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. 1
Filed by Registrant S
Filed by a Party other than the Registrant £
Check the appropriate box:
| £ | Preliminary Proxy Statement |
| £ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| S | Definitive Proxy Statement |
| £ | Definitive Additional Materials |
| £ | Soliciting Material under §240.14a-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):
| T | No fee required | ||
| £ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | ||
| (1) | Title of each class of securities to which transaction applies: | ||
| (2) | Aggregate number of securities to which transaction applies: | ||
| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on | ||
| (4) | Proposed maximum aggregate value of transaction: | ||
| (5) | Total fee paid: | ||
| £ | Fee paid previously with preliminary materials. | ||
| £ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of this filing: | ||
| (1) | Amount Previously Paid: | ||
| (2) | Form, Schedule or Registration Statement No.: | ||
| (3) | Filing Party: | ||
| (4) | Date Filed: | ||
18111 Von Karman Avenue, Suite 700
Irvine, California 92612
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 15, 2013
To the Shareholders of Quality Systems, Inc.:
The annual meeting of shareholders of Quality Systems, Inc. will be held at the Marriott Hotel located at 18000 Von Karman Avenue, Irvine, California 92612, on August 15, 2013, at 1:00 p.m. Pacific Time, for the following purposes:
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to elect nine persons to serve as directors of our company until the 2014 annual meeting of shareholders. Our nominees for election to our Board of Directors (“Board”) are named in the attached proxy statement, which is a part of this notice; |
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to conduct an advisory vote to approve the compensation for our named executive officers; |
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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, 2014; and |
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to transact such other business as may properly come before the annual meeting or any adjournments or postponements thereof. |
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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 17, 2013 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, please complete and sign the enclosed proxy card and return it in the enclosed addressed envelope. Your promptness in returning the proxy card will assist in the expeditious and orderly processing of the proxy and will assure that you are represented at the annual meeting even if you cannot attend the meeting in person. You may also vote by telephone or Internet by following the instructions on the proxy card. If you return your proxy card or vote by telephone or Internet, you may nevertheless attend the annual meeting and vote your shares in person. Shareholders whose shares are held in the name of a broker or other nominee and who desire to vote in person at the meeting should bring with them a legal proxy.
OUR BOARD RECOMMENDS A VOTE “FOR” THE ELECTION OF ALL OF OUR DIRECTOR NOMINEES NAMED ON THE ENCLOSED PROXY CARD. OUR BOARD ALSO RECOMMENDS A VOTE “FOR” PROPOSALS 2 AND 3.
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By Order of the Board of Directors, |
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/s/ Jocelyn A. Leavitt |
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Irvine, California |
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ii
TABLE OF CONTENTS 18111 Von Karman Avenue, Suite 700 iii
Irvine, California 92612
ANNUAL MEETING OF SHAREHOLDERS PROXY STATEMENT The accompanying proxy is solicited by the Board of Directors (“Board”) of Quality Systems, Inc. (“Quality Systems,” the “Company,” “us,” “we” or “our”) for use at our annual meeting of shareholders to be held at the Marriott Hotel
located at 18000 Von Karman Avenue, Irvine, California 92612, on August 15, 2013 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. On July 15, 2013, we filed and began to mail to shareholders definitive proxy materials relating to the 2013 annual meeting of shareholders (the “Previous Proxy Materials”). At the time we filed and began to mail the Previous Proxy Materials, the Clinton Relational Opportunity Master
Fund, L.P., the Clinton Spotlight Master Fund, L.P., the Clinton Relational Opportunity, LLC, the Clinton Group, Inc. and Mr. George E. Hall (collectively, the “Clinton Group”) had indicated its intent to solicit proxies in favor of seven director nominees in opposition to our nominees for
election to our Board, as well as three proposals to amend our Bylaws. On July 17, 2013, we reached an agreement with the Clinton Group related to the 2013 annual meeting, as more fully described under “Agreement with the Clinton Group” below. This proxy statement and the accompanying proxy
card therefore restate and supersede the Previous Proxy Materials. Any shareholder has the power to revoke the shareholder’s 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 August 14, 2013 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 shareholder’s 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 driver’s 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 shareholder’s 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 shareholder’s vote will not be counted unless the shareholder appears at the annual meeting and votes in
person or legally appoints another proxy to vote on its behalf. We will bear all expenses in connection with the solicitation of proxies. We will reimburse brokers, fiduciaries and custodians for their costs in forwarding proxy materials to beneficial owners 1
TO BE HELD AUGUST 15, 2013
of common stock. Our directors, officers and employees may solicit proxies by mail, telephone and personal contact. They will not receive any additional compensation for these activities. We have engaged the firm of MacKenzie Partners, Inc. to assist in the solicitation of proxies pursuant to this proxy statement. Under the terms of its agreement, the services of MacKenzie Partners, Inc. include the distribution of materials to shareholders, providing information to shareholders
(including direct contact with shareholders) from the materials prepared by us, analysis of beneficial ownership of our securities and providing such other advisory services as we may request from time to time. We estimate that we will pay MacKenzie Partners, Inc. approximately $25,000 plus expenses for
these services. This proxy statement, the accompanying proxy card and our 2013 annual report are being made available to our shareholders on or about July 24, 2013. NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be Held on August 15, 2013. This proxy statement, the notice of our 2013 annual meeting of shareholders and the Company’s 2013 annual report to shareholders are available on our website at http://investor.qsii.com/annual-proxy.cfm. 2
OUTSTANDING SHARES AND VOTING RIGHTS Only holders of record of the 59,552,380 shares of our common stock outstanding at the close of business on the record date, June 17, 2013, 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. However, under our Bylaws and California law, if any shareholder gives notice at the annual meeting, prior to the voting, of an intention to cumulate the shareholder’s 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. If cumulative voting applies
at the annual meeting, the cumulative number of votes a shareholder may cast in director elections will be equal to the number of shares held by such shareholder on the record date multiplied by nine (the number of directors to be elected at the annual meeting). Whether the election of directors is by plurality vote or cumulative voting with respect to Proposal No. 1, the nine director nominees who receive the highest number of affirmative votes will be elected; abstentions and broker non-votes will have no effect on this proposal. See “Additional Information
on the Mechanics of Cumulative Voting” below for more information on the operation of cumulative voting. 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. We have not received notice that any of our shareholders currently intends to invoke cumulative voting. In addition, because the Board has not nominated more than nine director nominees for election at the annual meeting, and
because the deadline for the submission of director nominees for the 2013 annual meeting has passed, we believe it is less likely that cumulative voting will be invoked at the 2013 annual meeting. Approval of Proposal No. 2, an advisory vote to approve 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 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. 3
Additional Information on the Mechanics of Cumulative Voting In the event cumulative voting applies, all shareholders will have the right to cumulate their votes in the election of directors. Cumulative voting means that each shareholder may cumulate such shareholder’s voting power for the election by distributing a number of votes, determined by multiplying
the number of shares held by the shareholder as of the record date by nine (the number of directors to be elected at the annual meeting). Such shareholder may distribute all of the votes to one individual director nominee, or distribute such votes among any two or more director nominees, as the
shareholder chooses. If you do not specifically instruct otherwise, the proxy being solicited by our Board will confer upon the proxy holders the authority, in the event that cumulative voting applies, 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. Our Board has directed the Proxy Voting Committee to exercise such
authority on the Board’s behalf (described under “Information about our Board of Directors, Board Committees and Related Matters—Board Committees and Charters—Proxy Voting Committee”). Using this discretion, the Proxy Voting Committee may vote your shares for fewer than nine nominees. If you elect to grant us your proxy and do not specifically instruct otherwise, you are authorizing the proxy holders to vote your shares in accordance with the discretion and at the instruction of the Board (or an authorized committee thereof), including to cumulate your votes in favor of certain
nominees (rather than allocating votes equally among the nominees) and to determine the specific allocation of votes to individual nominees. You may withhold your authority to vote for one or more nominees, in which case the Proxy Voting Committee will retain discretion to allocate your votes among
our other nominees unless you specifically instruct otherwise. Under no circumstances may the proxy holders cast your votes for any nominee from whom you have withheld authority to vote. For example, a proxy marked “FOR ALL EXCEPT” may only be voted for those of our director nominees for whom you have not otherwise specifically withheld authority to vote, a proxy marked “WITHHELD ALL” may not be voted for any of our director nominees, and a proxy marked “FOR
ALL” may be voted for all of our director nominees. In exercising its discretion with respect to cumulating votes, our Proxy Voting Committee may instruct, in its sole judgment, the proxy holders to cumulate and cast the votes represented by your proxy for any of our director nominees for whom you
have not otherwise withheld authority. For example, if you grant a proxy with respect to shares representing 900 cumulative votes, and mark “FOR ALL EXCEPT” one of our director nominees, the Proxy Voting Committee may instruct the proxy holders to cast the 900 votes for any or all of our eight
other director nominees; of those eight other director nominees, moreover, the Proxy Voting Committee may allocate the 900 votes among them as it determines, such that each of those other director nominees may receive unequal portions of the 900 votes or none at all. In the event cumulative voting applies, unless you specifically instruct otherwise, the Proxy Voting Committee will instruct the proxy holders to cast the votes as to which voting authority has been granted so as to provide for the election of the maximum number of our director nominees, and will
provide instructions as to the order of priority of the Board candidates in the event that fewer than all of our Board candidates are elected. The Proxy Voting Committee has not yet made any determination as to the order of priority of candidates to which it would allocate votes in the event cumulative
voting applies, and expects to make this determination, if necessary, at the annual meeting. Accordingly, if you grant a proxy to us and have not specifically instructed otherwise, your shares will be voted for our director nominees at the discretion of the Proxy Voting Committee with respect to all of your
shares (except that the Proxy Voting Committee will not be able to vote your shares for a candidate from whom you have withheld authority to vote). If you wish to exercise your own discretion as to allocation of votes among nominees, and you are a record holder of shares, you will be able to do so by
attending the meeting and voting in person, by appointing another person as your representative to vote on your behalf at the meeting, or by providing us with specific instructions as to how to allocate your votes. 4
A holder of record who wishes to provide vote allocation instructions, in the event that cumulative voting applies, must submit a proxy card by mail and should hand mark the number of votes such holder wishes to allocate to any particular nominee next to the name of such nominee on the enclosed
proxy card. If you provide vote allocation instructions for less than all of the votes that you are entitled to cast, the proxy holders will retain discretionary authority to cast your remaining votes pursuant to the instructions of the Proxy Voting Committee, except for any nominee for whom you have
withheld authority by marking the “FOR ALL EXCEPT” box. If you wish to grant the proxy holders discretionary authority to allocate votes among all our nominees you may check the “FOR ALL” box, but you are not required to do so. The proxy holders will retain discretionary authority to allocate
votes among all our nominees except where you provide a specific instruction by hand marking the number of votes to be allocated or by marking the “FOR ALL EXCEPT” box. Any shareholder who holds shares in street name and desires to specifically allocate votes among nominees, in the event cumulative voting applies, may do so by either informing the shareholder’s broker, banker or other custodian of the shareholder’s desire to attend the annual meeting, and
requesting a legal proxy to attend the meeting, or by providing the broker, banker or other custodian with instructions as to how to allocate votes among nominees, which can then be delivered to the Company. Because each broker, banker or custodian has its own procedures and requirements, a
shareholder holding shares in street name who wishes to allocate votes to specific nominees should contact its broker, banker or other custodian for specific instructions on how to obtain a legal proxy or provide vote allocation instructions. Please note you will not be able to submit vote allocation instructions for director elections if you grant a proxy by telephone or the Internet. Any shareholder that has any question regarding the procedures for specifically allocating votes among nominees may call our proxy solicitor, MacKenzie
Partners, Inc. at 1-800-322-2885. CAUTION CONCERNING FORWARD LOOKING STATEMENTS Statements made in this proxy statement that are not historical in nature, or that state our or our management’s intentions, hopes, beliefs, expectations or predictions of the future, may constitute “forward-looking statements” within the meaning of Section 21E of the Securities and Exchange Act of
1934, as amended. Forward-looking statements can often be identified by the use of forward-looking language, such as “could,” “should,” “will,” “will be,” “will lead,” “will assist,” “intended,” “continue,” “believe,” “may,” “expect,” “hope,” “anticipate,” “goal,” “forecast,” “plan,” or “estimate” or
variations thereof or similar expressions. Forward-looking statements are not guarantees of future performance. These forward-looking statements may include, without limitation, discussions of our product development plans, business strategies, future operations, financial condition and prospects,
developments in and the impacts of government regulation and legislation and market factors influencing our results. Forward-looking statements involve risks, uncertainties and assumptions. It is important to note that any such performance and actual results, financial condition or business, could differ materially from those expressed in such forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, the risk factors discussed under “Risk Factors” in our Annual Report on Form 10-K for fiscal year ended March 31, 2013, as well as factors discussed elsewhere in this and other reports and documents we file with the SEC. Other unforeseen factors not identified
herein could also have such an effect. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial condition or business over time unless required by law. Interested
persons are urged to review the risks described under “Risk Factors” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for fiscal year ended March 31, 2013, as well as in our other public disclosures and filings with the
SEC. 5
(Proposal No. 1) Proposal No.
1 concerns the election of the following director nominees: Craig A. Barbarosh, George H. Bristol, James C. Malone, Peter M.
Neupert, Morris Panner, D. Russell Pflueger, Steven T. Plochocki, Sheldon Razin and Lance E. Rosenzweig. The Nominating and
Corporate Governance Committee has nominated each of Messrs. Barbarosh, Bristol, Malone, Neupert, Panner, Pflueger,
Plochocki, Razin and Rosenzweig for election as a director. 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. Two of our current directors, Michael Aghajanian and Mark H. Davis, will not stand for reelection at the 2013
annual meeting. Each of our director nominees currently serves on the Board and was elected by the shareholders at the 2012 annual meeting, other than Messrs. Malone, Neupert and Panner. Messrs. Malone, Neupert and Panner do not currently sit on our Board. Messrs. Malone, Neupert and Panner were
identified as Board candidates by the Clinton Group, and were reviewed by the Nominating and Governance Committee prior to the Company entering into the Agreement with the Clinton Group discussed under “—Background on the Solicitation” and described more fully under “Agreement with the
Clinton Group.” The Nominating and Governance Committee determined that each of Messrs. Malone, Neupert and Panner were qualified director candidates with professional backgrounds, strengths and skills that would be beneficial to the Company and complementary to the diverse range of skills held
by our other directors. After completing a diligence review of each of the candidates and an interview process, the Nominating and Governance Committee recommended to the Board the inclusion of Messrs. Malone, Neupert and Panner as our director nominees. 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 shareholder’s proxy or specific instructions to vote otherwise have been given, 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 the event cumulative voting applies to the election of the directors, our Board has authorized 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 and to the extent no specific instructions otherwise are given) including, but not limited to, the prioritization of such nominees to whom such votes may be allocated. At the annual meeting, in the event cumulative voting applies, unless you specifically instruct otherwise, the Proxy Voting Committee will instruct the proxy holders to cast the votes as to which voting authority has been granted so as to provide for the election of the maximum number of our
director nominees, and will provide instructions as to the order of priority of the Board candidates in the event that fewer than all of our Board candidates are elected. The Proxy Voting Committee has not yet made any determination as to the order of priority of candidates to which it would allocate
votes in the event cumulative voting applies, and expects to make this determination, if necessary, at the annual meeting. 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. All properly submitted and unrevoked proxies will be counted for purposes of determining whether a quorum is present, 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. 6
Based on definitions of independence established by The Nasdaq Stock Market (“Nasdaq”), SEC rules and regulations, guidelines established in our Bylaws, and the determinations of our Nominating and Corporate Governance Committee and our Board, Messrs. Barbarosh, Bristol, Malone,
Neupert, Panner, Pflueger, Razin and Rosenzweig are independent. Mr. Plochocki is a member of our management team and is a non-independent director. The Nasdaq independence definition includes a series of objective tests, such as that the director or director nominee is not and has not been for the past three years an employee of the Company and has not engaged in various types of business dealings with the Company. In addition, as further
required by the Nasdaq rules, our Board has made a subjective determination as to each independent director and director nominee that no relationships exist which, in the opinion of our Board, would interfere with the exercise of independent judgment of such director or director nominee in carrying
out his or her responsibilities as a director. In making these determinations, our Board reviewed and discussed information provided by our directors, director nominees and management with regard to each director’s and director nominee’s business and personal activities as they may relate to our
management and us. The independent members of our Board meet periodically in executive session without management. Background on the Solicitation On June 13, 2013, we received a letter from the Clinton Group indicating its intent to nominate seven alternative candidates to stand for election to the Board at the 2013 annual meeting, including Messrs. Malone, Neupert and Panner. In such letter, the Clinton Group indicated that it beneficially
owned approximately 0.1% of the Company’s shares. Such letter further stated that the Clinton Group intended to present proposals to amend the Company’s Bylaws to provide for term limits for membership on our Board, a term limit for the position of chairman of our Board and the repeal of the
adoption of any amendment to our Bylaws after June 13, 2013 that is inconsistent with or disadvantageous to the election of nominees nominated or other proposals presented by the Clinton Group and its affiliates at the annual meeting. The Clinton Group’s notice is referred to in this proxy statement as
the “Notice.” On June 24, 2013, two of our independent directors, Craig Barbarosh and Lance Rosenzweig, met with representatives from the Clinton Group via teleconference to discuss the Notice, at which meeting the Clinton Group expressed certain views regarding the Company’s performance, leadership,
governance and strategic direction. Subsequently, our full Board of Directors met to discuss the views expressed by the Clinton Group during the teleconference. On June 25, 2013, the Nominating and Governance Committee of the Board, consisting of independent directors Messers. Barbarosh, Bristol and Pflueger, held a previously scheduled meeting to discuss candidates for a position on our Board of Directors that remained open at such time and to
recommend nominees to stand for election at the 2013 annual meeting. As part of this process, the committee reviewed in detail the qualifications of the nominees identified in the Notice as well as candidates previously recommended through its ongoing processes for maintaining a roster of diverse and
highly qualified candidates for Board service. Also on June 25, 2013, our Board held a previously scheduled meeting. In light of the possibility of a proxy contest instigated by the Clinton Group, our Board reviewed and renewed the powers of its Special Committee. Among other things, the Special Committee has been authorized to act on
behalf of our Board in connection with the solicitation and voting of proxies at the annual meeting. The Special Committee consists of independent directors Messrs. Razin, Barbarosh, Bristol, Pflueger and Rosenzweig. Earlier, on May 22, 2013, our Board had reviewed and renewed the powers of its
Proxy Voting Committee, which has been authorized to provide instruction to our proxy holders, in the event cumulative voting applies to the election of directors, 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 and to the extent no specific instructions otherwise are given) including, but not limited to, the prioritization of such nominees to whom such votes may be allocated. The Proxy Voting Committee consists of independent directors Messrs. Barbarosh,
Pflueger and Razin. The Proxy Voting Committee has not 7
yet made any determination as to the order of priority of candidates to which it will allocate votes in the event cumulative voting applies, and expects to make this determination, if necessary, at the annual meeting. In light of the expense and disruption that any proxy contest would inflict upon the Company, on June 25, 2013, Mr. Barbarosh and Mr. Rosenzweig requested a second teleconference with representatives from the Clinton Group for further discussion and to attempt to reconcile their respective views.
At the teleconference, which was held on June 26, 2013, Mr. Barbarosh, Mr. Rosenzwieg and representatives of the Clinton Group discussed their respective views on the Clinton Group’s proposals and stated reasons therefor, but were unable to come to a mutually satisfactory resolution. On June 27, 2013, our Board of Directors met to receive and consider the recommendations of the Company’s Nominating and Governance Committee as to director nominees, consider all director nominee candidates, and, subsequently, to finalize the list of nominees to be proposed by the Company
at the 2013 annual meeting. Following its consideration of the director candidates, the Board unanimously determined that at that time it was in the best interest of the Company and its shareholders not to nominate any of the alternative nominees proposed by the Clinton Group. The Board unanimously
accepted the recommendations of the Nominating and Corporate Governance Committee. On July 1, 2013, we filed a preliminary proxy statement relating to the 2013 annual meeting of shareholders. On July 3, 2013, the Clinton Group filed a preliminary proxy statement to solicit proxies for the director nominees and Bylaw proposals noted in its Notice. On July 15, 2013, we filed and began to mail the Previous Proxy Materials. On July 17, 2013, we reached an agreement with the Clinton Group related to the 2013 annual meeting, as more fully described under “Agreement with the Clinton Group” below. This proxy statement and the accompanying
proxy card therefore restate and supersede the Previous Proxy Materials. 8
OUR BOARD RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” EACH OF THE DIRECTOR NOMINEES NAMED BELOW AND LISTED ON THE PROXY CARD. Steven T. Plochocki, age 61, is a director and has been our Chief Executive Office since August 16, 2008 and our President since January 25, 2012. 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 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 Master’s degree in Business Management from Central Michigan University. Mr. Plochocki’s 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. Mr. Plochocki has been a director since 2004. Craig A. Barbarosh, age 45, is a director. Mr. Barbarosh is a partner at the international law firm of Katten Muchin Rosenman LLP, a position he has held since June 2012. From January 1999 until June 2012, Mr. Barbarosh was a partner of the international law firm of Pillsbury Winthrop Shaw
Pittman LLP. Mr. Barbarosh is a nationally recognized restructuring expert. He served in several leadership positions while a partner at Pillsbury including serving on the firm’s Board of Directors, as the Chair of the firm’s Board’s Strategy Committee, as a co-leader of the firm’s national Insolvency &
Restructuring practice section and as the Managing Partner of the firm’s Orange County office. At Katten, Mr. Barbarosh is a member of the firm’s Executive and Operating Committee and Board of Directors. Mr. Barbarosh received a Juris Doctorate from the University of the Pacific, McGeorge School
of Law in 1992, with distinction, 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 is also a frequent speaker and author on restructuring and governance topics. 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 involving our company. Mr. Barbarosh is also a director of Sabra Health Care REIT, Inc. (Nasdaq: SBRA), where he is the Chair of the Audit Committee and a member of the Compensation Committee. Mr. Barbarosh has been a director since 2009. George H. Bristol, age 64, is a director. Mr. Bristol is a Managing Director of Janas Associates, a corporate financial advisor, a position he has held since 2010. From August 2006 until March 2010 he served as Managing Director—Corporate Finance of Crowell Weedon & Co. From November 2002 until
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’s 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. Mr. Bristol has been a director since 2008. James C. Malone, age 63, has more than 35 years of financial leadership experience, having held the Chief Financial Officer position at several global healthcare companies. Currently, Mr. Malone is the Chief Financial Officer and Executive Vice President of American Well Inc., a software
technology and services company that brings healthcare into the homes and workplaces of patients, since September 2010. He served as Chief Financial Officer of Misys PLC, a multinational software company, from June 2007 to January 2009 and served as its Executive Vice President until January 2009.
He joined Misys from The TriZetto Group, Inc., a provider of healthcare IT solutions and services to payers and providers, where he served as Chief Financial Officer from March 2004 to June 2007, Vice President of Finance from January 2004 until his appointment as CFO, Executive 9
Vice President of Finance from January 2006 to June 2007, Senior Vice President of Finance from January 2004 until January 2006 and also served as its Principal Accounting Officer. Prior to this, he served as Chief Financial Officer, Senior Vice President and Chief Administrative Officer of IMS Health
Inc., a provider of information, services and technology for the healthcare industry. He served as Senior Vice President and Controller of Cognizant Corporation from 1995 to 1997. Mr. Malone also held management positions at Dun & Bradstreet, Reuben H. Donnelley, and Siemens AG and served as
audit manager at Price Waterhouse. He also served as an executive director of Misys PLC from June 2007 to January 2009 and served as director of Allscripts Healthcare Solutions, Inc. (alternate name, Allscripts-Misys Healthcare Solutions, Inc.), which provides practice management and electronic health
record technology to healthcare providers, from October 2008 to January 2009. He also served as a director of Cognizant Technology Solutions, Inc. Mr. Malone received his BS in Accounting from St. Francis College in 1973 and attended Pace University for graduate work in tax. He received his
Certified Public Accountant certification from the State of New York in 1975. Mr. Malone’s qualifications as a director include his experience as a Chief Financial Officer in the technology industry (including in the health care technology sector) and his experience as an executive officer and director of
various companies. Peter M. Neupert, age 57, has over 25 years of experience leading technology organizations. Mr. Neupert has been an Operating Partner at Health Evolution Partners, a health only, middle market private equity firm, since January 2012. Prior to that, Mr. Neupert served as Corporate Vice President
of the Microsoft Health Solutions Group from its formation in 2005 to January 2012. As Corporate Vice President, Mr. Neupert was responsible for driving the company’s strategy to improve healthcare around the world through software innovation. He led a global organization dedicated to developing,
marketing, selling and supporting software solutions designed to improve the quality and efficiency of healthcare delivery and to empower individuals to become more engaged and responsible for their own health and wellness. Mr. Neupert served on the President’s Information Technology Advisory
Committee (PITAC), co-chairing the Health Information Technology subcommittee, helping to drive the “Revolutionizing Health Care Through Information Technology” report, published in June 2004. Mr. Neupert served as the founding President and Chief Executive Officer of drugstore.com from 1998
to 2001 and as Chairman of its board of directors through September 2004. He currently serves as a director of Laboratory Corporation of America Holdings, which provides leading-edge medical laboratory tests and services through a national network of primary clinical laboratories and specialty testing
laboratories, where he has served since January 2013. Mr. Neupert also serves as a trustee for the Fred Hutchinson Cancer Research Center and was an active member of the Institute of Medicine’s Roundtable on Value & Science-Driven Healthcare from 2007 to 2011. From 1987 to 1998, Mr. Neupert
served at Microsoft in various capacities, including as the Senior Director of Operating Systems responsible for shipping OS/2, responsibility for the Asia Pacific region, and Vice President for News and Publishing, where he started MSNBC and managed Slate.com. Mr. Neupert received his bachelor’s
degree from Colorado College and MBA from the Tuck School of Business, Dartmouth College. Mr. Neupert’s qualifications as a director include his extensive background in the healthcare technology industry as well as his prior experience as an entrepreneur, executive officer and director of several
companies Morris Panner, age 50, is a long tenured executive with expertise in both healthcare software companies, including SaaS capabilities, and the law. Currently, Mr. Panner is the Chief Executive Officer of DICOM Grid, a cloud-based healthcare software company that manages diagnostic imaging and
related healthcare data. Prior to joining DICOM Grid in September 2011, Mr. Panner was the Chief Executive Officer of Townflier, Inc. and related affiliates that provide group communications services, from May 2010 to August 2011. Previously, from April 2000 to May 2010, he was Chief Executive
Officer of OpenAir, Inc., a SaaS project management company, which he led from start-up to its successful acquisition by NetSuite Inc., the provider of an integrated web-based business software suite, in 2008. Following the acquisition, Panner led the OpenAir division of NetSuite, during which time he
oversaw the acquisition and integration of OpenAir’s nearest competitor, QuickArrow, Inc., as well as the expansion of OpenAir internationally. Mr. Panner served as Chairman of the Board of the Software Division of the Software and Information Industry Association. Mr. Panner is a lawyer who served
as an Assistant United States Attorney, the Resident Legal Advisor in Bogota, Columbia for the U.S. Department of Justice and as the 10
Principal, Deputy Chief of the Narcotics and Dangerous Drug Section of the U.S. Department of Justice. He currently serves on the board of directors of Unanet Technologies, Inc., a software development company specializing in services automation solutions for project-based companies, where he has
served since 2012, and on the board of Drug Strategies, a nonprofit research institution on issues of drug addiction and treatment, and as an advisor to the Harvard Center for International Criminal Justice. Mr. Panner was previously a director of the Washington Office on Latin America, a not-for-profit
organization, from 2003 to 2009. Mr. Panner graduated from Yale College with a BA in History in 1984 and from the Harvard Law School with a JD in 1988. Mr. Panner’s qualifications as a director include his executive experience at software companies, including at health care software companies, and
his legal training. D. Russell Pflueger, age 49, is a director. Mr. Pflueger is an investor and serial entrepreneur with over 25 years of experience in healthcare and over 30 issued patents. He is the founder of Quiescence Medical, Inc., a medical device development company working on novel approaches to the
treatment of sleep apnea, and has served as its Chairman and Chief Executive Officer since its inception in 2002. Mr. Pflueger’s background includes R&D and sales positions at organizations including the National Institutes of Health, Pfizer, Baxter Healthcare and Beech Street. He also helped form,
manage and sell a major medical practice and surgery center. He was a semi-finalist for the Ernst & Young Orange County Entrepreneur of the Year award in 1999. In 2002, he sold Pain Concepts, Inc., a minimally invasive spinal device company he founded to Stryker, Inc. (SYK:NYSE) for a publicly
reported $42.5 million. Mr. Pflueger is an active investor in many public and private companies and also various real estate interests. He played collegiate basketball and golf, holds a Chemical Engineering degree from Texas A&M University and a Master’s Degree in Business Administration degree with
top honors from the University of California at Irvine. 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. Mr.
Pflueger has been a director since 2006. Sheldon Razin, age 75, is a director. He is the founder of our company and has served as our Chairman of the Board since our incorporation in 1974. Throughout his tenure as our Chairman, Mr. Razin has received several awards recognizing his service and contributions as a director. Mr. Razin’s
honors at the national level include: winner in the Software Category of TechAmerica’s 52nd Annual Innovator Awards in 2010 and Chairman of the Year in the 2009 American Business Awards. He was also honored as a Director of the Year in Orange County’s 16th Annual Forum for Corporate
Directors Awards in 2011, as the 2009 Ernst & Young Entrepreneur of the Year in the Healthcare Category for the Orange County and Desert Cities region and as a Finalist at the national level, and with the Excellence in Entrepreneurship Award from the Orange County Business Journal in 2009. Mr.
Razin also 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. As evidenced by his awards, he has been and continues to be
a technology and healthcare visionary as well as an outstanding entrepreneur whose insights and guidance are invaluable to Quality Systems. Mr. Razin has been a director since 1974. Lance E. Rosenzweig, age 50, is a director. Mr. Rosenzweig founded and has served as Chief Executive Officer of LibertadCard, Inc., a provider of pre-paid debit and remit cards, since its inception in 2010. Previously, Rosenzweig co-founded and served as Chairman of the Board of PeopleSupport,
Inc., a business process outsourcing company with over 8,000 employees and operations in the US, the Philippines and Costa Rica, since its inception in 1998. He also served as PeopleSupport’s Chief Executive Officer from 2002 through the company’s sale in 2008 for $250 million. Under Mr.
Rosenzweig’s leadership as CEO, PeopleSupport went public in an IPO, was ranked by Fortune as the 9th fastest growing small public company in the U.S. and was named 11
employer of the year in the Philippines. From 1993 to 1997, Mr. Rosenzweig was a founder, Chairman of the Board and President of Newcastle Group, a privately held plastics manufacturing company. He was also a founder of Unisite, a privately held wireless cell site management company, acquired by
American Tower in 2000 for more than $200 million. Prior to 1993, Mr. Rosenzweig was a divisional vice president at GE Capital; a vice president in the investment banking group of Dean Witter (now Morgan Stanley); a vice president in the investment banking group of Capel Court Pacific, an
Australian investment banking firm; and, a corporate planning manager of Jefferson Smurfit Group, a multinational packaging company. Mr. Rosenzweig has a BS in Industrial Engineering and an MBA with honors every term, both from Northwestern University. Mr. Rosenzweig brings significant
experience in international operations and successful offshore ventures. Mr. Rosenzweig has been a director since 2012. NON-DIRECTOR EXECUTIVE OFFICERS Paul A. Holt, age 47, 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 1995 to 1999, he was Controller of Refrigeration Supplies Distributor, the largest independently owned wholesale distributor and manufacturer of refrigeration supplies and heating controls in the western United States. From 1990
to 1995, Mr. Holt was a Certified Public Accountant at McGladrey & Pullen, LLP. Mr. Holt holds an M.B.A. from the University of Southern California and a B.A. in Economics (cum laude) from the University of California, Irvine. His senior year at UC Irvine was spent at the University of Lund,
Sweden. In 2012, Mr. Holt was named the Orange County Business Journal CFO of the year for his contributions to the tremendous growth of Quality Systems during his tenure with the Company. Daniel J. Morefield, age 53, was appointed Executive Vice President and Chief Operating Officer in September of 2012. Mr. Morefield brings more than 30 years of experience to our Company, having spent the past decade serving in various operational and technology leadership roles. Most recently,
Mr. Morefield was president and chief executive officer at LEADS360, Inc., the country’s largest and most successful sales lead management company from 2008 to 2011. Previously, Mr. Morefield was chief operations officer at Experian Consumer Direct, a consumer credit report monitoring business,
from 2006 to 2007. Mr. Morefield joined Overture Services, Inc., a paid search company, in 2001 and was Chief Information Officer from 2002 to 2005. Mr. Morefield holds a Bachelor of Arts degree in management science (quantitative economics) from the University of California, San Diego. Donn E. Neufeld, age 56, was appointed 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. Stephen K. Puckett, age 48, was appointed our Executive Vice President and Chief Technology Officer in September 2012, prior to which he served as the Executive Vice President of our Hospital Solutions Division (formerly known as the Inpatient Solutions Division) since January 2011. From June
2009 to January 2011, Mr. Puckett served as our Senior Vice President and General Manager of Inpatient Solutions, during which time the inpatient solutions offerings were still 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. 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. 12
Monte L. Sandler, age 40, was appointed Executive Vice President of the NextGen RCM Services Division (formerly known as the Practice Solutions Division) in April 2010. Mr. Sandler served as 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 LLP and is a certified public accountant in Missouri. Mr. Sandler
holds a B.S. degree from the Indiana University Kelley School of Business. 13
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 17, 2013, by:
•
each of our directors and director nominees; • each of our named executive officers (“NEOs”) identified in the “Summary Compensation Table for Fiscal Year Ended March 31, 2013” contained in this proxy statement; • 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 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 59,552,380 shares of
common stock outstanding as of the record date, June 17, 2013. 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. Aghajanian, Barbarosh, Bristol, Davis, Pflueger, Plochocki, Razin and Rosenzweig are current directors of
our Company. Each of our current directors and Dr. Lepor are our director nominees. Messrs. Plochocki, Holt, Morefield, Puckett and Sandler are our NEOs.
Name of Beneficial Owner
Number of Shares
Percent of Sheldon Razin
10,216,510
(1)
17.1
% Michael Aghajanian
516
* Craig Babarosh
10,542
* George Bristol
30,750
(2)
* Mark H. Davis
1,664
* James C. Malone
—
* Peter M. Neupert
—
* Morris Panner
—
* Russell Pflueger
52,750
(3)
* Lance Rosenzweig
4,221
* Steven T. Plochocki
53,100
(4)
* Paul A. Holt
18,600
(5)
* Daniel J. Morefield
4,000
* Monte Sandler
14,000
(6)
* Steve Puckett
26,000
(7)
* Ahmed Hussein
5,687,696
(8)
9.6
% Brown Capital Management, LLC
4,633,333
(9)
7.8
% Blackrock, Inc.
3,189,913
(10)
5.4
% All directors and executive officers as a group (12 persons)
10,432,653
(11)
17.5
%
(1)
Includes 30,000 shares underlying options. (2) Includes 10,000 shares underlying options. (3) Includes 30,000 shares underlying options. (4) Includes 40,100 shares underlying options. 14
of Common Stock
Beneficially Owned
Common Stock
Beneficially Owned
(5) Includes 8,100 shares underlying options. (6) Includes 8,100 shares underlying options. (7) Includes 21,750 shares underlying options. (8) This information is derived from a Form 4 filed by Ahmed Hussein on August 27, 2012. According to the Form 4, Mr. Hussein has beneficial ownership of 5,687,696 shares. (9) This information is derived from a Schedule 13G/A filed by Brown Capital Management LLC on February 14, 2013. According to the Schedule 13G/A, Brown Capital Management LLC had sole power to vote of 2,668,701 shares and sole power to dispose of 4,633,333 shares. The address for Brown
Capital Management LLC is 1201 N. Calvert Street, Baltimore, Maryland 21202. (10) This information is derived from a Schedule 13G filed by Blackrock, Inc. on January 30, 2013. According to the Schedule 13G, Blackrock, Inc. had sole power to vote and dispose of 3,189,913 shares, and zero (-0-) shared voting power to vote or dispose of shares. The address for Blackrock, Inc. is
40 East 52nd Street, New York, New York 10022. (11) Includes 148,050 shares underlying options. 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, 2013.
Plan Category
Number of Securities
Weighted-average
Number of Securities Equity compensation plans approved by security holders
1,159,183
$
31.39
3,012,491 Equity compensation plans not approved by security holders
—
—
— Total
1,159,183
$
31.39
3,012,491
(1)
Represents 40,000 and 1,119,183 shares of common stock underlying options outstanding under our 1998 and 2005 Plans, respectively. (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, 2013. 15
to be issued
upon exercise of
outstanding options
(a)
exercise price of
outstanding options,
warrants and rights
(b)
remaining available for
future issuance under
equity compensation
(excluding Securities
reflected in column (a))
(c)
EXECUTIVE AND DIRECTOR COMPENSATION AND RELATED INFORMATION COMPENSATION DISCUSSION AND ANALYSIS This Compensation Discussion and Analysis section describes our executive compensation programs for our fiscal year 2013 named executive officers or NEOs, who were:
•
Steven T. Plochocki—President and Chief Executive Officer • Paul A. Holt—Executive Vice President and Chief Financial Officer • Daniel J. Morefield—Executive Vice President and Chief Operating Officer • Stephen K. Puckett—Executive Vice President and Chief Technology Officer, effective April 1, 2013 (served as Executive Vice President, NextGen Hospital Solutions Division prior to appointment) • Scott Decker—Former President, NextGen Division (resigned on September 7, 2012) • Monte L. Sandler—Executive Vice President, NextGen RCM Services Division Changes in Management Team On September 7, 2012, Mr. Decker, our then President of the NextGen Division, resigned from his position with the Company. On April 1, 2013, Mr. Puckett, our former Executive Vice President of the NextGen Hospital Solutions Division, was appointed the Company’s Executive Vice President
and Chief Technology Officer. Quality Systems develops and markets computer-based practice management applications, electronic health records, revenue cycle management applications and connectivity products and services to medical and dental group practices and hospitals. We compete for executive talent with a broad range
of companies that are leaders in the healthcare and software industries. We believe that our compensation program:
•
aligns management’s interests with the interests of our shareholders; • rewards strong Company financial performance; • provides responsible and balanced incentives; • allows us to attract and retain effective executive leadership; and • is mindful of the concerns of our shareholders and good corporate governance practices. Continued Strong Shareholder Support for our Compensation Decisions At our 2012 annual meeting of shareholders, our shareholders approved the compensation of our fiscal year 2012 NEOs with over 96% approval. In light of this overwhelming support from our shareholders, the Compensation Committee made no significant changes to the overall design of our
compensation program for fiscal years 2013 and 2014. However, the Compensation Committee has incorporated an additional restricted stock component into our compensation framework to provide stronger retention and performance incentives for our NEOs and better alignment with our shareholders.
The Compensation Committee will continue to evaluate our compensation programs to ensure that the management team’s interests are aligned with our shareholders’ interests to support long-term value creation. Pay-For-Performance We believe a significant portion of our NEOs’ compensation should be variable, at risk and tied directly to the Company’s measurable performance. Consistent with these principles, a material portion of our NEOs’ compensation is in the form of performance-based annual cash and equity incentives
that are earned upon the attainment of pre-established financial goals. 16
Our Performance Measures Under our 2013 Executive Compensation Program, Messrs. Plochocki, Holt and Morefield were eligible for cash and equity incentives based on (i) the percentage of increase, if any, of the Company’s consolidated revenues reported for the fiscal year over the Company’s consolidated revenues
reported for the previous fiscal year (“Consolidated Revenue Growth”) and (ii) the percentage of increase, if any, of the Company’s fully diluted earnings per share reported for the fiscal year over the Company’s fully diluted earnings per share reported for the previous fiscal year (“EPS Growth”). Each of our NEOs who head one of the Company’s /cuoperating divisions (Messrs. Decker, Puckett and Sandler) were eligible for cash and equity incentives based on the Consolidated Revenue Growth and EPS Growth for fiscal year 2013, as well as (i) the percentage of increase, if
any, of their division’s revenues for the fiscal year over such division’s revenues for the previous fiscal year (“Divisional Revenue Growth”) and (ii) the percentage of increase, if any, of their division’s operating income for the fiscal year over such division’s operating income for the previous
year (“Divisional Operating Income Growth”). Under our 2014 Executive Compensation Program, Messrs. Plochocki, Holt, Morefield and Puckett will be eligible for cash and equity incentives based on the Consolidated Revenue Growth and EPS Growth for fiscal year 2014. Mr. Sandler will be eligible for cash and equity incentives based on the
Consolidated Revenue Growth and EPS Growth for fiscal year 2014, as well as the NextGen RCM Services Division’s Divisional Revenue Growth and Divisional Operating Income Growth for fiscal year 2014. All revenues and expenses associated with acquisitions made during the fiscal year are not included in the calculation of any of the performance measures. Our Fiscal Year 2013 Performance and How our Performance is Linked to Pay Fiscal year 2013 presented both new challenges and new opportunities for Quality Systems and the healthcare information technology sector as a whole. We have seen a slowdown in our consolidated revenue growth and a decline in our fully diluted earnings per share (“EPS”). Our fiscal
year 2013 reported revenue increased 7.1%, our net income decreased 43.5% and our EPS decreased 43.8% from fiscal year 2012. Divisional Revenue Growth for the QSI Dental Division was 2.0%, while Divisional Operating Income declined by 9.9%. Divisional Revenue Growth for the NextGen
Division was 5.8%, while Divisional Operating Income declined 4.8%. Divisional Revenue for the NextGen Hospital Solutions Division declined by 8.8%, while Divisional Operating Income declined 141.8%. Divisional Revenue Growth for the NextGen RCM Services Division was 28.2% and Divisional
Operating Income Growth was 40.2%. Accordingly, no cash or equity incentives were awarded to our management team under the 2013 Executive Compensation Program. However, we continue to believe that there are significant growth opportunities ahead for our Company, that we are optimally
positioned to capitalize on these opportunities, and that our talented management team will be instrumental in executing our growth strategy. Equity as a Key Component of Compensation We believe that the use of equity-based incentives in the form of stock options that vest in five equal, annual installments help to align the interests of our management team with those of our long-term shareholders by encouraging long-term performance. The extended multi-year vesting schedule
creates incentives for our executives to sustain performance over the long term, and encourages retention. Under the 2013 Executive Compensation Program, these stock options represented about 76% of our NEO’s aggregate compensation opportunities, all of which would only be granted upon the
achievement of predetermined performance targets. Responsible and Balanced Pay Opportunities that Reflect Best Practices The Compensation Committee evaluates our compensation programs annually to ensure they provide balanced and reasonable pay opportunities and reflect best practices. In designing our compensation programs, our Compensation Committee adheres to the following: 17
•
Restrained use of employment agreements and severance arrangements. Only Mr. Plochocki, our President and Chief Executive Officer, has an employment agreement that provides for certain payments upon his termination of employment or a change in control of the Company. We do not have
any employment contracts, agreements, plans or other arrangements with any of our other NEOs that would provide for payments in connection with any termination of employment, change in control or change in responsibilities. The change in control arrangement in Mr. Plochocki’s employment
agreement has a double trigger, and there are no excise tax gross-ups on any change of control severance payments that may be made. • No perquisites; no tax gross-ups. We do not provide any meaningful perquisites to our NEOs. Accordingly, we do not provide tax gross-ups to our NEOs in connection with perquisites or benefits. • No corporate aircraft. We do not provide a corporate aircraft for personal travel of any of our NEOs. • Responsible and balanced compensation philosophy. The Compensation Committee’s compensation philosophy is to design conservative, responsible and balanced compensation programs that have the highest regard for the interests of our shareholders while still compensating NEOs fairly in light of
the Company’s performance and market position. • Executive stock ownership policy. We have an executive stock ownership policy designed to align our NEOs’ long-term interests with those of our shareholders and to discourage excessive risk taking. • Executive compensation recovery policy. All incentive compensation awarded to our NEOs may be recovered in the event of a financial restatement or intentional misconduct by the NEO. Commitment to Strong Governance Standards We are committed to adopting and maintaining good corporate governance standards with respect to our compensation programs, procedures and practices. As such, our Company’s and Compensation Committee’s practices include the following:
•
Independent compensation committee. Our Compensation Committee designs and oversees our executive compensation programs. The Compensation Committee is comprised entirely of independent directors. • Annual say-on-pay advisory vote. Since 2011, we have held annual say-on-pay advisory votes in accordance with good governance practices and to maintain accountability to our shareholders. • Performance goals. A material portion of our NEOs’ compensation is in the form of performance-based annual cash and equity incentives that are earned upon the attainment of pre-established financial goals. These goals are tied directly to the Company’s measurable performance and designed to
align the interests of our executives with those of our shareholders. • Risk oversight. Our Compensation Committee oversees and periodically assesses the risks associated with our compensation structure, programs and practices to ensure they do not encourage excessive risk-taking. • Authority to engage independent consultants. Our Compensation Committee has the authority to engage its own independent compensation consultants, legal counsel or other advisers to assist in designing and assessing our executive compensation programs and pay practices. • Prohibition on speculative trading. Board members, officers and employees are prohibited under the Company’s insider trading policy from engaging in short-term or speculative transactions in our Company’s shares. 18
Compensation Objectives and Components This section discusses the principles underlying our 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 narratives that follow. The Compensation Committee regularly assesses the Company’s compensation philosophy as well as target and actual compensation. The Compensation Committee is comprised solely of independent directors and has responsibility for overseeing the Company’s compensation programs, designing and
managing our executive compensation programs and making recommendations to the Board concerning compensation matters for our employees and directors. The Compensation Committee attempts to create compensation paid to our NEOs that is responsible, balanced, performance based and
competitive. Our executive compensation program is designed to reward achievement of specific performance goals, including continuous Company growth and increased shareholder value. By rewarding strong management performance in the achievement of these established goals, our executive
compensation program helps to ensure that management’s interests are aligned with our shareholders’ and customers’ interests, with the ultimate objective of improving long-term shareholder value and customer satisfaction. To that end, our Compensation Committee designs compensation packages for our
executives that include equity-based compensation as a key component. Our Compensation Committee believes that this use of equity-based compensation serves to further align the interests of our executives with those of our long-term shareholders by encouraging long-term performance. Our
Compensation Committee also strives to enable us to recruit, retain and develop effective executive talent by creating compensation opportunities that are fair in light of the Company’s performance and market position. The Compensation Committee meets following the end of the fiscal year without any members of management present to deliberate on and approve executive officer bonuses earned under the prior fiscal year’s compensation program and approve the compensation program for the next fiscal year.
During the process, the Compensation Committee reviews performance assessments of the executive officers as well as market and industry data on compensation metrics and best practices. The Compensation Committee assesses our Company-wide compensation structure, programs and practices to help ensure that our compensation programs do not incentivize excessive risk taking. Pursuant to this assessment, the Compensation Committee believes that the balance of cash and equity
compensation and the performance measures used in our compensation programs are effective and do not encourage excessive risk taking. The Compensation Committee has the authority, in its sole discretion, to retain or obtain the advice of an independent compensation consultant, legal counsel or other advisers to assist in carrying out the Compensation Committee’s duties and responsibilities. Prior to selecting a compensation adviser,
the Compensation Committee shall assess whether work performed or advice rendered by such compensation adviser would raise any conflicts of interest. From time to time, the Compensation Committee has engaged independent compensation consultants to advise it on matters of Board and executive
compensation. In each case, the Compensation Committee has utilized these compensation consultants to compile and present peer-group compensation data to the Compensation 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 subscribes to Equilar, Inc. Insight and reviews publicly available compensation data from time to time as part of its committee and executive compensation decisions. For fiscal year 2013, there were no conflicts of interest with respect to any compensation
advisers. Key components of the 2013 Executive Compensation Program were base salary, and cash and equity incentive programs. The Compensation Committee views the various components of compensation as related, but distinct, and believes that a significant percentage of total compensation should be
allocated to performance incentives. The Compensation Committee 19
determines the appropriate level for each compensation component based in part, but not exclusively, on performance, internal equity, stability and other considerations the Compensation Committee deems relevant. 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. The Compensation Committee provides NEOs with base salaries to compensate them for services rendered during the fiscal year. The use of base salaries provides stable compensation to executives, allows us to attract high caliber executive talent and provides a base upon which executives may be
rewarded for individual performance. Base salaries for NEOs are determined based on positions and responsibilities using market data and considering individual performance, company-wide 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 2013 Incentive Program Terms On May 23, 2012, our Compensation Committee approved the 2013 Executive Compensation Program for our NEOs for the fiscal year ended March 31, 2013. The 2013 Executive Compensation Program includes base salaries and both cash and equity incentive compensation components. The
incentive compensation components for Messrs. Plochocki, Holt and Morefield were based on Consolidated Revenue Growth and EPS Growth for fiscal year 2013. Each of the NEOs that head one of the Company’s operating divisions (Messrs. Decker, Puckett and Sandler) were eligible for incentive
compensation based on Consolidated Revenue Growth and EPS Growth for fiscal year 2013, as well as Divisional Revenue Growth and Divisional Operating Income Growth for fiscal year 2013. The focus on divisional performance measures for certain NEOs is designed to drive optimal performance by
the operating divisions while simultaneously creating greater accountability for each of these NEOs as leaders of their divisions. In designing these divisional performance measures, the Compensation Committee was mindful of continuing to incorporate consolidated Company performance measures to
incentivize overall growth and long-term value creation for the Company as a whole through collaborative and cooperative behavior amongst the operating divisions. Base Compensation Cash salary levels for our NEOs were set as follows:
•
Steven T. Plochocki—$575,000 (an increase from $550,000), effective August 16, 2012; • Paul A. Holt—$345,000 (an increase from $330,000), effective July 23, 2012; • Daniel J. Morefield—$375,000 (new hire in fiscal 2013), effective September 25, 2012; • Stephen K. Puckett—$330,000 (an increase from $290,000), effective June 1, 2012; • Scott Decker—$405,000 (an increase from $371,000), effective November 24, 2012; • Monte L. Sandler—$318,000 (an increase from $290,000), effective March 16, 2012 The Compensation Committee determines base salaries for our NEOs 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 Compensation Committee does not allocate specific, predetermined weighting to
the individual factors. When evaluating the future contribution potential of an NEO, the Compensation Committee considers, as particularly meaningful, the NEO’s 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 NEO’s 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 20
peer group of similarly sized healthcare information technology and business software companies. The composition of this peer group is based on revenue, market capitalization, number of employees and other available data. For fiscal year 2013, this peer group (“Peer Group”) included the
following companies:
•
Omnicell Inc. • HMS Holdings Corp. • MedAssets, Inc. • Advent Software, Inc. • Tyler Technologies, Inc. • Accretive Health, Inc. • Blackbaud Inc. • Concur Technologies, Inc. • athenahealth, Inc. • Computer Programs & Systems Inc. • NetSuite Inc. • Allscripts Healthcare Solutions, Inc. • Medidata Solutions, Inc. However, the Compensation Committee does not believe in relying solely on benchmarking with our Peer Group’s compensation practices or positioning our NEOs at a particular percentile relative to a given peer group or index. Instead, reference to this Peer Group generally demonstrated the
NEOs to be compensated at levels that the Compensation Committee deemed fair and reasonable in light of the Company’s performance and current market position. The Compensation Committee also considered, and gave some weight, to more subjective evaluations and input from other Board
members and executives reflecting upon the quality of each NEO’s performance. Cash Incentive Bonus The following table sets forth the potential cash incentive bonus payable to each of our NEOs under the 2013 Executive Compensation Program:
Name
Potential
Potential Cash Steven T. Plochocki
50% of Salary
287,500 Paul A. Holt
50% of Salary
172,500 Daniel J. Morefield (1)
50% of Salary
93,750 Stephen K. Puckett
50% of Salary
165,000 Scott Decker (2)
50% of Salary
202,500 Monte Sandler
50% of Salary
159,000
(1)
Mr. Morefield’s Potential cash bonus amount was prorated for the number of months employed during fiscal year 2013. (2) Mr. Decker forfeited his potential cash bonus upon his resignation from the Company. 21
Cash Bonus %
Bonus Amount
For Messrs. Plochocki, Holt and Morefield, 50% of the potential cash incentive bonus was based on the Consolidated Revenue Growth for fiscal year 2013, determined as follows:
Consolidated
% of 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%
100.0
% The remaining 50% of the potential cash incentive bonus was based on the EPS Growth for fiscal year 2013, determined as follows:
EPS Growth
% of 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%
100.0
% For Messrs. Decker, Puckett and Sandler, (i) 37.5% of the potential cash incentive bonus was based on Consolidated Revenue Growth for fiscal year 2013; (ii) 37.5% of the potential cash incentive bonus was based on Consolidated EPS Growth for fiscal year 2013; (iii) 12.5% of the potential cash
incentive bonus was based on Divisional Revenue Growth; and (iv) 12.5% of the potential cash incentive bonus was based on Divisional Operating Income Growth. The portions of the cash incentive bonus based on Consolidated Revenue Growth and EPS Growth were determined as set forth in the
preceding tables. The portions of the cash incentive bonus based on Divisional Revenue Growth were determined as follows:
Divisional Revenue
% of 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%
100.0
% 22
Revenue Growth
Criteria Amount
Criteria Amount
Growth
Criteria Amount
The portions of the cash incentive bonus based on Divisional Operating Income Growth were determined as follows:
Divisional Operating
% of 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%
100.0
% Under the Fiscal Year 2013 Incentive Program, the percentage shown in the right hand columns was awarded when the stated level is reached as a step function. Full percentage Consolidated Revenue Growth, EPS Growth, Divisional Revenue Growth and Divisional Operating Income Growth must
be achieved to reach each bonus level. The amount of cash bonus granted was a percentage based on the same percentage earned according to an average of the Consolidated Revenue Growth and EPS Growth criteria above for Messrs. Plochocki, Holt and Morefield, and an average of the Consolidated
Revenue Growth, EPS growth, Divisional Revenue Growth and Divisional Operating Income Growth criteria above, each weighted in accordance with their respective percentages, for Messrs. Decker, Puckett and Sandler. Equity Incentive Bonus The equity incentive bonus component of the 2013 Executive Compensation Program provided that our NEOs were eligible to receive options to purchase the Company’s common stock based on the Company meeting certain increases in revenue and EPS growth during the fiscal year as follows:
Named Executive Officer
Number Steven T. Plochocki
50,000 Paul A. Holt
30,000 Daniel J. Morefield (1)
15,000 Stephen K. Puckett
30,000 Scott Decker (2)
30,000 Monte Sandler
30,000
(1)
Mr. Morefield’s potential equity incentive bonus was prorated for the number of months employed during fiscal year 2013. (2) Mr. Decker forfeited his potential equity incentive bonus upon his resignation from the Company. For Messrs. Plochocki, Holt and Morefield, 50% of the potential equity incentive bonus was based on the Consolidated Revenue Growth for fiscal year 2013, determined as follows:
Consolidated Revenue
% of 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%
100.0
% 23
Income Growth
Criteria Amount
of Options
Growth
Criteria Amount
The remaining 50% of the potential equity incentive bonus was based on the EPS Growth for fiscal year 2013, determined as follows:
EPS Growth
% of 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%
100.0
% For Messrs. Decker, Puckett and Sandler, (i) 37.5% of the potential equity incentive bonus was based on Consolidated Revenue Growth for fiscal year 2013; (ii) 37.5% of the potential equity incentive bonus was based on Consolidated EPS Growth for fiscal year 2013; (iii) 12.5% of the potential
equity incentive bonus was based on Divisional Revenue Growth; and (iv) 12.5% of the potential equity incentive bonus was based on Divisional Operating Income Growth. The portions of the equity incentive bonus based on Consolidated Revenue Growth and EPS Growth were determined as set forth
in the preceding tables. The portions of the equity incentive bonus based on Divisional Revenue Growth were determined as follows:
Divisional Revenue
% of 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%
100.0
% The portions of the equity incentive bonus based on Divisional Operating Income Growth were determined as follows:
Divisional Operating
% of 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%
100.0
% As with the cash incentive bonus, the percentage shown in the right hand columns was awarded when the stated level is reached as a step function. General Terms For the 2013 Executive Compensation Program The following terms applied to all executives participating in the 2013 Executive Compensation Program:
•
For purposes of calculating cash and equity incentive bonuses, revenue and expenses attributable to acquisition targets acquired by the Company during the 2013 fiscal year were excluded.
24
Criteria Amount
Growth
Criteria Amount
Income Growth
Criteria Amount
• Executive must be in good standing as a full time employee of the Company at least two weeks beyond the release of our fiscal year 2013 results. • Executive is not allowed to be compensated for work outside of his or her work for the Company 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 Compensation Committee’s determination regarding cash and equity incentive compensation will be final. • Options are 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 2013 Executive Compensation Program will be the closing price of our common stock on the
applicable grant date. The options shall vest in five equal, annual installments commencing one year after the applicable grant date and will expire eight years after their grant. 2013 Executive Compensation Program Payouts For purposes of the 2013 Executive Compensation Program, Consolidated Revenue Growth was 3.7% based on revenue of approximately $445.9 million compared to revenue of $429.8 million for fiscal year 2012. Consolidated EPS declined 46.0% based on EPS of approximately $0.69 compared to
EPS of $1.28 for fiscal year 2012. Consolidated revenue and EPS for fiscal year 2013 excluded $14.4 million and $0.03, respectively, from the acquisitions of Matrix Management Solutions, LLC and The Poseidon Group. On May 22, 2013, based on our results for the 2013 fiscal year and the terms of the 2013 Executive Compensation Program, our Compensation Committee did not authorize any cash or equity incentive payments to our NEOs. However, we continue to believe that there are significant growth
opportunities ahead for our Company, that we are optimally positioned to capitalize on these opportunities, and that our talented management team will be instrumental in executing our growth strategy. 2014 Executive Compensation Program Terms Based on the principles described above under the caption “Compensation Philosophy, Objectives and Components,” on May 23, 2012, our Compensation Committee approved the 2014 Executive Compensation Program for our NEOs for the fiscal year ending March 31, 2014. The compensation
program includes base salaries and both cash and equity incentive compensation components. The incentive compensation components for Messrs. Plochocki, Holt, Morefield and Puckett will be based on Consolidated Revenue Growth and EPS Growth for fiscal year 2014. Mr. Sandler will be awarded
cash and equity incentives based on the Consolidated Revenue Growth and EPS Growth for fiscal year 2014, as well as Divisional Revenue Growth and Divisional Operating Income Growth for the RCM Services Division in fiscal year 2014. Base Compensation Cash Component Salary levels are considered annually as part of our Compensation Committee’s performance review process. From time to time, the Compensation Committee will approve increases in the base salary of our NEOs to maintain our competitiveness for executive talent as necessary. Under the 2014
Executive Compensation Program, the Compensation Committee approved modest increases in the cash salary levels for our NEOs as follows:
Steven T. Plochocki—$600,000 (an increase from $575,000), effective August 16, 2013; • Paul A. Holt—$360,000 (an increase from $345,000), effective July 23, 2013; • Daniel J. Morefield—$440,000 (an increase from $375,000), effective September 25, 2013; 25
•
• Stephen K. Puckett—$360,000 (an increase from $330,000), effective June 1, 2013; • Monte L. Sandler—$340,000 (an increase from $318,000), effective March 16, 2013 Equity Component In addition to the cash component, each NEO shall receive, as a component of his base salary, a grant of restricted shares of common stock. This grant occurred on May 29, 2013, and the shares vest in two equal annual installments, beginning on May 29, 2014. The number of shares granted to each
NEO is set forth in the table below.
Name
Shares Steve T. Plochocki
5,000 Paul A. Holt
3,000 Daniel J. Morefield
4,000 Stephen K. Puckett
3,000 Monte L. Sandler
3,000 Cash Incentive Bonus The following table sets forth the potential cash incentive bonus payable to each of our NEOs under the 2014 Executive Compensation Program:
Name
Potential Cash
Potential Cash Steve T. Plochocki
50
%
$
300,000 Paul A. Holt
50
%
180,000 Daniel J. Morefield
50
%
220,000 Stephen K. Puckett
50
%
180,000 Monte L. Sandler
50
%
170,000 For Messrs. Plochocki, Holt, Morefield and Puckett, 50% of the potential cash incentive bonus is based on the Consolidated Revenue Growth for fiscal year 2014, determined as follows:
Consolidated Revenue
% of 7.0%
70.0
% 8.0%
80.0
% 9.0%
90.0
% 10.0%
100.0
% 11.0%
110.0
% 12.0%
120.0
% 13.0%
130.0
% 14.0%
140.0
% >15%
150.0
% The remaining 50% of the potential cash incentive bonus is based on the EPS Growth for fiscal year 2014, determined as follows:
EPS Growth
% of 7.0%
70.0
% 8.0%
80.0
% 9.0%
90.0
% 10.0%
100.0
% 11.0%
110.0
% 12.0%
120.0
% 13.0%
130.0
% 14.0%
140.0
% >15%
150.0
% 26
Bonus %
Bonus Amount
Growth
Criteria Amount
Criteria Amount
For Mr. Sandler, (i) 37.5% of the potential cash incentive bonus will be based on Consolidated Revenue Growth for fiscal year 2014; (ii) 37.5% of the potential cash incentive bonus will be based on Consolidated EPS Growth for fiscal year 2014; (iii) 12.5% of the potential cash incentive bonus will
be based on Divisional Revenue Growth of the RCM Services Division for fiscal year 2014; and (iv) 12.5% of the potential cash incentive bonus will be based on Divisional Operating Income Growth of the RCM Services Division for fiscal year 2014. The portions of the cash incentive bonus based on
Consolidated Revenue Growth and EPS Growth are determined as set forth in the preceding tables. The portions of the cash incentive bonus based on Divisional Revenue Growth will be determined as follows:
Divisional Revenue
% of 7.0%
70.0
% 8.0%
80.0
% 9.0%
90.0
% 10.0%
100.0
% 11.0%
110.0
% 12.0%
120.0
% 13.0%
130.0
% 14.0%
140.0
% >15%
150.0
% The portions of the cash incentive bonus based on Divisional Operating Income Growth will be determined as follows:
Divisional Operating
% of 7.0%
70.0
% 8.0%
80.0
% 9.0%
90.0
% 10.0%
100.0
% 11.0%
110.0
% 12.0%
120.0
% 13.0%
130.0
% 14.0%
140.0
% >15%
150.0
% Under the 2014 Executive Compensation Program, the percentage shown in the right hand columns will be awarded when the stated level is reached as a step function. Full percentage Consolidated Revenue Growth, EPS Growth, Divisional Revenue Growth and Divisional Operating Income Growth
must be achieved to reach each bonus level. Accordingly, there will be no partial credit, proration or extrapolation between levels. The amount of cash bonus granted will be a percentage based on the same percentage earned according to an average of the Consolidated Revenue Growth and EPS Growth
criteria above for Messrs. Plochocki, Holt, Morefield and Puckett and an average of the Consolidated Revenue Growth, EPS growth, Divisional Revenue Growth of the RCM Services Division and Divisional Operating Income Growth for the RCM Services Division criteria above, each weighted in
accordance with their respective percentages, for Mr. Sander. Equity Incentive Bonus The equity incentive bonus component of the 2014 Executive Compensation Program provides that our NEOs are eligible to receive an aggregate of up to 180,000 options to purchase the Company’s common stock based on us meeting certain Consolidated Revenue Growth and EPS Growth targets
during the 2014 fiscal year as follows: 27
Growth
Criteria Amount
Income Growth
Criteria Amount
Named Executive Officer
Number of Options Steven T. Plochocki
50,000 Paul A. Holt
30,000 Daniel J. Morefield
40,000 Stephen K. Puckett
30,000 Monte Sandler
30,000 For Messrs. Plochocki, Holt, Morefield and Puckett 50% of the potential equity incentive bonus is based on the Consolidated Revenue Growth for fiscal year 2014, determined as follows:
Consolidated Revenue
% of 7.0%
70.0
% 8.0%
80.0
% 9.0%
90.0
% 10.0%
100.0
% 11.0%
110.0
% 12.0%
120.0
% 13.0%
130.0
% 14.0%
140.0
% >15%
150.0
% The remaining 50% of the potential equity incentive bonus is based on the EPS Growth for fiscal year 2014, determined as follows:
EPS Growth
% of 7.0%
70.0
% 8.0%
80.0
% 9.0%
90.0
% 10.0%
100.0
% 11.0%
110.0
% 12.0%
120.0
% 13.0%
130.0
% 14.0%
140.0
% >15%
150.0
% For Mr. Sandler, (i) 37.5% of the potential equity incentive bonus will be based on Consolidated Revenue Growth for fiscal year 2014; (ii) 37.5% of the potential equity incentive bonus will be based on Consolidated EPS Growth for fiscal year 2014; (iii) 12.5% of the potential equity incentive bonus
will be based on Divisional Revenue Growth for the RCM Services Division for fiscal year 2014; and (iv) 12.5% of the potential equity incentive bonus will be based on Divisional Operating Income Growth for the RCM Services Division for fiscal year 2014. The portions of the equity incentive bonus
based on Consolidated Revenue Growth and EPS Growth are determined as set forth in the preceding tables. The portions of the equity incentive bonus based on Divisional Revenue Growth will be determined as follows:
Divisional Revenue
% of 7.0%
70.0
% 8.0%
80.0
% 9.0%
90.0
% 10.0%
100.0
% 11.0%
110.0
% 12.0%
120.0
% 13.0%
130.0
% 14.0%
140.0
% >15%
150.0
% 28
Growth
Criteria Amount
Criteria Amount
Growth
Criteria Amount
The portions of the equity incentive bonus based on Divisional Operating Income Growth will be determined as follows:
Divisional Operating
% of 7.0%
70.0
% 8.0%
80.0
% 9.0%
90.0
% 10.0%
100.0
% 11.0%
110.0
% 12.0%
120.0
% 13.0%
130.0
% 14.0%
140.0
% >15%
150.0
% As with the cash incentive bonus, the percentage shown in the right hand columns will be awarded when the stated level is reached as a step function. General Terms For the 2014 Executive Compensation Program The following terms will apply to all executives participating in our 2014 Executive Compensation Program:
•
For purposes of calculating cash and equity incentive bonuses for all NEOs, revenue and expenses attributable to acquisition targets acquired during the 2014 fiscal year will be excluded. • Executive must be in good standing as a full time employee of the Company at least two weeks beyond the release of our fiscal year 2014 results. • Executive is not allowed to be compensated for work outside of his or her work for the Company 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 Compensation Committee’s 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 2014 Executive Compensation Program will be the closing price of our common stock on the
applicable grant date. The options shall vest in five equal, annual installments commencing one year after the applicable grant date 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 NEOs are included in the “All Other Compensation” column of the Summary Compensation Table for Fiscal Year Ended March 31,
2013. 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 for Fiscal Year ended March 31, 2013. 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 deductions. 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 29
Income Growth
Criteria Amount
broker designated by us. In addition, we will match 5% of each employee’s 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. Perquisites and Other Personal Benefits We do not offer any meaningful perquisites to our NEOs. Accordingly, we do not pay or reimburse our NEOs for any taxes relating to perquisites or other benefits. Executive Stock Ownership Guidelines We have an executive stock ownership policy that requires all executive officers to purchase and retain for the full duration of their tenure as executive officers, shares of the Company’s common stock with a value equal to no less than 25% of the executive officer’s annual base salary at the time of
purchase. Each executive officer is required satisfy his share purchase requirement within twelve months of becoming an executive officer and may do so through acquisitions on the open market or by option exercises. Insider Trading Policy We have an insider trading policy that generally prohibits Board members, officers and employees from engaging in short-term or speculative transactions in our Company’s shares, including short sales, publicly traded options, hedging transactions, holding Company shares in a margin account,
pledging Company shares as collateral and standing and limit orders. Clawback Policy for Compensation Recovery In order to better align our executives’ long-term interests with those of our Company and our shareholders, we have an executive compensation recovery policy that claws back incentive compensation awarded to an executive officer if the result of a performance measure upon which such award was
based is subsequently restated or otherwise adjusted in a manner that would reduce the size of the award. If the result of a performance measure was considered in determining the award, but the award was not made on a formulaic basis, the Compensation Committee will determine the appropriate
amount of the recovery. In addition, the Compensation Committee has the authority to recover incentive compensation if an executive officer engaged in intentional misconduct that contributed to an award of incentive compensation that was greater than would have been awarded in the absence of such
misconduct. 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 Accounting Standard Codification Topic 718, Compensation—Stock Compensation, or ASC 718. For further information regarding ASC 718, refer to Note 2 to the Financial Statements contained in our Form 10-K for the fiscal year ended March
31, 2013. 30
Summary Compensation Table for Fiscal Year Ended March 31, 2013 The following table provides certain summary information concerning the compensation for the fiscal years ended March 31, 2013, 2012 and 2011 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 2013 and who were serving as executive officers at the end of fiscal year 2013 (collectively, the “NEOs”). No other executive officers that would have otherwise been includable in the table on the basis of total compensation for fiscal year 2013 have been excluded by
reason of their termination of employment or change in executive status during that year.
Name and Title
Fiscal
Salary
Bonus
Stock
Option
Non-Equity
Change in
All Other
Total Steven T. Plochocki
2013
$
565,625
$
—
$
—
$
—
$
—
$
—
$
—
$
565,625 Chief Executive
2012
539,688
—
—
236,748
151,250
—
—
927,686 Officer and President
2011
522,500
—
—
322,476
156,750
—
—
1,001,726 Paul A. Holt
2013
340,315
—
—
—
—
3,448
—
343,763 Executive Vice President and
2012
323,750
—
—
142,049
90,750
4,118
17,113
577,780 Chief Financial Officer
2011
303,394
—
—
161,238
93,000
3,481
16,628
577,741 Daniel J. Morefield
2013
194,712
—
—
—
—
—
900
195,612 Executive Vice President and
2012
(5)
—
—
—
—
—
—
—
— Chief Operating Officer
2011
(5)
—
—
—
—
—
—
—
— Stephen K. Puckett
2013
323,333
—
—
—
—
—
3,343
326,676 Executive Vice President and
2012
(7)
—
—
—
—
—
—
—
— Chief Technology Officer(6)
2011
(7)
—
—
—
—
—
—
—
— Scott Decker
2013
213,973
—
—
—
—
—
—
213,973 Former President,
2012
357,392
—
—
142,049
102,025
3,521
14,091
619,078 NextGen Healthcare(8)
2011
350,000
—
—
241,857
105,000
3,500
15,373
715,730 Monte L. Sandler
2013
318,646
—
—
—
—
—
2,480
321,126 Executive Vice
2012
290,833
—
—
142,049
79,750
—
2,867
515,499 President, RCM Services
2011
(7)
—
—
—
—
—
—
—
—
(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, 2013, included in our Annual Report on Form 10-K filed with the SEC on May 30, 2013. (2) The amount reflected in this column represents the amount earned as incentive in the fiscal year, (3) The amount reflected in this column represents our Company’s contribution to Nonqualified Deferred Compensation. Earnings are not included in this column as earnings are not considered above-market or preferential. (4) The amount reflected in this column represents our Company’s contributions to the 401(k) plan. (5) No amounts for Mr. Morefield for fiscal years 2012 and 2011 as he assumed the position of Chief Operating Officer on September 25, 2012. (6) Mr. Puckett was appointed as Chief Technology Officer effective April 1, 2013. Prior to his appointment, Mr. Puckett served as Executive Vice President, Hospital Solutions. (7) No amounts reported for Messrs. Puckett and Sandler for fiscal years 2011 and 2012 and fiscal year 2011, respectively, as they were not NEOs in those years. (8) On September 7, 2012, Mr. Decker resigned from his position as President of NextGen Healthcare. 31
Year
($)
($)
Awards
($)
Awards
($)(1)
Incentive
Plan
Compensation
($)(2)
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)(3)
Compensation
($)(4)
($)
Grants of Plan-Based Awards for Fiscal Year Ended March 31, 2013 The following table sets forth information regarding plan-based awards granted to our NEOs during the fiscal year ended March 31, 2013.
Name
Grant
Estimated Possible Payouts
Estimated Possible
All Other
All Other
Exercise
Threshold
Target
Maximum
Threshold
Target
Maximum Steven T. Plochocki
—
—
—
287,500
—
—
50,000
—
—
— Paul A. Holt
—
—
—
172,500
—
—
30,000
—
—
— Daniel J. Morefield
—
—
—
93,750
—
—
15,000
—
—
— Stephen K. Puckett
—
—
—
165,000
—
—
30,000
—
—
— Scott Decker
—
—
—
185,500
—
—
30,000
—
—
— Monte L Sandler
—
—
—
159,000
—
—
30,000
—
—
—
(1)
The actual cash and equity incentive compensation paid is described above under the heading “Compensation Discussion and Analysis—Fiscal Year 2013 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 2013 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 2013 Incentive Program is included in the Outstanding Equity Awards at Fiscal Year End March 31, 2013 table below. (2) The amounts set forth in this column reflect the maximum cash or share incentive awards possible under our cash and equity incentive programs for fiscal year 2013. Base Salary Base salaries for the NEOs 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 NEOs are described above under the headings “Compensation Discussion and Analysis—Cash Incentive Bonus” and “Compensation Discussion and Analysis—Equity Incentive Bonus.” Employment Agreement with Mr. Plochocki The Company has 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 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 100,000 shares of our common stock at an exercise price of $20.04 per share, which options have a five year term and vest in four, equal annual installments commencing one year after
the Effective Date. 32
Date
Under Non-Equity
Incentive Plan Awards
Payouts Under Equity
Incentive Plan Awards
Stock
Awards:
Number of
Shares or
Stock or
Units (#)
Stock
Awards:
Number of
Securities
Underlying
Options (#)
or Base
Price of
Option
Awards
($)(1)
($)(1)
($)(2)
($)(1)
($)(1)
Option
Shares(2)
The employment agreement provides that Mr. Plochocki shall receive three weeks of vacation each year. During fiscal year 2013, Mr. Plochocki was eligible for a cash bonus of up to $287,500 (of which, he received -0-) and up to 50,000 bonus options (of which, -0- were granted) in accordance with,
and subject to, the terms of our 2013 Executive Compensation Program. Outstanding Equity Awards at Fiscal Year Ended March 31, 2013
Name
Option Awards
Stock Awards
Number of
Number of
Equity
Option
Option
Number of
Market
Equity
Equity Steven T. Plochocki
25,000
—
—
$
20.04
08/18/13
—
—
—
—
4,800
19,200
(1)
—
43.03
05/31/19
—
—
—
—
—
27,500
(2)
—
29.45
05/23/20
—
—
—
— Paul A. Holt
2,400
9,600
(1)
—
43.03
05/31/19
—
—
—
—
—
16,500
(2)
—
29.45
05/23/20
—
—
—
— Daniel J. Morefield
—
20,000
(3)
—
18.42
09/25/20
—
—
—
— Stephen K. Puckett
6,450
4,300
(4)
—
28.48
02/16/18
—
—
—
—
6,000
24,000
(1)
—
43.03
05/31/19
—
—
—
—
—
16,500
(2)
—
29.45
05/23/20
—
—
—
— Monte L Sandler
2,234
—
—
16.40
06/13/13
—
—
—
—
2,400
9,600
(1)
—
43.03
05/31/19
—
—
—
—
—
16,500
(2)
—
29.45
05/23/20
—
—
—
—
(1)
Option was granted May 31, 2011 and is vesting in five equal, annual installments commencing one year after the grant date. Accordingly, the remaining unexercisable shares are scheduled to vest on May 31, 2013, May 31, 2014, May 31, 2015 and May 31, 2016. (2) Option was granted May 23, 2012 and is vesting in five equal, annual installments commencing one year after the grant date. Accordingly, the remaining unexercisable shares are scheduled to vest on May 23, 2013, May 23, 2014, May 23, 2015, May 23, 2016, and May 23, 2017. (3) Option was granted September 25, 2012 and is vesting in five equal, annual installments commencing one year after the grant date. Accordingly, the remaining unexercisable shares are scheduled to vest on September 25, 2013, September 25, 2014, September 25, 2015, September 25, 2016 and
September 25, 2017. (4) Option was granted February 10, 2010 and is vesting in five equal, annual installments commencing one year after the grant date. Accordingly, the remaining unexercisable shares are scheduled to vest on February 10, 2014 and February 10, 2015. 33
Securities
Underlying
Unexercised
Options
Exercisable
(#)
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
unearned
Options
(#)
Exercise
Price
($)
Expiration
Date
Shares or
Units of
Stock That
Have Not
Vested
(#)
Value of
Shares of
Stock That
Have Not
Vested
($)
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
(#)
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
($)
Option Exercises and Stock Vested During Fiscal Year Ended March 31, 2013 The following table sets forth information regarding options exercised and stock awards vested during fiscal year 2013 for our NEOs. 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.
Named Executive Officer
Option Awards
Stock Awards
Number of Shares
Value Realized
Number of Shares
Value Realized Steven T. Plochocki
—
$
—
—
$
— Paul A. Holt
—
—
—
— Daniel J. Morefield
—
—
—
— Stephen K. Puckett
—
—
—
— Scott Decker
—
—
—
— Monte L. Sandler
5,880
64,092
—
— We do not have any plans that provide for payments or other benefits at, following or in connection with the retirement of any NEO. Nonqualified Deferred Compensation for Fiscal Year Ended March 31, 2013 The following table sets forth information regarding our defined contribution or other plan that provides for the deferral of compensation for any NEO 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 employee’s 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 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 $25,000.
Named Executive Officer
Executive
Registrant
Aggregate
Aggregate
Aggregate Steven T. Plochocki
—
—
—
—
— Paul A. Holt
69,872
3,448
17,336
—
442,308 Daniel J. Morefield
—
—
—
—
— Stephen K. Puckett
—
—
—
—
— Scott Decker
20,405
—
3,403
—
77,368 Monte L. Sandler
—
—
—
—
—
(1)
No amounts were reported in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column in the Summary Compensation Table above, as earnings are not considered above-market or preferential.
34
Acquired on Exercise
(#)
on Exercise
($)
Acquired on Vesting
(#)
on Vesting
($)
Contributions in
Last Fiscal Year
($)
Contributions in
Last Fiscal Year
($)
Earnings in Last
Fiscal Year
($)(1)
Withdrawals/
Distributions
($)
Balance at Last
Fiscal Year End
($)
Potential Payments Upon Termination of Employment or Change-in-Control The following discussion and table describe and illustrate potential payments to our NEOs 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, 2013
termination date. The discussion concerning Mr. Plochocki assumes that his written employment agreement with us is still in effect at such time. Employment Agreement with Mr. Plochocki
Termination Without Cause
If, during the term of his employment agreement, we should terminate Mr. Plochocki’s 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 year’s 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. Plochocki’s employment had been terminated without cause on March 31, 2013, he would have been entitled to (i) $575,000, representing one year’s base salary; and (ii) a cash bonus of zero (-0-), representing the actual cash bonus earned under the Fiscal Year 2013 Incentive Plan
for the entire fiscal year.
Change of Control Provisions.
All 100,000 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 year’s 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, 2013:
Benefits Payable to
Death or
Termination
Termination
Termination Upon
Sale Transaction Performance or other bonus earned and unpaid
$
—
$
—
$
287,500
$
—
$
— Accelerated vesting of stock options(1)
—
—
—
—
— Lump sum cash payment equal to one year of base compensation
—
—
575,000
575,000
—
(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, 2013, calculated by multiplying (a) the difference between the fair market value of our common stock on March 31, 2013 and the applicable exercise
price by (b) the assumed number of option shares vesting on an accelerated basis on March 31, 2013. As the fair value of our common stock is less than the applicable exercise price, the aggregate value as a result of the accelerated vesting is zero (-0-).
35
•
•
Steven T. Plochocki on
termination/change of control
Disability
for Cause
Without Cause or
For Good Reason
Sale Transaction
Followed by at
Least One Year of
Continued Employment
Arrangements with Other NEOs We are not a party to any contracts, agreements, plans or arrangements that would provide payments to Messrs. Holt, Morefield, Puckett or Sandler 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 Second 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. 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
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 NEOs 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 36
of Employment
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 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, 2013 On May 23, 2012, our Compensation Committee recommended, and our Board approved, our 2013 Director Compensation Program. Under the program, each non-employee 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 our 2012 annual shareholders’ meeting and are nontransferable for one year from the date of vesting. Additionally, the program required that all Board members acquire a minimum of 2,000 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 had nine months in which to acquire such common stock. Additional compensation was payable to the committee chairmen and the chairman of the Board. The
program did not pay per-meeting fees. Our non-employee directors are eligible for Company provided COBRA health insurance coverage, for which they are required to pay the full fair market value. For fiscal year 2013, only Mr. Razin elected to receive coverage. The elements of the 2013 Director
Compensation Program are set forth in the table below.
Director Compensation
Employee Director
Independent Director
Compensation
Audit Committee Base Compensation
$
—
$
80,000
$
92,500
$
100,000 Meeting Fees(2)
—
—
—
— Committee Membership(3)
—
—
—
— Total Cash Compensation(4)
$
—
$
80,000
$
92,500
$
100,000 Restricted Shares(5)
—
2,000
2,500
2,500
(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 37
Program Category of Director(1)
(Tier 0)
(Tier 1)
Committee Chairman /
Nominating Committee
Chairman
(Tier 2)
Chairman / Chairman
of the Board
(Tier 3)
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. (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, 2013. Mr. Plochocki was an employee throughout the fiscal year ended March 31, 2013 and thus received no additional compensation for his service as a director. The
compensation received by Mr. Plochocki as an employee is described elsewhere in this proxy statement.
Director Name
Fees Earned or
Stock
Option
Non-Equity
Change in
All Other
Total Michael Aghajanian(1) Craig A. Barbarosh
$
92,500
$
43,475
$
—
$
—
$
—
$
—
$
135,975 George H. Bristol
100,000
43,475
—
—
—
—
143,475 Patrick B. Cline(3)
31,781
—
—
—
—
—
31,781 Mark H. Davis(4)
34,630
29,536
—
—
—
—
64,166 Ahmed D. Hussein(5)
80,000
34,780
—
—
—
—
114,780 D. Russell Pflueger
92,500
43,475
—
—
—
—
135,975 Sheldon Razin
100,000
43,475
—
—
—
—
143,475 Lance Rosenzweig
68,384
34,780
—
—
—
—
103,164
(1)
Mr. Aghajanian was appointed to the Board on May 22, 2013 and thus received no compensation for his service in fiscal year 2013. (2) The amount reflected in this column represents the grant date fair value of the equity awards made in fiscal year 2013, computed in accordance with FASB ASC Topic 718, Compensation—Stock Compensation. (3) Mr. Cline was elected to the Board on August 16, 2012 and subsequently resigned on January 14, 2013. The fee and equity award amounts presented are prorated for time served. (4) Mr. Davis was appointed to the Board on October 25, 2012. The fee and equity award amounts presented are prorated commencing on this date. (5) Mr. Hussein resigned from the Board on May 14, 2013. His compensation for fiscal year 2013 was unaffected by his resignation. 38
Paid in Cash($)
Awards
($)(2)
Awards
($)
Incentive Plan
Compensation
($)
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
Compensation
($)
($)
At March 31, 2013, the aggregate number of option awards and shares of restricted stock and restricted stock units outstanding (vested and unvested) for each of the directors named in the table was as follows:
Director Name
Total
Total Michael Aghajanian
—
— Craig A. Barbarosh
—
9,792 George H. Bristol
10,000
10,000 Patrick B. Cline
—
— Mark H. Davis
—
1,664 Ahmed D. Hussein
2,500
8,000 D. Russell Pflueger
30,000
10,000 Sheldon Razin
30,000
10,000 Lance Rosenzweig
—
2,443 Compensation Committee Interlocks and Insider Participation Our Compensation Committee consists of Messrs. Pflueger, Barbarosh and Rosenzweig. None of these individuals was, during the fiscal year ended March 31, 2013, an officer or employee of the Company, and none of these individuals ever formerly served as an officer of the Company. No member
of our Board has a relationship that would constitute an interlocking relationship with executive officers and directors of another entity. 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 approved the Compensation Discussion and Analysis for inclusion in this proxy
statement and incorporation by reference in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013. COMPENSATION COMMITTEE D. Russell Pflueger, Chairman Craig A. Barbarosh Lance E. Rosenzweig 39
Option Awards
Outstanding
Restricted Shares
Outstanding
INFORMATION ABOUT OUR 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 authorized directors, of which eight directors currently serve on our Board. Each of our directors is 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 5% of the
recipient’s 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 person’s spouse, parents, children and siblings, whether by blood, marriage or adoption, or anyone residing in such person’s home. Our Board has determined that each of our non-employee directors and director nominees is “independent” as defined above and in accordance with applicable Nasdaq listing standards. 40
BOARD COMMITTEES AND RELATED MATTERS
Mr. Plochocki is a member of our management team and is not independent. The above definition of independence is posted on our Internet website at www.qsii.com. Attendance at Board and Shareholders’ Meetings During the fiscal year ended March 31, 2013, our Board held eight meetings. No director attended less than 75% of the aggregate of all Board meetings or meetings held by any committee of the Board on which he served (during the periods that they served) during the fiscal year ended March 31,
2013. It is our policy that our directors are invited and encouraged to attend our annual meetings of shareholders. All of our incumbent director nominees were in attendance at our 2012 annual meeting of shareholders, except for Messrs. Aghajanian and Davis, who were not members of our Board at the
time of our 2012 annual meeting. 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 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. Our Board has a standing Audit Committee, Compensation Committee, Transaction Committee and Nominating and Governance Committee. In addition, our Board currently has an Executive Committee, a Special Committee and a Proxy Voting Committee, as further described below. 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), Davis and Pflueger. 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 41
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, 2013, our Audit Committee held eight (8) meetings. Our Audit Committee’s 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 candidate’s 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 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 highly-qualified 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 today’s 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 director’s 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 42
be considered and to serve on our Board, our Nominating and Governance Committee may request information from the candidate, review the person’s 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 candidate’s 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 Committee’s 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, 2013, our Nominating and Governance Committee held seven (7) meetings. Our Nominating and Governance Committee’s 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 (Chair), Barbarosh and Rosenzweig. 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 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 Committee’s 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, 2013, our Compensation Committee held four (4) meetings. Our Compensation Committee’s
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 NEOs, except that in certain situations, our Chief Executive Officer provides information to our Compensation Committee regarding certain accomplishments of the NEOs
to assist our Compensation Committee in administering the discretionary portion of cash bonuses for NEOs. We also have conducted discussions with our NEOs 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 NEOs and to assist the committee in establishing base salaries and non-equity plans for the NEOs. 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, Bristol, Davis, Rosenzweig and Aghajanian. The Transaction Committee is responsible for 43
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 four (4) meetings during fiscal year 2013. Under our Agreement with the Clinton Group described under “Agreement with the Clinton Group,” we agreed to reconstitute the Transaction Committee after the 2013 annual meeting to consist of five members, two of which we expect to be
Messrs. Neupert and Panner. Executive 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. Aghajanian, Barbarosh, Bristol, Davis, Pflueger, Razin and Rosenzweig) 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. On September 5, 2012, our Board again changed the name of this Committee to the Executive Committee, and expanded the scope of this Committee’s responsibilities to address matters concerning (i) the Company’s executive
personnel, (i) non-independent directors and (iii) such other matters as the Board may delegate to the Executive Committee from time to time. During the fiscal year ended March 31, 2013, our Executive Committee did not hold any meetings. Special Committee We have recently been subject to proxy contests, the use of cumulative voting rights and litigation brought against us by a former director, Mr. Hussein. In light of this history, on May 26, 2010, our Board formed a Special Committee to address matters of this type. Among other things, the Special
Committee has been authorized to act on our Board’s behalf in connection with the solicitation and voting of proxies at the annual meeting, except where the Proxy Voting Committee has been authorized to act, as well as all matters related to any litigation or threat of litigation associated with such
meeting and its related activities. The Special Committee currently consists of Messrs. Razin, Barbarosh, Bristol, Pflueger and Rosenzweig. In response to the proxy contest previously threatened by the Clinton Group for this year’s annual meeting, the Board reviewed and renewed the powers of its
Special Committee on June 26, 2013. The Special Committee met three (3) times during fiscal year 2013. 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 and to the
extent no specific instructions otherwise are given) including, but not limited to, the prioritization of such nominees to whom such votes may be allocated. Under our Bylaws and California law, if any shareholder gives notice at the annual meeting, prior to the voting, of an intention to cumulate the
shareholder’s 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. In the event that cumulative voting applies to the election of directors at the annual meeting, our Board reviewed and renewed the powers of
its Proxy Voting Committee on May 22, 2013, which consists of Messrs. Barbarosh, Pflueger 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 44
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 Board’s 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. 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 management’s 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, 2013, 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 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 (“PCAOB”)
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 PCAOB regarding our independent registered public accounting firm’s communications with the Audit Committee concerning
independence. The Audit Committee discussed the overall approach, scope and plans for its audit with our 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, 2013, and 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, 2014.
AUDIT COMMITTEE
Mark H. Davis
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 45
George H. Bristol, Chairman
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, Jocelyn Leavitt at: jleavitt@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. AGREEMENT WITH THE CLINTON GROUP On July 17, 2013, we entered into an agreement (the “Agreement”) with the Clinton Group related to the 2013 annual meeting. Under the Agreement, we agreed that the nominees to the Board for our 2013 annual meeting will consist of nine members, including three of the Clinton
Group’s nominees, Messrs. Malone, Neupert and Panner. The Company also agreed that Messrs. Malone, Neupert and Panner will hold two of five seats on the Company’s standing Transaction Committee during the Standstill Period discussed below. As part of the Agreement, the Clinton Group terminated its proxy solicitation for the 2013 annual meeting, withdrew its slate of nominees and agreed (1) to not bring any shareholder proposals (including its proposals to amend our Bylaws) at the 2013 annual meeting and (2) to vote all of its shares
in favor of each of the Board’s nominees. The Agreement also imposes certain “standstill” restrictions on members of the Clinton Group, which run until the earlier of (i) the date that is 15 days prior to the deadline under our Bylaws for shareholders to provide notice of shareholder nominations for directors and other proposals (the “Notice
Deadline”) for our 2016 annual shareholders’ meeting, (ii) the date that is 15 days prior to the Notice Deadline for our next annual shareholders’ meeting at which any of Messrs. Malone, Neupert or Panner who is elected at the 2013 annual meeting will not be nominated for reelection and (iii) our
material breach of the Agreement (the “Standstill Period”). During the Standstill Period, the Clinton Group and its affiliates must vote in favor of directors nominated by the Board for election to the Board and against (or abstain from voting on) shareholder proposals not supported by the Board that affect or influence the composition of the Board or its
committees. During the Standstill Period, the Clinton Group and its affiliates also shall not, among other things, (i) become a Schedule 13D filer in respect of our securities, (ii) solicit, or participate in or encourage any solicitation of, proxies with respect to any of our voting securities; (iii) vote in favor
of the removal of any directors previously nominated by the Board, (iv) propose or attempt to call a special meeting of shareholders, (v) solicit shareholder action without a meeting, (vi) deposit or maintain any voting securities of the Company in a voting trust or similar arrangement, (vii) form, join or
in any way participate in a group with respect to our voting securities or otherwise act in concert with any third party for the purpose of circumventing the 46
provisions or purposes of the Agreement (viii) act, individually or in concert with any third party, to seek to control, direct or influence our management, Board (or any individual members thereof) or policies (provided that the Clinton Group may speak privately with members of the Board or
management for the purpose of offering their suggestions or other input regarding the Company), (ix) encourage, advise or influence third parties with respect to the giving or withholding of any proxy vote at any annual or special meeting of shareholders in opposition to any nominee on the Company’s
slate of nominees for election as directors or in opposition to the Board’s recommendation for any other proposal brought before the meeting or (x) finance any of the above activities. In addition, under the Agreement, the Company has agreed to reimburse the Clinton Group for up to $100,000 of its reasonable and documented out-of-pocket expenses incurred prior to July 17, 2013 in connection with its solicitation of proxies for the 2013 annual meeting. In the Agreement, the Clinton Group represented that, as of the date of the Agreement, it beneficially owned 552,556 shares of the Company’s common stock (0.9% of the Company’s outstanding common stock as of the record date, assuming all such shares were owned on the record date). The foregoing summary of the Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Agreement. A copy of the Agreement was filed as an Exhibit to our Current Report on Form 8-K that we filed with the SEC on July 17, 2013. 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, we believe that during the fiscal year ended March 31, 2013, all Section 16(a) filing requirements applicable to our reporting persons were met except for a prorated grant of restricted stock to Mr. Rosenzweig upon his appointment to the Board on May 23, 2012, for
which a Form 5 was filed on April 19, 2013. CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS Review, Approval or Ratification of Transactions with Related Persons During fiscal year 2013, 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 Committee’s 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 party’s 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 47
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 person’s 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 person’s 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:
•
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 an “NEO,” and our Compensation Committee approved (or recommended that our Board approve) the compensation. • Any compensation paid to a director if the compensation is required to be reported in our proxy statement. • Any transaction with another enterprise at which a related party’s 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 enterprise’s
total annual revenues. • Any charitable contribution, grant or endowment by use to a charitable organization, foundation or university at which a related party’s only relationship is as an employee (other than an executive officer) or a director, if the aggregate amount involved does not exceed the lesser of $10,000 or 5%
of the charitable organization’s total annual receipts. • Any transaction where the related party’s 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). • 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. • 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. 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. 48
ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR (Proposal No. 2) We are asking our shareholders to provide advisory approval of the compensation of our named executive officers, or NEOs, as we have described it in the “Executive and Director Compensation and Related Information—Compensation Discussion and Analysis” section of this proxy statement and the
related executive compensation tables, beginning on page 15. Our executive compensation programs are designed to enable us to recruit, retain and develop effective management talent, who are critical to our success. Such programs reward our NEOs for the achievement of specific annual and long-term
goals, including overall Company and business unit goals and the realization of increased shareholder value. Continued Strong Shareholder Support for Our Compensation Decisions At our 2012 annual meeting of shareholders, our shareholders approved the compensation of our 2012 NEOs with over 96% approval. The Compensation Committee believes that the strong support from our shareholders demonstrates that our executive compensation programs are designed
appropriately to reward performance with responsible and balanced incentives. The following is a summary of some of the key points of our executive compensation programs. We urge our shareholders to review the “Executive and Director Compensation and Related Information - Compensation Discussion and Analysis” section of this proxy statement and the related executive
compensation tables for more information. Emphasis on Pay-for-Performance We believe a significant portion of our NEOs’ compensation should be variable, at risk and tied directly to the Company’s measurable performance. Consistent with these principles, a material portion of our NEOs’ compensation is in the form of performance-based annual cash and equity incentives
that are earned upon the attainment of pre-established financial goals. Under our Fiscal Year 2013 Incentive Program, our NEOs earn cash and equity incentives based on the Company’s consolidated revenue growth and fully diluted earnings per share growth. NEO’s who head one of the Company’s operating divisions are also measured upon divisional revenue growth
and divisional operating income growth. Fiscal year 2013 presented both new challenges and new opportunities for Quality Systems and the healthcare information technology sector as a whole. We have seen a slowdown in our consolidated revenue growth and a decline in our fully diluted earnings per share. Accordingly, no cash or equity
incentives were awarded to our management team under the 2013 Executive Compensation Program. However, we continue to believe that there are significant growth opportunities ahead for our Company, that we are optimally positioned to capitalize on these opportunities, and that our talented
management team will be instrumental in executing our growth strategy. Equity as a Key Component of Compensation to Align with Our Shareholders’ Interests We believe that the use of equity-based incentives in the form of stock option grants that vest in five equal, annual installments helps to align the interests of our NEOs with those of our shareholders by encouraging long-term performance. To this end, equity awards are a key component of our
executive compensation programs. Under the Fiscal Year 2013 Incentive Program, equity awards represented about 76% of our NEOs’ compensation opportunities. 49
NAMED EXECUTIVE OFFICERS (“SAY-ON-PAY”)
Responsible and Balanced Pay Opportunities That Reflect Best Practices Our executive compensation programs provide balanced and reasonable pay opportunities and are intended to reflect best practices. In designing our compensation programs, our Compensation Committee adheres to the following:
•
Restrained use of employment agreements and severance arrangements. Only our Chief Executive Officer has an employment agreement that provides for certain payments upon his termination of employment or a change in control of the Company. • No perquisites; no tax gross-ups. We do not provide any meaningful perquisites to our NEOs. Accordingly, we do not provide tax gross-ups to our NEOs in connection with perquisites or benefits. • No corporate aircraft. We do not provide a corporate aircraft for personal travel of any of our NEOs. • Responsible and balanced compensation philosophy. The Compensation Committee’s compensation philosophy is to design conservative, responsible and balanced compensation programs that have the highest regard for the interests of our shareholders while still compensating NEOs fairly in light of
the Company’s performance and market position. • Executive stock ownership policy. We have an executive stock ownership policy designed to align our NEOs’ long-term interests with those of our shareholders and to discourage excessive risk taking. • Executive compensation recovery policy. All incentive compensation awarded to our NEOs may be recovered in the event of a financial restatement or intentional misconduct by the NEO. Commitment to Strong Governance Standards with Respect to Compensation Programs and Practices
•
Independent compensation committee. Our Compensation Committee is comprised entirely of independent directors. • Annual say-on-pay advisory vote. Since 2011, we have held annual say-on-pay advisory votes in accordance with good governance practices and to maintain accountability to our shareholders. • Performance goals. A material portion of our NEOs’ compensation is in the form of performance-based annual cash and equity incentives that are earned upon the attainment of pre-established financial goals. • Risk oversight. Our Compensation Committee oversees and periodically assesses the risks associated with our compensation structure, programs and practices to ensure they do not encourage excessive risk-taking. • Authority to engage independent consultants. Our Compensation Committee has the authority to engage its own independent compensation consultants to assist in designing and assessing our executive compensation programs and pay practices. • Prohibition on speculative trading. Board members, officers and employees are prohibited under the Company’s insider trading policy from engaging in short-term or speculative transactions in our Company’s shares. Recommendation The Board believes that the information provided above and within the “Executive and Director Compensation and Related Information” section of this proxy statement demonstrates that our executive compensation programs are designed appropriately and are working to ensure that management’s
interests are aligned with our shareholders’ interests to support long-term value creation. 50
The Board has determined to hold a “say-on-pay” advisory vote every year. In accordance with this determination and Section 14A of the Securities Exchange Act of 1934, as amended, and as a matter of good corporate governance, we are asking our shareholders to approve, on an advisory, non-
binding basis, the following resolution at the Annual Meeting: “RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of its NEOs, as disclosed in the Company’s 2013 proxy statement, including the Compensation Discussion and Analysis, the executive compensation tables and the related narrative discussion.” The say-on-pay vote is advisory, and therefore not binding on the Company, the Compensation Committee or the Board. Although non-binding, the Compensation Committee and the Board will review and consider the voting results when making future decisions regarding our executive compensation
programs. Unless the Board modifies its determination on the frequency of future say-on-pay advisory votes, the next say-on-pay advisory vote will be held at the 2014 annual meeting of shareholders. OUR BOARD RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS. 51
RATIFICATION OF APPOINTMENT OF (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, 2014. 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 Committee’s appointment of PricewaterhouseCoopers LLP to our shareholders for ratification 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. The following table sets forth the aggregate fees billed to us by PricewaterhouseCoopers LLP, our principal accountant for professional services rendered in the audit of our consolidated financial statements for the years ended March 31, 2013, and 2012.
2013
2012 Audit fees
$
846,496
$
740,011 Audit-related fees
102,000
33,323 Tax fees
—
— All other fees
—
—
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. Audit-related fees for fiscal 2013 incurred due to the implementation of a company-wide enterprise resource planning system. No audit-related fees were incurred for fiscal year 2012. Tax Fees. No tax fees were incurred for fiscal years 2013 or 2012. All Other Fees. There were no such fees paid in fiscal years 2012 and 2013. Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services Our Audit Committee’s 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 REGISTERED PUBLIC ACCOUNTING FIRM. PROXIES AND VOTING INSTRUCTIONS WILL BE VOTED IN FAVOR OF SUCH RATIFICATION UNLESS
THE SHAREHOLDER SPECIFIES OTHERWISE. 52
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ANNUAL REPORT AND AVAILABLE INFORMATION Our annual report containing audited financial statements for our fiscal years ended March 31, 2013 and 2012 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 SEC’s website at www.sec.gov. We have two separate and distinct rules concerning the timing of submission of shareholder proposals:
•
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 26, 2014, 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 year’s proxy materials if they comply with certain rules and regulations of the SEC governing shareholder proposals. • 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. 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 shareholders and proxy card. The householding procedure reduces the volume of duplicate information you receive and 53
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. 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/ Jocelyn A. Leavitt
Executive Vice President, General Counsel Irvine, California ALL SHAREHOLDERS ARE URGED TO PROMPTLY SUBMIT THEIR PROXY OR VOTING INSTRUCTIONS AS SOON AS POSSIBLE BY FOLLOWING THE INSTRUCTIONS ON THE PROXY CARD, WHICH WAS OR WILL BE MAILED TO YOU ON OR ABOUT JULY 24,
2013. 54
and Secretary
July 23, 2013
P R O X Y C A R D Use the Internet to submit your proxy until 11:59 p.m., Eastern Time, on August 14, 2013. Have your proxy
card in hand when you access the website listed above and follow the instructions provided. You will be required to provide the
unique electronic voting number printed below. Use any touch-tone telephone to submit your proxy until 11:59 p.m., Eastern Time, on August 14, 2013.
Have your proxy card in hand when you call and follow the instructions provided. You will be required to provide the unique electronic
voting number printed below. You may submit a proxy by telephone or the Internet 24 hours a day, 7 days a week. Your telephone or Internet
vote authorizes the named proxies to vote your shares in the same manner as if you had marked, signed, dated and returned a proxy
card; however, you will not be able to submit specific vote allocation instructions for director elections as described in the
note below Proposal 1 on the proxy card if you vote by telephone or the Internet. OR V
o t e b y M a i l If you do not wish to submit a proxy by telephone or the Internet, please mark, sign, date and promptly
return your proxy card in the enclosed postage-paid envelope or otherwise to: Quality Systems, Inc., c/o MacKenzie Partners, Inc.
105 Madison Avenue, New York, NY 10016. IMPORTANT NOTICE REGARDING THE AVAILABILITY
OF PROXY MATERIALS FOR THE ANNUAL MEETING: The Annual Report, Notice & Proxy Statement is/are available at http://investor.qsii.com/annual-proxy.cfm YOUR VOTE IS IMPORTANT! Please take a moment now to submit a proxy with respect to your shares of PLEASE REVIEW THE PROXY STATEMENT AND SUBMIT
A PROXY. You may submit a proxy by telephone or the Internet 24 hours a day, 7 days a week. Your telephone or Internet
vote authorizes the named proxies to vote your shares in the same manner as if you had marked, signed, dated and returned a proxy
card. QUALITY SYSTEMS, INC. The undersigned appoints Jocelyn A. Leavitt 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 17, 2013, at the Annual Meeting of Shareholders
of QSI to be held at the Marriott Hotel located at 18000 Von Karman Avenue, Irvine, California 92612, on August 15, 2013, at 1:00
P.M. local time and at all adjournments and postponements thereof (the “Annual Meeting”), upon the following matters,
which are described in QSI’s Proxy Statement for the Annual Meeting. QSI’s Board of Directors recommends a vote “FOR
ALL” the director nominees and a vote “FOR” proposals 2 and 3. 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 QSI’s
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 represented
by this proxy will be voted in accordance with the Board of Directors’ recommendations. Unless you specifically
instruct otherwise, 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 on the reverse side ä
TO SUBMIT A PROXY BY MAIL, DETACH ALONG THE PERFORATION, MARK, SIGN, DATE AND RETURN
PROXY CARD The
Board of Directors recommends you vote FOR the following: The
Board of Directors recommends you vote FOR proposals 2 and 3. NOTE:
In their discretion, the proxies are authorized to vote upon such other business as may properly come before the annual meeting
and any adjournment thereof. Continued
and to be signed on the reverse side
V
o t e b y I n t e r n e t
w
w w . c e s v o t e . c o m
V o t
e b y T e l e p h o n e
1
- 8 8 8 - 6 9 3 - 8 6 8 3
Electronic Voting Number:
è
Quality Systems, Inc. common stock for the 2013 Annual Meeting of Shareholders.
(See reverse side for instructions.)
ê If
submitting a proxy by mail, please sign and date the card below and fold and detach card at perforation before mailing. ê
PROXY CARD
PROXY FOR 2013 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
, 2013
Shareholder Signature
Date
Title
, 2013
Shareholder (Joint Owner) Signature
Date
Title
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. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer.
THE BOTTOM PORTION PROMPTLY USING THE ENCLOSED ENVELOPE. ä
1.
Election
of Directors:
Nominees*
(1)
Steven T. Plochocki
(2)
Craig A. Barbarosh
(3)
George H. Bristol
(4)
James C. Malone
(5)
Peter M. Neupert
(6)
Morris Panner
(7)
D. Russell Pflueger
(8)
Sheldon Razin
(9)
Lance E. Rosenzweig
£
FOR ALL
£
WITHHELD ALL
£
FOR ALL EXCEPT**
* If cumulative voting is invoked, this proxy authorizes the proxy holders to cumulate the votes that you
are entitled to cast for all director nominees and allocate them, in the discretion of our Proxy Voting Committee, among director
nominees for which you do not withhold authority to vote. To provide specific voting allocation instructions with respect to all
or some of the votes you are entitled to cast, hand mark the number of votes you would like to specifically allocate next to each
director nominee’s name above.
**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.
2.
Advisory vote to approve the compensation of
our named executive officers.
£
FOR
£
AGAINST
£
ABSTAIN
3.
Ratification of the appointment of PricewaterhouseCoopers
LLP as our independent public accountants for the fiscal year ending March 31, 2014.
£
FOR
£
AGAINST
£
ABSTAIN