def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant ý
Filed by a Party other than the Registrant o
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Preliminary Proxy Statement |
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Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Under Rule 14a-12 |
Quality Systems, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. |
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Title of each class of securities to which transaction applies: |
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Aggregate number of securities to which transaction applies: |
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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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Proposed maximum aggregate value of transaction: |
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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
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Form, Schedule or Registration Statement No.: |
18111 Von Karman Avenue, Suite 700
Irvine, California 92612
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 11, 2011
To the Shareholders of Quality Systems, Inc.:
The annual meeting of shareholders of Quality Systems, Inc. will
be held at the Center Club located at 650 Town Center Drive,
Costa Mesa, California 92626, on August 11, 2011, at
1:00 p.m. Pacific Time, for the following purposes:
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to elect the nine director nominees named in the attached proxy
statement to serve until the 2012 annual meeting of shareholders;
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to approve the Quality Systems, Inc. Second Amended and Restated
2005 Stock Option and Incentive Plan;
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to ratify the appointment of PricewaterhouseCoopers LLP as our
independent registered public accounting firm for the fiscal
year ending March 31, 2012;
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to conduct an advisory vote on the compensation of our named
executive officers (the
Say-On-Pay
vote);
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to conduct an advisory vote on the frequency of an advisory vote
on the compensation of our named executive officers (the
Say-On-Frequency
vote); and
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to transact such other business as may properly come before the
annual meeting or any adjournments or postponements of the
annual meeting.
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All shareholders are cordially invited to attend the annual
meeting in person. Only shareholders of record at the close of
business on June 13, 2011 are entitled to notice of and to
vote at the annual meeting and at any adjournments or
postponements of the annual meeting.
Whether or not you plan to attend the annual meeting, your vote
is important. In an effort to facilitate the voting process, we
are pleased to take advantage of Securities and Exchange
Commission rules that allow proxy materials to be furnished to
shareholders on the Internet. You can vote by proxy over the
Internet by following the instructions provided in the Notice of
Internet Availability of Proxy Materials that was mailed to you
on or about July 1, 2011, or, if you request printed copies of
the proxy materials by mail, you can also vote by mail or by
telephone. Your promptness in voting by proxy will assist in the
expeditious and orderly processing of your vote and will assure
that you are represented at the annual meeting. If you vote by
proxy, you may nevertheless attend the annual meeting and vote
your shares in person.
TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, YOU ARE
URGED TO READ THIS PROXY STATEMENT AND SUBMIT YOUR PROXY OR
VOTING INSTRUCTIONS AS SOON AS POSSIBLE BY FOLLOWING THE
INSTRUCTIONS IN THE NOTICE OF INTERNET AVAILABILITY OF
PROXY MATERIALS, WHICH WAS MAILED TO YOU ON OR ABOUT JULY 1,
2011, OR, IF YOU REQUEST PRINTED COPIES OF THE PROXY MATERIALS
BY MAIL, YOU CAN ALSO VOTE BY MAIL OR BY TELEPHONE.
OUR BOARD OF DIRECTORS RECOMMENDS: A VOTE
FOR EACH OF THE NINE DIRECTOR NOMINEES NAMED IN THE
PROXY STATEMENT; A VOTE FOR PROPOSALS 2, 3 AND
4; AND A VOTE FOR 1 YEAR WITH RESPECT TO
PROPOSAL 5.
By Order of the Board of Directors,
QUALITY SYSTEMS, INC.
/s/ James J. Sullivan
Executive Vice President, General Counsel and Secretary
Irvine, California
July 1, 2011
18111 Von
Karman Avenue, Suite 700
Irvine, California 92612
ii
ANNUAL
MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 11, 2011
PROXY
STATEMENT
SOLICITATION
OF PROXIES
The accompanying proxy is solicited by the Board of Directors
(Board) of Quality Systems, Inc. for use at our
annual meeting of shareholders to be held at the Center Club
located at 650 Town Center Drive, Costa Mesa, California 92626,
on August 11, 2011, at 1:00 p.m. Pacific Time, and at
any and all adjournments and postponements thereof. All shares
represented by each properly submitted and unrevoked proxy
received in advance of the annual meeting will be voted in the
manner specified therein.
Any shareholder has the power to revoke the shareholders
proxy at any time before it is voted. A proxy may be revoked by
delivering a written notice of revocation to our Secretary prior
to or at the annual meeting, by voting again on the Internet or
by telephone (only your latest Internet or telephone proxy
submitted prior to 11:59 P.M. Eastern Time on Wednesday,
August 10, 2011 will be counted), by submitting to our
Secretary, prior to or at the annual meeting, a later dated
proxy card executed by the person executing the prior proxy, or
by attendance at the annual meeting and voting in person by the
person submitting the prior proxy.
Any shareholder who holds shares in street name and desires to
vote in person at the annual meeting should inform the
shareholders broker of that desire and request a legal
proxy from the broker. The shareholder will need to bring the
legal proxy to the annual meeting along with valid picture
identification such as a drivers license or passport, in
addition to documentation indicating share ownership. If the
shareholder does not receive the legal proxy in time, then the
shareholder should bring to the annual meeting the
shareholders most recent brokerage account statement
showing that the shareholder owned Quality Systems, Inc. common
stock as of the record date. Upon submission of proper
identification and ownership documentation, we should be able to
verify ownership of common stock and admit the shareholder to
the annual meeting; however, the shareholder will not be able to
vote at the annual meeting without a legal proxy. Shareholders
are advised that if they own shares in street name and request a
legal proxy, any previously executed proxy will be revoked, and
the shareholders vote will not be counted unless the
shareholder appears at the annual meeting and votes in person.
This proxy statement, the accompanying proxy card and our
2011 annual report are being made available to our shareholders
on or about July 1, 2011, on the Internet at www.proxyvote.com
through the notice and access process. We will bear the cost
of soliciting proxies pursuant to this proxy statement.
Solicitations will be made by mail, and expenses will include
reimbursement paid to brokerage firms and others for their
expenses in forwarding solicitation material regarding the
annual meeting to beneficial owners of our common stock. Further
solicitation of proxies may be made by telephone or oral
communications with some shareholders. In the course of their
regular duties, our employees may be asked to perform clerical
or ministerial tasks in furtherance of solicitations.
1
OUTSTANDING
SHARES AND VOTING RIGHTS
Only holders of record of the 29,207,837 shares of our
common stock outstanding at the close of business on the record
date, June 13, 2011, are entitled to notice of and to vote
at the annual meeting or any adjournments or postponements
thereof. A majority of the outstanding shares, represented in
person or by proxy, will constitute a quorum for the transaction
of business. All properly submitted and unrevoked proxies will
be counted in determining the presence of a quorum, including
those providing for abstention or withholding of authority and
those submitted by brokers voting without beneficial owner
instruction and exercising a non-vote on certain matters.
Each shareholder will be entitled to one vote, in person or by
proxy, for each share of common stock held on the record date.
If any shareholder gives notice at the annual meeting, prior to
the voting, of an intention to cumulate the shareholders
votes in the election of directors, then all shareholders
entitled to vote at the annual meeting may cumulate their votes
in the election of directors. Cumulative voting means that a
shareholder has the right to give any one candidate who has been
properly placed in nomination a number of votes equal to the
number of directors to be elected multiplied by the number of
shares the shareholder is entitled to vote, or to distribute
such votes on the same principle among as many properly
nominated candidates (up to the number of persons to be elected)
as the shareholder may wish. The proxy being solicited by our
Board confers upon the proxy holders the authority to cumulate
votes at the instruction and discretion of our Board or any
committee thereof so as to provide for the election of the
maximum number of our director nominees (for whom authority is
not otherwise specifically withheld) including, but not limited
to, the prioritization of such nominees to whom such votes may
be allocated.
Whether the election of directors is by plurality vote or
cumulative voting, with respect to Proposal No. 1, the
nine nominees for director who receive the highest number of
affirmative votes will be elected; abstentions and broker
non-votes will have no effect on this proposal. In circumstances
where there is a contested election
and/or one
or more of our shareholders demand that cumulative voting apply
to the election of directors, our Board has delegated authority
to its Proxy Voting Committee to provide instruction to such
proxy holders to vote the proxies solicited hereby in such
manner as to provide for the election of the maximum number of
our director nominees (for whom authority is not otherwise
specifically withheld) including, but not limited to, the
prioritization of such nominees to whom such votes may be
allocated.
Approval of Proposal No. 2, the approval of the
Quality Systems, Inc. Second Amended and Restated 2005 Stock
Option and Incentive Plan, will be approved if the vote
constitutes both: (i) the affirmative vote of a majority of
common stock present in person or represented by proxy and
voting on the proposal and (ii) the affirmative vote of a
majority of the quorum. For purposes of this proposal,
abstentions and broker non-votes will not affect the outcome
under clause (i), which recognizes only actual votes for or
against the proposal. Abstentions and broker non-votes may
affect the outcome under clause (ii) because abstentions
and broker non-votes are counted for purposes of determining the
quorum and have the effect of a vote against the proposal.
Approval of Proposal No. 3, the ratification of the
appointment of our independent registered public accounting
firm, is not required. However, this proposal will be considered
approved if the vote constitutes both: (i) the affirmative
vote of a majority of common stock present in person or
represented by proxy and voting on the proposal and
(ii) the affirmative vote of a majority of the quorum. For
purposes of this proposal, abstentions and broker non-votes will
not affect the outcome under clause (i), which recognizes only
actual votes for or against the proposal. Abstentions and broker
non-votes may affect the outcome under clause (ii) because
abstentions and broker non-votes are counted for purposes of
determining the quorum and have the effect of a vote against the
proposal.
Approval of Proposal No. 4, an advisory vote on the
compensation of our named executive officers, will be considered
approved if the vote constitutes both: (i) the affirmative
vote of a majority of common stock present in person or
represented by proxy and voting on the proposal and
(ii) the affirmative vote of a
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majority of the quorum. For purposes of this proposal,
abstentions and broker non-votes will not affect the outcome
under clause (i), which recognizes only actual votes for or
against the proposal. Abstentions and broker non-votes may
affect the outcome under clause (ii) because abstentions
and broker non-votes are counted for purposes of determining the
quorum and have the effect of a vote against the proposal.
Approval of Proposal No. 5, an advisory vote on the
frequency of an advisory vote on the compensation of our named
executive officers, requires both (i) the affirmative vote
of a majority of common stock present in person or represented
by proxy and voting on the proposal and (ii) the
affirmative vote of a majority of the quorum. For purposes of
this proposal, abstentions and broker non-votes will not affect
the outcome under clause (i), which recognizes only actual votes
for one of the frequency alternatives. Abstentions and broker
non-votes may affect the outcome under clause (ii) because
abstentions and broker non-votes are counted for purposes of
determining the quorum and have the effect of a vote against the
proposal. With respect to Proposal No. 5, if none of
the frequency alternatives (one year, two years or three years)
receive a majority vote, we will consider the frequency that
receives the highest number of votes by shareholders to be the
frequency that has been selected by shareholders.
3
ELECTION
OF DIRECTORS
(Proposal No. 1)
Proposal No. 1 concerns the election of the following
director nominees: Messrs. Barbarosh, Brennan, Bristol,
Cline, Hussein, Pflueger, Plochocki and Razin and
Ms. Spivack. Each of our director nominees has consented to
being named in this proxy statement and has agreed to serve as a
director if elected. Directors are elected at each annual
meeting of shareholders and hold office until the next annual
meeting or until their respective successors are duly elected
and qualified.
Certain information with respect to our nine director nominees
is set forth below. Although we anticipate that each nominee
will be available to serve as a director, if any nominee becomes
unavailable to serve, the proxies will be voted for another
person as may be or has been designated by our Board.
Unless the authority to vote for one or more of our director
nominees has been withheld in a shareholders proxy, the
persons named in the proxy as proxy holders intend to vote at
the annual meeting For the election of each nominee
presented below. In circumstances where there is a contested
election
and/or one
or more of our shareholders demands that cumulative voting apply
to the election of the directors, our Board has delegated
authority to its Proxy Voting Committee to provide instruction
to such proxy holders to vote the proxies solicited hereby in
such manner as to provide for the election of the maximum number
of our director nominees (for whom authority is not otherwise
specifically withheld) including, but not limited to, the
prioritization of such nominees to whom such votes may be
allocated.
In the election of directors, assuming a quorum is present, the
nine nominees receiving the highest number of votes cast at the
meeting will be elected directors. Proxies specifying
Withhold Authority will be counted for purposes of
determining whether a quorum is present, as will proxies
submitted by brokers voting without beneficial owner instruction
and exercising a non-vote on certain matters.
Based on definitions of independence established by The Nasdaq
Stock Market (Nasdaq), guidelines established in our
Bylaws, and the determination of our Board,
Messrs. Barbarosh, Brennan, Bristol, Hussein, Pflueger and
Razin and Ms. Spivack are independent directors.
Mr. Cline and Mr. Plochocki, each a member of our
management team, are non-independent directors.
The Nasdaq independence definition includes a series of
objective tests, such as that the director is not and has not
been for the past three years an employee of ours and has not
engaged in various types of business dealings with us. In
addition, as further required by Nasdaq rules, our Board has
made a subjective determination as to each independent director
that no relationships exist which, in the opinion of our Board,
would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director. In making these
determinations, our Board reviewed and discussed information
provided by our directors and management with regard to each
directors business and personal activities as they may
relate to us and our management. The independent members of our
Board meet periodically in executive session without management.
OUR BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR
EACH OF THE DIRECTOR NOMINEES NAMED IN THIS PROXY STATEMENT AND
LISTED ON THE PROXY CARD.
OUR BOARD
OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
EACH OF THE DIRECTOR NOMINEES NAMED BELOW:
Steven T. Plochocki, age 59, is a director and has
been our Chief Executive Office since August 16, 2008. From
February 2007 to May 2008, he served as Chairman and Chief
Executive Officer of Omniflight Helicopter, Inc., a Dallas-based
air medical services company. From October 2006 to February
2007, Mr. Plochocki was a private healthcare investor. He
previously served as Chief Executive Officer and Director
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of Trinity Hospice, a national hospice provider from October
2004 through October 2006. Prior to joining Trinity Hospice, he
was Chief Executive Officer of InSight, a national provider of
diagnostic imaging services from November 1999 to August 2004.
He was Chief Executive Officer of Centratex Support Services,
Inc., a support services company for the healthcare industry and
had previously held other senior level positions with healthcare
industry firms. He holds a B.A. in Journalism and Public
Relations from Wayne State University and a Masters degree
in Business Management from Central Michigan University.
Mr. Plochocki has been a director of our company since
2004. Mr. Plochockis position as our Chief Executive
Officer, as well as his prior executive experience with other
companies, provides our Board with the perspective of a person
with significant executive management experience.
Patrick B. Cline, age 50, is a director and has been
our President since November 2009. Mr. Cline was a
co-founder of Clinitec (now NextGen Healthcare), a company we
acquired in 1996, and served as its President from its inception
in January 1994 until he was appointed our President in November
2009. He also served as our interim Chief Executive Officer from
April 2000 to July 2000. Prior to co-founding Clinitec,
Mr. Cline served from July 1987 to January 1994 as Vice
President of Sales and Marketing with Script Systems, a
subsidiary of InfoMed, a healthcare information systems company.
Mr. Cline has held senior positions in the healthcare
information systems industry since 1981 and has been a director
of our company since 2005. Mr. Clines experience as
our President, as well as his previous experience as the
co-founder and President of NextGen Healthcare, gives him unique
insights into our business opportunities and operations.
Craig A. Barbarosh, age 43, is a director.
Mr. Barbarosh has been a partner of the international law
firm of Pillsbury Winthrop Shaw Pittman LLP since 1999 and is a
nationally recognized restructuring expert. He has served in
several leadership positions while a partner at Pillsbury
including serving on the firms Board of Directors, as the
Chair of the firms Boards Strategy Committee, as a
co-leader of the firms national Insolvency &
Restructuring practice section and as the Managing Partner of
the firms Orange County office. Mr. Barbarosh
received a Juris Doctorate from the University of the Pacific,
McGeorge School of Law in 1992 and a Bachelor of Arts in
Business Economics from the University of California at
Santa Barbara in 1989. Mr. Barbarosh received
certificates from Harvard Business School for completing
executive education courses on Private Equity and Venture
Capital (2007) and Financial Analysis for Business
Evaluation (2010). Mr. Barbarosh has been a director of our
company since September 2009. Mr. Barbarosh, as a
practicing attorney specializing in the area of financial and
operational restructuring and related mergers and acquisitions,
provides our Board with experienced guidance on similar
transactions facing our company.
Murray F. Brennan, M.D., age 71, is a director.
Dr. Brennan is Emeritus Chairman of the Memorial
Sloan-Kettering Cancer Centers Department of Surgery and
previously served as its Chairman from 1985 to 2007. He has
served as director of the American Board of Surgery, Chairman of
the American College of Surgeons Commission on Cancer, President
of the Society of Surgical Oncology, President of the American
Surgical Association, and Vice President of the American College
of Surgeons. Dr. Brennan is currently a member of the
National Academy of Sciences. Dr. Brennan has been a
director of our company since 2008. Dr. Brennan currently
serves on the Board of Directors of Ziopharm Oncology, Inc., a
publicly-held biopharmaceutical company engaged in the
development and commercialization of a diverse portfolio of
cancer drugs to address unmet medical needs. Dr. Brennan
also serves on the Board of Directors of the de Beaumont
Foundation. Dr. Brennans extensive international
experience provides our Board with a global perspective, and his
involvement within various national and international medical
societies provides our Board with the perspective of an
accomplished practitioner in the healthcare industry.
George H. Bristol, age 62, is a director.
Mr. Bristol is a Managing Director of Janas Associates, a
corporate financial advisor. From August 2006 until March 2010
he served as Managing Director Corporate Finance of
Crowell Weedon & Co. Prior to August 2006, he was a
member and Chief Financial Officer of Vantis Capital Management,
LLC, a registered investment advisor which managed the Vantis
hedge funds totaling over $1.4 billion from November 2002.
Prior to Vantis, he was an investment banker with several firms
including Ernst & Young, Paine Webber, Prudential
Securities and Dean Witter. He is a graduate of the University
of Michigan and Harvard Business School. Mr. Bristol has
been a director of our company since
5
2008. Mr. Bristols experience at Janas, Vantis and
his various corporate finance positions provides our Board with
insight from someone with direct responsibility for strategic
and transactional financial matters.
Ahmed D. Hussein, age 70, is a director.
Mr. Hussein is the Chairman of the Board of Directors of
National Investment Company, Cairo, Egypt. Mr. Hussein
founded National Investment Company in 1996 and has served as a
member of its Board of Directors since its inception and as
Chairman since 1999. Mr. Hussein served as a Senior Vice
President of Dean Witter from 1993 to 1996 and, earlier, served
as an investment banker with various firms, including L.F.
Rothschild, Prudential Bache Securities, Oppenheimer &
Co., Smith Barney and Shearson Lehman Hutton.
Mr. Hussein is a member of the board of trustees of the Six
of October University. Mr. Hussein holds a Bachelors degree
in Electrical Engineering from Cairo University, a Masters
of Science degree from the American University of Cairo, a
Postgraduate degree in Statistics from Cairo University, a
Masters of Science degree in Mathematics from the
Polytechnic Institute of New York, and a Doctorate degree in
Electrical Engineering from the Polytechnic Institute of New
York. Mr. Hussein has been a director of our company since
1999. Mr. Husseins background as an investment banker
with international experience provides our Board a perspective
on global capital markets and corporate finance.
D. Russell Pflueger, age 47, is a director.
Mr. Pflueger is the founder of Quiescence Medical, Inc., a
medical device development company, and has served as its
Chairman and Chief Executive Officer since its inception in
2002. During 2001 and 2002, he founded and served as Chairman
and Chief Executive Officer of Pain Concepts, Inc., a medical
device company. He holds a chemical engineering degree from
Texas A& M University and an MBA from the University of
California at Irvine. Mr. Pflueger has been a director of
our company since 2006. Mr. Pflueger brings to our Board
experience in the healthcare industry as an entrepreneur and
corporate and government employee, as well as his diverse
work-related experiences in research and development, sales and
executive management.
Sheldon Razin, age 73, is a director. He is the
founder of our company and has served as our Chairman of the
Board since our incorporation in 1974. He served as our Chief
Executive Officer from 1974 until April 2000. Since our
incorporation until April 2000, he also served as our President,
except for the period from August 1990 to August 1991.
Additionally, Mr. Razin served as our Treasurer from our
incorporation until October 1982. Prior to founding our company,
he held various technical and managerial positions with Rockwell
International Corporation and was a founder of our predecessor,
Quality Systems, a sole proprietorship engaged in the
development of software for commercial and space applications
and in management consulting work. Mr. Razin holds a B.S.
degree in Mathematics from the Massachusetts Institute of
Technology. Mr. Razin, as our founder, brings valuable
knowledge to our Board regarding our history, operations,
technology and marketplace.
Maureen A. Spivack, age 54, is a director. She has
been a Managing Director within the Health Care Investment
Banking Group of Morgan Keegan & Company, Inc. since
2008. Ms. Spivack has over 20 years of experience in
executing strategic and financial transactions for health care
companies. Prior to joining Morgan Keegan &
Company, Inc., Ms. Spivack served as a Managing Director in
the Global Healthcare Group of UBS Investment Bank from
2006 until June 2008. From 1998 to 2006, Ms. Spivack was a
Managing Director and head of Strategic Advisory Services for
Health Care at Merrill Lynch & Co. Prior to joining
Merrill Lynch Health Care Group, Ms. Spivack was a Partner
at Ernst & Young, where she managed the National
Healthcare Corporate Finance practice for 10 years.
Ms. Spivack has an MBA from The Wharton School and an MSN
from the University of Pennsylvania. Ms. Spivacks
20 years of experience executing strategic and financial
transactions for publicly traded, privately held and
not-for-profit
healthcare companies provides our Board with significant
experience in these areas.
6
NON-DIRECTOR
EXECUTIVE OFFICERS
Scott Decker, age 45, was appointed President of
NextGen Healthcare in November 2009. Prior to this,
Mr. Decker served as Senior Vice President, Marketing and
Product Management of NextGen Healthcare from October 2007 to
November 2009. From July 1999 to September 2007, Mr. Decker
was Chief Executive Officer and President of Healthvision, Inc.,
a healthcare information technology company.
Paul A. Holt, age 45, was appointed our Chief
Financial Officer in November 2000. Mr. Holt served as our
Controller from January 2000 to May 2000 and was appointed
interim Chief Financial Officer in May 2000. Prior to joining
us, Mr. Holt was the Controller of Sierra Alloys Co., Inc.,
a titanium metal manufacturing company, from August 1999 to
December 1999. From May 1997 to July 1999, he was Controller of
Refrigeration Supplies Distributor, a wholesale distributor and
manufacturer of refrigeration supplies and heating controls.
From March 1995 to April 1997 he was Assistant Controller of
Refrigeration Supplies Distributor. Mr. Holt was a
Certified Public Accountant at McGladrey & Pullen and
holds an M.B.A. from the University of Southern California and a
B.A. in Economics from the University of California, Irvine.
Donn E. Neufeld, age 54, was appointed our Executive
Vice President of EDI and Dental in April 2010. Mr. Neufeld
served as our Senior Vice President and General Manager, QSI
Division, from April 2008 to April 2010, as our Vice President,
Software and Operations, from January 1996 to April 2008 and as
our Vice President of Operations from June 1986 until January
1996. From April 1981 until June 1986, Mr. Neufeld held the
position of Manager of Customer Support. He joined our company
in 1980.
Steve K. Puckett, age 46, was appointed our
Executive Vice President of our Inpatient Solutions Division in
January 2011. From June 2009 to January 2011, he served as our
Senior Vice President and General Manager of Inpatient
Solutions, when our inpatient solution offerings were managed
within our NextGen Division. From September 1992 to May 1997,
Mr. Puckett was co-founder, President and Chairman of the
Board of MicroMed Healthcare Information Systems, Inc., a
developer and marketer of practice management systems for
medical group practices that we acquired in May 1997. After our
acquisition of MicroMed, Mr. Puckett served as an officer
of the Company until May 1999. Mr. Puckett began his career
at Accenture and later worked in the inpatient sector at Gerber
Alley, which became a part of McKesson. Mr. Puckett holds
an Industrial Management degree from the Georgia Institute of
Technology.
Monte L. Sandler, age 38, was appointed our
Executive Vice President of NextGen Practice Solutions in April
2010. Mr. Sandler served as our Vice President of Account
Management from May 2008 to April 2010. Prior to joining NextGen
Healthcare, Mr. Sandler was a partner and co-founder of
Healthcare Strategic Initiatives (HSI) from
September 1996 to May 2008 when it was acquired by NextGen
Healthcare. Prior to HSI, Mr. Sandler was an auditor with
KPMG Peat Marwick and is a certified public accountant in
Missouri. Mr. Sandler holds a B.S. degree from the Indiana
University Kelley School of Business.
James J. Sullivan, age 53, was appointed our
Executive Vice President, General Counsel and Secretary in
November 2010. Prior to his appointment, Mr. Sullivan was
Senior Vice President, General Counsel and Secretary of The
TriZetto Group, Inc., a healthcare technology company. Prior to
joining The TriZetto Group in July 2001, Mr. Sullivan ran a
legal and consulting practice focused on general corporate and
securities matters for emerging growth companies from June 2000
to July 2001. From March 1997 to June 2000, Mr. Sullivan
was Senior Vice President, General Counsel and Secretary of Long
Beach Financial Corporation. Earlier in his career,
Mr. Sullivan was a corporate and securities associate with
Gibson, Dunn & Crutcher in its Newport Beach,
California office. Mr. Sullivan brings more than
25 years of experience as a practicing corporate and
securities law attorney, and is also a certified public
accountant (inactive status). Mr. Sullivan holds a J.D.
from Loyola Law School in Los Angeles, California, and a B.S. in
Business Administration from the University of Southern
California, Los Angeles, California.
7
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Except as otherwise indicated in the related footnotes, the
following table sets forth information with respect to the
beneficial ownership of our common stock as of the record date,
June 13, 2011, by:
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|
|
|
|
each of our directors;
|
|
|
|
each of our named executive officers identified in
the Summary Compensation Table for Fiscal Year Ended
March 31, 2011 contained in this proxy statement;
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|
|
|
each person known by us to beneficially own more than 5% of the
outstanding shares of our common stock; and
|
|
|
|
all of our directors and executive officers as a group.
|
Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission, or SEC, and includes
voting or investment power with respect to the securities. To
our knowledge, unless indicated by footnote, and subject to
community property laws where applicable, the persons named in
the table below have sole voting and investment power with
respect to all shares of common stock shown as beneficially
owned by them. Except as indicated in the footnotes to the table
below, shares of common stock underlying options, if any, that
currently are exercisable or are scheduled to become exercisable
for shares of common stock within 60 days after the date of
the table are deemed to be outstanding in calculating the
percentage ownership of each listed person or group but are not
deemed to be outstanding as to any other person or group.
Percentage of beneficial ownership is based on
29,207,837 shares of common stock outstanding as of the
record date, June 13, 2011.
Unless otherwise indicated, the address of each of the
beneficial owners named in the table is
c/o Quality
Systems, Inc., 18111 Von Karman Avenue, Suite 700, Irvine,
California 92612. Messrs. Barbarosh, Brennan, Bristol,
Cline, Hussein, Pflueger, Plochocki and Razin and
Ms. Spivack are current directors of our company and are
director nominees. Messrs. Plochocki, Cline, Holt, Decker
and Neufeld are our named executive officers.
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|
|
|
|
|
|
|
Number of Shares
|
|
Percent of
|
|
|
of Common Stock
|
|
Common Stock
|
Name of Beneficial
Owner
|
|
Beneficially Owned
|
|
Beneficially Owned
|
|
Sheldon Razin
|
|
|
5,102,630
|
(1)
|
|
|
17
|
.4%
|
Ahmed D. Hussein
|
|
|
4,665,100
|
(2)
|
|
|
15
|
.9%
|
Craig A. Barbarosh
|
|
|
2,146
|
|
|
|
*
|
|
Murray F. Brennan, M.D.
|
|
|
4,500
|
(3)
|
|
|
*
|
|
George H. Bristol
|
|
|
4,750
|
(4)
|
|
|
*
|
|
Patrick B. Cline
|
|
|
55,264
|
(5)
|
|
|
*
|
|
D. Russell Pflueger
|
|
|
15,750
|
(6)
|
|
|
*
|
|
Steven T. Plochocki
|
|
|
35,750
|
(7)
|
|
|
*
|
|
Maureen A. Spivack
|
|
|
1,500
|
|
|
|
*
|
|
Scott Decker
|
|
|
9,500
|
(8)
|
|
|
*
|
|
Paul A. Holt
|
|
|
6,500
|
(9)
|
|
|
*
|
|
Donn E. Neufeld
|
|
|
2,932
|
(10)
|
|
|
*
|
|
FMR LLC
|
|
|
2,328,141
|
(11)
|
|
|
8
|
.0%
|
Neuberger Berman Group LLC
|
|
|
1,694,728
|
(12)
|
|
|
5
|
.8%
|
All directors and executive officers as a group (15 persons)
|
|
|
9,911,454
|
(13)
|
|
|
33
|
.7%
|
8
|
|
|
* |
|
Represents less than 1.0%. |
|
|
|
(1) |
|
Includes 46,500 shares underlying options. |
(2) |
|
Includes 46,500 shares underlying options. |
(3) |
|
Includes 2,500 shares underlying options. |
(4) |
|
Includes 2,500 shares underlying options. |
(5) |
|
Includes 36,514 shares underlying options. |
(6) |
|
Includes 12,500 shares underlying options. |
(7) |
|
Includes 33,750 shares underlying options |
(8) |
|
Includes 6,575 shares underlying options. |
(9) |
|
Includes 2,500 shares underlying options. |
(10) |
|
Includes 2,600 shares underlying options. |
(11) |
|
This information is derived from a Schedule 13G/A filed by
FMR LLC (FMR) and Edward C. Johnson 3d
(Mr. Johnson) on February 14, 2011.
According to the Schedule 13G/A, FMR and Mr. Johnson
reported beneficial ownership of 2,328,141 shares. They
state that Fidelity Management & Research Company
(Fidelity) is a wholly-owned subsidiary of FMR and
is the beneficial owner of 2,327,041 shares as a result of
acting as investment advisor to various investment companies.
Mr. Johnson and FMR, through its control of Fidelity each
has sole power to dispose of 2,327,041 shares but neither
FMR nor Mr. Johnson has the sole power to vote or direct
the voting of shares directly by Fidelity, which power resides
with the funds boards of trustees. Pyramis Global Advisors
Trust Company (PGATC) is an indirect
wholly-owned subsidiary of FMR and is the beneficial owner of
1,100 shares as a result of its serving as an investment
manager of institutional accounts. Mr. Johnson and FMR,
through its control of PAGTC each has sole dispositive power and
sole power to vote or to direct the voting of the
1,100 shares owned by accounts managed by PGATC. The
address for FMR, Mr. Johnson and Fidelity is 82 Devonshire
Street, Boston, Massachusetts 02109. The address of PGATC is 900
Salem Street, Smithfield, Rhode Island 02917. |
(12) |
|
This information is derived from a Schedule 13G/A filed by
Neuberger Berman Group LLC and Neuberger Berman LLC on
February 14, 2011. According to the Schedule 13G/A,
Neuberger Berman Group LLC had sole power to vote, and sole
power to dispose of, no shares, and shared power to vote
1,497,113 shares, and shared power to dispose of
1,694,728 shares. The address for Neuberger Berman Group
LLC and Neuberger Berman LLC is 605 Third Avenue, New York, New
York 10158. |
(13) |
|
Includes 197,571 shares underlying options. |
9
EQUITY
COMPENSATION PLAN INFORMATION
The following table sets forth information about our common
stock that may be issued upon the exercise of options under all
of our equity compensation plans as of March 31, 2011.
|
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|
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|
|
|
|
|
|
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Number of
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
|
|
|
|
|
|
|
remaining
|
|
|
|
|
|
|
|
|
|
available
|
|
|
|
|
|
|
|
|
|
for future
|
|
|
|
|
|
|
|
|
|
issuance
|
|
|
|
|
|
|
|
|
|
under equity
|
|
|
|
Number of securities
|
|
|
Weighted-average
|
|
|
compensation
|
|
|
|
to be issued upon
|
|
|
exercise price of
|
|
|
(excluding
|
|
|
|
exercise of outstanding
|
|
|
outstanding
|
|
|
securities
|
|
|
|
options,
|
|
|
options, warrants
|
|
|
reflected in
|
|
|
|
warrants and rights
|
|
|
and rights
|
|
|
column (a))
|
|
Plan Category
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity compensation plans approved by security holders
|
|
|
698,778
|
(1)
|
|
$
|
44.40
|
|
|
|
1,786,624
|
(2)
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
698,778
|
(1)
|
|
$
|
44.40
|
|
|
|
1,786,624
|
(2)
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents 698,778 shares of common stock underlying
options outstanding under our 1998 and 2005 Plan. |
(2) |
|
Represents shares of common stock available for issuance under
options or awards that may be issued under our 2005 Plan. The
material features of these plans are described in Note 12
to the Financial Statements contained in our
Form 10-K
for the fiscal year ended March 31, 2011. |
10
EXECUTIVE
AND DIRECTOR COMPENSATION AND RELATED INFORMATION
Compensation
Discussion and Analysis
Compensation
Objectives and Components
This section discusses the principles underlying executive
compensation policies and decisions and the most important
factors relevant to an analysis of these policies and decisions.
It provides qualitative information regarding the manner and
context in which compensation is awarded to and earned by
executive officers and places in perspective the data presented
in the tables and narrative that follow.
The Compensation Committee has responsibility for establishing
the Companys compensation program and, until recently,
making recommendations to the Board concerning compensation
matters for our executive officers and directors. The
Compensation Committee attempts to create compensation paid to
our named executive officers (as defined below under
the heading Summary Compensation Table for Fiscal Year
Ended March 31, 2011), other officers and outside
directors that is fair, reasonable and competitive.
The Compensation Committees compensation program is
designed to reward the achievement of specific annual goals by
the Company and to align executives interests with those
of the shareholders and customers by rewarding performance above
established goals, with the ultimate objective of improving
shareholder value and customer satisfaction. The Compensation
Committee evaluates both performance and compensation to
maintain our ability to attract and retain employees in key
executive positions and to help ensure that compensation
provided to key executive employees remains competitive relative
to the compensation paid to similar executives. To that end, the
Compensation Committee recommends compensation packages for
named executive officers that include both cash and equity-based
compensation that reward performance as measured against
established goals.
Prior to May 2011, the Compensation Committee reviewed and made
recommendations to the Board for approval regarding annual base
salaries; incentive bonuses, including specific goals and
amounts; equity compensation; employment agreements, severance
arrangements, and
change-in-control
agreements/provisions; and any other benefits or compensation
for named executive officers. The independent members of the
Board would then meet either by means of a committee of
independent directors or in executive session to consider and
act upon the recommendations of the Compensation Committee and
other compensation matters involving the executive officers. In
May 2011, the Board amended the Compensation Committee charter
giving the Compensation Committee authority to approve all forms
of compensation to our executive officers.
The Compensation Committee annually assesses the performance of
each of the named executive officers, although these assessments
are not part of a formal review process, and to date have not
been shared, formally, with the named executive officers.
The Compensation Committee has, from time to time, engaged
independent compensation consultants to advise it on matters of
Board and executive compensation. The Compensation Committee
engaged the services of PricewaterhouseCoopers LLP to provide
compensation consulting services in connection with establishing
the compensation program for our named executive officers for
the fiscal year ended March 31, 2011 and, most recently,
engaged the services of Frederic W. Cook & Co., Inc.
to provide compensation consulting services in connection with
establishing the compensation program for our named executive
officers for the fiscal year ending March 31, 2012. In each
case, the Compensation Committee has utilized these compensation
consultants to compile and present peer-group compensation data
to the Committee, but did not delegate any authority to the
consultants to determine or recommend the amount or form of
executive compensation. The Compensation Committee also consults
publicly available compensation data from time to time as part
of its Board and executive compensation decisions.
11
Key components of the compensation program for fiscal year 2011
were base salary, and cash and equity incentive programs. The
Compensation Committee views the various components of
compensation as related, but distinct. A significant percentage
of total compensation is allocated to incentives as a result of
the foregoing. The Compensation Committee determines the
appropriate level for each compensation component based in part,
but not exclusively, on its recommendations concerning internal
equity and consistency, and other considerations the Committee
deems relevant, such as rewarding extraordinary performance. The
Compensation Committee has not adopted any formal or informal
policies or guidelines for allocating compensation between
long-term and currently paid out compensation, between cash and
non-cash compensation, or among different forms of non-cash
compensation.
We provide named executive officers with base salaries to
compensate them for services rendered during the fiscal year.
Base salaries for named executive officers are determined based
on positions and responsibilities using available market data
and considering individual performance, companywide performance,
future contribution potential, peer compensation levels and
internal equity issues. The weight given to each of these
factors can vary from individual to individual. Base salaries
are intended to be set at levels that, in combination with other
forms of compensation, offer the potential to attract, retain,
and motivate qualified individuals. Base salaries are targeted
to be moderate yet competitive.
Fiscal
Year 2011 Incentive Program Terms
On May 26, 2010, our Compensation Committee and an
executive session of our Board approved a Fiscal Year 2011
Incentive Program for our named executive officers for the
fiscal year ended March 31, 2011. The compensation program
included base salaries and both cash and equity incentive
compensation components. Our Compensation Committee structured
revenue and earnings per share (EPS) growth targets
to require the named executive officers to exert increasingly
greater efforts in order to earn increasingly higher potential
cash and equity incentive compensation.
Base Compensation
Cash salary levels for our named executive officers were set as
follows:
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|
|
|
|
Steven T. Plochocki - $522,500, effective August 16,
2009;
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|
|
Paul A. Holt - $310,000 (an increase from $288,750),
effective July 23, 2010;
|
|
|
Patrick B. Cline - $800,000 (an increase from $750,000),
effective April 1, 2010;
|
|
|
Scott Decker - $350,000, effective November 24,
2009; and
|
|
|
Donn E. Neufeld $280,000 (an increase from
$260,000), effective June 1, 2010.
|
The Compensation Committee recommends to the Board base salaries
for our named executive officers after reviewing a variety of
factors. The weight given to each of these factors can vary from
period to period and from individual to individual. The
Committee does not allocate specific, predetermined weighting to
the individual factors.
When evaluating the future contribution potential of a named
executive officer, the Committee considers, as particularly
meaningful, the officers proven, historic contributions to
our EPS and revenue, particularly in light of the highly
competitive industry in which we operate. Significant weight
also is given to the officers anticipated contributions to
our future growth and profitability. To a lesser extent, the
Compensation Committee takes note on an informal basis of the
competitive rates of pay in the corporate community, generally,
and the relative standing of our compensatory practices in a
peer group of similarly sized healthcare IT and business
software companies based on size, labor market and data
availability. For fiscal year 2011, this peer group included the
following companies: SXC Health Solutions, Inc.; Micros Systems,
Inc.; Quest Software, Inc.; Informatica, Inc.; MicroStrategy,
Inc.; ACI Worldwide, Inc.; Ariba, Inc.; Fortinet, Inc.; Concur
Technologies, Inc.; Commvault Systems, Inc.; Netscout Systems,
Inc.; Advent Software, Inc.; Aspen Technology, Inc.; Computer
Programs & Systems, Inc.; Athenahealth, Inc.;
Medassets, Inc.; and
12
Allscripts Healthcare Solutions, Inc. However, it was not the
Committees or Boards position to place significant
weight on this comparative metric or to position our executive
officers at a particular percentile relative to a given peer
group or index. Instead, reference to this group generally
demonstrated the named executive officers to be at levels which
the Committee deemed fair and generally competitive in light of
our current market position. The Compensation Committee believes
that our executive compensation is below the median for our peer
group, except for our compensation to Mr. Cline, which is
above the peer-group median The Committee also considered and
gave some weight to more subjective evaluations and input from
other board members and our executives reflecting upon the
quality of the executives performance.
Cash Incentive Bonus
The following table sets forth the potential cash incentive
bonus payable to each of our named executive officers under the
Fiscal Year 2011 Incentive Program:
|
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|
Name
|
|
|
Potential Cash Bonus
|
Steve T. Plochocki
|
|
|
50% of Salary
|
|
|
|
|
Paul A. Holt
|
|
|
50% of Salary
|
|
|
|
|
Patrick B. Cline
|
|
|
100% of Salary
|
|
|
|
|
Scott Decker
|
|
|
50% of Salary
|
|
|
|
|
Donn E. Neufeld
|
|
|
50% of Salary
|
|
|
|
|
For all named executive officers, except Mr. Cline, the
cash incentive bonus was based on two components: revenue growth
and EPS growth. 50% of the potential cash incentive bonus was
based on the level of revenue growth achieved in our 2011 fiscal
year over our previous fiscal year, determined as follows:
|
|
|
|
|
|
|
|
Revenue Growth
|
|
|
% of Criteria Amount
|
|
10
|
%
|
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
15
|
%
|
|
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
20
|
%
|
|
|
|
60
|
%
|
|
|
|
|
|
|
|
|
|
25
|
%
|
|
|
|
80
|
%
|
|
|
|
|
|
|
|
|
|
30
|
%
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
13
The remaining 50% of the potential cash incentive bonus was
based on the level of EPS growth achieved in our 2011 fiscal
year over our previous fiscal year, determined as follows:
|
|
|
|
|
|
|
|
EPS Growth
|
|
|
% of Criteria Amount
|
|
10
|
%
|
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
15
|
%
|
|
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
20
|
%
|
|
|
|
60
|
%
|
|
|
|
|
|
|
|
|
|
25
|
%
|
|
|
|
80
|
%
|
|
|
|
|
|
|
|
|
|
30
|
%
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
Under the program, the percentage shown in the right hand column
would be awarded when the stated level is reached as a step
function. Full percentage revenue and EPS increases must be
achieved to reach each bonus level. The amount of cash bonus
granted was based on the same percentage earned according to an
average of the revenue and EPS growth criteria above. For
example, for Scott Decker, a 25% increase in revenue with a 20%
growth in EPS would result in an award of $122,500, calculated
as follows: (80% + 60%)/2 = 70% of $175,000 (50% of his $350,000
salary).
For Mr. Cline, the actual cash incentive bonus was based on
three components:
|
|
|
|
(i)
|
33.33% of the potential bonus was earned when Mr. Cline
provided services to us through the period ending two weeks
after our public release of financial data for the fiscal year
ended March 31, 2011;
|
|
|
(ii)
|
33.33% of the potential bonus was based on the level of revenue
growth achieved in our 2011 fiscal year over our previous fiscal
year, determined as follows:
|
|
|
|
|
Revenue Growth
|
|
|
% of Criteria Amount
|
12.5% to 25.0%
|
|
|
0% to 100%
|
|
|
|
|
|
|
|
|
(iii)
|
33.33% of the potential bonus was based on the level of EPS
growth achieved in our 2011 fiscal year over our previous fiscal
year, determined as follows:
|
|
|
|
|
EPS Growth
|
|
|
% of Criteria Amount
|
12.5% to 25.0%
|
|
|
0% to 100%
|
|
|
|
|
Under the program, Mr. Clines potential cash bonus
based on revenue and EPS growth scaled proportionately as
revenue and EPS growth increased between 12.5% and 25%, with
100% of the potential bonus earned if our revenue or EPS growth
equaled or exceeded 25%. The percentage shown in the right hand
column would be awarded based on the level reached, e.g. an
18.75% increase in each of revenue and EPS would result in 50%
of the 66.67% additional bonus, which would be $266,667 for
fiscal 2011.
14
Equity Incentive Bonus
The equity incentive bonus component of the Fiscal Year 2011
Incentive Program provided that our named executive officers
were eligible to receive an aggregate of up to 105,000 options
to purchase common stock based on us meeting certain increases
in revenue and EPS growth during the fiscal year as follows:
|
|
|
|
|
Mr. Plochocki - 20,000 options;
|
|
|
Mr. Holt - 10,000 options;
|
|
|
Mr. Cline - 45,000 options;
|
|
|
Mr. Decker - 15,000 options; and
|
|
|
Mr. Neufeld 15,000 options.
|
For all named executive officers, except Mr. Cline, the
equity incentive bonus was based on two components: revenue
growth and EPS growth. 50% of the potential equity incentive
bonus was based on the level of revenue growth achieved in our
2011 fiscal year over our previous fiscal year, determined as
follows:
|
|
|
|
|
|
|
|
Revenue Growth
|
|
|
% of Criteria Amount
|
|
10
|
%
|
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
15
|
%
|
|
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
20
|
%
|
|
|
|
60
|
%
|
|
|
|
|
|
|
|
|
|
25
|
%
|
|
|
|
80
|
%
|
|
|
|
|
|
|
|
|
|
30
|
%
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
The remaining 50% of the potential equity incentive bonus was
based on the level of EPS growth achieved in our 2011 fiscal
year over our previous fiscal year, determined as follows:
|
|
|
|
|
|
|
|
EPS Growth
|
|
|
% of Criteria Amount
|
|
10
|
%
|
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
15
|
%
|
|
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
20
|
%
|
|
|
|
60
|
%
|
|
|
|
|
|
|
|
|
|
25
|
%
|
|
|
|
80
|
%
|
|
|
|
|
|
|
|
|
|
30
|
%
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
As with the cash incentive bonus, the percentage shown in the
right hand column would be awarded when the stated level is
reached as a step function.
For Mr. Cline, the actual equity incentive bonus was based
on two components:
|
|
|
|
(i)
|
33.33% of the potential bonus was earned when Mr. Cline
provided services to us through the period ending two weeks
after our public release of financial data for the fiscal year
ended March 31, 2011; and
|
15
|
|
|
|
(ii)
|
66.66% of the potential bonus was based on the level of EPS
growth achieved in our 2011 fiscal year over our previous fiscal
year, determined as follows:
|
|
|
|
|
EPS Growth
|
|
|
% of Criteria Amount
|
12.5% to 25.0%
|
|
|
0% to 100%
|
|
|
|
|
As with the cash incentive bonus, the equity bonus potential for
Mr. Cline based on EPS growth scaled proportionately as EPS
growth increased between 12.5% and 25%, with 100% of the
potential equity bonus earned if our EPS growth equaled or
exceeded 25%.
General Terms For Fiscal Year 2011 Incentive Program
The following terms applied to all executives that participated
in the Fiscal Year 2011 Incentive Program:
|
|
|
|
|
For purposes of calculating cash and equity incentive bonuses
for all named executive officers, revenue and expenses
attributable to companies acquired by us during the 2011 fiscal
year were excluded. Also, in order to reward only incremental
growth from our February 10, 2010 acquisition of Opus
Healthcare Solutions, the revenue and EPS growth components were
calculated assuming that the Opus acquisition was consummated on
April 1, 2009. Accordingly, revenues and expenses for the
2010 fiscal year included revenues and expenses of Opus
Healthcare Solutions from April 1, 2009 through
February 9, 2010.
|
|
|
|
Executive must be in good standing as a full time employee at
least two weeks beyond the release of our 2011 earnings report.
|
|
|
|
Executive is not allowed to be compensated for work outside of
his or her work for us without the prior written approval of our
Board.
|
|
|
|
Executive must sign an updated and revised confidential
information/non-compete agreement.
|
|
|
|
Payment of cash and equity incentive compensation is to be
approved by the Compensation Committee and the Board, based on
audited financial statements. The Boards determination
regarding cash and equity incentive compensation will be final.
|
|
|
|
Options shall be granted under one of our shareholder approved
option plans and subject to the terms of our standard stock
option agreement. The option exercise price for all options
granted under the 2011 compensation program will be the closing
price of our shares on the date of grant. The options shall vest
in five equal, annual installments commencing one year after the
date of grant and will expire eight years after their grant.
|
16
Fiscal Year 2011 Incentive Program Payouts
For purposes of the Fiscal Year 2011 Incentive Program, our
revenue and EPS growth was 17.0% and 25.4%, respectively, based
on revenue and EPS of approximately $353 million and $2.12,
respectively, for fiscal year 2011 compared to revenue and EPS
of approximately $302 million and $1.69, respectively, for
fiscal year 2010. Revenue and EPS for fiscal year 2010 included
$10 million and $0.01, respectively, from Opus Healthcare
Solutions from April 1, 2009 through February 10, 2010
(the date we acquired Opus Healthcare Solutions).
On May 25, 2011, based on our results for the 2011 fiscal
year, our Compensation Committee authorized the issuance of the
following cash and equity incentive payment awards under the
2011 compensation program:
Cash and
Equity Bonus Determinations under the 2011 Compensation
Program
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
|
Cash Bonus Earned
|
|
|
|
Equity Bonus Earned
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven T. Plochocki
|
|
|
|
$ 156,750
|
|
|
|
|
12,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul A. Holt
|
|
|
|
93,000
|
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Patrick B. Cline
|
|
|
|
628,571
|
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott Decker
|
|
|
|
105,000
|
|
|
|
|
9,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Donn E. Neufeld
|
|
|
|
84,000
|
|
|
|
|
9,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year 2012 Incentive Program Terms
Salary levels are typically considered annually as part of our
Compensation Committees performance review process. Based
on the principles described above under the caption
Compensation Philosophy, Objectives and Components,
on May 25, 2011, our Compensation Committee approved the
Fiscal Year 2012 Incentive Program for our named executive
officers for the fiscal year ending March 31, 2012. The
compensation program includes base salaries and both cash and
equity incentive compensation components. The incentive
compensation components include revenue and EPS growth targets
to require the named executive officers to exert increasingly
greater efforts in order to earn increasingly higher potential
cash and equity incentive compensation.
Base Compensation
Future cash salary levels for our named executive officers were
set as follows:
|
|
|
|
|
Steven T. Plochocki - $550,000 (an increase from $522,500),
effective August 16, 2011;
|
|
|
Paul A. Holt - $330,000 (an increase from $310,000),
effective July 23, 2011;
|
|
|
Patrick B. Cline - $850,000 (an increase from $800,000),
effective April 1, 2011;
|
|
|
Scott Decker - $371,000 (an increase from $350,000),
effective November 24, 2011; and
|
|
|
Donn E. Neufeld $300,000 (an increase from
$280,000), effective June 1, 2011.
|
17
Cash Incentive Bonus
The following table sets forth the potential cash incentive
bonus payable to each of our named executive officers under the
Fiscal Year 2012 Incentive Program:
|
|
|
|
Name
|
|
|
Potential Cash Bonus
|
Steve T. Plochocki
|
|
|
50% of Salary
|
|
|
|
|
Paul A. Holt
|
|
|
50% of Salary
|
|
|
|
|
Patrick B. Cline
|
|
|
100% of Salary
|
|
|
|
|
Scott Decker
|
|
|
50% of Salary
|
|
|
|
|
Donn E. Neufeld
|
|
|
50% of Salary
|
|
|
|
|
For all named executive officers, except Mr. Cline, 50% of
the potential cash incentive bonus is based on the level of
revenue growth achieved in our 2012 fiscal year over our
previous fiscal year, determined as follows:
|
|
|
|
|
|
|
|
Revenue Growth
|
|
|
% of Criteria Amount
|
|
10.0
|
%
|
|
|
|
12.5
|
%
|
|
|
|
|
|
|
|
|
|
12.5
|
%
|
|
|
|
25.0
|
%
|
|
|
|
|
|
|
|
|
|
15.0
|
%
|
|
|
|
37.5
|
%
|
|
|
|
|
|
|
|
|
|
17.5
|
%
|
|
|
|
50.0
|
%
|
|
|
|
|
|
|
|
|
|
20.0
|
%
|
|
|
|
60.0
|
%
|
|
|
|
|
|
|
|
|
|
22.5
|
%
|
|
|
|
70.0
|
%
|
|
|
|
|
|
|
|
|
|
25.0
|
%
|
|
|
|
80.0
|
%
|
|
|
|
|
|
|
|
|
|
27.5
|
%
|
|
|
|
90.0
|
%
|
|
|
|
|
|
|
|
|
|
30.0
|
%
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
18
The remaining 50% of the potential cash incentive bonus is based
on the level of EPS growth achieved in our 2012 fiscal year over
our previous fiscal year, determined as follows:
|
|
|
|
|
|
|
|
EPS Growth
|
|
|
% of Criteria Amount
|
|
10.0
|
%
|
|
|
|
12.5
|
%
|
|
|
|
|
|
|
|
|
|
12.5
|
%
|
|
|
|
25.0
|
%
|
|
|
|
|
|
|
|
|
|
15.0
|
%
|
|
|
|
37.5
|
%
|
|
|
|
|
|
|
|
|
|
17.5
|
%
|
|
|
|
50.0
|
%
|
|
|
|
|
|
|
|
|
|
20.0
|
%
|
|
|
|
60.0
|
%
|
|
|
|
|
|
|
|
|
|
22.5
|
%
|
|
|
|
70.0
|
%
|
|
|
|
|
|
|
|
|
|
25.0
|
%
|
|
|
|
80.0
|
%
|
|
|
|
|
|
|
|
|
|
27.5
|
%
|
|
|
|
90.0
|
%
|
|
|
|
|
|
|
|
|
|
30.0
|
%
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
The percentage shown in the right hand column will be awarded
when the stated level is reached as a step function. Full
percentage revenue and EPS increases must be achieved to reach
each bonus level. The amount of cash bonus granted will be a
percentage based on the same percentage earned according to an
average of the revenue and EPS growth criteria above.
For Mr. Cline, 50% of the potential cash bonus is based on
the level of revenue growth achieved in our 2012 fiscal year
over our previous fiscal year, determined as follows:
|
|
|
|
Revenue Growth
|
|
|
% of Criteria Amount
|
2.5% to 12.5%
|
|
|
33.33%
|
|
|
|
|
12.5% to 25.0%
|
|
|
33.33% to 100%
|
|
|
|
|
The remaining 50% of the potential cash bonus for Mr. Cline
is based on the level of EPS growth achieved in our 2012 fiscal
year over our previous fiscal year, determined as follows:
|
|
|
|
EPS Growth
|
|
|
% of Criteria Amount
|
2.5% to 12.5%
|
|
|
33.33%
|
|
|
|
|
12.5% to 25.0%
|
|
|
33.33% to 100%
|
|
|
|
|
Under the program, Mr. Clines cash bonus potential for
revenue and EPS growth of 12.5% or more will scale
proportionately as revenue and EPS growth increases between
12.5% and 25%, with 100% of the potential cash incentive bonus
earned if our revenue or EPS growth equals or exceeds 25%. The
percentage shown in the right hand column will be awarded based
on the level reached. Mr. Cline will be entitled to 33.33% of
the potential bonus if revenue or EPS growth is between 2.5% and
12.5%.
19
Equity Incentive Bonus
The equity incentive bonus component of the Fiscal Year 2012
Incentive Program provides that our named executive officers are
eligible to receive an aggregate of up to 115,000 options to
purchase common stock based on us meeting certain increases in
revenue and EPS growth during the fiscal year as follows:
|
|
|
|
|
Mr. Plochocki - 25,000 options;
|
|
|
Mr. Holt - 15,000 options;
|
|
|
Mr. Cline - 45,000 options;
|
|
|
Mr. Decker - 15,000 options; and
|
|
|
Mr. Neufeld 15,000 options.
|
For all named executive officers, except Mr. Cline, 50% of
the potential equity incentive bonus is based on the level of
revenue growth achieved in our 2012 fiscal year over our
previous fiscal year, determined as follows:
|
|
|
|
Revenue Growth
|
|
|
% of Criteria Amount
|
|
|
|
|
10.0%
|
|
|
12.5%
|
|
|
|
|
12.5%
|
|
|
25.0%
|
|
|
|
|
15.0%
|
|
|
37.5%
|
|
|
|
|
17.5%
|
|
|
50.0%
|
|
|
|
|
20.0%
|
|
|
60.0%
|
|
|
|
|
22.5%
|
|
|
70.0%
|
|
|
|
|
25.0%
|
|
|
80.0%
|
|
|
|
|
27.5%
|
|
|
90.0%
|
|
|
|
|
30.0%
|
|
|
100%
|
|
|
|
|
20
The remaining 50% of the potential cash incentive bonus is based
on the level of EPS growth achieved in our 2012 fiscal year over
our previous fiscal year, determined as follows:
|
|
|
|
EPS Growth
|
|
|
% of Criteria Amount
|
|
|
|
|
10.0%
|
|
|
12.5%
|
|
|
|
|
12.5%
|
|
|
25.0%
|
|
|
|
|
15.0%
|
|
|
37.5%
|
|
|
|
|
17.5%
|
|
|
50.0%
|
|
|
|
|
20.0%
|
|
|
60.0%
|
|
|
|
|
22.5%
|
|
|
70.0%
|
|
|
|
|
25.0%
|
|
|
80.0%
|
|
|
|
|
27.5%
|
|
|
90.0%
|
|
|
|
|
30.0%
|
|
|
100%
|
|
|
|
|
As with the cash incentive bonus, the percentage shown in the
right hand column will be awarded when the stated level is
reached as a step function.
For Mr. Cline, 100% of the potential equity bonus is based
on the level of EPS growth achieved in our 2012 fiscal year over
our previous fiscal year, determined as follows:
|
|
|
|
EPS Growth
|
|
|
% of Criteria Amount
|
|
|
|
|
2.5% to 12.5%
|
|
|
33.33%
|
|
|
|
|
12.5% to 25.0%
|
|
|
33.33% to 100%
|
|
|
|
|
The equity bonus potential for EPS growth of 12.5% or more will
scale proportionately as EPS growth increases between 12.5% and
25%, with 100% of the potential equity incentive bonus earned if
our EPS growth equals or exceeds 25%. Mr. Cline will be
entitled to 33.33% of the bonus potential if EPS growth is
between 2.5% and 12.5%.
General Terms For Fiscal Year 2012 Incentive Program
The following terms will apply to all executives participating
in our Fiscal Year 2012 Incentive Program:
|
|
|
|
|
For purposes of calculating cash and equity incentive bonuses
for all named executive officers, revenue and expenses
attributable to companies acquired by us during the 2012 fiscal
year will be excluded.
|
|
|
|
Executive must be in good standing as a full time employee at
least two weeks beyond the release of our fiscal year 2012
results.
|
21
|
|
|
|
|
Executive is not allowed to be compensated for work outside of
his or her work for us without the prior written approval of our
Board.
|
|
|
|
Executive must sign an updated and revised confidential
information/non-compete agreement.
|
|
|
|
Payment of cash and equity incentive compensation is to be
approved by the Compensation Committee, based on audited
financial statements. The Committees determination
regarding cash and equity incentive compensation will be final.
|
|
|
|
Options shall be granted under one of our shareholder approved
option plans and subject to the terms of our standard stock
option agreement. The option exercise price for all options
granted under the 2012 compensation program will be the closing
price of our shares on the date of grant. The options shall vest
in five equal, annual installments commencing one year after the
date of grant and will expire eight years after their grant.
|
Other
Benefits
We have a 401(k) plan available to substantially all of our
employees. Participating employees may defer each year up to the
limit set in the Internal Revenue Code of 1986, as amended (the
Code). The annual company contribution is determined
by a formula set by our Board and may include matching
and/or
discretionary contributions. The retirement plans may be amended
or discontinued at the discretion of our Board. Matching
contributions for the named executive officers are included in
the All Other Compensation column of the Summary
Compensation Table for Fiscal Year Ended March 31, 2011.
We have a deferred compensation plan available for the benefit
of officers and employees who qualify for inclusion. The plan is
described below in connection with the Nonqualified Deferred
Compensation Table Fiscal Year ended March 31, 2011.
We have a voluntary employee stock purchase plan for the benefit
of certain full-time employees. The plan is designed to allow
employees to acquire shares of our common stock through
automatic payroll deduction. Each eligible employee may
authorize the withholding of up to 10% of
his/her
gross payroll each pay period to be used to purchase shares on
the open market by a broker designated by us. In addition, we
will match 5% of each employees contribution and will pay
all brokerage commissions and fees in connection with each
purchase. The amount of our company match is discretionary and
subject to change. The plan is not intended to be an employee
benefit plan under the Employee Retirement Income Security Act
of 1974.
Tax and
Accounting Implications
Deductibility of Executive Compensation As part of its
role, our Compensation Committee reviews and considers the
deductibility of executive compensation under
Section 162(m) of the Code, which provides that we may not
deduct compensation of more than $1,000,000 that is paid to
certain individuals unless the compensation qualifies as
performance-based. Our Compensation Committee currently intends
that all cash compensation paid will be tax deductible for us.
However, with respect to equity compensation awards, while any
gain recognized by employees from nonqualified options should be
deductible, to the extent that an option constitutes an
incentive stock option, gains recognized by the optionee will
not be deductible if there is no disqualifying disposition by
the optionee. In addition, if we grant restricted stock or
restricted stock unit awards that are not subject to performance
vesting, they may not be fully deductible by us at the time the
award is otherwise taxable to the employee. Also, in certain
situations, our Compensation Committee may approve compensation
that does not meet deductibility qualifications, in order to
ensure competitive levels of total compensation for our
executive officers.
Accounting for Stock-Based Compensation We account for
stock-based payments in accordance with FASB ASC Topic 718,
Compensation Stock Compensation, or ASC 718.
For further information regarding
22
ASC 718, refer to Note 2 to the Financial Statements
contained in our
Form 10-K
for the fiscal year ended March 31, 2011.
Summary
Compensation Table for Fiscal Year Ended March 31,
2011
The following table provides certain summary information
concerning the compensation for the fiscal years ended
March 31, 2011, 2010 and 2009 for our principal executive
officer, our principal financial officer, and the three other
most highly compensated executive officers whose total
compensation exceeded $100,000 during fiscal year 2011 and who
were serving as executive officers at the end of fiscal year
2011 (collectively, the named executive officers).
No other executive officers that would have otherwise been
includable in the table on the basis of total compensation for
fiscal year 2011 have been excluded by reason of their
termination of employment or change in executive status during
that year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
Nonquali-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
fied
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
|
|
Compen-
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
Compen-
|
|
sation
|
|
Compen-
|
|
|
Name and
|
|
Fiscal
|
|
Salary
|
|
Bonus
|
|
Awards
|
|
Awards
|
|
sation
|
|
Earnings
|
|
sation
|
|
Total
|
Principal Position
|
|
Year
|
|
($)
|
|
($)
|
|
($)
|
|
($) (1)
|
|
($)
|
|
($) (2)
|
|
($) (3)
|
|
($)
|
|
Steven T. Plochocki,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Executive
|
|
2011
|
|
$
|
522,500
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
322,476
|
|
|
$
|
156,750
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
1,001,726
|
|
Officer
(4)
|
|
2010
|
|
|
504,688
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
25,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
529,688
|
|
|
|
2009
|
|
|
296,875
|
|
|
|
--
|
|
|
|
--
|
|
|
|
585,800
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
882,675
|
|
Paul A. Holt,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Vice
|
|
2011
|
|
|
303,394
|
|
|
|
--
|
|
|
|
--
|
|
|
|
161,238
|
|
|
|
93,000
|
|
|
|
3,481
|
|
|
|
16,628
|
|
|
|
577,741
|
|
President and Chief
|
|
2010
|
|
|
284,475
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
50,000
|
|
|
|
3,345
|
|
|
|
2,116
|
|
|
|
339,936
|
|
Financial Officer
|
|
2009
|
|
|
267,228
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
80,000
|
|
|
|
2,672
|
|
|
|
2,362
|
|
|
|
352,262
|
|
Patrick B. Cline,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President
(4)
|
|
2011
|
|
|
800,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
938,244
|
|
|
|
628,571
|
|
|
|
--
|
|
|
|
15,956
|
|
|
|
2,382,771
|
|
|
|
2010
|
|
|
750,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
283,605
|
|
|
|
376,766
|
|
|
|
5,625
|
|
|
|
4,229
|
|
|
|
1,420,225
|
|
|
|
2009
|
|
|
538,750
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
110,000
|
|
|
|
5,387
|
|
|
|
6,163
|
|
|
|
660,300
|
|
Scott Decker,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President,
|
|
2011
|
|
|
350,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
241,857
|
|
|
|
105,000
|
|
|
|
3,500
|
|
|
|
15,373
|
|
|
|
715,730
|
|
NextGen
|
|
2010
|
|
|
302,881
|
|
|
|
--
|
|
|
|
--
|
|
|
|
493,625
|
|
|
|
116,325
|
|
|
|
875
|
|
|
|
1,949
|
|
|
|
915,655
|
|
Healthcare
(4)
|
|
2009(5)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Donn E. Neufeld
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Vice
|
|
2011
|
|
|
276,667
|
|
|
|
--
|
|
|
|
--
|
|
|
|
241,857
|
|
|
|
84,000
|
|
|
|
2,857
|
|
|
|
2,560
|
|
|
|
607,941
|
|
President, EDI
|
|
2010
|
|
|
234,375
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
20,000
|
|
|
|
2,714
|
|
|
|
2,463
|
|
|
|
259,552
|
|
and Dental
|
|
2009
|
|
|
219,920
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
5,749
|
|
|
|
2,199
|
|
|
|
2,418
|
|
|
|
230,286
|
|
|
|
|
(1) |
|
The amounts in the Option Awards column reflect the aggregate
grant date fair value of such awards computed in accordance with
FASB ASC Topic 718, Compensation Stock Compensation.
Assumptions made in the calculation of these amounts are
included in Note 12 to our audited financial statements for
the fiscal year ended March 31, 2011, included in our
Annual Report on
Form 10-K
filed with the SEC on May 27, 2011. |
(2) |
|
The amount reflected in this column represents our
companys contribution to Nonqualified Deferred
Compensation. Earnings are not included in this column as
earnings are not considered above-market or preferential. |
(3) |
|
The amount reflected in this column represents auto allowance
and our companys contributions to the 401(k) plan. |
(4) |
|
Mr. Plochocki assumed the positions of President and Chief
Executive Officer on August 16, 2008. On November 24,
2009, Mr. Plochocki resigned as President, but continued as
Chief Executive Officer. |
23
|
|
|
|
|
Mr. Cline assumed the position of President on
November 24, 2009 simultaneously with
Mr. Plochockis resignation from that position. Prior
to his appointment as President, Mr. Cline had served as
President of our NextGen Healthcare since 1996. Also, on
November 24, 2009, Mr. Decker assumed the position of
President of NextGen Healthcare formerly held by Mr. Cline. |
(5) |
|
No amounts are reported for Mr. Decker for fiscal year
2009, since he was not a named an executive officer in that year. |
Grants of
Plan-Based Awards for Fiscal Year Ended March 31,
2011
The following table sets forth information regarding plan-based
awards granted to our named executive officers during the fiscal
year ended March 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
|
|
All
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
Awards:
|
|
|
|
|
|
|
Estimated Possible Payouts
|
|
Estimated Possible Payouts
|
|
Number
|
|
Number of
|
|
|
|
|
|
|
Under Non-Equity
|
|
Under Equity Incentive
|
|
of
|
|
Securities
|
|
Exercise
|
|
|
|
|
Incentive Plan Awards
|
|
Plan Awards
|
|
Shares
|
|
Under-
|
|
or Base
|
|
|
|
|
Thres-
|
|
|
|
|
|
Thres-
|
|
|
|
|
|
of Stock
|
|
lying
|
|
Price of
|
|
|
Grant
|
|
hold
|
|
Target
|
|
Maximum
|
|
hold
|
|
Target
|
|
Maximum
|
|
or Units
|
|
Options
|
|
Option
|
Name
|
|
Date
|
|
($) (1)
|
|
($) (1)
|
|
($) (2)
|
|
(#) (1)
|
|
(#) (1)
|
|
(#) (2)
|
|
(#)
|
|
(#)
|
|
Awards
|
|
Steven T. Plochocki
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
$
|
261,250
|
|
|
|
--
|
|
|
|
--
|
|
|
|
20,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Paul A. Holt
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
155,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
10,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Patrick B. Cline
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
800,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
45,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Scott Decker
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
175,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
15,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Donn E. Neufeld
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
140,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
15,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
(1) |
|
No threshold or target amounts were set. The actual cash and
equity incentive compensation paid is described above under the
heading Compensation Discussion and Analysis
Fiscal Year 2011 Incentive Program Payouts. The actual
cash incentive compensation paid is included in the Non-Equity
Incentive Plan Compensation column of the Summary Compensation
Table above. The compensation cost of the options actually
awarded under the Fiscal Year 2011 Incentive Program is included
in the Option Awards column of the Summary
Compensation Table above. Information regarding the numbers of
shares underlying the options actually awarded under the Fiscal
Year 2011 Incentive Program is included in the Outstanding
Equity Awards at Fiscal Year End March 31, 2011 table below. |
(2) |
|
The amounts set forth in these columns reflects the maximum cash
or share incentive awards possible under our cash and equity
incentive programs for fiscal year 2011. |
Base
Salary
Base salaries for the named executive officers are described
above under the heading Compensation Discussion and
Analysis Base Compensation.
Cash and
Equity Incentive Programs
Cash and equity incentive program payouts made to the named
executive officers are described above under the headings
Compensation Discussion and Analysis Cash
Incentive Bonus and Compensation Discussion and
Analysis Equity Incentive Bonus.
Employment
Agreement with Steven T. Plochocki
We are party to an employment agreement with Mr. Plochocki
effective August 16, 2008 (effective date) that
details the terms of his employment as our Chief Executive
Officer. The term of the employment agreement is at
will and renews annually unless either party elects to
terminate it upon 30 days prior written
24
notice or unless terminated pursuant to the terms of the
employment agreement. However, the employment agreement contains
various termination and
change-in-control
provisions as described below under Potential Payments on
Termination of Employment or
Change-in-Control.
Pursuant to the employment agreement, on the effective date we
granted Mr. Plochocki options to purchase up to
50,000 shares of our common stock at an exercise price of
$40.08 per share, which options have a five year term and vest
in four equal annual installments commencing one year after the
effective date.
The employment agreement provides that Mr. Plochocki shall
receive three weeks of vacation each year. During fiscal year
2011, Mr. Plochocki was eligible for a cash bonus of up to
$261,250 (of which, he received $156,750) and up to 20,000 bonus
options (of which, 12,000 were granted) in accordance with, and
subject to, the terms of our Fiscal Year 2011 Incentive Program.
Outstanding
Equity Awards at Fiscal Year Ended March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
Equity
|
|
Incentive
|
|
|
|
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
Plan
|
|
|
|
|
|
|
Plan
|
|
|
|
|
|
|
|
|
|
Plan
|
|
Awards:
|
|
|
|
|
|
|
Awards:
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
Market or
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Number
|
|
|
|
Number
|
|
Payout
|
|
|
|
|
|
|
Securit-
|
|
|
|
|
|
of
|
|
Market
|
|
of
|
|
Value of
|
|
|
|
|
Number
|
|
ies
|
|
|
|
|
|
Shares
|
|
Value of
|
|
Unearned
|
|
Unearned
|
|
|
|
|
of
|
|
Under-
|
|
|
|
|
|
or Units
|
|
Shares or
|
|
Shares,
|
|
Shares,
|
|
|
Number of
|
|
Securities
|
|
lying
|
|
|
|
|
|
of
|
|
Units of
|
|
Units
|
|
Units or
|
|
|
Securities
|
|
Underlying
|
|
Unexer-
|
|
|
|
|
|
Stock
|
|
Stock
|
|
or Other
|
|
Other
|
|
|
Underlying
|
|
Unexercised
|
|
cised
|
|
|
|
|
|
That
|
|
That
|
|
Rights
|
|
Rights
|
|
|
Unexercised
|
|
Options
|
|
Unearn-
|
|
Option
|
|
|
|
Have
|
|
Have
|
|
That
|
|
That
|
|
|
Options
|
|
(#)
|
|
ed
|
|
Exercise
|
|
Option
|
|
Not
|
|
Not
|
|
Have Not
|
|
Have Not
|
|
|
(#)
|
|
Unexercis-
|
|
Options
|
|
Price
|
|
Expiration
|
|
Vested
|
|
Vested
|
|
Vested
|
|
Vested
|
Name
|
|
Exercisable
|
|
able
|
|
(#)
|
|
($)
|
|
Date
|
|
(#)
|
|
($)
|
|
(#)
|
|
($)
|
|
Steven T. Plochocki
|
|
|
3,750
|
|
|
|
--
|
(1)
|
|
|
--
|
|
|
$
|
39.81
|
|
|
|
09/20/13
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
|
--
|
|
|
$
|
--
|
|
|
|
|
3,750
|
|
|
|
1,250
|
(2)
|
|
|
--
|
|
|
|
43.26
|
|
|
|
08/09/14
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
25,000
|
|
|
|
25,000
|
(3)
|
|
|
--
|
|
|
|
40.08
|
|
|
|
08/18/13
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul A. Holt
|
|
|
4,125
|
|
|
|
1,375
|
(4)
|
|
|
--
|
|
|
|
38.83
|
|
|
|
06/12/12
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patrick B.
Cline
|
|
|
27,500
|
|
|
|
13,750
|
(4)
|
|
|
--
|
|
|
|
38.83
|
|
|
|
06/12/12
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
--
|
|
|
|
15,000
|
(5)
|
|
|
|
|
|
|
58.62
|
|
|
|
06/02/18
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott Decker
|
|
|
1,575
|
|
|
|
1,500
|
(6)
|
|
|
--
|
|
|
|
33.25
|
|
|
|
11/05/12
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
5,000
|
|
|
|
20,000
|
(7)
|
|
|
--
|
|
|
|
59.49
|
|
|
|
11/30/17
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donn E. Neufeld
|
|
|
1,000
|
|
|
|
--
|
(8)
|
|
|
--
|
|
|
|
19.34
|
|
|
|
02/11/12
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
1,200
|
|
|
|
400
|
(4)
|
|
|
--
|
|
|
|
38.83
|
|
|
|
06/12/12
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
(1)
|
|
Option was granted
September 20, 2006 and vested in four equal, annual
installments commencing one year after the grant date.
|
(2)
|
|
Option was granted August 9,
2007 and is vesting in four equal annual installments commencing
one year after the grant date. Accordingly, the remaining
unexercisable shares are scheduled to vest on August 9,
2011.
|
(3)
|
|
Option was granted August 18,
2008 and is vesting in four equal annual installments commencing
one year after the grant date. Accordingly, the unexercisable
shares are scheduled to vest on August 18, 2011 and
August 18, 2012.
|
25
|
|
|
(4)
|
|
Option was granted June 12,
2007 pursuant to our fiscal year 2007 equity incentive plan and
vests in four equal annual installments commencing one year
after the grant date. Accordingly, the remaining unexercisable
shares are scheduled to vest on June 12, 2011.
|
(5)
|
|
Option was granted June 2,
2010 and vests in five equal annual installments commencing one
year after the grant date. Accordingly, the remaining
unexercisable shares are scheduled to vest on June 2, 2011,
June 2, 2012, June 2, 2013, June 2, 2014 and
June 2, 2015.
|
(6)
|
|
Option was granted
November 5, 2007 and vests in four equal annual
installments commencing one year after the grant date.
Accordingly, the remaining unexercisable shares are scheduled to
vest on November 5, 2010 and November 5, 2011.
|
(7)
|
|
Option was granted
November 30, 2009 and vests in five equal annual
installments commencing one year after the grant date.
Accordingly, the remaining unexercisable shares are scheduled to
vest on November 30, 2011, November 30, 2012,
November 30, 2013 and November 30, 2014.
|
(8)
|
|
Option was granted
February 11, 2005 and vested in four equal, annual
installments commencing one year after the grant date.
|
Option
Exercises and Stock Vested During Fiscal Year Ended
March 31, 2011
The following table sets forth information regarding options
exercised and stock awards vested during fiscal year 2011 for
our named executive officers. Value realized on exercise is
based on the difference between the per share exercise price and
the closing sale price of a share of our common stock on the
exercise date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
Number of
|
|
|
|
Number of
|
|
|
|
|
Shares Acquired
|
|
Value Realized
|
|
Shares Acquired
|
|
Value Realized
|
|
|
on Exercise
|
|
on Exercise
|
|
on Vesting
|
|
on Vesting
|
Name
|
|
(#)
|
|
($)
|
|
(#)
|
|
($)
|
|
Steven T. Plochocki
|
|
|
--
|
|
|
$
|
--
|
|
|
|
--
|
|
|
$
|
|
|
Paul A. Holt
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Patrick B. Cline
|
|
|
15,000
|
|
|
|
642,000
|
|
|
|
--
|
|
|
|
--
|
|
Scott Decker
|
|
|
2,925
|
|
|
|
142,477
|
|
|
|
--
|
|
|
|
--
|
|
Donn E. Neufeld
|
|
|
|
|
|
|
|
|
|
|
--
|
|
|
|
--
|
|
Pension
Benefits
We do not have any plans that provide for payments or other
benefits at, following or in connection with the retirement of
any named executive officer.
Nonqualified
Deferred Compensation for Fiscal Year Ended March 31,
2011
The following table sets forth information regarding our defined
contribution or other plan that provides for the deferral of
compensation for any named executive officer on a basis that is
not tax-qualified. Participating employees may defer between 5%
and 50% of their compensation per plan year. In addition, we
may, but are not required to, make contributions into the
deferral plan on behalf of participating employees. Each
employees deferrals together with earnings thereon are
accrued as part of the long-term liabilities of our company.
Investment decisions are made by each participating employee
from a family of mutual funds. To offset this liability, we have
purchased life insurance policies on some of our participants.
We are the owner and beneficiary of the policies and the cash
values are intended to produce cash needed to help make the
benefit payments to employees when they retire or otherwise
leave our company. Distributions will be paid out to
participants either upon retirement, death, termination of
employment or upon termination of the nonqualified deferred
compensation plan. Distribution will generally equal the
deferral amount plus or minus
26
earnings or losses and will be in the form of a lump sum of five
annual installments as elected by the participant should the
account balance exceed $25,000.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
Executive
|
|
Registrant
|
|
Aggregate
|
|
Aggregate
|
|
Balance
|
|
|
Contributions
|
|
Contributions
|
|
Earnings in
|
|
Withdrawals
|
|
at Last
|
|
|
in Last FY
|
|
in Last FY
|
|
Last FY
|
|
/Distributions
|
|
FYE
|
Name
|
|
($)
|
|
($)
|
|
($) (1)
|
|
($)
|
|
($)
|
|
Steven T. Plochocki
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
Paul A. Holt
|
|
|
65,027
|
|
|
|
3,481
|
|
|
|
26,599
|
|
|
|
--
|
|
|
|
260,493
|
|
Patrick B. Cline
|
|
|
60,000
|
|
|
|
--
|
|
|
|
24,016
|
|
|
|
--
|
|
|
|
446,562
|
|
Scott Decker
|
|
|
17,500
|
|
|
|
3,500
|
|
|
|
3,396
|
|
|
|
--
|
|
|
|
28,970
|
|
Donn E. Neufeld
|
|
|
74,167
|
|
|
|
2,857
|
|
|
|
--
|
|
|
|
--
|
|
|
|
169,568
|
|
|
|
|
(1)
|
|
No amounts were reported in the
Change in Pension Value and Nonqualified Deferred Compensation
Earnings column in the Summary Compensation Table above, as
earnings are not considered above-market or preferential.
|
Potential
Payments Upon Termination of Employment or
Change-in-Control
The following discussion and table describe and illustrate
potential payments to our named executive officers under
existing contracts, agreements, plans or arrangements, whether
written or unwritten, for various scenarios involving a
change-in-control
or termination of employment, assuming a March 31, 2011
termination date. The discussion concerning Mr. Plochocki
assumes that his written employment agreement with us is still
in effect at such time.
Steven T.
Plochocki Employment Agreement
|
|
|
|
|
Termination Without Cause
|
If, during the term of his employment agreement, we should
terminate Mr. Plochockis employment without
cause as may be determined by our Board, then he
shall be entitled to receive from us a lump sum payment equal to
(i) one years base salary as then in effect, payable
upon the date of such termination, and (ii) a pro-rated
cash bonus equal to that percentage of the fiscal year completed
at the date of his termination multiplied by the cash bonus
actually earned under our fiscal year compensation plan as filed
with the SEC payable to the Chief Executive Officer of our
company at the end of such fiscal year, payable upon the date
other bonuses are actually paid under the existing compensation
plan. As used in his employment agreement, the term
cause shall mean (i) his willful breach or
neglect of the duties and obligations required of him either
expressly or impliedly by the terms of the employment agreement
(including, but not limited to refusal to execute our standard
confidential information agreement); or (ii) his commission
of fraud, embezzlement or misappropriation, involving our
company whether or not a criminal or civil charge is filed in
connection with such action. By way of example, if
Mr. Plochockis employment had been terminated without
cause on March 31, 2011, he would have been entitled to
(i) $522,500, representing one years base salary; and
(ii) a cash bonus of $156,750, representing the actual cash
bonus earned under the Fiscal Year 2011 Incentive Plan for the
entire fiscal year.
27
|
|
|
|
|
Change of Control Provisions.
|
All 50,000 options granted to Mr. Plochocki upon his
signing his employment agreement with us shall immediately vest
upon (i) a sale of substantially all of our equity or
assets or a merger where the beneficial owners of our equity
securities immediately prior to such merger no longer constitute
a majority of the beneficial ownership immediately thereafter (a
Sale Transaction); and (ii) his agreement to be
employed by the buyer in such Sale Transaction for a period of
not less than one year after the closing date of such
transaction. If, upon a Sales Transaction, he is not offered a
position with the buyer in such Sales Transaction,
Mr. Plochocki shall be paid a lump sum equal to one
years base salary as then in effect.
The following table summarizes benefits payable to
Mr. Plochocki under his employment agreement assuming a
termination event or Sale Transaction had occurred on
March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale Transaction
|
|
|
|
|
|
|
Termination
|
|
|
|
Followed by at
|
|
|
|
|
|
|
Without Cause
|
|
Termination
|
|
Least One Year
|
Benefits Payable to Steven T. Plochocki on
|
|
Death or
|
|
Termination
|
|
or For Good
|
|
Upon Sale
|
|
of Continued
|
termination/change of control
|
|
Disability
|
|
for Cause
|
|
Reason
|
|
Transaction
|
|
Employment
|
|
Performance or other bonus earned and unpaid
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
261,250
|
|
|
$
|
--
|
|
|
$
|
--
|
|
Accelerated vesting of stock options (1)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
$
|
--
|
|
|
|
1,131,600
|
|
Lump sum cash payment equal to one year of
base compensation
|
|
|
--
|
|
|
|
--
|
|
|
|
522,500
|
|
|
$
|
522,500
|
|
|
|
--
|
|
|
|
|
(1)
|
|
Represents the aggregate value of
the accelerated vesting of unvested stock options based solely
on the intrinsic value of the options as of March 31, 2011,
calculated by multiplying (a) the difference between the
fair market value of our common stock on March 31, 2011
($83.34) and the applicable exercise price (weighted average
exercise price of $40.23) by (b) the assumed number of
option shares vesting on an accelerated basis on March 31,
2011.
|
Arrangements
with Other Named Executive Officers
We are not a party to any contracts, agreements, plans or
arrangements that would provide payments to Messrs. Holt,
Cline, Decker or Neufeld in connection with any termination of
employment,
change-in-control,
or change in responsibilities.
Stock
Option and Award Exercisability
Our Amended and Restated 1998 Stock Option Plan (our 1998
Plan) provides for the issuance of nonqualified and
incentive stock options. Our Amended and Restated 2005 Stock
Option and Incentive Plan (our 2005 Plan) provides
for the issuance of numerous types of stock-based awards,
including without limitation, stock options, stock appreciation
rights, restricted stock, unrestricted stock, restricted stock
units, performance shares, and performance units.
28
Generally, exercisability of options and other awards granted
under our option plans terminate following termination of
employment as described in the table below. The consequences
described in the column relating to the 2005 Plan apply except
to the extent that the 2005 Plan, the applicable award agreement
or our Board may otherwise provide where permitted by the 2005
Plan.
|
|
|
|
|
Reason for Termination
|
|
Exercisability Consequences Under
|
of Employment
|
|
1998 Plan
|
|
2005 Plan
|
|
Voluntary resignation by employee or termination for cause by us
|
|
All options terminate immediately.
|
|
All unvested awards terminate immediately.
|
|
|
|
|
|
Retirement pursuant to a company retirement policy, if any, that
we adopt
|
|
All options terminate immediately.
|
|
Options and stock appreciation rights remain exercisable (to the
extent vested prior to retirement) until the earlier of the
expiration of the award term or three years after retirement.
|
Termination without cause by us
|
|
Options remain exercisable (to the extent vested prior to
termination) until the earlier of the expiration of the option
term or 30 days after the termination of employment.
|
|
Options and stock appreciation rights remain exercisable (to the
extent vested prior to termination) until the earlier of the
expiration of the award term or three months after the
termination of employment.
|
Disability
|
|
Options remain exercisable (to the extent vested prior to
termination) until the earlier of the expiration of the option
term or 365 days after the termination of employment.
|
|
Options and stock appreciation rights remain exercisable (to the
extent vested prior to termination) until the earlier of the
expiration of the award term or six months after the termination
of employment.
|
For options granted pursuant to our 1998 Plan, our Board has the
discretion to accelerate the vesting of any outstanding options
held by our named executive officers and employees if no
provision is made for the continuance of those plans and the
assumption of options outstanding under those plans if we
dissolve or are liquidated, if we are not the surviving entity
in a merger, consolidation, acquisition or other reorganization,
if we are the subject of a reverse merger in which more than 50%
of our voting shares are converted into cash, property or the
securities of another entity, or if we sell substantially all of
our property or shares to another entity.
Under our 2005 Plan, our Board may exercise discretion at any
time, whether before or after the grant, expiration, exercise,
vesting or maturity of or lapse of restriction on an award or
the termination of employment of a grantee, to amend any
outstanding award or award agreement, including an amendment
that would accelerate the time or times at which the award
becomes unrestricted or may be exercised, or waive or amend any
goals, restrictions or conditions set forth in the award
agreement, subject to shareholder approval for any amendments
involving repricing of awards.
In addition, awards under our 2005 Plan will fully vest in
connection with a change in control as defined in our 2005 Plan.
Examples of changes in control under our 2005 Plan generally
include, with various exceptions detailed in our 2005 Plan: any
person becoming the beneficial owner of more than 50% of the
combined voting power of our then outstanding securities; the
consummation of certain mergers, consolidations, statutory share
exchanges or similar forms of corporate transaction that require
approval of our shareholders; our shareholders approving a plan
of complete liquidation or dissolution of our company; or the
29
consummation of a sale or disposition of all or substantially
all of our assets other than a sale or disposition that would
result in our voting securities outstanding immediately prior
thereto continuing to represent 50% or more of the combined
voting power of our company or the surviving entity outstanding
immediately after the sale or disposition; or in the case of
directors, officers or employees who are entitled to the
benefits of a change in control agreement or similar provisions
within an agreement entered into by us or a related entity that
defines or addresses change in control, change in
control as defined in such agreement.
Our 2005 Plan also provides that if, within two years after the
occurrence of a change in control, a termination of employment
occurs with respect to any grantee for any reason other than
cause, disability, death or retirement, the grantee will be
entitled to exercise awards at any time thereafter until the
earlier of (i) the date twelve months after the date of
termination of employment and (ii) the expiration date in
the applicable award agreement.
Director
Compensation for Fiscal Year Ended March 31, 2011
On May 26, 2010, our Compensation Committee and Board
approved a fiscal year 2011 non-employee Director Compensation
Program. Under the program, each director was to be awarded
shares of restricted common stock upon election or re-election
to the Board. The shares vest 50% on each of the first and
second anniversaries of the date of grant and are
nontransferable for one year from the date of vesting.
Additionally, the Program required that all Board members
acquire a minimum of 1,000 shares of our common stock
through the investment of their own funds (e.g. open market
purchase or option exercise), which minimum amount must be
retained as long as they are a director. New directors, and
existing directors after the effective date of the Program
(August 13, 2009), had nine months in which to acquire such
common stock. Board compensation included service as committee
members, but additional compensation was payable to the chairmen
of committees and of our entire Board. The program did not pay
per-meeting fees. The elements of the 2011 non-employee Director
Compensation Program are set forth in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
Committee
|
|
|
Audit Committee
|
|
|
|
|
|
|
|
|
|
Chairman/
|
|
|
Chairman/
|
Director Compensation
|
|
|
Employee
|
|
|
|
|
|
Nominating
|
|
|
Chairman of the
|
Program Category of
|
|
|
Director
|
|
|
Independent Director
|
|
|
Committee Chairman
|
|
|
Board
|
Director (1)
|
|
|
(Tier 0)
|
|
|
(Tier 1)
|
|
|
(Tier 2)
|
|
|
(Tier 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Compensation
|
|
|
$
|
--
|
|
|
|
$
|
80,000
|
|
|
|
$
|
92,500
|
|
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Meeting Fees (2)
|
|
|
|
--
|
|
|
|
|
--
|
|
|
|
|
--
|
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Committee Memberships (3)
|
|
|
|
--
|
|
|
|
|
--
|
|
|
|
|
--
|
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash
Compensation (4)
|
|
|
$
|
--
|
|
|
|
$
|
80,000
|
|
|
|
$
|
92,500
|
|
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Shares (5)
|
|
|
|
None
|
|
|
|
|
1,000
|
|
|
|
|
1,250
|
|
|
|
|
1,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Pay Tiers: Tier 0 is for
directors who are employees. Tier 1 is for independent
directors who do not chair our Audit, Compensation or Nominating
and Governance Committees and who are not the Chairman of our
Board. Tier 2 is for the Chairmen of our Compensation and
Nominating and Governance Committees. Tier 3 is for our
Audit Committee Chairman and Chairman of our Board. Chairmen of
other committees are paid at the highest tier for which they are
otherwise eligible. Board members are paid at the highest
eligible tier according to his or her role, but not on multiple
tiers.
|
30
|
|
|
(2)
|
|
Meeting attendance at a 100% or
near-100% level is mandatory. The program eliminates meeting
fees. Board and committee meeting attendance rates for each
director shall be reported annually, internally and to the
public in accordance with applicable law.
|
(3)
|
|
Board members are expected to serve
as committee members as part of their compensation.
|
(4)
|
|
Cash compensation is paid quarterly.
|
(5)
|
|
Restricted shares vest 50% each on
the first and second anniversary of the date of grant (provided,
however, that vesting accelerates if a director is terminated
early or not re-elected to our Board) and are nontransferable
for one year from the date of vesting.
|
The following table provides information concerning compensation
for our non-employee directors for the fiscal year ended
March 31, 2011. Directors Plochocki and Cline were
employees throughout the fiscal year ended March 31, 2011
and thus received no compensation for their services as
directors. The compensation received by Messrs. Plochocki
and Cline as employees is described elsewhere in this proxy
statement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
Value and
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
Nonqualified
|
|
|
|
|
|
|
Fees Earned
|
|
|
|
|
|
Plan
|
|
Deferred
|
|
All Other
|
|
|
|
|
or Paid
|
|
Stock
|
|
Option
|
|
Compensa-
|
|
Compensation
|
|
Compensa-
|
|
|
|
|
in Cash
|
|
Awards (1)
|
|
Awards
|
|
tion
|
|
Earnings
|
|
tion
|
|
Total
|
Name
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Craig A. Barbarosh
|
|
$
|
92,500
|
|
|
$
|
67,388
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
159,888
|
|
Murray F. Brennan, M.D.
|
|
|
80,000
|
|
|
|
53,910
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
133,910
|
|
George H. Bristol
|
|
|
100,000
|
|
|
|
67,388
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
167,388
|
|
Ahmed D. Hussein
|
|
|
80,000
|
|
|
|
53,910
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
133,910
|
|
D. Russell Pflueger
|
|
|
92,500
|
|
|
|
67,388
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
159,888
|
|
Sheldon Razin
|
|
|
100,000
|
|
|
|
67,388
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
167,388
|
|
Maureen A.
Spivack(2)
|
|
|
50,000
|
|
|
|
53,910
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
103,910
|
|
|
|
(1)
|
The amount reflected in this column represents the grant date
fair value of the stock awards made in fiscal year 2011,
computed in accordance with FASB ASC Topic 718,
Compensation Stock Compensation.
|
(2)
|
Ms. Spivacks services as a director of our Company
began on August 11, 2010. The amount presented is the
prorated fee commencing on this date.
|
At March 31, 2011, the aggregate number of option awards
outstanding for each of the incumbent directors named in the
table was as follows:
|
|
|
|
|
|
|
Shares
|
Director Name
|
|
Underlying Options
|
|
Mr. Barbarosh
|
|
|
--
|
|
Dr. Brennan
|
|
|
5,000
|
|
Mr. Bristol
|
|
|
5,000
|
|
Mr. Hussein
|
|
|
49,000
|
|
Mr. Pflueger
|
|
|
15,000
|
|
Mr. Razin
|
|
|
49,000
|
|
Ms. Spivack
|
|
|
--
|
|
Compensation
Committee Interlocks and Insider Participation
Our Compensation Committee consists of Messrs. Pflueger,
Barbarosh and Brennan. None of these individuals was, during the
fiscal year ended March 31, 2011, an officer or employee of
our company, and none of these individuals formerly was an
officer of our company. No member of our Board has a
relationship that would constitute an interlocking relationship
with executive officers and directors of another entity.
31
Compensation
Committee Report
Our Compensation Committee reviewed and discussed with
management the Compensation Discussion and Analysis
contained in this proxy statement. Based on that review and
discussion, our Compensation Committee agreed that the
Compensation Discussion and Analysis be included in
this proxy statement.
COMPENSATION
COMMITTEE
D.
Russell Pflueger, Chairman
|
|
|
Craig A. Barbarosh
|
|
Murray F. Brennan, M.D.
|
INFORMATION
ABOUT OUR BOARD OF DIRECTORS,
BOARD COMMITTEES AND RELATED MATTERS
Board of
Directors
General
Our business, property and affairs are managed under the
direction of our Board of Directors. Directors are kept informed
of our business through discussions with our executive officers,
by reviewing materials provided to them and by participating in
meetings of our Board and its committees. Our Board consists of
nine directors who are elected to serve until the election and
qualification of their respective successors.
Director
Independence
Our Bylaws require that at least a majority of the members of
our Board be independent directors. Our Bylaws define
independent director as a person other than an
executive officer or employee of our company or any other
individual having a relationship that, in the opinion of our
Board, would interfere with the exercise of independent judgment
in carrying out the responsibilities of a director. Under our
Bylaws, the following persons may not be considered independent:
|
|
|
|
(a)
|
a director who is, or at any time during the past three years
was, employed by us;
|
|
|
(b)
|
a director who accepted or who has a family member who accepted
any compensation from us in excess of $120,000 during any period
of twelve consecutive months within the three years preceding
the determination of independence, other than the following:
|
|
|
|
|
(i)
|
compensation for Board or Board committee service;
|
|
(ii)
|
compensation paid to a family member who is an employee (other
than an executive officer) of ours; or
|
|
(iii)
|
benefits under a tax-qualified retirement plan, or
non-discretionary compensation.
|
Provided, however, that in addition to the requirements
contained in this paragraph (b), audit committee members are
also subject to additional, more stringent requirements under
Nasdaq Rule 5605(a)(2).
|
|
|
|
(c)
|
a director who is a family member of an individual who is, or at
any time during the past three years was, employed by us as an
executive officer;
|
|
|
(d)
|
a director who is, or has a family member who is, a partner in,
or a controlling shareholder or an executive officer of, any
organization to which we made, or from which we received,
payments for property or services in the current or any of the
past three fiscal years that exceed
|
32
|
|
|
|
|
5% of the recipients consolidated gross revenues for that
year, or $200,000, whichever is more, other than the following:
|
|
|
|
|
(i)
|
payments arising solely from investments in our
securities; or
|
|
(ii)
|
payments under non-discretionary charitable contribution
matching programs.
|
|
|
|
|
(e)
|
a director of ours who is, or has a family member who is,
employed as an executive officer of another entity where at any
time during the past three years any of our executive officers
served on the compensation committee of such other
entity; or
|
|
|
(f)
|
a director who is, or has a family member who is, a current
partner of our outside auditor, or was a partner or employee of
our outside auditor who worked on our audit at any time during
any of the past three years.
|
A family member for these purposes means a
persons spouse, parents, children and siblings, whether by
blood, marriage or adoption, or anyone residing in such
persons home.
Our Board has determined that each of Messrs. Barbarosh,
Brennan, Bristol, Hussein, Pflueger and Razin and
Ms. Spivack, each of whom currently is a director, are
independent as defined above and in accordance with
applicable Nasdaq listing standards. The above definition of
independence is posted on our Internet website at
www.qsii.com.1
Attendance
at Board and Shareholders Meetings
During the fiscal year ended March 31, 2011, our Board held
seven meetings. No director standing for re-election to our
Board attended less than 75% of the aggregate of all meetings of
our Board and all meetings of committees of our Board upon which
they served (during the periods that they served) during the
fiscal year ended March 31, 2011.
It is our policy that our directors are invited and encouraged
to attend our annual meetings of shareholders. All of our nine
director nominees were in attendance at our 2010 annual meeting
of shareholders.
Board
Leadership Structure
We currently have an independent Chairman separate from the CEO.
Our Board believes it is important to maintain flexibility in
its Board leadership structure and firmly supports having an
independent director in a Board leadership position at all
times. Accordingly, our Bylaws provide that, if we do not have
an independent Chairman, our Board shall elect an independent
Lead Director, having similar duties to an independent Chairman,
including leading the executive sessions of the non-management
directors at Board meetings. Our current Chairman provides
independent leadership of our Board. Having an independent
Chairman or Lead Director enables non-management directors to
raise issues and concerns for Board consideration without
immediately involving management. The Chairman or Lead Director
also serves as a liaison between our Board and senior
management. Our Board has determined that the current structure,
an independent Chairman, separate from the CEO, is the most
appropriate structure at this time, while ensuring that, at all
times, there will be an independent director in a Board
leadership position.
Board
Involvement in Risk Oversight
Our Board is actively engaged, as a whole, and also at the
committee level, in overseeing management of our risks. Our
Board regularly reviews information regarding our personnel,
liquidity and operations, as
1 Website
addresses references are not intended to function as hyperlinks,
and the information contained on our website is not a part of
this Proxy Statement.
33
well as the risks associated with each. Our Compensation
Committee is responsible for overseeing the management of risks
relating to our executive compensation plans and arrangements.
Our Audit Committee oversees management of financial risks and
potential conflicts of interest. Our Nominating and Governance
Committee manages risks associated with the independence and
qualifications of our directors. Our Transaction Committee
oversees management of risks associated with the acquisition of
significant new business enterprises. While each committee is
responsible for evaluating certain risks and overseeing the
management of such risks, our entire Board is regularly informed
through committee reports about such risks and matters which may
evolve into risks.
Board
Committees and Charters
Our Board has a standing Audit Committee, Compensation
Committee, Transaction Committee and Nominating and Governance
Committee. In addition, our Board currently has an Independent
Directors Executive Personnel Committee and a Special Committee.
Our Board also from time to time may appoint a Proxy Voting
Committee
and/or a
Lead Director.
Audit
Committee
Our Board has an Audit Committee, established in accordance with
Section 3(a)(58)(A) of the Securities Exchange Act of 1934,
as amended (Exchange Act), that consists of
Messrs. Bristol (Chair), Pflueger and Ms. Spivack. Our
Audit Committee is comprised entirely of independent
(as defined in Rule 5605(a)(2) of the Nasdaq listing
standards) directors and operates under a written charter
adopted by our Board. The duties of our Audit Committee include
meeting with our independent public accountants to review the
scope of the annual audit and to review our quarterly and annual
financial statements before the statements are released to our
shareholders. Our Audit Committee also evaluates the independent
public accountants performance and determines whether the
independent registered public accounting firm should be retained
by us for the ensuing fiscal year. In addition, our Audit
Committee reviews our internal accounting and financial controls
and reporting systems practices and is responsible for
reviewing, approving and ratifying all related party
transactions.
During the fiscal year ended March 31, 2011, our Audit
Committee held eight meetings. Our Audit Committees
current charter is posted on our Internet website at
www.qsii.com. Our Audit Committee and our Board have confirmed
that our Audit Committee does and will continue to include at
least three independent members. Our Audit Committee and our
Board have confirmed that Mr. Bristol met applicable Nasdaq
listing standards for designation as an Audit Committee
Financial Expert and for being independent.
Nominating
and Governance Committee
Our Board has a Nominating and Governance Committee that
consists of Messrs. Barbarosh (Chair), Bristol and
Pflueger, each of whom is deemed independent. Our Nominating and
Governance Committee is responsible for identifying and
recommending nominee candidates to our Board, and is required to
be composed entirely of independent directors. Our Nominating
and Governance Committee may receive suggestions from current
Board members, our executive officers or other sources, which
may be either unsolicited or in response to requests from our
Nominating and Governance Committee for such candidates. Our
Nominating and Governance Committee may also, from time to time,
engage firms that specialize in identifying director candidates.
Our Nominating and Governance Committee will also consider
nominees recommended by shareholders for election as a director.
Recommendations should be sent to our Secretary and should
include the candidates name and qualifications and a
statement from the candidate that he or she consents to being
named in our proxy statement and will serve as a director if
elected. In order for any candidate to be considered by our
Nominating and Governance Committee and, if nominated, to be
included in our proxy
34
statement, such recommendation must be received by the Secretary
within the time period set forth under Proposals of
Shareholders, below.
Our Nominating and Governance Committee works with our Board to
determine the appropriate characteristics, skills, and
experiences for the Board as a whole and its individual members
with the objective of having a Board with diverse backgrounds
and experience. Characteristics expected of all directors
include independence, integrity, high personal and professional
ethics, sound business judgment, and the ability and willingness
to commit sufficient time to our Board. In evaluating the
suitability of individual candidates, our Nominating and
Governance Committee takes into account many factors, including
general understanding of marketing, finance, and other
disciplines relevant to the success of a large publicly traded
company in todays business environment; understanding of
our business; educational and professional background; personal
accomplishment; and geographic, gender, age, and ethnic
diversity. Our Nominating and Governance Committee evaluates
each individual in the context of our Board as a whole, with the
objective of recommending a group that can best perpetuate the
success of our business and represent shareholder interests
through the exercise of sound judgment using its diversity of
experience. Our Nominating and Governance Committee evaluates
each incumbent director to determine whether he or she should be
nominated to stand for re-election, based on the types of
criteria outlined above as well as the directors
contributions to our Board during their current term.
Once a person has been identified by our Nominating and
Governance Committee as a potential candidate, our Nominating
and Governance Committee may collect and review publicly
available information regarding the person to assess whether the
person should be considered further. If our Nominating and
Governance Committee determines that the candidate warrants
further consideration, the Chairman of the Committee or another
member of our Nominating and Governance Committee may contact
the person. Generally, if the person expresses a willingness to
be considered and to serve on our Board, our Nominating and
Governance Committee may request information from the candidate,
review the persons accomplishments and qualifications and
may conduct one or more interviews with the candidate. Our
Nominating and Governance Committee may consider all such
information in light of information regarding any other
candidates that our Nominating and Governance Committee might be
evaluating for nomination to our Board. Nominating and
Governance Committee members may contact one or more references
provided by the candidate or may contact other members of the
business community or other persons that may have greater
firsthand knowledge of the candidates accomplishments. Our
Nominating and Governance Committee may also engage an outside
firm to conduct background checks on candidates as part of the
nominee evaluation process. Our Nominating and Governance
Committees evaluation process does not vary based on the
source of the recommendation, though in the case of a
shareholder nominee, our Nominating and Governance Committee
and/or our
Board may take into consideration the number of shares held by
the recommending shareholder and the length of time that such
shares have been held.
On May 25, 2011, our Board approved an amendment to the
charter of the Nominating and Governance Committee to change its
name from Nominating Committee to Nominating and Governance
Committee and to expand its authority to develop and recommend
to the Board a set of corporate governance principles, to
evaluate the nature, structure and operations of the Board and
its committees and to make recommendations to address issues
raised by such evaluations.
During the fiscal year ended March 31, 2011, our Nominating
and Governance Committee held five meetings. Our Nominating and
Governance Committees current charter is posted on our
Internet website at www.qsii.com.
Compensation
Committee
Our Board has a Compensation Committee that consists of
Messrs. Pflueger, Barbarosh and Brennan. Our Compensation
Committee is composed entirely of independent directors, and is
responsible for (i) ensuring that senior management will be
accountable to our Board through the effective application of
35
compensation policies and (ii) monitoring the effectiveness
of our compensation plans applicable to senior management and
our Board (including committees thereof) and
(iii) following the amendment to the Compensation
Committees charter on May 25, 2011, approving the
compensation plans applicable to senior management. Our
Compensation Committee establishes and approves compensation
policies applicable to our executive officers. During the fiscal
year ended March 31, 2011, our Compensation Committee held
seven meetings. Our Compensation Committees current
charter is posted on our Internet website at www.qsii.com.
Our executive officers have played no role in determining the
amount or form of director compensation or compensation of our
named executive officers, except that in certain situations, our
Chief Executive Officer provides information to our Compensation
Committee regarding certain accomplishments of the named
executive officers to assist our Compensation Committee in
administering the discretionary portion of cash bonuses for
named executive officers. We also have conducted discussions
with our named executive officers concerning information
regarding their performance and prospects.
From time to time, our Compensation Committee has engaged
certain independent compensation consultants to assist in
preparing equity incentive plans for key staff including the
named executive officers and to assist the committee in
establishing base salaries and non-equity plans for the named
executive officers. The Compensation Committee engaged the
services of PricewaterhouseCoopers LLP to provide compensation
consulting services in connection with establishing the
compensation program for our named executive officers for the
fiscal year ending March 31, 2011 and, most recently,
engaged the services of Frederic W. Cook & Co., Inc.
to provide compensation consulting services in connection with
establishing the compensation program for our named executive
officers for the fiscal year ending March 31, 2012. In each
case, the Compensation Committee has utilized these compensation
consultants to compile and present peer-group compensation data
to the Committee, but did not delegate any authority to the
consultants to determine or recommend the amount or form of
executive compensation. The Compensation Committee also consults
publicly available compensation data from time to time as part
of its Board and executive compensation decisions.
Transaction
Committee
Our Board has a Transaction Committee that consists of
Messrs. Razin (Chair), Barbarosh and Bristol and
Ms. Spivack. The Transaction Committee is responsible for
considering and making recommendations to our Board with respect
to all proposals involving a change in control of our company or
the purchase or sale of assets constituting more than 10% of our
total assets. The Transaction Committee is composed entirely of
independent directors. The transaction committee held three
meetings during fiscal year 2011.
Independent
Directors Executive Personnel Committee
On May 26, 2010, our Board formed an Independent Directors
Compensation and Executive Personnel Committee, which is
comprised of all of our independent directors (currently
Messrs. Barbarosh, Brennan, Bristol, Hussein, Pflueger and
Razin and Ms. Spivack) and which is empowered to address
personnel and employment related matters concerning our
executive officers. On May 25, 2011 our Board changed the
name of this Committee to Independent Directors Executive
Personnel Committee and limited the purpose of the Committee to
executive employment matters, including hiring, terminating, and
continuing the service terms and conditions of executives.
During the fiscal year ended March 31, 2011, our
Independent Directors Executive Personnel Committee held one
meeting.
Special
Committee
We have a recently been subject to proxy contests, the use of
cumulative voting rights and litigation brought against us by a
director, Mr. Hussein. In light of this history, on
May 26, 2010, our Board formed a Special Committee. Among
other things, the Special Committee has been delegated all
powers of our Board in connection with the solicitation and
voting of proxies at the annual meeting as well as all matters
related to
36
any litigation or threat of litigation associated with such
meeting and its related activities. The Special Committee
currently consists of Messrs. Razin, Bristol and Pflueger.
The Special Committee did not meet during fiscal year 2011.
Proxy
Voting Committee
Our Board from time to time may appoint a Proxy Voting Committee
to provide instruction to our proxy holders to vote proxies in
such manner as to provide for the election of the maximum number
of our director nominees (for whom authority is not otherwise
specifically withheld) including, but not limited to, the
prioritization of such nominees to whom such votes may be
allocated. In the event of a contested election
and/or one
or more of our shareholders demanding that cumulative voting
apply to the election of directors at the annual meeting, our
Board established a Proxy Voting Committee on May 26, 2010.
The Proxy Voting Committee consists of Messrs. Pflueger,
Barbarosh and Razin.
Lead
Director
Under our Bylaws, if at any time our Chairman of the Board is an
executive officer of our company, or for any other reason is not
an independent director, a non-executive Lead Director must be
selected by our independent directors. The Lead Director must be
one of our independent directors, must be a member of our Audit
Committee and of our Executive Committee, if we have such a
committee, and is responsible for coordinating the activities of
our independent directors. The Lead Director assists our Board
in assuring compliance with our corporate governance procedures
and policies, and coordinates, develops the agenda for, and
moderates executive sessions of our Boards independent
directors. Executive sessions are typically held immediately
following each regular meeting of our Board,
and/or at
other times as designated by the Lead Director. The Lead
Director approves, in consultation with our other independent
directors, the retention of consultants who report directly to
our Board. If at any time our Chairman of the Board is one of
our independent directors, then he or she will perform the
duties of the Lead Director.
Related
Matters
Audit
Committee Report
Our Audit Committee reports to our Board and provides oversight
of our financial management, independent registered public
accounting firm, and financial reporting system, including
accounting policy. Management is responsible for our financial
reporting process, including our system of internal control, and
for the preparation of our consolidated financial statements.
Our independent registered public accounting firm is responsible
for auditing our financial statements and expressing an opinion
on those statements and on managements assessment of
internal control over financial reporting and for reviewing our
quarterly financial statements. The Audit Committee has reviewed
and discussed our audited consolidated financial statements and
the assessments of internal control contained in its annual
report on
Form 10-K
for the fiscal year ended March 31, 2011 with management
and our independent registered public accounting firm.
The Audit Committee selects and retains the independent
registered public accounting firm, and once retained, the
independent registered public accounting firm reports directly
to the Audit Committee. The Audit Committee is responsible for
approving both audit and non-audit services provided by the
independent registered public accounting firm. The Audit
Committee has discussed the matters required to be discussed
under Statement on Auditing Standards No. 61, as amended
(AICPA Professional Standards, Vol. 1. AU Section 380), as
adopted by the Public Company Accounting Oversight Board in
Rule 3200T. We have received from our independent
registered public accounting firm the written disclosures and
letter required by the applicable requirements of the Public
Company Accounting Oversight Board regarding our independent
registered public accounting firms communications with the
Audit Committee concerning independence.
The Audit Committee discussed the overall approach, scope and
plans for its audit with our
37
independent registered public accounting firm. At the conclusion
of the audit, the Audit Committee met with our independent
registered public accounting firm, with and without management
present, to discuss the results of its examination, its
evaluation of our internal control and the overall quality of
our financial reporting.
In reliance on the reviews and discussions referred to above,
our Audit Committee recommended to our Board (and our Board
approved) that the audited financial statements be included in
our annual report on
Form 10-K
for the year ended March 31, 2011, for filing with the SEC.
The Audit Committee has re-appointed PricewaterhouseCoopers LLP
to serve as our independent registered public accounting firm
for the fiscal year ending March 31, 2012.
AUDIT
COMMITTEE
George H. Bristol, Chairman
Maureen A.
Spivack D.
Russell Pflueger
Code of
Ethics
We have adopted a Code of Business Conduct and Ethics, or code
of ethics, that applies to our Chief Executive Officer
(principal executive officer) and Chief Financial Officer (our
principal financial and accounting officer). Our code of ethics
is posted on our Internet Website located at www.qsii.com
and may be found as follows: From our main Web page, first click
on Company Info and then on Corporate
Governance. We intend to satisfy the disclosure
requirement under Item 5.05 of
Form 8-K
regarding an amendment to, or waiver from, a provision of our
code of ethics by posting such information on our Website, at
the address and location specified above.
Security
Holder Communications with our Board
Our Board has established a process to receive communications
from our security holders. Security holders may contact any
member (or all members) of our Board, or our independent
directors as a group, any Board committee or any Chair of any
such committee by mail or electronically. Correspondence should
be addressed to our Board or any such individual directors,
group or committee of directors by either name or title and sent
c/o Corporate
Secretary to 18111 Von Karman, Suite 700, Irvine,
California 92612. To communicate with any of our directors
electronically, a shareholder should send an
e-mail to
our Secretary: jsullivan@qsii.com.
All communications received as set forth in the preceding
paragraph will be opened by our Secretary for the sole purpose
of determining whether the contents represent a message to our
directors. Any contents that are not in the nature of
advertising, promotions of a product or service, patently
offensive material or matters deemed inappropriate for our Board
will be forwarded promptly to the addressee. In the case of
communications to our Board, any group or committee of
directors, our Secretary will make sufficient copies (or forward
such information in the case of
e-mail) of
the contents to send to each director who is a member of the
group or committee to which the envelope or
e-mail is
addressed.
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Exchange Act, our directors and
executive officers and any person who beneficially owns more
than 10% of our outstanding common stock (reporting
persons) are required to report their initial beneficial
ownership of our common stock and any subsequent changes in that
ownership to the SEC and Nasdaq. Reporting persons are required
by SEC regulations to furnish to us copies of all reports they
file in accordance with Section 16(a). Based solely upon
our review of the copies of such reports received by us, or
written representations from certain reporting persons that no
other reports were required,
38
we believe that during the fiscal year ended March 31,
2011, all Section 16(a) filing requirements applicable to
our reporting persons were met, except for (i) a late
Form 3 filing by Mr. Monte L. Sandler in connection
with his appointment on May 26, 2010 as our Executive Vice
President, NextGen Practice Solutions, for which a Form 3
was filed on June 10, 2010; and (ii) a late
Form 4 filing by Mr. Monte L. Sandler relating to the
option exercise and sale of 4,057 shares of our common
stock on August 25, 2010, for which a Form 4 was filed
on September 1, 2010.
CERTAIN
RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Review,
Approval or Ratification of Transactions with Related
Persons
During fiscal year 2011, our Audit Committee was responsible for
reviewing and approving transactions with related persons.
Our Board and Audit Committee have adopted written related party
transaction policies and procedures relating to approval or
ratification of transactions with related persons. Under the
policies and procedures, our Audit Committee is to review the
material facts of all related party transactions that require
our Audit Committees approval and either approve or
disapprove of our entry into the related party transactions,
subject to certain exceptions, by taking into account, among
other factors the committee deems appropriate, whether the
related party transaction is on terms no less favorable than
terms generally available to an unaffiliated third-party under
the same or similar circumstances and the extent of the related
partys interest in the transaction. No director may
participate in any discussion or approval of a related party
transaction for which he or she is a related party. If an
interested transaction will be ongoing, the Committee may
establish guidelines for our management to follow in its ongoing
dealings with the related party and then at least annually must
review and assess ongoing relationships with the related party.
Under the policies and procedures, a related party
transaction is any transaction, arrangement or
relationship or series of similar transactions, arrangements or
relationships (including any indebtedness or guarantee of
indebtedness) in which the aggregate amount involved will or may
be expected to exceed $30,000 in any calendar year, we are a
participant, and any related party has or will have a direct or
indirect interest. A related party is any person who
is or was since the beginning of our last fiscal year an
executive officer, director or Board-approved nominee for
election as a director and inclusion in our proxy statement at
our next annual shareholders meeting, any greater than 5%
beneficial owner of our common stock known to us through filings
with the SEC, any immediate family member of any of the
foregoing, or any firm, corporation or other entity in which any
of the foregoing persons is employed or is a partner or
principal or holds a similar position or in which such person
has a 5% or greater beneficial ownership interest.
Immediate family member includes a persons
spouse, parents, stepparents, children, stepchildren, siblings,
mothers- and
fathers-in-law,
sons- and
daughters-in-law,
and brothers- and
sisters-in-law
and anyone residing in such persons home (other than a
tenant or employee).
Our Audit Committee has reviewed and pre-approved certain types
of related party transactions described below. In addition, our
Board has delegated to the Chair of our Audit Committee the
authority to pre-approve or ratify (as applicable) any related
party transaction in which the aggregate amount involved is
expected to be less than $15,000. Pre-approved interested
transactions include:
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Employment of executive officers if the related compensation is
required to be reported in our proxy statement or if the
executive officer is not an immediate family member of another
executive officer or a director of our company, the related
compensation would be reported in our proxy statement if the
executive officer was a named executive officer, and
our Compensation Committee approved (or recommended that our
Board approve) the compensation.
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Any compensation paid to a director if the compensation is
required to be reported in our proxy statement.
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Any transaction with another enterprise at which a related
partys only relationship is as an employee (other than an
executive officer), director or beneficial owner of less than 5%
of that enterprise, if the aggregate amount involved does not
exceed the greater of $30,000 or 5% of that enterprises
total annual revenues.
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Any charitable contribution, grant or endowment by use to a
charitable organization, foundation or university at which a
related partys only relationship is as an employee (other
than an executive officer) or a director, if the aggregate
amount involved does not exceed the lesser of $10,000 or 5% of
the charitable organizations total annual receipts.
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Any transaction where the related partys interest arises
solely from the ownership of our common stock and all holders of
our common stock received the same benefit on a pro rata basis
(e.g., dividends or stock splits).
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Any transaction over which the related party has no control or
influence on our decision involving that related party where the
rates or charges involved are determined by competitive bids.
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Any transaction with a related party involving the rendering of
services as a common or contract carrier, or public utility, at
rates or charges fixed in conformity with law or governmental
authority, or services made available on the same terms and
conditions to persons who are not related parties.
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Related
Person Transactions
Indemnification
Agreements
We are party to indemnification agreements with each of our
directors and executive officers. The indemnification agreements
and our Articles of Incorporation and Bylaws require us to
indemnify our directors and executive officers to the fullest
extent permitted by California law.
Employment
Arrangement
Kim Cline, Executive Vice President, Professional Services, of
NextGen Healthcare, is the sister of Patrick B. Cline, our
President and a member of our Board. Kim Cline earned
approximately $308,865 in salary and bonus for the fiscal year
2011.
APPROVAL
OF THE QUALITY SYSTEMS, INC.
SECOND AMENDED AND RESTATED 2005 STOCK OPTION AND INCENTIVE
PLAN
(Proposal No. 2)
On May 25, 2011, our Board adopted, subject to shareholder
approval, the Quality Systems, Inc. Second Amended and Restated
2005 Stock Option and Incentive Plan (the Amended
Plan), which amends and restates our 2005 Plan. The
purpose of the Amended Plan is to help promote our success and
profitability
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by allowing us to offer incentive opportunities to our officers,
directors, employees, consultants and advisers (the
Participants). We are seeking shareholder approval
of the Amended Plan in order to:
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amend certain administrative provisions of the 2005 Plan (the
Conforming Changes) to allow for our Compensation
Committee to grant (as opposed to making recommendations that
are subject to approval by our Board) awards under the Amended
Plan; and
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satisfy the shareholder approval requirements of
Section 162(m) of the Code.
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Prior to May 25, 2011, our Compensation Committee held the
power to make recommendations regarding executive compensation,
with our Board having final authority over such matters. On
May 25, 2011, our Board approved a revised charter for our
Compensation Committee, which delegates general powers regarding
executive compensation (including authority to grant incentive
awards) to our Compensation Committee, without it having to seek
ratification or approval from our Board. Our Board
correspondingly approved the Conforming Changes to allow for our
Compensation Committee to grant awards under the Amended Plan.
In addition to asking our shareholders to approve the Conforming
Changes, we are seeking the shareholder approval required by
Section 162(m) of the Code. Generally, Section 162(m)
prevents a company from receiving a federal income tax deduction
for compensation paid to certain executive officers in excess of
$1 million per covered officer for any year, unless the
compensation is performance-based. Among other requirements, in
order to qualify as performance-based compensation,
the material terms of the performance goals (in our case, as set
forth in the Amended Plan and described below under the heading
Performance Goals) must be submitted for shareholder
approval every five years.
Except for the Conforming Changes, the terms and provisions of
the 2005 Plan and the Amended Plan are the same. There is no
change in the total number of shares of our common stock
available under the Amended Plan as compared to the 2005 Plan.
The 2005 Plan was previously approved by our shareholders and,
even if our shareholders do not approve the Amended Plan, it
will continue to be effective until its expiration on
May 25, 2015. Accordingly, if this Proposal No. 2
is not approved, we may continue to offer Participants awards
under the 2005 Plan. However, due to the requirements of
Section 162(m) of the Code, if the Amended Plan is not
approved by our shareholders, some compensation to our senior
executives may not be deductible by us under the Code,
potentially subjecting us to higher tax liabilities.
Performance
Goals
Under the Amended Plan, our Compensation Committee adopts
objective performance goals applicable to awards granted to
Participants that are covered under Section 162(m) of the
Code (Covered Participants). Performance goals may
be based on various objective performance criteria, such as:
(i) revenue, (ii) earnings per share, (iii) net
income, (iv) return on assets, (v) return on equity,
(vi) stock price, (vii) economic profit or shareholder
value added, (viii) total shareholder return,
(ix) EBIT and (x) EBITDA.
Performance goals for Covered Participants may be defined and
calculated in any objective manner and detail as our
Compensation Committee may determine, including whether such
measures are calculated before or after income taxes or other
items; the degree or manner in which various items shall be
included or excluded from such performance measures; whether
total assets or certain categories of assets shall be used;
whether such measures are based on our performance on a
consolidated basis, the performance of one or more of our
subsidiaries or affiliates, or the performance of one or more of
our, our subsidiaries or our affiliates divisions,
operating units or business lines; the weight given to various
measures if combined goals are used; and the periods and dates
during or on which such measures are calculated. Performance
goals may differ from Covered Participant to Covered Participant
and from award to award. A performance goal is considered
objective if a third party having knowledge of the relevant
facts could determine whether the performance goal is achieved.
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The maximum amount that may be granted to a Covered Participant
under the Amended Plan in any fiscal year shall not exceed:
(i) $2,000,000 in cash awards and (ii) (A) stock
options and stock appreciation rights for 500,000 shares of
our common stock in a Covered Participants initial year of
service with us or for 200,000 shares of our common stock
in any fiscal year after a Covered Participants initial
year of service with us or (B) restricted stock,
unrestricted stock, restricted stock units, performance shares
and similar stock awards for 250,000 shares of our common
stock in a Covered Participants initial year of service
with us or for 100,000 shares of our common stock in any
fiscal year after a Covered Participants initial year of
service with us. Stock options granted to Covered Participants
must have an exercise price equal to at least 100% of the fair
market value of our common stock on the date the option is
granted. Compensation payable under stock appreciation rights
granted to Covered Participants must be based solely on an
increase in the fair market value of our common stock after the
date the stock appreciation right is granted.
Conforming
Changes
As a result of the revised powers granted to our Compensation
Committee, it is authorized to approve compensation matters
(including incentive awards) concerning our executive officers,
while our Board retains its approval powers regarding all other
compensation matters that it has not delegated to management.
The 2005 Plan does not currently provide for this bifurcation of
approval powers, as it is based on our Compensation Committee
having only recommendation powers concerning executive
compensation. The Conforming Changes facilitate the revised
powers of our Compensation Committee regarding executive
compensation by allowing our Compensation Committee to grant
awards under the Amended Plan.
Summary
of Amended Plan
A detailed description of the Amended Plan follows:
Types of
Awards Under the Amended Plan
Various types of awards may be granted under the Amended Plan,
including: (i) cash awards, (ii) stock options,
including incentive stock options and non-qualified stock
options, (iii) stock appreciation rights,
(iv) restricted stock, (v) unrestricted stock,
(vi) restricted stock units, (vii) performance shares
(including performance options and performance units) and
(viii) other forms of stock-based awards described in the
Amended Plan.
Award
Agreements
Each award granted under the Amended Plan will be evidenced by
an award agreement containing such provisions as the Designated
Entity deems necessary or desirable. The Designated
Entity under the Amended Plan may be either our Board or
our Compensation Committee (or a combination of our Board and
our Compensation Committee with respect to certain types of
Participants), as determined from time to time by our Board. To
facilitate our Compensation Committees revised powers
concerning executive compensation, on May 25, 2011 our
Board appointed our Compensation Committee as the Designated
Entity for all grants to our executive officers. Our Board
retained its capacity as the Designated Entity for awards to all
other Participants. Based on the terms of the Amended Plan, our
Board may at any time reassign the Designated Entity for grants
to executive officers or any other Participants.
Amended
Plan Administration
Our Board is currently the Designated Entity to administer the
Amended Plan and makes decisions concerning: (i) the manner
in which the Amended Plan and any award agreement (other than
award agreements to executive officers) is construed,
interpreted and implemented, (ii) amendments and rescission
of rules and regulations relating to the Amended Plan, including
rules governing its operation, (iii) determinations deemed
necessary or advisable in administering the Amended Plan
(including defining and
42
calculating performance goals and certifying that such
performance goals have been met), (iv) the correction of
any defect, supplying any omission and reconciling any
inconsistency in the Amended Plan, (v) amendments to the
Amended Plan reflecting changes in applicable law or
regulations, (vi) whether, to what extent and under what
circumstances awards may be settled or exercised in cash, shares
of our common stock, other securities, other awards or other
property, or canceled, forfeited or suspended and the method or
methods by which awards may be settled, canceled, forfeited or
suspended and (vii) whether, and to what extent and under
what circumstances, cash, shares of our common stock, other
securities, other awards or other property and other amounts
payable with respect to an award shall be deferred either
automatically or at the election of the holder thereof or of our
Board. Our Compensation Committee currently makes decisions
concerning the manner in which any award agreement to an
executive office is construed, interpreted and implemented.
Total
Shares Available
A total of 2,400,000 shares of our common stock may be
issued pursuant to awards granted under the Amended Plan. As of
March 31, 2011, approximately 1,786,624 shares
remained available for grant under the Amended Plan. With
respect to a stock appreciation right, both the shares of common
stock issued pursuant to the award and the shares of common
stock representing the exercise price of the award shall be
treated as being unavailable for other awards or other issuances
pursuant to the Amended Plan unless the stock appreciation right
is forfeited, terminated or cancelled without the delivery of
shares of our common stock. Awards in shares of our common stock
(such as restricted stock, unrestricted stock, restricted stock
units and performance shares) count against the number of shares
available under the Amended Plan as two shares for every share
subject to the award.
Adjustments
The number of shares of common stock covered by each award
outstanding under the Amended Plan, the price per share of
common stock associated with each award outstanding under the
Amended Plan, the total number of shares of common stock
available under the Amended Plan, and any other calculation
relating to shares under the Amended Plan or under awards
outstanding under the Amended Plan, shall be proportionately
adjusted, in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available
under the Amended Plan or any outstanding award, for any
increase or decrease in the number of issued shares of our
common stock resulting from a stock split, reverse stock split,
stock dividend, recapitalization, combination or
reclassification of our common stock or a similar transaction,
or any other increase or decrease in the number of issued shares
of our common stock effected without receipt by us of
consideration or to reflect any distributions to holders of our
common stock other than regular cash dividends; provided,
however, that conversion of any securities convertible into
shares of our common stock shall not be deemed to have been
effected without receipt of consideration.
Repricing
Except as may be adjusted under the Amended Plan, the exercise
price of an award granted under the Amended Plan may not be
modified or repriced without first obtaining
shareholder approval.
Stock Options, Stock Appreciation Rights and Additional Options
Options Generally The Designated Entity may grant stock
options, including (i) incentive stock options and
(ii) nonqualified stock options, to purchase shares of our
common stock from us.
Incentive Stock Options With respect to any incentive
stock option or stock appreciation right granted in connection
with an incentive stock option (i) the exercise price shall
be at least 100% of the fair market value of a share of our
common stock on the date the option is granted and (ii) the
exercise period shall not be for longer than ten years after the
date of the grant.
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To the extent that the aggregate fair market value of the shares
of our common stock with respect to which incentive stock
options and stock appreciation rights granted in connection with
incentive stock options granted under the Amended Plan and all
of our other plans are first exercisable by any Participant
during any calendar year shall exceed the maximum limit
(currently, $100,000), if any, imposed from time to time under
Section 422 of the Code, such options and rights shall be
treated as nonqualified stock options. To the extent required
under Section 422 of the Code, an incentive stock option
may not be granted under the Amended Plan to an individual who,
at the time the option is granted, owns stock possessing more
than 10% of the total combined voting power of all classes of
our stock unless (i) at the time such incentive stock
option is granted the exercise price is at least 110% of the
fair market value of our common stock and (ii) the
incentive stock option by its terms is not exercisable after the
expiration of five years from the date granted. Incentive stock
options are also governed by other provisions of
Section 422 of the Code.
Stock Appreciation Rights The Designated Entity may grant
stock appreciation rights to Participants in such amounts and
subject to such terms and conditions (including the attainment
of performance goals), as the Designated Entity may determine,
subject to the provisions of the Amended Plan. Stock
appreciation rights may be granted in connection with all or any
part of, or independently of, any stock option granted under the
Amended Plan. A stock appreciation right may be granted at or
after the time of grant of such option. The Participant granted
a stock appreciation right shall have the right, subject to the
terms of the Amended Plan and the applicable award agreement, to
receive from us an amount equal to (i) the excess of the
fair market value of a share of our common stock on the date of
exercise of the stock appreciation right over (ii) the
exercise price of the stock appreciation right as set forth in
the award agreement (if the stock appreciation right is granted
in connection with a stock option, then the exercise price of
the option), multiplied by (iii) the number of shares with
respect to which the stock appreciation right is exercised.
Payment to the Participant upon exercise of a stock appreciation
right shall be made in cash or in shares of our common stock
(valued at their fair market value on the date of exercise of
the stock appreciation right) or both, as the Designated Entity
may determine.
Exercise Price Each Award Agreement concerning a stock
option or stock appreciation right shall set forth the exercise
price, which will be determined by the Designated Entity subject
to the terms of the Amended Plan.
Exercise Periods and Manner of Exercise Each award
agreement concerning a stock option or stock appreciation right
shall set forth the periods during which the award evidenced by
the agreement will be exercisable, and, if applicable, the
conditions that must be satisfied (including the attainment of
performance goals) in order for the award to be exercisable,
whether in whole or in part. These periods and conditions shall
be determined by the Designated Entity; provided, however, that
no stock option or stock appreciation right shall be exercisable
more than ten years after the date an award is issued. Unless
the award agreement otherwise provides, a stock option or stock
appreciation right may be exercised from time to time as to all
or part of the shares as to which the award is then exercisable.
A stock appreciation right granted in connection with an option
may be exercised at any time when, and to the same extent that,
the related option may be exercised.
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Payment of Exercise Price Any exercise of a stock option
shall be accompanied by payment of the exercise price for the
shares being purchased. Payment will be made (i) in cash,
(ii) by delivery of shares of our common stock having a
fair market value equal to all or part of the exercise price and
cash for any remaining portion of the exercise price,
(iii) by a cashless exercise procedure through a
broker-dealer or (iv) to the extent permitted by law, by
such other method not otherwise prohibited by our Board, such as
a net exercise.
Termination of Employment, Death, Disability Except to
the extent otherwise provided under the Amended Plan or in the
applicable award agreement, all unvested stock options and stock
appreciation rights to the extent not previously exercised shall
terminate immediately upon (i) a Participants
termination of employment at the Participants election for
any reason or (ii) the Participants termination of
employment by us for cause. Except to the extent otherwise
provided in the applicable award agreement, upon the termination
of employment of a Participant at our election without cause
(other than as provided in the Amended Plan) the Participant may
exercise an outstanding stock option or stock appreciation right
on the following terms and conditions: (i) exercise may be
made only to the extent that the Participant was entitled to
exercise the award on the date of the termination of employment
and (ii) exercise must occur within three months after the
termination of employment but in no event after the expiration
date of the award as set forth in the award agreement. If we
adopt a retirement policy, except to the extent otherwise
provided in the applicable award agreement, upon the termination
of employment of a Participant by reason of the
Participants retirement, the Participant may exercise an
outstanding stock option or stock appreciation right on the
following terms and conditions: (i) exercise may be made
only to the extent that the Participant was entitled to exercise
the award on the date of retirement and (ii) exercise must
occur within three years after retirement but in no event after
the expiration date of the award as set forth in the award
agreement. Except to the extent otherwise provided in the
applicable award agreement, upon the termination of employment
of a Participant by reason of his or her disability, the
Participant may exercise an outstanding stock option or stock
appreciation right on the following terms and conditions:
(i) exercise may be made only to the extent that the
Participant was entitled to exercise the award on the date of
termination of employment and (ii) exercise must occur no
later than six months after the termination of employment but in
no event after the expiration date of the award as set forth in
the award agreement. Except to the extent otherwise provided in
the applicable award agreement, if a Participant dies during the
period in which the Participants stock options or stock
appreciation rights are exercisable, the stock options or stock
appreciation rights shall be exercisable on the following terms
and conditions: (i) exercise may be made only to the extent
that the Participant was entitled to exercise the award on the
date of death and (ii) exercise must occur no later than
six months after the date of the Participants death.
Restricted
Stock and Unrestricted Stock
Grants The Designated Entity may grant restricted and
unrestricted shares of our common stock to Participants in such
amounts and subject to such terms and conditions (including the
attainment of performance goals) as the Designated Entity may
determine, subject to the provisions of the Amended Plan.
Rights as Shareholder We may issue in the
Participants name shares of our common stock covered by an
award of restricted stock or unrestricted stock. Upon the
issuance of such shares, the Participant will have the rights of
a shareholder with respect to the restricted stock or
unrestricted stock, subject to certain transfer restrictions,
our repurchase rights and other restrictions that may be set
forth in the applicable award agreement.
Nontransferable Shares of restricted stock may not be
sold, assigned, transferred, pledged or otherwise encumbered or
disposed of except as specifically provided in the Amended Plan
or the applicable award agreement. The Designated Entity may at
any time waive or amend the transfer restrictions or other
conditions of an award of restricted stock.
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Termination of Employment Except to the extent otherwise
provided in the applicable award agreement or unless otherwise
determined by our Board, in the event of a Participants
termination of employment for any reason, shares of restricted
stock that have not vested shall be forfeited and canceled.
Restricted
Stock Units
Grants The Designated Entity may grant awards of
restricted stock units to Participants in such amounts and
subject to such terms and conditions (including the attainment
of performance goals) as the Designated Entity may determine,
subject to the provisions of the Amended Plan.
Termination of Employment Except to the extent otherwise
provided in the applicable Award Agreement or unless otherwise
determined by our Board, in the event of a Participants
termination of employment for any reason, restricted stock units
that have not vested shall be forfeited and canceled.
Performance
Shares, Performance Options and Performance Units
Grants The Designated Entity may grant performance shares
(in the form of actual shares of our common stock, performance
options or performance units) to Participants in such amounts
and subject to such terms and conditions (including the
attainment of performance goals) as the Designated Entity may
determine, subject to the provisions of the Amended Plan. The
performance goals and the length of the performance period
applicable to any award of performance shares shall be
determined by the Designated Entity. The Designated Entity may
determine whether performance shares granted in the form of
performance units will be paid in cash, shares of our common
stock, or a combination of cash and common stock.
Nontransferable Performance shares may not be sold,
assigned, transferred, pledged or otherwise encumbered or
disposed of except as specifically provided in the Amended Plan
or the applicable award agreement. The Designated Entity at the
time of grant shall specify the date or dates (which may depend
upon or be related to the attainment of performance goals) and
other conditions on which the non-transferability of the
performance shares shall lapse. The Designated Entity may at any
time waive or amend the transfer restrictions or other
conditions of an award of performance shares.
Termination of Employment Except to the extent otherwise
provided in the applicable award agreement or unless otherwise
determined by our Board, in the event of a Participants
termination of employment for any reason, performance shares
that have not vested shall be forfeited and canceled.
Deferred
Stock Units
Deferred stock units consist of a restricted stock, restricted
stock unit or performance share awards that the Designated
Entity permits to be paid out in installments or on a deferred
basis. Deferred stock units remain subject to the claims of our
general creditors until distributed to the Participant. Deferred
stock units granted to Covered Participants are subject to the
annual Section 162(m) limits applicable to the underlying
restricted stock, restricted stock unit or performance share
awards as set forth in the Amended Plan.
Other
Stock-Based Awards
The Designated Entity may grant other types of stock-based
awards to Participants in such amounts and subject to such terms
and conditions (including the attainment of performance goals)
as the Designated Entity may determine, subject to the
provisions of the Amended Plan. Such awards may entail the
transfer of actual shares of our common stock or payments to the
Participant in cash or other consideration based on the value of
shares of our common stock.
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Dividend
Equivalent Rights
The Designated Entity may include in the award agreement
applicable to any award a dividend equivalent right entitling
the Participant to receive amounts equal to ordinary dividends
that are paid, during the time such award is outstanding and
unexercised, on the shares of our common stock covered by the
award as if the shares covered by the award were actually
outstanding and owned by the Participant. In the event such a
provision is included in an award agreement, the Designated
Entity will determine whether such payments shall be made in
cash, in shares of our common stock or in another form, whether
they shall be conditioned upon the exercise or vesting of, or
the attainment or satisfaction of terms and conditions
applicable to, the award to which they relate, the time or times
at which they shall be made, and such other terms and conditions
as the Designated Entity may deem appropriate.
Director
Stock Options
Eligibility Subject to the specific requirements, terms
and conditions as adopted from time to time by the Designated
Entity and the terms of any director compensation program that
we may have in effect from time to time, all of our voting
directors who are not our employees (Non-Employee
Directors) that are awarded stock options from us will
receive nonqualified stock options pursuant to the conditions of
the Amended Plan.
Exercise Price and Period Unless the Designated Entity
determines otherwise, the exercise price for each stock option
granted to directors shall be 100% of the fair market value of a
share of our common stock on the date the stock option is
granted. Each stock option shall vest, become exercisable and
possess a term as determined by the Designated Entity in
accordance with any director compensation program that we may
have in effect from time to time, provided, however, that
(i) if the Non-Employee Directors service on our
Board is terminated as a result of not being reelected to our
Board, then the stock option will continue to exercisable until
the earlier to occur of (A) the expiration of the remaining
term of the option or (B) three years from the date Board
service terminated and (ii) no director stock option may
have a term in excess of ten years.
The full text of the Amended Plan, including double underlined
(indicating inserted) and struck-through (indicating deleted)
text to identify the Conforming Changes, are set forth in
Appendix I Full Text of the Quality Systems,
Inc. Second Amended and Restated 2005 Stock Option and Incentive
Plan.
The affirmative vote of both (i) a majority of common stock
present in person or represented by proxy and voting on the
proposal and (ii) a majority of the quorum, is required to
approve this Proposal No. 2. Unless otherwise
instructed, the proxy holders will vote the proxies they receive
FOR the approval of the Amended Plan.
OUR BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THE PROPOSAL TO APPROVE THE QUALITY SYSTEMS, INC. SECOND
AMENDED AND RESTATED 2005 STOCK OPTION AND INCENTIVE PLAN.
RATIFICATION
OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(Proposal No. 3)
Our shareholders are being asked to ratify the appointment of
PricewaterhouseCoopers LLP to serve as our independent
registered public accountants to audit our financial statements
for the fiscal year ending March 31, 2012. Shareholder
ratification of the appointment of PricewaterhouseCoopers LLP as
our independent registered public accounting firm is not
required by our Bylaws or other applicable legal requirements.
However, our Board is submitting our Audit Committees
appointment of PricewaterhouseCoopers LLP to our shareholders
for ratification
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as a matter of good corporate practice. If our shareholders fail
to ratify the appointment by an affirmative vote of the holders
of a majority of our common stock present or represented at the
meeting and entitled to vote, our Audit Committee may reconsider
whether to retain PricewaterhouseCoopers LLP as our independent
registered public accounting firm. Even if the appointment is
ratified, our Audit Committee in its discretion may direct the
appointment of a different independent registered public
accounting firm at any time during the year if it determines
that such a change would be in the best interest of us and our
shareholders.
We expect that representatives of PricewaterhouseCoopers LLP
will attend the annual meeting, will have the opportunity to
make a statement if they so desire and will be available to
respond to appropriate questions posed by our shareholders.
Audit and
Non-Audit Fees
The following table sets forth the aggregate fees billed to us
by PricewaterhouseCoopers LLP, our principal accountant, and
Grant Thornton, LLP, our principal accountant prior to our
engagement of PricewaterhouseCoopers LLP on September 4,
2009, for professional services rendered in the audit of our
consolidated financial statements for the years ended
March 31, 2011 and 2010.
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|
|
|
|
|
|
|
|
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2011
|
|
2010(1)
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Audit fees
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|
$
|
493,300
|
|
|
$
|
651,000
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Audit-related fees
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|
|
|
|
|
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|
Tax fees
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|
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All other fees
|
|
|
|
|
|
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17,000
|
|
|
|
|
(1) |
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Of the fees paid in fiscal year 2010, the company was billed
Audit fees and All other fees of $513,000 and $10,000,
respectively, by PricewaterhouseCoopers LLP and $138,000 and
$7,000, respectively, by Grant Thornton, LLP. |
Audit Fees. Audit fees consist of fees billed for
professional services for audit of our consolidated financial
statements and review of the interim consolidated financial
statements included in our quarterly reports and services that
are normally provided by an independent registered public
accounting firm in connection with statutory and regulatory
filings or engagements.
Audit-Related Fees. No audit-related fees were incurred
for fiscal years 2011 or 2010.
Tax Fees. No tax fees were incurred for fiscal years 2011
or 2010.
All Other Fees. All other fees consist of fees billed for
advisory services provided to our Board and subscription to a
technical resource.
Policy on
Audit Committee Pre-Approval of Audit and Non-Audit
Services
Our Audit Committees policy is to pre-approve all auditing
services and permitted non-audit services (including the fees
and terms thereof) to be performed for us by our independent
registered public accounting firm, subject to the de minimis
exceptions for non-audit services described in
Section 10A(i)(1)(B) of the Exchange Act that are approved
by our Audit Committee prior to the completion of the audit.
OUR BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THE RATIFICATION OF OUR INDEPENDENT PUBLIC ACCOUNTANTS. PROXIES
AND VOTING INSTRUCTIONS WILL BE VOTED IN FAVOR OF SUCH
RATIFICATION UNLESS THE SHAREHOLDER SPECIFIES OTHERWISE.
48
ADVISORY
VOTE ON THE COMPENSATION OF
OUR NAMED EXECUTIVE OFFICERS
(SAY-ON-PAY)
(Proposal No. 4)
The Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010 (the Dodd-Frank Act) added Section 14A of
the Exchange Act, which requires that we provide our
shareholders with the opportunity to vote to approve, on an
advisory, non-binding basis, the compensation of our named
executive officers as described in this proxy statement
(commonly referred to as
Say-on-Pay).
As described in greater detail in the Compensation Discussion
and Analysis section above, our Compensation Committee strives
to create compensation for our named executive officers that is
fair, reasonable and competitive. Our compensation program is
designed to reward achievement of specific annual goals and to
align executives interests with those of our shareholders
and customers by rewarding performance above established goals,
with the ultimate objective of improving shareholder value and
customer satisfaction. Our Compensation Committee evaluates both
performance and compensation to maintain our ability to attract
and retain employees in key executive positions and to help
ensure that compensation provided to key executive employees
remains competitive relative to the compensation paid to similar
executives. To that end, our Compensation Committee recommends
compensation packages for named executive officers that include
both cash and equity-based compensation that reward performance
as measured against established goals.
We are asking our shareholders to provide advisory approval of
the compensation of our named executive officers as such
compensation is described in the Compensation Discussion and
Analysis section, the tabular disclosures regarding executive
compensation and the accompanying narrative disclosures set
forth in this proxy statement. This vote is advisory, which
means that the vote on executive compensation is not binding on
us, our Board or our Compensation Committee. The vote on this
Proposal No. 4 is not intended to address any specific
element of compensation, but rather relates to the overall
compensation of our named executive officers. If this Proposal
is not approved, our Compensation Committee will consider
whether and to what extent votes approving this Proposal exceed
votes against this Proposal (disregarding abstentions and broker
non-votes) and evaluate whether any further actions are
necessary to address our shareholders concerns.
The affirmative vote of both (i) a majority of common stock
present in person or represented by proxy and voting on the
proposal, and (ii) a majority of the quorum, is required to
approve this Proposal No. 4. Unless otherwise
instructed, the proxy holders will vote the proxies they receive
FOR the approval of the compensation of our named executive
officers as disclosed in this proxy statement.
Accordingly, we ask our shareholders to vote on the following
resolution at the annual meeting:
RESOLVED, that the Companys shareholders approve, on
an advisory basis, the compensation of its named executive
officers, as disclosed in the Companys proxy statement for
its annual meeting of shareholders held on August 11, 2011
(or any adjournments or postponements of the annual meeting)
pursuant to the compensation disclosure rules of the SEC,
including the Compensation Discussion and Analysis section, the
tabular disclosures regarding executive compensation and the
accompanying narrative disclosures set forth in the proxy
statement.
OUR BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THE ADVISORY VOTE ON THE COMPENSATION OF OUR NAMED EXECUTIVE
OFFICERS.
49
ADVISORY
VOTE ON THE FREQUENCY OF AN ADVISORY VOTE ON
THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
(SAY-ON-FREQUENCY)
(Proposal No. 5)
The Dodd-Frank Act added Section 14A of the Exchange Act,
which requires that we provide our shareholders with the
opportunity to vote to approve, on an advisory, non-binding
basis, for their preference as to whether future advisory votes
on the compensation of our named executive officers (of the
nature reflected in Proposal No. 4 above) should occur
every one, two or three years (commonly referred to as
Say-on-Frequency).
After careful consideration, the Board has determined that
holding an advisory vote on executive compensation every year is
the most appropriate policy for us at this time, and recommends
that shareholders vote for future advisory votes on executive
compensation to occur every year. While our executive
compensation programs are designed to promote a long-term
connection between pay and performance, the Board recognizes
that executive compensation disclosures are made annually. Given
that the
say-on-pay
advisory vote provisions are new, holding an annual advisory
vote on executive compensation provides us with more direct and
immediate feedback on our compensation disclosures. However,
shareholders should note that because the advisory vote on
executive compensation occurs well after the beginning of the
compensation year, and because the different elements of our
executive compensation programs are designed to operate in an
integrated manner and to complement one another, in many cases
it may not be appropriate or feasible to change our executive
compensation programs in consideration of any one years
advisory vote on executive compensation by the time of the
following years annual meeting of shareholders. We believe
that an annual advisory vote on executive compensation is
consistent with our practice of seeking input and engaging in
dialogue with our shareholders on corporate governance matters
(including our practice of having all directors elected annually
and annually providing shareholders the opportunity to ratify
the Audit Committees selection of independent auditors)
and our executive compensation philosophy, policies and
practices.
We are asking our shareholders to provide advisory approval as
to whether future advisory votes on the compensation of our
named executive officers should occur every one, two or three
years. This vote is advisory, which means that the vote on
frequency is not binding on us, our Board or our Compensation
Committee. Notwithstanding our Board recommendation on frequency
or the outcome of the shareholder vote on this Proposal, our
Board may in the future decide to conduct advisory votes on a
more or less frequent basis and may vary its practice based on
factors such as discussions with shareholders and the adoption
of material changes to our compensation programs.
The affirmative vote of both (i) a majority of common stock
present in person or represented by proxy and voting on the
proposal, and (ii) a majority of the quorum, is required to
approve a particular frequency under this
Proposal No. 5. However, if none of the frequency
alternatives (one year, two years or three years) receive a
majority vote, we will consider the frequency that receives the
highest number of votes by shareholders to be the frequency that
has been selected by shareholders. Unless otherwise instructed,
the proxy holders will vote the proxies they receive FOR the
option of every ONE YEAR as the preferred frequency for
future advisory votes on the compensation of our named executive
officers.
Accordingly, we ask our shareholders to vote on the following
resolution at the annual meeting:
RESOLVED, that the Companys shareholders determine,
on an advisory basis, whether the preferred frequency for future
advisory votes on the compensation of our named executive
officers should be every year, every two years or every three
years.
OUR BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR ONE
YEAR AS THE FREQUENCY FOR FUTURE ADVISORY VOTES ON THE
COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS.
50
ANNUAL
REPORT AND AVAILABLE INFORMATION
Our annual report containing audited financial statements for
our fiscal years ended March 31, 2011 and 2010 accompanies
this proxy statement. Such report is not incorporated herein and
is not deemed to be a part of this proxy solicitation material.
Our Internet website address is www.qsii.com. We make our
periodic and current reports, together with amendments to these
reports, available on our Internet website, free of charge, as
soon as reasonably practicable after such material is
electronically filed with, or furnished to, the SEC. You may
access such filings under the Investor Relations
button on our website. Members of the public may also read and
copy any materials we file with, or furnish to, the SEC at its
Public Reference Room at 100 F Street, NE, Washington,
DC 20549. To obtain information on the operation of the Public
Reference Room, please call the SEC at
1-800-SEC-0330.
The SEC maintains an Internet site at www.sec.gov that contains
the reports, proxy statements and other information that we file
electronically with the SEC. The information on our Internet
website is not incorporated by reference into this Proxy
Statement. Our common stock trades on the Nasdaq Global Select
Market under the symbol QSII.
Shareholders may obtain free of charge a copy of our latest
annual report (without exhibits) as filed with the SEC by
writing to: Investor Relations, Quality Systems, Inc., 18111 Von
Karman Avenue, Suite 700, Irvine, California 92612 or
calling
(949) 255-2600.
In addition, all of our public filings, including our annual
report, can be found free of charge on the SECs website at
www.sec.gov.
PROPOSALS OF
SHAREHOLDERS
We have two separate and distinct rules concerning the timing of
submission of shareholder proposals:
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SEC Regulation. Pursuant to
Rule 14a-8
of the SEC, proposals by shareholders that are intended for
inclusion in our proxy statement and proxy and to be presented
at our next annual meeting must be received by us by March 3,
2012, in order to be considered for inclusion in our proxy
materials. Such proposals should be addressed to our Secretary
and may be included in next years proxy materials if they
comply with certain rules and regulations of the SEC governing
shareholder proposals.
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Company Bylaws. Under our Bylaws, for all proposals by
shareholders (including nominees for director) to be timely, a
shareholders notice must be delivered to, or mailed and
received at, our principal executive offices not less than
60 days nor more than 120 days prior to the scheduled
annual meeting, regardless of any postponements, deferrals or
adjournments of that meeting to a later date; provided, however,
that if less than 70 days notice or public disclosure
of the date of the scheduled annual meeting is given or made,
then notice by the shareholder, to be timely, must be delivered
or received not later than the close of business on the tenth
day following the earlier of the day on which notice of the date
of the scheduled annual meeting was mailed or the day on which
public disclosure was made. The shareholder notice must also
comply with certain other requirements set forth in our Bylaws,
a copy of which may be obtained by written request delivered to
our Secretary.
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HOUSEHOLDING
OF ANNUAL MEETING MATERIALS
The SEC has implemented rules regarding the delivery of proxy
materials (that is, annual reports, proxy statements, proxy
statements combined with a prospectus or any information
statements provided to shareholders) to households. This method
of delivery, often referred to as householding,
would permit us to send a single annual report
and/or a
single proxy statement to any household in which two or more
shareholders reside if we believe those shareholders are members
of the same family or otherwise share the same address or that
one shareholder has multiple accounts. In each case, the
shareholder(s) must consent to the householding process. Each
shareholder would continue to receive a separate notice of any
meeting of
51
shareholders and proxy card. The householding procedure reduces
the volume of duplicate information you receive and reduces our
expenses. We may institute householding in the future and will
notify registered shareholders who would be affected by
householding at that time.
Many brokerage firms and other holders of record have instituted
householding. If your family has one or more street
name accounts under which you beneficially own common
shares of Quality Systems, Inc., you may have received
householding information from your broker, financial institution
or other nominee in the past. Please contact the holder of
record directly if you have questions, require additional copies
of this proxy statement or our latest annual report or wish to
revoke your decision to household and thereby receive multiple
copies. You should also contact the holder of record if you wish
to institute householding. These options are available to you at
any time.
OTHER
MATTERS
Our Board does not intend to present any business at the annual
meeting other than the matters described in this proxy
statement. If any other matters are presented properly for
action at the annual meeting or at any adjournments or
postponements thereof, it is intended that the proxy will be
voted with respect thereto by the proxy holders in accordance
with the instructions and at the discretion of our Board or a
properly authorized committee thereof.
By Order of the Board of Directors,
QUALITY SYSTEMS, INC.
/s/ James J. Sullivan
Executive Vice President, General Counsel and
Secretary
Irvine, California
July 1, 2011
ALL SHAREHOLDERS ARE URGED TO PROMPTLY SUBMIT THEIR PROXY OR
VOTING INSTRUCTIONS AS SOON AS POSSIBLE BY FOLLOWING THE
INSTRUCTIONS IN THE NOTICE OF INTERNET AVAILABILITY OF
PROXY MATERIALS, WHICH WAS MAILED TO YOU ON OR ABOUT JULY 1,
2011. IF YOU REQUEST PRINTED COPIES OF THE PROXY MATERIALS BY
MAIL, YOU CAN ALSO VOTE BY MAIL OR BY TELEPHONE.
52
APPENDIX
I
QUALITY
SYSTEMS, INC.
SECOND
AMENDED AND RESTATED
2005
STOCK OPTION
AND
INCENTIVE
PLAN
ARTICLE I
GENERAL
1.1
Purpose. The purpose of the Quality
Systems, Inc.
Second
Amended
and Restated 2005 Stock Option and Incentive Plan (the
Plan) is to promote the future success of
Quality Systems, Inc. (the
Company) by
providing an incentive for officers, employees and directors of,
and consultants and advisors to, the Company and its Related
Entities to acquire a proprietary interest in the success of the
Company, to remain in the service of the Company
and/or
Related Entities, and to render superior performance during such
service.
1.2 Definitions of Certain Terms.
(a) Award means an award under the
Plan as described in Section 1.5 and
Article II.
(b) Award Agreement means a written
agreement entered into between the Company and a Grantee in
connection with an Award.
(c) Board means the Board of
Directors of the Company.
(d) Cause. Termination of
Employment by the Company for
Cause means, with respect to a Grantee
and an Award, (i) except as provided otherwise in the
applicable Award Agreement or as provided in clause (ii)
below, Termination of Employment of the Grantee by the Company
(A) upon Grantees failure to substantially perform
Grantees duties with the Company or a Related Entity
(other than any such failure resulting from death or
Disability), (B) upon Grantees failure to
substantially follow and comply with the specific and lawful
directives of the Board or any officer of the Company or a
Related Entity to whom Grantee directly or indirectly reports,
(C) upon the Boards determination of Grantees
commission of an act of fraud or dishonesty resulting in actual
economic, financial or reputational injury to the Company or a
Related Entity, (D) upon the Boards determination of
Grantees engagement in illegal conduct, gross misconduct
or an act of moral turpitude, involving economic, financial or
reputational injury to the Company or a Related Entity, or
(E) upon Grantees material violation of any material
written policy, guideline, code, handbook or similar document
governing the conduct of directors, officers or employees of the
Company or its Related Entities resulting in actual economic,
financial or reputational injury to the Company or Related
Entity; or (ii) in the case of directors, officers or
employees who at the time of the Termination of Employment
(A) are entitled to the benefits of a change in control,
employment or similar agreement entered into by the Company or a
Related Entity or (B) are subject to an existing Company
policy or agreement, that defines or addresses termination for
cause, termination for cause as defined
and/or
determined pursuant to such agreement.
(e) Code means the Internal Revenue
Code of 1986, as amended.
(f) Committee means a compensation
committee appointed by the Board in accordance with
Section 1.3(a) of the Plan.
(g) Common Stock means the common
stock of the Company.
(h) Disability means, with respect
to a Grantee and an Award, (i) except as provided in the
applicable Award Agreement or as provided in clause (ii)
below, disability as defined in (i) the
long-term disability plan in which Grantee is participating; or
(ii) in the case of directors, officers or employees who at
the time of the Termination of Employment are entitled to the
benefits of a change in control, employment or
I-1
similar agreement entered into by the Company or a Related
Entity that defines or addresses termination because of
disability, disability as defined in such agreement;
or (iii) if neither (i) nor (ii) apply, then such
a plan in which any of the officers of the Company may be
participating; or (iv) if (i), (ii) and (iii) do
not apply, then as defined in Section 22(e)(3) of the Code.
Notwithstanding the foregoing, (A) in the case of an Incentive
Stock Option, the term Disability for
purposes of the preceding sentence shall have the meaning given
to it by Section 422 (c)(6) of the Code and (B) to the
extent an Award is subject to the provisions of
Section 409A of the Code and if in order for compensation
provided under any Award to avoid the imposition of taxes under
Section 409A of the Code, a different definition of
disabled is required by Section 409A, then a
Grantee shall be determined to have suffered a the term
Disability only if such Grantee is disabled
within or Disabled for purposes of the
preceding sentence shall have the meaning of given to it by
Section 409A (a)(2)(C) of the Code and the Regulations
promulgated thereunder.
(h)(i)
Designated
Entity has the meaning set forth in
Section 1.3(a)(ii)
.
(i)(j) Exchange
Act means the Securities Exchange Act of 1934, as
amended.
(j)(k) The Fair Market Value
of a share of Common Stock on any date shall be (i) the
closing sale price per share of Common Stock during normal
trading hours on the national securities exchange, association
or other market on which the Common Stock is principally traded
for such date or the last preceding date on which there was a
sale of such Common Stock on such exchange, association or
market, or (ii) if the shares of Common Stock are then
traded in an
over-the-counter
market or other market or association but the sale price for the
Common Stock is not reported, the average of the closing bid and
asked prices for the shares of Common Stock during normal
trading hours in such
over-the-counter
market for such date or the last preceding date on which there
was a sale of such
Common
Stock for which
both the closing bid price and asked
price are reported for the Common Stock in such market, or
(iii) if the shares of Common Stock are not then listed on
a national securities exchange, association or other market or
traded in an
over-the-counter
market, such value as the Board on advice of the Committee and
in the Boards discretion shall determine, provided that
such valuation shall take into account all available information
material to the value of the company, including but not limited
to the value of the tangible and intangible assets of the
company, the present value of its anticipated future cash flows,
the market value of the stock or equity interests in other
entities engaged in substantially the same business, recent
arms length transactions involving the sale of such stock,
and other relevant factors.
(k)(l) Grantee means
a person who receives an Award.
(l)(m) Incentive Stock
Option means, subject to
Section 2.3(f), a stock option that is intended to
qualify for special federal income tax treatment pursuant to
Sections 421 and 422 of the Code (or a successor provision
thereof) and which is so designated in the applicable Award
Agreement. Under no circumstances shall any stock option that is
not specifically designated as an Incentive Stock Option be
considered an Incentive Stock Option.
(m)(n) Key
Executive means a Key Person who, on the last day
of the Companys taxable year, is either (i) the chief
executive officer of the Company or acting in such capacity, or
(ii) among the four highest compensated officers (other
than the chief executive officer).
(n)(o) Key
Persons means then acting or prospective
directors, officers and employees of the Company or of a Related
Entity, and then acting or prospective consultants and advisors
to the Company or a Related Entity.
(o)(p) Non-Employee
Director has the meaning given to it in
Section 2.12(a).
(p)(q) Performance
Goals means the objective goal(s) (or combined
goal(s)) adopted by the Committee in its discretion to be
applicable to a Key Executive with respect to an Award; such
Performance Goals applicable to an Award may provide for a
targeted or measured level or levels of achievement or change
using any objective performance standard, including, but not
limited to (and by way of example only): (i) revenue,
(ii) earnings per share, (iii) net income,
(iv) return on assets, (v) return on equity,
(vi) stock price, (vii) economic profit or shareholder
value added, (viii) total shareholder return,
(ix) EBIT, and (x) EBITDA.
I-2
Such measures may be defined and calculated in such objective
manner and detail as the Committee in its discretion may
determine, including whether such measures shall be calculated
before or after income taxes or other items, the degree or
manner in which various items shall be included or excluded from
such measures, whether total assets or certain categories of
assets shall be used, whether such measures shall be applied to
the Company on a consolidated basis or to certain Related
Entities of the Company or to certain divisions, operating units
or business lines of the Company or a Related Entity, the
weighting that shall be given to various measures if combined
goals are used, and the periods and dates during or on which
such measures shall be calculated. The Performance Goals may
differ from Key Executive to Key Executive and from Award to
Award. A Performance Goal is objective if a third party having
knowledge of the relevant facts could determine whether the
Performance Goal is met.
(q)(r) Person, whether
or not capitalized, means any natural person, any corporation,
partnership, limited liability company, trust or legal or
contractual entity or joint undertaking and any governmental
authority.
(r)(s) Related
Entity means any corporation, partnership,
limited liability company or other entity that is an
affiliate of the Company within the meaning of Rule
12b-2 under
the Exchange Act.
(s)(t) Retirement means,
with respect to a Grantee and an Award, except as otherwise
provided in the applicable Award Agreement, the Grantees
Termination of Employment with the Company or a Related Entity
for a reason other than for Cause and that at the time of the
Termination of Employment the Grantee has satisfied the criteria
for retirement in accordance with the Companys employment
policies if and when adopted by the Company.
(t)(u) Rule 16b-3 means
Rule 16b-3
under the Exchange Act.
(u)(v) A Grantee shall be deemed to have a
Termination of Employment upon ceasing
employment with the Company or any Related Entity (or, in the
case of a Grantee who is not an employee, upon ceasing
association with the Company or any Related Entity as a
director, consultant, advisor or otherwise), provided,
however, it shall not be considered a Termination of
Employment of a Grantee if the Grantee ceases employment or
association with the Company or a Related Entity but continues
or immediately commences employment or association with a
majority-owned Related Entity or the Company.
1.3 Administration.
(a) The Committee. If such is required to
assure compliance under Section 162(m), different Committees
with respect to different groups of Key Persons may administer
the Plan in accordance with this Section 1.3(a).
(i) Section 162(m). To the extent the
Award is intended to qualify as performance-based
compensation within the meaning of Section 162(m) of
the Code, the Plan shall be administered by a Committee of two
or more outside directors within the meaning of
Section 162(m) of the Code.
(ii)
Other Administration. Other than as
provided above, the Plan shall be administered by (A) the
Board through recommendations of the Compensation Committee as
set forth herein, or (B) upon election and delegation by
the Board, a Compensation Committee (including any successor
thereto) of the Board which it may elect to act upon in its sole
and absolute discretion
to
administer the Plan or certain provisions of the Plan
,
provided such Compensation Committee shall consist of not less
than two independent directors
(the
Board or the Compensation Committee, as the case may be, that is
determined by Board resolution to administer the Plan, or any
provision of the Plan, shall hereinafter be referred to as the
Designated Entity)
.
(b)
Authority. The
Committee,
if not the Designated Entity,
shall advise the Board
concerning the administration of the Plan and the Boards
actions which may be taken pursuant to the Plan. The Committee
shall have the authority to recommend to the Board for Board
approval: (i) the manner in which the Plan and any Award
Agreement is construed, interpreted and implemented,
(iii) amendments and rescission of rules and regulations
relating to the Plan, including rules governing its own
operations, (iv) determinations deemed necessary or
advisable in administering the Plan (including defining and
calculating Performance Goals and certifying that such
Performance Goals have been met), (v) the correction of any
defect, supplying any
I-3
omission and reconciling any inconsistency in the Plan,
(vi) amending the Plan to reflect changes in applicable law
or regulations, (vii) whether, to what extent and under
what circumstances Awards may be settled or exercised in cash,
shares of Common Stock, other securities, other Awards or other
property, or canceled, forfeited or suspended and the method or
methods by which Awards may be settled, canceled, forfeited or
suspended (including, but not limited to, canceling an Award in
exchange for a cash payment (or securities with an equivalent
value) equal to the difference between the Fair Market Value of
a share of Common Stock on the date of grant and the Fair Market
Value of a share of Common Stock on the date of cancellation,
and, if no such difference exists, canceling an Award without a
payment in cash or securities), and (viii) whether, and to
what extent and under what circumstances cash, shares of Common
Stock, other securities, other Awards or other property and
other amounts payable with respect to an Award shall be deferred
either automatically or at the election of the holder thereof or
of the Board.
(c) Voting. Actions of the Committee shall be
taken by the vote of a majority of its members. Any action may
be taken by a written instrument signed by all of the Committee
members, and action so taken shall be fully as effective as if
it had been taken by a vote at a meeting.
(d)
Binding Determinations. The determination
of the Board,
or
the Compensation Committee on matters in which it is designated
by the Board as the Designated Entity pursuant to
Section 1.3(a)(ii),
on all matters relating to
the Plan or any Award Agreement shall be final, binding and
conclusive.
(e) Exculpation. No member of the Board or the
Committee or any officer, employee or agent of the Company or
any of its Related Entities (each such person a Covered
Person) shall have any liability to any person
(including, without limitation, any Grantee) for any action
taken or omitted to be taken or any determination made in good
faith with respect to the Plan or any Award. Each Covered Person
shall be indemnified and held harmless by the Company against
and from any loss, cost, liability or expense (including
attorneys fees) that may be imposed upon or incurred by
such Covered Person in connection with or resulting from any
action, suit or proceeding to which such Covered Person may be a
party or in which such Covered Person may be involved by reason
of any action taken or omitted to be taken under the Plan and
against and from any and all amounts paid by such Covered
Person, with the Companys approval, in settlement thereof,
or paid by such Covered Person in satisfaction of any judgment
in any such action, suit or proceeding against such Covered
Person; provided that the Company shall have the right,
at its own expense, to assume and defend any such action, suit
or proceeding and, once the Company gives notice of its intent
to assume the defense, the Company shall have sole control over
such defense with counsel of the Companys choice subject
to approval of the Covered Person (not to be unreasonably
withheld). The foregoing right of indemnification shall not be
available to a Covered Person to the extent that a court of
competent jurisdiction in a final judgment or other final
adjudication, in either case, not subject to further appeal,
determines that the acts or omissions of such Covered Person
giving rise to the indemnification claim resulted from such
Covered Persons bad faith, fraud or willful criminal act
or omission. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which
Covered Persons may be entitled under the Companys
Articles of Incorporation or Bylaws, in each case as amended
from time to time, as a matter of law, or otherwise, or any
other power that the Company may have to indemnify such persons
or hold them harmless pursuant to an indemnification agreement
or otherwise (in which case, any conflict between the
indemnification agreement or such other Board approved agreement
shall be resolved in favor of the indemnification agreement or
such other agreement).
(f) Experts. In making any determination or in
taking or not taking any action under this Plan, the Committee
or the Board, as the case may be, may obtain and rely upon the
advice of experts, including professional and financial advisors
and consultants to the Committee or the Company. No director,
officer, employee or agent of the Company shall be liable for
any such action or determination taken or made or omitted in
good faith reliance on such advice.
(g) Board. Subject to the provisions of
Sections 1.3(a)(i) and 1.7(b), but notwithstanding
any other provision herein to the contrary (i) until the
Board shall appoint the members of the Committee, the Plan shall
be administered by the Board, and (ii) the Board may, in
its sole discretion, at any time and from time to time,
(A) grant Awards, (B) require that the
Committees authority shall be limited to making
recommendations to
I-4
the Board concerning the granting and administration of the Plan
and Awards hereunder, or (C) resolve to administer the Plan
directly. In any of the foregoing events, the Board shall have
all of the authority and responsibility granted to the Committee
herein.
Notwithstanding the foregoing, at any time during
which the Board shall administer the granting of Awards, any
Awards to the Chief Executive Officer and other executive
officers of the Company shall be made by the Board meeting in
executive session consisting entirely of independent directors
(as defined in
Rule 43505605(a)
of
the Nasdaq Marketplace
Listing
Rules).
1.4
Persons Eligible for Awards. Awards under
the Plan may be made to such Key Persons as the
Committee
Designated
Entity
shall select
and recommended to the
Board, provided that, to the extent an Award is subject
to the provisions of Section 409A of the Code, such Key
Person shall not be eligible to receive an Award of a stock
right of a Related Person who is not either the entity to which
the Key Person is providing direct services, or any corporation
in a chain of a controlled group of corporations, beginning with
the parent of the entity to which the Key Person is providing
direct services and ending with the corporation that is
receiving the services.
1.5 Types of Awards Under the Plan. Awards may
be made under the Plan including: (i) stock options,
including Incentive Stock Options and non-qualified stock
options, (ii) stock appreciation rights,
(iii) restricted stock, (iv) unrestricted stock,
(v) restricted stock units, (vi) performance shares,
(vii) performance units (including performance options),
and other stock-based Awards, as set forth in
Article II.
1.6 Shares Available for or Subject to Awards.
(a) Total Shares Available. The total
number of shares of Common Stock that may be transferred
pursuant to Awards granted under the Plan shall not exceed
1,200,000 shares. All of such shares shall be authorized
for issuance pursuant to incentive stock options under
Section 2.3 or for other Awards under
Article II. Such shares may be authorized but
unissued Common Stock. Any stock certificate evidencing shares
issued pursuant to the Plan shall bear a legend setting forth
such restrictions on transferability as may apply to such shares
pursuant to the Plan. Such legend shall be caused to be removed
by the Companys Chief Financial Officer and Chief
Executive Officer upon their joint written determination that
the conditions warranting the inclusion of such legend are no
longer applicable. If any Award is forfeited or otherwise
terminates or is canceled without the delivery of shares of
Common Stock, then the shares covered by such forfeited,
terminated or canceled Award shall again become available for
transfer pursuant to Awards granted or to be granted under this
Plan. However, if any Award or shares of Common Stock issued or
issuable under Awards are tendered or withheld as payment for
the exercise price of an Award, the shares of Common Stock may
not be reused or reissued or otherwise be treated as being
available for Awards or issuance pursuant to the Plan. With
respect to a stock appreciation right, both shares of Common
Stock issued pursuant to the Award and shares of Common Stock
representing the exercise price of the Award shall be treated as
being unavailable for other Awards or other issuances pursuant
to the Plan unless the stock appreciation right is forfeited,
terminated or cancelled without the delivery of shares of Common
Stock. Any shares of Common Stock delivered by the Company, any
shares of Common Stock with respect to which Awards are made by
the Company and any shares of Common Stock with respect to which
the Company becomes obligated to make Awards, through the
assumption of, or in substitution for, outstanding awards
previously granted by an acquired entity, shall not be counted
against the shares available for Awards under this Plan.
(b) Treatment of Certain Awards. Any shares of
Common Stock subject to Awards shall be counted against the
numerical limits of this Section 1.6 as two shares
for every share subject thereto. For example, if an Award of
restricted shares or performance shares (or any Award involving
the receipt of actual hard shares of the Company) is
made in the amount of 10,000 shares, then
20,000 shares shall be deducted from the then existing
balance of authorized and unissued shares (originally set at
1,200,000 in Section 1.6(a), above) available for future
issuances under the Plan.
(c) Adjustments. The number of shares of Common
Stock covered by each outstanding Award, the number or amount of
shares or units available for Awards under
Section 1.6(a) or otherwise, the number or amount of
shares or units that may be subject to Awards to any one Grantee
under Section 1.7(b) or otherwise, the price per
share of Common Stock or units covered by each such outstanding
Award and any other calculation relating to shares of Common
Stock available for Awards or under outstanding Awards
(including
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Awards under Section 2.13) shall be proportionately
adjusted, in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available
under the Plan, for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, recapitalization,
combination or reclassification of the Common Stock or similar
transaction, or any other increase or decrease in the number of
issued shares of Common Stock effected without receipt of
consideration by the Company or to reflect any distributions to
holders of Common Stock (including rights offerings) other than
regular cash dividends; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to
have been effected without receipt of consideration.
Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by
reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to an Award. After any
adjustment made pursuant to this paragraph, the number of shares
subject to each outstanding Award shall be rounded to the
nearest whole number.
(d) Grants Exceeding Allotted Shares. If the
shares of Common Stock covered by an Award exceeds, as of the
date of grant, the number of shares of Common Stock which may be
issued under the Plan without additional shareholder approval,
such Award shall be void.
1.7 Regulatory Considerations.
(a)
General. To the extent that the
Board
Designated
Entity
determines it desirable for any Award to be
given any particular tax, accounting, legal or regulatory
treatment, the Award may be made by the
Board
Designated
Entity,
subject to any necessary restrictions,
conditions or other terms or otherwise in such manner as is
necessary to obtain the desired treatment.
(b) Code Section 162(m) Provisions. For
purposes of qualifying any compensation attributable to a grant
of an Award to a Key Executive as performance-based
compensation within the meaning of Section 162(m) of
the Code:
(i) The compensation shall either:
(A) Be attributable solely to (I) Incentive Stock
Options, (II) nonqualified stock options with a per share
exercise price equal to at least 100% of the Fair Market Value
of a share of Common Stock on the date the option is granted,
and/or
(III) stock appreciation rights for which the amount of
compensation is based solely on an increase in the value of the
shares of Common Stock of the Company after the date of grant of
the Award; or
(B) To the extent subsection (A) above is not
applicable, be based upon the achievement of Performance Goals
established by the Committee in writing not later than
90 days after the commencement of the period of service to
which the Performance Goal relates, provided that the outcome is
substantially uncertain at the time the Committee actually
establishes the Performance Goal and less than 25% of the period
of service to which the Performance Goal relates has elapsed at
such time;
(ii) The Committee described in
Section 1.3(a)(i) of this Plan shall grant the Award
and establish any applicable Performance Goals;
(iii) With respect to any Award of stock options
and/or stock
appreciation rights described in
Section 1.7(b)(i)(A) above (subject to Section
1.6(b)), no Key Executive shall be granted, in any fiscal
year, stock options, or stock appreciation rights to purchase
(or obtain the benefits of the equivalent of) more than
200,000 shares of Common Stock (the Annual Share
Limit); provided, however, that in
connection with his or her initial service, the Key Executive
may be granted stock options, or stock appreciation rights to
purchase up to an additional 300,000 (the Initial
Service Limit) shares of Common Stock of the Company
which do not count against the Annual Share Limit; and
provided, further, that if a stock option, or
stock appreciation right is cancelled in the same fiscal year of
the Company in which it was granted (other than in connection
with a transaction described in Section 1.6(c)), the
cancelled stock option, or stock appreciation right will be
counted against the Annual Share
I-6
Limit for such fiscal year (for this purpose, if the exercise
price of a stock option is reduced, the transaction will be
treated as a cancellation of the stock option and grant of a new
stock option). The foregoing Annual Share Limit and Initial
Service Limit shall be adjusted proportionately in connection
with any change in the Companys capitalization as
described in Section 1.6(c). All provisions of
this Section 1.7(b)(iii) will also apply to grants
of full value shares, including restricted stock, restricted
units and performance shares, except that the maximum grants
will be fifty percent (50%) of the maximums shown above
applicable to stock options and stock appreciation rights.
Nothing in this Section 1.7(b)(iii) or elsewhere in this
Plan shall be construed so as to permit, without prior
stockholder approval, the administrator of the Plan to reprice
stock options, stock appreciation or purchase rights,
outstanding under the Plan by modifying or amending such options
or rights or canceling such options or rights and replacing them
with new options or rights having a lower exercise price.
(iv) No Key Executive shall be paid, in any fiscal year,
more than $2,000,000 in cash performance units (which are a
separate vehicle from performance shares); and
(v) Prior to payment of the compensation, the Committee
described in Section 1.3(a)(i) certifies that any
applicable Performance Goals and any other material terms of the
Award were in fact satisfied.
ARTICLE II
AWARDS
UNDER THE PLAN
2.1
Awards and Award Agreements. Each Award
granted under the Plan shall be evidenced by an Award Agreement
which shall contain such provisions as the
Board
Designated
Entity
in its discretion deems necessary or
desirable. For any awards of stock rights that would be subject
to the provisions of section 409A of the Code, each such
Award shall include a provision fixing the number of shares
covered by the Award. Such provisions may further include (but
are not limited to) restrictions on the Grantees right to
transfer the shares of Common Stock issuable pursuant to the
Award, a requirement that the Grantee become a party to an
agreement restricting transfer or allowing repurchase of any
shares of Common Stock acquired pursuant to the Award, a
requirement that the Grantee acknowledge that such shares are
acquired for investment purposes only, and a right of first
refusal exercisable by the Company in the event that the Grantee
wishes to transfer any such shares. The
Board
Designated
Entity
may grant Awards in tandem or in connection
with or independently of or in substitution for any other Award
or Awards granted under this Plan or any award granted under any
other plan of the Company. Payments or transfers to be made by
the Company upon the grant, exercise or payment of an Award may
be made in such form as the
Board
Designated
Entity
shall determine, including cash, shares of
Common Stock or other securities (or proceeds from the sale
thereof), other Awards (by surrender or cancellation thereof or
otherwise) or other property and may be made in a single payment
or transfer, in installments or on a deferred basis. The
Board
Designated
Entity
may determine that a Grantee shall have no
rights with respect to an Award unless such Grantee accepts the
Award within such period as the
Board
Designated
Entity
shall specify by executing an Award Agreement
in such form as the
Board
Designated
Entity
shall determine and, if the
Board
Designated
Entity
shall so require, makes payment to the Company
in such amount as the
Board
Designated
Entity
may determine. Loans to executive officers of
the Company may not be extended, guaranteed or arranged by the
Company in violation of Section 402 of the Sarbanes-Oxley
Act of 2002, Regulation O of the Board of Governors of the
Federal Reserve System or any other applicable law or regulation.
2.2 No Rights as a Shareholder. No Grantee of
an Award (or other person having rights pursuant to such Award)
shall have any of the rights of a shareholder of the Company
with respect to shares subject to such Award until the transfer
of such shares to such person. Except as otherwise provided in
Section 1.6(c), no adjustment shall be made for
dividends, distributions or other rights (whether ordinary or
extraordinary, and whether in cash, securities or other
property) for which the record date is prior to the date such
shares are issued.
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2.3 Grant of Stock Options, Stock Appreciation Rights
and Additional Options.
(a)
Grant of Stock Options. The
Board
Designated
Entity
may grant stock options, including Incentive
Stock Options and nonqualified stock options, to purchase shares
of Common Stock from the Company, to such Key Persons, in such
amounts and subject to such terms and conditions (including the
attainment of Performance Goals), as the
Board
Designated
Entity
shall determine in its discretion, subject to
the provisions of the Plan.
(b)
Grant of Stock Appreciation Rights. The
Board
Designated
Entity
may grant stock appreciation rights to such
Key Persons, in such amounts and subject to such terms and
conditions (including the attainment of Performance Goals), as
the
Board
Designated
Entity
shall determine in its discretion, subject to
the provisions of the Plan. Stock appreciation rights may be
granted in connection with all or any part of, or independently
of, any stock option granted under the Plan. A stock
appreciation right may be granted at or after the time of grant
of such option.
(c)
Stock Appreciation Rights. The Grantee of a
stock appreciation right shall have the right, subject to the
terms of the Plan and the applicable Award Agreement, to receive
from the Company an amount equal to (i) the excess of the
Fair Market Value of a share of Common Stock on the date of
exercise of the stock appreciation right over (ii) the
exercise price of such right as set forth in the Award Agreement
(if the stock appreciation right is granted in connection with a
stock option, then the exercise price of the option), multiplied
by (iii) the number of shares with respect to which the
stock appreciation right is exercised. Payment to the Grantee
upon exercise of a stock appreciation right shall be made in
cash or in shares of Common Stock (valued at their Fair Market
Value on the date of exercise of the stock appreciation right)
or both, as the
Board
Designated
Entity
shall determine in its discretion. Upon the
exercise of a stock appreciation right granted in connection
with a stock option, the number of shares subject to the option
shall be correspondingly reduced by the number of shares with
respect to which the stock appreciation right is exercised. Upon
the exercise of a stock option in connection with which a stock
appreciation right has been granted, the number of shares
subject to the stock appreciation right shall be reduced
correspondingly by the number of shares with respect to which
the option is exercised.
(d)
Exercise Price. Each Award Agreement with
respect to a stock option or stock appreciation right shall set
forth the exercise price, which shall be determined by the
Committee
Designated
Entity
in its discretion, except that no stock option
or stock appreciation right may be granted with an exercise
price below the fair market value of the Companys common
stock on the date of grant.
(e)
Exercise Periods. Each Award Agreement with
respect to a stock option or stock appreciation right shall set
forth the periods during which the Award evidenced thereby shall
be exercisable, and, if applicable, the conditions which must be
satisfied (including the attainment of Performance Goals) in
order for the Award evidenced thereby to be exercisable, whether
in whole or in part. Such periods and conditions shall be
determined by the
Board
Designated
Entity
in its discretion;
provided,
however, that no stock option or stock appreciation right
shall be exercisable more than ten (10) years after the
date the Award is issued.
(f) Incentive Stock Options. Notwithstanding
Section 2.3(d) and (e), with respect to any
Incentive Stock Option or stock appreciation right granted in
connection with an Incentive Stock Option (i) the exercise
price shall be at least 100% of the Fair Market Value of a share
of Common Stock on the date the option is granted (except as
permitted in connection with the assumption or issuance of
options in a transaction to which Section 424(a) of the
Code applies) and (ii) the exercise period shall not be for
longer than ten (10) years after the date of the grant. To
the extent that the aggregate Fair Market Value (determined as
of the time the option is granted) of the shares of Common Stock
with respect to which Incentive Stock Options and stock
appreciation rights granted in connection with Incentive Stock
Options granted under this Plan and all other plans of the
Company are first exercisable by any Grantee during any calendar
year shall exceed the maximum limit (currently, $100,000), if
any, imposed from time to time under Section 422 of the
Code, such options and rights shall be treated as nonqualified
stock options. For purposes of this Section 2.3(f),
Incentive Stock Options shall be taken into account in the order
in which they were granted.
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(g) Ten Percent Owners. Notwithstanding the
provisions of Sections 2.3(d), (e) and (f), to the
extent required under Section 422 of the Code, an Incentive
Stock Option may not be granted under the Plan to an individual
who, at the time the option is granted, owns stock possessing
more than 10% of the total combined voting power of all classes
of stock of his or her employer corporation or of its parent or
subsidiary corporations (as such ownership may be determined for
purposes of Section 422(b)(6) of the Code) unless
(i) at the time such Incentive Stock Option is granted the
exercise price is at least 110% of the Fair Market Value of the
shares subject thereto, and (ii) the Incentive Stock Option
by its terms is not exercisable after the expiration of five
(5) years from the date granted.
(h) Repricing Requires Shareholder
Approval. No Except as allowed by
Section 3.1(e) of this Plan (with regard to modifications in
order to avoid tax treatment under section 409A of the
Code), no Award granted hereunder shall have its exercise price
modified or repriced without first obtaining
shareholder approval.
2.4 Exercise of Stock Options and Stock Appreciation
Rights. Each stock option or stock appreciation right
granted under the Plan shall be exercisable as follows:
(a)
Exercise Period. A stock option or stock
appreciation right shall become and cease to be exercisable at
such time or times as determined by the
Board
Designated
Entity
and set forth in the Award Agreement, except
that in no event shall a stock option or stock appreciation
right be extended beyond the initial option term at a time when
the fair market value of the stock underlying the option is
greater than the Exercise Price unless such extension remains
within ten (10) years from the initial date of grant.
(b)
Manner of Exercise. Unless the applicable
Award Agreement otherwise provides, a stock option or stock
appreciation right may be exercised from time to time as to all
or part of the shares as to which such Award is then exercisable
(but, in any event, only for whole shares). A stock appreciation
right granted in connection with an option may be exercised at
any time when, and to the same extent that, the related option
may be exercised. A stock option or stock appreciation right
shall be exercised by written notice to the Company, on such
form and in such manner as the
Board
Designated
Entity
shall prescribe.
(c) Payment of Exercise Price. Any written
notice of exercise of a stock option shall be accompanied by
payment of the exercise price for the shares being purchased.
Such payment shall be made (i) in cash (by certified check
or as otherwise permitted by the Board), or (ii) (A) by
delivery of shares of Common Stock (which, if acquired pursuant
to the exercise of a stock option or under an Award made under
this Plan or any other compensatory plan of the Company, were
acquired at least six (6) months prior to the option
exercise date) having a Fair Market Value (determined as of the
exercise date) equal to all or part of the exercise price and
cash for any remaining portion of the exercise price,
(B) by cashless exercise procedure through a broker-dealer,
and (C) to the extent permitted by law, by such other
method not otherwise prohibited by the Board including, without
limitation, a net exercise.
(d) Delivery of Shares. Promptly after
receiving payment of the full exercise price, or after receiving
notice of the exercise of a stock appreciation right for which
payment by the Company will be made partly or entirely in shares
of Common Stock, the Company shall, subject to the provisions of
Section 3.3 (relating to certain restrictions),
transfer to the Grantee or to such other person as may then have
the right to exercise the Award, the shares of Common Stock for
which the Award has been exercised and to which the Grantee is
entitled. If the method of payment employed upon option exercise
so requires, and if applicable law permits, a Grantee may direct
the Company to deliver the shares to the Grantees
broker-dealer.
2.5 Termination of Employment.
(a) Termination of Employment by Grantee for any Reason
or By the Company for Cause. Except to the extent
otherwise provided in paragraphs (b), (c), (d) and
(e) below or in the applicable Award Agreement, all
unvested stock options and stock appreciation rights to the
extent not theretofore exercised shall terminate immediately
upon (i) the Grantees Termination of Employment at
Grantees election for any reason or
(ii) Grantees Termination of Employment by the
Company for Cause.
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(b) At Election of Company or a Related
Entity. Except to the extent otherwise provided in the
applicable Award Agreement, upon the Termination of Employment
of a Grantee at the election of the Company or a Related Entity
(other than in circumstances governed by paragraph
(a) above or paragraphs (c), (d) or (e) below)
the Grantee may exercise any outstanding stock option or stock
appreciation right on the following terms and conditions:
(i) exercise may be made only to the extent that the
Grantee was entitled to exercise the Award on the date of the
Termination of Employment; and (ii) exercise must occur
within three (3) months after the Termination of Employment
but in no event after the expiration date of the Award as set
forth in the Award Agreement.
(c) Retirement. At such time as the Company
adopts a policy of retirement and during the continued
effectiveness of such policy, except to the extent otherwise
provided in the applicable Award Agreement, upon the Termination
of Employment of a Grantee by reason of the Grantees
Retirement, the Grantee may exercise any outstanding stock
option or stock appreciation right on the following terms and
conditions: (i) exercise may be made only to the extent
that the Grantee was entitled to exercise the Award on the date
of Retirement; and (ii) exercise must occur within three
(3) years after Retirement but in no event after the
expiration date of the Award as set forth in the Award Agreement.
(d) Disability. Except to the extent otherwise
provided in the applicable Award Agreement, upon the termination
of Employment of a Grantee by reason of Disability the Grantee
may exercise any outstanding stock option or stock appreciation
right on the following terms and conditions: (i) exercise
may be made only to the extent that the Grantee was entitled to
exercise the Award on the date of Termination of Employment; and
(ii) exercise must occur no later than six (6) months
after the Termination of Employment but in no event after the
expiration date of the Award as set forth in the Award Agreement.
(e) Death. Except to the extent otherwise
provided in the applicable Award Agreement, if a Grantee dies
during the period in which the Grantees stock options or
stock appreciation rights are exercisable, whether pursuant to
their terms or pursuant to paragraph (b), (c) or
(d) above, any outstanding stock option or stock
appreciation right shall be exercisable on the following terms
and conditions: (i) exercise may be made only to the extent
that the Grantee was entitled to exercise the Award on the date
of death; and (ii) exercise must occur no later than six
(6) months after the date of the Grantees death. Any
such exercise of an Award following a Grantees death shall
be made only by the Grantees executor or administrator,
unless the Grantees will specifically disposes of such
Award, in which case such exercise shall be made only by the
recipient of such specific disposition. If a Grantees
executor (or administrator) or the recipient of a specific
disposition under the Grantees will shall be entitled to
exercise any Award pursuant to the preceding sentence, such
executor (or administrator) or recipient shall be bound by all
the terms and conditions of the Plan and the applicable Award
Agreement which would have applied to the Grantee.
2.6 Grant of Restricted Stock and Unrestricted Stock.
(a)
Grant of Restricted Stock. The
Board
Designated
Entity
may grant restricted shares of Common Stock to
such Key Persons, in such amounts and subject to such terms and
conditions (including the attainment of Performance Goals), as
the
Board
Designated
Entity
shall determine in its discretion, subject to
the provisions of the Plan.
(b)
Grant of Unrestricted Stock. The
Board
Designated
Entity
may grant unrestricted shares of Common Stock
to such Key Persons, in such amounts and subject to such terms
and conditions as the
Board
Designated
Entity
shall determine in its discretion, subject to
the provisions of the Plan.
(c)
Rights as Shareholder. The Company may
issue in the Grantees name shares of Common Stock covered
by an Award of restricted stock or unrestricted stock. Upon the
issuance of such shares, the Grantee shall have the rights of a
shareholder with respect to the restricted stock or unrestricted
stock, subject to the transfer restrictions and the
Companys repurchase rights described in paragraphs
(d) and (e) below and to such other restrictions and
conditions as the
Board
Designated
Entity
in its discretion may include in the
applicable Award Agreement.
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(d) Company to Hold Certificates. Unless the
Board shall otherwise determine, any certificate issued
evidencing shares of restricted stock shall remain in the
possession of the Company until such shares are free of any
restrictions specified in the Plan or the applicable Award
Agreement.
(e)
Nontransferable. Shares of restricted stock
may not be sold, assigned, transferred, pledged or otherwise
encumbered or disposed of except as specifically provided in
this Plan or the applicable Award Agreement. The
Board
Designated
Entity
at the time of grant shall specify the date or
dates (which may depend upon or be related to the attainment of
Performance Goals) and other conditions on which the
non-transferability of the restricted stock shall lapse. Unless
the applicable Award Agreement provides otherwise, additional
shares of Common Stock or other property distributed to the
Grantee in respect of shares of restricted stock, as dividends
or otherwise, shall be subject to the same restrictions
applicable to such restricted stock. The
Board
Designated
Entity
at any time may waive or amend the transfer
restrictions or other condition of an Award of restricted stock.
(f) Termination of Employment. Except to the
extent otherwise provided in the applicable Award Agreement or
unless otherwise determined by the Board, in the event of the
Grantees Termination of Employment for any reason, shares
of restricted stock that remain subject to transfer restrictions
as of the date of such termination (and therefore are unvested)
shall be forfeited and canceled.
2.7 Grant of Restricted Stock Units.
(a)
Grant of Restricted Stock Units. The
Board
Designated
Entity
may grant Awards of restricted stock units to
such Key Persons, in such amounts and subject to such terms and
conditions (including the attainment of Performance Goals), as
the
Board
Designated
Entity
shall determine in its discretion, subject to
the provisions of the Plan.
(b) Vesting. The Board
Designated Entity, at the time of grant, shall specify the date
or dates on which the restricted stock units shall become vested
and other conditions to vesting (including the attainment of
Performance Goals).
(c) Termination of Employment. Except to the
extent otherwise provided in the applicable Award Agreement or
unless otherwise determined by the Board, in the event of the
Grantees Termination of Employment for any reason,
restricted stock units that have not vested shall be forfeited
and canceled.
2.8 Grant of Performance Shares, Performance Options and
Performance Share Units.
(a)
Grant of Performance Shares, Options Share Units and
Cash Performance Units. The
Board
Designated
Entity
may grant performance shares in the form of
actual shares of Common Stock, performance options or share
units over an identical number of shares of Common Stock, to
such Key Persons, in such amounts (which may depend on the
extent to which Performance Goals are attained), subject to the
attainment of such Performance Goals and satisfaction of such
other terms and conditions (which may include the occurrence of
specified dates), as the
Board
Designated
Entity
shall determine in its discretion, subject to
the provisions of the Plan. The
Board
Designated
Entity
may also grant cash performance units, which
are cash awards subject to performance goal attainment, but
which are denominated only in cash, not in stock. The
Performance Goals and the length of the performance period
applicable to any Award of performance shares, performance
options, share units or performance units shall be determined by
the
BoardDesignated
Entity.
The
Board
Designated
Entity
shall determine in its discretion whether
performance shares granted in the form of share units shall be
paid in cash, Common Stock, or a combination of cash and Common
Stock.
(b) Company to Hold Certificates. Unless the
Board shall otherwise determine, any certificate issued
evidencing performance shares shall remain in the possession of
the Company until such performance shares are earned and are
free of any restrictions specified in the Plan or the applicable
Award Agreement.
(c)
Nontransferable. Performance shares may not
be sold, assigned, transferred, pledged or otherwise encumbered
or disposed of except as specifically provided in this Plan or
the applicable Award Agreement. The
Board
Designated
Entity
at the time of grant shall specify the date or
dates (which may depend upon or be related to the attainment of
Performance Goals) and other conditions on which the
non-transferability of the performance shares shall lapse.
Unless the applicable Award Agreement provides otherwise,
additional shares
I-11
of Common Stock or other property distributed to the Grantee in
respect of performance shares, as dividends or otherwise, shall
be subject to the same restrictions applicable to such
performance shares. The Board Designated Entity
at any time may waive or amend the transfer restrictions or
other condition of an Award of performance shares.
(d) Termination of Employment. Except to the
extent otherwise provided in the applicable Award Agreement or
unless otherwise determined by the Board, in the event of the
Grantees Termination of Employment for any reason,
performance shares and performance share units or cash
performance units that remain subject to transfer restrictions
as of the date of such termination (and therefore shall not have
vested) shall be forfeited and canceled.
2.9
Grant of Dividend Equivalent Rights. The
Board
Designated
Entity
may in its discretion include in the Award
Agreement with respect to any share denominated Award a dividend
equivalent right entitling the Grantee to receive amounts equal
to the ordinary dividends that would be paid, during the time
such Award is outstanding and unexercised, on the shares of
Common Stock covered by such Award if such shares were then
outstanding. In the event such a provision is included in an
Award Agreement, the
Board
Designated
Entity
shall determine whether such payments shall be
made in cash, in shares of Common Stock or in another form,
whether they shall be conditioned upon the exercise or vesting
of, or the attainment or satisfaction of terms and conditions
applicable to, the Award to which they relate, the time or times
at which they shall be made, and such other terms and conditions
as the
Board
Designated
Entity
shall deem appropriate.
2.10 Deferred Stock Units.
(a)
Description. Deferred stock units shall
consist of a restricted stock, restricted stock unit,
performance share or share unit Award that the
Board
Designated
Entity
in its discretion permits to be paid out in
installments or on a deferred basis, in accordance with rules
and procedures established by the
Board
Designated
Entity.
Deferred stock units shall remain subject to
the claims of the Companys general creditors until
distributed to the Grantee. Cash Performance Units may be
deferred, but shall remain subject to the claims of the
Companys general creditors until distributed to the
Grantee.
(b) 162(m) Limits. Deferred stock units and
deferred cash performance units shall be subject to the annual
Section 162(m) limits applicable to the underlying
restricted stock, restricted stock unit, performance share or
share unit or cash performance unit Award as forth in
Section 1.7(b).
2.11
Other Stock-Based Awards. The
Board
Designated
Entity
may grant other types of stock-based Awards to
such Key Persons, in such amounts and subject to such terms and
conditions, as the
Board
Designated
Entity
shall in its discretion determine, subject to
the provisions of the Plan. Such Awards may entail the transfer
of actual shares of Common Stock, or payment in cash or
otherwise of amounts based on the value of shares of Common
Stock.
2.12 Director Stock Options.
(a)
Eligibility. Subject to the specific
requirements, terms and conditions as adopted from time to time
by the
Board
Designated
Entity
in its discretion (i) all voting
directors of the Company who are not employees of the Company
and that are granted stock options (
Non-Employee
Directors) shall receive stock options pursuant to the
conditions of this
Section 2.12.
(b) Grant of Director Stock Options. Each
Non-Employee Director may be granted stock options to purchase
shares of Common Stock of the Company.
(c)
Exercise Price. Notwithstanding
Section 2.3(d), until and unless the
Board
Designated
Entity
in its discretion determines otherwise, the
per share exercise price for each stock option granted under
this
Section 2.13 shall be 100% of the Fair Market
Value of a share of Common Stock on the date the stock option is
granted, provided that in no event shall the per share exercise
price be less than 100% of the Fair Market Value of a share of
Common Stock on the date the stock option is granted.
(d)
Exercise Period. Each stock option granted
under this
Section 2.13 shall vest, become
exercisable and possess a term in accordance with the policy
then in place and as adopted by the
Board
Designated
Entity,
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provided, however, that (i) if the Non-Employee
Directors service on the Board is terminated as a result
of not being renominated or reelected to the Board, then such
stock option shall continue to exercisable until the earlier to
occur of (A) the expiration of the remaining term of the
option or (B) three (3) years from the date Board
service terminated, and (ii) no stock option may have a
term in excess of ten (10) years.
(e) Non-statutory Options. Stock options
granted under this Section 2.12 will constitute
nonqualified stock options.
(f) Other Stock Option Terms Applicable. Except
as set forth in this Section 2.12, all stock options
granted under this Section 2.12 will be subject to
and benefited by the terms and conditions (including
Section 3.7) of the Plan applicable to other stock
options granted under the Plan.
2.13 Section 409A Compliance. Notwithstanding any
provisions to the contrary, Awards made under this
Article II that provide for the nonqualified deferral of
compensation (including any amendments to such Awards) will
comply with all provisions of Section 409A of the Code and
the Regulations promulgated thereunder. No award providing for
the deferral of compensation shall permit the acceleration of
the time or schedule of any payment, except as provided in
Section 409A. Compensation deferred pursuant to such an
Award with comply with all distribution rules of
Section 409A, and shall not be distributed earlier
than
(i) separation from service as determined by the Secretary
(except as provided in Section 409A(B)(i), relating to
deferred compensation payable to key employees after the
termination of service),
(ii) the date the participant becomes disabled (within the
meaning of subparagraph (C) of Section 409A),
(iii) death,
(iv) a specified time (or pursuant to a fixed schedule)
specified under the plan at the date of the deferral of such
compensation,
(v) to the extent provided by the Secretary, a change in
the ownership or effective control of the corporation, or in the
ownership of a substantial portion of the assets of the
corporation, or
(vi) the occurrence of an unforeseeable emergency (as that
term is defined by Section 409A(a)(2)(B)(i).
2.14 Deferral Election. To the extent to which any
participant in this Plan is allowed to elect to defer
compensation for services performed during a taxable year, such
election shall be made not later than the close of the preceding
taxable year, or such early deadline as proscribed in
Section 409A(a)(4) of the Code.
ARTICLE III
MISCELLANEOUS
3.1 Amendment of the Plan; Modification of Awards.
(a) Board Authority to Amend Plan. The Board in
its discretion may at any time suspend, discontinue, revise or
amend the Plan in any respect whatsoever, except that any such
amendment (other than an amendment pursuant to paragraphs (d),
(e) or (f) of this Section 3.1 or an
amendment to effect an assumption or other action consistent
with Section 3.7) that materially impairs the rights
or materially increases the obligations of a Grantee under an
outstanding Award shall be effective with respect to such
Grantee and Award only with the consent of the Grantee (or, upon
the Grantees death, the Grantees executor (or
administrator) or the recipient of a specific disposition under
the Grantees will).
(b) Shareholder Approval. Shareholder approval
of any amendment shall be obtained to the extent necessary to
comply with Section 422 of the Code (relating to Incentive
Stock Options) or any other applicable law, regulation or rule
(including the rules of self-regulatory organizations). As set
forth in Section 2.3(h), shareholder approval shall
be required for any repricing of a previously
granted Award hereunder.
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(c)
Board Authority to Amend Awards. Subject to
Section 2.3(h) which requires shareholder approval
for any repricing of an Award granted hereunder, the
Board,
or
the Committee if the Committee as the Designated Entity is the
grantor of the Award
, in its discretion may at any time,
whether before or after the grant, expiration, exercise, vesting
or maturity of or lapse of restriction on an Award or the
Termination of Employment of a Grantee, amend any outstanding
Award or Award Agreement, including an amendment which would
accelerate the time or times at which the Award becomes
unrestricted or may be exercised, or waive or amend any goals,
restrictions or conditions set forth in the Award Agreement.
However, provided that no Award of a stock option or stock
appreciation right shall be amended in such a way as might,
under the Section 409A Regulations, provide for the
additional deferral of compensation or an effective decrease in
the exercise price of the Award to a price below what was the
Fair Market Value of the Common Stock on the date of grant.
Further, any such amendment (other than an amendment pursuant to
paragraphs (d), (e) or (f) of this
Section 3.1 or an amendment to effect an action
consistent with
Section 3.7) that materially impairs
the rights or materially increases the obligations of a Grantee
under an outstanding Award shall be made only with the consent
of the Grantee (or, upon the Grantees death, the
Grantees executor (or administrator) or the recipient of a
specific disposition under the Grantees will). For
purposes of the Plan, any action
of the Board
pursuant
to this Section 3.1(c)
that alters or affects
the tax treatment of any Award shall not be considered to
materially impair any rights of any Grantee.
(d) Regulatory Changes
Generally. Notwithstanding anything to the contrary in
this Plan, the Board shall have full discretion to amend the
Plan or an outstanding Award or Award Agreement to the extent
necessary to preserve any tax, accounting, legal or regulatory
treatment with respect to any Award and any outstanding Award
Agreement shall be deemed to be so amended to the same extent,
without obtaining the consent of any Grantee (or, after the
Grantees death, the Grantees executor (or
administrator) or the recipient of a specific disposition under
the Grantees will) provided that such amendment does not
adversely affect a Grantees rights under the Plan or such
Award and Award Agreement.
(e) Section 409A Changes. Notwithstanding
anything to the contrary in this Plan, the Board shall have full
discretion to amend the Plan or any outstanding Award or Award
Agreement to the extent necessary to avoid the imposition of any
tax under Section 409A of the Code. Any such amendments to the
Plan, an Award or an Award Agreement may be adopted without
obtaining the consent of any Grantee (or, after the
Grantees death, the Grantees executor (or
administrator) or the recipient of a specific disposition under
the Grantees will), regardless of whether such amendment
adversely affects a Grantees rights under the Plan or such
Award or Award Agreement.
(f) Other Tax Changes. In the event that
changes are made to Section 83(b), 162(m), 422422, 409A or
other applicable provision of the Code or the Treasury
Regulations, the Board may, subject to Sections 3.1(a),
(b) and (c), make any adjustments it determines in its
discretion to be appropriate with respect to the Plan or any
Award or Award Agreement.
3.2 Tax Withholding.
(a) Tax Withholdings. As a condition to the
receipt of any shares of Common Stock pursuant to any Award or
the lifting of restrictions on any Award, or in connection with
any other event that gives rise to a federal or other
governmental tax withholding obligation on the part of the
Company relating to an Award (including, without limitation,
FICA tax), the Company shall be entitled to require that the
Grantee remit to the Company an amount sufficient in the opinion
of the Company to satisfy such withholding obligation.
(b) Withholding Shares. If the event giving
rise to the withholding obligation is a transfer of shares of
Common Stock, then, unless otherwise provided in the applicable
Award Agreement, the Grantee may satisfy only the minimum
statutory withholding obligation imposed under paragraph
(a) by electing to have the Company withhold shares of
Common Stock having a Fair Market Value equal to the amount of
tax to be withheld. For this purpose, Fair Market Value shall be
determined as of the date on which the amount of tax to be
withheld is determined (and any fractional share amount shall be
settled in cash).
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3.3 Restrictions.
(a)
Required Consents. If the
Board
Designated
Entity
shall at any time determine that any consent
(as hereinafter defined) is necessary or desirable as a
condition of, or in connection with, the granting of any Award,
the issuance or purchase of shares of Common Stock or other
rights thereunder, or the taking of any other action thereunder
(a
Plan Action), then no such Plan Action
shall be taken, in whole or in part, unless and until such
consent shall have been effected or obtained to the full
satisfaction of the Board.
(b)
Definition. The term
consent as used herein with respect to any
action referred to in paragraph (a) means (i) any and
all listings, registrations or qualifications in respect thereof
upon any securities exchange or under any federal, state or
local law, rule or regulation, (ii) any and all written
agreements and representations by the Grantee with respect to
the disposition of shares, or with respect to any other matter,
which the
Board
Designated
Entity
shall deem necessary or desirable to comply
with the terms of any such listing, registration or
qualification or to obtain an exemption from the requirement
that any such listing, qualification or registration be made,
(iii) any and all consents, clearances and approvals in
respect of a Plan Action by any governmental or other regulatory
bodies, and (iv) any and all consents or authorizations
required to comply with, or required to be obtained under,
applicable local law or otherwise required by the
Board
Designated
Entity
. Nothing herein shall require the Company to list,
register or qualify the shares of Common Stock on any securities
exchange.
3.4 Nonassignability.
(a) Nonassignability. No Award or right granted
to any person under the Plan shall be assignable or transferable
other than by will or by the laws of descent and distribution,
and all such Awards and rights shall be exercisable during the
life of the Grantee only by the Grantee or the Grantees
legal representative and any such attempted assignment, transfer
or exercise in contravention of this Section 3.4
shall be void. Notwithstanding the foregoing, the Board may in
its discretion permit the donative transfer of any Award under
the Plan (other than an Incentive Stock Option) by the Grantee
(including to a trust or similar instrument), subject to such
terms and conditions as may be established by the Board.
(b) Cashless Exercises Permitted. The
restrictions on exercise and transfer in paragraph
(a) above shall not be deemed to prohibit cashless
exercise procedures with parties who provide financing for
the purpose of (or who otherwise facilitate) the exercise of
Awards consistent with applicable legal restrictions and
Rule 16b-3
and as otherwise permitted by Section 2.4(c).
3.5 Requirement of Notification of Election Under
Section 83(b) of the Code. If a Grantee, in
connection with the acquisition of shares of Common Stock under
the Plan, is permitted under the terms of the Award Agreement to
make the election permitted under Section 83(b) of the Code
(i.e., an election to include in gross income in the year of
transfer the amounts specified in Section 83(b) of the Code
notwithstanding the continuing transfer restrictions) and the
Grantee makes such an election, the Grantee shall notify the
Company of such election within ten (10) days of filing
notice of the election with the Internal Revenue Service, in
addition to any filing and notification required pursuant to
regulations issued under Section 83(b) of the Code.
3.6 Requirement of Notification Upon Disqualifying
Disposition Under Section 421(b) of the Code. If
any Grantee shall make any disposition of shares of Common Stock
issued pursuant to the exercise of an Incentive Stock Option
under the circumstances described in Section 421(b) of the
Code (relating to certain disqualifying dispositions), such
Grantee shall notify the Company of such disposition within ten
(10) days thereof.
3.7 Change in Control.
(a) Definition. A Change in
Control means the occurrence of any one of the
following events:
(i) any Person (as defined in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the Beneficial Owner (as
defined in
Rule 13d-3
under the Exchange Act), directly or indirectly, of securities
of the Company representing in excess of fifty percent (50%) or
more of the combined voting power of the Companys then
outstanding securities (Company Voting
Securities); provided, however, that the
I-15
event described in this clause (i) shall not be deemed a
Change in Control by virtue of any of the following
acquisitions: (A) by the Company or any corporation
controlled by the Company, (B) by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, (C) by any
underwriter temporarily holding securities pursuant to an
offering of such securities, (D) pursuant to a
Non-Qualifying Transaction (as defined in clause (iii)
below), (E) pursuant to any acquisition by Grantee or any
group of persons including Grantee (or any entity controlled by
Grantee or any group of persons including Grantee), (F) a
transaction (other than one described in clause (iii)
below) in which outstanding Company Voting Securities are
acquired from the Company, if a majority of the Continuing
Directors (as defined in clause (ii) below) approve a
resolution providing expressly that the acquisition pursuant to
this subclause (F) does not constitute a Change in Control
under this clause (F), or (G) any increase in the ownership
position of a person of the outstanding Company Voting
Securities as a result of an acquisition of common stock of the
Company by the Company which, by reducing the number of shares
of common stock of the Company outstanding, increases the
proportionate number of shares beneficially owned by such person
to in excess of fifty percent (50%) or more of the outstanding
Company Voting Securities, provided, however, that
if a person shall become the beneficial owner of in excess of
fifty percent (50%) or more of the outstanding Company Voting
Securities by reason of a share acquisition by the Company as
described above and shall, after such share acquisition by the
Company, become the beneficial owner of any additional shares of
common stock of the Company, then such acquisition shall
constitute a Change in Control;
(ii) the consummation of a merger, consolidation, statutory
share exchange or similar form of corporate transaction
involving the Company or any of its subsidiaries that requires
the approval of the Companys shareholders, whether for
such transaction or the issuance of securities in the
transaction (a Business Combination), unless
immediately following such Business Combination: (A) more
than 50% of the total voting power of (x) the corporation
resulting from such Business Combination (the Surviving
Corporation), or (y) if applicable, the ultimate
parent corporation that directly or indirectly has beneficial
ownership of at least 95% of the voting securities eligible to
elect directors of the Surviving Corporation (the
Parent Corporation), is represented by
Company Voting Securities that were outstanding immediately
prior to such Business Combination (or, if applicable, is
represented by shares into which such Company Voting Securities
were converted pursuant to such Business Combination), and such
voting power among the holders thereof is in substantially the
same proportion as the voting power of such Company Voting
Securities among the holders thereof immediately prior to the
Business Combination, (B) no person (other than any
employee benefit plan (or related trust) sponsored or maintained
by the Surviving Corporation or the Parent Corporation), is or
becomes the beneficial owner, directly or indirectly, of in
excess of fifty percent (50%) or more of the total voting power
of the outstanding voting securities eligible to elect directors
of the Parent Corporation (or, if there is no Parent
Corporation, the Surviving Corporation) and (C) at least a
majority of the members of the board of directors of the Parent
Corporation (or, if there is no Parent Corporation, the
Surviving Corporation) following the consummation of the
Business Combination are Continuing Directors (any Business
Combination which satisfies all of the criteria specified in
subclauses (A), (B) and (C) above shall be deemed to
be a Non-Qualifying Transaction);
provided, however, that if Continuing Directors
constitute a majority of the Board immediately following the
occurrence of a Business Combination, then a majority of
Continuing Directors in office prior to the Consummation of the
Business Combination may approve a resolution providing
expressly that such Business Combination does not constitute a
Change in Control under this clause (ii) for any and all
purposes of the Plan.
(iii) the shareholders of the Company approve a plan of
complete liquidation or dissolution of the Company;
(iv) the consummation of an agreement (or agreements)
providing for the sale or disposition by the Company of all or
substantially all of the Companys assets other than a sale
or disposition which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to
represent 50% or more of the combined voting power of the
Company or such surviving entity outstanding immediately after
such sale or disposition; or
I-16
(v) in the case of directors, officers or employees who are
entitled to the benefits of a change in control agreement or
similar provisions within an agreement entered into by the
Company or a Related Entity that defines or addresses change of
control, change of control as defined in such
agreement
(b) Effect of Change in Control. Upon the
occurrence of a Change in Control specified in paragraph (a)(i)
above and immediately prior to the occurrence of a Change in
Control specified in paragraph (a)(ii), (a)(iii) or (a)(iv)
above, Awards shall Fully Vest (as defined in paragraph
(c) below). If, within two (2) years after the
occurrence of a Change in Control a Termination of Employment
occurs with respect to any Grantee for any reason other than
Cause, Disability, death or Retirement, Grantee shall be
entitled to exercise Awards at any time thereafter until the
earlier of (i) the date twelve (12) months after the
date of Termination of Employment and (ii) the expiration
date in the applicable Award Agreement.
(c)
Fully Vest. The following shall occur if
Awards Fully Vest: (i) any stock options and
stock appreciation rights granted under the Plan shall become
fully vested and immediately exercisable, (ii) any
restricted stock, restricted stock units, performance shares,
performance units and other stock-based Awards granted under the
Plan will become fully vested and matured, any restrictions
applicable to such Awards shall lapse and such Awards
denominated in stock will be immediately paid out, and
(iii) any Performance Goals applicable to Awards will be
deemed to be fully satisfied;
provided that (A) any
Performance Goals whose performance period has not yet lapsed
shall be calculated based on the higher of (x) the target
value of the Awards as established by the
Board
Designated
Entity
and (y) the value of the Awards
calculated under the terms of the Awards based on the average
performance through the end of the fiscal quarter immediately
prior to the effective date of the Change of Control (continued
pro forma through the end of the performance period if necessary
for purposes of determining whether the Performance Goal would
have been met), and (B) if the Award has a performance
period greater than one (1) year, the amount of the Award
payable to the Grantee will be pro rated, based on a fraction,
the numerator of which is the number of fiscal quarters
completed from the beginning of the performance period until the
effective date of the Change of Control and the denominator is
the total number of fiscal quarters in the performance period.
(d)
Section 409A. To the extent it is
necessary for the term change of control to be
defined in order for compensation provided under any Award to
avoid the imposition of taxes under Section 409A of the
Code, then the term change in control, only insofar
as it applies to any such Award and its treatment under
Section 409A, shall be defined as so
such
requiredthat
term is defined by
Section 409A-3
of the Treasury Regulations promulgated under Section 409A
(26 CFR § 409A-3), rather than as provided in
Section 3.7(a), and the terms of
Sections 3.7(b) through (c) shall be applied and
interpreted with respect to such Section 409A mandated
definition in such manner as the Board in its discretion
determines to be equitable and reflect the intention of
Sections 3.7(a) through (c).
(e) No Conflict with Other Agreements. The
foregoing definition of change of control is
applicable only to the matters contemplated by and set forth in
this Plan and any Award agreement pursuant to this Plan, and
shall not be controlling with respect to any other agreement
between the Company and any third party.
3.8 No Right to Employment. Nothing in the Plan
or in any Award Agreement shall confer upon any Grantee the
right to continue in the employ of or association with the
Company or any Related Entity or affect any right which the
Company or Related Entity may have to terminate such employment
or association at any time (with or without cause).
3.9
Nature of Payments. Unless the
Board
Designated
Entity
determines at any time in its discretion, any
and all grants of Awards and issuances of shares of Common Stock
under the Plan shall constitute a special incentive payment to
the Grantee and shall not be taken into account in computing the
amount of salary or compensation of the Grantee for the purpose
of determining any benefits under any pension, retirement,
profit-sharing, bonus, life insurance or other benefit plan of
the Company or under any agreement with the Grantee, unless such
plan or agreement specifically provides otherwise.
3.10
Non-Uniform Determinations. The
Boards determinations under the Plan need
not be uniform and may be made by it selectively among persons
who receive, or are eligible to receive, Awards (whether or not
such persons are similarly situated). Without limiting the
generality of the foregoing, the
Board
Designated
I-17
Entity
,
shall be entitled, among other things, to make non-uniform and
selective determinations, and to enter into non-uniform and
selective Award Agreements, as to the persons to receive Awards
under the Plan, and the terms and provisions of Awards under the
Plan.
3.11 Other Payments or Awards. Nothing
contained in the Plan shall be deemed in any way to limit or
restrict the Company from making any award or payment to any
person under any other plan, arrangement or understanding,
whether now existing or hereafter in effect.
3.12 Interpretation. The section headings
contained herein are for the purpose of convenience only and are
not intended to define or limit the contents of the sections. As
used in the Plan, include, includes, and
including are deemed to be followed by without
limitation whether or not they are followed by such words
or words of like import; except as the context requires, the
singular includes the plural and visa versa; and references to
any agreement or other document are references to such agreement
or document as amended or supplemented from time to time. Any
determination, interpretation or similar act to be made by the
Board shall be made in the discretion of the Board, whether or
not the applicable provisions of the Plan specifically refer to
the Boards discretion.
3.13 Effective Date and Term of Plan. Unless
sooner terminated by the Board, the Plan, including the
provisions respecting the grant of Incentive Stock Options,
shall terminate on the tenth anniversary of the adoption of the
Plan by the Board; provided that the Plan shall continue to
govern outstanding Awards until such Awards have been satisfied
or terminated. All Awards made under the Plan prior to its
termination shall remain in effect until such Awards have been
satisfied or terminated in accordance with the terms and
provisions of the Plan and the applicable Award Agreements.
3.14 Governing Law. All rights and obligations
under the Plan shall be construed and interpreted in accordance
with the laws of the State of California, without giving effect
to principles of conflict of laws.
3.15 Severability; Entire Agreement. If any of
the provisions of this Plan or any Award Agreement is finally
held to be invalid, illegal or unenforceable (whether in whole
or in part), such provision shall be deemed modified to the
extent, but only to the extent, of such invalidity, illegality
or unenforceability and the remaining provisions shall not be
affected thereby; provided, that if any of such
provisions is finally held to be invalid, illegal, or
unenforceable because it exceeds the maximum scope determined to
be acceptable to permit such provision to be enforceable, such
provision shall be deemed to be modified to the minimum extent
necessary to modify such scope in order to make such provision
enforceable hereunder. The Plan and any Award Agreements contain
the entire agreement of the parties with respect to the subject
matter thereof and supersede all prior agreements, promises,
covenants, arrangements, communications, representations and
warranties between them, whether written or oral, with respect
to the subject matter thereof.
3.16 No Third Party Beneficiaries. Except as
expressly provided therein, neither the Plan nor any Award
Agreement shall confer on any person other than the Company and
the grantee of any Award any rights or remedies thereunder.
3.17 Successors and Assigns. The terms of this
Plan shall be binding upon and inure to the benefit of the
Company and its successors and assigns.
3.18
Waiver of Claims. Each Grantee of an Award
recognizes and agrees that prior to
being recommended by
the Committee to the Board to receive an
actual
receipt of an
Award he or she has no right to any
benefits hereunder. Accordingly, in consideration of the
Grantees receipt of any Award hereunder, he or she
expressly waives any right to contest the amount of any Award,
the terms of any Award Agreement, any determination, action or
omission hereunder or under any Award Agreement by the
Committee, the Company or the Board, or any amendment to the
Plan or any Award Agreement (other than an amendment to this
Plan or an Award Agreement to which his or her consent is
expressly required by the express terms of the Plan or an Award
Agreement).
I-18
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up
until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card
in hand when you access the web site and follow the instructions to obtain your records and to
create an electronic voting instruction form.
Electronic Delivery of Future PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can
consent to receiving all future proxy statements, proxy cards and annual reports electronically via
e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to
vote using the Internet and, when prompted, indicate that you agree to receive or access proxy
materials electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time
the day before the cut-off date or meeting date. Have your proxy card in hand when you call and
then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or
return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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KEEP THIS PORTION FOR YOUR RECORDS |
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. |
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DETACH AND RETURN THIS PORTION ONLY |
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For |
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Withhold |
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For All |
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All |
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All |
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Except |
The Board of Directors recommends you vote |
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FOR ALL the following nominees: |
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1. |
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Election of Directors |
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Nominees |
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To withhold authority to vote for any individual
nominee(s), mark For All Except and write the
number(s) of the nominee(s) on the line below.
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01 06 |
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Craig A. Barbarosh D. Russell Pflueger |
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02 07 |
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Murray F. Brennan, M.D. Steven T. Plochocki |
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03 08 |
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George H. Bristol Sheldon Razin |
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04 09 |
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Patrick B. Cline Maureen A. Spivack |
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05 |
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Ahmed D. Hussein |
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The Board of Directors recommends you vote FOR proposals 2, 3 and 4. |
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Abstain |
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Approve Second Amended and Restated 2005 Stock Option and Incentive Plan. |
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Ratification of the appointment of PricewaterhouseCoopers LLP as QSIs independent public accountants for the fiscal year ending March 31, 2012. |
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Advisory vote on the compensation of our named executive officers. |
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The Board of Directors recommends you vote 1 YEAR on the following proposal: |
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1 year |
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2 years |
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3 years |
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Abstain |
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Advisory vote on the frequency of an advisory vote on the compensation of our named executive officers. |
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NOTE: Such other business as may properly come before the meeting or any adjournment thereof.
Please sign exactly as your name(s) appear(s) hereon.
When signing as attorney, executor, administrator, or other
fiduciary, please give full title as such. Joint owners
should each sign personally. All holders must sign. If a
corporation or partnership, please sign in full corporate
or partnership name, by authorized officer.
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Signature [PLEASE SIGN WITHIN BOX] |
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Signature (Joint Owners) |
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The
Annual Report, Notice & Proxy Statement is/ are available at www.proxyvote.com .
QUALITY SYSTEMS, INC.
PROXY FOR 2011 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS
The undersigned appoints James J. Sullivan and Paul A. Holt, and each of them, individually, as
attorneys and proxies, with full power of substitution, to vote all shares of Common Stock of
Quality Systems, Inc. (QSI) held of record by the undersigned as of June 13, 2011, at the Annual
Meeting of Shareholders of QSI to be held at the Center Club located at 650 Town Center Drive,
Costa Mesa, California 92626, on August 11, 2011, at 1 p.m. local time and at all adjournments and
postponements thereof (the Annual Meeting), upon the following matters, which are described in
QSIs Proxy Statement for the Annual Meeting. QSIs Board of Directors recommends a vote FOR ALL
the director nominees, a vote FOR proposals 2, 3 and 4 and a vote for 1 year with respect to
proposal 5 listed on the reverse side.
In accordance with the discretion and at the instruction of the Board of Directors or an authorized
committee thereof, the proxy holder is authorized to act upon all matters incident to the conduct
of the meeting and upon other matters that properly come before the meeting subject to the
conditions described in QSIs Proxy Statement concerning the Annual Meeting. This proxy, when
properly executed, will be voted in the manner directed herein by the undersigned shareholder.
Where no direction is given, except in the case of broker non-votes, the shares will be voted in
accordance with the Board of Directors recommendations. This proxy confers discretionary authority
to cumulate votes for any or all of the nominees for election of directors for which authority to
vote has not been withheld, in accordance with the instruction of the board of directors or an
authorized committee thereof. If any nominee named on the reverse side declines or is unable to
serve as a director, the persons named as proxies shall have the authority to vote for any other
person who may be nominated at the instruction and discretion of the Board of Directors or an
authorized committee thereof.
Continued and to be signed on reverse side