisable stock options. (8) Includes 5,000 shares that may be acquired through the exercise of presently exercisable stock options. 6 (9) Includes 18,000 shares that may be acquired through the exercise of presently exercisable stock options. (10)Includes 750 shares owned by Mr. Gilbert's son and 6,000 shares that Mr. Gilbert may acquire through the exercise of presently exercisable stock options. (11)Includes 6,200 shares that may be acquired through the exercise of presently exercisable stock options. (12)Includes 10,000 shares that may be acquired through the exercise of presently exercisable stock options. (13)Includes 6,000 shares that may be acquired through the exercise of presently exercisable stock options. (14)Includes 7,200 shares that may be acquired through the exercise of presently exercisable stock options. The Company believes all stock transaction reports for 1995 required to be filed with the Securities and Exchange Commission were timely filed by officers and Directors of the Company, except for one report of a single transaction for Mr. Napier that was filed four days late. EXECUTIVE COMPENSATION CASH COMPENSATION The following tables set forth certain information as to the Chief Executive Officer, the four most highly compensated executive officers of the Company at December 31, 1995, and two additional persons who served as executive officers through May, 1995 whose cash compensation exceeded $100,000. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ----------------------------- AWARDS ----------------------------- RESTRICTED ANNUAL COMPENSATION STOCK SECURITIES ALL OTHER NAME AND PRINCIPAL ---------------------------- AWARDS UNDERLYING COMPENSATION POSITION YEAR SALARY ($) BONUS ($) ($)(1) OPTIONS/SARS (#) ($) - --------------------- ---- ---------- --------- ---------- ---------------- ---------------- Charles W. McCall 1995 520,833 669,375 118,125 100,000 34,538(2) President and Chief 1994 491,667 637,532 112,468 100,000 38,206 Executive Officer 1993 400,000 340,037 60,125 29,435 Jay P. Gilbertson 1995 175,110 85,680 15,120 90,000 4,500(3) Senior Vice 1994 145,833 57,383 10,116 20,000 4,500 President - Finance 1993 100,000 48,920 8,580 40,000 3,849 and Chief Financial Officer
7
LONG-TERM COMPENSATION ----------------------------- AWARDS ----------------------------- RESTRICTED ANNUAL COMPENSATION STOCK SECURITIES ALL OTHER NAME AND PRINCIPAL ---------------------------- AWARDS UNDERLYING COMPENSATION POSITION YEAR SALARY ($) BONUS ($) ($)(1) OPTIONS/SARS (#) ($) - --------------------- ---- ---------- --------- ---------- ---------------- ---------------- James A. Gilbert 1995 179,885 80,325 14,175 35,000 9,054(4) Senior Vice 1994 174,417 89,251 15,749 10,000 9,703 President - HIS 1993 168,000 55,142 9,719 10,998 Products, General Counsel and Secretary Albert J. Bergonzi 1995 156,938 81,845 14,443 105,000 8,833(5) Executive Vice 1994 N/A President - Sales, 1993 N/A Pathways 2000 Development Russell G. Overton 1995 158,333 65,280 11,520 10,000 7,302(6) Senior Vice 1994 148,833 53,564 9,435 20,000 6,981 President - Business 1993 136,000 49,345 8,673 7,563 Development ADDITIONAL PERSONS WHO SERVED AS EXECUTIVE OFFICERS THROUGH MAY, 1995 Glenn N. Rosenkoetter 1995 178,333 82,620 14,580 10,000 6,708(7) Senior Vice 1994 169,167 79,904 14,099 10,000 6,731 President - 1993 160,000 52,989 9,347 20,000 9,012 Strategic Business Units David A. Schenk 1995 168,333 62,475 11,025 35,000 10,368(8) Senior Vice 1994 N/A President - Connect 1993 N/A Technology and Outsourcing
8 FOOTNOTES TO SUMMARY COMPENSATION TABLE (1) The dollar value of restricted stock awards for 1995 is calculated by multiplying $88.25, the closing market price of the Company's Common Stock on The Nasdaq Stock Market on February 13, 1996, the date of the grant, by the number of shares awarded, including 1,338, 171, 160, 163, 130, 165 and 124 shares of restricted stock for Messrs. McCall, Gilbertson, Gilbert, Bergonzi, Overton, Rosenkoetter and Schenk, respectively. Such restricted stock will vest fully in two years. Dividends will be paid in accordance with regular quarterly dividends to stockholders of record. The foregoing stock awards are contingent upon stockholder approval of the proposal to increase the number of shares available under the HBO & Company 1990 Executive Incentive Plan. The aggregate number of shares of restricted stock held by Messrs. McCall, Gilbertson, Gilbert, Bergonzi, Overton, Rosenkoetter and Schenk is 7,059, 823, 1,017, 163, 767, 960 and 762, respectively, and the value of such shares on the date of grant (based upon the closing market price of the Company's Common Stock) was $290,718, $33,816, $39,643, $1,443, $29,628, $38,026 and $11,025, respectively. (2) Represents $12,365 annual premium paid by the Company on $1,000,000 term life insurance policy; $4,500 in contributions by the Company to the HBO & Company Profit Sharing and Savings Plan, a defined contribution plan (the "Profit Sharing Plan"); and $15,937 in contributions by the Company to the HBO & Company Key Employee Supplemental Retirement Plan, a defined contribution nonqualified plan ("SERP"), as well as $1,735 in interest under the SERP. (3) Represents $4,500 in contributions by the Company to the Profit Sharing Plan. (4) Represents $4,500 in contributions by the Company to the Profit Sharing Plan and $4,099 in contributions by the Company to the SERP, as well as $455 in interest under the SERP. (5) Represents $4,500 in contributions by the Company to the Profit Sharing Plan and $3,923 in contributions by the Company to the SERP, as well as $410 in interest under the SERP. (6) Represents $4,500 in contributions by the Company to the Profit Sharing Plan and $2,527 in contributions by the Company to the SERP, as well as $275 in interest under the SERP. (7) Represents $4,500 in contributions by the Company to the Profit Sharing Plan and $1,998 in contributions by the Company to the SERP, as well as $208 in interest under the SERP. (8) Represents $4,500 in contributions by the Company to the Profit Sharing Plan and $5,340 in contributions by the Company to the SERP, as well as $528 in interest under the SERP. 9 OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS ------------------------------------ % OF TOTAL OPTIONS/ NUMBER OF SARS SECURITIES GRANTED TO EXERCISE UNDERLYING EMPLOYEES OR BASE GRANT DATE OPTIONS/SARS IN FISCAL PRICE EXPIRATION PRESENT VALUE NAME GRANTED (#) YEAR ($/SH) DATE $(7) - ------------------------- ------------ ---------- -------- ---------- --------------- Charles W. McCall (1) 100,000 10.05% 75.00 11-14-2005 5,206,600 --------------- --------------- Jay P. Gilbertson (2) 50,000 9.04% 35.875 2-14-2005 1,248,000 40,000 75.00 11-14-2005 2,082,640 --------------- 3,330,640 --------------- --------------- James A. Gilbert (3) 10,000 3.52% 35.875 2-14-2005 249,600 25,000 75.00 11-14-2005 1,301,650 --------------- 1,551,250 --------------- --------------- Albert J. Bergonzi (4) 15,000 10.55% 35.875 2-14-2005 374,400 50,000 44.625 5-9-2005 1,547,200 40,000 75.00 11-14-2005 2,082,640 --------------- 4,004,240 --------------- --------------- Russell G. Overton (5) 10,000 1.00% 35.875 2-14-2005 249,600 --------------- --------------- ADDITIONAL PERSONS WHO SERVED AS EXECUTIVE OFFICERS THROUGH MAY, 1995 Glenn N. Rosenkoetter (5) 10,000 1.00% 35.875 2-14-2005 249,600 --------------- --------------- David A. Schenk (6) 15,000 3.52% 35.875 2-14-2005 347,400 20,000 75.00 11-14-2005 1,041,320 --------------- 1,415,720 --------------- ---------------
- ------------------------ (1) Option for 100,000 shares becomes exercisable in increments of 20,000 shares on November 14, 1996 through 2000. (2) Option for 50,000 shares becomes exercisable in increments of 10,000 shares on February 14, 1996 through 2000. Option for 40,000 shares becomes exercisable in increments of 8,000 shares on November 14, 1996 through 2000. (3) Option for 10,000 shares becomes exercisable in increments of 2,000 shares on February 14, 1996 through 2000. Option for 25,000 shares becomes exercisable in increments of 5,000 shares on November 14, 1996 through 2000. 10 (4) Option for 15,000 shares becomes exercisable in increments of 3,000 shares on February 14, 1996 through 2000. Option for 50,000 shares becomes exercisable in increments of 10,000 shares on May 9, 1996 through 2000. Option for 40,000 shares becomes exercisable in increments of 8,000 shares on November 14, 1996 through 2000. (5) Option for 10,000 shares becomes exercisable in increments of 2,000 shares on February 14, 1996 through 2000. (6) Option for 15,000 shares becomes exercisable in increments of 3,000 shares on February 14, 1996 through 2000. Option for 20,000 shares becomes exercisable in increments of 4,000 shares on November 14, 1996 through 2000. (7) The present value was calculated using the Black-Scholes methodology. The Company's future stock performance will not necessarily be consistent with such valuation. The assumptions used to determine the value are as follows:
ALBERT RUSSELL CHARLES W. JAY P. JAMES A. J. G. GLENN N. DAVID A. MCCALL GILBERTSON GILBERT BERGONZI OVERTON ROSENKOETTER SCHENK ---------- -------- -------- -------- -------- ------------ ---------- Fair Market Value On Grant Date $ 75.00 $35.875 $ 35.875 $ 35.875 $35.875 $ 35.875 $ 35.875 $ 75.00 $ 75.00 $ 44.625 $ 75.00 $ 75.00 Exercise Dates * * * * * * * Risk-Free Rate (10-Year U.S. Treasury Strip as of 6.10% 7.50% 7.50% 7.50% 7.50% 7.50% 7.50% Grant Date) 6.10% 6.10% 6.80% 6.10% 6.10% Volatility (5-Year Closing Price Volatility) 0.53 0.53 0.53 0.53 0.53 0.53 0.53 Annual Dividend Yield/ Share 0.21% 0.45% 0.45% 0.45% 0.45% 0.45% 0.45% 0.21% 0.21% 0.36% 0.21% 0.21% Discount For Forfeitures 0% 0% 0% 0% 0% 0% 0% Discount For Non-transferability 0% 0% 0% 0% 0% 0% 0%
- ------------------------ * On expiration date. 11 AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS/SARS OPTIONS/SARS AT FY-END AT FY-END ($) SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/ NAME ON EXERCISE(#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE - --------------------- --------------- ------------------ --------------- ---------------------- Charles W. McCall 132,000 7,951,750 497,000/294,667 35,210,485/12,403,040 Jay P. Gilbertson 16,000 772,376 -0-/130,000 -0-/4,466,376 James A. Gilbert 25,500 856,875 2,000/43,000 110,750/869,250 Albert J. Bergonzi -0- -0- 1,600/111,400 85,450/2,552,425 Russell G. Overton 18,000 869,625 4,000/26,000 213,625/1,255,751 ADDITIONAL PERSONS WHO SERVED AS EXECUTIVE OFFICERS THROUGH MAY, 1995 Glenn N. Rosenkoetter 18,000 640,875 2,000/18,000 106,813/828,500 David A. Schenk -0- -0- 2,600/45,400 132,075/1,150,175
CHANGE IN CONTROL ARRANGEMENTS. The Company has one compensatory arrangement with its executive officers that will result from a change in control of the Company. Under the stock option agreements ("Option Agreements") with each of the Company's executive officers named in the table under "Summary Compensation Table" ("Optionees"), in the event there is a Change of Control (as defined below) of the Company and either (i) the Optionee's employment by the Company is terminated involuntarily by the Company or (ii) the Optionee terminates his employment with the Company for Good Reason (as such term is defined below), then the Option Agreement shall not terminate but rather the Optionee shall have the immediate right to exercise the option with respect to all shares granted pursuant thereto at any time, whether or not then otherwise exercisable. See "Aggregated Option/SAR Exercises In Last Fiscal Year and FY-End Option/SAR Values." Further, should such Change of Control result in the termination of the Option Agreement without the simultaneous conversion of the option into options to purchase like stock of the Company or a corporation acquiring or succeeding to the rights of the Company in such Change of Control, upon terms substantially similar to those described therein, the option shall vest immediately. Generally, "Change of Control" includes certain tender offers, the sale of substantially all of the Company's assets, acquisition by any person of 40% or more of the outstanding voting securities of the Company and certain changes in the membership or composition of the Board of Directors of the Company. Generally, termination by an Optionee for "Good Reason" following a Change of Control includes certain changes in the Optionee's duties, certain salary reductions or cessation of bonus plans in which the Optionee participates, certain relocations or failure of the Company to continue in effect certain benefit and compensation plans. 12 REPORT OF STOCK OPTION AND COMPENSATION COMMITTEE COMPENSATION PHILOSOPHY The Stock Option and Compensation Committee (the "Committee") believes the Company must pay competitively to attract and retain qualified executives. To motivate executive personnel to perform at their full potential, the Committee believes a significant portion of compensation should be incentive-based. In addition, the Committee believes it is important to reward not only individual performance and achievement, but also to focus on overall corporate results. This latter objective serves the dual purposes of encouraging teamwork among executives and also supports the Company's objective of creating stockholder value. ELEMENTS OF THE PROGRAM Total executive compensation consists of three key components: base salaries, short-term incentive compensation ("Management Incentive Plan"), and long-term incentives (Stock Options). Compensation objectives vary by component of pay. Each of these elements, and the Company's competitive objective for that element, is described in more detail below. BASE SALARIES For 1995, base salaries for all executive officers other than the CEO were targeted at the size-adjusted market median (50th percentile). For this purpose, the "market" consisted of a group of computer software and hardware companies whose businesses are considered somewhat similar to the Company's and with whom the Company competes for executive talent. These companies are different from those included in the stock price performance graph elsewhere in this proxy statement since the Company believes the market for executive talent extends to a broader group of companies than those included in the stock price performance graph. Individual base salary increases for all executive officers other than the CEO were based on a review of this market data, the actual salaries of the executives and the CEO's recommendation. Factors considered by the CEO in making recommendations for increases included, but were not limited to, levels of responsibility, prior experience, and on-the-job performance. No specific weight was assigned to these factors. As a group, salaries for the executive officers (other than the CEO) were slightly below the size-adjusted market median of the comparable companies. SHORT-TERM INCENTIVES The Management Incentive Plan (the "MIP"), which was adopted by the Committee in 1993, was designed by a third-party consulting firm. This plan covers approximately 200 management personnel, including all executive officers other than the CEO (whose incentive compensation is described below). The Committee believes this plan promotes the Company's philosophy of having a substantial portion of executive pay "at-risk." Awards for 1995 performance under the MIP were based on achievement of Corporate Earnings Per Share (EPS) results, as well as individual performance measures. A bonus pool is funded based on whether annual EPS goals are achieved at the "threshold," "target" or "stretch" levels. The Committee believes that measuring EPS is the best way to take stockholder expectations into account in motivating executives. 13 The individual performance measures for each of the named executive officers (other than the CEO) generally are financial items such as operating income, business unit revenues, etc. and also goals based on specific job responsibilities or measures related to market share. In all cases, the measures are quantifiable and measurable. "Threshold," "target" and "stretch" performance levels also are established for each individual measure. No payouts will be made if the specific goals established for each executive officer are not achieved. Weightings for each measure varied somewhat among the executives, but generally ranged from 40% to 60% for operating income and/or EPS goals, from 20% to 40% for revenue goals and from 20% to 25% for goals related to specific job responsibilities. Based on whether the individual performance goals are achieved, and on the EPS results, actual awards may vary above or below target levels. Maximum awards are 150% of target awards. Payouts from the EPS bonus pool are made only to the extent that EPS results are at or above the threshold performance level. If, based on performance, the EPS pool is funded at or above a level sufficient to pay the full awards earned by each participant, those amounts are paid. However, if the EPS pool is not large enough to pay all awards otherwise earned, each participant's award is decreased on a pro rata basis. Then, the actual payouts to participants depend jointly on each person's success in achieving their individual goals, and on the Company's EPS results. Target awards for 1995 for each executive officer (other than the CEO) were set at 40% of base salary, which is essentially at the median of the market. For 1995, EPS results were at the maximum level and thus the bonus pool was funded at the maximum level. Although individual performance among the named executive officers (other than the CEO) varied somewhat due to differences in goals, all officers earned total bonuses above target but below maximum. Awards earned are paid in cash (85%) and restricted stock (15%) after year-end. Each restricted stock award is subject to forfeiture if the executive's employment is terminated other than by reason of death, disability or retirement within two years of the date of grant. The restricted stock awards were structured as an incentive to participants to maximize the long-term return to stockholders. They also are intended to encourage retention among executives considered key to the Company's success. LONG-TERM INCENTIVES In 1995, the Committee made stock option awards to all of the named executives. In making these grants, the Committee considered competitive market information on long-term incentive awards for comparable positions, existing stock holdings, each executive's individual performance, and the competitiveness of the executive's overall pay package. No specific weighting was assigned to these factors by the Committee. Because the Committee has not established a competitive objective for this component of pay, the number of shares granted to each executive was discretionary. SPECIFICS OF CEO COMPENSATION The Committee considers essentially the same factors in determining the CEO's base salary increase as are considered in determining increases in base salary for other executive officers. The Committee believed that the CEO's contribution to the Company's 1994 performance was significant based on its review (without specific weighting) of such factors as revenue growth, accomplishment of strategic business objectives and EPS results. Accordingly, the Committee increased the CEO's salary 14 from $500,000 for 1994 to $525,000 for 1995. His base compensation thus was set by the Committee at a level slightly above the 50th percentile, which the Committee considered commensurate with his performance. The CEO's bonus for 1995 was based solely on EPS results. The CEO's bonus target was 100% of salary in 1995, which was established to be extremely competitive with target bonuses for others in similar positions. Earnings per share for 1995 was at the maximum level required; thus, the CEO earned the maximum bonus payout (150% of salary, or $787,000). Of this amount, $669,375 was paid in cash after year-end; the balance was deferred in the form of restricted stock. The CEO was granted an option to buy 100,000 shares of the Company's stock. The Committee determined the size of this grant based on a review of competitive data and on its assessment of the CEO's performance during the year as measured by revenue growth, accomplishment of strategic objectives and EPS results. Because these factors were considered in general, they were not subject to any specific weighting. POLICY WITH RESPECT TO THE $1 MILLION DEDUCTION LIMIT In 1993, Section 162(m) was added to the Internal Revenue Code. This section generally limits to $1 million the tax deduction for compensation paid to executive officers of a publicly-held corporation who are named in the proxy statement unless certain requirements are met. To ensure the deductibility of amounts in connection with exercises of stock options, the Committee approved an amendment of the HBO & Company 1990 Executive Incentive Plan that sets a maximum number of shares issuable during any two-year period to any optionee. To preserve tax deductions related to executive compensation, the Company asked for, and received, stockholder approval for the amendment to the 1990 Plan and for the terms of the Chief Executive Officer Incentive Plan which relates to the CEO's performance-based compensation through 1999. ALFRED C. ECKERT III ALTON F. IRBY III CHARLES E. THOELE 15 COMPANY PERFORMANCE GRAPH The following graph shows a five year comparison of cumulative total returns for the Company's Common Stock, the Center for Research in Security Prices ("CRSP") Total Return Index for The Nasdaq Stock Market (U.S. companies) and the CRSP Total Return Index for the NASDAQ Computer and Data Processing Services Stocks. Upon request, the Company will furnish stockholders a list of the component companies of such indexes. COMPARISON OF FIVE YEAR-CUMULATIVE TOTAL RETURNS PERFORMANCE GRAPH FOR HBO & COMPANY PREPARED BY THE CENTER FOR RESEARCH IN SECURITY PRICES PRODUCED ON 02/21/96 INCLUDING DATA TO 12/29/95 EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
HB0 & COMPANY 12/31/90 100 01/31/91 114.286 02/28/91 110.204 03/28/91 119.613 04/30/91 136.112 05/31/91 134.049 06/28/91 104.352 07/31/91 98.091 08/30/91 108.526 09/30/91 122.394 10/31/91 173.039 11/29/91 181.48 12/31/91 197.654 01/31/92 218.907 02/28/92 223.157 03/31/92 230.797 04/30/92 312.003 05/29/92 309.866 06/30/92 253.449 07/31/92 307.146 08/31/92 285.667 09/30/92 278.385 10/30/92 384.128 11/30/92 392.76 12/31/92 446.059 01/29/93 428.736 02/26/93 370.272 03/31/93 414.892 04/30/93 354.07 05/28/93 421.409 06/30/93 470.591 07/30/93 566.452 08/31/93 623.097 09/30/93 646.2 10/29/93 683.313 11/30/93 711.693 12/31/93 804.785 01/31/94 841.963 02/28/94 817.907 03/31/94 875.479 04/29/94 919.253 05/31/94 945.517 06/30/94 885.475 07/29/94 999.447 08/31/94 1148.487 09/30/94 1193.836 10/31/94 1141.167 11/30/94 1110.443 12/30/94 1208.354 01/31/95 1252.294 02/28/95 1353.356 03/31/95 1530.539 04/28/95 1609.705 05/31/95 1706.464 06/30/95 1919.034 07/31/95 1945.443 08/31/95 1936.64 09/29/95 2202.164 10/31/95 2492.85 11/30/95 2633.789 12/29/95 2701.303 Notes: A. The lines represent monthly index levels derived from compounded daily returns that include all dividends. B. The indexes are reweighted daily, using the market capitalization on the previous trading day. C. If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used. D. The Index level for all series was set to $100.0 on 12/31/90. NASDAQ STOCK MARKET (US COMPANIES) 12/31/90 100 01/31/91 111.085 02/28/91 121.77 03/28/91 129.918 04/30/91 130.742 05/31/91 136.742 06/28/91 128.414 07/31/91 136.016 08/30/91 142.779 09/30/91 143.304 10/31/91 148.04 11/29/91 143.073 12/31/91 160.548 01/31/92 169.937 02/28/92 173.788 03/31/92 165.585 04/30/92 158.485 05/29/92 160.544 06/30/92 154.268 07/31/92 159.731 08/31/92 154.85 09/30/92 160.607 10/30/92 166.932 11/30/92 180.217 12/31/92 186.851 01/29/93 192.171 02/26/93 185.001 03/31/93 190.356 04/30/93 182.232 05/28/93 193.118 06/30/93 194.011 07/30/93 194.241 08/31/93 204.281 09/30/93 210.367 10/29/93 215.095 11/30/93 208.68 12/31/93 214.496 01/31/94 221.006 02/28/94 218.941 03/31/94 205.475 04/29/94 202.809 05/31/94 203.305 06/30/94 195.87 07/29/94 199.888 08/31/94 212.63 09/30/94 212.087 10/31/94 216.254 11/30/94 209.082 12/30/94 209.67 01/31/95 210.775 02/28/95 221.915 03/31/95 228.494 04/28/95 235.691 05/31/95 241.773 06/30/95 261.365 07/31/95 280.573 08/31/95 286.254 09/29/95 292.865 10/31/95 291.187 11/30/95 298.033 12/29/95 296.505 Notes: A. The lines represent monthly index levels derived from compounded daily returns that include all dividends. B. The indexes are reweighted daily, using the market capitalization on the previous trading day. C. If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used. D. The Index level for all series was set to $100.0 on 12/31/90. NASDAQ COMPUTER AND DATA PROCESSING STOCKS SIC 7370-7379 US & Foreign 12/31/90 100 01/31/91 121.676 02/28/91 130.544 03/28/91 137.634 04/30/91 133.617 05/31/91 141.756 06/28/91 129.716 07/31/91 142.103 08/30/91 158.588 09/30/91 162.383 10/31/91 178.169 11/29/91 174.127 12/31/91 201.545 01/31/92 214.72 02/28/92 219.119 03/31/92 203.296 04/30/92 190.145 05/29/92 196.104 06/30/92 178.44 07/31/92 183.916 08/31/92 179.286 09/30/92 191.374 10/30/92 207.868 11/30/92 219.219 12/31/92 216.847 01/29/93 226.554 02/26/93 215.634 03/31/93 227.24 04/30/93 211.687 05/28/93 229.064 06/30/93 227.367 07/30/93 208.987 08/31/93 215.41 09/30/93 228.368 10/29/93 232.318 11/30/93 230.989 12/31/93 229.518 01/31/94 241.989 02/28/94 243.929 03/31/94 232.69 04/29/94 232.485 05/31/94 243.048 06/30/94 227.708 07/29/94 228.446 08/31/94 252.564 09/30/94 253.513 10/31/94 279.57 11/30/94 275.518 12/30/94 278.649 01/31/95 272.12 02/28/95 293.324 03/31/95 313.67 04/28/95 329.286 05/31/95 334.549 06/30/95 371.8 07/31/95 394.222 08/31/95 393.434 09/29/95 406.249 10/31/95 426.872 11/30/95 430.254 12/29/95 425.122 Notes: A. The lines represent monthly index levels derived from compounded daily returns that include all dividends. B. The indexes are reweighted daily, using the market capitalization on the previous trading day. C. If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used. D. The Index level for all series was set to $100.0 on 12/31/90.
16 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company and HTG Corp., a corporation owned by Holcombe T. Green, Jr., Chairman of the Board of the Company, each own a half interest in an airplane, which they operate pursuant to a Co-Ownership Agreement dated as of July 15, 1993 (the "Co-Ownership Agreement"). Pursuant to the Co-Ownership Agreement, each party paid one-half of the acquisition cost of $1.5 million as well as one-half of the initial readiness costs, an aggregate of $217,000, (together with the acquisition cost, the "Initial Costs"). Each party pays its own direct operating costs for use of the airplane and during 1995 each paid one-half of the cost of new equipment of approximately $3.9 million. For 1995, fixed costs were allocated based on the percentage of actual use. Payments made by either party on behalf of the other party are reimbursed based upon the percentage of use. For the year ended December 31, 1995, the percentages of use of HTG Corp. and the Company were deemed to have been 44% and 56%, respectively. For 1995, total fixed and direct expenses of HTG Corp. and the Company were $435,605 and $403,452, respectively. Pursuant to the Co-Ownership Agreement, the Company has the right to cause HTG Corp. to purchase its interest in the airplane for the lesser of one-half of the fair market value or the Company's portion of the Initial Costs. In 1995 in connection with the purchase of new equipment for the airplane and in order to repay approximately $1.1 million in indebtedness related to the acquisition of the airplane, the Company and HTG Corp. jointly signed a series of notes in favor of a third-party lender to evidence borrowings of $3.0 million secured by the airplane. HTG Corp. has agreed to pay all principal and interest due under the notes and to indemnify the Company in connection therewith. At December 31, 1995, approximately $3.0 million in borrowings remained outstanding. During 1995, St. John's Mercy Medical Center paid the Company $978,385 for information systems and services. Mr. Thoele, a Director of the Company, is a Consultant to St. John's parent corporation, Sisters of Mercy Health Systems. During 1995, McLaren HealthCare Corporation paid the Company $717,114 for information systems and services. Mr. Incarnati, a Director of the Company, is the President and Chief Executive Officer of McLaren HealthCare Corporation. AMENDMENT OF THE CERTIFICATE OF INCORPORATION On February 13, 1996, the Board of Directors approved, subject to stockholder approval, an amendment to the Certificate of Incorporation of the Company increasing the number of authorized shares of Common Stock, par value $.05 per share, from 60,000,000 shares to 250,000,000 shares. A copy of the proposed amendment as adopted by the Board of Directors appears as Appendix A to this Proxy Statement. Of the 60,000,000 shares of Common Stock now authorized to be issued under the Certificate of Incorporation, 40,118,601 shares were outstanding, and 4,883,499 and 716,215 shares were reserved for stock option and incentive plans and the employee discount stock purchase plan, respectively, for a total outstanding and reserved of 45,718,315 shares, all as of December 31, 1995. Since December 31, 1995, the Board of Directors has authorized, subject to stockholder approval, an increase of 1,500,000 shares in the number of shares issuable pursuant to the HBO & Company 1990 Executive Incentive Plan. In addition, the Board of Directors has announced its intention to declare a two-for-one stock split to be effected in the form of a stock dividend, contingent upon approval of the 17 amendment to the Certificate of Incorporation by the stockholders. Except for the foregoing, the Company has no present plans or commitments with respect to the issuance of the proposed additional authorized shares of Common Stock. However, such shares can be issued by the Board of Directors from time to time without further stockholder action for proper corporate purposes, including stock dividends, stock splits or acquisitions, and the Board of Directors believes it is desirable to have such additional shares available if the need should arise. Holders of the Company's Common Stock have no preemptive rights. Share amounts set forth herein do not give effect to the proposed two-for-one stock split. The affirmative vote of the holders of a majority of the outstanding shares of Common Stock is required for approval of the proposed amendment. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE AMENDMENT OF THE CERTIFICATE OF INCORPORATION APPROVAL OF THE AMENDMENT OF THE HBO & COMPANY 1993 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS The Board of Directors has adopted an amendment to the HBO & Company 1993 Stock Option Plan For Nonemployee Directors (the "1993 Plan"), subject to approval by stockholders, to provide that each Director of the Company who is not an employee of the Company or any of its subsidiaries (a "Nonemployee Director") and did not receive a grant on the date the 1993 Plan was adopted shall be entitled to receive an option to purchase 12,500 shares on the date of the first board meeting which he participates in as a Director. A copy of the proposed amendment to the 1993 Plan is attached as Appendix B to this Proxy Statement. The 1993 Plan provides for automatic annual grants of stock options to Nonemployee Directors and is intended to provide a means for the Company to attract and retain qualified Nonemployee Directors and to encourage such persons to become owners of Common Stock of the Company in order to increase their interest in the Company's long-term success. The 1993 Plan was approved by the Board of Directors on February 9, 1993, and by the stockholders on May 11, 1993. The maximum number of shares of Common Stock reserved and available for distribution pursuant to stock options under the 1993 Plan is 380,000 shares, subject to adjustment as provided below. Such shares may consist, in whole or in part, of authorized and previously unissued shares or treasury shares. If any stock option granted under the 1993 Plan expires or terminates without having been exercised in full, the shares remaining subject to such option will again be available for distribution in connection with future awards under the 1993 Plan. In the event of (i) any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, or (ii) any merger, consolidation, spin-off, spin-out, split-off, split-up, reorganization, partial or complete liquidation of the Company or other distribution of assets, issuance of rights or warrants to purchase securities of the Company, or (iii) any other corporate transaction or event having an effect similar to any of the foregoing, then the number or kind of securities issuable under the 1993 Plan and the number or kind of securities covered by an 18 option will be adjusted appropriately; provided, however, that the option will be subject to only such adjustment as shall be necessary to maintain the proportionate interest of the optionee and preserve, without exceeding, the value of the option. In the event of dissolution or liquidation of the Company or any merger or combination in which the Company is not a surviving corporation (except for a merger or combination with a corporation wholly owned by the Company or its stockholders in which an adjustment to the outstanding options will be made as provided above), each outstanding option will terminate, but the optionee will have the right immediately prior to such dissolution, liquidation, merger or combination to exercise his option, in whole or in part, to the extent that the option is then presently exercisable. On the date the 1993 Plan was approved by the stockholders of the Company, each Nonemployee Director then serving on the Board was granted an option to purchase up to 12,500 shares of Common Stock, subject to the surrender and cancellation of an outstanding option agreement or agreements previously issued to such person for an identical number of shares of Common Stock. The terms and conditions of the agreement evidencing such option (including, without limitation, the exercise price and provisions regarding exercisability and termination) were identical to the terms of the agreement evidencing the outstanding option or options surrendered by such Nonemployee Director. The proposed amendment will not result in the issuance of options to any person who received an option in accordance with the foregoing provisions. Pursuant to the 1993 Plan, on the date of each annual meeting of the stockholders of the Company at which Directors are elected, each Nonemployee Director elected or reelected to the Board at the meeting will be granted an option to purchase 5,000 shares of Common Stock. Each grant is evidenced by a stock option agreement having terms specified in the 1993 Plan. Each option will become exercisable upon the expiration of a period of six months from the date of grant. The exercise price of the option will be the fair market value of the Common Stock on the date the option is granted, payable in cash or by transfer to the Company of shares of nonforfeitable, unrestricted Common Stock having a fair market value at the time of exercise equal to the option price, or a combination of cash and Common Stock. Each such option will terminate on the earliest of the following dates: (i) three months after the date on which the optionee ceases to be a Director of the Company (during which period the option shall be exercisable only to the extent exercisable on the date of termination of such status), unless he or she ceases to be a Director of the Company by reason of death; (ii) one year after the death of the optionee if the optionee dies while a Director of the Company; or (iii) ten years from the date on which the option was granted. The 1993 Plan is administered by the Board of Directors, provided that the Board may not vary the timing or amount of options granted under the 1993 Plan, or the terms of the options, except by amendment to the 1993 Plan. The Board may suspend or terminate the 1993 Plan at any time and may amend the 1993 Plan from time to time in any respect the Board may deem to be in the best interest of the Company; provided however, that to the extent required pursuant to Rule 16b-3 under the Securities Exchange Act of 1934, no such amendment will be effective without approval of the stockholders of the Company, if such amendment would: (a) materially increase the total number of shares of Common Stock that may be issued pursuant to the 1993 Plan except as contemplated above; (b) materially increase the 19 benefits accruing to participants in the 1993 Plan; or (c) materially modify the requirements as to eligibility for participation in the 1993 Plan. In addition, to the extent prohibited by Rule 16b-3, the 1993 Plan may not be amended more than once every six months. No option may be granted pursuant to the 1993 Plan on or after the tenth anniversary of the effective date of the 1993 Plan, but options granted prior to such tenth anniversary may extend beyond that date. Generally, a Nonemployee Director will not realize income upon the grant of an option. Upon exercise of an option, the optionee generally will recognize ordinary income in an amount equal to the difference between the exercise price and the fair market value of the Common Stock received upon exercise. Upon the sale or disposition of the Common Stock, the optionee generally will recognize capital gain or loss in the amount of the difference between the fair market value of the Common Stock on the date of exercise and the value received. The Company generally will be entitled to a tax deduction corresponding in an amount and time to the optionee's recognition of ordinary income as described above. If the amendment to the 1993 Plan is approved, the number of shares subject to options that would have been granted to all current Directors who are not executive officers (the only persons eligible to receive options under the 1993 Plan) is shown in the following table: NEW PLAN BENEFITS
1993 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS -------------------------------- NAME AND POSITION DOLLAR VALUE($) NUMBER OF UNITS - ------------------------------------------------------------------- --------------- --------------- Nonemployee Director Group (8 persons)............................. (1) (2)
- ------------------------ (1) With respect to annual grant of options to each Nonemployee Director to purchase 5,000 shares, such options are exercisable at fair market value on the date of grant and do not have a readily ascertainable value. In addition, each Director who was not a Director on the date of adoption of the 1993 Plan will receive an option for 12,500 shares. (2) With respect to each Nonemployee Director, includes annual grant of options to purchase 5,000 shares and with respect to each Director who was not a Director on the date of the adoption of the 1993 Plan, includes grant of an option for 12,500 shares. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE AMENDMENT OF THE HBO & COMPANY 1993 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS APPROVAL OF THE AMENDMENT OF THE HBO & COMPANY 1990 EXECUTIVE INCENTIVE PLAN The Board of Directors has adopted an amendment to the HBO & Company 1990 Executive Incentive Plan (the "1990 Plan"), subject to approval by the stockholders, to increase by 1,500,000 the number of shares of Common Stock that may be issued under the 1990 Plan. The Board recommends 20 this increase inasmuch as no shares remain available for options or other awards under the 1990 Plan and awards with respect to 321,101 shares have been granted contingent upon the approval of the proposed amendment. The 1990 Plan is intended to encourage key executives and managerial employees of the Company and its subsidiaries or affiliates to become owners of stock of the Company in order to increase their interest in the Company's long-term success, to provide incentive equity opportunities that are competitive with other similarly situated corporations and to stimulate the efforts of employees by giving suitable recognition for the services that contribute materially to the Company's success. From and after the effective date of the 1990 Plan, no stock options have been granted under the HBO & Company 1986 Employee Nonqualified Stock Option Plan, the HBO & Company Nonqualified Stock Option Plan and the 1981 HBO & Company Incentive Stock Option Plan (the "Superseded Plans"). All outstanding stock options previously granted under any of the Superseded Plans have remained or will become exercisable in accordance with the terms thereof. The 1990 Plan was initially adopted by the Board of Directors on February 19, 1990, and approved by the stockholders on May 15, 1990. Prior to the adoption of the amendment, the total number of shares available for distribution pursuant to stock options or other awards under the 1990 Plan is equal to 6,000,000, including 4,321,274 originally issuable under the Superseded Plans. Pursuant to the proposed amendment to the 1990 Plan, an additional 1,500,000 new shares will be available for issuance, so that the maximum number of shares available for issuance under the 1990 Plan will increase to 7,500,000. The Plan provides that no more than an aggregate of 500,000 shares may be issued to any employee in a two-year period. As of March 29, 1996, the closing price of the Common Stock was $ per share. The 1990 Plan is administered by the Stock Option and Compensation Committee of the Board of Directors (the "Committee"). Officers and other key employees of the Company, its subsidiaries and affiliates (but excluding members of the Committee and any person who serves solely as a Director) who are responsible for or contribute to the management, growth and/or profitability of the business of the Company, its subsidiaries and affiliates, are eligible to participate. Stock options, stock appreciation rights, restricted stock, deferred stock and performance units may be granted under the 1990 Plan at the discretion of the Committee. Options granted may be either incentive stock options or nonqualified stock options, provided that incentive stock options may not be granted to employees of affiliates. Stock appreciation rights may be granted in conjunction with options and, if in conjunction with a nonqualified stock option, may be granted at the time of such option grant or thereafter. In the case of an incentive stock option, the stock appreciation right may be granted only at the time of the grant of such stock option. Upon the exercise of a stock appreciation right, an optionee is entitled to receive an amount in cash and/ or shares of stock in the aggregate equal to the excess of the fair market value at the time of exercise of one share of stock over the option price per share specified in the related stock option multiplied by the number of shares exercised pursuant to the stock appreciation right, with the Committee having the right to determine the form of payment. The Committee has discretion to fix the exercise price for stock options, which, in the case of incentive stock options, shall be not less than fair market value at the time of grant thereof. The Committee fixes the terms of the stock options and stock appreciation rights, but under no circumstances will an incentive stock option or a stock appreciation right have a 21 term exceeding ten years from date of grant. Stock appreciation rights will not be exercisable during the first six months of their respective terms by any optionee except in the event of death or disability of the optionee prior to the expiration of the six-month period. The Committee has the discretion to determine when an option will become exercisable. The option exercise price may be satisfied in cash, or, in the discretion of the Committee, acting at or after grant, by delivering unrestricted shares already owned by the optionee, or, in the case of the exercise of a nonqualified stock option, by delivery of restricted stock or deferred stock; provided, however, that in the case of an incentive stock option, the right to make a payment in the form of already owned shares may be authorized only at the time the option is granted. Upon receipt of written notice of exercise, the Committee also has the discretion to cash-out all or part of the portion of the stock options to be exercised by paying the optionee an amount, in cash or stock, equal to the excess of the fair market value of the shares subject to the options over the option price on the effective date of such cash-out, provided that the optionee's option agreement so provides. If an optionee's employment with the Company or any subsidiary or affiliate is terminated by reason of disability or retirement, any stock option (to the extent exercisable at the date of termination of employment) held by such optionee may be exercised by the optionee for a period of three years (or such shorter period as the Committee may specify at grant) from the date of such termination of employment or until the expiration of the option, whichever period is shorter. If an optionee's employment with the Company or any subsidiary or affiliate is terminated by reason of death, any stock option (to the extent exercisable at the date of termination of employment) held by such optionee may be exercised by the legal representative of the estate or by the optionee's legatee for a period of one year (or such other period up to three years as the Committee may specify at or after grant) from the date of death or until the expiration of such stock option, whichever period is shorter. Unless otherwise determined by the Committee, if an optionee's employment with the Company or any subsidiary or affiliate is terminated for any reason other than death, disability or retirement, such optionee's option will terminate immediately. An optionee generally does not recognize income as a result of the grant of a nonqualified or incentive stock option. Upon the exercise of a nonqualified stock option, the optionee generally will recognize ordinary income in the amount of the "spread" between the exercise price and the fair market value of the stock received upon exercise. When the shares are disposed of, the optionee generally will recognize capital gain (or loss) in an amount equal to the difference between the fair market value at the time of exercise and the net proceeds from the sale. Generally, an optionee does not recognize income upon the exercise of an incentive stock option if he satisfies certain employment and holding period requirements. To satisfy the employment requirement, an optionee must exercise the option not later than three months after he ceases to be an employee of the Company (one year if he is disabled) unless he has died. To satisfy the holding period requirement, the optionee must hold the option stock for more than two years from the date of grant of the option and more than one year from the exercise. If these requirements are met, the optionee will recognize capital gain (or loss) measured by the difference between the exercise price and the net proceeds of the sale, at the time of disposition. If the stock is sold prior to satisfaction of the holding period (a "disqualifying disposition"), the optionee generally will recognize ordinary income 22 at the time of disposition equal to the difference between the fair market value of the option stock on the date of exercise (or the sale price, if less) and the exercise price, and the balance of the optionee's gain will be treated as capital gain. The Company generally will be entitled to a tax deduction corresponding in amount and time to the optionee's recognition of ordinary income in the circumstances described above. Awards of restricted stock may be made at the discretion of the Committee and will consist of shares subject to forfeiture and restrictions on transfer. The participant must accept an award of restricted stock within up to 60 days after the award date by executing and delivering to the Company a restricted stock award agreement and paying the purchase price (if any) for such stock as determined by the Committee. The recipient of restricted stock will have all of the rights of a stockholder of the Company, including the right to vote the shares and the right to receive any dividends, subject to the restrictions set forth in the 1990 Plan and the instrument evidencing such award. The Committee may require that the stock certificates evidencing such shares be held in custody by the Company during the restricted period. During a period set by the Committee beginning with the date of the award, the recipient may not sell, transfer, pledge, assign or otherwise encumber shares of restricted stock until the restricted period has passed. Based on service, performance and/or such other factors or criteria as the Committee may determine, the Committee may at or after grant provide for the lapse of such restrictions in installments and/or may accelerate or waive such restrictions in whole or in part. The Committee has authority to determine the duration of the restricted period and the conditions under which restricted stock may be forfeited, as well as the other terms and conditions of such awards. Awards of deferred stock under the 1990 Plan may be made at the discretion of the Committee and will consist of shares, subject to forfeiture and restrictions on transfer, which will be delivered at the end of the specified deferral period. Deferred stock may not be sold, transferred, pledged, assigned or otherwise encumbered until the deferral period has lapsed. Based on service, performance and/or such other criteria as it may determine, the Committee may, at or after grant, accelerate the vesting of all or any part of any deferred stock award and/or waive the deferral limitations for all or any part of such award. The Committee has authority to determine the duration of the deferral period and the conditions under which deferred stock may be forfeited, as well as the other terms and conditions of such awards. Unless otherwise determined by the Committee, amounts equal to any dividends that would have been payable during the deferral period with respect to the deferred stock shall be reinvested in additional deferred stock. Subject to approval by the Committee, a participant may elect to further defer receipt of deferred stock for a specified period or until a specified event. The Committee may grant performance units, which are contingent rights to receive future payments based upon the achievement of specified management objectives (for the Company or an operating division, department, function or subsidiary) established by the Committee. Each grant will specify the number of performance units and the initial value, if any, of the performance units to which it pertains. The amount paid will be based upon the extent to which the management objectives are achieved over a performance period (which may not be less than one year) established by the Committee. Each grant will specify a minimum acceptable level of achievement in respect of the specified management objectives below which no payment will be made and shall set forth a formula for determining the amount of payment to be made if performance is equal to or greater than such minimum but less than the full achievement of the management objectives. Payments may be made in 23 cash or shares of stock, at the discretion of the Committee. The Committee may adjust management objectives and the related minimum acceptable level of achievement if, in the sole judgment of the Committee, events or transactions have occurred after the date such performance units become effective that are unrelated to the performance of the participant and result in distortion of the management objectives or the related minimum acceptable achievement level. The 1990 Plan may be amended, altered or discontinued at any time by the Board of Directors without the optionees' or participants' consent, unless it would impair their rights with respect to an outstanding award under the 1990 Plan. Stockholder approval is required for any increase in the total number of shares reserved for the 1990 Plan, any change in class of eligible employees, any extension of the maximum option period, or for any amendment or alteration which would cause Rule 16b-3 under the Securities Exchange Act of 1934, as amended, to become inapplicable to the 1990 Plan. The Board of Directors may amend the 1990 Plan to take into account changes in tax, securities law and accounting rules, subject to the above provisions. In the event of a change in corporate structure affecting the Common Stock of the Company, the Board has discretion to make adjustments in the aggregate number or kind of shares that are reserved for issuance under the 1990 Plan and for shares subject to other outstanding awards granted under the 1990 Plan. In such event, the Committee also has the discretion to make adjustments to the option price of shares subject to outstanding options. The Committee has discretion as to the specific terms and conditions of each award and any rules applicable thereto. The awards authorized under the 1990 Plan are subject to applicable tax withholding requirements and may not be assigned or transferred except by will or the laws of descent and distribution. No award may be granted under the 1990 Plan after the tenth anniversary of the effective date of the 1990 Plan, but awards granted prior to such tenth anniversary may extend beyond that date. Because the timing and amount of awards under the Plan are determined by the Committee in its discretion, the benefits or amounts that will be received by any person as a result of the amendment, other than contingent awards previously granted, cannot be determined. Approximately 220 key employees of the Company are eligible to receive awards under the 1990 Plan. Assuming approval of 24 the amendment, the number of shares presently subject to awards issuable to the persons indicated is set forth below: NEW PLAN BENEFITS
DOLLAR NAME AND POSITION* VALUE ($)(1) NUMBER OF UNITS (2) - -------------------------------------------------------------- ----------------- ------------------- Charles P. McCall............................................. 1,338 Jay P. Gilbertson............................................. 171 James A. Gilbert.............................................. 160 Albert J. Bergonzi............................................ 163 Russell G. Overton............................................ 7,630(3) ADDITIONAL PERSONS WHO SERVED AS EXECUTIVE OFFICERS THROUGH MAY, 1995 Glenn N. Rosenkoetter......................................... 20,165(4) David A. Schenk............................................... 124 Executive Group............................................... 29,751(5) Non-Executive Director Group.................................. -0- Non-Executive Officer Employee Group.......................... 291,350(6)
- ------------------------ * See Summary Compensation Table (1) Shares subject to awards were granted at the fair market value of $88.25 on the date of grant and do not have a readily ascertainable value. (2) Represents number of restricted shares awarded under the 1990 Plan pursuant to the MIP for 1995 unless otherwise indicated. (3) Represents 7,500 shares subject to options and 130 shares of restricted stock. (4) Represents 20,000 shares subject to options and 165 shares of restricted stock. (5) Includes 27,500 shares subject to options and 2,251 shares of restricted stock. (6) Includes 286,500 shares subject to options and 4,850 shares of restricted stock. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT OF THE HBO & COMPANY 1990 EXECUTIVE INCENTIVE PLAN APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS Upon the recommendation of the Audit Committee, the Board of Directors has appointed Arthur Andersen LLP as independent public accountants for the Company for the year ending December 31, 1996. The Board of Directors recommends that such appointment be ratified. Representatives of Arthur Andersen LLP will be present at the meeting and shall have the opportunity to make a statement, if they desire to do so, and respond to appropriate questions. 25 THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE COMPANY OTHER MATTERS THAT MAY COME BEFORE THE MEETING Management of the Company knows of no matters other than those stated above that are to be brought before the meeting. However, if any such other matters should be presented for consideration and voting, it is the intention of the persons named in the proxy to vote thereon in accordance with their judgment. STOCKHOLDER PROPOSALS Proposals by stockholders intended to be presented at the 1997 Annual Meeting must be forwarded in writing and received at the principal executive office of the Company no later than December 5, 1996, directed to the attention of the Secretary, for consideration for inclusion in the Company's proxy statement for the Annual Meeting of Stockholders to be held in 1997. Any such proposals must comply in all respects with the rules and regulations of the Securities and Exchange Commission. James A. Gilbert SECRETARY April 4, 1996 26 APPENDIX A PROPOSED AMENDMENT TO THE CERTIFICATE OF INCORPORATION INCREASING THE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK Set forth below is the text of the proposed amendment of the first paragraph of Article 4 of the Certificate of Incorporation: "4. The total number of shares of stock which the Company shall have authority to issue is two hundred fifty one million (251,000,000), two hundred fifty million (250,000,000) of which shall be common stock with a par value of five cents ($.05) per share, amounting in the aggregate to twelve million five hundred thousand dollars ($12,500,000), and one million (1,000,000) of which shall be preferred stock without par value." Set forth below is the text of the existing paragraph of Article 4 of the Certificate of Incorporation, which would be stricken in its entirety and replaced by the proposed amendment set forth above: "4. The total number of shares of stock which the Company shall have authority to issue is sixty-one million (61,000,000), sixty million (60,000,000) of which shall be common stock with a par value of five cents ($.05) per share, amounting in the aggregate to three million dollars ($3,000,000), and one million (1,000,000) of which shall be preferred stock without par value." A-1 APPENDIX B PROPOSED AMENDMENT OF THE HBO & COMPANY 1993 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS Set forth below is the text of new Section 5(c) of the HBO & Company 1993 Stock Option Plan For Nonemployee Directors: "(c) Initial Grants. Each Nonemployee Director other than those who received a grant under Section 5(a), shall be granted an option to purchase 12,500 shares of Stock on the date of the first Board meeting which he participates in as a Director, which option shall be, in the case of any Nonemployee Director first elected at an annual meeting of stockholders, in addition to the grant of any option provided for in Section 5(b)." Set forth below is the text of the first sentence of Section 6 of the HBO & Company 1993 Stock Option Plan For Nonemployee Directors as proposed to be amended in its entirety: "Each grant under Sections 5(b) and 5(c) above shall be evidenced by a Stock Option Agreement in substantially the form of Exhibit A hereto." B-1 PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF HBO & COMPANY FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 14, 1996 THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL PROPOSALS. 1. To elect nine Directors. FOR all nominees listed below WITHHOLD AUTHORITY to vote for (except as instructed below) / / all nominees listed below / / Alfred C. Eckert III, Holcombe T. Green, Jr., Philip A. Incarnati, Alton F. Irby III, Gerald E. Mayo, Charles W. McCall, James V. Napier, Charles E. Thoele, Donald C. Wegmiller. INSTRUCTIONS: To withhold authority to vote for any individual nominee, write that nominee's name here: - ------------------------------------------------------------------------------ 2. To approve the Amendment of the Certificate of Incorporation to increase authorized shares from 60,000,000 to 250,000,000. FOR / / AGAINST / / ABSTAIN / / 3. To approve the Amendment to the HBO & Company 1993 Stock Option Plan for Nonemployee Directors to provide an initial grant of options to purchase 12,500 shares to newly-elected Directors. FOR / / AGAINST / / ABSTAIN / / 4. To approve the Amendment to the HBO & Company 1990 Executive Officer Incentive Plan to increase the number of shares by an additional 1,500,000 shares. FOR / / AGAINST / / ABSTAIN / / 5. To ratify appointment of Arthur Andersen LLP, as independent public accountants. FOR / / AGAINST / / ABSTAIN / / The shares represented by this proxy card will be voted as directed above. IF NO DIRECTION IS GIVEN AND THE PROXY CARD IS VALIDLY EXECUTED, THE SHARES WILL BE VOTED FOR ALL LISTED PROPOSALS. In their discretion, the proxy holders are authorized to vote upon such other business as may properly come before the meeting. The undersigned hereby appoints Holcombe T. Green, Jr. and James A. Gilbert, or either of them, with full power of substitution as proxy holders to represent and to vote as designated on the reverse hereof, the Common Stock of the undersigned at the Annual Meeting of Stockholders of the Company to be held on May 14, 1996, or any postponement of adjournment thereof. _____________________________________ Signature of Stockholder _____________________________________ Signature of Stockholder Dated _________________________, 1996 IMPORTANT: Sign exactly as your name appears at left. Give full title of executor, administrator, trustee, guardian, etc. Joint owners should each sign personally. -----END PRIVACY-ENHANCED MESSAGE-----