2015 Proxy - Prelim


 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

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Filed by a Party other than the Registrant o

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Definitive Proxy Statement
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Soliciting Material under §240.14a-12

QUALITY SYSTEMS, INC.
(Name of Registrant as Specified In Its Charter)
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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PRELIMINARY PROXY MATERIALS --- SUBJECT TO COMPLETION

18111 Von Karman Avenue, Suite 700
Irvine, California 92612
________________

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 11, 2015

To the Shareholders of Quality Systems, Inc.:

The annual meeting of shareholders of Quality Systems, Inc. will be held at the Center Club located at 650 Town Center Drive, Costa Mesa, California 92626, on August 11, 2015, at 1:00 p.m. Pacific Time, for the following purposes:

1.
to elect nine persons to serve as directors of our company until the 2016 annual meeting of shareholders. Our nominees for election to our Board of Directors ("Board") are named in the attached proxy statement, which is a part of this notice;

2.
to conduct an advisory vote to approve the compensation for our named executive officers;

3.
to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2016;

4.
to approve the Quality Systems, Inc. 2015 Equity Incentive Plan; and

5.
to transact such other business as may properly come before the annual meeting or any adjournments or postponements thereof.

All shareholders are cordially invited to attend the annual meeting in person. Only shareholders of record at the close of business on June 16, 2015, are entitled to notice of and to vote at the annual meeting and at any adjournments or postponements of the annual meeting.

Whether or not you plan to attend the annual meeting, please complete and sign the enclosed proxy card and return it in the enclosed addressed envelope. Your promptness in returning the proxy card will assist in the expeditious and orderly processing of the proxy and will assure that you are represented at the annual meeting even if you cannot attend the meeting in person. You may also vote by telephone or Internet by following the instructions on the proxy card. If you return your proxy card or vote by telephone or Internet, you may nevertheless attend the annual meeting and vote your shares in person. Shareholders whose shares are held in the name of a broker or other nominee and who desire to vote in person at the meeting should bring with them a legal proxy.
 
OUR BOARD RECOMMENDS A VOTE “FOR” THE ELECTION OF ALL OF OUR DIRECTOR NOMINEES NAMED ON THE ENCLOSED PROXY CARD. OUR BOARD ALSO RECOMMENDS A VOTE “FOR” PROPOSALS 2, 3 AND 4.

By Order of the Board of Directors,
QUALITY SYSTEMS, INC.

[ ]
Jocelyn A. Leavitt
Executive Vice President, General Counsel and Secretary
Irvine, California
[ ], 2015





TABLE OF CONTENTS
 
Page
SOLICITATION OF PROXIES
NOTICE OF INTERENT AVAILABILITY OF PROXY MATERIALS
OUTSTANDING SHARES AND VOTING RIGHTS
 1
CAUTION CONCERNING FORWARD LOOKING STATEMENTS
ELECTION OF DIRECTORS
 5
NON-DIRECTOR EXECUTIVE OFFICERS
 8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 10
EQUITY COMPENSATION PLAN INFORMATION
 11
EXECUTIVE AND DIRECTOR COMPENSATION AND RELATED INFORMATION
 12
COMPENSATION DISCUSSION AND ANALYSIS
Executive Summary and Compensation Details
Summary Compensation Table for Fiscal Year Ended March 31, 2015
Grants of Plan-Based Awards for Fiscal Year Ended March 31, 2015
 26
Outstanding Equity Awards at Fiscal Year Ended March 31, 2015
 28
Option Exercises and Stock Vested During Fiscal Year Ended March 31, 2015
Pension Benefits
 29
Nonqualified Deferred Compensation for Fiscal Year Ended March 31, 2015
 29
Potential Payments Upon Termination of Employment or Change-in-Control
 30
Director Compensation for Fiscal Year Ended March 31, 2015
 32
Compensation Committee Interlocks and Insider Participation
Compensation Committee Report
 34
INFORMATION ABOUT OUR BOARD OF DIRECTORS, BOARD COMMITTEES AND RELATED MATTERS
Board of Directors
Board Committees and Charters
Related Matters
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Review, Approval or Ratification of Transactions with Related Persons
Related Person Transactions
ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS ("SAY ON PAY")
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Audit and Non-Audit Fees
Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services
APPROVAL OF THE QUALITY SYSTEMS, INC. 2015 EQUITY INCENTIVE PLAN
ANNUAL REPORT AND AVAILABLE INFORMATION
PROPOSALS OF SHAREHOLDERS





HOUSEHOLDING OF ANNUAL MEETING MATERIALS
OTHER MATTERS
ANNEX A
FULL TEXT OF THE QUALITY SYSTEMS, INC. 2015 EQUITY INCENTIVE PLAN


18111 Von Karman Avenue, Suite 700
Irvine, California 92612
______________





PRELIMINARY PROXY MATERIALS --- SUBJECT TO COMPLETION

ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 11, 2015
_________________________
PROXY STATEMENT
_________________________

SOLICITATION OF PROXIES

The accompanying proxy is solicited by the Board of Directors (“Board”) of Quality Systems, Inc. (“Quality Systems,” the “Company,” “us,” “we” or “our”) for use at our annual meeting of shareholders to be held at the Center Club located at 610 Town Center Drive, Costa Mesa, California 92626, on August 11, 2015, at 1:00 p.m. Pacific Time, and at any and all adjournments and postponements thereof. All shares represented by each properly submitted and unrevoked proxy received in advance of the annual meeting will be voted in the manner specified therein.
Any shareholder has the power to revoke the shareholder’s proxy at any time before it is voted. A proxy may be revoked by delivering a written notice of revocation to our Secretary prior to or at the annual meeting, by voting again on the Internet or by telephone (only your latest Internet or telephone proxy submitted prior to 11:59 P.M. Eastern Time on August 8, 2015 will be counted), by submitting to our Secretary, prior to or at the annual meeting, a later dated proxy card executed by the person executing the prior proxy, or by attendance at the annual meeting and voting in person by the person submitting the prior proxy.
Any shareholder who holds shares in street name and desires to vote in person at the annual meeting should inform the shareholder’s broker of that desire and request a legal proxy from the broker. The shareholder will need to bring the legal proxy to the annual meeting along with valid picture identification such as a driver’s license or passport, in addition to documentation indicating share ownership. If the shareholder does not receive the legal proxy in time, then the shareholder should bring to the annual meeting the shareholder’s most recent brokerage account statement showing that the shareholder owned Quality Systems, Inc. common stock as of the record date. Upon submission of proper identification and ownership documentation, we should be able to verify ownership of common stock and admit the shareholder to the annual meeting; however, the shareholder will not be able to vote at the annual meeting without a legal proxy. Shareholders are advised that if they own shares in street name and request a legal proxy, any previously executed proxy will be revoked, and the shareholder’s vote will not be counted unless the shareholder appears at the annual meeting and votes in person or legally appoints another proxy to vote on its behalf.
We will bear all expenses in connection with the solicitation of proxies. We will reimburse brokers, fiduciaries and custodians for their costs in forwarding proxy materials to beneficial owners of common stock. Our directors, officers and employees may solicit proxies by mail, telephone and personal contact. They will not receive any additional compensation for these activities.
    
This proxy statement, the accompanying proxy card and our 2015 annual report are being made available to our shareholders on or about [ ], 2015.

NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be Held on August 11, 2015.
This proxy statement, the notice of our 2015 annual meeting of shareholders and the Company’s 2015 annual report to shareholders are available on our website at http://investor.qsii.com/annual-proxy.cfm.






OUTSTANDING SHARES AND VOTING RIGHTS
Only holders of record of the 60,297,562 shares of our common stock outstanding at the close of business on the record date, June 16, 2015, are entitled to notice of and to vote at the annual meeting or any adjournments or postponements thereof. A majority of the outstanding shares, represented in person or by proxy, will constitute a quorum for the transaction of business. All properly submitted and unrevoked proxies will be counted in determining the presence of a quorum, including those providing for abstention or withholding of authority and those submitted by brokers voting without beneficial owner instruction and exercising a non-vote on certain matters.
Each shareholder will be entitled to one vote, in person or by proxy, for each share of common stock held on the record date. However, under our Bylaws and California law, if any shareholder gives notice at the annual meeting, prior to the voting, of an intention to cumulate the shareholder’s votes in the election of directors, then all shareholders entitled to vote at the annual meeting may cumulate their votes in the election of directors. Cumulative voting means that a shareholder has the right to give any one candidate who has been properly placed in nomination a number of votes equal to the number of directors to be elected multiplied by the number of shares the shareholder is entitled to vote, or to distribute such votes on the same principle among as many properly nominated candidates (up to the number of persons to be elected) as the shareholder may wish. If cumulative voting applies at the annual meeting, the cumulative number of votes a shareholder may cast in director elections will be equal to the number of shares held by such shareholder on the record date multiplied by nine (the number of directors to be elected at the annual meeting).
Whether the election of directors is by plurality vote or cumulative voting with respect to Proposal No. 1, the nine director nominees who receive the highest number of affirmative votes will be elected; abstentions and broker non-votes will have no effect on this proposal. See “Additional Information on the Mechanics of Cumulative Voting” below for more information on the operation of cumulative voting. In circumstances where there is a contested election and/or one or more of our shareholders demand that cumulative voting apply to the election of directors, our Board has delegated authority to its Proxy Voting Committee to provide instruction to such proxy holders to vote the proxies solicited hereby in such manner as to provide for the election of the maximum number of our director nominees (for whom authority is not otherwise specifically withheld) including, but not limited to, the prioritization of such nominees to whom such votes may be allocated. We have not received notice that any of our shareholders currently intends to invoke cumulative voting. In addition, because the Board has not nominated more than nine director nominees for election at the annual meeting, and because the deadline for the submission of director nominees for the 2015 annual meeting has passed, we believe it is less likely that cumulative voting will be invoked at the 2015 annual meeting.
Approval of Proposal No. 2, an advisory vote to approve the compensation of our named executive officers, will be considered approved if the vote constitutes both: (i) the affirmative vote of a majority of common stock present in person or represented by proxy and voting on the proposal and (ii) the affirmative vote of a majority of the quorum. For purposes of this proposal, abstentions and broker non-votes will not affect the outcome under clause (i), which recognizes only actual votes for or against the proposal. Abstentions and broker non-votes may affect the outcome under clause (ii) because abstentions and broker non-votes are counted for purposes of determining the quorum and have the effect of a vote against the proposal.
Approval of Proposal No. 3, the ratification of the appointment of our independent registered public accounting firm, is not required. However, this proposal will be considered approved if the vote constitutes both: (i) the affirmative vote of a majority of common stock present in person or represented by proxy and voting on the proposal and (ii) the affirmative vote of a majority of the quorum. For purposes of this proposal, abstentions and broker non-votes will not affect the outcome under clause (i), which recognizes only actual votes for or against the proposal. Abstentions and broker non-votes may affect the outcome under clause (ii) because abstentions and broker non-votes are counted for purposes of determining the quorum and have the effect of a vote against the proposal.
Approval of Proposal No. 4, the approval of the Quality Systems, Inc. 2015 Equity Incentive Plan, will be approved if the vote constitutes the affirmative vote of a majority of common stock present in person or represented by proxy and voting on the proposal. For purposes of this proposal, abstentions will be counted toward the tabulation of votes cast on the proposal and will have the same effect as "Against" votes. Broker non-votes will be counted towards a quorum, but will have no effect on the outcome of the vote.
Additional Information on the Mechanics of Cumulative Voting
In the event cumulative voting applies, all shareholders will have the right to cumulate their votes in the election of directors. Cumulative voting means that each shareholder may cumulate such shareholder’s voting power for the election by distributing a number of votes, determined by multiplying the number of shares held by the shareholder as of the record date by nine (the number of directors to be elected at the annual meeting). Such shareholder may distribute all of the votes to one individual director nominee, or distribute such votes among any two or more director nominees, as the shareholder chooses. If you do not specifically instruct otherwise, the proxy being solicited by our Board will confer upon the proxy holders the authority, in the event that cumulative voting applies, to cumulate votes at the instruction and discretion of our Board or any committee thereof so as to provide for the election of the maximum number of our director nominees (for whom authority is not otherwise specifically withheld) including, but not limited to, the prioritization of such nominees to whom such votes may be allocated. Our




Board has directed the Proxy Voting Committee to exercise such authority on the Board’s behalf (described under “Information about our Board of Directors, Board Committees and Related Matters—Board Committees and Charters—Proxy Voting Committee”). Using this discretion, the Proxy Voting Committee may vote your shares for fewer than nine nominees.
If you elect to grant us your proxy and do not specifically instruct otherwise, you are authorizing the proxy holders to vote your shares in accordance with the discretion and at the instruction of the Board (or an authorized committee thereof), including to cumulate your votes in favor of certain nominees (rather than allocating votes equally among the nominees) and to determine the specific allocation of votes to individual nominees. You may withhold your authority to vote for one or more nominees, in which case the Proxy Voting Committee will retain discretion to allocate your votes among our other nominees unless you specifically instruct otherwise. Under no circumstances may the proxy holders cast your votes for any nominee from whom you have withheld authority to vote.
For example, a proxy marked “FOR ALL EXCEPT” may only be voted for those of our director nominees for whom you have not otherwise specifically withheld authority to vote, a proxy marked “WITHHELD ALL” may not be voted for any of our director nominees, and a proxy marked “FOR ALL” may be voted for all of our director nominees. In exercising its discretion with respect to cumulating votes, our Proxy Voting Committee may instruct, in its sole judgment, the proxy holders to cumulate and cast the votes represented by your proxy for any of our director nominees for whom you have not otherwise withheld authority. For example, if you grant a proxy with respect to shares representing 900 cumulative votes, and mark “FOR ALL EXCEPT” one of our director nominees, the Proxy Voting Committee may instruct the proxy holders to cast the 900 votes for any or all of our eight other director nominees; of those eight other director nominees, moreover, the Proxy Voting Committee may allocate the 900 votes among them as it determines, such that each of those other director nominees may receive unequal portions of the 900 votes or none at all.
In the event cumulative voting applies, unless you specifically instruct otherwise, the Proxy Voting Committee will instruct the proxy holders to cast the votes as to which voting authority has been granted so as to provide for the election of the maximum number of our director nominees, and will provide instructions as to the order of priority of the Board candidates in the event that fewer than all of our Board candidates are elected. The Proxy Voting Committee has not yet made any determination as to the order of priority of candidates to which it would allocate votes in the event cumulative voting applies, and expects to make this determination, if necessary, at the annual meeting. Accordingly, if you grant a proxy to us and have not specifically instructed otherwise, your shares will be voted for our director nominees at the discretion of the Proxy Voting Committee with respect to all of your shares (except that the Proxy Voting Committee will not be able to vote your shares for a candidate from whom you have withheld authority to vote). If you wish to exercise your own discretion as to allocation of votes among nominees, and you are a record holder of shares, you will be able to do so by attending the meeting and voting in person, by appointing another person as your representative to vote on your behalf at the meeting, or by providing us with specific instructions as to how to allocate your votes.
A holder of record who wishes to invoke cumulative voting must submit a proxy card by mail, check the box indicating the exercise of cumulative voting and hand mark the number of votes such holder wishes to allocate to each particular nominee next to the name of such nominee on the enclosed proxy card. A holder of record who wishes to provide vote allocation instructions, in the event that cumulative voting applies, must submit a proxy card by mail and should hand mark the number of votes such holder wishes to allocate to any particular nominee next to the name of such nominee on the enclosed proxy card. If you provide vote allocation instructions for less than all of the votes that you are entitled to cast, the proxy holders will retain discretionary authority to cast your remaining votes pursuant to the instructions of the Proxy Voting Committee, except for any nominee for whom you have withheld authority by marking the “FOR ALL EXCEPT” box. If you wish to grant the proxy holders discretionary authority to allocate votes among all our nominees you may check the “FOR ALL” box, but you are not required to do so. The proxy holders will retain discretionary authority to allocate votes among all our nominees except where you provide a specific instruction by hand marking the number of votes to be allocated or by marking the “FOR ALL EXCEPT” box.
Any shareholder who holds shares in street name and desires to specifically allocate votes among nominees, in the event cumulative voting applies, may do so by either informing the shareholder’s broker, banker or other custodian of the shareholder’s desire to attend the annual meeting, and requesting a legal proxy to attend the meeting, or by providing the broker, banker or other custodian with instructions as to how to allocate votes among nominees, which can then be delivered to the Company. Because each broker, banker or custodian has its own procedures and requirements, a shareholder holding shares in street name who wishes to allocate votes to specific nominees should contact its broker, banker or other custodian for specific instructions on how to obtain a legal proxy or provide vote allocation instructions.
We have not received notice that any of our shareholders currently intends to invoke cumulative voting. In addition, because the Board has not nominated more than nine director nominees for election at the annual meeting, and because the deadline for the submission of director nominees for the 2015 annual meeting has passed, we believe it is less likely that cumulative voting will be invoked at the 2015 annual meeting; however, in the event cumulative voting is invoked, the foregoing mechanics will apply.
Please note you will not be able to submit vote allocation instructions for director elections if you grant a proxy by telephone or the Internet.




CAUTION CONCERNING FORWARD LOOKING STATEMENTS
Statements made in this proxy statement that are not historical in nature, or that state our or our management’s intentions, hopes, beliefs, expectations or predictions of the future, may constitute “forward-looking statements” within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended. Forward-looking statements can often be identified by the use of forward-looking language, such as “could,” “should,” “will,” “will be,” “will lead,” “will assist,” “intended,” “continue,” “believe,” “may,” “expect,” “hope,” “anticipate,” “goal,” “forecast,” “plan,” or “estimate” or variations thereof or similar expressions. Forward-looking statements are not guarantees of future performance. These forward-looking statements may include, without limitation, discussions of our product development plans, business strategies, future operations, financial condition and prospects, developments in and the impacts of government regulation and legislation and market factors influencing our results.
Forward-looking statements involve risks, uncertainties and assumptions. It is important to note that any such performance and actual results, financial condition or business, could differ materially from those expressed in such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, the risk factors discussed under “Risk Factors” in our Annual Report on Form 10-K for fiscal year ended March 31, 2015, as well as factors discussed elsewhere in this and other reports and documents we file with the SEC. Other unforeseen factors not identified herein could also have such an effect. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial condition or business over time unless required by law. Interested persons are urged to review the risks described under “Risk Factors” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for fiscal year ended March 31, 2015, as well as in our other public disclosures and filings with the SEC.
 




ELECTION OF DIRECTORS
(Proposal No. 1)
Proposal No. 1 concerns the election of the following director nominees: Craig A. Barbarosh, George H. Bristol, Rusty Frantz, James C. Malone, Jeffrey H. Margolis, Morris Panner, D. Russell Pflueger, Sheldon Razin and Lance E. Rosenzweig. The Nominating and Governance Committee has nominated each of Messrs. Barbarosh, Bristol, Frantz, Malone, Margolis, Panner, Pflueger, Razin and Rosenzweig for election as a director. Each of our director nominees has consented to being named in this proxy statement and has agreed to serve as a director if elected. Directors are elected at each annual meeting of shareholders and hold office until the next annual meeting or until their respective successors are duly elected and qualified. One of our current directors, Steven T. Plochocki, will not stand for reelection at the 2015 annual meeting.
Each of our director nominees currently serves on the Board and was elected by the shareholders at the 2014 annual meeting other than Mr. Frantz. Effective June 30, 2015, Mr. Plochocki will resign from his position with the Company as President and Chief Executive Officer, but will remain a director of the Company until his successor is duly elected and qualified. Mr. Frantz has been appointed as Mr. Plochocki’s successor as the Company's President and Chief Executive Officer and will serve as the Company’s President and Chief Executive Officer, effective July 1, 2015. In connection with Mr. Frantz’s appointment, the Nominating and Governance Committee recommended to the Board the inclusion of Mr. Frantz as our director nominee.
Certain information with respect to our nine director nominees is set forth below. Although we anticipate that each nominee will be available to serve as a director, if any nominee becomes unavailable to serve, the proxies will be voted for another person as may be or has been designated by our Board.
Unless the authority to vote for one or more of our director nominees has been withheld in a shareholder’s proxy or specific instructions to vote otherwise have been given, the persons named in the proxy as proxy holders intend to vote at the annual meeting “For” the election of each nominee presented below. In the event cumulative voting applies to the election of the directors, our Board has authorized its Proxy Voting Committee to provide instruction to such proxy holders to vote the proxies solicited hereby in such manner as to provide for the election of the maximum number of our director nominees (for whom authority is not otherwise specifically withheld and to the extent no specific instructions otherwise are given) including, but not limited to, the prioritization of such nominees to whom such votes may be allocated.
At the annual meeting, in the event cumulative voting applies, unless you specifically instruct otherwise, the Proxy Voting Committee will instruct the proxy holders to cast the votes as to which voting authority has been granted so as to provide for the election of the maximum number of our director nominees, and will provide instructions as to the order of priority of the Board candidates in the event that fewer than all of our Board candidates are elected. The Proxy Voting Committee has not yet made any determination as to the order of priority of candidates to which it would allocate votes in the event cumulative voting applies, and expects to make this determination, if necessary, at the annual meeting.
In the election of directors, assuming a quorum is present, the nine nominees receiving the highest number of votes cast at the meeting will be elected directors.
All properly submitted and unrevoked proxies will be counted for purposes of determining whether a quorum is present, including those providing for abstention or withholding of authority and those submitted by brokers voting without beneficial owner instruction and exercising a non-vote on certain matters.
Based on definitions of independence established by The Nasdaq Stock Market (“Nasdaq”), SEC rules and regulations, guidelines established in our Bylaws, and the determinations of our Nominating and Governance Committee and our Board, Messrs. Barbarosh, Bristol, Malone, Margolis, Panner, Pflueger, Razin and Rosenzweig are independent. Mr. Frantz will be a member of our management team and will be a non-independent director if elected.
The Nasdaq independence definition includes a series of objective tests, such as that the director or director nominee is not and has not been for the past three years an employee of the Company and has not engaged in various types of business dealings with the Company. In addition, as further required by the Nasdaq rules, our Board has made a subjective determination as to each independent director and director nominee that no relationships exist which, in the opinion of our Board, would interfere with the exercise of independent judgment of such director or director nominee in carrying out his or her responsibilities as a director. In making these determinations, our Board reviewed and discussed information provided by our directors, director nominees and management with regard to each director’s and director nominee’s business and personal activities as they may relate to our management and us. The independent members of our Board meet periodically in executive session without management.




OUR BOARD RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” EACH OF THE DIRECTOR NOMINEES NAMED BELOW AND LISTED ON THE PROXY CARD.
John (“Rusty”) Frantz, age 48, will be our President and Chief Executive Officer effective July 1, 2015. Previously, he served as Senior Vice President and General Manager, Global Dispensing Division, of CareFusion Corp., a San Diego-based global corporation serving the health care industry, providing products and services that assist hospitals in improving the safety and quality of care, from 2011 until March 2015, when CareFusion was acquired by Becton, Dickinson and Company. He also served from 2010 to 2011 as Vice President, Research and Development, for CareFusion’s Pyxis business unit, from 2008 to 2010 as General Manager of CareFusion’s Pyxis Perioperative Solutions, and from 2007 to 2008 as CareFusion’s Vice President, Marketing, Supply Technologies. Prior to his employment with CareFusion, Mr. Frantz served as Vice President, Marketing, at Cerfidia Solutions, Vice President, Marketing and Product Management, at Amphire Solutions, Co-Founder and Vice President, Engineering, at OutPurchase, and held various other management positions in the health care industry. Mr. Frantz holds a Master of Science degree in engineering from Stanford University and a Bachelor of Science degree in engineering from the Maine Maritime Academy. Mr. Frantz’s position as our President and Chief Executive Officer will provide our Board with the perspective of a person involved in the Company’s day to day activities.
Craig A. Barbarosh, age 47, is a director. Mr. Barbarosh is a partner at the international law firm of Katten Muchin Rosenman LLP, a position he has held since June 2012. From January 1999 until June 2012, Mr. Barbarosh was a partner of the international law firm of Pillsbury Winthrop Shaw Pittman LLP. Mr. Barbarosh is a nationally recognized restructuring expert. He served in several leadership positions while a partner at Pillsbury including serving on the firm’s Board of Directors, as the Chair of the firm’s Board’s Strategy Committee, as a co-leader of the firm’s national Insolvency & Restructuring practice section and as the Managing Partner of the firm’s Orange County office. At Katten, Mr. Barbarosh is a member of the firm’s Executive and Operating Committee and Board of Directors. Mr. Barbarosh received a Juris Doctorate from the University of the Pacific, McGeorge School of Law in 1992, with distinction, and a Bachelor of Arts in Business Economics from the University of California at Santa Barbara in 1989. Mr. Barbarosh received certificates from Harvard Business School for completing executive education courses on Private Equity and Venture Capital (2007) and Financial Analysis for Business Evaluation (2010). Mr. Barbarosh is also a frequent speaker and author on restructuring and governance topics. Mr. Barbarosh, as a practicing attorney specializing in the area of financial and operational restructuring and related mergers and acquisitions, provides our Board with experienced guidance on similar transactions involving our company. Mr. Barbarosh is also a director of Sabra Health Care REIT, Inc. (Nasdaq: SBRA), where he is the Chair of the Audit Committee and a member of the Compensation Committee. Mr. Barbarosh has been a director since 2009.
George H. Bristol, age 66, is a director. Mr. Bristol is a Managing Director of Janas Associates, a corporate financial advisor, a position he has held since 2010. From August 2006 until March 2010 he served as Managing Director-Corporate Finance of Crowell Weedon & Co. From November 2002 until August 2006, he was a member and Chief Financial Officer of Vantis Capital Management, LLC, a registered investment advisor which managed the Vantis hedge funds totaling over $1.4 billion from November 2002. Prior to Vantis, he was an investment banker with several firms including Ernst & Young, Paine Webber, Prudential Securities and Dean Witter. He is a graduate of the University of Michigan and Harvard Business School. Mr. Bristol’s experience at Janas, Vantis and his various corporate finance positions provides our Board with insight from someone with direct responsibility for strategic and transactional financial matters. Mr. Bristol has been a director since 2008.
    James C. Malone, age 66, is a director. Mr. Malone has more than 35 years of financial leadership experience, having held the Chief Financial Officer position at several global healthcare companies. Currently, Mr. Malone is the Executive Vice President and Chief Financial Officer of XIFIN, Inc. a financial cloud computing company dedicated to optimizing the economics of healthcare, since February 2015. Mr. Malone served as the Chief Financial Officer and Executive Vice President of American Well Inc., a software technology and services company that brings healthcare into the homes and workplaces of patients, from September 2010 to January 2015. He served as Chief Financial Officer of Misys PLC, a multinational software company, from June 2007 to January 2009 and served as its Executive Vice President until January 2009. He joined Misys from The TriZetto Group, Inc., a provider of healthcare IT solutions and services to payers and providers, where he served as Chief Financial Officer from March 2004 to June 2007, Vice President of Finance from January 2004 until his appointment as CFO, Executive Vice President of Finance from January 2006 to June 2007, Senior Vice President of Finance from January 2004 until January 2006 and also served as its Principal Accounting Officer. Prior to this, he served as Chief Financial Officer, Senior Vice President and Chief Administrative Officer of IMS Health Inc., a provider of information, services and technology for the healthcare industry. He served as Senior Vice President and Controller of Cognizant Corporation from 1995 to 1997. Mr. Malone also held management positions at Dun & Bradstreet, Reuben H. Donnelley, and Siemens AG and served as audit manager at Price Waterhouse. He also served as an executive director of Misys PLC from June 2007 to January 2009 and served as director of Allscripts Healthcare Solutions, Inc. (alternate name, Allscripts-Misys Healthcare Solutions, Inc.), which provides practice management and electronic health record technology to healthcare providers, from October 2008 to January 2009. He also served as a director of Cognizant Technology Solutions, Inc. Mr. Malone received his BS in Accounting from St. Francis College in 1973 and attended Pace University for graduate work in tax. He received his Certified Public Accountant certification from the State of New York in 1975. Mr. Malone’s qualifications as a director include his experience as a Chief Financial Officer in the technology




industry (including in the health care technology sector) and his experience as an executive officer and director of various companies. Mr. Malone has been a director since 2013.
Jeffrey H. Margolis, age 52, is a director. Currently, Mr. Margolis is chairman and CEO of Welltok, Inc., an early-stage healthcare consumer engagement and platform-as-a-service enterprise. Mr. Margolis is Chairman Emeritus of TriZetto Corporation, a recognized leader of in the provision of health information technology for payers and providers and the originator of the industry-vertical SaaS model, where he served as the founding CEO beginning in 1997, served as Chairman and CEO of TriZetto until 2010 (publically traded on NASDAQ from October 1999 - August 2008), and continued as Chairman until October 2011. Mr. Margolis also served as Senior Executive Advisor to the Oliver Wyman Health Innovation Center, an organization that identifies and disseminates ideas and best practices that aim to transform healthcare, during 2012 and 2013. From 1989 to 1997, Mr. Margolis served as Senior Vice President and Chief Information Officer of FHP International Corp. and its predecessors, a publicly-traded company that focused on the delivery of managed group and individual health care insurance and hospital and ambulatory-based clinical services along with a broad array of healthcare ancillary services. Earlier in his career, Mr. Margolis served in various positions with Andersen Consulting including his final position as Manager, Healthcare Consulting. Margolis currently serves on the board of directors of Alignment Healthcare, Inc., a private, for-profit population health management entity. He has previously served on a variety of other for-profit boards. He also serves on a number of not-for-profit boards of directors, and is currently a director of Hoag Hospital in Newport Beach. He is a member of the board of governors at Cedars-Sinai in Los Angeles, California and is on the Advisory Boards of the University of California at Irvine’s Center for Healthcare Management & Policy and Center for Digital Transformation. A published author on topics of healthcare information technology and systems, Mr. Margolis earned a bachelor’s degree in business administration/management information systems with high honors from the University of Illinois in 1984, and holds CPA certificates (currently inactive) in Colorado and Illinois. Mr. Margolis has been a director since 2014.
Morris Panner, age 52, is a director. Mr. Panner is a long tenured executive with expertise in both healthcare software companies, including SaaS capabilities, and the law. Currently, Mr. Panner is the Chief Executive Officer of DICOM Grid, a cloud-based healthcare software company that manages diagnostic imaging and related healthcare data. Prior to joining DICOM Grid in September 2011, Mr. Panner was the Chief Executive Officer of Townflier, Inc. and related affiliates that provide group communications services, from May 2010 to August 2011. Previously, from April 2000 to May 2010, he was Chief Executive Officer of OpenAir, Inc., a SaaS project management company, which he led from start-up to its successful acquisition by NetSuite Inc., the provider of an integrated web-based business software suite, in 2008. Following the acquisition, Panner led the OpenAir division of NetSuite, during which time he oversaw the acquisition and integration of OpenAir’s nearest competitor, QuickArrow, Inc., as well as the expansion of OpenAir internationally. Mr. Panner served as Chairman of the Board of the Software Division of the Software and Information Industry Association. Mr. Panner is a lawyer who served as an Assistant United States Attorney, the Resident Legal Advisor in Bogota, Columbia for the U.S. Department of Justice and as the Principal, Deputy Chief of the Narcotics and Dangerous Drug Section of the U.S. Department of Justice. He currently serves on the board of directors of Unanet Technologies, Inc., a software development company specializing in services automation solutions for project-based companies, where he has served since 2012, and on the board of Drug Strategies, a nonprofit research institution on issues of drug addiction and treatment, and as an advisor to the Harvard Center for International Criminal Justice. Mr. Panner was previously a director of the Washington Office on Latin America, a not-for-profit organization, from 2003 to 2009. Mr. Panner graduated from Yale College with a BA in History in 1984 and from the Harvard Law School with a JD in 1988. Mr. Panner’s qualifications as a director include his executive experience at software companies, including at health care software companies, and his legal training. Mr. Panner has been a director since 2013.
D. Russell Pflueger, age 51, is a director. Mr. Pflueger is an investor and serial entrepreneur with over 25 years of experience in healthcare and over 30 issued patents. He is the founder of Quiescence Medical, Inc., a medical device development company working on novel approaches to the treatment of sleep apnea, and has served as its Chairman and Chief Executive Officer since its inception in 2002. Mr. Pflueger’s background includes R&D and sales positions at organizations including the National Institutes of Health, Pfizer, Baxter Healthcare and Beech Street. He also helped form, manage and sell a major medical practice and surgery center. He was a semi-finalist for the Ernst & Young Orange County Entrepreneur of the Year award in 1999. In 2002, he sold Pain Concepts, Inc., a minimally invasive spinal device company he founded to Stryker, Inc. (SYK:NYSE) for a publicly reported $42.5 million. Mr. Pflueger is an active investor in many public and private companies and also various real estate interests. He played collegiate basketball and golf, holds a Chemical Engineering degree from Texas A&M University and a Master’s Degree in Business Administration degree with top honors from the University of California at Irvine. Mr. Pflueger brings to our Board experience in the healthcare industry as an entrepreneur and corporate and government employee, as well as his diverse work-related experiences in research and development, sales and executive management. Mr. Pflueger has been a director since 2006.
Sheldon Razin, age 77, is a director. He is the founder of our company and has served as our Chairman of the Board since our incorporation in 1974. Throughout his tenure as our Chairman, Mr. Razin has received several awards recognizing his service and contributions as a director. Mr. Razin’s honors at the national level include: winner in the Software Category of TechAmerica’s 52nd Annual Innovator Awards in 2010 and Chairman of the Year in the 2009 American Business Awards. He was also honored as a Director of the Year in Orange County’s 16th Annual Forum for Corporate Directors Awards in 2011, as the




2009 Ernst & Young Entrepreneur of the Year in the Healthcare Category for the Orange County and Desert Cities region and as a Finalist at the national level, and with the Excellence in Entrepreneurship Award from the Orange County Business Journal in 2009. Mr. Razin also served as our Chief Executive Officer from 1974 until April 2000. Since our incorporation until April 2000, he also served as our President, except for the period from August 1990 to August 1991. Additionally, Mr. Razin served as our Treasurer from our incorporation until October 1982. Prior to founding our company, he held various technical and managerial positions with Rockwell International Corporation and was a founder of our predecessor, Quality Systems, a sole proprietorship engaged in the development of software for commercial and space applications and in management consulting work. Mr. Razin holds a B.S. degree in Mathematics from the Massachusetts Institute of Technology. Mr. Razin, as our founder, brings valuable knowledge to our Board regarding our history, operations, technology and marketplace. As evidenced by his awards, he has been and continues to be a technology and healthcare visionary as well as an outstanding entrepreneur whose insights and guidance are invaluable to Quality Systems. Mr. Razin has been a director since 1974.
Lance E. Rosenzweig, age 52, is a director. Mr. Rosenzweig has served, since January 2015, as Operating Partner of Marlin Equity Partners, a global investment firm focused on providing corporate parents, shareholders and other stakeholders with tailored solutions that meet their business and liquidity needs. Previously, Mr. Rosenzweig served as Chief Executive Officer and President, Global markets for Aegis USA, Inc., a leading business process outsourcing company with over 18,000 employees that services major corporations in the healthcare, financial services and other industries, from 2013 through the company’s sale to Teleperformance for $610 million in 2014. Mr. Rosenzweig served as the founder and Chief Executive Officer of LibertadCard, Inc., a provider of pre-paid debit and remit cards, since the company's inception in 2010 until November 2013. Mr. Rosenzweig has also co-founded and served as Chairman of the Board of PeopleSupport, Inc., a business process outsourcing company with over 8,000 employees and operations in the US, the Philippines and Costa Rica, since its inception in 1998, and as PeopleSupport’s Chief Executive Officer from 2002 through the company’s sale in 2008 for $250 million. Under Mr. Rosenzweig’s leadership as CEO, PeopleSupport went public in an IPO, was ranked by Fortune as the 9th fastest growing small public company in the U.S. and was named employer of the year in the Philippines. From 1993 to 1997, Mr. Rosenzweig was a founder, Chairman of the Board and President of Newcastle Group, a privately held plastics manufacturing company. He was also a founder of Unisite, a privately held wireless cell site management company, acquired by American Tower in 2000 for more than $200 million. Prior to 1993, Mr. Rosenzweig was a divisional vice president at GE Capital; a vice president in the investment banking group of Dean Witter (now Morgan Stanley); a vice president in the investment banking group of Capel Court Pacific, an Australian investment banking firm; and, a corporate planning manager of Jefferson Smurfit Group, a multinational packaging company. Mr. Rosenzweig has a BS in Industrial Engineering and an MBA with honors every term, both from Northwestern University. Mr. Rosenzweig brings significant experience in international operations and successful offshore ventures. Mr. Rosenzweig has been a director since 2012.
NON-DIRECTOR EXECUTIVE OFFICERS

Daniel J. Morefield, age 56, was appointed Executive Vice President and Chief Operating Officer in September of 2012. Mr. Morefield brings more than 30 years of experience to our Company, having spent the past decade serving in various operational and technology leadership roles. Most recently, Mr. Morefield was president and chief executive officer at LEADS360, Inc., the country’s largest and most successful sales lead management system company from 2008 to 2011. Previously, Mr. Morefield was chief operations officer at Experian Consumer Direct, a consumer credit report monitoring business, from 2006 to 2007. Mr. Morefield joined Overture Services, Inc., a paid search company, in 2001 and was Chief Information Officer from 2002 to 2005. Mr. Morefield holds a Bachelor of Arts degree in management science (quantitative economics) from the University of California, San Diego.
Jocelyn A. Leavitt, age 32, was appointed our Executive Vice President, General Counsel and Secretary in June 2013. Ms. Leavitt has been with the Company since December 2011 and previously served as our Vice President, Associate General Counsel. Prior to joining our company, Ms. Leavitt served as the Senior Corporate Counsel of CoreLogic, Inc. (NYSE: CLGX), a leading property information, analytics and services provider to the real estate and mortgage finance, insurance, transportation, capital markets and government sectors, from March to December in 2011. From 2007 to 2011, Ms. Leavitt was a corporate associate with the law firm of Latham & Watkins LLP where her practice focused on general corporate matters including public company representation, securities matters, mergers and acquisitions and capital markets. Ms. Leavitt holds a B.A. in English and Political Science from the University of California, Berkeley, a J.D. from Harvard Law School and is admitted to practice by the State Bar of California.
Stephen K. Puckett, age 50, was appointed our Executive Vice President and Chief Technology Officer in September 2012, prior to which he served as the Executive Vice President of our Hospital Solutions Division (formerly known as the Inpatient Solutions Division) since January 2011. From June 2009 to January 2011, Mr. Puckett served as our Senior Vice President and General Manager of Inpatient Solutions, during which time the inpatient solutions offerings were still managed within our NextGen Division. From September 1992 to May 1997, Mr. Puckett was co-founder, President and Chairman of the Board of MicroMed Healthcare Information Systems, Inc., a developer and marketer of practice management systems for medical group practices that we acquired in May 1997. Mr. Puckett began his career at Accenture and later worked in the inpatient sector




at Gerber Alley, which became a part of McKesson. Mr. Puckett holds an Industrial Management degree from the Georgia Institute of Technology.
John K. Stumpf, age 48, was appointed our interim Chief Financial Officer in April 2015. Mr. Stumpf served the Company as its Senior Vice President, Corporate Controller and Treasurer since November 2012. Prior to joining the Company, Mr. Stumpf served as Kaiser Production Systems Manager at Kaiser Aluminum Corporation from 2011 to 2012. Earlier in his career, Mr. Stumpf owned a consulting practice, providing technical and operational accounting services for client companies from 2008 to 2011. Mr. Stumpf is a Certified Public Accountant in California and holds a Bachelor of Science, Business Administration degree from California Polytechnic State University, San Luis Obispo.






SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Except as otherwise indicated in the related footnotes, the following table sets forth information with respect to the beneficial ownership of our common stock as of the record date, June 16, 2015, by:

each of our directors and director nominees;

each of our current named executive officers ("NEOs");

each person known by us to beneficially own more than 5% of the outstanding shares of our common stock; and

all of our directors and executive officers as a group.

Beneficial ownership is determined in accordance with the rules of the SEC, and includes voting or investment power with respect to the securities. To our knowledge, unless indicated by footnote, and subject to community property laws where applicable, the persons named in the table below have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. Except as indicated in the footnotes to the table below, shares of common stock underlying options, if any, that currently are exercisable or are scheduled to become exercisable for shares of common stock within 60 days after the date of the table are deemed to be outstanding in calculating the percentage ownership of each listed person or group but are not deemed to be outstanding as to any other person or group. Percentage of beneficial ownership is based on 60,297,562 shares of common stock outstanding as of the record date, June 16, 2015.

Unless otherwise indicated, the address of each of the beneficial owners named in the table is c/o Quality Systems, Inc., 18111 Von Karman Avenue, Suite 700, Irvine, California 92612. Messrs. Barbarosh, Bristol, Malone, Margolis, Panner, Pflueger, Plochocki, Razin and Rosenzweig are current directors of our Company. Mr. Frantz and each of our current directors, other than Mr. Plochocki, are our director nominees. Messrs. Plochocki, Morefield, Puckett and Stumpf and Ms. Leavitt are our NEOs, and Mr. Frantz will replace Mr. Plochocki as an NEO effective as of July 1, 2015.
  
Name of Beneficial Owner
 
Number of Shares
of Common Stock Beneficially Owned
 
Percent of
Common Stock Beneficially Owned
 
 
 
 
 
 
Sheldon Razin
 
10,220,176

(1)
 
16.9%
Craig A. Babarosh
 
22,578

 
 
*
George H. Bristol
 
33,782

(2)
 
*
James C. Malone
 
10,916

 
 
*
Jeffrey H. Margolis
 
15,868

 
 
*
Morris Panner
 
10,916

 
 
*
D. Russell Pflueger
 
39,536

(3)
 
*
Lance E. Rosenzweig
 
13,359

 
 
*
Rusty Frantz
 

 
 
*
Steven T. Plochocki
 
51,822

(4)
 
*
Jocelyn A. Leavitt
 
18,225

(5)
 
*
Daniel J. Morefield
 
16,333

(6)
 
*
Stephen K. Puckett
 
54,444

(7)
 
*
John K. Stumpf
 
6,700

(8)
 
*
Ahmed Hussein
 
5,687,696

(9)
 
9.4%
Brown Capital Management, LLC
 
4,373,598

(10)
 
7.3%
Blackrock, Inc.
 
4,041,067

(11)
 
6.7%
All directors and executive officers as a group (14 persons)
 
10,514,655

(12)
 
17.4%
___________________

*
Represents less than 1.0%.
(1)
Includes 10,000 shares underlying options.
(2)
Includes 10,000 shares underlying options.
(3)
Includes 10,000 shares underlying options.
(4)
Includes 40,700 shares underlying options.




(5)
Includes 12,800 shares underlying options.
(6)
Includes 8,000 shares underlying options.
(7)
Includes 48,650 shares underlying options.
(8)
Includes 6,700 shares underlying options.
(9)
This information is derived from a Form 4 filed by Ahmed Hussein on August 27, 2012. According to the Form 4, Mr. Hussein has beneficial ownership of 5,687,696 shares.
(10)
This information is derived from a Schedule 13G/A filed by Brown Capital Management LLC on February 2, 2015. According to the Schedule 13G/A, Brown Capital Management LLC had sole power to vote of 2,450,377 shares, sole power to dispose of 4,373,598 shares and zero (-0-) shared voting power to vote or dispose of shares. The address for Brown Capital Management LLC is 1201 N. Calvert Street, Baltimore, Maryland 21202.
(11)
This information is derived from a Schedule 13G/A filed by Blackrock, Inc. on January 29, 2015. According to the Schedule 13G/A, Blackrock, Inc. had sole power to vote of 3,929,206 shares, sole power to dispose of 4,041,067 shares and zero (-0-) shared voting power to vote or dispose of shares. The address for Blackrock, Inc. is 55 East 52nd Street, New York, New York 10022.
(12)
Includes 146,850 shares underlying options.



EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth information about our common stock that may be issued upon the exercise of options under all of our equity compensation plans as of March 31, 2015.
Plan Category
 
Number of Securities to be issued upon exercise of outstanding options
(a)
 
Weighted-average exercise price of outstanding options, warrants and rights
(b)
 
Number of Securities remaining available for
future issuance under
equity compensation (excluding Securities reflected in column (a))
(c)
 
 
 
 
 
 
 
 
 
Equity compensation plans approved by security holders
 
1,636,176

(1)
$
24.82

 
2,298,488

(2)
Equity compensation plans not approved by security holders
 

 

 

 
Total
 
1,636,176

(1)
$
24.82

 
2,298,488

(2)
___________________

(1)
Represents shares of common stock underlying options outstanding under our 2005 Plan.
(2)
Represents shares of common stock available for issuance under options or awards that may be issued under our 2005 Plan. The material features of these plans are described in Note 12 to the Financial Statements contained in our Form 10-K for the fiscal year ended March 31, 2015.





EXECUTIVE AND DIRECTOR COMPENSATION AND RELATED INFORMATION

Compensation Discussion and Analysis

This Compensation Discussion and Analysis section describes our executive compensation programs for our fiscal year 2015 named executive officers or NEOs, who were:

Steven T. Plochocki -- President and Chief Executive Officer, resigning effective June 30, 2015
Paul A. Holt -- Former Executive Vice President and Chief Financial Officer, resigned April 12, 2015
Daniel J. Morefield -- Executive Vice President and Chief Operating Officer
Stephen K. Puckett -- Executive Vice President and Chief Technology Officer
Jocelyn A. Leavitt -- Executive Vice President, General Counsel and Secretary
Changes in Management Team
On April 12, 2015, Mr. Holt, our former Executive Vice President and Chief Financial Officer resigned. On April 12, 2015, John K. Stumpf, previously our Senior Vice President, Controller and Treasurer, was appointed the Company’s Interim Chief Financial Officer. For purposes of discussing our executive compensation program for our fiscal year 2016, Mr. Stumpf replaces Mr. Holt in our definition of NEOs.
Effective June 30, 2015, Mr. Plochocki will resign from his position with the Company as President and Chief Executive Officer. Mr. Plochocki will remain a director of the Company until his successor is duly elected and qualified. Mr. Frantz has been appointed as Mr. Plochocki’s successor and will serve as the Company’s President and Chief Executive Officer, effective July 1, 2015. For purposes of discussing our executive compensation program for our fiscal year 2016, both Messrs. Frantz and Plochocki are included in our definition of NEOs for the respective terms each will serve during fiscal year 2016.
Executive Summary
Quality Systems develops and markets computer-based practice management applications, electronic health records, revenue cycle management applications and connectivity products and services to medical and dental group practices and hospitals. We compete for executive talent with a broad range of companies that are leaders in the healthcare and software industries. We believe that our compensation program:
aligns management’s interests with the interests of our shareholders;
rewards strong Company financial performance;
provides responsible and balanced incentives;
allows us to attract and retain effective executive leadership; and
is mindful of the concerns of our shareholders and good corporate governance practices.
Continued Strong Shareholder Support for our Compensation Decisions
At our 2014 annual meeting of shareholders, our shareholders approved the compensation of our fiscal year 2014 NEOs with over 98% approval. In light of this overwhelming support from our shareholders, the Compensation Committee made no significant changes to the philosophy of our compensation program for fiscal year 2015; however, the Compensation Committee did incorporate into our fiscal year 2015 compensation program, (i) revised potential cash incentive bonus thresholds, (ii) new performance measures, and (iii) an additional performance share component. These changes to our compensation framework provided stronger retention and performance incentives for our NEOs and better alignment with our shareholders. The Compensation Committee made no significant changes to the overall design or philosophy of our compensation program for fiscal year 2016 other than revising the performance measures. The Compensation Committee will continue to evaluate our compensation programs to ensure that the management team’s interests are aligned with our shareholders’ interests to support long-term value creation.
Pay-For-Performance
We believe a significant portion of our NEOs’ compensation should be variable, at risk and tied directly to the Company’s measurable performance. Consistent with these principles, a material portion of our NEOs’ compensation is in the form of performance-based annual cash and equity incentives that are earned upon the attainment of pre-established financial goals.




Our Performance Measures
Under our 2015 Executive Compensation Program, each of our NEOs were eligible for cash and equity incentives based on (i) the percentage of increase, if any, of the Company’s consolidated revenues reported for the fiscal year over the Company’s consolidated revenues reported for the previous fiscal year (“Consolidated Revenue Growth”), (ii) the Company’s fully diluted non-GAAP earnings per share for the fiscal year (“Non-GAAP EPS”), (iii) the Company’s free cash flow for the fiscal year (“Free Cash Flow”), and (iv) the Company’s average daily closing stock price during the ninety calendar day period ending May 31st (“Average 90 Day Trading Price”) for fiscal years 2016, 2017 and 2018. All revenues and expenses associated with acquisitions or divestitures closed during the fiscal year are not included in the calculation of any of the performance measures.
Under our 2016 Executive Compensation Program, each of our NEOs will be eligible for cash and equity incentives based on (i) Consolidated Revenue Growth for fiscal year 2016, (ii) the percentage of increase, if any, of the Company’s Non-GAAP EPS reported for the fiscal year over the Company’s Non-GAAP EPS reported for the previous fiscal year (“Non-GAAP EPS Growth”), and (iii) the Company’s average daily closing stock price during the thirty calendar day period ending April 30th (“Average 30 Day Trading Price”) for fiscal years 2017, 2018 and 2019. All revenues, expenses and dilutive shares associated with acquisitions or divestitures closed during the fiscal year will not be included in the calculation of any of the performance measures.
Our Fiscal Year 2015 Performance and How our Performance is Linked to Pay
Fiscal year 2015 was a strong year for Quality Systems, financially and operationally, but also presented both new challenges and opportunities for us and the healthcare information technology sector as a whole. We saw an increase in our consolidated revenue and we exceeded our target Non-GAAP EPS and Free Cash Flow metrics. Our fiscal year 2015 revenue increased 10.2% from fiscal year 2014, our Non-GAAP EPS reached $0.62 and our Free Cash Flow was $61.6 million. Additionally, our Average 90 Day Trading Price as of May 31, 2015 was $16.01. Under our 2015 Executive Compensation Program, cash bonuses payable to our named executive officers were 138% of their respective target cash bonus amounts, and equity incentives payable to our named executive officers were zero (-0-) restricted shares. The payment of these incentive awards was based on the Company’s attainment of pre-established financial performance goals. This incentive compensation summary does not include payments made to Mr. Holt, who was ineligible for such payments in connection with his resignation. Detailed information about these payments is presented below under the caption “Compensation Details.
Equity as a Key Component of Compensation
We believe that the use of equity-based compensation in the form of stock options that vest in five equal, annual installments and equity-based incentives in the form of restricted shares of common stock help to align the interests of our management team with those of our long-term shareholders by encouraging long-term performance. The multi-year vesting schedule creates incentives for our officers to sustain performance over the long term and encourages retention. Under the 2015 Executive Compensation Program, equity-based compensation represented about 24% of our NEOs’ aggregate compensation opportunities, 7% of which was granted in the form of options on June 3, 2014 and 17% of which would only be granted upon the achievement of predetermined performance targets.
Responsible and Balanced Pay Opportunities that Reflect Best Practices
The Compensation Committee evaluates our compensation programs annually to ensure they provide balanced and reasonable pay opportunities and reflect best practices. In designing our compensation programs, our Compensation Committee adheres to the following:

Restrained use of employment agreements and severance arrangements. Only Mr. Plochocki, our resigning President and Chief Executive Officer, and Mr. Frantz, our incoming President and Chief Executive Officer, have employment agreements that provide for certain payments upon their termination of employment or a change in control of the Company. We do not have any employment contracts, agreements, plans or other arrangements with any of our other NEOs that would provide for payments in connection with any termination of employment, change in control or change in responsibilities. The change in control arrangements in Messrs. Plochocki’s and Frantz's employment agreements have double triggers, and there are no excise tax gross-ups on any change of control severance payments that may be made.

No perquisites; no tax gross-ups. We do not provide any meaningful perquisites to our NEOs. Accordingly, we do not provide tax gross-ups to our NEOs in connection with perquisites or benefits.

No corporate aircraft. We do not provide a corporate aircraft for personal travel of any of our NEOs.





Responsible and balanced compensation philosophy. The Compensation Committee's compensation philosophy is to design conservative, responsible and balanced compensation programs that have the highest regard for the interests of our shareholders while still compensating NEOs fairly in light of the Company's performance and market position.
 
Executive stock ownership policy. We have an executive stock ownership policy designed to align our NEOs' long-term interests with those of our shareholders and to discourage excessive risk taking.

Executive compensation recovery policy. All incentive compensation awarded to our NEOs may be recovered in the event of a financial restatement or intentional misconduct by the NEO.
 
Commitment to Strong Governance Standards
We are committed to adopting and maintaining good corporate governance standards with respect to our compensation programs, procedures and practices. As such, our Company's and Compensation Committee's practices include the following:

Independent compensation committee. Our Compensation Committee designs and oversees our executive compensation programs. The Compensation Committee is comprised entirely of independent directors.

Annual say-on-pay advisory vote. Since 2011, we have held annual say-on-pay advisory votes in accordance with good governance practices and to maintain accountability to our shareholders.

Performance goals. A material portion of our NEOs' compensation is in the form of performance-based annual cash and equity incentives that are earned upon the attainment of pre-established financial goals. These goals are tied directly to the Company's measurable performance and designed to align the interests of our executives with those of our shareholders.

Risk oversight. Our Compensation Committee oversees and periodically assesses the risks associated with our compensation structure, programs and practices to ensure they do not encourage excessive risk-taking.

Authority to engage independent consultants. Our Compensation Committee has the authority to engage its own independent compensation consultants, legal counsel or other advisers to assist in designing and assessing our executive compensation programs and pay practices.

Prohibition on speculative trading. Board members, officers and employees are prohibited under the Company's insider trading policy from engaging in short-term or speculative transactions in our Company's shares.

Compensation Details
Compensation Objectives and Components
This section discusses the principles underlying our executive compensation policies and decisions and the most important factors relevant to an analysis of these policies and decisions. It provides qualitative information regarding the manner and context in which compensation is awarded to and earned by executive officers and places in perspective the data presented in the tables and narratives that follow.
The Compensation Committee regularly assesses the Company’s compensation philosophy as well as target and actual compensation. The Compensation Committee is comprised solely of independent directors and has responsibility for overseeing the Company’s compensation programs, designing and managing our executive compensation programs and making recommendations to the Board concerning compensation matters for our employees and directors. The Compensation Committee attempts to create compensation paid to our NEOs that is responsible, balanced, performance based and competitive. Our executive compensation program is designed to reward achievement of specific performance goals, including continuous Company growth and increased shareholder value. By rewarding strong management performance in the achievement of these established goals, our executive compensation program helps to ensure that management’s interests are aligned with our shareholders’ and customers’ interests, with the ultimate objective of improving long-term shareholder value and customer satisfaction. To that end, our Compensation Committee designs compensation packages for our officers that include equity-based compensation as a key component. Our Compensation Committee believes that this use of equity-based compensation serves to further align the interests of our officers with those of our long-term shareholders by encouraging long-term performance. Our Compensation Committee also strives to enable us to recruit, retain and develop effective executive talent by creating compensation opportunities that are fair in light of the Company’s performance and market position.




The Compensation Committee meets following the end of the fiscal year without any members of management present to deliberate on and approve executive officer bonuses earned under the prior fiscal year’s compensation program and approve the compensation program for the next fiscal year. During the process, the Compensation Committee reviews performance assessments of the executive officers as well as market and industry data on compensation metrics and best practices.
The Compensation Committee assesses our Company-wide compensation structure, programs and practices to help ensure that our compensation programs do not incentivize excessive risk taking. Pursuant to this assessment, the Compensation Committee believes that the balance of cash and equity compensation and the performance measures used in our compensation programs are effective and do not encourage excessive risk taking.
The Compensation Committee has the authority, in its sole discretion, to retain or obtain the advice of an independent compensation consultant, legal counsel or other advisers to assist in carrying out the Compensation Committee’s duties and responsibilities. Prior to selecting a compensation adviser, the Compensation Committee shall assess whether work performed or advice rendered by such compensation adviser would raise any conflicts of interest. From time to time, the Compensation Committee has engaged independent compensation consultants to advise it on matters of Board and executive compensation. In each case, the Compensation Committee has utilized these compensation consultants to compile and present peer-group compensation data to the Compensation Committee, but did not delegate any authority to the consultants to determine or recommend the amount or form of executive compensation. The Compensation Committee also subscribed to Equilar, Inc. Insight and reviews publicly available compensation data from time to time as part of its committee and executive compensation decisions. For fiscal year 2015, there were no conflicts of interest with respect to any compensation advisers.
Key components of the 2015 Executive Compensation Program were base salary in the form of cash, stock options, and cash and equity incentive programs. The Compensation Committee views the various components of compensation as related, but distinct, and believes that a significant percentage of total compensation should be allocated to performance incentives. The Compensation Committee determines the appropriate level for each compensation component based in part, but not exclusively, on performance, internal equity, stability and other considerations the Compensation Committee deems relevant. The Compensation Committee has not adopted any formal or informal policies or guidelines for allocating compensation between long-term and currently paid out compensation, between cash and non-cash compensation, or among different forms of non-cash compensation.
The Compensation Committee provides NEOs with base salaries to compensate them for services rendered during the fiscal year. The use of base salaries provides stable compensation to officers, allows us to attract high caliber executive talent and provides a base upon which officers may be rewarded for individual performance. Base salaries for NEOs are determined based on positions and responsibilities using market data and considering individual performance, company-wide performance, future contribution potential, peer compensation levels and internal equity issues. The weight given to each of these factors can vary from individual to individual. Base salaries are intended to be set at levels that, in combination with other forms of compensation, offer the potential to attract, retain, and motivate qualified individuals. Base salaries are targeted to be moderate yet competitive.
2015 Executive Compensation Program Terms
On May 27, 2014, our Compensation Committee approved the 2015 Executive Compensation Program for our NEOs for the fiscal year ending March 31, 2015. The compensation program includes base salaries in the form of cash, options to purchase the Company’s common stock, and both cash and equity incentive compensation components. The incentive compensation components for each of our NEOs were based on Consolidated Revenue Growth, Non-GAAP EPS and Free Cash Flow for fiscal year 2015 and Average 90 Day Trading Price for fiscal years 2016, 2017 and 2018.
  
Base Compensation
Cash salary levels for our NEOs were set as follows:
Steven T. Plochocki - $618,000 (an increase from $600,000), effective August 16, 2014;
Paul A. Holt - $370,800 (an increase from $360,000), effective July 23, 2014;
Daniel J. Morefield - $453,200 (an increase from $440,000)), effective September 25, 2014;
Stephen K. Puckett - $370,800 (an increase from $360,000), effective June 1, 2014;
Jocelyn A. Leavitt - $324,450 (an increase from $315,000), effective August 16, 2014;





Equity Grant
Each NEO received a grant of options to purchase the Company’s common stock. This grant occurred on June 3, 2014. The options vest in five equal, annual installments, beginning on June 3, 2015 and will expire eight years after their grant. The options were granted under one of our shareholder approved option plans, subject to the terms of our standard stock option agreement, with an exercise price of $15.99. The number of stock options granted to each NEO is set forth in the table below.
Name
 
Options
Steven T. Plochocki
 
25,000
Paul A. Holt
 
20,000
Daniel J. Morefield
 
20,000
Stephen K. Puckett
 
20,000
Jocelyn A. Leavitt
 
20,000

The Compensation Committee determines base salaries for our NEOs after reviewing a variety of factors. The weight given to each of these factors can vary from period to period and from individual to individual. The Compensation Committee does not allocate specific, predetermined weighting to the individual factors.
When evaluating the future contribution potential of an NEO, the Compensation Committee considers, as particularly meaningful, the NEO’s historic contributions to our EPS and revenue, particularly in light of the highly competitive industry in which we operate. Significant weight also is given to the NEO’s anticipated contributions to our future growth and profitability. To a lesser extent, the Compensation Committee takes note, on an informal basis, of the competitive rates of pay in the corporate community, generally, and the relative standing of our compensatory practices in a peer group of similarly sized healthcare information technology and business software companies. The composition of this peer group is based on revenue, market capitalization, number of employees and other available data. For fiscal year 2015, this peer group (“Peer Group”) included the following companies:
ACI Worldwide
Accretive Health
Advent Software
Advisory Board
Allscripts Healthcare Solutions, Inc.
Ariba
Aspen Technology
AthenaHealth
Blackbaud
CommVault Systems, Inc.
Computer Programs & Systems
Concur Technologies
HMS Holdings
Informatica Corporation
Manhattan Associates Inc.
MedAssets, Inc.
MicroStrategy Inc.
NetSuite Inc.
Omnicell
However, the Compensation Committee does not believe in relying solely on benchmarking with our Peer Group’s compensation practices or positioning our NEOs at a particular percentile relative to a given peer group or index. Instead, reference to this Peer Group generally demonstrated the NEOs to be compensated at levels that the Compensation Committee deemed fair and reasonable in light of the Company’s performance and current market position. The Compensation Committee also considered, and gave some weight, to more subjective evaluations and input from other Board members and peer assessments from other officers reflecting upon the quality of each NEO’s performance.




Cash Incentive Bonus
The following table sets forth the potential cash incentive bonus payable to each of our NEOs under the 2015 Executive Compensation Program:

Name
 
Potential Cash Bonus %
 
Potential Cash
Bonus Amount
Steven T. Plochocki
 
50% of Salary
 
309,000
Paul A. Holt
 
50% of Salary
 
185,400
Daniel J. Morefield
 
50% of Salary
 
226,600
Stephen K. Puckett
 
50% of Salary
 
185,400
Jocelyn A. Leavitt
 
50% of Salary

 
162,225

For each of our NEO’s, (i) 40% of the potential cash incentive bonus was based on Consolidated Revenue Growth for fiscal year 2015, (ii) 40% of the potential cash incentive bonus was based on Non-GAAP EPS for fiscal year 2015, and (iii) 20% of the potential cash incentive bonus was based on Free Cash Flow for fiscal year 2015. The portions of the potential cash incentive bonus based on Consolidated Revenue Growth for fiscal year 2015 were determined as follows:
Consolidated Revenue Growth
 
% of Criteria Amount
< 4%
 
—%
4.0%
 
20.0%
5.0%
 
40.0%
6.0%
 
60.0%
7.0%
 
80.0%
8.0%
 
100.0%
9.0%
 
110.0%
10.0%
 
120.0%
11.0%
 
130.0%
12.0%
 
140.0%
≥ 13%
 
150.0%

The portions of the potential cash incentive bonus based on Non-GAAP EPS for fiscal year 2015 were determined as follows:
Non-GAAP EPS
 
% of Criteria Amount
< $0.45
 
—%
$0.45
 
20.0%
$0.46
 
40.0%
$0.47
 
60.0%
$0.48
 
80.0%
$0.49
 
100.0%
$0.50
 
110.0%
$0.51
 
120.0%
$0.52
 
130.0%
$0.53
 
140.0%
≥ $0.54
 
150.0%





The portions of the potential cash incentive bonus based on Free Cash Flow for fiscal year 2015 were determined as follows:
    
Free Cash Flow (in millions)
 
% of Criteria Amount
< $25
 
—%
$25.0
 
20.0%
$26.0
 
40.0%
$27.0
 
60.0%
$28.0
 
80.0%
$29.0
 
100.0%
$30.0
 
110.0%
$31.0
 
120.0%
$32.0
 
130.0%
$33.0
 
140.0%
≥ $34
 
150.0%

Under the 2015 Executive Compensation Program, the percentage shown in the right hand columns was awarded when the stated level is reached as a step function. Full percentage Consolidated Revenue Growth and value for Non-GAAP EPS and Free Cash Flow was required to reach each bonus level. Accordingly, there was no partial credit, proration or extrapolation between levels. The amount of cash bonus granted was a percentage based on the same percentage earned according to an average of Consolidated Revenue Growth, Non-GAAP EPS and Free Cash Flow, each weighted in accordance with their respective percentages, for each of our NEOs.

Equity Incentive Bonus
The potential equity incentive bonus component of the 2015 Executive Compensation Program provided that our NEOs were and are eligible to receive an aggregate of up to 170,000 restricted shares of common stock based on the Company meeting certain Average 90 Day Trading Price targets during the fiscal years 2016, 2017, and 2018 as follows:
Name
 
Shares
Steven T. Plochocki
 
50,000
Paul A. Holt
 
30,000
Daniel J. Morefield
 
30,000
Stephen K. Puckett
 
30,000
Jocelyn A. Leavitt
 
30,000
    
For each of our NEOs, (i) 30% of the potential equity incentive bonus was based on Average 90 Day Trading Price for fiscal year 2016, (ii) 30% of the potential equity incentive bonus is based on Average 90 Day Trading Price for fiscal year 2017, and (iii) 40% of the potential equity incentive bonus is based on Average 90 Day Trading Price for fiscal year 2018. The portions of the potential equity incentive bonus based on Average 90 Day Trading Price for fiscal year 2016 were determined as follows:
Average 90 Day Trading Price
 
% of Criteria Amount
$20.00
 
10.0%
$22.00
 
20.0%
$23.00
 
30.0%

    




The portions of the potential equity incentive bonus based on Average 90 Day Trading Price for fiscal year 2017 will be determined as follows:
Average 90 Day Trading Price
 
% of Criteria Amount
$26.00
 
10.0%
$28.00
 
20.0%
$30.00
 
30.0%

The portions of the potential equity incentive bonus based on Average 90 Day Trading Price for fiscal year 2018 will be determined as follows:
Average 90 Day Trading Price
 
% of Criteria Amount
$32.00
 
10.0%
$34.00
 
20.0%
$36.00
 
40.0%

Under the 2015 Executive Compensation Program, the percentage shown in the right hand columns was and will be awarded when the stated level is reached as a step function. An Average 90 Day Trading Price of no less than the value stated in the left hand columns must be achieved to reach each bonus level. Accordingly, there was and will be no partial credit, proration or extrapolation between levels. The amount of equity bonus granted was and will be the percentage earned according to the relevant fiscal year Average 90 Day Trading Price of each of our NEOs total available potential equity incentive shares.    

General Terms for the 2015 Executive Compensation Program

The following terms applied to all officers participating in the 2015 Executive Compensation Program:

For purposes of calculating cash and equity incentive bonuses for all NEOs, revenue, expenses and dilutive shares attributable to acquisition targets acquired or divestitures completed during the 2015 fiscal year will be excluded.

Officer must be in good standing as a full time employee of the Company on May 31st of the relevant calendar year.

Officer is not allowed to be compensated for work outside of his or her work for the Company without the prior written approval of our Board.

Officer must sign an updated and revised confidential information/non-compete agreement.

Payment of cash and equity incentive compensation is to be approved by the Compensation Committee, based on audited financial statements. The Compensation Committee’s determination regarding cash and equity incentive compensation will be final.

The restricted shares granted pursuant to the 2015 Executive Compensation Program will be granted on May 31st of the relevant calendar year. Each restricted share will fully vest six months following the issuance.

2015 Executive Compensation Program Payouts
For purposes of the 2015 Executive Compensation Program, consolidated revenue increased 10.2% based on revenue of approximately $490.2 million compared to revenue of $444.7 million for fiscal year 2014, consolidated Non-GAAP EPS reached $0.62 and Free Cash Flow was approximately $61.6 million.
    




On May 14, 2015, based on our results for the 2015 fiscal year and the terms of the 2015 Executive Compensation Program, our Compensation Committee authorized, subject to the satisfaction of certain contingencies which were subsequently satisfied, the award of the following cash and equity incentive payments under the 2015 Executive Compensation Program:
Name
 
Potential Cash Bonus
 
Cash Bonus Earned
 
Potential Equity Bonus (shares)
 
Equity Bonus Earned (shares)
Steven T. Plochocki
 
$309,000
 
$426,420
 
15,000
 
Paul A. Holt (1)
 
$185,400
 
 
9,000
 
Daniel J. Morefield
 
$226,600
 
$312,708
 
9,000
 
Stephen K. Puckett
 
$185,400
 
$255,852
 
9,000
 
Jocelyn A. Leavitt
 
$162,225
 
$223,871
 
9,000
 
(1)
Mr. Holt resigned from his position as Executive Vice President and Chief Financial Officer effective as of April 12, 2015. Pursuant to the 2015 Executive Compensation Program terms, Mr. Holt did not receive any cash or equity incentive payments that were accrued during fiscal year 2015.
2016 Executive Compensation Program Terms
Based on the principles described above under the caption “Compensation Philosophy, Objectives and Components,” on May 14, 2015, our Compensation Committee approved the 2016 Executive Compensation Program for our NEOs for the fiscal year ending March 31, 2016. On May 20, 2015, our Compensation Committee approved the 2016 Executive Compensation Program for Mr. Stumpf for the fiscal year ending March 31, 2016. On June 3, 2015, our Compensation Committee approved the 2016 Executive Compensation Program for Mr. Frantz, to become effective on July 1, 2015 when Mr. Frantz begins his service with the Company. The compensation program includes base salaries in the form of cash, options to purchase the Company’s common stock, restricted shares of the Company's common stock for Mr. Frantz, and both cash and equity incentive compensation components. The incentive compensation components for each of our NEOs will be based on Consolidated Revenue Growth and Non-GAAP EPS Growth for fiscal year 2016 and Average 30 Day Trading Price for fiscal years 2017, 2018 and 2019.
Base Compensation
Salary levels are considered annually as part of our Compensation Committee’s performance review process. From time to time, the Compensation Committee will approve increases in the base salary of our NEOs to maintain our competitiveness for executive talent as necessary. Under the 2016 Executive Compensation Program, the Compensation Committee approved modest increases in the cash salary levels for our NEOs as follows:
Rusty Frantz - $600,000, effective July 1, 2015, to be prorated as a percentage of days of fiscal year 2016 employed by the Company;
Steven T. Plochocki - $636,000 (an increase from $618,000), effective August 16, 2015;
Daniel J. Morefield - $467,000 (an increase from $453,200), effective September 25, 2015;
Stephen K. Puckett - $382,000 (an increase from $370,800), effective June 1, 2015;
Jocelyn A. Leavitt - $334,000 (an increase from $324,450), effective August 16, 2015;
John K. Stumpf - $315,000, effective May 20, 2015

Equity Grant
Each NEO also received a grant of options to purchase the Company’s common stock. For all NEOs other than Mr. Frantz, this grant occurred on May 22, 2015. Mr. Frantz shall receive his grant of options to purchase the Company's common stock upon the effectiveness of the Company's 2015 Equity Incentive Plan, which was adopted by our Board on May 20, 2015, subject to shareholder approval, and is being presented to our shareholders for such approval in Proposal No. 4 of this proxy statement. For a more detailed description of the 2015 Equity Incentive Plan, please see the information under the caption “Approval of the Quality Systems, Inc. 2015 Equity Incentive Plan” below and the full text of the 2015 Equity Incentive Plan appended to this proxy statement as Annex A. The options vest in five equal, annual installments, beginning on the date of grant (with the exception of the options granted to Mr. Frantz, which shall commence vesting on July 1, 2016) and will expire eight years after their grant. The options were and will be granted under one of our shareholder approved option plans, subject to the terms of our standard stock option agreement. For all NEOs other than Mr. Frantz, the options have an exercise price of $16.64.




The options to be granted to Mr. Frantz will have an exercise price equal to the closing price of the Company's common stock on the date of grant. The number of stock options granted to each NEO is set forth in the table below.
Name
 
Options
Rusty Frantz
 
150,000
Steven T. Plochocki
 
20,000
Daniel J. Morefield
 
15,000
Stephen K. Puckett
 
15,000
Jocelyn A. Leavitt
 
15,000
John K. Stumpf
 
10,000
    
In addition, Mr. Frantz shall receive an award of 25,000 shares of restricted common stock upon the effectiveness of the Company’s 2015 Equity Incentive Plan. The restricted shares will vest in three equal, annual consecutive installments with the first vesting date occurring on July 1, 2016; provided, however, that the restricted shares shall accelerate and vest in full if Mr. Frantz is terminated without "Cause" (as defined in the Company’s 2015 Equity Incentive Plan) prior to July 1, 2016.

Cash Incentive Bonus

The following table sets forth the potential cash incentive bonus payable to each of our NEOs under the 2016 Executive Compensation Program:
Name
 
Potential Cash Bonus %
 
Potential Cash
Bonus Amount
Rusty Frantz (1)
 
75%
 
$450,000
Steve T. Plochocki (2)
 
50%
 
$318,000
Daniel J. Morefield
 
50%
 
233,500
Stephen K. Puckett
 
50%
 
191,000
Jocelyn A. Leavitt
 
50%
 
167,000
John K. Stumpf
 
50%
 
157,500
(1
)
Any cash incentive bonus payable to Mr. Frantz pursuant to the 2016 Executive Compensation Program shall be prorated as a percentage of days of fiscal year 2016 Mr. Frantz is employed by the Company.
(2
)
The Company is currently in discussions with Mr. Plochocki regarding an agreement to document the terms of his separation from the Company. Any such agreement may by its terms modify Mr. Plochocki’s eligibility for any cash incentive bonus for fiscal year 2016. Should such an agreement be entered into, the full text of the agreement will be filed by the Company with the SEC.


    




For each of our NEO’s, (i) 50% of the potential cash incentive bonus is based on Consolidated Revenue Growth for fiscal year 2016, and (ii) 50% of the potential cash incentive bonus is based on Non-GAAP EPS Growth for fiscal year 2016. The portions of the potential cash incentive bonus based on Consolidated Revenue Growth for fiscal year 2016 will be determined as follows:

Consolidated Revenue Growth
 
% of Criteria Amount
< 6%
 
—%
6.0%
 
20.0%
7.0%
 
40.0%
8.0%
 
60.0%
9.0%
 
80.0%
10.0%
 
100.0%
11.0%
 
110.0%
12.0%
 
120.0%
13.0%
 
130.0%
14.0%
 
140.0%
≥ 15%
 
150.0%

The portions of the potential cash incentive bonus based on Non-GAAP EPS Growth for fiscal year 2016 will be determined as follows:
Non-GAAP EPS Growth
 
% of Criteria Amount
< 6%
 
—%
6.0%
 
20.0%
7.0%
 
40.0%
8.0%
 
60.0%
9.0%
 
80.0%
10.0%
 
100.0%
11.0%
 
110.0%
12.0%
 
120.0%
13.0%
 
130.0%
14.0%
 
140.0%
≥ 15%
 
150.0%
Under the 2016 Executive Compensation Program, the percentage shown in the right hand columns will be awarded when the stated level is reached as a step function. Full percentage Consolidated Revenue Growth and Non-GAAP EPS Growth must be achieved to reach each bonus level. Accordingly, there will be no partial credit, proration or extrapolation between levels. The amount of cash bonus granted will be a percentage based on the same percentage earned according to an average of Consolidated Revenue Growth and Non-GAAP EPS Growth for each of our NEOs.




Equity Incentive Bonus
The potential equity incentive bonus component of the 2016 Executive Compensation Program provides that our NEOs are eligible to receive an aggregate of up to 320,000 restricted shares of common stock based on us meeting certain Average 30 Day Trading Price targets during fiscal years 2017, 2018, and 2019 as follows:
Name
 
Shares
Rusty Frantz (1)
 
150,000
Steven T. Plochocki (2)
 
50,000
Daniel J. Morefield
 
30,000
Stephen K. Puckett
 
30,000
Jocelyn A. Leavitt
 
30,000
John K. Stumpf
 
30,000
(1
)
Any equity incentive bonus payable to Mr. Frantz pursuant to the 2016 Executive Compensation Program shall be prorated as a percentage of days of fiscal year 2016 Mr. Frantz is employed by the Company.
(2
)
The Company is currently in discussions with Mr. Plochocki regarding an agreement to document the terms of his separation from the Company. Any such agreement may by its terms modify Mr. Plochocki’s eligibility for any equity incentive bonus for fiscal year 2016. Should such an agreement be entered into, the full text of the agreement will be filed by the Company with the SEC.


For each of our NEOs, (i) 30% of the potential equity incentive bonus is based on Average 30 Day Trading Price for fiscal year 2017, (ii) 30% of the potential equity incentive bonus is based on Average 30 Day Trading Price for fiscal year 2018, and (iii) 40% of the potential equity incentive bonus is based on Average 30 Day Trading Price for fiscal year 2019. The portions of the potential equity incentive bonus based on Average 30 Day Trading Price for fiscal year 2017 will be determined as follows:
Average 30 Day Trading Price

% of Criteria Amount
$20.00

10.0%
$22.00

20.0%
$23.00

30.0%

The portions of the potential equity incentive bonus based on Average 30 Day Trading Price for fiscal year 2018 will be determined as follows:
Average 30 Day Trading Price

% of Criteria Amount
$26.00

10.0%
$28.00

20.0%
$30.00

30.0%

The portions of the potential equity incentive bonus based on Average 30 Day Trading Price for fiscal year 2019 will be determined as follows:
Average 30 Day Trading Price
 
% of Criteria Amount
$32.00
 
10.0%
$34.00
 
20.0%
$36.00
 
40.0%

Under the 2016 Executive Compensation Program, the percentage shown in the right hand columns will be awarded when the stated level is reached as a step function. An Average 30 Day Trading Price of no less than the value stated in the left hand columns must be achieved to reach each bonus level. Accordingly, there will be no partial credit, proration or extrapolation




between levels. The amount of equity bonus granted will be the percentage earned according to the relevant fiscal year Average 30 Day Trading Price of each of our NEOs total available potential equity incentive shares.
In addition, Mr. Frantz shall also receive a grant of 100,000 options to purchase the Company’s common stock, provided that Mr. Frantz is in good standing as a full time employee of the Company (or a wholly owned subsidiary thereof) through May 31, 2016. The options will be granted on May 31, 2016, vest in five equal, annual installments, beginning on the date of grant and will expire eight years after their grant. The options will be granted under one of our shareholder approved option plans, subject to the terms of our standard stock option agreement. The options to be granted to Mr. Frantz will have an exercise price equal to the closing price of the Company’s common stock on the date of grant.
General Terms For the 2016 Executive Compensation Program
The following terms will apply to all officers participating in our 2016 Executive Compensation Program:

For purposes of calculating cash and equity incentive bonuses for all NEOs, revenue, expenses and dilutive shares attributable to acquisition targets acquired or divestitures completed during the 2016 fiscal year will be excluded.

Officer must be in good standing as a full time employee of the Company on May 31st of the relevant calendar year.

Officer is not allowed to be compensated for work outside of his or her work for the Company without the prior written approval of our Board.

Officer must sign an updated and revised confidential information/non-compete agreement.

Payment of cash and equity incentive compensation is to be approved by the Compensation Committee, based on audited financial statements. The Compensation Committee’s determination regarding cash and equity incentive compensation will be final.

The restricted shares granted pursuant to the 2016 Executive Compensation Program will be granted on May 31st of the relevant calendar year. Each restricted share will fully vest six months following the issuance.
All officers other than Mr. Stumpf must be in compliance with the Company executive stock ownership requirements. Mr. Stumpf shall not be required to comply with the Company executive stock ownership requirements while occupying the Interim Chief Financial Officer role.

Other Benefits
We have a 401(k) plan available to substantially all of our employees. Participating employees may defer each year up to the limit set in the Internal Revenue Code of 1986, as amended (the “Code”). The annual company contribution is determined by a formula set by our Board and may include matching and/or discretionary contributions. The retirement plans may be amended or discontinued at the discretion of our Board. Matching contributions for the NEOs are included in the “All Other Compensation” column of the Summary Compensation Table for Fiscal Year Ended March 31, 2015.
We have a deferred compensation plan available for the benefit of officers and employees who qualify for inclusion. The plan is described below in connection with the Nonqualified Deferred Compensation Table for Fiscal Year ended March 31, 2015.

Perquisites and Other Personal Benefits
We do not offer any meaningful perquisites to our NEOs. Accordingly, we do not pay or reimburse our NEOs for any taxes relating to perquisites or other benefits.

Executive Stock Ownership Guidelines
We have an executive stock ownership policy that requires all executive officers to purchase and retain for the full duration of their tenure as executive officers, shares of the Company’s common stock with a value equal to no less than 25% of the executive officer’s annual base salary at the time of purchase. Each executive officer is required satisfy his share purchase requirement within twelve months of becoming an executive officer and may do so through fully vested Company grants, acquisitions on the open market or by option exercises. While occupying the Interim Chief Financial Officer role, Mr. Stumpf is not subject to our executive stock ownership policy.





Insider Trading Policy
We have an insider trading policy that generally prohibits Board members, officers and employees from engaging in short-term or speculative transactions in our Company’s shares, including short sales, publicly traded options, hedging transactions, holding Company shares in a margin account, pledging Company shares as collateral and standing and limit orders.

Clawback Policy for Compensation Recovery    
In order to better align our officers’ long-term interests with those of our Company and our shareholders, we have an executive compensation recovery policy that claws back incentive compensation awarded to an executive officer if the result of a performance measure upon which such award was based is subsequently restated or otherwise adjusted in a manner that would reduce the size of the award. If the result of a performance measure was considered in determining the award, but the award was not made on a formulaic basis, the Compensation Committee will determine the appropriate amount of the recovery. In addition, the Compensation Committee has the authority to recover incentive compensation if an executive officer engaged in intentional misconduct that contributed to an award of incentive compensation that was greater than would have been awarded in the absence of such misconduct

Tax and Accounting Implications
Deductibility of Executive Compensation
As part of its role, our Compensation Committee reviews and considers the deductibility of executive compensation under Section 162(m) of the Code, which provides that we may not deduct compensation of more than $1,000,000 that is paid to certain individuals unless the compensation qualifies as performance-based. Our Compensation Committee currently intends that all cash compensation paid will be tax deductible for us. However, with respect to equity compensation awards, while any gain recognized by employees from nonqualified options should be deductible, to the extent that an option constitutes an incentive stock option, gains recognized by the optionee will not be deductible if there is no disqualifying disposition by the optionee. In addition, if we grant restricted stock or restricted stock unit awards that are not subject to performance vesting, they may not be fully deductible by us at the time the award is otherwise taxable to the employee. Also, in certain situations, our Compensation Committee may approve compensation that does not meet deductibility qualifications, in order to ensure competitive levels of total compensation for our executive officers.
Accounting for Stock-Based Compensation
We account for stock-based payments in accordance with Accounting Standard Codification Topic 718, Compensation-Stock Compensation. For further information regarding our accounting for stock-based payments, refer to Note 2 to the Financial Statements contained in our Form 10-K for the fiscal year ended March 31, 2015.


Summary Compensation Table for Fiscal Year Ended March 31, 2015

The following table provides certain summary information concerning the compensation for the fiscal years ended March 31, 2015, 2014 and 2013 for our principal executive officer, our principal financial officer, and the three other most highly compensated executive officers whose total compensation exceeded $100,000 during fiscal year 2015 and who were serving as executive officers at the end of fiscal year 2015 (collectively, the “NEOs”). No executive officers that would have otherwise been includable in the table on the basis of total compensation for fiscal year 2015 have been excluded by reason of their termination of employment or change in officer status during that year.




Name and Title
 
Fiscal Year
 
Salary
($)
 
Bonus
($)
 
Stock Awards
($)
 
Option Awards
($) (1)
 
Non-Equity Incentive Plan Compen-sation
($) (2)
 
Change in Pension Value and Nonquali-fied Deferred Compen-sation Earnings
($) (3)
 
All Other Compen-sation
($) (4)
 
Total
($)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Steven T. Plochocki
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Chief Executive
 
2015
 
$
611,259

 
$

 
$

 
$
87,600

 
$
426,420

 
$

 
$

 
$
1,125,279

Officer and President
 
2014
 
591,905

 

 
89,750

 

 

 

 

 
681,655

 
 
2013
 
565,625

 

 

 

 

 

 

 
565,625

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Paul A. Holt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Executive Vice President and
 
2015
 
367,467

 

 

 
70,080

 

 
3,648

 
2,439

 
443,634

Chief Financial Officer
 
2014
 
356,743

 

 
53,850

 

 

 
3,516

 
2,375

 
416,484

 
 
2013
 
340,315

 

 

 

 

 
3,448

 

 
343,763

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Daniel J. Morefield
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Executive Vice President and
 
2015
 
446,810

 

 

 
70,080

 
312,708

 
4,435

 
2,290

 
836,322

Chief Operating Officer
 
2014
 
409,240

 

 
71,800

 

 

 
3,922

 
2,556

 
487,518

 
 
2013
 
194,712

 

 

 
103,040

 

 

 
900

 
298,652

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stephen K. Puckett
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Executive Vice President and
 
2015
 
369,249

 

 

 
70,080

 
255,852

 

 
1,991

 
697,171

Chief Technology Officer (5)
 
2014
 
355,004

 

 
53,850

 

 

 

 
3,400

 
412,254

 
 
2013
 
323,333

 

 

 

 

 

 
3,343

 
326,676

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Jocelyn A. Leavitt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Executive Vice President,
 
2015
 
328,789

 
2,363

 

 
70,080

 
223,871

 
3,264

 
406

 
628,772

General Counsel and Secretary (6)
 
2014 (7)
 
308,276

 
7,877

 
35,900

 
48,730

 

 
2,654

 
2,374

 
405,811

 
 
2013 (8)
 

 

 

 

 

 

 

 

____________
(1)
The amounts in the Option Awards column reflect the aggregate grant date fair value of such awards computed in accordance with FASB ASC Topic 718, Compensation - Stock Compensation. Assumptions made in the calculation of these amounts are included in Note 12 to our audited financial statements for the fiscal year ended March 31, 2015, included in our Annual Report on Form 10-K filed with the SEC on May 26, 2015.
(2)
The amount reflected in this column represents the amount earned as incentive in the fiscal year.
(3)
The amount reflected in this column represents our Company’s contribution to Nonqualified Deferred Compensation. Earnings are not included in this column as earnings are not considered above-market or preferential.
(4)
The amount reflected in this column represents our Company’s contributions to the 401(k) plan.
(5)
Mr. Puckett was appointed as Chief Technology Officer effective April 1, 2013. Prior to his appointment, Mr. Puckett served as Executive Vice President, Hospital Solutions.
(6)
Ms. Leavitt was appointed as Executive Vice President, General Counsel and Secretary effective June 2, 2014. Prior to her appointment, Ms. Leavitt served as Vice President, Associate General Counsel and Assistant Secretary.
(7)
Ms. Leavitt’s compensation for fiscal year 2014 includes base salary and cash incentive bonuses received for the time she served during the fiscal year prior to her appointment as an officer of the Company.
(8)
No amounts reported for Ms. Leavitt for fiscal year 2013 as she was not an NEO in that year.






Grants of Plan-Based Awards for Fiscal Year Ended March 31, 2015

The following table sets forth information regarding plan-based awards granted to our NEOs during the fiscal year ended March 31, 2015.
 
 
 
 

Estimated Possible Payouts
Under Non-Equity
Incentive Plan Awards (1)
 

Estimated Possible Payouts
Under Equity Incentive
Plan Awards (1)
 
All Other Stock Awards: Number of Shares or Stock or Units
(#)
 
All Other Stock Awards: Number of Securities Underlying Options(#)
 
Exercise or Base Price of Option Awards
Name
 
Grant Date
 
Threshold
($) (2)
 
Target
($) (2)
 
Maximum
($) (2)
 
Threshold
Performance Shares (2)
 
Target
Performance Shares (2)
 
Maximum
Performance Shares (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Steven T. Plochocki
 

 
61,800

 
309,000

 
463,500

 
5,000

 
15,000

 
15,000

 

 
25,000

 
15.99

Paul A. Holt
 

 
37,080

 
185,400

 
278,100

 
3,000

 
9,000

 
9,000

 

 
20,000

 
15.99

Daniel J. Morefield
 

 
45,320

 
226,600

 
339,900

 
3,000

 
9,000

 
9,000

 

 
20,000

 
15.99

Stephen K. Puckett
 

 
37,080

 
185,400

 
278,100

 
3,000

 
9,000

 
9,000

 

 
20,000

 
15.99

Jocelyn A. Leavitt
 

 
32,445

 
162,225

 
243,338

 
3,000

 
9,000

 
9,000

 

 
20,000

 
15.99

____________________
(1)
The actual cash and equity incentive compensation paid is described above under the heading “Compensation Discussion and Analysis—2015 Executive Compensation Program Payouts.” The actual cash incentive compensation paid is included in the "Non-Equity Incentive Plan Compensation" column of the Summary Compensation Table above. The compensation cost of the options actually awarded under the 2015 Executive Compensation Program is included in the “Option Awards” column of the Summary Compensation Table above. Information regarding the number of shares underlying the performance shares actually awarded under the 2015 Executive Compensation Program is included in the Outstanding Equity Awards at Fiscal Year End March 31, 2015 table below.
(2)
The amounts set forth in these columns reflect the threshold, target and maximum cash or share incentive awards possible under our cash and equity incentive programs for fiscal year 2015.

Base Salary
Base salaries for the NEOs are described above under the heading “Compensation Discussion and Analysis—Compensation Details—2015 Executive Compensation Program Terms—Base Compensation.”

Cash and Equity Incentive Programs
Cash and equity incentive program payouts made to the NEOs are described above under the headings “Compensation Discussion and Analysis-Compensation Details-2015 Executive Compensation Program Terms-Cash Incentive Bonus,” “Compensation Discussion and Analysis-Compensation Details-2015 Executive Compensation Program Terms-Equity Incentive Bonus” and “Compensation Discussion and Analysis-Compensation Details-2015 Executive Compensation Program Terms-2015 Executive Compensation Program Payouts.”

Employment Agreement with Mr. Plochocki
The Company has an employment agreement with Mr. Plochocki effective August 16, 2008 (“Effective Date”) that details the terms of his employment as our Chief Executive Officer. The term of the employment agreement is “at will” and renews annually unless either party elects to terminate it upon 30 days prior written notice or unless terminated pursuant to the terms of the employment agreement. However, the employment agreement contains various termination and change-in-control provisions as described below under “Potential Payments on Termination of Employment or Change-in-Control.”
Pursuant to the employment agreement, on the Effective Date we granted Mr. Plochocki options to purchase up to 100,000 shares of our common stock at an exercise price of $20.04 per share, which options had a five year term and vested in four, equal annual installments commencing one year after the Effective Date.
The employment agreement provides that Mr. Plochocki shall receive three weeks of vacation each year. During fiscal year 2015, Mr. Plochocki was eligible for a cash bonus of up to $309,000 (of which, he received $426,400) and up to 15,000 bonus restricted shares (of which, -0- were granted) in accordance with, and subject to, the terms of our 2015 Executive Compensation Program.
The Company is currently in discussions with Mr. Plochocki regarding an agreement to document the terms of his separation from the Company. Any such agreement may by its terms supersede the employment agreement discussed above or provide additional compensatory arrangements for Mr. Plochocki. Should such an agreement be entered into, the full text of the agreement will be filed by the Company with the SEC.




Employment Agreement with Mr. Frantz
The Company has an employment agreement with Mr. Frantz effective July 1, 2015 that details the terms of his employment as our President and Chief Executive Officer. The term of the employment agreement is “at will”. However, the employment agreement contains various termination and change-in-control provisions as described below under “Potential Payments on Termination of Employment or Change-in-Control.”
Pursuant to the employment agreement, upon the effectiveness of the Company’s 2015 Equity Incentive Plan, we will grant Mr. Frantz (i) options to purchase up to 150,000 shares of our common stock at an exercise price equal to the closing price of the Company’s common stock on the date of grant, which options have an eight year term and vest in five, equal annual installments commencing July 1, 2016; and (ii) 25,000 shares of restricted common stock, which restricted shares will vest in three equal, annual consecutive installments with the first vesting date occurring on July 1, 2016.
The employment agreement provides that Mr. Frantz shall receive three weeks of vacation each year. During fiscal year 2015, Mr. Frantz was not an employee of the Company, and therefore was not eligible for any cash or equity incentive awards. For a description of Mr. Frantz’s potential cash and equity incentive awards for fiscal year 2016, please see the disclosure under “2016 Executive Compensation Program Terms” above.

Outstanding Equity Awards at Fiscal Year Ended March 31, 2015
 
 
Option Awards
 
Stock Awards
Name
 
Number of Securities Underlying Unexercised Options
Exercisable
(#)
 
Number of Securities Underlying Unexercised Options
Unexercisable
(#)
 
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised unearned Options
(#)
 
Option Exercise Price
($)
 
Option Expiration Date
 
Number of Shares or Units of Stock That Have Not Vested
(#) (7)
 
Market Value of Shares of Stock That Have Not Vested
($) (7)
 
Equity Incentive Plan Awards:
Number of Unearned Shares, Units or Other Rights That Have Not Vested
(#)
 
Equity Incentive Plan Awards:
Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
($)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Steven T. Plochocki
 
14,400

 
9,600

(1)
 

 
43.03
 
05/31/19
 

 

 

 

 
 
11,000

 
16,500

(2)
 

 
29.45
 
05/23/20
 

 

 

 

 
 

 

 
 

 

 

 
2,500

 
17.95
 

 

 
 

 
25,000

(8)
 

 
15.99
 
06/03/22
 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Paul A. Holt
 
7,200

 
4,800

(1)
 

 
43.03
 
05/31/19
 

 

 

 

 
 
6,600

 
9,900

(2)
 

 
29.45
 
05/23/20
 

 

 

 

 
 

 

 
 

 

 

 
1,500

 
17.95
 

 

 
 

 
20,000

(8)
 

 
15.99
 
06/03/22
 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Daniel J. Morefield
 
4,000

 
12,000

(3)
 

 
18.42
 
09/25/20
 

 

 

 

 
 

 

 
 

 

 

 
2,000

 
17.95
 

 

 
 

 
20,000

(8)
 

 
15.99
 
06/03/22
 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stephen K. Puckett
 
10,750

 

(4)
 

 
28.48
 
02/16/18
 

 

 

 

 
 
18,000

 
12,000

(1)
 

 
43.03
 
05/31/19
 

 

 

 

 
 
6,600

 
9,900

(2)
 

 
29.45
 
05/23/20
 

 

 

 

 
 

 

 
 

 

 

 
1,500

 
17.95
 

 

 
 

 
20,000

(8)
 

 
15.99
 
06/03/22
 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Jocelyn A. Leavitt
 
3,200

 
4,800

(5)
 

 
29.17
 
05/24/20
 

 

 

 

 
 
2,000

 
8,000

(6)
 

 
17.95
 
05/29/21
 

 

 

 

 
 

 

 
 

 

 

 
1,000

 
17.95
 

 

 
 

 
20,000

(8)
 

 
15.99

 
06/03/22
 

 

 

 

________________________





(1)
Option was granted May 31, 2011 and is vesting in five equal, annual installments commencing one year after the grant date. Accordingly, the remaining unexercisable shares are scheduled to vest on May 31, 2015 and May 31, 2016.
(2)
Option was granted May 23, 2012 and is vesting in five equal, annual installments commencing one year after the grant date. Accordingly, the remaining unexercisable shares are scheduled to vest on May 23, 2015, May 23, 2016, and May 23, 2017.
(3)
Option was granted September 25, 2012 and is vesting in five equal, annual installments commencing one year after the grant date. Accordingly, the remaining unexercisable shares are scheduled to vest on September 25, 2015, September 25, 2016, and September 25, 2017.
(4)
Option was granted February 10, 2010 and became fully vested on February 10, 2015.
(5)
Option was granted May 24, 2012 and is vesting in five equal, annual installments commencing one year after the grant date. Accordingly, the remaining unexercisable shares are scheduled to vest on May 24, 2015, May 24, 2016, and May 24, 2017.
(6)
Option was granted May 29, 2013 and is vesting in five equal, annual installments commencing one year after the grant date. Accordingly, the remaining unexercisable shares are scheduled to vest on May 29, 2015, May 29, 2016, May 29, 2017 and May 29, 2018.
(7)
Restricted stock award was granted May 29, 2013 and is vesting in two equal, annual installments commencing one year after the grant date. Accordingly, the remaining unvested shares are scheduled to vest on May 29, 2015.
(8)
Option was granted June 3, 2014 and is vesting in five equal, annual installments commencing one year after the grant date. Accordingly, the remaining unexercisable shares are scheduled to vest on June 3, 2015, June 3, 2016, June 3, 2017, June 3, 2018 and June 3, 2019.

Option Exercises and Stock Vested During Fiscal Year Ended March 31, 2015

The following table sets forth information regarding options exercised and stock awards vested during fiscal year 2015 for our NEOs. Value realized on exercise is based on the difference between the per share exercise price and the closing sale price of a share of our common stock on the exercise date.
 
 
Option Awards
 
Stock Awards
Named Executive Officer
 
Number of Shares Acquired on Exercise
(#)
 
Value Realized on Exercise
($)
 
Number of Shares Acquired on Vesting
(#)
 
Value Realized on Vesting
($)
 
 
 
 
 
 
 
 
 
 
Steven T. Plochocki
 

 
$

 
2,500

(1)
 
$
41,125

Paul A. Holt
 

 

 
1,500

(2)
 
24,675

Daniel J. Morefield
 

 

 
2,000

 
 
32,900

Stephen K. Puckett
 

 

 
1,500

(3)
 
24,675

Jocelyn A. Leavitt
 

 

 
1,000

(4)
 
16,450

(1
)
Includes 939 shares cancelled on May 29, 2014 to cover the tax liability which arose as a result of the vesting.
(2
)
Includes 550 shares cancelled on May 29, 2014 to cover the tax liability which arose as a result of the vesting.
(3
)
Includes 366 shares cancelled on May 29, 2014 to cover the tax liability which arose as a result of the vesting.
(4
)
Includes 396 shares cancelled on May 29, 2014 to cover the tax liability which arose as a result of the vesting.


Pension Benefits

We do not have any plans that provide for payments or other benefits at, following or in connection with the retirement of any NEO.

Nonqualified Deferred Compensation for Fiscal Year Ended March 31, 2015

The following table sets forth information regarding our defined contribution or other plan that provides for the deferral of compensation for any NEO on a basis that is not tax-qualified. Participating employees may defer between 5% and 50% of their compensation per plan year. In addition, we may, but are not required to, make contributions into the deferral plan on behalf of participating employees. Each employee’s deferrals together with earnings thereon are accrued as part of the long-term liabilities of our company. Investment decisions are made by each participating employee from a family of mutual funds. To offset this liability, we have purchased life insurance policies on some of our participants. We are the owner and beneficiary of the policies and the cash values are intended to produce cash needed to help make the benefit payments to employees when they retire or otherwise leave our company. Distributions will be paid out to participants either upon retirement, death, termination of employment or upon termination of the nonqualified deferred compensation plan. Distribution will generally equal the deferral




amount plus or minus earnings or losses and will be in the form of a lump sum of five annual installments as elected by the participant should the account balance exceed $25,000.

Named Executive Officer
 
Executive Contributions in Last Fiscal Year
($)
 
Registrant Contributions in Last Fiscal Year
($)
 
Aggregate Earnings in Last Fiscal Year
($) (1)
 
Aggregate Withdrawals/ Distributions
($)
 
Aggregate Balance at Last Fiscal Year End
($)
 
 
 
 
 
 
 
 
 
 
 
Steven T. Plochocki
 
$

 
$

 
$

 
$

 
$

Paul A. Holt
 
55,120

 
3,648

 
38,285

 
(43,005
)
 
623,491

Daniel J. Morefield
 
17,872

 
4,435

 
2,273

 

 
41,706

Stephen K. Puckett
 

 

 

 

 

Jocelyn A. Leavitt
 
82,414

 
3,264

 
11,021

 

 
180,937

_______________________
(1)
No amounts were reported in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column in the Summary Compensation Table above, as earnings are not considered above-market or preferential.


Potential Payments Upon Termination of Employment or Change-in-Control

The following discussion and table describe and illustrate potential payments to our NEOs under existing contracts, agreements, plans or arrangements, whether written or unwritten, for various scenarios involving a change-in-control or termination of employment, assuming a March 31, 2015 termination date. Although the Company is currently in discussions with Mr. Plochocki regarding an agreement to document the terms of his separation from the Company, which may by its terms supersede his employment agreement or provide additional compensatory arrangements for Mr. Plochocki, the discussion below concerning Mr. Plochocki assumes that his written employment agreement with us is still in effect at such time. Should an agreement documenting the terms of Mr. Plochocki's separation from the Company be entered into, the full text of the agreement will be filed by the Company with the SEC.

Employment Agreement with Mr. Plochocki
Termination Without Cause
If, during the term of his employment agreement, we should terminate Mr. Plochocki’s employment without “cause” as may be determined by our Board, then he shall be entitled to receive from us a lump sum payment equal to (i) one year’s base salary as then in effect, payable upon the date of such termination, and (ii) a pro-rated cash bonus equal to that percentage of the fiscal year completed at the date of his termination multiplied by the cash bonus actually earned under our fiscal year compensation plan as filed with the SEC payable to the Chief Executive Officer of our company at the end of such fiscal year, payable upon the date other bonuses are actually paid under the existing compensation plan. As used in his employment agreement, the term “cause” shall mean (i) his willful breach or neglect of the duties and obligations required of him either expressly or impliedly by the terms of the employment agreement (including, but not limited to refusal to execute our standard confidential information agreement); or (ii) his commission of fraud, embezzlement or misappropriation, involving our company whether or not a criminal or civil charge is filed in connection with such action. By way of example, if Mr. Plochocki’s employment had been terminated without cause on March 31, 2015, he would have been entitled to (i) $618,000, representing one year’s base salary; and (ii) a cash bonus of $426,420, representing the actual cash bonus earned under the Fiscal Year 2015 Incentive Plan for the entire fiscal year.

Change of Control Provisions.
The 100,000 options granted to Mr. Plochocki upon his signing his employment agreement with us would have immediately vested upon (i) a sale of substantially all of our equity or assets or a merger where the beneficial owners of our equity securities immediately prior to such merger no longer constitute a majority of the beneficial ownership immediately thereafter (a “Sale Transaction ”); and (ii) his agreement to be employed by the buyer in such Sale Transaction for a period of not less than one year after the closing date of such transaction; however, these shares have been fully vested and exercised therefore they would no longer be impacted by a change of control. If, upon a Sales Transaction, he is not offered a position with the buyer in such Sales Transaction, Mr. Plochocki shall be paid a lump sum equal to one year’s base salary as then in effect.
    




The following table summarizes benefits payable to Mr. Plochocki under his employment agreement assuming a termination event or Sale Transaction had occurred on March 31, 2015:
Benefits Payable to Steven T. Plochocki on termination/change of control
 
Death or Disability
 
Termination for Cause
 
Termination Without Cause or For Good Reason
 
Termination Upon Sale Transaction
 
 
 
 
 
 
 
 
 
Performance or other bonus earned and unpaid
 
$

 
$

 
$
426,420

 
$

Lump sum cash payment equal to one year of base compensation
 

 

 
618,000

 
618,000


Employment Agreement with Mr. Frantz
Termination Without Cause
If prior to July 1, 2016, we should terminate Mr. Frantz’s employment without “Cause” (as defined in the Company’s 2015 Equity Incentive Plan), then the 25,000 shares of restricted common stock granted to him upon the effectiveness of the Company’s 2015 Equity Incentive Plan shall accelerate and vest in full.

Change of Control Provisions.
All 150,000 options and 25,000 restricted shares granted to Mr. Frantz upon the effectiveness of the Company’s 2015 Equity Incentive Plan, as well as any earned equity incentive bonus payments shall immediately vest (a) in accordance with the “double trigger” change in control provisions provided for under the 2015 Equity Incentive Plan if there is a qualifying termination of Mr. Frantz’s employment in connection with a “Change in Control” (as defined in the 2015 Equity Incentive Plan) or (b) if any successor to the Company in a Change in Control transaction does not assume, substitute or otherwise continue such equity awards held by Mr. Frantz at the time of the Change in Control.
As of March 31, 2015, Mr. Frantz was not an employee of the Company, and therefore no benefits would be payable to Mr. Frantz under his employment agreement assuming a termination event or Change in Control had occurred on March 31, 2015.

Arrangements with Other NEOs

We are not a party to any contracts, agreements, plans or arrangements that would provide payments to Messrs. Holt, Morefield, Puckett or Stumpf or Ms. Leavitt in connection with any termination of employment, change-in-control, or change in responsibilities.

Stock Option and Award Exercisability
Our Amended and Restated 1998 Stock Option Plan (our “1998 Plan”) provides for the issuance of nonqualified and incentive stock options. Our Second Amended and Restated 2005 Stock Option and Incentive Plan (our “2005 Plan”) provides for the issuance of numerous types of stock-based awards, including without limitation, stock options, stock appreciation rights, restricted stock, unrestricted stock, restricted stock units, performance shares, and performance units.
Generally, exercisability of options and other awards granted under our option plans terminate following termination of employment as described in the table below. The consequences described in the column relating to the 2005 Plan apply except to the extent that the 2005 Plan, the applicable award agreement or our Board may otherwise provide where permitted by the 2005 Plan.




Reason for Termination
 
Exercisability Consequences Under
of Employment
 
1998 Plan
 
2005 Plan
Voluntary resignation by employee or termination for cause by us
 
All options terminate immediately.
 
All unvested awards terminate immediately.
Retirement pursuant to a company retirement policy, if any, that we adopt
 
All options terminate immediately.
 
Options and stock appreciation rights remain exercisable (to the extent vested prior to retirement) until the earlier of the expiration of the award term or three years after retirement.
Termination without cause by us
 
Options remain exercisable (to the extent vested prior to termination) until the earlier of the expiration of the option term or 30 days after the termination of employment.
 
Options and stock appreciation rights remain exercisable (to the extent vested prior to termination) until the earlier of the expiration of the award term or three months after the termination of employment.
Disability
 
Options remain exercisable (to the extent vested prior to termination) until the earlier of the expiration of the option term or 365 days after the termination of employment.
 
Options and stock appreciation rights remain exercisable (to the extent vested prior to termination) until the earlier of the expiration of the award term or six months after the termination of employment.
For options granted pursuant to our 1998 Plan, our Board has the discretion to accelerate the vesting of any outstanding options held by our NEOs and employees if no provision is made for the continuance of those plans and the assumption of options outstanding under those plans if we dissolve or are liquidated, if we are not the surviving entity in a merger, consolidation, acquisition or other reorganization, if we are the subject of a reverse merger in which more than 50% of our voting shares are converted into cash, property or the securities of another entity, or if we sell substantially all of our property or shares to another entity.
Under our 2005 Plan, our Board may exercise discretion at any time, whether before or after the grant, expiration, exercise, vesting or maturity of or lapse of restriction on an award or the termination of employment of a grantee, to amend any outstanding award or award agreement, including an amendment that would accelerate the time or times at which the award becomes unrestricted or may be exercised, or waive or amend any goals, restrictions or conditions set forth in the award agreement, subject to shareholder approval for any amendments involving repricing of awards.
In addition, awards under our 2005 Plan will fully vest in connection with a change in control as defined in our 2005 Plan. Examples of changes in control under our 2005 Plan generally include, with various exceptions detailed in our 2005 Plan: any person becoming the beneficial owner of more than 50% of the combined voting power of our then outstanding securities; the consummation of certain mergers, consolidations, statutory share exchanges or similar forms of corporate transaction that require approval of our shareholders; our shareholders approving a plan of complete liquidation or dissolution of our company; or the consummation of a sale or disposition of all or substantially all of our assets other than a sale or disposition that would result in our voting securities outstanding immediately prior thereto continuing to represent 50% or more of the combined voting power of our company or the surviving entity outstanding immediately after the sale or disposition; or in the case of directors, officers or employees who are entitled to the benefits of a change in control agreement or similar provisions within an agreement entered into by us or a related entity that defines or addresses change in control, “change in control” as defined in such agreement.
Our 2005 Plan also provides that if, within two years after the occurrence of a change in control, a termination of employment occurs with respect to any grantee for any reason other than cause, disability, death or retirement, the grantee will be entitled to exercise awards at any time thereafter until the earlier of (i) the date twelve months after the date of termination of employment and (ii) the expiration date in the applicable award agreement.

Director Compensation for Fiscal Year Ended March 31, 2015
On May 27, 2014, our Compensation Committee recommended, and on May 28, 2014, our Board approved, our 2015 Director Compensation Program. Under the program, each non-employee director was to be awarded shares of restricted common stock upon election or re-election to the Board. The shares vest 50% on each of the first and second anniversaries of our 2014 annual shareholders’ meeting and are nontransferable for one year from the date of vesting. Additionally, the program required that all Board members acquire a minimum of 2,000 shares of our common stock through the investment of their own funds (e.g. open market purchase or option exercise), which minimum amount must be retained as long as they are a director. New directors had nine months in which to acquire such common stock. Additional compensation was payable to the committee chairmen and the chairman of the Board. The program did not pay per-meeting fees. Our non-employee directors are eligible for Company provided COBRA health insurance coverage, for which they are required to pay the full fair market value. For fiscal year 2015, only Mr. Razin elected to receive coverage. The elements of the 2015 Director Compensation Program are set forth in the table below.




Director Compensation Program
Category of Director (1)
 
Employee Director
(Tier 0)
 
Non-Employee Director
(Tier 1)
 
Nominating & Governance and Compensation Committee Chairmen
(Tier 2)
 
Audit Committee Chairman
(Tier 3)
 
Chairman of the Board
(Tier 4)
 
 
 
 
 
 
 
 
 
 
 
Base Compensation
 
$

 
$
80,000

 
$
100,000

 
$
110,000

 
$
120,000

Meeting Fees (2)
 

 

 

 

 

Committee Membership (3)
 

 

 

 

 

Total Cash Compensation (4)
 
$

 
$
80,000

 
$
100,000

 
$
110,000

 
$
120,000

 
 
 
 
 
 
 
 
 
 
 
Value of Restricted Shares (5)
 
$

 
$
80,000

 
$
100,000

 
$
110,000

 
$
120,000

____________

(1)
Pay Tiers: Tier 0 is for directors who are employees. Tier 1 is for independent directors who do not chair our Audit, Compensation or Nominating and Governance Committees and who are not the Chairman of our Board. Tier 2 is for the Chairmen of our Compensation and Nominating and Governance Committees. Tier 3 is for our Audit Committee Chairman. Tier 4 is for our Chairman of our Board. Chairmen of other committees are paid at the highest tier for which they are otherwise eligible. Board members are paid at the highest eligible tier according to his or her role, but not on multiple tiers.

(2)
Meeting attendance at a 100% or near-100% level is mandatory. The program eliminates meeting fees. Board and committee meeting attendance rates for each director shall be reported annually, internally and to the public in accordance with applicable law.

(3)
Board members are expected to serve as committee members as part of their compensation.
(4)
Cash compensation is paid quarterly.
(5)
Restricted shares vest 50% each on the first and second anniversary of the date of grant (provided, however, that vesting accelerates if a director is terminated early or not re-elected to our Board) and are nontransferable for one year from the date of vesting.


The following table provides information concerning compensation for our non-employee directors for the fiscal year ended March 31, 2015. Mr. Plochocki was an employee throughout the fiscal year ended March 31, 2015 and thus received no additional compensation for his service as a director. The compensation received by Mr. Plochocki as an employee is described elsewhere in this proxy statement.
Director Name
 
Fees Earned or Paid in Cash($) (1)
 
Stock
Awards
($) (2)
 
Option Awards
($)
 
Non-Equity Incentive Plan Compensation
($)
 
Change in Pension
Value and Nonqualified Deferred Compensation Earnings
($)
 
All Other Compensation
($)
 
Total
($)
Craig A. Barbarosh
 
$
97,270

 
$
100,013

 
$

 
$

 
$

 
$

 
$
197,283

George H. Bristol
 
106,360

 
110,030

 

 

 

 

 
216,390

James C. Malone
 
80,000

 
80,010

 

 

 

 

 
160,010

Jeffrey H. Margolis (3)
 
67,507

 
93,516

 

 

 

 

 
161,023

Morris Panner
 
80,000

 
80,010

 

 

 

 

 
160,010

D. Russell Pflueger
 
97,270

 
100,013

 

 

 

 

 
197,283

Sheldon Razin
 
112,719

 
120,015

 

 

 

 

 
232,734

Lance E. Rosenzweig
 
80,000

 
80,010

 

 

 

 

 
160,010

______________________
(1)
The amount reflected in this column includes a portion paid at the 2014 Director Compensation Program rate and the remaining portion paid at the 2015 Director Compensation Program rate. The change in the rates was effective on the Annual Meeting date (August 11, 2014).
(2)
The amount reflected in this column represents the grant date fair value of the equity awards made in fiscal year 2015, computed in accordance with FASB ASC Topic 718, Compensation-Stock Compensation.
(3)
Mr. Margolis was appointed to the Board on May 28, 2014. The fee amount presented is prorated commencing on this date. The equity amount includes two awards, one awarded on the date of appointment and prorated from the date of appointment to the 2014 Annual Meeting date (August 11, 2014) and one awarded on the 2014 Annual Meeting date.





At March 31, 2015, the aggregate number of option awards and shares of restricted stock and restricted stock units outstanding (vested and unvested) for each of the directors named in the table was as follows:
Director Name
 
Total
Option Awards
Outstanding
 
Total
Restricted Shares
Outstanding
Craig A. Barbarosh
 

 
12,036

George H. Bristol
 
10,000

 
13,032

James C. Malone
 

 
8,916

Jeffrey H. Margolis
 
 
 
5,868

Morris Panner
 

 
8,916

D. Russell Pflueger
 
10,000

 
12,036

Sheldon Razin
 
10,000

 
13,666

Lance E. Rosenzweig
 

 
9,916



Compensation Committee Interlocks and Insider Participation
Our Compensation Committee consists of Messrs. Pflueger, Barbarosh and Rosenzweig. None of these individuals was, during the fiscal year ended March 31, 2015, an officer or employee of the Company, and none of these individuals ever formerly served as an officer of the Company. No member of our Board has a relationship that would constitute an interlocking relationship with executive officers and directors of another entity.

Compensation Committee Report
Our Compensation Committee reviewed and discussed with management the Compensation Discussion and Analysis contained in this proxy statement. Based on that review and discussion, our Compensation Committee approved the Compensation Discussion and Analysis for inclusion in this proxy statement and incorporation by reference in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2015.

COMPENSATION COMMITTEE

D. Russell Pflueger, Chairman
Craig A. Barbarosh
Lance E. Rosenzweig





INFORMATION ABOUT OUR BOARD OF DIRECTORS,
BOARD COMMITTEES AND RELATED MATTERS

Board of Directors
General
Our business, property and affairs are managed under the direction of our Board of Directors. Directors are kept informed of our business through discussions with our executive officers, by reviewing materials provided to them and by participating in meetings of our Board and its committees. Our Board consists of nine directors who are elected to serve until the election and qualification of their respective successors.
Director Independence
Our Bylaws require that at least a majority of the members of our Board be independent directors. Our Bylaws define “independent director” as a person other than an executive officer or employee of our company or any other individual having a relationship that, in the opinion of our Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Under our Bylaws, the following persons may not be considered independent:
(a)
a director who is, or at any time during the past three years was, employed by us;
(b)
a director who accepted or who has a family member who accepted any compensation from us in excess of $120,000 during any period of twelve consecutive months within the three years preceding the determination of independence, other than the following:
(i)
compensation for Board or Board committee service;
(ii)
compensation paid to a family member who is an employee (other than an executive officer) of ours; or
(iii)
benefits under a tax-qualified retirement plan, or non-discretionary compensation.
Provided, however, that in addition to the requirements contained in this paragraph (b), audit committee members are also subject to additional, more stringent requirements under Nasdaq Rule 5605(c)(2).
(c)
a director who is a family member of an individual who is, or at any time during the past three years was, employed by us as an executive officer;
(d)
a director who is, or has a family member who is, a partner in, or a controlling shareholder or an executive officer of, any organization to which we made, or from which we received, payments for property or services in the current or any of the past three fiscal years that exceed 5% of the recipient's consolidated gross revenues for that year, or $200,000, whichever is more, other than the following:
(i)
payments arising solely from investments in our securities; or
(ii)
payments under non-discretionary charitable contribution matching programs.
(e)
a director of ours who is, or has a family member who is, employed as an executive officer of another entity where at any time during the past three years any of our executive officers served on the compensation committee of such other entity; or
(f)
a director who is, or has a family member who is, a current partner of our outside auditor, or was a partner or employee of our outside auditor who worked on our audit at any time during any of the past three years.
A “family member” for these purposes means a person's spouse, parents, children and siblings, whether by blood, marriage or adoption, or anyone residing in such person's home.
Our Board has determined that each of our non-employee directors and director nominees is “independent” as defined above and in accordance with applicable Nasdaq listing standards. Mr. Plochocki is a member of our management team and is not independent. Mr. Frantz will be a member of our management team and will not be independent if elected. The above definition of independence is posted on our Internet website at www.qsii.com.
Attendance at Board and Shareholders' Meetings
During the fiscal year ended March 31, 2015, our Board held ten (10) meetings. No director attended less than 75% of the aggregate of all Board meetings or meetings held by any committee of the Board on which he served (during the periods that they served) during the fiscal year ended March 31, 2015, except for Mr. Rosenzweig who was unable to attend certain Board and committee meetings due to family medical emergencies.
It is our policy that our directors are invited and encouraged to attend our annual meetings of shareholders. All of our incumbent director nominees who were members of the Board at that time were in attendance at our 2014 annual meeting of shareholders, except for Mr. Rosenzweig who was unable to attend due to a family medical emergency.




Board Leadership Structure
We currently have an independent Chairman separate from the CEO. Our Board believes it is important to maintain flexibility in its Board leadership structure and firmly supports having an independent director in a Board leadership position at all times. Accordingly, our Bylaws provide that, if we do not have an independent Chairman, our Board shall elect an independent Lead Director, having similar duties to an independent Chairman, including leading the executive sessions of the non-management directors at Board meetings. Our current Chairman provides independent leadership of our Board. Having an independent Chairman or Lead Director enables non-management directors to raise issues and concerns for Board consideration without immediately involving management. The Chairman or Lead Director also serves as a liaison between our Board and senior management. Our Board has determined that the current structure, an independent Chairman, separate from the CEO, is the most appropriate structure at this time, while ensuring that, at all times, there will be an independent director in a Board leadership position.
Board Involvement in Risk Oversight
Our Board is actively engaged, as a whole, and also at the committee level, in overseeing management of our risks. Our Board regularly reviews information regarding our personnel, liquidity and operations, as well as the risks associated with each. Our Compensation Committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements. Our Audit Committee oversees management of financial risks and potential conflicts of interest. Our Nominating and Governance Committee manages risks associated with the independence and qualifications of our directors. Our Transaction Committee oversees management of risks associated with the acquisition of significant new business enterprises. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, our entire Board is regularly informed through committee reports about such risks and matters which may evolve into risks.

Board Committees and Charters
Our Board has a standing Audit Committee, Compensation Committee, Transaction Committee and Nominating and Governance Committee. In addition, our Board currently has an Executive Committee, a Special Committee and a Proxy Voting committee, as further described below.
Audit Committee
Our Board has an Audit Committee, established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), that consists of Messrs. Bristol (Chair), Malone and Pflueger. Our Audit Committee is comprised entirely of “independent” (as defined in Rule 5605(a)(2) of the Nasdaq listing standards) directors and operates under a written charter adopted by our Board. The duties of our Audit Committee include meeting with our independent public accountants to review the scope of the annual audit and to review our quarterly and annual financial statements before the statements are released to our shareholders. Our Audit Committee also evaluates the independent public accountants' performance and determines whether the independent registered public accounting firm should be retained by us for the ensuing fiscal year. In addition, our Audit Committee reviews our internal accounting and financial controls and reporting systems practices and is responsible for reviewing, approving and ratifying all related party transactions.
During the fiscal year ended March 31, 2015, our Audit Committee held seven (7) meetings. Our Audit Committee's current charter is posted on our Internet website at www.qsii.com. Our Audit Committee and our Board have confirmed that our Audit Committee does and will continue to include at least three independent members. Our Audit Committee and our Board have confirmed that Mr. Bristol met applicable Nasdaq listing standards for designation as an “Audit Committee Financial Expert” and for being “independent.”
Nominating and Governance Committee
Our Board has a Nominating and Governance Committee that consists of Messrs. Barbarosh (Chair), Bristol and Pflueger, each of whom is deemed independent. Our Nominating and Governance Committee is responsible for identifying and recommending nominee candidates to our Board, and is required to be composed entirely of independent directors. Our Nominating and Governance Committee may receive suggestions from current Board members, our executive officers or other sources, which may be either unsolicited or in response to requests from our Nominating and Governance Committee for such candidates. Our Nominating and Governance Committee may also, from time to time, engage firms that specialize in identifying director candidates.
Our Nominating and Governance Committee will also consider nominees recommended by shareholders for election as a director. Recommendations should be sent to our Secretary and should include the candidate's name and qualifications and a statement from the candidate that he or she consents to being named in our proxy statement and will serve as a director if elected. In order for any candidate to be considered by our Nominating and Governance Committee and, if nominated, to be included in




our proxy statement, such recommendation must be received by the Secretary within the time period set forth under “Proposals of Shareholders,” below.
Our Nominating and Governance Committee works with our Board to determine the appropriate characteristics, skills, and experiences for the Board as a whole and its individual members with the objective of having a Board with diverse backgrounds and experience. Characteristics expected of all directors include independence, integrity, high personal and professional ethics, sound business judgment, and the ability and willingness to commit sufficient time to our Board. In evaluating the suitability of individual candidates, our Nominating and Governance Committee takes into account many factors, including general understanding of marketing, finance, and other disciplines relevant to the success of a large publicly traded company in today's business environment; understanding of our business; educational and professional background; personal accomplishment; and geographic, gender, age, and ethnic diversity. Our Nominating and Governance Committee evaluates each individual in the context of our Board as a whole, with the objective of recommending a group that can best perpetuate the success of our business and represent shareholder interests through the exercise of sound judgment using its diversity of experience. Our Nominating and Governance Committee evaluates each incumbent director to determine whether he or she should be nominated to stand for re-election, based on the types of criteria outlined above as well as the director's contributions to our Board during their current term.
Once a person has been identified by our Nominating and Governance Committee as a potential candidate, our Nominating and Governance Committee may collect and review publicly available information regarding the person to assess whether the person should be considered further. If our Nominating and Governance Committee determines that the candidate warrants further consideration, the Chairman of the Committee or another member of our Nominating and Governance Committee may contact the person. Generally, if the person expresses a willingness to be considered and to serve on our Board, our Nominating and Governance Committee may request information from the candidate, review the person's accomplishments and qualifications and may conduct one or more interviews with the candidate. Our Nominating and Governance Committee may consider all such information in light of information regarding any other candidates that our Nominating and Governance Committee might be evaluating for nomination to our Board. Nominating and Governance Committee members may contact one or more references provided by the candidate or may contact other members of the business community or other persons that may have greater firsthand knowledge of the candidate's accomplishments. Our Nominating and Governance Committee may also engage an outside firm to conduct background checks on candidates as part of the nominee evaluation process. Our Nominating and Governance Committee's evaluation process does not vary based on the source of the recommendation, though in the case of a shareholder nominee, our Nominating and Governance Committee and/or our Board may take into consideration the number of shares held by the recommending shareholder and the length of time that such shares have been held.
On May 25, 2011, our Board approved an amendment to the charter of the Nominating and Governance Committee to change its name from Nominating Committee to Nominating and Governance Committee and to expand its authority to develop and recommend to the Board a set of corporate governance principles, to evaluate the nature, structure and operations of the Board and its committees and to make recommendations to address issues raised by such evaluations.
During the fiscal year ended March 31, 2015, our Nominating and Governance Committee held three (3) meetings. Our Nominating and Governance Committee's current charter is posted on our Internet website at www.qsii.com.
Compensation Committee
Our Board has a Compensation Committee that consists of Messrs. Pflueger (Chair), Barbarosh and Rosenzweig. Our Compensation Committee is composed entirely of independent directors, and is responsible for (i) ensuring that senior management will be accountable to our Board through the effective application of compensation policies and (ii) monitoring the effectiveness of our compensation plans applicable to senior management and our Board (including committees thereof) and (iii) following the amendment to the Compensation Committee's charter on May 25, 2011, approving the compensation plans applicable to senior management. Our Compensation Committee establishes and approves compensation policies applicable to our executive officers. During the fiscal year ended March 31, 2015, our Compensation Committee held five (5) meetings. Our Compensation Committee's current charter is posted on our Internet website at www.qsii.com.
Our executive officers have played no role in determining the amount or form of director compensation or compensation of our NEOs, except that in certain situations, our Chief Executive Officer provides information to our Compensation Committee regarding certain accomplishments of the NEOs to assist our Compensation Committee in administering the discretionary portion of cash bonuses for NEOs. We also have conducted discussions with our NEOs concerning information regarding their performance and prospects.
From time to time, our Compensation Committee has engaged certain independent compensation consultants to assist in preparing equity incentive plans for key staff including the NEOs and to assist the committee in establishing base salaries and non-equity plans for the NEOs. In each case, the Compensation Committee has utilized these compensation consultants to compile and present peer-group compensation data to the Committee, but did not delegate any authority to the consultants to




determine or recommend the amount or form of executive compensation. The Compensation Committee also consults publicly available compensation data from time to time as part of its Board and executive compensation decisions.
Transaction Committee
Our Board has a Transaction Committee that consists of Messrs. Razin (Chair), Barbarosh, Bristol, Margolis and Panner. The Transaction Committee is responsible for considering and making recommendations to our Board with respect to all proposals involving a change in control of our company or the purchase or sale of assets constituting more than 10% of our total assets. The Transaction Committee is composed entirely of independent directors. The Transaction Committee held eight (8) meetings during fiscal year 2015.
Executive Committee
On May 26, 2010, our Board formed an Independent Directors Compensation and Executive Personnel Committee, which was comprised of all of our independent directors and which was empowered to address personnel and employment related matters concerning our executive officers. On May 25, 2011 our Board changed the name of this Committee to the Independent Directors Executive Personnel Committee and limited the purpose of the Committee to executive employment matters, including hiring, terminating, and the continuing service terms and conditions of executives. On September 5, 2012, our Board again changed the name of this Committee to the Executive Committee, and expanded the scope of this Committee's responsibilities to address matters concerning (i) the Company's executive personnel, (i) non-independent directors and (iii) such other matters as the Board may delegate to the Executive Committee from time to time. The Executive Committee consists of Messrs. Razin (Chair), Barbarosh, Bristol and Pflueger. During the fiscal year ended March 31, 2015, our Executive Committee held one (1) meeting.
Special Committee
We have recently been subject to proxy contests, the use of cumulative voting rights and litigation brought against us by a former director, Mr. Hussein. In light of this history, on May 26, 2010, our Board formed a Special Committee to address matters of this type. Among other things, the Special Committee has been authorized to act on our Board’s behalf in connection with the solicitation and voting of proxies at the annual meeting, except where the Proxy Voting Committee has been authorized to act, as well as all matters related to any litigation or threat of litigation associated with such meeting and its related activities. The Special Committee currently consists of Messrs. Razin (Chair), Barbarosh, Bristol, Pflueger and Rosenzweig. Our Board reviewed and renewed the powers of its Special Committee on August 11, 2014. The Special Committee met one (1) time during fiscal year 2015.
Proxy Voting Committee
Our Board from time to time may appoint a Proxy Voting Committee to provide instruction to our proxy holders to vote proxies in such manner as to provide for the election of the maximum number of our director nominees (for whom authority is not otherwise specifically withheld and to the extent no specific instructions otherwise are given) including, but not limited to, the prioritization of such nominees to whom such votes may be allocated. Under our Bylaws and California law, if any shareholder gives notice at the annual meeting, prior to the voting, of an intention to cumulate the shareholder’s votes in the election of directors, then all shareholders entitled to vote at the annual meeting may cumulate their votes in the election of directors. In the event that cumulative voting applies to the election of directors at the annual meeting, our Board reviewed and renewed the powers of its Proxy Voting Committee on August 11, 2014, which consists of Messrs. Razin (Chair), Barbarosh and Pflueger. During the fiscal year ended March 31, 2015, our Proxy Voting Committee held one (1) meeting.
Lead Director
Under our Bylaws, if at any time our Chairman of the Board is an executive officer of our Company, or for any other reason is not an independent director, a non-executive Lead Director must be selected by our independent directors. The Lead Director must be one of our independent directors, must be a member of our Audit Committee and of our Executive Committee, if we have such a committee, and is responsible for coordinating the activities of our independent directors. The Lead Director assists our Board in assuring compliance with our corporate governance procedures and policies, and coordinates, develops the agenda for, and moderates executive sessions of our Board’s independent directors. Executive sessions are typically held immediately following each regular meeting of our Board, and/or at other times as designated by the Lead Director. The Lead Director approves, in consultation with our other independent directors, the retention of consultants who report directly to our Board. If at any time our Chairman of the Board is one of our independent directors, then he or she will perform the duties of the Lead Director.





Related Matters
Audit Committee Report
Our Audit Committee reports to our Board and provides oversight of our financial management, independent registered public accounting firm, and financial reporting system, including accounting policy. Management is responsible for our financial reporting process, including our system of internal control, and for the preparation of our consolidated financial statements. Our independent registered public accounting firm is responsible for auditing our financial statements and expressing an opinion on those statements and on management's assessment of internal control over financial reporting and for reviewing our quarterly financial statements. The Audit Committee has reviewed and discussed our audited consolidated financial statements and the assessments of internal control contained in its annual report on Form 10-K for the fiscal year ended March 31, 2015, with management and our independent registered public accounting firm.
The Audit Committee selects and retains the independent registered public accounting firm, and once retained, the independent registered public accounting firm reports directly to the Audit Committee. The Audit Committee is responsible for approving both audit and non-audit services provided by the independent registered public accounting firm. The Audit Committee has discussed the matters required under Statement on Auditing Standards No. 16, "Communications with Audit Committees", as adopted by the Public Company Accounting Oversight Board (“PCAOB”). We have received from our independent registered public accounting firm the written disclosures and letter required by the applicable requirements of the PCAOB regarding our independent registered public accounting firm's communications with the Audit Committee concerning independence.
The Audit Committee discussed the overall approach, scope and plans for its audit with our independent registered public accounting firm. At the conclusion of the audit, the Audit Committee met with our independent registered public accounting firm, with and without management present, to discuss the results of its examination, its evaluation of our internal control and the overall quality of our financial reporting.
In reliance on the reviews and discussions referred to above, our Audit Committee recommended to our Board (and our Board approved) that the audited financial statements be included in our Annual Report on Form 10-K for the year ended March 31, 2015, and for filing with the SEC.
The Audit Committee has re-appointed PricewaterhouseCoopers LLP to serve as our independent registered public accounting firm for the fiscal year ending March 31, 2016.
AUDIT COMMITTEE
George H. Bristol, Chairman
James C. Malone
D. Russell Pflueger
Code of Ethics
We have adopted a Code of Business Conduct and Ethics, or code of ethics, that applies to our Chief Executive Officer (principal executive officer) and Chief Financial Officer (our principal financial and accounting officer), as well as all directors, officers and employees of the Company. Our code of ethics is posted on our Internet Website located at www.qsii.com and may be found as follows: From our main Web page, first click on “Company Info” and then on “Corporate Governance.” We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of our code of ethics by posting such information on our Website, at the address and location specified above.
Security Holder Communications with our Board
Our Board has established a process to receive communications from our security holders. Security holders may contact any member (or all members) of our Board, or our independent directors as a group, any Board committee or any Chair of any such committee by mail or electronically. Correspondence should be addressed to our Board or any such individual directors, group or committee of directors by either name or title and sent “c/o Corporate Secretary” to 18111 Von Karman, Suite 700, Irvine, California 92612. To communicate with any of our directors electronically, a shareholder should send an e-mail to our Secretary, Jocelyn Leavitt at: jleavitt@qsii.com.
All communications received as set forth in the preceding paragraph will be opened by our Secretary for the sole purpose of determining whether the contents represent a message to our directors. Any contents that are not in the nature of advertising, promotions of a product or service, patently offensive material or matters deemed inappropriate for our Board will be forwarded promptly to the addressee. In the case of communications to our Board, any group or committee of directors, our Secretary will make sufficient copies (or forward such information in the case of e-mail) of the contents to send to each director who is a member of the group or committee to which the envelope or e-mail is addressed.





SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Exchange Act, our directors and executive officers and any person who beneficially owns more than 10% of our outstanding common stock (“reporting persons”) are required to report their initial beneficial ownership of our common stock and any subsequent changes in that ownership to the SEC and Nasdaq. Reporting persons are required by SEC regulations to furnish to us copies of all reports they file in accordance with Section 16(a). Based solely upon our review of the copies of such reports received by us, or written representations from certain reporting persons that no other reports were required, we believe that during the fiscal year ended March 31, 2015, all Section 16(a) filing requirements applicable to our reporting persons were met.

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

Review, Approval or Ratification of Transactions with Related Persons
During fiscal year 2015, our Audit Committee was responsible for reviewing and approving transactions with related persons.
Our Board and Audit Committee have adopted written related party transaction policies and procedures relating to approval or ratification of transactions with related persons. Under the policies and procedures, our Audit Committee is to review the material facts of all related party transactions that require our Audit Committee's approval and either approve or disapprove of our entry into the related party transactions, subject to certain exceptions, by taking into account, among other factors the committee deems appropriate, whether the related party transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related party's interest in the transaction. No director may participate in any discussion or approval of a related party transaction for which he or she is a related party. If an interested transaction will be ongoing, the Committee may establish guidelines for our management to follow in its ongoing dealings with the related party and then at least annually must review and assess ongoing relationships with the related party.
Under the policies and procedures, a “related party transaction” is any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which the aggregate amount involved will or may be expected to exceed $30,000 in any calendar year, we are a participant, and any related party has or will have a direct or indirect interest. A “related party” is any person who is or was since the beginning of our last fiscal year an executive officer, director or Board-approved nominee for election as a director and inclusion in our proxy statement at our next annual shareholders' meeting, any greater than 5% beneficial owner of our common stock known to us through filings with the SEC, any immediate family member of any of the foregoing, or any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner or principal or holds a similar position or in which such person has a 5% or greater beneficial ownership interest. “Immediate family member” includes a person's spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone residing in such person's home (other than a tenant or employee).
Our Audit Committee has reviewed and pre-approved certain types of related party transactions described below. In addition, our Board has delegated to the Chair of our Audit Committee the authority to pre-approve or ratify (as applicable) any related party transaction in which the aggregate amount involved is expected to be less than $15,000. Pre-approved interested transactions include:
Employment of executive officers if the related compensation is required to be reported in our proxy statement or if the executive officer is not an immediate family member of another executive officer or a director of our company, the related compensation would be reported in our proxy statement if the executive officer was an “NEO,” and our Compensation Committee approved (or recommended that our Board approve) the compensation.
Any compensation paid to a director if the compensation is required to be reported in our proxy statement.
Any transaction with another enterprise at which a related party's only relationship is as an employee (other than an executive officer), director or beneficial owner of less than 5% of that enterprise, if the aggregate amount involved does not exceed the greater of $30,000 or 5% of that enterprise's total annual revenues.
Any charitable contribution, grant or endowment by use to a charitable organization, foundation or university at which a related party's only relationship is as an employee (other than an executive officer) or a director, if the aggregate amount involved does not exceed the lesser of $10,000 or 5% of the charitable organization's total annual receipts.
Any transaction where the related party's interest arises solely from the ownership of our common stock and all holders of our common stock received the same benefit on a pro rata basis (e.g., dividends or stock splits).




Any transaction over which the related party has no control or influence on our decision involving that related party where the rates or charges involved are determined by competitive bids.
Any transaction with a related party involving the rendering of services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority, or services made available on the same terms and conditions to persons who are not related parties.

Related Person Transactions
Indemnification Agreements
We are party to indemnification agreements with each of our directors and executive officers. The indemnification agreements and our Articles of Incorporation and Bylaws require us to indemnify our directors and executive officers to the fullest extent permitted by California law.





ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR
NAMED EXECUTIVE OFFICERS (“SAY-ON-PAY”)
(Proposal No. 2)
We are asking our shareholders to provide advisory approval of the compensation of our named executive officers, or NEOs, as we have described it in the “Executive and Director Compensation and Related Information—Compensation Discussion and Analysis” section of this proxy statement and the related executive compensation tables, beginning on page 12. Our executive compensation programs are designed to enable us to recruit, retain and develop effective management talent, who are critical to our success. Such programs reward our NEOs for the achievement of specific annual and long-term goals, including overall Company and business unit goals and the realization of increased shareholder value.
Continued Strong Shareholder Support for Our Compensation Decisions
At our 2014 annual meeting of shareholders, our shareholders approved the compensation of our 2014 NEOs with over 98% approval. The Compensation Committee believes that the strong support from our shareholders demonstrates that our executive compensation programs are designed appropriately to reward performance with responsible and balanced incentives.
The following is a summary of some of the key points of our executive compensation programs. We urge our shareholders to review the “Executive and Director Compensation and Related Information - Compensation Discussion and Analysis” section of this proxy statement and the related executive compensation tables for more information.
Emphasis on Pay-for-Performance
We believe a significant portion of our NEOs' compensation should be variable, at risk and tied directly to the Company's measurable performance. Consistent with these principles, a material portion of our NEOs' compensation is in the form of performance-based annual cash and equity incentives that are earned upon the attainment of pre-established financial goals.
Under our 2015 Executive Compensation Program, our NEOs earn cash and equity incentives based on the Company's consolidated revenue growth and fully diluted earnings per share growth.