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 Incorporated
(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>
[HCIA LOGO APPEARS HERE]
March 20, 1998
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 6, 1998 at 10:00
a.m., Baltimore time. Holders of the Company's common stock as of March 9, 1998
are entitled to vote at the meeting.
The matters proposed for consideration at the meeting are the election of
two directors 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 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>
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<PAGE>
HCIA INC.
300 East Lombard Street
Baltimore, Maryland 21202
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
MAY 6, 1998
- --------------------------------------------------------------------------------
TO THE STOCKHOLDERS OF HCIA INC.:
NOTICE IS HEREBY GIVEN that the 1998 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 6, 1998
at 10:00 a.m., Baltimore time, for the following purposes:
1. To elect two directors in Class I for a three year term ending in 2001.
2. To ratify the selection of KPMG Peat Marwick LLP as the Company's
independent public accountants.
3. 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 9, 1998, 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 the enclosed
Annual Report of the Company for the year ended December 31, 1997.
By Order of the Board of Directors,
/s/ Charles A. Berardesco
--------------------------
Charles A. Berardesco
Secretary
Baltimore, Maryland
March 20, 1998
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>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<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 6, 1998 at 10:00
a.m., Baltimore time, and at any adjournments thereof.
SOLICITATION
The solicitation is being made primarily by the use of the mail, 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 20, 1998.
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 9, 1998 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 11,850,094 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 the ratification of the appointment of KPMG Peat Marwick LLP as the Company's
independent public accountants (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
1
<PAGE>
given, the shares will be voted FOR the election of the named director nominees
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 two 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 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.
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 I -- Messrs. Pillari and Dulude, have a term
of office scheduled to expire at the Annual Meeting. Each of Messrs. Pillari and
Dulude has been nominated for a three year term expiring at the Annual Meeting
of Stockholders in 2001 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. Directors in Class III -- Messrs. Gregory and Lassiter and Dr. Schramm,
have terms of office expiring at the 2000 annual meeting and until their
successors are duly 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 2001 ANNUAL MEETING.
GEORGE D. PILLARI, age 35, 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 65, 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 Inc.
("AMBAC"), Raychem Corporation and Landec Corp.
2
<PAGE>
DIRECTORS WHOSE TERM WILL EXPIRE AT THE 1999 ANNUAL MEETING.
RICHARD A. BERMAN, age 53, 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 1992 to January
1995.
MARK C. ROGERS, M.D., age 55, has been a director of the Company since
January 1995. He has served as Senior Vice President, Corporate Development and
Chief Technology Officer of The Perkin-Elmer Corporation 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.
DIRECTORS WHOSE TERM WILL EXPIRE AT THE 2000 ANNUAL MEETING.
W. GRANT GREGORY, age 57, 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 and InaCom Corp.
PHILLIP B. LASSITER, age 54, has been a director of the Company since
October 1992. He has served as Chairman and Chief Executive Officer of AMBAC
since April 1991, and as President since August 1992. From 1969 to July 1991,
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 51, 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.
BOARD COMMITTEES AND MEETINGS
The Board of Directors has an Audit Committee and Compensation Committee,
each 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 1997.
The Compensation Committee is responsible for the overall administration of
the Company's compensation policies and practices, including the recommendation
of compensation for executive officers 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 1997.
The Board of Directors met six times during 1997. No director, other than
Dr. Rogers, attended fewer than 75% of the total number of meetings of the Board
and of the Committees of which he was a member during 1997.
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.
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
3
<PAGE>
credit, which periodically will be credited with interest at the 90-day United
States Treasury Bill rate. 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. 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, 1998,
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, 1998.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth as of February 27, 1998, 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> <C>
George D. Pillari(2).................................................................................... 447,280 3.7%
Richard A. Berman(3).................................................................................... 14,500 *
Richard Dulude(3)....................................................................................... 15,500 *
W. Grant Gregory(3)(4).................................................................................. 24,500 *
Phillip B. Lassiter(3).................................................................................. 25,500 *
Mark C. Rogers, M.D.(3)................................................................................. 14,500 *
Carl J. Schramm, Ph.D.(3)(5)............................................................................ 15,900 *
Donald S. Good, Jr.(6).................................................................................. 6,250 *
Barry C. Offutt(6)...................................................................................... 55,874 *
Charles A. Berardesco(6)................................................................................ 8,600 *
Jean Chenoweth(6)....................................................................................... 36,149 *
Massachusetts Financial Services Company(7)............................................................. 1,514,500 12.8%
All directors and executive officers as a group (11 persons)(8)......................................... 664,553 5.4%
</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) 232,830 shares as to which Mr. Pillari shares beneficial
ownership with his wife, (ii) 1,950 shares held as custodian for minor
children, and (iii) exercisable options to acquire 212,500 shares of Common
Stock.
(3) Includes 14,500 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 1,400 shares held as custodian for minor children.
(6) Includes 6,250, 55,874, 7,500 and 33,749 shares subject to options held by
Messrs. Good, Offutt and Berardesco and Ms. Chenoweth, respectively.
(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 1,489,500 shares. The address of Massachusetts
Financial Services Company is 500 Boylston Street, Boston, Massachusetts
02116.
(8) Includes 402,873 shares subject to options held by all directors and
executive officers as a group.
4
<PAGE>
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 1995, 1996 and 1997 (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> <C> <C> <C> <C>
George D. Pillari 1997 265,000 -- 120,000 4,750
Chairman, President and 1996 265,000 -- 50,000 4,500
Chief Executive Officer.................................. 1995 265,000 132,500 160,000 3,221
Donald S. Good 1997 160,471 21,844 40,000 2,711
Senior Vice President -- Operations (4).................. 1996 82,715 23,436 25,000 --
Barry C. Offutt 1997 165,000 18,563 70,000 4,750
Senior Vice President and 1996 155,000 37,500 22,500 4,500
Chief Financial Officer.................................. 1995 135,000 37,492 12,501 2,904
Charles A. Berardesco
Senior Vice President and 1997 145,000 11,238 30,000 2,175
General Counsel (4)...................................... 1996 84,749 17,063 20,000 --
Jean Chenoweth 1997 150,000 -- 2,500 4,500
Senior Vice President -- 1996 150,000 21,250 10,000 4,500
Industry Relations....................................... 1995 135,000 44,263 12,501 2,896
</TABLE>
- ---------------
(1) The amounts shown in this column include bonuses accrued under the Company's
management incentive program during 1995, 1996 and 1997.
(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.
(4) Messrs. Good and Berardesco each joined the Company in May 1996.
OPTION GRANTS
Options granted to the Named Executive Officers during 1997 are set forth
in the following table. No stock appreciation rights ("SARs") were granted
during 1997.
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) 1997 (%) ($/SHARE)(1) EXPIRATION DATE 5%($) 10%($)
- ---- ------------- ------------ ------------ ------------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
George D. Pillari.................. 60,000 6.7 38.94 February 5, 2007 1,469,349 3,723,620
60,000 6.7 48.68 February 5, 2007 1,836,875 4,655,003
Donald S. Good..................... 40,000 4.5 16.1875 August 6, 2007 407,209 1,031,948
Barry C. Offutt.................... 30,000 3.7 38.94 February 5, 2007 734,675 1,861,810
40,000 4.5 16.1875 August 6, 2007 407,209 1,031,948
Charles A. Berardesco.............. 10,000 1.1 38.94 February 5, 2007 244,892 620,603
20,000 2.2 16.1875 August 6, 2007 203,605 515,974
Jean Chenoweth..................... 2,500 0.3 16.1875 August 6, 2007 25,451 64,947
</TABLE>
- ---------------
(1) The exercise price of each option was equal to at least the fair market
value of the underlying Common Stock on the date of grant, as determined in
accordance with the Stock Option Plan. Each option vests annually over a
four year period.
(2) Future value of current-year grants assuming appreciation of 5% and 10% per
year over the applicable option term. The actual value realized may be
greater than or less than the potential realizable values set forth in the
table.
5
<PAGE>
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth certain information regarding the fiscal
year-end value of unexercised options held by the Named Executive Officers.
There were no options exercised by the Named Executive Officers, and no SARs
outstanding, during 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-THE-MONEY
OPTIONS
NUMBER OF SECURITIES AT FISCAL
UNDERLYING UNEXERCISED YEAR-END
SHARES OPTIONS AT FISCAL YEAR-END (#) ($)(1)
ACQUIRED ON VALUE ------------------------------ -----------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE
- -------------------------------------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
George D. Pillari..................... -- -- 172,500 247,500 --
Donald S. Good........................ -- -- 6,250 58,750 --
Barry C. Offutt....................... -- -- 48,374 93,126 84,309
Charles A. Berardesco................. -- -- 5,000 45,000 --
Jean Chenoweth........................ -- -- 33,749 16,251 53,120
<CAPTION>
VALUE OF
UNEXERCISED
IN-THE-MONEY
OPTIONS
AT FISCAL
YEAR-END
($)(1)
-------------
NAME UNEXERCISABLE
- -------------------------------------- -------------
<S> <C>
George D. Pillari..................... --
Donald S. Good........................ --
Barry C. Offutt....................... --
Charles A. Berardesco................. --
Jean Chenoweth........................ --
</TABLE>
- ---------------
(1) Calculated based on the last sales price of the Common Stock on December 31,
1997 of $11.875 per share, less the exercise price.
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), 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).
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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 1996 and 1997 were approximately $397,000
and $624,000, 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 through the Company's incentive compensation program,
which provides quarterly bonuses to executive officers, other than Mr. Pillari,
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.
During 1997, executive officers were 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, the contribution of the business unit
they supervised to the Company's results and, in the case of one executive
officer, personal performance targets. Executive officers other than Mr. Pillari
were eligible to receive a bonus of up to 50% of their base compensation for
each quarter (the "incentive compensation percentage"). During 1997, executive
officers had target bonuses under the incentive compensation plan ranging from
31% to 50% of annual salary and received bonuses ranging from 0% to 14% of
annual salary. The difference between the target bonuses and actual bonuses
paid, as well as the reduction in bonus levels from 1996 to 1997, was in
recognition of the fact that the Company's total revenue and operating income
fell short of the Company's targets for 1997.
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 1997 were deemed by the
Committee to be appropriate in light of the executives' performance and
responsibilities, and appropriate to provide incentives for future performance.
The vesting of the
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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 1997,
the Company also made matching contributions to the Savings Incentive Plan for
those participants.
MR. PILLARI'S 1997 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 or 1997, and
has not had his base salary increased since 1995, in recognition of the fact
that the Company's total revenue and operating income fell short of the
Company's targets in both 1996 and 1997. The Compensation Committee generally
considers option grants to Mr. Pillari in February of each year, based on prior
year performance. Mr. Pillari was granted, in February 1997, options to purchase
(i) 60,000 shares of the Company's Common Stock at a exercise price of $38.94
per share, which was the fair market value of the Common Stock, and (ii) 60,000
shares of the Company's Common Stock at an exercise price of $48.68, which was
the fair market value plus 25%. These options were granted based on the
Company's results during 1996, including the completion of several significant
acquisitions, and a survey of comparable company data, and were designed to
provide Mr. Pillari with additional incentives to continue his efforts on behalf
of the Company and to create long-term value for the Company's stockholders.
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.
8
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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, 1997. All values assume reinvestment of the
pre-tax value of dividends.
COMPARISON OF 34 MONTH CUMULATIVE TOTAL RETURN*
AMONG HCIA INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ COMPUTER & DATA PROCESSING INDEX
[GRAPH APPEARS HERE--SEE PLOT POINTS BELOW]
NASDAQ NASDAQ
STOCK COMPUTER &
MARKET DATA
HCIA INC. (U.S.) PROCESSING
--------- ------ ----------
2/22/95 $100 $100 $100
3/95 175 104 108
6/95 223 119 128
9/95 184 133 140
12/95 334 135 146
3/96 336 141 153
6/96 450 152 170
9/96 429 158 174
12/96 246 166 180
3/97 120 157 168
6/97 239 184 215
9/97 96 217 235
12/97 85 203 222
* $100 INVESTED ON 2/22/95 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
CERTAIN TRANSACTIONS
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
9
<PAGE>
expenses incurred with any such registration, except for underwriting discounts
and selling concessions, will be borne by the Company.
ADDITIONAL INFORMATION
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 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 1999 ANNUAL MEETING
Any stockholder proposal intended for inclusion in the proxy material for
the 1999 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 January 6, 1999. 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, 1997. 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 20, 1998
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HCIA INC.
ANNUAL MEETING OF STOCKHOLDERS, MAY 6, 1998
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 6,
1998, 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>
George D. Pillari Richard Dulude
(TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH
THE NOMINEE'S NAME).
2. The ratification of the appointment of KPMG Peat Marwick LLP to serve as the
Company's independent public accountants for the year ending December 31,
1998.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting or any adjournment thereof.
(CONTINUED, AND TO BE SIGNED, ON THE OTHER SIDE)
<PAGE>
(CONTINUED FROM REVERSE SIDE)
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: _______________ , 1998
_____________________________(SEAL)
_____________________________(SEAL)
Please sign, date and promptly
return this proxy in the enclosed
envelope. No postage is required if
mailed in the United States.
