SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
HCIA
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) No fee required
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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>
March 21, 1997
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders of
HCIA Inc. (the "Company"), which will be held at the offices of the Company, 300
East Lombard Street, Baltimore, Maryland, on Wednesday, May 7, 1997 at 10:00
a.m., Baltimore time. Holders of the Company's common stock as of March 7, 1997
are entitled to vote at the meeting.
The matters proposed for consideration at the meeting are the election of
three directors, the approval of an amendment to the Company's 1994 Stock and
Incentive Plan, and the ratification of the appointment of KPMG Peat Marwick LLP
as the Company's independent public accountants. The accompanying Notice of
Meeting and Proxy Statement discuss these matters in further detail. We urge you
to review this information carefully.
Your Board of Directors unanimously believes that the election of the
nominees as directors, the approval of the amendment to the Stock and Incentive
Plan and the ratification of the appointment of the independent accountants, are
each in the best interests of the Company and its stockholders and, accordingly,
recommends a vote FOR all of the Items on the enclosed form of proxy. After
reviewing the enclosed materials, please complete the proxy card and return it
using the enclosed envelope. If you decide to attend the meeting, you may vote
in person even if you have previously sent in a proxy card.
In addition to the formal business to be transacted, management will make a
presentation on developments during the past fiscal year and respond to
questions of interest to stockholders.
On behalf of the Board of Directors and all of the employees of the
Company, I wish to thank you for your continued support.
Sincerely yours,
/s/ George D. Pillari
__________________________
George D. Pillari
Chairman & CEO
<PAGE>
HCIA INC.
300 East Lombard Street
Baltimore, Maryland 21202
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
MAY 7, 1997
TO THE STOCKHOLDERS OF HCIA INC.:
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders (the
"Annual Meeting") of HCIA Inc., a Maryland corporation (the "Company"), will be
held at 300 East Lombard Street, Baltimore, Maryland, on Wednesday, May 7, 1997
at 10:00 a.m., Baltimore time, for the following purposes:
1. To elect three directors in Class III for a three year term ending in
2000.
2. To approve an amendment to the 1994 Stock and Incentive Plan.
3. To ratify the selection of KPMG Peat Marwick LLP as the Company's
independent public accountants.
4. To act upon any other matter which may properly come before the Annual
Meeting or any adjournment thereof.
The Board of Directors of the Company has fixed the close of business on
March 7, 1997 as the record date for determining stockholders of the Company
entitled to notice of and to vote at the Annual Meeting.
Your attention is directed to the attached Proxy Statement and to the
enclosed Annual Report of the Company for the fiscal year ended December 31,
1996.
By Order of the Board of Directors,
/s/ Charles A. Berardesco
___________________________________
Charles A. Berardesco
Secretary
Baltimore, Maryland
March 21, 1997
EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND
THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON.
<PAGE>
HCIA INC.
300 East Lombard Street
Baltimore, Maryland 21202
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is being furnished to stockholders of HCIA Inc., a
Maryland corporation (the "Company"), in connection with the solicitation by the
Board of Directors of the Company of proxies for use at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held at the offices of the Company,
300 East Lombard Street, Baltimore, Maryland, on Wednesday, May 7, 1997 at 10:00
a.m., Baltimore time, and at any adjournments thereof.
SOLICITATION
The solicitation is being made primarily by the use of the mails, but
directors, officers and employees may also engage in the solicitation of proxies
by telephone. The cost of soliciting proxies will be borne by the Company, and
no compensation will be paid by the Company in connection with the solicitation
of proxies, except that the Company may reimburse brokers, custodians, nominees
and other recordholders for their reasonable out-of-pocket expenses in
forwarding proxy material to beneficial owners.
This Proxy Statement and the accompanying form of proxy are being sent to
stockholders on or about March 21, 1997.
REVOCATION OF PROXIES
A proxy may be revoked at any time prior to its exercise by the filing of a
written notice of revocation with the Secretary of the Company, by delivering to
the Company a duly executed proxy bearing a later date, or by attending the
Annual Meeting and voting in person. However, if you are a stockholder whose
shares are not registered in your own name, you will need additional
documentation from your record holder to vote personally at the Annual Meeting.
VOTING RIGHTS AND OUTSTANDING SHARES
The close of business on March 7, 1997 has been fixed by the Board of
Directors of the Company as the record date (the "Record Date") for determining
the stockholders of the Company entitled to notice of and to vote at the Annual
Meeting. As of the Record Date, the Company had outstanding 11,833,656 shares of
common stock, $.01 par value per share (the "Common Stock"). Each share of
Common Stock entitles the holder thereof to one vote on each matter to be voted
upon at the Annual Meeting. There is no cumulative voting for the election of
directors.
The presence, in person or by proxy, of at least a majority of the total
number of shares of Common Stock entitled to vote is necessary to constitute a
quorum at the Annual Meeting. In the event there are not sufficient votes for a
quorum or to approve any proposal at the Annual Meeting, the Annual Meeting may
be adjourned in order to permit the further solicitation of proxies.
All outstanding shares of the Company's Common Stock represented by
properly executed and unrevoked proxies received in the accompanying form in
time for the Annual Meeting will be voted. A stockholder may, with respect to
the election of directors (i) vote for the election of the named director
nominees, (ii) withhold authority to vote for all such director nominees, or
(iii) vote for the election of all such director nominees other than any nominee
with respect to whom the stockholder withholds authority to vote by striking a
line through such nominee's name on the proxy. A stockholder may, with respect
to each other matter specified in the notice of meeting (i) vote "FOR" the
matter, (ii) vote "AGAINST" the matter, or (iii) "ABSTAIN" from voting on the
matter. Shares will be voted as instructed in the accompanying proxy on each
matter submitted to stockholders. If no instructions are given, the shares will
be voted FOR the election of the named director
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nominees, FOR the amendment to the 1994 Stock and Incentive Plan, and FOR the
ratification of the appointment of KPMG Peat Marwick LLP as the Company's
independent public accountants.
A proxy submitted by a stockholder may indicate that all or a portion of
the shares represented by such proxy are not being voted by such stockholder
with respect to a particular matter. This could occur, for example, when a
broker is not permitted to vote Common Stock held in street name on certain
matters in the absence of instructions from the beneficial owner of the Common
Stock. The shares subject to any such proxy which are not being voted with
respect to a particular matter (the "non-voted shares") will be considered
shares not present and entitled to vote on such matter, although such shares may
be considered present and entitled to vote for other purposes and will count for
purposes of determining the presence of a quorum.
The affirmative vote of a plurality of the shares of Common Stock voted at
the Annual Meeting is required to elect directors. Accordingly, if a quorum is
present at the Annual Meeting, the three persons receiving the greatest number
of votes will be elected to serve as directors. Therefore, withholding authority
to vote for a director(s) and non-voted shares with respect to the election of
directors will not affect the outcome of the election of directors.
The approval of the amendment to the 1994 Stock and Incentive Plan and the
ratification of the approval of KPMG Peat Marwick LLP will require the approval
of a majority of the shares of Common Stock voted at the Annual Meeting. As a
result, abstentions in connection with these proposals will have the effect of a
vote against such proposals, while non-votes will not be considered to have
voted on the proposal.
The Board of Directors knows of no additional matters that will be
presented for consideration at the Annual Meeting. Execution of a proxy,
however, confers on the designated proxyholders discretionary authority to vote
the shares in accordance with their best judgment on such other business, if
any, that may properly come before the Annual Meeting or any adjournments
thereof. Proxies solicited hereby will be returned to the Company's transfer
agent, and will be tabulated by inspectors of election designated by the Board
of Directors, who will not be an employee or a director of the Company or any of
its affiliates.
PROPOSALS TO BE VOTED ON AT THE ANNUAL MEETING
PROPOSAL 1. ELECTION OF DIRECTORS
The Company's Bylaws provide that the Board of Directors is divided into
three classes, each class consisting, as nearly as possible, of one-third of the
total number of directors. Each year the directors in one class are elected to
serve for a term of three years. The Board of Directors is presently composed of
seven members. Directors in Class III -- Messrs. Gregory and Lassiter and Dr.
Schramm, have a term of office scheduled to expire at the Annual Meeting. Each
of Messrs. Gregory and Lassiter and Dr. Schramm has been nominated for a three
year term expiring at the Annual Meeting of Stockholders in 2000 and until their
respective successors are elected and qualify.
Directors in Class I -- Messrs. Pillari and Dulude, have terms of office
expiring at the 1998 annual meeting and until their respective successors are
elected and qualify. Directors in Class II -- Mr. Berman and Dr. Rogers, have
terms of office expiring at the 1999 annual meeting and until their successors
are elected and qualify.
THE PERSONS NAMED IN THE ENCLOSED PROXY INTEND TO VOTE PROPERLY EXECUTED
AND RETURNED PROXIES FOR THE ELECTION OF ALL NOMINEES PROPOSED BY THE BOARD OF
DIRECTORS UNLESS AUTHORITY TO VOTE IS WITHHELD. In the event that any of the
nominees is unable or unwilling to serve, the persons named in the proxy will
vote for such substitute nominee or nominees as they, in their discretion, shall
determine. The Board of Directors has no reason to believe that any nominee
named herein will be unable or unwilling to serve.
Set forth below is information concerning the nominees for election and
those directors whose term continues beyond the date of the Annual Meeting.
NOMINEES FOR DIRECTOR FOR A THREE YEAR TERM EXPIRING AT THE 2000 ANNUAL MEETING.
W. GRANT GREGORY, age 56, has been a director of the Company since December
1994. He has served as Chairman of Gregory & Hoenemeyer, Inc., merchant bankers,
since 1988. Mr. Gregory retired as Chairman of the Board of Touche Ross, Inc. in
1987. He is a director of AMBAC Inc. ("AMBAC"), AMBAC Indemnity Corporation
("AIC"), and InaCom Corp.
PHILLIP B. LASSITER, age 53, has been a director of the Company since
October 1992. He has served as Chairman and Chief Executive Officer of AMBAC and
AIC since April 1991, and as President since August 1992. From 1969 to July
1991,
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Mr. Lassiter served in various capacities with Citibank, N.A., including Deputy
Section Head for North American investment, corporate banking and institutional
insurance activities. He is a director of Diebold Inc.
CARL J. SCHRAMM, PH.D., age 50, has served as a director of the Company
since January 1995. He is presently serving as President of Greenspring
Advisors, Inc., which provides strategic, financial and other advice to
businesses. From January 1993 to May 1995, Dr. Schramm served as Executive Vice
President of Fortis, Inc., and from May 1987 to December 1992, served as
president of the Health Insurance Association of America. He was Director of the
Johns Hopkins Center for Hospital Finance and Management from January 1980 to
May 1987. Dr. Schramm co-founded the Company in 1985, and served as an officer
and director of the Company until 1988.
DIRECTORS WHOSE TERM WILL EXPIRE AT THE 1998 ANNUAL MEETING.
GEORGE D. PILLARI, age 34, co-founded the Company in 1985 and has served as
its Chief Executive Officer since 1987, also serving as President from 1987 to
April 1992 and since October 1992. He has served as Chairman of the Board since
April 1992.
RICHARD DULUDE, age 64, has been a director of the Company since December
1994. He retired as Vice Chairman of Corning Incorporated in April 1993, having
served in that capacity since November 1990, and as Group President of Corning
Incorporated from 1983 to November 1990. Mr. Dulude is a director of AMBAC, AIC,
Raychem Corporation and Landec Corp.
DIRECTORS WHOSE TERM WILL EXPIRE AT THE 1999 ANNUAL MEETING.
RICHARD A. BERMAN, age 52, has been a director of the Company since October
1995. He has served as President of Manhattanville College in New York since
January 1995. Prior to that time, Mr. Berman held several positions in
educational institutions, government and the private sector, including serving
as President and Chief Executive Officer of Howe-Lewis International, an
executive search and management consulting firm, from November 1991 to January
1995.
MARK C. ROGERS, M.D., age 54, has been a director of the Company since
January 1995. He has served as Senior Vice President, Corporate Development and
Chief Technology Officer of Perkin Elmer since May 1996. From 1992 until
assuming his present position, Dr. Rogers served as the Vice Chancellor for
Health Affairs, Duke University Medical Center, and Executive Director and Chief
Executive Officer, Duke University Hospital and Health Network. From 1990 until
1992, he was Associate Dean for Clinical Affairs at the Johns Hopkins University
School of Medicine and, from 1980 until 1992, also served as Professor and
Chairman of the Department of Anesthesiology and Critical Care Medicine at the
Johns Hopkins University School of Medicine.
BOARD COMMITTEES AND MEETINGS
The Board of Directors has an Audit Committee consisting of Messrs.
Gregory, Berman and Lassiter, and a Compensation Committee consisting of Messrs.
Berman, Dulude, Gregory and Lassiter and Drs. Rogers and Schramm. The Board of
Directors does not have a nominating committee, or a committee performing
similar functions.
The Audit Committee is primarily concerned with the effectiveness of the
audits of the Company by the Company's independent public accountants. Its
duties include recommending the selection of independent accountants, reviewing
the scope and results of their audits, and reviewing the organization and scope
of the Company's internal system of accounting and financial controls. The Audit
Committee met four times during 1996.
The Compensation Committee is responsible for the overall administration of
the Company's compensation policies and practices, including the recommendation
of compensation for officers and employees of the Company and for matters
relating to compensation plans and arrangements. In addition, the Compensation
Committee approves awards under and administers the Company's 1994 Stock and
Incentive Plan. The Compensation Committee met four times during 1996.
The Board of Directors met six times during 1996. No director attended
fewer than 75% of the total number of meetings of the Board and of the
Committees of which he was a member during 1996.
DIRECTOR COMPENSATION
DIRECTORS' FEES. The Company pays its directors who are not officers or
employees of the Company or its affiliates, an annual retainer of $12,000, fees
of $1,000 for each Board meeting attended and $500 for each committee meeting
attended, and an annual fee of $1,500 for service as a Board committee chair.
3
<PAGE>
Under the Company's Deferred Compensation Plan for Outside Directors (the
"Deferred Compensation Plan"), non-employee directors may elect to defer all or
part of their director compensation (including both annual fees and meeting
fees) that is paid in cash. Deferrals will be credited to a bookkeeping account
maintained on the director's behalf as a cash credit, which periodically will be
credited with interest at the 90-day commercial paper rate as quoted by the
Federal Reserve Bank. The Deferred Compensation Plan is unfunded. Settlement of
accounts will be made only in cash.
DIRECTORS OPTION PLAN. Under the 1995 Non-Employee Directors Stock Option
Plan (the "Directors Option Plan"), each director who is not an officer or
employee of the Company or its affiliates (an "outside director") is granted an
option at each annual meeting of stockholders to purchase 5,000 shares of Common
Stock at an exercise price equal to the fair market value of the Common Stock on
the date of grant. This annual award vests as of the first annual meeting of
stockholders held following the date of the award, provided that the outside
director continues in service as a member of the Board until the relevant
vesting date.
PROPOSAL 2. AMENDMENT TO 1994 STOCK AND INCENTIVE PLAN
The Board of Directors has an approved amendment to the 1994 Stock and
Incentive Plan (the "Stock Option Plan"), subject to stockholder approval, to
increase the number of shares of Common Stock available for awards from
1,350,000 to 2,350,000.
The following is a summary of the Stock Option Plan as currently in effect.
A copy of the text of the Plan may be obtained by writing to the Secretary, HCIA
Inc., 300 East Lombard Street, Baltimore, Maryland 21202.
GENERAL. The Stock Option Plan was approved by the Board of Directors on
December 22, 1994 and thereafter by the stockholders. The Stock Option Plan
provides for the grant or award of stock options, stock appreciation rights
("SARs"), restricted stock, restricted stock units and other performance awards,
which may or may not be denominated in shares of Common Stock or other
securities (collectively, the "Awards"), provided that Awards under the Stock
Option Plan may not exceed 1,350,000 shares of Common Stock. Stock options
granted under the Stock Option Plan may be either incentive stock options
("ISOs") pursuant to Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or non-qualified options. The purpose of the Stock Option
Plan is to attract and retain outstanding employees through the incentives of
stock ownership and monetary payments. Regular full-time employees of the
Company, including officers but excluding directors who are not officers, are
eligible to receive Awards under the Stock Option Plan.
The Stock Option Plan is administered by the Compensation Committee of the
Board of Directors. Subject to the provisions of the Stock Option Plan, the
Compensation Committee has the authority to designate participants, determine
the types of Awards to be granted, the number of shares to be covered by each
Award, the time at which each Award is exercisable or may be settled, the method
of payment and any other conditions of the Awards. All Awards shall be evidenced
by an Award agreement between the Company and the participant.
While the Compensation Committee determines the prices at which options and
other Awards may be exercised under the Stock Option Plan, the exercise price of
an option shall be at least 100% of the fair market value (as determined under
the terms of the Stock Option Plan) of a share of Common Stock on the date of
grant. As of March 7, 1997, the last sales price of the Company's Common Stock
as reported on the Nasdaq Stock Market was $32.25. As of March 7, 1997, options
to purchase an aggregate of 1,264,932 shares have been granted, and have either
been exercised or continue to be outstanding, under the Stock Option Plan. No
Awards may be made under the Stock Option Plan after December 31, 2004.
FEDERAL INCOME TAX CONSEQUENCES. The following is a brief summary of the U.S.
federal income tax consequences of Awards made under the Stock Option Plan.
STOCK OPTIONS. A participant will not recognize any income upon the grant
of a stock option. A participant will recognize compensation taxable as ordinary
income, subject to income tax withholding, upon exercise of a non-qualified
stock option equal to the excess of the fair market value of the shares
purchased over their exercise price, and the Company will be entitled to a
corresponding deduction. A participant generally will not recognize income
(except for purposes of the alternative minimum tax) upon exercise of an ISO
during employment with the Company or within three months after termination of
such employment. If the shares acquired by exercise of an ISO are held for at
least two years from the date the option was granted and one year from the date
it was exercised, any gain or loss arising from a subsequent disposition of such
shares will be taxed as long-term capital gain or loss, and the Company will not
be entitled to any corresponding deduction. If, however, such shares are
disposed of within the above-described period, then, in the year of such
disposition, the participant will recognize compensation taxable as ordinary
income equal to the lesser of (i) the amount realized upon such disposition or
(ii)
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the fair market value of such shares on the date of exercise over the exercise
price, and the Company will be entitled to a corresponding deduction, except to
the extent the limit of Section 162(m) of the Code (described below) applies.
SARS. A participant generally will not recognize any taxable income upon
the grant of SARs. A participant will recognize compensation taxable as ordinary
income, subject to income tax withholding, upon exercise of an SAR equal to the
fair market value of any shares delivered and the amount of cash paid by the
Company upon such exercise, and the Company will be entitled to a corresponding
deduction, except to the extent the limit of Section 162(m) of the Code applies.
RESTRICTED STOCK. A participant will not recognize taxable income at the
time of the grant of shares of restricted stock, and the Company will not be
entitled to a tax deduction at such time, unless the participant makes an
election to be taxed at the time restricted stock is granted. If such election
is not made, the participant will recognize taxable income at the time the
restrictions lapse in an amount equal to the excess of the fair market value of
the shares at such time over the amount, if any, paid for such shares. The
amount of ordinary income recognized by a participant by making the
above-described election or upon the lapse of the restrictions is deductible by
the Company as compensation expense, except to the extent the limit of Section
162(m) of the Code applies. In addition, a participant receiving dividends with
respect to restricted stock for which the above-described election has not been
made and prior to the time the restriction lapses, will recognize taxable
compensation (subject to income tax withholding), rather than dividend income,
in an amount equal to the dividends paid and the Company will be entitled to a
corresponding deduction, except to the extent the limit of Section 162(m) of the
Code applies.
SECTION 162(M) OF THE CODE. Section 162(m) of the Code generally limits to
$1 million the amount that a publicly held corporation is allowed each year to
deduct for the compensation paid to each of the corporation's chief executive
officer and the corporation's four most highly compensated officers. However,
certain types of compensation, including qualified "performance-based
compensation," paid to such executives are not subject to the $1 million
deduction limit. In accordance with proposed Treasury regulations issued under
Section 162(m), compensation attributable to stock options will qualify as
performance-based compensation, provided that: (i) the option plan contains a
per-employee limitation on the number of shares for which options may be granted
during a specified period; (ii) the per-employee limitation is approved by the
stockholders; (iii) the option is granted by a compensation committee comprised
solely of "outside directors;" and (iv) either the exercise price of the option
is no less than the fair market value of the stock on the date of grant, or the
option is granted (or exercisable) only upon the achievement (as certified by
the compensation committee) of an objective performance goal established by the
Compensation Committee while the outcome is substantially uncertain. The Stock
Option Plan contains provisions which comply with each of these requirements.
AMENDMENTS. The Board of Directors may amend the Stock Option Plan in any
respect; provided, however, that the amendment shall be conditioned upon
stockholder approval if (i) required upon applicable law or (ii) necessary to
maintain the continued qualification of the Plan under Rule 16b-3 promulgated
under the Securities Exchange Act of 1934.
ESTIMATE OF BENEFITS. The nature or amount of any Awards that may be made in the
future is not currently determinable. Information regarding stock options
awarded to the executive officers of the Company is set forth in "Executive
Compensation and Other Information -- Option Grants." In addition, during 1996,
options to purchase 811,500 shares of Common Stock were awarded to all employees
of the Company, including officers who are not executive officers.
UNLESS MARKED TO THE CONTRARY, THE SHARES REPRESENTED BY THE ENCLOSED
PROXY, IF PROPERLY EXECUTED AND DELIVERED, WILL BE VOTED FOR THE PROPOSED
AMENDMENTS TO THE STOCK OPTION PLAN.
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PROPOSAL 3. RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected the firm of KPMG Peat Marwick LLP to
serve as independent public accountants for the year ending December 31, 1997,
subject to the ratification of such appointment by the stockholders.
Representatives of KPMG Peat Marwick LLP are expected to be present at the
Annual Meeting. They will have the opportunity to make a statement if they
desire to do so and are expected to be available to respond to appropriate
questions.
UNLESS MARKED TO THE CONTRARY, THE SHARES REPRESENTED BY THE ENCLOSED
PROXY, IF PROPERLY EXECUTED AND RETURNED, WILL BE VOTED FOR THE RATIFICATION OF
THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE INDEPENDENT PUBLIC ACCOUNTANTS
OF THE COMPANY FOR THE YEAR ENDING DECEMBER 31, 1997.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth as of February 28, 1997, certain information
with respect to the beneficial ownership of the Common Stock by: (i) each of the
Named Executive Officers (as defined below) of the Company; (ii) each of the
directors of the Company and nominees for directors; (iii) all directors and
executive officers of the Company as a group; and (iv) each person known to the
Company who beneficially owns 5% or more of the outstanding shares of Common
Stock. The Company believes that the beneficial owners of the Common Stock
listed below, based on information furnished by such owners, have sole voting
and investment power with respect to such shares, except as noted below:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
-------------------
NAME NUMBER PERCENT
- ---- -------- -------
<S> <C>
George D. Pillari(2)............................................... 396,265 3.3%
Richard A. Berman(3)............................................... 7,250 *
Richard Dulude(3).................................................. 10,500 *
W. Grant Gregory(3)(4)............................................. 19,500 *
Phillip B. Lassiter(3)............................................. 13,250 *
Mark C. Rogers, M.D.(3)............................................ 9,500 *
Carl J. Schramm, Ph.D.(3).......................................... 10,900 *
Sachi J. Morishige(5).............................................. 62,638 *
Barry C. Offutt(5)................................................. 32,957 *
Jean Chenoweth(5).................................................. 28,871 *
EJay Lockwood(5)................................................... 1,250 *
FMR Corp.(6)....................................................... 1,511,700 12.8%
Massachusetts Financial Services Company(7)........................ 1,298,550 11.0%
All directors and executive officers as a group (14 persons)(8).... 605,232 5.0%
</TABLE>
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and includes voting or investment power with respect to the
shares. Shares of Common Stock subject to options currently exercisable or
exercisable within 60 days of the Record Date are deemed outstanding for
computing the percentage of the person holding such options, but are not
deemed outstanding for computing the percentage of any other person.
(2) Includes (i) 234,315 shares as to which Mr. Pillari shares beneficial
ownership with his wife, (ii) 1,950 shares held as custodian for minor
children, and (iii) a currently exercisable option to acquire 160,000 shares
of Common Stock.
(3) Includes, (i) for Messrs. Berman and Lassiter, 7,250 shares subject to
options under the Directors Option Plan and (ii) for Messrs. Dulude, Gregory
and Drs. Rogers and Schramm, 9,500 shares subject to options under the
Directors Option Plan.
(4) Includes 4,000 shares owned through a partnership of which Mr. Gregory is a
partner.
(5) Includes 62,638, 32,957, 26,741 and 1,250 shares subject to options held by
Ms. Morishige, Mr. Offutt, Ms. Chenoweth and Mr. Lockwood, respectively.
(6) Based on a Schedule 13G filed by the listed entity on behalf of itself and
certain affiliates. According to the Schedule 13G, there is sole dispositive
power with respect to all shares and neither sole nor shared voting power
with respect to any such shares. The address of FMR Corp. is 85 Devonshire
Street, Boston, Massachusetts 02109.
(7) Based on Schedule 13G filed by the listed entity. According to the Schedule
13G, there is sole dispositive power with respect to all shares and sole
voting power with respect to 1,197,150 shares. The address of Massachusetts
Financial Services Company is 500 Boylston Street, Boston, Massachusetts
02116.
(8) Includes 336,086 shares subject to options held by all directors and
executive officers as a group.
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EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth certain information regarding the Company's
Chief Executive Officer and each of the other four most highly compensated
executive officers during 1994, 1995, and 1996 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
FISCAL ----------------------- OPTIONS/SARS OTHER
NAME AND TITLE YEAR SALARY($) BONUS($)(1) (#)(2) COMPENSATION($)(3)
- -------------- ------ --------- ----------- ------------- ------------------
<S> <C>
George D. Pillari 1996 265,000 -- 50,000 4,500
Chairman, President and 1995 264,175 132,500 160,000 3,221
Chief Executive Officer.................................. 1994 241,275 -- --(4) 4,860
Sachi J. Morishige 1996 163,750 28,125 12,500 4,500
Senior Vice President -- 1995 136,659 60,964 15,001 2,896
Corporate Development.................................... 1994 124,378 75,000 49,999 2,820
Barry C. Offutt 1996 154,167 37,500 22,500 4,500
Senior Vice President and 1995 134,167 37,492 12,501 2,904
Chief Financial Officer.................................. 1994 114,378 15,000 31,666 2,506
Jean Chenoweth 1996 149,375 21,250 10,000 4,500
Senior Vice President -- 1995 134,586 44,263 12,501 2,896
Industry Relations....................................... 1994 125,421 22,541 20,833 3,000
EJay Lockwood
Senior Vice President --
Managed Care Markets (5)................................. 1996 100,000 10,500 10,000 4,500
</TABLE>
(1) The amounts shown in this column include bonuses accrued under the Company's
management incentive program during 1994 and 1995. Of the bonus paid to Ms.
Morishige in 1994, $50,000 represents a portion of a bonus awarded in 1992
and paid in 1994.
(2) See " -- Option Grants," and " -- Option Exercises and Year-End Values" for
disclosure regarding outstanding stock options.
(3) Consists of matching contributions under the Company's Savings Incentive
Plan for all Named Executive Officers and life insurance premium payments in
1994 of $1,860 on insurance policies maintained by the Company for the
benefit of Mr. Pillari's family trust.
(4) During 1994, Mr. Pillari received an option to purchase 172,182 shares of
Common Stock, which was canceled in February 1995.
(5) Mr. Lockwood joined the Company in January 1996.
OPTION GRANTS
Options granted to the Named Executive Officers during 1996 are set forth
in the following table. No stock appreciation rights ("SARs") were granted
during 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------ POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SHARES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE ----------------------
NAME GRANTED(#)(1) 1996 (%) ($/SHARE)(1) EXPIRATION DATE 5%($) 10%($)
- ---- ------------- ------------ ------------ --------------- ----- ------
<S> <C>
George D. Pillari.................. 50,000 6.2 59.875 August 7, 2006 1,882,753 4,771,266
Sachi J. Morishige................. 12,500 1.5 59.875 August 7, 2006 470,688 1,192,817
Barry C. Offutt.................... 22,500 2.8 59.875 August 7, 2006 847,239 2,147,070
Jean Chenoweth..................... 10,000 1.2 59.875 August 7, 2006 376,551 954,253
5,000 0.6 48.75 February 7, 2006 155,293 388,475
EJay Lockwood...................... 5,000 0.6 28.69 November 13, 2006 90,215 228,622
</TABLE>
(1) The exercise price of each option was equal to the fair market value of the
underlying Common Stock on the date of grant, as determined in accordance
with the Stock Option Plan. Each option vests annually over a four year
period.
(2) Future value of current-year grants assuming appreciation of 5% and 10% per
year over the applicable option term. The actual value realized may be
greater than or less than the potential realizable values set forth in the
table.
7
<PAGE>
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth certain information regarding options
exercised by certain of the Named Executive Officers during 1996 and the fiscal
year-end value of unexercised options. There were no SARs outstanding during
1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)(1)
ACQUIRED ON VALUE ------------------------------ ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C>
George D. Pillari..................... -- -- 160,000 50,000 3,280,000 N/A
Sachi J. Morishige.................... -- -- 59,305 68,195 1,476,758 1,271,977
Jean Chenoweth........................ -- -- 21,138 26,362 418,249 303,609
Barry C. Offutt....................... 1,500 73,635 22,957 48,542 517,121 496,096
EJay Lockwood......................... -- -- -- 10,000 -- 29,050
</TABLE>
(1) Calculated based on the last sales price of the Common Stock on December 31,
1996 of $34.50 per share, less the exercise price.
OPTION CANCELLATIONS AND REPLACEMENTS
As discussed in the "Compensation Committee Report on Executive
Compensation," in November 1996 the Compensation Committee canceled certain of
the options granted in May 1996 and August 1996 and granted new options with an
exercise price equal to the then fair market value of $28.69 (the "Replacement
Options"). The Replacement Options have a four year vesting schedule which
commenced on the date of their grant. None of the Name Executive Officers except
Mr. Lockwood was granted a Replacement Option, although certain other executive
officers of the Company were granted Replacement Options. The following table
sets forth certain information relating to the Replacement Options and the
options which were canceled upon receipt of the Replacement Options.
TEN YEAR OPTIONS/SAR REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES MARKET PRICE EXERCISE
UNDERLYING OF STOCK AT PRICE AT TIME ORIGINAL TERM
OPTIONS/SARS TIME OF OF REPRICING NEW REMAINING AT
REPRICED OR REPRICING OR OR AMENDMENT EXERCISE DATE OF
NAME DATE AMENDED (#) AMENDMENT ($) ($) PRICE ($) REPRICING
- ---- ----------------- ------------ ------------- ------------- --------- --------------
<S> <C>
EJay Lockwood
Senior Vice President..... November 13, 1996 5,000 28.69 59.875 28.69 9 yrs., 9 mos.
Donald S. Good, Jr. November 13, 1996 12,500 28.69 50.88 28.69 9 yrs., 6 mos.
Senior Vice President..... November 13, 1996 12,500 28.69 59.875 28.69 9 yrs., 9 mos.
Charles A. Berardesco November 13, 1996 15,000 28.69 50.88 28.69 9 yrs., 6 mos.
Senior Vice President..... November 13, 1996 5,000 28.69 59.875 28.69 9 yrs., 9 mos.
Lawrence F. Byrne
Senior Vice President..... November 13, 1996 105,000 28.69 59.875 28.69 9 yrs., 9 mos.
Kevin J. Hicks
Senior Vice President..... November 13, 1996 105,000 28.69 59.875 28.69 9 yrs., 9 mos.
</TABLE>
EMPLOYMENT AGREEMENT
Effective as of January 1, 1995, the Company entered into an employment
agreement with Mr. Pillari pursuant to which the Company continued his
employment as Chairman of the Board, President and Chief Executive Officer.
Pursuant to the employment agreement, Mr. Pillari receives an annual base salary
of $265,000 and is entitled to participate in bonus arrangement under which he
is eligible to earn an annual bonus based on the Company's achieving certain
performance goals to be established by the Board of Directors. The employment
agreement has an initial term of two years, and unless the Board of Directors
notifies Mr. Pillari otherwise, the term of the agreement automatically renews
daily for succeeding two year periods.
The employment agreement provides that in the event of the termination of
Mr. Pillari's employment for certain reasons, including certain terminations
resulting from a change in control of the Company (as defined in the employment
agreement),
8
<PAGE>
Mr. Pillari would be entitled to receive for the remainder of the employment
term contemplated in the agreement, compensation at an annualized rate equal to
the sum of his base annual salary and target bonus at the time of termination
(such sum being not less than 140% of such base annual salary). In addition, he
would continue to participate in all Company benefit plans until the earlier of
two years from the date of termination or such time as he is covered by a
comparable plan of a subsequent employer. Mr. Pillari is also subject to certain
restrictions under the agreement prohibiting him from competing with the Company
or any of its subsidiaries and from divulging any confidential proprietary
information obtained by him while in the employ of the Company and for a period
of time thereafter.
MANAGEMENT RETENTION AGREEMENTS
The Company has entered into a management retention agreement with each of
its officers (other than Mr. Pillari). These agreements provide for payments and
other benefits if there is a change in control (as defined in the agreement) of
the Company and, within two years of such change in control, the officer's
employment is terminated by the Company or its successor other than for cause
(as defined in the agreement), or the officer resigns for good reason (as
defined in the agreement). Under each agreement, the officer would receive,
following termination of employment under such circumstances, cash payments
equal to up to two times the sum of (i) the officer's highest annual rate of
base salary and (ii) the product of the officer's highest bonus percentage (as a
percentage of base salary) times his highest base salary (such sum being the
"Reference Amount"). The officer may elect to receive payment either in a lump
sum or in the form of periodic payments following his termination of employment.
For certain officers, amounts in excess of one times the Reference Amount will
be made in the form of periodic payments, and will be subject to reduction, on a
dollar-for-dollar basis, by any compensation the officer earns from a subsequent
employer unrelated to the Company.
In addition to the payments described above, the officer would be fully
vested in all stock options and other Awards under the Stock Option Plan upon a
change in control and receive following termination of employment a lump-sum
payment equal to the amount that the Company would have contributed for the
officer's account under the Company's Savings Incentive Plan during the two
years following termination of employment. The officer and his family will
remain eligible to participate in the Company's medical and other welfare
benefits programs for two years from the officer's termination of employment
(except that coverage will end to the extent the officer begins coverage under
the plans of a subsequent employer).
SAVINGS INCENTIVE PLAN
The Company maintains the Savings Incentive Plan, a profit sharing plan
qualified under Section 401(a) of the Internal Revenue Code of 1986. All
employees of the Company who have completed one year of service are eligible to
participate in the Savings Incentive Plan. Subject to certain limitations on
individual contributions and allocations and Company deductions, the Savings
Incentive Plan allows participants to defer up to 15% of their pay on a pre-tax
basis and up to 10% of their pay on an after-tax basis. The Company also makes
matching contributions equal to 50% of the amount a participant defers, up to 6%
of the participant's pay. The Savings Incentive Plan also provides for
discretionary contributions by the Company. All participants are fully vested in
all of their accounts in the Savings Incentive Plan. The Company's contributions
to the Savings Incentive Plan during 1995 and 1996 were approximately $194,000
and $397,000, respectively.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of the Company has a Compensation Committee
consisting of Messrs. Berman, Dulude, Gregory and Lassiter and Drs. Rogers and
Schramm. Except for Mr. Pillari, the Company's Chairman of the Board, President
and Chief Executive Officer, no officer or employee of the Company has
participated in deliberations of the Board of Directors concerning executive
officer compensation.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for developing and administering
the compensation program for the executive officers of the Company. The
Committee's compensation recommendations with respect to salaries and bonuses
are then approved by the entire Board of Directors. The Compensation Committee's
executive compensation policies are designed to offer competitive compensation
opportunities for all executives based on personal performance and achievement,
as well as overall corporate performance. The Committee's philosophy is to
establish an executive's total compensation at a level that compares favorably
with overall pay levels at companies comparable in size and business operations
to the Company. The Committee also bases its decisions on overall corporate
results, which supports the Company's objective of creating stockholder value by
encouraging and rewarding superior efforts by the Company's employees. This is
primarily accomplished
9
<PAGE>
through the Company's incentive compensation program, which provides quarterly
bonuses to executive officers based on meeting objective financial and other
goals.
The Compensation Committee also is of the view that stock ownership by
management and stock-based compensation arrangements are beneficial in aligning
management's and stockholders' interests in the enhancement of stockholder value
and approves the grant of stock options to executive officers whose performance
has had a significant effect on the success of the Company.
Compensation paid to the Company's executive officers generally consists of
the following elements -- base salary, bonuses and the grant of stock options.
Mr. Pillari's base compensation and bonus arrangements are determined under his
employment agreement with the Company. The compensation of the other executive
officers of the Company is determined by consideration of each officer's
initiative and contribution to overall corporate performance and the officer's
managerial abilities and performance in any special projects that the officer
may have undertaken. Competitive base salaries that reflect the individual
executive's level of responsibility are important elements of the Company's
executive compensation philosophy.
Executive officers are also eligible to receive a quarterly bonus equal to
a percentage of the executives' base salary upon achievement of specific
Company-wide net income targets and, in the case of certain executive officers,
the contribution of the business unit which they supervise to the Company's
results. Executive officers other than Mr. Pillari are eligible to receive an
increase of up to 50% of their base compensation for each quarter (the
"incentive compensation percentage"). During 1996, executive officers had target
bonuses under the incentive compensation plan ranging from 20% to 45% of annual
salary and received bonuses ranging from 10% to 24% of annual salary. The
difference between the target bonuses and actual bonuses paid, as well as the
reduction in bonus levels from 1995 to 1996, was in recognition of the fact that
the growth of the Company's total revenue and operating income, while
substantial, fell short of the Company's targets.
The Company has adopted the Stock Option Plan to provide officers and
employees with stock options and other stock-based compensation. The number and
terms of awards under the Stock Option Plan are determined by the Committee. The
awards made to the Named Executive Officers during 1996 were deemed by the
Committee to be appropriate in light of the executives' performance and
responsibilities. The vesting of the options commences one year after the date
of the grant and is complete four years after the date of the grant. The
Compensation Committee believes that the grant of options that vest over an
extended period of time provides an incentive for executive officers to continue
their efforts on behalf of the Company and to create long-term value for the
Company's stockholders. The Committee intends to continue to recommend
stock-based compensation awards as a significant part of the Company's overall
compensation program.
The Company has certain broad-based employee benefit plans in which all
employees, including the Named Executives Officers, are permitted to participate
on the same terms and limitations on amounts that may be contributed. In 1996,
the Company also made matching contributions to the Savings Incentive Plan for
those participants.
OPTION CANCELLATIONS AND REPLACEMENTS
In November 1996, following a substantial decline in the price of the
Common Stock, the Compensation Committee determined to cancel certain
outstanding options granted in May 1996 and August 1996 (which had exercise
prices of $50.88 and $59.875, respectively), and to replace those options with
the Replacement Options. The Committee took this action after a comprehensive
review of the total options outstanding, individual grant levels, and the
identity of the recipients of the May and August 1996 grants. The Committee
noted that many of the employees who received options in May or August were
employees who had recently joined the Company, largely as a result of
acquisitions and the hiring of additional executive officers. As a result, the
overall value of options held by these employees was significantly and adversely
affected by the decline in the price of the Common Stock.
The Committee determined that while it was important to maintain an
incentive for these employees to work towards rebuilding the price of the Common
Stock, it was in the best interests of the Company and its stockholders to
provide these employees with incentives which could be recognized in the
relatively short term. Absent such incentives, the Committee was concerned that
there would be a decrease in employee morale and a potential loss of valued
employees to organizations which could provide stock based compensation with a
value that could be recognized in the near term.
While the Committee determined that it was appropriate to take this action,
it also concluded that the Replacement Options should not be offered to the
Named Executive Officers, other than Mr. Lockwood. This was based on the fact
that each of these individuals already held a substantial number of options with
exercise prices significantly below the current price of the Common Stock. In
addition, in structuring the Replacement Options, the Committee believed that a
new vesting
10
<PAGE>
period should be required, and, accordingly, created a vesting schedule
commencing on the grant date of November 13, 1996, with one-quarter of the
options vesting ratably each year commencing on November 13, 1997.
MR. PILLARI'S 1996 COMPENSATION
Mr. Pillari's compensation is determined principally by the terms of his
employment agreement, which was approved by the Compensation Committee and the
Board of Directors effective January 1, 1995. The employment agreement provides
for a base salary of $265,000 per year, subject to increase, but not decrease,
and an annual bonus. The Compensation Committee has established Mr. Pillari's
base salary at a level it believes is necessary to retain Mr. Pillari in his
executive position with the Company and is comparable with the base salaries of
chief executive officers of comparable companies. The Compensation Committee
believes that Mr. Pillari's services have been and will continue to be critical
to the Company's success. Mr. Pillari received no bonus for 1996, in recognition
of the fact that the growth of the Company's total revenue and operating income,
while substantial, fell short of the Company's targets. Mr. Pillari was granted,
in August 1996, an option to purchase 50,000 shares of the Company's Common
Stock at an exercise price of $59.875 per share. This was the first option Mr.
Pillari had received that was compensatory in nature, and was in recognition of
the achievement of a number of accomplishments during 1996, including the
consummation of several significant acquisitions and the completion of two
public offerings, and was also based on a review of comparable company data. As
discussed above, Mr. Pillari was not offered a Replacement Option by the
Committee.
POLICY REGARDING SECTION 162(M) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Internal Revenue Code limits the deductibility of
compensation in excess of $1.0 million paid to the Chief Executive Officer and
the four most highly compensated officers of the Company (other than the Chief
Executive Officer) in any fiscal year, unless the compensation qualifies as
"performance based compensation." The Compensation Committee's policy with
respect to Section 162(m) is to make every reasonable effort to cause
compensation to be deductible by the Company while simultaneously providing
executive officers of the Company with appropriate and competitive compensation.
The aggregate base salaries and bonuses of the Company's executive officers have
not historically exceeded, and are not in the foreseeable future expected to
exceed, the $1.0 million limit, and options under the Company's Stock Option
Plan are intended to qualify as performance-based compensation.
COMPENSATION COMMITTEE
Richard Berman Richard Dulude W. Grant Gregory Phillip B. Lassiter
Mark C. Rogers, M.D. Carl J. Schramm, Ph.D.
11
<PAGE>
PERFORMANCE MEASUREMENT COMPARISON
The chart set forth below shows the value of an investment of $100.00 on
February 22, 1995 (the day trading of the Company's Common Stock commenced on
the Nasdaq National Market) in each of the Company's Common Stock, the Nasdaq
Stock Market and the Nasdaq Computer and Data Processing index for the period
February 22, 1995 to December 31, 1996. All values assume reinvestment of the
pre-tax value of dividends.
[Graph appears below]
Research Total Return -- Data Summary
HCIA
<TABLE>
<CAPTION>
Cumulative Total Return
----------------------------------------------------------------------
<S> <C> 2/22/95 3/95 6/95 9/95 12/95 3/96 6/96 9/96 12/96
HCIA INC. HCIA 100 175 223 184 334 336 450 429 246
NASDAQ STOCK MARKET--US INAS 100 104 119 133 135 141 152 158 166
NASDAQ COMPUTER & PROCESSING INAD 100 115 137 149 156 163 181 185 193
</TABLE>
CERTAIN TRANSACTIONS
STOCKHOLDERS AGREEMENT
In February 1995, AMBAC and AIC entered into a stockholders agreement with
the Company whereby AMBAC and AIC agreed that for so long as they beneficially
own 50% or more of the outstanding voting securities of the Company, they would
vote their shares of Common Stock to elect two directors who are not directors,
officers or employees of AMBAC, AIC or their respective affiliates or officers
or employees of the Company. The agreement also provided that all transactions
between the Company, AMBAC and AIC would be on terms at least as favorable to
the Company as the Company could
12
<PAGE>
obtain from non-affiliated parties, and that as long as AMBAC owned 30% or more
of the Common Stock, it would use commercially reasonable efforts to continue to
purchase business insurance for the Company on substantially the same basis as
historically provided by AMBAC. After completion of the August 1995 public
offering, the Company obtained such business insurance for its own account.
AMBAC also agreed not to compete with the Company until the earlier to occur of:
(i) five years from the date of the stockholders agreement; (ii) such time as
AMBAC and its affiliates no longer beneficially own 30% or more of the voting
power of the outstanding voting stock of the Company; or (iii) certain events
relating to the acquisition of Common Stock of the Company. The stockholders
agreement terminated in May 1996 as a result the sale by AMBAC and AIC of all of
their Common Stock in the Company.
TAX MATTERS
Prior to completion of the Company's initial public offering, the Company
was included in AMBAC's consolidated federal income tax return for the period
commencing July 18, 1991 and for each taxable year thereafter. Under a Tax
Sharing Agreement with AMBAC, the Company's share of federal income tax expense
or benefit for taxable years ending after that date, as well as its share of any
state, local or franchise tax expense reported on a consolidated or unified
basis with AMBAC after July 18, 1991, was calculated as if the Company had filed
its own tax return for such periods. The Tax Sharing Agreement provides that the
Company shall pay its share of tax as so calculated to AMBAC; AMBAC, in turn, is
responsible for payment of the tax due to the applicable taxing authority for
the entire consolidated or unified group, including the Company.
HCIA is no longer included on a consolidated or unified basis for tax
purposes with AMBAC. The Company's liability under the Tax Sharing Agreement is
limited to tax adjustments relating to its business for the period commencing
July 18, 1991 and ending on March 2, 1995.
The Company is also party to a Tax Settlement Agreement among Citicorp and
its subsidiaries and AMBAC and its subsidiaries, pursuant to which Citicorp has
agreed to pay any federal tax due for the period during which the Company was a
member of Citicorp's consolidated federal income tax group. If AMBAC and its
subsidiaries, including the Company, fail to cooperate in any federal income tax
audits relating to such period, they will be liable for any tax liability or
loss of a tax refund or tax benefit, including interest, penalties and other
expenses, caused by the failure to cooperate.
AIC purchases information services from the Company. Such purchases totaled
$288,000, $250,000 and $125,000 during 1994, 1995 and 1996, respectively. All
such purchases were on terms similar to those provided to non-affiliated
parties.
REGISTRATION RIGHTS
The Company has granted to Mr. Pillari certain rights with respect to the
registration under the Securities Act of 1933 of the shares of Common Stock
currently held by Mr. Pillari and the shares issuable pursuant to Mr. Pillari's
option to purchase 160,000 shares. In the event the Company proposes to register
any of its securities under the Securities Act for its own account or for the
account of any of its stockholders, subject to certain exceptions, Mr. Pillari
shall be entitled to include his shares in such registration. Registration of
Mr. Pillari's shares is subject, in an underwritten offering, to the right of
the managing underwriter to exclude for marketing reasons some or all of the
shares from such registration. All fees, costs and expenses incurred with any
such registration, except for underwriting discounts and selling concessions,
will be borne by the Company.
ADDITIONAL INFORMATION
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than ten percent
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the SEC and provide the Company with
copies of such reports.
During 1996, George D. Pillari and Jean Chenoweth, officers of the Company,
each failed to timely file a report required by Section 16(a) with respect to
one transaction in the Company's Common Stock.
STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
The Company's Bylaws provide that a stockholder must provide written notice
to the Company describing any proposal or director nomination to be brought
before that meeting, even if such proposal or nomination is not to be included
in the
13
<PAGE>
Company's proxy material. Copies of the relevant provision of the Bylaws may be
obtained by writing to the Secretary, HCIA Inc., 300 East Lombard Street,
Baltimore, Maryland 21202.
STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
Any stockholder proposal intended for inclusion in the proxy material for
the 1998 Annual Meeting of Stockholders must be received in writing by the
Company, at the address set forth on the first page of this Proxy Statement, on
or before November 21, 1997. Any such proposal will be subject to Rule 14a-8
promulgated under the Securities Exchange Act of 1934.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors of the
Company knows of no other business which will be presented for consideration at
the Annual Meeting. Execution of a proxy, however, confers on the designated
proxyholders discretionary authority to vote the shares in accordance with their
best judgment on such other business, if any, that may properly come before the
Annual Meeting or any adjournments thereof.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON RECEIVING THIS PROXY
STATEMENT, UPON THE WRITTEN REQUEST OF SUCH PERSON, A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES
THERETO, REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR
THE YEAR ENDED DECEMBER 31, 1996. WRITTEN REQUESTS FOR A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K SHOULD BE DIRECTED TO HCIA INC., 300 EAST LOMBARD
STREET, BALTIMORE, MARYLAND 21202, ATTENTION: CHARLES A. BERARDESCO, SECRETARY.
By Order of the Board of Directors,
/s/ Charles A. Berardesco
___________________________________
Charles A. Berardesco
Secretary
March 21, 1997
14
<PAGE>
HCIA INC.
ANNUAL MEETING OF STOCKHOLDERS, MAY 7, 1997
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints BARRY C. OFFUTT and CHARLES A. BERARDESCO, and
each of them, with full power of substitution as to each, as proxy, to vote all
shares which the undersigned is entitled to vote at the Annual Meeting of
Stockholders of HCIA Inc. to be held at 10:00 a.m., Baltimore time, on May 7,
1997, and at any adjournments thereof:
1. Election of Directors
<TABLE>
<S> <C>
FOR the election of all nominees listed WITHHOLD AUTHORITY
(except as marked to the contrary below) [ ] to vote for all nominees listed below [ ]
</TABLE>
W. Grant Gregory Phillip B. Lassiter Carl J. Schramm
(TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH
THE NOMINEE'S NAME).
2. The approval of an amendment to the 1994 Stock and Incentive Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. The ratification of the appointment of KPMG Peat Marwick LLP to serve as the
Company's independent public accountants for the fiscal year ending December
31, 1997.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(CONTINUED, AND TO BE SIGNED, ON THE OTHER SIDE)
<PAGE>
(CONTINUED FROM REVERSE SIDE)
4. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting or any adjournment thereof.
THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE PERSON SIGNING IT.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE
NOMINEES INDICATED AND FOR THE OTHER PROPOSALS.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. IT MAY BE REVOKED
AT ANY TIME PRIOR TO ITS EXERCISE BY SENDING WRITTEN NOTICE TO THE SECRETARY OF
THE COMPANY, BY DELIVERING TO THE COMPANY A DULY EXECUTED PROXY BEARING A LATER
DATE OR BY ATTENDING THE MEETING AND VOTING IN PERSON.
Receipt of notice of the meeting and proxy statement is hereby acknowledged, and
the terms of the notice and statement are hereby incorporated by reference into
this proxy. The undersigned hereby revokes all proxies heretofore given for said
meeting or any adjournment or adjournments thereof.
(Please sign exactly as your name
appears hereon. Executors,
administrators, guardians, officers
signing for corporations, trustees
and attorneys should give full
title. For joint owners, both
owners should sign.)
Dated: , 1997
________________
_____________________________(SEAL)
_____________________________(SEAL)
Please sign, date and promptly
return this proxy in the enclosed
envelope. No postage is required if
mailed in the United States.
