<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for the Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
</TABLE>
HEALTH MANAGEMENT SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(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 which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(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 its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
<PAGE> 2
HEALTH MANAGEMENT SYSTEMS, INC.
401 PARK AVENUE SOUTH
NEW YORK, NEW YORK 10016
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MARCH 4, 1997
The Annual Meeting of Shareholders of Health Management Systems, Inc. (the
"Company") will be held at the offices of the Company, 401 Park Avenue South,
New York, New York, on March 4, 1997 at 11:00 a.m., Eastern Standard Time, for
the following purposes:
1. To elect two directors to serve one-year terms expiring at the annual
meeting in 1998 and to elect four directors to serve for two-year terms
expiring at the annual meeting in 1999 and until their successors are
elected and qualified;
2. To consider and take action on the ratification of the selection of
KPMG Peat Marwick LLP as the Company's independent certified public
accountants for 1997; and
3. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only shareholders of record at the close of business on January 15, 1997
will be entitled to receive notice of and to vote at the meeting.
Shareholders are cordially invited to attend the meeting in person. Whether
or not you expect to attend, WE URGE YOU TO READ THE ACCOMPANYING PROXY
STATEMENT AND THEN COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED PROXY CARD IN
THE ACCOMPANYING POSTAGE-PREPAID ENVELOPE. It is important that your shares be
represented at the meeting by virtue of your executed proxies should you be
unable to attend the meeting in person. Your promptness in responding will
assist us to prepare for the meeting and to avoid the cost of a follow-up
mailing. If you receive more than one proxy card because you own shares
registered in different names or at different addresses, each proxy card should
be completed and returned.
Sincerely,
LOGO
Laurence B. Simon
Secretary
January 30, 1997
<PAGE> 3
HEALTH MANAGEMENT SYSTEMS, INC.
401 PARK AVENUE SOUTH
NEW YORK, NEW YORK 10016
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MARCH 4, 1997
GENERAL INFORMATION
This Proxy Statement is furnished to shareholders of Health Management
Systems, Inc., a New York corporation (the "Company"), in connection with the
solicitation by the Board of Directors of the Company of proxies for use at its
Annual Meeting of Shareholders (the "Meeting"). The Meeting is scheduled to be
held on Tuesday, March 4, 1997, at 11:00 a.m., Eastern Standard Time, at the
offices of the Company, 401 Park Avenue South, New York, New York, and at any
adjournments thereof. It is anticipated that the mailing to shareholders of this
Proxy Statement and the enclosed form of proxy will commence on or about January
30, 1997.
At the Meeting, shareholders will be asked to vote upon: (1) the election
of six directors; (2) ratification of the selection of independent certified
public accountants for 1997; and (3) such other business as may properly come
before the Meeting and at any adjournments thereof.
VOTING RIGHTS AND VOTES REQUIRED
The close of business on January 15, 1997 has been fixed as the record date
(the "Record Date") for the determination of shareholders entitled to receive
notice of and to vote at the Meeting. As of the close of business on such date,
the Company had outstanding and entitled to vote 17,582,442 shares of common
stock, par value $0.01 per share (the "Common Stock").
A majority of the outstanding shares of Common Stock must be represented in
person or by proxy at the Meeting in order to constitute a quorum for the
transaction of business. The record holder of each share of Common Stock
entitled to vote at the Meeting will have one vote for each share so held.
Directors are elected by a plurality of the votes cast. Shareholders may
not cumulate their votes. The six candidates receiving the highest number of
votes will be elected. In tabulating the votes, votes withheld in connection
with the election of one or more nominees and broker nonvotes will be
disregarded and will have no effect on the outcome of the vote.
The affirmative vote of the holders of a majority of the shares of Common
Stock represented at the Meeting in person or by proxy and entitled to vote
thereat will be required to ratify the selection of the Company's independent
certified public accountants and to adopt any shareholder proposal duly
presented at the Meeting. In determining whether these proposals have received
the requisite number of affirmative votes, abstentions and broker nonvotes will
be disregarded and will have no effect on the outcome of the vote.
1
<PAGE> 4
VOTING OF PROXIES
If the accompanying proxy is properly executed and returned, the shares
represented by the proxy will be voted at the Meeting as specified in the proxy.
If no instructions are specified, the shares represented by any properly
executed proxy will be voted FOR the election of the nominees listed below under
"Election of Directors" and FOR the ratification of the selection of independent
certified public accountants.
REVOCATION OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by a
shareholder at any time before it is exercised by written notice to the
Secretary of the Company, by timely notice of a properly executed proxy bearing
a later date delivered to the Company, or by voting in person at the Meeting.
SOLICITATION OF PROXIES
The Company will bear the cost of this solicitation, including amounts paid
to banks, brokers, and other record owners to reimburse them for their expenses
in forwarding solicitation material regarding the Meeting to beneficial owners
of Common Stock. The solicitation will be by mail, with the material being
forwarded to the shareholders of record and certain other beneficial owners of
Common Stock by the Company's officers and other regular employees (at no
additional compensation). Such officers and employees may also solicit proxies
from shareholders by personal contact, by telephone, or by other means if
necessary in order to assure sufficient representation at the Meeting.
ChaseMellon Shareholder Services, L.L.C. has been retained to receive and
tabulate proxies and to provide representatives to act as inspectors of election
for the Meeting.
STOCK DIVIDEND
Unless otherwise indicated, all information in this Proxy Statement has
been adjusted to give effect to a three-for-two stock split (in the form of a
50% stock dividend), distributed on December 29, 1995 to all shareholders of
record as of December 15, 1995.
2
<PAGE> 5
MATTERS SUBJECT TO SHAREHOLDER VOTE
1. ELECTION OF DIRECTORS
Pursuant to the Company's by-laws, the Board of Directors of the Company is
currently divided into two classes, with one class standing for election each
year for two-year terms. The terms of five directors, including two directors
elected in 1996 to replace two directors who resigned during the year, will
expire at the Meeting. In addition during 1996, the Board was expanded to eight
directors, creating one vacancy to be filled at the Meeting. Accordingly, the
terms of two of the six nominees listed below, if elected at the Meeting, will
expire at the 1998 annual meeting and the terms of four of the six nominees will
expire at the 1999 annual meeting. The terms of the other current directors
listed below will expire at the 1998 annual meeting.
The two persons designated by the Board of Directors as nominees for
election as directors with terms expiring at the 1998 annual meeting are Robert
V. Nagelhout and Donald J. Staffa. The four persons designated by the Board of
Directors as nominees for election as directors with terms expiring at the 1999
annual meeting are Paul J. Kerz, William W. Neal, Ellen A. Rudnick, and Richard
H. Stowe.
Unless a contrary direction is indicated, it is intended that proxies
received will be voted for the election as directors of the six nominees, two
nominees to serve for one-year terms expiring at the 1998 annual meeting, and
four nominees to serve for two-year terms expiring at the 1999 annual meeting,
and in each case until their successors are elected and qualified. In the event
any nominee for director declines or is unable to serve, the proxies may be
voted for a substitute nominee selected by the Board of Directors. The Board of
Directors expects that each nominee named in the following table will be
available for election.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES.
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY SERVED AS
NAME OR PRINCIPAL OCCUPATION DIRECTOR FROM
- --------------------------------- ----------------------------------------------- -------------
<S> <C> <C>
Nominees for director for one-year terms ending in 1998:
Robert V. Nagelhout.............. Chairman and Chief Executive Officer of Health
Care microsystems, Inc. ("HCm"), a subsidiary
of the Company 1996
Donald J. Staffa................. Senior Vice President of the Company 1996
Nominees for director for two-year terms ending in 1999:
Paul J. Kerz..................... Chairman, President and Chief Executive Officer
of the Company 1974
William W. Neal.................. Managing Principal of Piedmont Venture
Partners, an investment firm 1989
Ellen A. Rudnick................. President and Chief Executive Officer of
Pacific Biometrics, Inc., a biodiagnostics
company --
Richard H. Stowe................. General Partner of Welsh, Carson, Anderson &
Stowe ("WCAS"), an investment firm 1989
Directors continuing in office until 1998:
Russell L. Carson................ General Partner of WCAS 1992
Galen D. Powers.................. Founder and President of Powers, Pyles, Sutter
& Verville, P.C., a law firm 1992
</TABLE>
3
<PAGE> 6
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company, including a new nominee for
election as a director, as of January 15, 1997:
<TABLE>
<CAPTION>
NAME POSITION
- ------------------------------ --------------------------------------------------------------
<S> <C>
Paul J. Kerz.................. Chairman, President and Chief Executive Officer, and Director
Laurence B. Simon............. Senior Vice President and Secretary
Donald J. Staffa.............. Senior Vice President and Director
Phillip Siegel................ Vice President and Chief Financial Officer
Lewis D. Levetown............. Vice President
Russell L. Carson............. Director
Robert V. Nagelhout........... Director
William W. Neal............... Director
Galen D. Powers............... Director
Ellen A. Rudnick.............. Nominee for Director
Richard H. Stowe.............. Director
</TABLE>
PAUL J. KERZ, 55, a founder of the Company, has been its Chairman,
President and Chief Executive Officer, and a director since the Company's
inception in 1974. From 1970 until 1973, he served as Senior Vice President of
Finance and Chairman of the Management Review Committee of the New York City
Health and Hospitals Corporation ("HHC"). Prior to 1970, Mr. Kerz served in
various capacities in state and federal Bureaus of the Budget. Mr. Kerz is also
a director of Health Information Services Corporation ("HISCo") and acts as
Chairman of HISCo. In June of 1996, Mr. Kerz resigned as Chairman and director
of HHL Financial Services, Inc. ("HHL"). See "Certain Transactions" for
additional information regarding the Company's relationships with HISCo and HHL.
LAURENCE B. SIMON, 50, a founder of the Company, has served as Senior Vice
President of Development and Secretary of the Company since 1974. From 1972
until he joined the Company, Mr. Simon was a Program Analyst with HHC.
DONALD J. STAFFA, 51, is the Company's Senior Vice President of Operations,
a position he has held since October 1994. He serves as Chairman and Chief
Executive Officer of Quality Medi-Cal Adjudication, Incorporated ("QMA"), a
position he has held since QMA's acquisition by the Company in 1990. From 1989
through September 1994, he served as Vice President in charge of the Company's
California operations, and from 1981 through 1988 served as Vice President of
Operations of the Company in New York City. From 1979 to 1981, Mr. Staffa was
the President of Western Bradford Trust Company, a division of Bradford National
Corporation, which he joined in 1975. Mr. Staffa was appointed a director of the
Company in November 1996.
PHILLIP SIEGEL, 54, joined the Company in May 1996 as Vice President and
Chief Financial Officer. Mr. Siegel had been an independent business consultant
since 1993. He served as senior executive officer of Presidential Life Insurance
Company from December 1989 until February 1993, most recently as Senior Vice
President. During 1988, Mr. Siegel served as Chief Operating Officer and Chief
Financial Officer of Sherwood Group and Sherwood Securities. From 1972 through
1987, Mr. Siegel served in various senior executive capacities for the American
subsidiary of Reuters Limited, PLC, including as Vice President for
Acquisitions, as Vice President and General Counsel, and as the senior financial
officer. Mr. Siegel is a director of WestPoint Stevens, Inc. (and a member of
its compensation committee and chairman of its audit committee).
4
<PAGE> 7
LEWIS D. LEVETOWN, 54, has been Vice President of Human Resources of the
Company since 1988. From 1982 until he joined the Company, he was Senior Vice
President of Human Resources for Automated Data Processing, Inc. ("ADP").
RUSSELL L. CARSON, 53, has been a General Partner of WCAS since 1979. Prior
to 1979, he was Chairman of Citicorp Venture Capital, Ltd. Mr. Carson is a
director of Quorum Health Group, Inc., a company that owns hospitals and
provides management and consulting services to third party hospital owners,
Sterris Corporation, National Surgery Centers, Inc., American Oncology
Resources, Inc., HISCo, and several other private companies. Mr. Carson resigned
as a director of HHL in June 1996. Mr. Carson was elected a director of the
Company in May 1992.
ROBERT V. NAGELHOUT, 42, serves as Chairman and Chief Executive Officer of
HCm, a position he has held since its acquisition by the Company in February
1995. Mr. Nagelhout was appointed a director of the Company in November 1996.
Mr. Nagelhout co-founded HCm in 1983 and prior to that served as a consultant
for Ernst & Whinney (now Ernst & Young).
WILLIAM W. NEAL, 64, has been Managing Principal of Piedmont Venture
Partners since July 1996. From 1989 through April 1996, he served as Chairman,
President and Chief Executive Officer of Broadway and Seymour, Inc., a company
that provides software and computer systems consulting services to the banking
industry. Mr. Neal became a director of the Company in March 1989. From 1985
through July 1989, he was a Partner of WCAS. Mr. Neal was Senior Vice President
of Marketing for ADP from 1984 to 1985 and a Group President of ADP from 1982 to
1984. He served as a director of ADP from 1982 until 1985.
GALEN D. POWERS, 60, is the founder and President of Powers, Pyles, Sutter
& Verville, P.C., a Washington, D.C. law firm specializing in healthcare and
hospital law. Mr. Powers was the First Chief Counsel of the federal Health Care
Finance Administration and has served as a director and President of the
National Health Lawyers Association. He is the President of the National
Association of Medicare Dependent Hospitals. Mr. Powers was elected a director
of the Company in May 1992.
ELLEN A. RUDNICK, 46, is a nominee for election as director of the Company
at the Meeting. Since 1992, Ms. Rudnick has served as Chairman and Chief
Executive Officer of two corporations: Pacific Biometrics, a publicly-held
health care biodiagnostics company, and CEO Advisors, a privately-held
consulting firm. From 1990 to 1992, she was President and Chief Executive
Officer of Healthcare Knowledge Resources ("HKR"), a privately held health care
information technology corporation, and subsequently served as President of
HCIA, Inc. ("HCIA") following the acquisition of HKR by HCIA. From 1975 to 1990,
Ms. Rudnick served in various positions at Baxter Health Care Corporation,
including Corporate Vice President and President of its Management Services
Division.
RICHARD H. STOWE, 53, became a director of the Company in March 1989 and
has been a General Partner of WCAS since 1979. Prior to 1979, he was a Vice
President in the venture capital and corporate finance groups of New Court
Securities Corporation (now Rothschild Inc.). Mr. Stowe is a director of EmCare
Holdings Inc., a provider of physician services management in hospital emergency
departments, Aurora Electronics, Inc., which provides computer parts for
distribution services, HISCo, and several other private companies. Mr. Stowe
resigned as director of HHL in June 1996.
DIRECTORS' FEES
Directors do not receive any cash compensation for their services, but are
reimbursed for expenses incurred in attending meetings. In addition, each
non-employee director is granted options annually to
5
<PAGE> 8
purchase 1,500 shares of Common Stock under the Company's 1995 Non-Employee
Director Stock Option Plan.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors held four meetings during Fiscal Year 1996. In
addition, there were four actions taken by unanimous written consents. Each
director attended at least 75% of the aggregate of (a) the total number of
meetings of the Board of Directors, and (b) the committees on which the director
served.
The committees of the Board of Directors consist of an Audit Committee and
a Compensation Committee.
AUDIT COMMITTEE. The Audit Committee recommends to the Board of Directors
the annual appointment of independent certified public accountants with whom the
committee reviews the audit fees, scope, and timing of the audit, the adequacy
of internal controls, and any other services rendered. The Audit Committee is
comprised of Messrs. Powers and Stowe and held three meetings during fiscal year
1996.
COMPENSATION COMMITTEE. The Compensation Committee reviews and recommends
the compensation and bonuses of the executives of the Company. The Compensation
Committee also administers the Company's (i) Stock Option and Restricted Stock
Purchase Plan, (ii) the Employee Stock Purchase Plan, and (iii) the 1995
Non-Employee Director Stock Option Plan. The Compensation Committee is comprised
of Messrs. Neal and Stowe and held two meetings during fiscal year 1996.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Pursuant to Section 16(a) of the Securities Exchange Act of 1934 (the
"Exchange Act") and the rules issued thereunder, the Company's executive
officers and directors are required to file with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc. reports of
ownership and changes in ownership of Common Stock. Copies of such reports are
required to be furnished to the Company. Based solely on review of the copies of
such reports furnished to the Company, or written representations that no other
reports were required, the Company believes that, during 1996, all of its
executive officers and directors complied with the requirements of Section
16(a), except that Robert M. Holster, a former director of the Company, did not
timely file a Form 4 for the month of November 1995 with respect of the sale of
20,790 shares of the Company's Common Stock held by HHL of which Mr. Holster is
President and Chief Executive Officer. William W. Neal, a director of the
Company, did not timely file a Form 4 for the month of April 1996 with respect
to the sale of 11,790 shares of the Company's Common Stock held in his spouse's
trust account of which Mr. Neal disclaims beneficial ownership. Also, Scott A.
Remley, a former Vice President and Chief Financial Officer of the Company, did
not timely file a Form 4 for the month of April 1996 with respect to the same
day sale of 15,438 shares of the Company's stock acquired through a stock option
exercise.
ADDITIONAL INFORMATION REGARDING COMPENSATION OF EXECUTIVE OFFICERS AND
DIRECTORS IS PROVIDED ON PAGES 8 THROUGH 14 OF THIS PROXY STATEMENT.
2. RATIFICATION OF THE SELECTION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors, in accordance with the recommendation of the Audit
Committee of the Company's Board of Directors, has selected, subject to
ratification by the shareholders, KPMG Peat Marwick
6
<PAGE> 9
LLP, independent certified public accountants, to audit the consolidated
financial statements of the Company and its subsidiaries for 1997. KPMG Peat
Marwick LLP has audited the Company's financial statements since 1981.
The Company expects representatives of KPMG Peat Marwick LLP to attend the
Meeting, to be available to respond to appropriate questions from shareholders,
and to have the opportunity to make a statement if so desired.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE
SELECTION OF KPMG PEAT MARWICK LLP AS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
FOR 1997.
7
<PAGE> 10
ADDITIONAL INFORMATION
STOCK OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of January 15, 1997, by (a) each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (b) each executive officer identified in the
Summary Compensation Table below, (c) each director and nominee for director,
and (d) all executive officers and directors as a group. Except as otherwise
noted, the named shareholder had sole voting and investment power with respect
to such securities.
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
---------- ----------
<S> <C> <C>
The Kaufman Fund
140 East 45 Street
New York, N.Y. 10017................................................ 1,125,000 6.4%
Paul J. Kerz (a)...................................................... 1,140,716 6.5%
Laurence B. Simon (b)................................................. 664,377 3.8%
Donald J. Staffa (c).................................................. 244,218 1.4%
Phillip Siegel (d).................................................... 7,178 *
Lewis D. Levetown (e)................................................. 61,141 *
Russell L. Carson (f)................................................. 204,792 1.2%
Robert V. Nagelhout (g)............................................... 609,948 3.5%
William W. Neal (h)................................................... 13,920 *
Galen D. Powers (i)................................................... 10,309 *
Ellen A. Rudnick...................................................... 0 *
Richard H. Stowe (j).................................................. 57,811 *
All executive officers and directors as a group
(eleven persons) (k)................................................ 3,014,410 17.1%
</TABLE>
- ---------------
* denotes percentage of ownership is less than 1%
(a) Includes (i) 89,828 shares of Common Stock owned by members of the family of
Mr. Kerz or trusts for the benefit of such family members, as to which Mr.
Kerz disclaims beneficial ownership, (ii) 50,353 shares of Common Stock
owned by the Company's Employees' Profit Sharing Trust Plan (the "Profit
Sharing Plan"), of which Mr. Kerz serves as trustee and as to which Mr. Kerz
disclaims beneficial ownership, and (iii) outstanding options to purchase
273,865 shares of Common Stock that are currently exercisable or will become
exercisable before March 31, 1997.
(b) Includes (i) 13,860 shares of Common Stock owned by members of the family of
Mr. Simon or trusts for the benefit of such family members, as to which Mr.
Simon disclaims beneficial ownership, (ii) 50,353 shares of Common Stock
owned by the Profit Sharing Plan, of which Mr. Simon serves as trustee and
as to which Mr. Simon disclaims beneficial ownership, and (iii) outstanding
options to purchase 145,368 shares of Common Stock that are currently
exercisable or will become exercisable before March 31, 1997.
(c) Includes outstanding options to purchase 131,501 shares of Common Stock that
are currently exercisable or will become exercisable before March 31, 1997.
(d) Includes outstanding options to purchase 2,188 shares of Common Stock that
are currently exercisable or will become exercisable before March 31, 1997.
8
<PAGE> 11
(e) Includes outstanding options to purchase 10,405 shares of Common Stock that
are currently exercisable or will become exercisable before March 31, 1997.
(f) Includes 700 shares of Common Stock owned by members of the family of Mr.
Carson, as to which Mr. Carson disclaims beneficial ownership. Also includes
outstanding options to purchase 1,499 shares of Common Stock that are
currently exercisable or will become exercisable before March 31, 1997.
(g) Includes 22,304 shares of Common Stock owned by members of the family of Mr.
Nagelhout or trusts for the benefit of such family members, as to which Mr.
Nagelhout disclaims beneficial ownership. Also includes outstanding options
to purchase 9,766 shares of Common Stock that are currently exercisable or
will become exercisable before March 31, 1997.
(h) Includes outstanding options to purchase 9,478 shares of Common Stock that
are currently exercisable or will become exercisable before March 31, 1997.
(i) Includes 237 shares of Common Stock owned by members of the family of Mr.
Powers, as to which Mr. Powers disclaims beneficial ownership. Also includes
outstanding options to purchase 10,072 shares of Common Stock that are
currently exercisable or will become exercisable before March 31, 1997.
(j) Includes outstanding options to purchase 1,499 shares of Common Stock that
are currently exercisable or will become exercisable before March 31, 1997.
(k) Includes outstanding options to purchase 595,641 shares of Common Stock that
are currently exercisable or will become exercisable before March 31, 1997.
9
<PAGE> 12
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation for each
of the last three fiscal years ended October 31, 1996 awarded to or earned by
the Chief Executive Officer and each of the other four most highly compensated
executive officers of the Company.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION STOCK
FISCAL ----------------------------- OPTIONS
NAME AND PRINCIPAL POSITION YEARS SALARY BONUS OTHER(a) AWARDED(b)
- ----------------------------------------------- ------ -------- ------- -------- ------------
<S> <C> <C> <C> <C> <C>
Paul J. Kerz................................... 1996 $414,000 $65,500 $ 14,943 0
Chairman, President and 1995 414,000 85,600 17,317 75,001
Chief Executive Officer 1994 372,000 80,000 16,485 81,001
Laurence B. Simon.............................. 1996 350,500 58,000 14,943 0
Senior Vice President and 1995 350,500 50,000 17,317 60,001
Secretary 1994 316,500 50,000 16,485 64,126
Donald J. Staffa............................... 1996 268,000 56,500 14,943 18,750
Senior Vice President 1995 268,000 50,000 17,317 45,001
1994 238,667 50,000 16,492 50,625
Phillip Siegel(c).............................. 1996 150,000 25,000 0 53,000
Vice President and Chief 1995 -- -- -- --
Financial Officer 1994 -- -- -- --
Lewis D. Levetown.............................. 1996 195,000 25,000 14,151 5,250
Vice President 1995 195,000 32,500 15,955 6,375
1994 175,000 42,500 16,297 12,375
</TABLE>
- ---------------
(a) Includes matching contributions under the Company's (i) 401(k), (ii) Profit
Sharing, and (iii) Executive Deferred Compensation Plans.
(b) The fiscal year 1996 stock option awards were actually granted in the
beginning of fiscal year 1997, having a grant date of November 19, 1996 and
an exercise price per share of $15.31. Messrs. Kerz and Simon elected not to
receive option awards for fiscal year 1996.
(c) Mr. Siegel's salary is for six months; his annual salary is $250,000. Also,
25,000 of the 53,000 stock options, which were granted on May 6, 1996, were
subsequently canceled effective September 4, 1996.
10
<PAGE> 13
STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
Executive officers may participate in the Company's Stock Option and
Restricted Stock Purchase Plan. The following table sets forth selected option
grant information for the fiscal year ended October 31, 1996 awarded with
respect to options to the Chief Executive Officer and each of the other four
most highly compensated executive officers of the Company.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
% OF TOTAL PRICE APPRECIATION
TYPE OF NUMBER OPTIONS EXERCISE FOR OPTION TERM
OPTION OF OPTIONS GRANTED TO PRICE PER EXPIRATION ---------------------------
NAME GRANTED GRANTED EMPLOYEES(a) SHARE DATE 0% 5%(b) 10%(b)
- ----------------------- ------- ---------- ------------ --------- ---------- --- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul J. Kerz........... -- 0 n/a n/a n/a $0 $ 0 $ 0
Laurence B. Simon...... -- 0 n/a n/a n/a 0 0 0
Donald J. Staffa....... -- 0 n/a n/a n/a 0 0 0
Phillip Siegel(c)...... ISO 15,216 11.72% $ 28.13 05/06/06 0 269,183 682,163
NQ 9,784 7.54% $ 28.13 05/06/06 0 173,087 438,636
Lewis D. Levetown...... -- 0 n/a n/a n/a 0 0 0
</TABLE>
- ---------------
(a) Represents individual option grant as a percentage of total options issued
in fiscal year 1996.
(b) The hypothetical potential appreciation shown in these columns reflects the
required calculations at compounded annual rates of 5% and 10% set by the
Securities and Exchange Commission, and therefore are not intended to
represent either historical appreciation or anticipated future price
appreciation of the Company's Common Stock.
(c) Mr. Siegel's total 25,000 stock options were subsequently canceled
effective September 4, 1996.
The following table sets forth selected stock option exercise information
as of October 31, 1996 and for the year then ended related to the Chief
Executive Officer and each of the other four most highly compensated executive
officers of the Company.
STOCK OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END STOCK OPTION
VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED OPTIONS
NUMBER OF UNEXERCISED AT FISCAL
SHARES OPTIONS AT FISCAL YEAR END YEAR-END(a)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul J. Kerz................. 113,983 $1,930,238 273,865 15,654 $ 3,432,866 $ 160,051
Laurence B. Simon............ 200,020 4,967,814 145,368 15,654 1,818,569 160,051
Donald J. Staffa............. 30,000 613,577 119,281 15,654 1,323,529 160,051
Phillip Siegel............... 0 0 0 0 0 0
Lewis D. Levetown............ 14,624 312,684 9,094 6,282 99,141 57,570
</TABLE>
- ---------------
(a) Value of unexercised "in-the-money" options is determined by multiplying the
number of shares subject to such options by the difference between the
exercise price per share and $23.00, the average of the high and low price
per share on the Nasdaq National Market System on October 31, 1996.
11
<PAGE> 14
The following table sets forth selected information regarding the Company's
Employee Stock Purchase Plan as of January 15, 1997.
<TABLE>
<CAPTION>
EMPLOYEE STOCK PURCHASE PLAN
------------------------------------
NUMBER OF SHARES VALUE OF SHARES
NAME OF INDIVIDUAL OR GROUP PURCHASED(a) PURCHASED(b)
- -------------------------------------------------------------- ---------------- ---------------
<S> <C> <C>
Paul J. Kerz (c).............................................. -- $ --
Laurence B. Simon............................................. 7,682 47,662
Donald J. Staffa.............................................. 7,682 47,662
Phillip Siegel................................................ 990 (998)
Lewis D. Levetown............................................. 7,682 47,662
Robert V. Nagelhout........................................... 2,691 (679)
All current executive officers as a group..................... 26,727 141,310
All employees, other than executive officers as a group....... 431,826 1,874,804
</TABLE>
- ---------------
(a) Represents the cumulative number of shares of the Company's Common Stock
purchased by employee.
(b) Calculated as the difference between the purchase price per share paid by
employees and $14.50, the closing price of the Company's Common Stock on
Nasdaq National Market System on January 15, 1997, multiplied by the
cumulative number of shares purchased by the employees. Amounts in
parentheses indicate the market value at January 15, 1997 exceeded the
purchase price.
(c) Mr. Kerz is not eligible to participate in this Plan because his ownership
of the Company's outstanding Common Stock exceeds 5%.
PROFIT SHARING PLAN
Since 1974, the Company has maintained a discretionary Profit Sharing Plan
in which all its employees are eligible to participate after one year of
service. Contributions by the Company to the plan are discretionary in the
judgment of the Board of Directors. The interest of each employee under the Plan
vests ratably over a seven-year period with vesting commencing in the third year
of participation under the Plan. Contributions to the Plan are allocated among
participants based on their relative compensation levels. For the years ended
October 31, 1996, 1995, and 1994, Profit Sharing Plan expense for all employees
was $944,000, $800,000, and $582,000, respectively. The 1996 contribution has
not yet been allocated to the individual accounts of participants by the
independent participant recordkeeper. For the year ended October 31, 1995,
$9,631 was contributed on behalf of each of Messrs. Kerz, Simon, Staffa, and
Levetown.
401(k) PLAN
As of January 1, 1992, the Company adopted an Employee Savings Plan under
Section 401(k) of the Code which permits an employee to contribute a portion of
such employee's compensation, subject to certain limitations. An employee is
eligible to participate in the Plan after the completion of six months of
service and may commence participation on the next entry date, either 1 January
or 1 July. In its discretion, the Company may make an annual contribution to the
Plan for the benefit of participating employees. The interest of each employee
in the Company's contributions vests ratably over five years with vesting
commencing after the completion of a second year of service. For the years ended
October 31, 1996, 1995, and 1994, 401(k) Plan expense was $611,000, $543,000,
and $368,000, respectively. For the year ended October 31, 1996, $3,325 was
contributed on behalf of Messrs. Kerz, Simon, Staffa, and Levetown.
12
<PAGE> 15
EMPLOYEE STOCK PURCHASE PLAN
On May 28, 1993, the Board of Directors adopted the Health Management
Systems, Inc. Employee Stock Purchase Plan (the "ESPP"), which was subsequently
approved by the shareholders at the Annual Meeting of Shareholders held on
February 28, 1994. The Company has reserved for issuance 1,125,000 shares of
common stock pursuant to the ESPP, which is intended to qualify as an "employee
stock purchase plan" within the meaning of Section 423 of the Internal Revenue
Code of 1986 (the "Code"). The plan provides that all full-time employees of the
Company and its subsidiaries may elect to participate in the ESPP without regard
to length of service if their customary employment is a minimum of 20 hours per
week.
For the fiscal years ended October 31, 1996 and 1995, the Company sold
163,085 and 141,744 shares of common stock pursuant to the ESPP, respectively,
for aggregate consideration of $2,332,000 and $1,203,000.
STOCK OPTION PLAN AND RESTRICTED STOCK PURCHASE PLAN
Effective May 31, 1989, the Company adopted the Health Management Systems,
Inc. Stock Option and Restricted Stock Purchase Plan (the "Plan") under which:
(a) options can be granted to purchase shares of the Company's common stock at
an exercise price equal to (incentive stock options) or less than (non-qualified
stock options) the estimated fair market value of the Company's common stock, or
(b) rights can be granted in the form of an award to purchase shares of the
Company's common stock at a price equal to, more than or less than the estimated
fair market value of the Company's common stock. Subsequent amendments to the
Plan, which have been approved by shareholders, have increased the number of
shares allowed to be issued under the Plan to 6,750,000 shares.
The stock options become exercisable on various dates through December 1999
and expire at various dates through April 2006. As of October 31, 1996, no stock
appreciation rights or stock purchase awards had been granted. The fiscal year
1996 stock option awards, totaling 421,000 shares of common stock and normally
granted during the fiscal year, were granted in November 1996.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The Company's 1995 Non-Employee Director Stock Option Plan (the "NEDP") was
adopted by the Board of Directors on November 30, 1994, which action was
subsequently approved by shareholders at the Annual Meeting of Shareholders held
on March 7, 1995. The purpose of the NEDP is to provide compensation in the form
of equity participation in the Company, in consideration of the services
provided by directors not employed by the Company. Under the NEDP, a grant of
options to purchase 1,500 share of common stock is made to each non-employee
director during the fourth fiscal quarter of each fiscal year. The exercise
price of options issued under the NEDP is the fair market value of the common
stock as the date of grant. The 1996 option grants were priced at $23.00 per
share. Options granted under the NEDP have a term of ten years, with 25% of the
options exercisable immediately upon grant and an additional 25% exercisable at
the end of each of the three subsequent fiscal years. The NEDP is administered
by the Compensation Committee of the Company's Board of Directors.
EXECUTIVE DEFERRED COMPENSATION PLAN
As of November 1, 1994, the Company adopted an unfunded Executive Deferred
Compensation Plan ("Executive Plan") for a selected group of management or other
highly compensated employees, defined as employees who receive at least $150,000
in total compensation in a fiscal year. The purpose of the Executive Plan is (i)
to provide certain key executive employees of the Company with benefits to
replace the benefits to
13
<PAGE> 16
which they would be entitled under the Health Management Systems, Inc. Profit
Sharing Plan but for the application of various limitations on contributions
including the limitation under Section 401(a)(17) of the Code, and (ii) to
provide the ability to replace the benefits currently available under the
Company's Profit Sharing and 401(k) Plans that may be limited because of any
other future changes in the Code or other applicable laws. For the fiscal years
ended October 31, 1996 and 1995, the Executive Plan expense was $12,000 and
$15,000, respectively. For the fiscal year ended October 31, 1996, $1,987 was
contributed on behalf of Messrs. Kerz, Simon, and Staffa, and $1,195 was
contributed on behalf of Mr. Levetown.
Notwithstanding contrary statements set forth in any of the Company's
previous filings under the Securities Act of 1933 (the "Securities Act") or the
Exchange Act that might incorporate future filings, including this proxy
statement, the Compensation Committee report, and the performance graph set
forth below shall not be incorporated by reference into such future filings.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
In 1997, the Company's executive compensation program will reflect the
following executive compensation philosophy, which was developed and is being
updated by the Compensation Committee of the Board of Directors:
The Company's mission is to be a significant provider of quality services
and software in the markets it serves. To support this and other strategic
objectives as approved by the Board of Directors and to provide adequate returns
to the shareholders, the Company must compete for, attract, develop, motivate,
and retain top quality executive talent at the corporate office and operating
business units of the Company during periods of both favorable and unfavorable
business conditions.
The Company's executive compensation program is a critical management tool
in achieving this goal. 'Pay for performance' is the underlying philosophy for
the Company's executive compensation program. Consistent with this philosophy,
the program has been carefully conceived and will be independently administered
by the Compensation Committee ("Committee") of the Board of Directors which will
meet regularly during the year and is comprised entirely of independent
non-employee directors. The program is designed to link executive pay to
corporate performance, including share price, recognizing that there is not
always a direct and short-term correlation between executive performance and
share price.
The program is designed and administered to:
- - provide annual and longer term incentives that help focus each
executive's attention on approved corporate business goals the attainment
of which, in the judgment of the Committee, should increase long-term
shareholder value;
- - reward individual and team achievements that contribute to the
attainment of the Company's business goals; and
- - provide a balance of total compensation opportunities, including
salary, bonus, and longer term cash and equity incentives, that are
competitive with similarly situated companies and reflective of the
Company's performance.
In seeking to link executive pay to corporate performance, the Committee
believes that the most appropriate measure of corporate performance is the
increase in long-term shareholder value, which involves improving such
quantitative performance measures as revenue, net income, cash flow, operating
margins, earnings per share, and return on shareholders' equity. The Committee
may also consider qualitative corporate
14
<PAGE> 17
and individual factors which it believes bear on increasing the long-term value
of the Company to its shareholders. These include: (i) the development of
competitive advantages; (ii) the ability to deal effectively with the growing
complexity of the Company's businesses; (iii) success in developing business
strategies, managing costs and improving the quality of the Company's products
and services as well as customer satisfaction; and (iv) the general performance
of individual job responsibilities.
The Company's executive compensation program consists of: (i) a base
salary; (ii) an annual bonus; and (iii) long-term incentive represented by stock
options.
COMPENSATION OF EXECUTIVE OFFICERS
Salary. In determining the amount of compensation to be paid to the
executive officers of the Company, the Committee adheres to long established
compensation policies of the Company pursuant to which executive compensation is
determined. Base salary determinants include the prevailing rate of compensation
for positions of like responsibility in the particular geographic area, the
level of the executive's compensation in relation to other executives of the
Company with the same, more, or less responsibilities, and the tenure of the
individual. To ensure both competitiveness and appropriateness of base salaries,
the Company retains professional consultants on a periodic basis to update the
job classification and pay scale structure pursuant to which individual
executives (and the remainder of the Company's employees) are classified and the
pay ranges with which their jobs are associated.
Stock Options. The longer-term component of the Company's executive
compensation program consists of stock options. The options generally permit the
option holder to buy the number of shares of the underlying Common Stock (an
"option exercise") at a price equal to or greater than the market price of the
stock at the time of grant. Thus, the options generally gain value only to the
extent the stock price exceeds the option exercise price during the life of
option. Generally a portion of the options vest over a period of time and expire
no later than ten years after grant.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Determination of the Company's compensation of its Chief Executive Officer
and founder takes into account the factors described above as pertinent to the
remainder of the Company's executives and employees, while also taking into
consideration the proprietary nature of the Company's business and efforts
expended in connection with development of the Company's strategy and product
development activities.
COMPENSATION COMMITTEE
Richard H. Stowe
William W. Neal
15
<PAGE> 18
SHAREHOLDER RETURN PERFORMANCE GRAPHS
The graph presented below provides a comparison between the cumulative
total shareholder return (assuming the reinvestment of dividends) on the
Company's Common Stock since the initial public offering on December 17, 1992
and the Nasdaq U.S. companies index, the Nasdaq computer and data processing
service companies index, and the Nasdaq health service companies index, over the
same period. The graph assumes the investment of $100 in the Company's Common
Stock and each of the indices.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) HMSY NASDAQ COMP NASDAQ HC NADSAQ INFO
<S> <C> <C> <C> <C>
Dec-92 100.00 100.00 100.00 100.00
Oct-93 141.67 118.27 101.91 109.59
Oct-94 189.17 118.90 129.47 131.88
Oct-95 320.00 160.15 133.28 201.30
Oct-96 352.50 188.96 152.72 233.83
</TABLE>
16
<PAGE> 19
CERTAIN TRANSACTIONS
HHL FINANCIAL SERVICES, INC.
Effective January 31, 1992, the Company entered into a management and data
processing services agreement ("Management Agreement") with HHL. Under the
Management Agreement, the Company provides HHL with executive management, data
processing, and technical support services through June 30, 1996, subject to
certain termination and renewal provisions.
Effective July 1, 1993, the Management Agreement was amended ("Outsourcing
Amendment") to include the Company's provision of comprehensive data processing
and information management services to HHL. The five-year term of the
Outsourcing Amendment called for fixed annual fees that range from $6,700,000 to
$9,500,000 subject to upward adjustment in the event of material changes in the
scope of service and/or growth in HHL revenue in excess of 7% annually.
On August 21, 1996, the Company announced a one-time charge and revenue
reversal pertaining to its relationship with HHL, which was in default of the
Outsourcing Amendment. The Company's one-time charge related to (i) the full
reservation of prior period accounts receivable of $2,881,000, (ii) accrual of
net costs to be incurred in excess of anticipated revenue relating to the
Company's continued contractual obligation with HHL of $3,823,000, and (iii) the
write-off of its investment in HHL of $927,000, resulting in a total one-time
charge of $7,631,000. Additionally, revenue of $2,180,000 earned and initially
recorded in the third quarter was reversed. The result of the total write-off
and revenue reversal recognized in the third quarter of $9,811,000 translates to
an after-tax impact of $5,838,000, or $0.32 per share to fiscal year 1996.
On October 29, 1996 the Company entered into an agreement with HHL and
HHL's primary financial creditor providing for mutual general releases and the
cessation of all claims. The Company also settled its liabilities due to HHL of
$1,950,000 for a payment of $870,000 resulting in the reversal of $1,080,000 in
liabilities as an offset to other operating expenses. In addition, the Company
has agreed to provide, for a period of up to 18 months, a reduced level of
services to HHL in exchange for payment in advance. During this 18 month period,
HHL has the right to lower the level of services requested and, therefore, lower
the amount paid in advance. Also, HHL has the right to cancel the service
completely on 30 days prior written notice.
As of October 31, 1996, the Company has incurred and offset $165,000 in net
expenses for its contractual obligations with HHL. The remaining accrual at
October 31, 1996 was $3,658,000 for probable future net cash expenditures
related to the Company's continuing contractual obligations with HHL. The
Company anticipates that substantially all amounts accrued as of October 31,
1996 will be paid out or otherwise satisfied by the end of fiscal year 1997.
During the years ended October 31, 1996, 1995, and 1994, the Company
received approximately $5,446,000, $8,877,000, and $9,548,000 in fees from HHL
related to these agreements, and, in connection with jointly executed client
projects, HHL has charged the Company expenses for services totaling $1,557,000,
$1,337,000, and $1,091,000, in 1996, 1995, and 1994, respectively.
RELATIONSHIP WITH HEALTH INFORMATION SYSTEMS CORPORATION
To finance additional proposed acquisitions, effective October 31, 1995,
the Company and HISCo entered into a subscription agreement (the "Subscription
Agreement"). The Subscription Agreement contemplated that, for a period of three
years commencing on October 31, 1995, HISCo may require the Company to purchase,
on a pro rata basis, up to an aggregate additional 4,136,700 shares of HISCo
common stock ("Additional Shares") for a per share purchase price of $10.00, or
an aggregate purchase price of
17
<PAGE> 20
$41,367,000. With respect to each acquisition, the Subscription Agreement
requires HISCo to deliver written notice to the Company specifying, among other
information, the terms of the proposed acquisition and the aggregate number of
Additional Shares that HISCo proposes to sell to the Company. The Company cannot
decline to purchase its respective pro rata portions of Additional Shares.
The Company and HISCo entered into an agreement, dated as of October 31,
1995 (the "HISCo Agreement"), pursuant to which the Company will provide HISCo
with certain services ("Basic Services"), including executive, acquisition
support, and corporate support services. For these Basic Services, the Company
is entitled to receive a fee, payable monthly, calculated at the Company's then
current standard hourly rates established for internal allocations plus 20%. The
Company, in addition, may provide to subsidiaries ("Subsidiaries") of HISCo, and
such Subsidiaries may provide to the Company, additional services on such terms
as the parties may mutually agree. The term of the HISCo Agreement continues
until the later of (i) June 30, 2000 or (ii) the expiration of any outstanding
work order related to additional services. The Company believes that the terms
of the HISCo Agreement are fair and reasonable and are no less favorable to the
Company than those that could have been obtained with respect to comparable
engagements with independent third parties. In fiscal year 1996 and 1995, the
Company received approximately $161,000 and $545,000 in fees from HISCo for
services provided pursuant to the HISCo Agreement. In fiscal year 1996, HISCO
received approximately $569,000 in fees for software development services
provided the Company pursuant to the HISCo Agreement. These software development
fees were expensed by the Company.
The Company's total revenue from related parties was $5,607,000, $9,422,000
and $9,901,000 in 1996, 1995, and 1994, respectively.
OTHER RELATIONSHIPS
The Company occasionally transacts business with companies for which
members of its Board of Directors serve as executive officers and/or directors.
In 1996, none of these transactions was individually significant or reportable.
OTHER BUSINESS
As of the date of this Proxy Statement, the Board of Directors knows of no
business to be presented at the Meeting other than as set forth herein. If other
matters properly come before the Meeting, the persons named as proxies will vote
on such matters in their discretion.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Any shareholder proposals intended to be presented at the Company's 1998
annual meeting of shareholders must be received by the Secretary, Health
Management Systems, Inc., 401 Park Avenue South, New York, New York 10016, no
later than October 3, 1997 in order to be considered for inclusion in the
Company's Proxy Statement and form of proxy relating to such meeting.
18
<PAGE> 21
ANNUAL REPORT
The Company's 1996 Annual Report is concurrently being mailed to
shareholders. The Annual Report contains consolidated financial statements of
the Company and its subsidiaries and the report thereon of KPMG Peat Marwick
LLP, independent certified public accountants.
BY ORDER OF THE BOARD OF DIRECTORS
Laurence B. Simon
Secretary
Dated: January 30, 1997
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, SHAREHOLDERS
ARE URGED TO COMPLETE, SIGN, DATE, AND RETURN THE ACCOMPANYING FORM OF PROXY IN
THE ENCLOSED ENVELOPE.
19
<PAGE> 22
1. ELECTION OF DIRECTORS
For all nominees WITHHOLD
listed to the right AUTHORITY
(except as marked to vote for all nominees
to the Company) listed to the right
/ / / /
NOMINEES: Paul J. Kerz, Robert V. Nagelhout, William W. Neal, Ellen A. Rudnick,
Donald J. Staffa, Richard H. Stowe
- -------------------------------------------------
FOR, except for the following nominee(s)
2. Ratification of the selection of KPMG Peat Marwick LLP as the Company's
independent accountants for the fiscal year ended October 31, 1997.
FOR AGAINST ABSTAIN
/ / / / / /
3. TO TRANSACT such other business as may properly come before the meeting or
any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR
PROPOSALS (1) AND (2) ABOVE, IF ANY NOMINEE DECLINES OR IS UNABLE TO SERVE AS A
DIRECTOR THEN THE PERSONS NAMED AS PROXIES SHALL HAVE FULL DISCRETION TO VOTE
FOR ANY OTHER PERSON DESIGNATED BY THE BOARD OF DIRECTORS.
Signature__________________________Signature_________________________Date_______
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
the title as such.
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
ANNUAL
[HEALTH MANAGEMENT SYSTEMS, INC. LOGO] MEETING OF
SHAREHOLDERS
MARCH 4, 1997, 11:00 a.m.
401 PARK AVENUE SOUTH
NEW YORK, NEW YORK 10016
<PAGE> 23
HEALTH MANAGEMENT SYSTEMS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Paul J. Kerz and Laurence B. Simon and any one
of them, as proxies, to vote all shares of Common Stock of Health Management
Systems, Inc. (the "Company") held of record by the undersigned as of January
15, 1997, the record date with respect to this solicitation, at the Annual
Meeting of Shareholders of the Company to be held at 401 Park Avenue South, New
York, New York, 10016 on Tuesday, March 4, 1997, at 11:00 A.M. and any
adjournments thereof, upon the following matters:
(OVER)
[] FOLD AND DETACH HERE []
