Document


 
 
 
 
 
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

Filed by Registrant x
Filed by a Party other than the Registrant o

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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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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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18111 Von Karman Avenue, Suite 800
Irvine, California 92612
________________

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 22, 2017

To the Shareholders of Quality Systems, Inc.:

The annual meeting of shareholders of Quality Systems, Inc. will be held at the Marriott Hotel located at 18000 Von Karman Avenue, Irvine, California 92612 on August 22, 2017, at 9:00 a.m. Pacific Time, for the following purposes:

1.
to elect nine persons to serve as directors of our company until the 2018 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 (i.e., “Say-on-Pay”);

3.
to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2018;

4.
to approve an amendment of our 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 23, 2017, 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” PROPOSAL 2, A VOTE “FOR” PROPOSAL 3, AND A VOTE “FOR” PROPOSAL 4.

By Order of the Board of Directors,
QUALITY SYSTEMS, INC.
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Jocelyn A. Leavitt
Executive Vice President, General Counsel and Secretary
Irvine, California
July 13, 2017




TABLE OF CONTENTS
 
Page
SOLICITATION OF PROXIES
NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS
OUTSTANDING SHARES AND VOTING RIGHTS
CAUTION CONCERNING FORWARD LOOKING STATEMENTS
PROPOSAL NO. 1: ELECTION OF DIRECTORS
NON-DIRECTOR EXECUTIVE OFFICERS
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
            Summary Compensation Table for Fiscal Year Ended March 31, 2017
            Grants of Plan-Based Awards for Fiscal Year Ended March 31, 2017
            Outstanding Equity Awards at Fiscal Year Ended March 31, 2017
 31
            Option Exercises and Stock Vested During Fiscal Year Ended March 31, 2017
            Pension Benefits
 32
            Nonqualified Deferred Compensation for Fiscal Year Ended March 31, 2017
 32
            Potential Payments Upon Termination of Employment or Change-in-Control
 33
            Director Compensation for Fiscal Year Ended March 31, 2017
 37
            Compensation Committee Interlocks and Insider Participation
            Compensation Committee Report
 40
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
PROPOSAL NO. 2: ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS (“SAY ON PAY”)
PROPOSAL NO. 3: 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
PROPOSAL NO. 4: AMENDMENT OF 2015 EQUITY INCENTIVE PLAN
ANNUAL REPORT AND AVAILABLE INFORMATION
PROPOSALS OF SHAREHOLDERS
HOUSEHOLDING OF ANNUAL MEETING MATERIALS
OTHER MATTERS
ANNEX A - FULL TEXT OF AMENDMENT TO 2015 EQUITY INCENTIVE PLAN
**

18111 Von Karman Avenue, Suite 800
Irvine, California 92612
______________




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ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 22, 2017
_________________________
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 Marriott Hotel located at 18000 Von Karman Avenue, Irvine, California 92612, on August 22, 2017, at 9:00 a.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 21, 2017 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 2017 annual report are being made available to our shareholders on or about July 13, 2017.

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 22, 2017.
This proxy statement, the notice of our 2017 annual meeting of shareholders and the Company’s 2017 annual report to shareholders are available on our website at http://investor.qsii.com/annual-proxy.cfm.




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OUTSTANDING SHARES AND VOTING RIGHTS
Only holders of record of the 63,144,814 shares of our common stock outstanding at the close of business on the record date, June 23, 2017, 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 will provide instruction to the 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 2017 annual meeting has passed, we believe it is less likely that cumulative voting will be invoked at the 2017 annual meeting.
Approval of Proposal No. 2, an advisory vote to approve the compensation of our named executive officers (i.e., “Say on Pay”), 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 amendment of our 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. Using its authority, the Board may vote your shares for fewer than nine nominees.

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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, 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 Board 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 Board 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 Board 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 Board 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 Board 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 Board 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 Board with respect to all of your shares (except that the Board 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 Board, 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 2017 annual meeting has passed, we believe it is less likely that cumulative voting will be invoked at the 2017 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

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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, 2017, 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, 2017, as well as in our other public disclosures and filings with the SEC.
 

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ELECTION OF DIRECTORS
(Proposal No. 1)
Proposal No. 1 concerns the election of the following director nominees: John R. "Rusty" Frantz, Craig A. Barbarosh, George H. Bristol, Julie D. Klapstein, James C. Malone, Jeffrey H. Margolis, Morris Panner, Sheldon Razin and Lance E. Rosenzweig. The Nominating and Governance Committee has nominated each of these individuals 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. Each of our director nominees except Ms. Klapstein currently serves on the Board and was elected by the shareholders at the 2016 annual meeting of shareholders.
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 will 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 Board 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 Board 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, Razin and Rosenzweig and Ms. Klapstein are independent. Mr. Frantz is a member of our management team and is a non-independent director.
The Nasdaq independence definition includes a series of objective tests, such as that the director or director nominee is not and has not been for the past three years an employee of the Company and has not engaged in various types of business dealings with the Company. In addition, as further required by the Nasdaq rules, our Board has made a subjective determination as to each independent director and director nominee that no relationships exist which, in the opinion of our Board, would interfere with the exercise of independent judgment of such director or director nominee in carrying out his or her responsibilities as a director. In making these determinations, our Board reviewed and discussed information provided by our directors, director nominees and management with regard to each director’s and director nominee’s business and personal activities as they may relate to our management and us. The independent members of our Board meet periodically in executive session without management.
OUR BOARD RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” EACH OF THE DIRECTOR NOMINEES NAMED BELOW AND LISTED ON THE PROXY CARD.
John R. "Rusty" Frantz, age 50, was appointed 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

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the Maine Maritime Academy. Mr. Frantz’s position as our President and Chief Executive Officer, as well as his prior executive experience with other companies, provides our Board with the perspective of a person with significant executive management and healthcare information technology industry experience who is involved in the Company’s day to day activities.
Craig A. Barbarosh, age 49, is a director and has served as our Vice Chairman of the Board since November 2015. 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 served as a member of the firm’s Executive and Operating Committee from June 2012 through June 2016 and currently serves on the firm’s 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), Financial Analysis for Business Evaluation (2010) and Effective Corporate Boards (2015). 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, and previously served on the board of BioPharmX, Inc., (NYSE: BPMX) where he was the Chair of the Nominating and Governance Committee and a member of the Audit and Compensation Committees. Mr. Barbarosh has been a director since 2009.
George H. Bristol, age 68, 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, WealthIntel, and Vantis, and his various corporate finance positions, provide our Board with insight from someone with direct responsibility for strategic and transactional financial matters. Mr. Bristol has been a director since 2008.
Julie D. Klapstein, age 62, is a director nominee. Ms. Klapstein was the founding Chief Executive Officer of Availity, LLC, one of the nation’s largest health information networks optimizing the automated delivery of critical business and clinical information among healthcare stakeholders. Ms. Klapstein served as Availity’s Chief Executive Officer and board member from 2001 to 2011. She was the interim Chief Executive Officer at Medical Reimbursements of America, Inc., a private company, from February 2017 to June 2017. Ms. Klapstein’s more than thirty years of experience in the healthcare information technology industry include executive roles at Phycom, Inc. (President and Chief Executive Officer from 1996 to 2001), Sunquest Information Systems (Executive Vice President), Siemens Medical Systems Turnkey Systems Division, and GTE Health Systems. Ms. Klapstein is a director of Amedisys Inc., a public company, since April 2016, where she serves on the Compensation, Governance, and Quality committees. She also currently serves on the board of directors for several private companies and organizations, including eSolutions, Inc., which specializes in revenue cycle management solutions; Dominion Diagnostics, LLC, which specializes in laboratory services; Bottom Line Systems, which specializes in underpayments and denials for hospitals; and the Grand Canyon Association, which is the official nonprofit partner of the Grand Canyon National Park. Ms. Klapstein previously was a director for two public companies, Annie’s Homegrown/Annies, Inc. from January 2012 to September 2014, where she served on the Governance, Compensation, and Audit committees, and Standard Register Inc. from April 2011 to November 2014, where she served on the Governance, Compensation, and Audit committees. She also has been a director for multiple private companies. Ms. Klapstein earned her bachelor’s degree from Portland State University in Portland, Oregon. If elected, Ms. Klapstein will bring to our board extensive knowledge of the healthcare industry, relevant executive and management experience, and public company board experience.
    James C. Malone, age 68, 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 Chief Financial Officer, Executive Vice President of Finance from January 2006 to June 2007, Senior Vice President of Finance from January 2004 until

6


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 54, is a director and has served as our Chairman of the Board since November 2015. Currently, Mr. Margolis is chairman and CEO of Welltok, Inc., a healthcare consumer engagement and software-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 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. Mr. Margolis currently serves on the board of directors of Alignment Healthcare, Inc., a private, for-profit population health management entity, and TriNetX, Inc., a private, for-profit data and software-as-a-service entity that supports clinical trials. He has previously served on a variety of other for-profit boards. He also has served on a number of not-for-profit boards of directors. Mr. Margolis is currently a director of Hoag Hospital in Newport Beach, California. 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 54, 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 Ambra Health (formerly DICOM Grid), a cloud-based healthcare software company that manages diagnostic imaging and related healthcare data. Prior to joining Ambra Health 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., a 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 and currently serves as a board member. 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. 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.
Sheldon Razin, age 79, is a director and our Chairman Emeritus. He is the founder of our company and served as our Chairman of the Board from our incorporation in 1974 until his retirement as Chairman and his appointment as Chairman Emeritus in November 2015. 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

7


2009. Mr. Razin 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 54, is a director. Mr. Rosenzweig currently serves as a director of Boingo Wireless. From January 2015 through December 2016, Mr. Rosenzweig served as Operating Executive of Marlin Operations Group, which works with 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

James R. Arnold, Jr., age 60, was appointed our Executive Vice President and Chief Financial Officer in March of 2016. Prior to joining the Company, Mr. Arnold served as Chief Financial Officer and Executive Board member of Kofax Ltd., a publicly traded software company, from June 2010 to May 2015, where Mr. Arnold participated in and facilitated the strategic process that resulted in the sale of Kofax Ltd.’s enterprise software division. From 2004 to 2009, Mr. Arnold was Senior Vice President at Nuance Communications, Inc., a publicly traded software company, where he also served as Chief Financial Officer from 2004 to 2008. Previously, Mr. Arnold held numerous other senior-level finance positions at technology companies, to include roles as Vice President Corporate Controller at Cadence Design Systems, Inc., Chief Financial Officer at Informix Software, Inc., and Corporate Controller at Centura Software Corporation. Additionally, from 2003 to 2010 he served as a director and chair of the audit committee at Selectica, Inc., where he also was co-chairman of the board in 2010. Earlier in his career, Mr. Arnold provided consulting and auditing services to companies in diverse industries while at Price Waterhouse LLP. Mr. Arnold holds a Bachelor of Business Administration degree in Finance from Delta State University in Oxford Mississippi, and a Master’s degree in Business Administration from Loyola University in New Orleans, Louisiana.
David A. Metcalfe, age 54, was appointed our Executive Vice President and Chief Technology Officer in February 2016. Prior to joining the Company, Mr. Metcalfe served as Vice President of R&D at Becton, Dickinson & Company, a leading worldwide medical technology company, from March 2015 to January 2016. Previously, Mr. Metcalfe was Vice President of Product Development at CareFusion Corp., a global medical technology company servicing the critical care market, from September 2012 to March 2015, at which time CareFusion was acquired by Becton, Dickinson & Company. From 2008 to 2012, Mr. Metcalfe was Vice President of Development for Allscripts Healthcare Solutions, a provider of healthcare information technology solutions. Earlier in his career, Mr. Metcalfe held numerous other senior-level development positions at technology companies. Mr. Metcalfe holds a Bachelor of Science in Instrumentation and Control Engineering from Teesside University in Middlesbrough, England.
Jocelyn A. Leavitt, age 34, 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

8


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.
Daniel J. Morefield, age 58, is our former Executive Vice President and Chief Operating Officer. Prior to his resignation in April 2017, Mr. Morefield had served in this role since September of 2012. Mr. Morefield brought more than 30 years of experience to our Company, having spent the previous 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.
Scott E. Bostick, age 53, was appointed our Executive Vice President and Chief Operating Officer in April 2017 upon the resignation of Daniel J. Morefield from that position. Previously Mr. Bostick was our Chief Client Officer since March 2016. Prior to joining the Company, Mr. Bostick spent six years in a range of roles at CareFusion Corp., most recently as Senior Vice President of Americas Commercial Operations, prior to CareFusion’s acquisition by Becton, Dickinson and Company in March 2015. Earlier at CareFusion, he was Senior Vice President, U.S. Strategic Sales, and Senior Vice President and General Manager of CareFusion’s Pyxis medical dispensing division. Before CareFusion, Mr. Bostick spent nearly 10 years at Cardinal Health in a variety of positions. He holds a Bachelor of Science degree from the University of Florida, and participated in an executive education program at Boston University.


9


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 23, 2017, by:

each of our directors and director nominees;

each of our 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 63,144,814 shares of common stock outstanding as of the record date, June 23, 2017.
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 800, Irvine, California 92612. Messrs. Barbarosh, Bristol, Frantz, Malone, Margolis, Panner, Pflueger, Razin and Rosenzweig are current directors of our Company. Our director nominees are Messrs. Barbarosh, Bristol, Frantz, Malone, Margolis, Panner, Razin and Rosenzweig, and Ms. Klapstein. Our NEOs for our fiscal year 2017 were Messrs. Frantz, Arnold, Morefield, and Metcalfe, and Ms. Leavitt. Our executive officers as of the record date, June 23, 2017, are Messrs. Frantz, Arnold, Metcalfe and Bostick, and Ms. Leavitt.

Name of Beneficial Owner
 
Number of Shares
of Common Stock Beneficially Owned
 
Percent of
Common Stock Beneficially Owned
 
 
 
 
 
 
Sheldon Razin
 
10,235,650

 
 
16.2%
Craig A. Barbarosh
 
50,869

 
 
*
George H. Bristol
 
46,658

 
 
*
Julie D. Klapstein
 

 
 
*
James C. Malone
 
31,414

 
 
*
Jeffrey H. Margolis
 
51,733

 
 
*
Morris Panner
 
29,939

 
 
*
D. Russell Pflueger
 
50,145

 
 
*
Lance E. Rosenzweig
 
33,857

 
 
*
Rusty Frantz
 
279,369

(1) 
 
*
James R. Arnold, Jr.
 
232,765

(2) 
 
*
Daniel J. Morefield
 
82,346

(3) 
 
*
David A. Metcalfe
 
101,666

(4) 
 
*
Jocelyn A. Leavitt
 
66,091

(5) 
 
*
Scott E. Bostick
 
107,916

(6) 
 
*
Ahmed Hussein
 
5,687,696

(7) 
 
9.0%
Blackrock, Inc.
 
5,441,621

(8) 
 
8.6%
Brown Capital Management, LLC
 
5,186,599

(9) 
 
8.2%
The Vanguard Group
 
4,407,626

(10) 
 
7.0%
The Brown Capital Management Small Company Fund
 
4,308,257

(9) 
 
6.8%
All directors, director nominees and executive officers as a group
 
11,400,418

(11) 
 
17.9%
___________________


10



*
Represents less than 1.0%.
(1)
Includes 155,000 shares underlying options.
(2)
Includes 62,500 shares underlying options.
(3)
Includes 60,000 shares underlying options. This information is derived from the most recent available information, a Form 4 filed by Mr. Morefield on December 29, 2016, and records maintained by the Company. Mr. Morefield resigned as the company's Executive Vice President and Chief Operating Officer effective April 15, 2017, after the end of the fiscal year 2017. He was one of our NEOs for fiscal year 2017.
(4)
Includes 50,000 shares underlying options.
(5)
Includes 49,000 shares underlying options.
(6)
Includes 56,250 shares underlying options. Mr. Bostick was appointed our Executive Vice President and Chief Operating Officer effective April 15, 2017, upon the resignation of Mr. Morefield from that position.
(7)
This information is derived from the most recent available information, 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. Mr. Hussein is a former director of the Company who resigned on May 14, 2013.
(8)
This information is derived from a Schedule 13G/A filed by Blackrock, Inc. on January 25, 2017. According to the Schedule 13G/A, Blackrock, Inc. had sole power to vote 5,333,928 shares, sole power to dispose of 5,441,621 shares, and no shared power to vote or dispose of shares. The address for Blackrock, Inc. is 40 East 52nd Street, New York, NY 10022.
(9)
This information is derived from a Schedule 13G/A filed by Brown Capital Management LLC as primary filer on February 9, 2017. According to the Schedule 13G/A, Brown Capital Management LLC had sole power to vote 5,546,216 shares, sole power to dispose of 9,494,856 shares and no shared power to vote or dispose of shares. The Brown Capital Management Small Company Fund, which is Managed by Brown Capital Management, LLC, had sole power to vote 4,308,257 shares, sole power to dispose of 4,308,257 shares and no shared power to vote or dispose of shares. The address for Brown Capital Management LLC and The Brown Capital Management Small Company Fund is 1201 N. Calvert Street, Baltimore, MD 21202.
(10)
This information is derived from a Schedule 13G filed by The Vanguard Group on February 10, 2017. According to the Schedule 13G, The Vanguard Group had sole power to vote 99,000 shares, shared power to vote 9,000 shares, sole power to dispose of 4,301,926 shares, and shared power to dispose of 105,700 shares. The address for The Vanguard Group is 100 Vanguard Blvd., Malvern, PA 19355.
(11)
Includes 432,750 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, 2017.
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
 
2,885,415

(1) 
$
15.41

 
7,876,341

(2) 
Equity compensation plans not approved by security holders
 

 

 

 
Total
 
2,885,415

(1) 
$
15.41

 
7,876,341

(2) 
___________________

(1)
Represents shares of common stock underlying options outstanding under our 2005 Plan and 2015 Plan.
(2)
Represents shares of common stock available for issuance under options or awards that may be issued under our 2015 Plan. The material features of these plans are described in Note 13 to the Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017 filed with the SEC on May 19, 2017.


11


EXECUTIVE AND DIRECTOR COMPENSATION AND RELATED INFORMATION

Compensation Discussion and Analysis

This Compensation Discussion and Analysis section describes our executive compensation programs for our named executive officers, or “NEOs”, for our fiscal year 2017 (which ended on March 31, 2017). These NEOs were:

John R. “Rusty” Frantz -- President and Chief Executive Officer, appointed July 2015
James R. Arnold -- Executive Vice President and Chief Executive Officer, appointed March 2016
Daniel J. Morefield -- Executive Vice President and Chief Operating Officer, resigned April 2017
David A. Metcalfe -- Executive Vice President and Chief Technology Officer, appointed February 2016
Jocelyn A. Leavitt -- Executive Vice President, General Counsel and Secretary, appointed June 2013
Executive Summary
Quality Systems, Inc., known to our clients as NextGen Healthcare, provides software, services and analytics solutions to the ambulatory care market. We are a healthcare information technology and services company that provides a customizable platform to empower physician practice success, enrich the patient care experience and lower the cost of healthcare. We compete for executive talent with a broad range of companies that are leaders in the software and healthcare information technology 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; and
allows us to attract and retain effective executive leadership.
Accomplishments Achieved by Executive Team During Fiscal Year 2017
The Company is in the process of evolving into a more nimble, client-focused organization and this process is being led by a substantially new management team. During fiscal year 2017, our executive team, most of whom joined the Company within the last two years, continued to advance changes designed to more effectively support the execution of our new business strategy. The executive team successfully carried out a reorganization that improved our structure while achieving cost savings. The reorganization effort in fiscal year 2017 was part of a planned multi-year improvement program, which is being implemented by the substantially new leadership team and is not yet complete. Our strategic turnaround is intended to be evaluated over a period spanning more than merely one or two years, and fiscal year 2017 was the first full fiscal year in which the leadership team was assembled and working together.
So far in our strategic turnaround, we have simplified our usability, broadened our solution set, and increased visibility of our platform. The Company’s new product releases over the fiscal year resulted in significant improvements in client interest and defect reductions. Also, our client satisfaction scores improved substantially, as recognized by the KLAS organization recognizing us with a “most improved vendor” award for 2017. In addition, under the leadership of our executive team, during fiscal year 2017 we successfully integrated our HealthFusion acquisition and worked towards the successful acquisition of Entrada. These two key acquisitions enable the Company to move in new strategic directions into the market for cloud-based products as part of the new leadership’s strategy.
We believe our largely new executive team made substantial progress in fiscal year 2017 and will continue to build a Company that enables more efficient, integrated, and client-centered delivery of holistic solutions, which ultimately will improve growth, profit, and long-term shareholder value.
Shareholder Support for our Compensation Decisions; Evolution of Compensation Program
At our 2016 annual meeting of shareholders, our shareholders supported the compensation of our fiscal year 2016 NEOs with over 84% approval. For fiscal year 2017, the Compensation Committee somewhat revised the design and philosophy of our previous executive compensation program so that it is better tailored to the substantially new composition of our leadership team and more closely aligns with the Company’s strategy and market trends.
For fiscal year 2017, the Compensation Committee did not increase cash compensation for any executives above fiscal year 2016 levels, in keeping with the Company’s heightened emphasis on current cost savings pursuant to the Company’s new business strategy. The Compensation Committee placed a greater emphasis on equity compensation in fiscal year 2017 to reward value creation by the executive team over a longer time horizon. At the outset of fiscal year 2017, the Compensation Committee awarded the NEOs stock options, which we believe are naturally performance based because they provide value to the recipient only if the Company’s stock price appreciates. In December 2016 the NEOs received restricted stock awards (“RSAs”) and performance stock awards (“PSAs”) intended as forward awards under the fiscal year 2018 Executive Compensation Program

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(i.e., fiscal year 2018 award value determinations will consider these December 2016 grants as though they occurred in fiscal year 2018).
For fiscal year 2017, the total direct compensation value for all of our NEOs was below the median of target total direct compensation for the Peer Group companies listed further below. Our NEOs’ combined actual total direct compensation value was below the Peer Group’s median target total direct compensation by an average of 14%. This below-median value includes the December 2016 equity awards that are intended to be a part of fiscal year 2018 compensation. Fiscal year 2017 total compensation value would have been even further below median value had those forward awards for fiscal year 2018 not been granted in December 2016. Our CEO’s reported fiscal year 2017 actual total direct compensation was 8% below the median target total direct compensation level of the Peer Group companies, even including the December 2016 equity awards that were intended as an advance on fiscal year 2018 equity compensation. Further, all of our NEOs had salary levels near the Peer Group median, and our CEO’s salary was below the median of Peer Group CEO salaries.
Fiscal year 2017 cash bonus amounts were calculated using Revenue and Non-GAAP Earnings Per Share (“Non-GAAP EPS”) performance measures. The Non-GAAP EPS performance measure is a non-GAAP financial measure. A reconciliation of this measure with the most directly comparable GAAP financial measures is provided below under the caption “Reconciliation of Non-GAAP Earnings Per Share Performance Measure with GAAP Financial Measures”. The Revenue and Non-GAAP EPS performance measures are the same measures of financial performance that the Company reports to its shareholders on a quarterly basis and the same measures on which the Company provides forward-looking financial guidance. These performance measures recognize both long-term shareholder value creation and short-term success on execution of our business plan.
We believe a significant portion of our NEOs’ compensation should be variable, at risk and tied directly to measurable performance. Consistent with these principles, a material portion of our NEOs’ compensation is in the form of performance-based incentives that are earned upon the attainment of pre-established financial goals.
Our Fiscal Year 2017 Performance Measures
Performance Measures for Cash Incentive Bonus
Under our 2017 Executive Compensation Program, each of our NEOs was eligible for cash incentive bonuses based on (i) Revenue for fiscal year 2017, and (ii) Non-GAAP EPS for fiscal year 2017. These annual performance metrics are the same measures of financial performance that the Company reports to its shareholders on a quarterly basis, and the same measures on which the Company provides forward-looking financial guidance, except that all revenues, expenses and dilutive shares associated with acquisitions or divestitures that close during the fiscal year are not included in the calculation of these performance measures. These performance measures recognize success on execution of our business plan, which we believe will create long-term value for our shareholders. For these reasons, we believe these are appropriate performance measures for our executive cash incentive bonus plan.
Non-GAAP EPS is a non-GAAP performance measure. A reconciliation of this performance measure to its most directly comparable financial measures prepared in accordance with GAAP is provided below. A presentation of our reconciliation of non-GAAP performance measures with their most directly comparable GAAP financial measures is also available in our fiscal year 2017 earnings release issued on May 19, 2017 and attached as an exhibit to our current report on Form 8-K filed with the SEC on May 19, 2017.
Reconciliation of Non-GAAP Earnings Per Share Performance Measure with GAAP Financial Measures
(in thousands, except per share data)

13


 
 
 
Fiscal Year Ended March 31,
 
 
 
2017
 
2016
 
Income before provision for income taxes - GAAP
 
 
$
23,609

 
 
$
6,320

 
Non-GAAP adjustments:
 
 
 
 
 
Acquisition and disposition costs, net
 
 
6,523
 
 
 
5,648
 
 
Amortization of acquired intangible assets
 
 
22,461
 
 
 
11,014
 
 
Amortization of deferred debt issuance costs
 
 
1,076
 
 
 
258
 
 
Loss on disposition of Hospital Solutions division and related costs
 
 
 
 
 
2,064
 
 
Restructuring costs
 
 
7,078
 
 
 
 
 
Securities litigation defense costs, net of insurance
 
 
1,798
 
 
 
(2,147
)
 
Share-based compensation
 
 
7,497
 
 
 
3,295
 
 
Impairment of assets
 
 
 
 
 
32,832
 
 
Other non-run-rate expenses
 
 
3,009
 
 
 
4,199
 
 
Total adjustments to GAAP income before provision for income taxes:
 
 
49,442
 
 
 
57,163
 
 
Income before provision for income taxes - Non-GAAP
 
 
73,051
 
 
 
63,483
 
 
Provision for income taxes
 
 
22,281
 
 
 
19,362
 
 
Net income - Non-GAAP
 
 
$
50,770

 
 
$
44,121

 
Diluted net income per share - Non-GAAP
 
 
$
0.82

 
 
$
0.72

 
Weighted-average shares outstanding (diluted):
 
 
62,010
 
 
 
61,233
 
 

Non-GAAP EPS is a non-GAAP financial measure. This non-GAAP measure is not in accordance with or a substitute for U.S. GAAP. Pursuant to the requirements of Regulation G, we have provided the reconciliation above of the non-GAAP financial measure to the most directly comparable financial measure. Other companies may calculate non-GAAP measures differently than we do, which limits comparability between companies. We believe that our presentation of non-GAAP diluted earnings per share provides useful supplemental information to investors and management regarding our financial condition and results. The presentation of non-GAAP financial information is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. We calculate non-GAAP diluted earnings per share by excluding net acquisition and disposition costs, amortization of acquired intangible assets, amortization of deferred debt issuance costs, loss on disposition, restructuring costs, net securities litigation defense costs, share-based compensation, and other non-run-rate expenses from GAAP income before provision for income taxes. We utilize a normalized non-GAAP tax rate to provide better consistency across the interim reporting periods within a given fiscal year by eliminating the effects of non-recurring and period-specific items, which can vary in size and frequency, and which are not necessarily reflective of our longer-term operations. The normalized non-GAAP tax rate applied to each quarter of the fiscal year 2016 and 2017 periods is 30.5%. The determination of this rate is based on the consideration of both historic and projected financial results. We intend to re-evaluate this normalized non-GAAP tax rate on an annual basis or more frequently if any significant events occur that may materially affect this rate, such as merger and acquisition activity, changes in business outlook, or changes in expectations regarding tax regulations.
Performance Measure for December 2016 Performance Stock Awards (“PSAs”)
In December 2016, our NEOs were granted performance stock awards (“PSAs”) that have both time-based and stock price performance-based vesting requirements. The PSAs vest in equal 25% increments over four years, starting on the first anniversary of the grant date. However, no vesting occurs unless the Company’s stock has sustained a price of at least $15 for at least 120 consecutive calendar days, even if the time-based vesting requirements are met, in order to establish a minimum stock price threshold for shareholders. More information about the stock price-contingent vesting criteria for these performance stock awards is presented below under the caption “Compensation Details.”
Performance Measure for Legacy Multi-Year Performance Equity Incentive Bonus Plan (Not Part of Fiscal Year 2017 Executive Compensation Program)
Under a legacy multi-year performance equity incentive bonus plan adopted in previous years, Messrs. Franz and Morefield and Ms. Leavitt were eligible to earn equity incentive bonus awards in the form of restricted shares based on the Company’s average daily closing stock price during the thirty calendar day period following the end of fiscal year 2017. This legacy multi-year performance equity incentive bonus plan included a fiscal year 2017 performance period for the three eligible participants, who were participants in the program, but with new award opportunities discontinued beginning with the fiscal year

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2017 Executive Compensation Program. More detailed information about these stock price-contingent equity awards from prior years is presented below under the caption “Compensation Details.
Our Fiscal Year 2017 Performance and How our Performance Links to Pay
Fiscal year 2017 was a transition year for Quality Systems, financially and operationally, presenting both new challenges and new opportunities for the Company. Cash and equity incentives that could be earned in fiscal year 2017 were paid or forfeited accordingly to formula-based outcomes, except for a ten percent of target cash bonus adjustment that was made for all eligible participants except for the CEO and CFO (as discussed below). The results for our performance measures for fiscal year 2017 were as follows:
Performance Measure Results for Cash Incentive Bonus: Our Revenue for fiscal year 2017 was $509.6 million, compared with $492.5 million for fiscal year 2016. Our Non-GAAP EPS for fiscal year 2017 was $0.82, compared to $0.72 for fiscal year 2016. Based on the results of the cash incentive bonus performance measures, our NEOs earned formulaic cash bonuses equal to 70% of their respective bonus target amounts based on performance versus the Revenue and Non-GAAP EPS measures. As discussed in greater detail below under the caption “2017 Executive Compensation Program Terms and Results - Cash Incentive Bonuses,” our Compensation Committee determined in its discretion to increase the cash bonus payments to all bonus plan participants except for our CEO and CFO by ten percentage points relative to their target bonus to recognize progress in the Company’s strategic turnaround and the rigor of the original goals. Accordingly, these three NEOs were provided cash bonuses at 80% of their respective target amounts, while our CEO and CFO received cash bonuses at 70% of their respective target amounts based on the applicable formula.
Performance Measure Results for December 2016 Performance Stock Awards (“PSAs"): Our stock price did not achieve the performance criteria of at least $15 for 120 consecutive days as of the end of fiscal year 2017 (and has not achieved this performance requirement as of the date of this proxy statement). Also, none of these PSAs have met the minimum one year time-based vesting requirement. Accordingly, none of the PSAs vested in fiscal year 2017 and they have not yet vested as of the date of this proxy statement.
Performance Measure Results for Legacy Performance Equity Incentive Bonus Plan: Our average 30-day stock trading price for the period ending April 30, 2017 was $14.31. Based on the results of this performance measure, the stock-price contingent performance restricted stock awards outstanding from the previous year’s legacy performance equity incentive bonus plan were not earned for fiscal year 2017 and therefore were forfeited for failing to reach the price goals.
Equity as a Key Component of Compensation
Equity-based compensation helps to align the interests of our management team with those of our long-term shareholders by encouraging long-term performance. Multi-year vesting schedules create incentives for our officers to sustain performance over the long term and to encourage retention as the Company executes its new business strategy. Under the 2017 Executive Compensation Program, stock options, which were awarded in May 2016, vest in four equal, annual installments commencing on the first anniversary of the grant date. Equity-based compensation in the form of stock options represented about 39% of our NEOs’ aggregate compensation opportunities under the 2017 Executive Compensation Program. Restricted shares were not a component of the 2017 Executive Compensation Program at the program’s outset, but in December 2016 our NEOs were granted restricted stock awards (“RSAs”) and performance stock awards (“PSAs”) that vest in four equal, annual installments commencing on the first anniversary of the grant date and, in the case of the PSAs, subject to the achievement of stock price performance goals. The RSAs and PSAs represented about 33% of our NEO’s aggregate compensation opportunities under the 2017 Executive Compensation Program.
Balanced Pay Opportunities
The Compensation Committee evaluates our compensation programs annually to ensure they provide balanced and reasonable pay opportunities. In designing our compensation programs, our Compensation Committee is guided by the following compensation principles:

Compensation value at or below the peer group median. The total compensation values presented in the Summary Compensation Table in this proxy statement for our NEOs are an average of 14% below the median of target total compensation levels at the Peer Group companies reviewed in fiscal year 2017. Our CEO’s total compensation value presented in the Summary Compensation Table is 8% below the target total compensation value disclosed for Peer Group CEOs. We believe this below-median compensation value demonstrates a restrained compensation philosophy for NEOs in the midst of effecting a corporate turnaround, particularly given that our CEO, CFO, and CTO were hired fairly recently without outsized new-hire grants, and are only partially through the multi-year strategy shift they are implementing.

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Restrained use of employment agreements and severance arrangements. Only our President and Chief Executive Officer, Mr. Frantz, has an employment agreement. Our NEOs are subject to change of control severance agreements that provide severance payments and other benefits upon termination of employment or a change of control of the Company, but only if the NEO is terminated by the Company without “cause”, or terminates his or her employment for “good reason” within the two month period before or 18 month period after a “change in control” of the Company. Also, our form equity award documents that apply generally to all employees, including our executive officers, contain double-trigger equity acceleration provisions that govern in the event of a qualifying termination in a change of control. Messrs. Frantz and Arnold were granted certain restricted stock awards that provide for partial accelerated vesting upon a qualifying termination not in connection with a change of control.
No perquisites; no tax gross-ups. We do not provide any meaningful perquisites to our NEOs, other than pooled use of a corporate van and a corporate apartment allowance for our Chief Financial Officer, as detailed in the Summary Compensation Table. 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.
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. We recently increased the stock ownership level requirements, which previously were 25% of base salary, and now are 6 times base salary for our CEO and 2 times base salary for our other NEOs. Executive officers who have not achieved the ownership guideline requirements within five years are required to hold 100% of their after-tax profit shares acquired upon option exercises or following the vesting of other shares until they are in compliance.
Executive compensation recovery policy (“clawback”). Our incentive recoupment policy provides that 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 or stock price 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. In fiscal year 2017, the cash bonus plan performance goals reflected growth of 5.6% for Revenue and 17.4% for Non-GAAP Earnings Per Share over results in fiscal year 2016.
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. For fiscal year 2017, our Compensation Committee engaged Frederic W. Cook & Co., Inc. as its independent compensation consultant.
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 Philosophy, 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.

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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 executive officers that is responsible, balanced, performance based, and competitive. Our executive compensation program is designed to reward achievement of specific performance goals 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.
Our Compensation Committee designs compensation packages for our executive 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 executive 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 market level, 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. For fiscal year 2017, our Compensation Committee engaged Frederic W. Cook & Co., Inc. as its independent compensation consultant, and there were no conflicts of interest with respect to this adviser. The Compensation Committee also consults publicly available compensation data from time to time as part of its executive compensation decisions.
Key components of the 2017 Executive Compensation Program were base salary in the form of cash, a cash incentive bonus program, and equity awards in the form of stock options, restricted stock awards, and performance stock awards. In addition, Messrs. Frantz and Morefield and Ms. Leavitt remained eligible to earn awards from prior grants made before fiscal year 2017 under a legacy multi-year performance equity incentive bonus plan dating to a previous year, pursuant to which restricted stock could be earned based on the Company’s average daily closing stock price during the thirty day calendar period following the end of fiscal year 2017. These stock price hurdles were not achieved and the eligible awards were not earned in fiscal year 2017, with the portion of these awards related to the year forfeited. The grant date fair value of these legacy performance incentive equity awards was disclosed in a prior proxy statement.
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. All NEOs were provided actual total compensation value in fiscal year 2017 that was below the median of the Peer Group companies referenced by the Compensation Committee.
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 and from period to period. The Compensation Committee does not allocate specific,

17


predetermined weighting to individual factors. 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. Based salaries for the NEOs in fiscal year 2017 were near the Peer Group median, and our CEO’s base salary was below the Peer Group median.
When evaluating the future contribution potential of an executive officer, the Compensation Committee considers, as particularly meaningful, the executive officer’s historic contributions to our earnings per share and revenue, particularly in light of the highly competitive industry in which we operate. Consideration is also given to the executive officer’s anticipated contributions to our future success. 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 business software and healthcare information technology companies. The composition of this peer group is based on revenue, market capitalization, number of employees and other available data. For fiscal year 2017, this peer group (“Peer Group”) included the following companies:

Peer Group

ACI Worldwide, Inc.
Advisory Board Company
Allscripts Healthcare Solutions, Inc.
Aspen Technology, Inc.
AthenaHealth, Inc.
Blackbaud, Inc.
Callidus Software Inc.
CommVault Systems, Inc.
Computer Programs & Systems, Inc.
Ellie Mae, Inc.
Fair Isaac Corporation
HMS Holdings Corp.
Infoblox Inc.
Jive Software, Inc.
Manhattan Associates Inc.
MedAssets
MicroStrategy Incorporated
Omnicell, Inc.
Progress Software Corporation
The Peer Group companies were in the same size range as our Company at the time data were reviewed for fiscal year 2017 compensation decisions, with the Peer Group companies’ revenue ranging between approximately 0.33 times and 2.75 times our Company’s revenue when the data were used, and with our Company’s trailing four quarters’ revenue equal to $499 million, which was nearly equivalent to the Peer Group companies’ median revenue of $535 million. The largest company in the Peer Group, Allscripts, had revenue of approximately 2.75 times our Company’s revenue when chosen and is one of our direct competitors for customers and talent in the healthcare information technology space. The next largest Peer Group company, ACI Worldwide, had revenue of 2.05 times our revenue.
The Compensation Committee does not rely on benchmark data exclusively and does not target a specific percentile, although our NEOs were provided actual fiscal year 2017 total compensation value (as reported in the Summary Compensation Table in this proxy statement and consisting of salary, actual bonus, and the grant date fair value of all equity awards granted in fiscal year 2017) that is below the median of the target total direct compensation disclosed by the Peer Group companies, by an average of 14%.
2017 Executive Compensation Program Terms and Results
Based on the principles described above under the caption “Compensation Philosophy, Objectives and Components,” on May 17, 2016, our Compensation Committee approved the initial features of the 2017 Executive Compensation Program, which includes base salaries in the form of cash, options to purchase the Company’s common stock, and cash incentive compensation components. In December 2016, our Compensation Committee approved restricted stock awards and performance stock awards that were both intended as an advance on fiscal year 2018 compensation. In addition, certain NEOs (i.e., Messrs. Frantz and Morefield, and Ms. Leavitt) were eligible to earn performance equity compensation awards under a previous year’s legacy multi-year grants that will continue through the end of fiscal year 2018. The performance equity awards made in prior years were not earned in fiscal year 2017 and the portion that was eligible to be earned was forfeited.

18


The cash incentive bonus compensation component for each of our NEOs was based on Revenues and Non-GAAP EPS for fiscal year 2017. The performance stock awards are subject to accelerated vesting upon the achievement of specified stock price performance goals. The legacy equity incentive bonus compensation component for eligible NEOs was based on the Average 30 Day Trading Price during the thirty day calendar period ending the April 30th following the fiscal year end for fiscal year 2017.
Base Compensation - Cash
Salary levels are considered annually as part of our Compensation Committee’s performance review process. Fiscal year 2017 salaries were not increased from fiscal year 2016 levels, in recognition of the cost containment efforts related to the Company’s business turnaround strategy and the focus on long-term value creation and long-term compensation. The Compensation Committee kept cash salaries for our NEOs at the same levels or lower levels as in fiscal year 2016, as follows:
John R. Frantz - $600,000
James R. Arnold - $400,000
Daniel J. Morefield - $400,000
David A. Metcalfe - $400,000
Jocelyn A. Leavitt - $334,000

Other Cash Payments

Cash Separation Payment. Pursuant to a Separation Agreement and General Release dated as of March 31, 2017 and effective as of April 15, 2017, Mr. Morefield received a lump sum separation payment of $450,333 in connection with his resignation as Executive Vice President and Chief Operating Officer. Additional description of Mr. Morefield’s separation arrangements is discussed in the section of this proxy statement captioned “Separation Agreement with Mr. Morefield” under the Summary Compensation Table.

Cash Incentive Bonuses

The following table sets forth the potential cash incentive bonuses payable to each of our NEOs under the 2017 Executive Compensation Program:

Name
 
Target Cash Bonus as % of Base Salary
 
Potential Cash
Bonus Amount
Rusty Frantz
 
100%
 
$600,000
James R. Arnold
 
60%
 
240,000
Daniel J. Morefield
 
60%
 
240,000
David A. Metcalfe
 
60%
 
240,000
Jocelyn A. Leavitt
 
50%
 
167,000

For each of our NEOs in fiscal year 2017, (i) 50% of the target cash incentive bonus was based on the Revenue performance measure for fiscal year 2017, and (ii) 50% of the target cash incentive bonus was based on the Non-GAAP EPS performance measure for fiscal year 2017. The table below depicts the percentage of the potential cash bonus for each level of Revenue and Non-GAAP EPS achievement. The total cash incentive bonus percentage to be awarded is identified by where the Revenue number on the vertical y-axis intersects with the Non-GAAP EPS number on the horizontal x-axis.


19


https://cdn.kscope.io/8b18ef23d6dd0d564ce25031688056cd-fy17proxy.jpg
For purposes of the 2017 Executive Compensation Program, our cash incentive bonus performance measures obtained the following results: Revenue was $509.6 million and Non-GAAP EPS was $0.82. Accordingly, pursuant to the table above, the Revenue performance measure applied at the $510 level in the table’s left-most column achieved a payout level of 50%, and the Non-GAAP EPS performance measure applied at the $0.82 level in the table’s top row achieved a payout level of 90%. Based on the combined achievements of the performance measures, the NEOs earned cash incentive bonus payments at 70% of the applicable target levels (i.e., the point where the 50% Revenue row intersects with the 90% Non-GAAP EPS column). However, our CEO requested an increase of ten target percentage points (i.e., from 70% of target level to 80% of target level) to the cash incentive bonuses for our NEOs, consistent with his determination to grant a similar ten percentage point increase above achievement levels under all cash incentive bonus plans applicable to other, non-executive officer employees of the Company. The request for the discretionary increase was based on several factors. These included that the budget and performance targets for the non-executive employee cash bonus plans were developed when a majority of the executive team had recently arrived at the Company. After gaining additional experience managing the Company, and after successfully engineering a reorganization of the Company’s structure, the executive team had identified the need to further update the budget. The original bonus plan goals were not modified to recognized the revised budget, but under the revised budget, the non-executive employees would have achieved cash incentive bonus payments at the 100% level. In addition, our CEO made his determination to increase non-executive officer employee cash incentive bonuses by ten percent of target in recognition of the progress the Company has made on key operational and strategic initiatives in fiscal year 2017, as set forth below:
Successful execution of a reorganization that improved the Company’s organizational structure while achieving cost savings.
New product releases that achieved significant improvements in client interest and defect reductions.
Significant improvement in client satisfaction scores to exceed internal Company targets, as further recognized by KLAS awarding the company the most improved vendor award in 2017.
Successful acquisition and integration of HealthFusion, and work towards the successful acquisition of Entrada - two key acquisitions that enabled the Company to move in new strategic directions.
On May 18, 2017, based on our results for the 2017 fiscal year and the terms of the 2017 Executive Compensation Program, our Compensation Committee authorized the award of the cash incentive bonus payments under the 2017 Executive Compensation Program at 70% of target for Messrs. Frantz and Arnold (i.e., the formulaic bonus percentages) and 80% of target for Messrs. Morefield and Metcalfe, and Ms. Leavitt (i.e., reflecting the same 10% of target increase as was provided to the

20


Company’s non-executive employees for their fiscal year 2017 cash bonuses). These cash incentive bonus outcomes are set forth in the table below.
Name
 
Target Cash Bonus
 
Cash Bonus Earned
 
Rusty Frantz
 
$600,000
 
$420,000
 
James R. Arnold
 
240,000
 
168,000
 
Daniel J. Morefield (1) 
 
240,000
 
192,000
 
David A. Metcalfe
 
240,000
 
192,000
 
Jocelyn A. Leavitt
 
167,000
 
133,600
 

(1)
Mr. Morefield resigned as our Executive Vice President, Chief Operating Officer, effective April 15, 2017. Pursuant to the separation agreement entered into between the Company and Mr. Morefield, he was eligible to receive a cash payment equal to the value of his cash bonus payable under the 2017 Executive Compensation Program, subject to the Company’s attainment of applicable performance goals for the fiscal year ending March 31, 2017.

Stock Options
Under the 2017 Executive Compensation Program, each NEO, with the exceptions of Messrs. Arnold and Metcalfe, were provided a grant of options to purchase the Company’s common stock on May 24, 2016, with an exercise price of $12.93. The Compensation Committee did not award stock options to Messrs. Arnold and Metcalfe under the 2017 Executive Compensation Program because these executive officers had very recently joined the company in the last quarter of fiscal year 2016 and had received stock option grants upon their appointment to the Company (250,000 stock options were granted to Mr. Arnold on March 1, 2016, and 200,000 stock options were granted to Mr. Metcalfe on February 1, 2016). The options that were granted vest in four equal, annual consecutive installments, beginning on the first anniversary of the initial grant date, and will expire eight years after their grant. The options were issued pursuant to the Company’s 2015 Equity Incentive Plan and standard form of option award agreement. The number of stock options granted to each NEO under the 2017 Executive Compensation Program is set forth in the table below:
Name
 
Options
Rusty Frantz
 
300,000 (1)
James R. Arnold
 
N/A
Daniel J. Morefield
 
120,000 (2)
David A. Metcalfe
 
N/A
Jocelyn A. Leavitt
 
60,000

(1)
Does not include 100,000 options to purchase shares of the Company’s common stock granted to Mr. Frantz on May 31, 2016, pursuant to the Executive Employment Agreement, dated June 3, 2015, between the Company and Mr. Frantz (the “Employment Agreement”). Described in the Employment Agreement as an Option Bonus, the Compensation Committee approved this grant for Mr. Frantz in connection with his hiring as the Company’s President and Chief Executive Officer on July 1, 2015, with eligibility for the grant conditional upon Mr. Frantz remaining in good standing as an employee of the Company or a subsidiary of the Company through May 31, 2016.
(2)
Mr. Morefield resigned as the Company’s Executive Vice President and Chief Operating Officer, effective April 15, 2017. Following Mr. Morefield’s resignation, these stock options, none of which had vested, were cancelled.

In addition to the May 24, 2016 stock option grant under the 2017 Executive Compensation Program, Mr. Frantz was granted 100,000 stock options on May 31, 2016 pursuant to his Employment Agreement, as described in footnote 1 to the table above. This grant was contractual and was viewed by the Compensation Committee as a fiscal year 2015 compensation decision, since it was agreed to during fiscal year 2015 while Mr. Frantz was being hired from outside the Company.
Restricted Stock Awards and Performance Stock Awards Made in December 2016
Effective December 29, 2016, our Compensation Committee granted restricted stock awards (“RSAs”) and performance stock awards (“PSAs”) to our executive officers as part of the equity component of our fiscal year 2018 Executive Compensation Program. These awards were granted to provide an additional unvested stake in the Company’s future potential in light of fairly modest new hire grants provided to most of the executive team at the start of their employment. Our general practice in previous years was to grant equity awards to executive officers in May of each year. However, the Compensation Committee determined to grant these forward awards on an earlier timeframe - in December 2016 rather than May 2017 - in

21


order to provide better alignment of our executives and shareholders, focus our executives on stock price performance, incentivize executive retention, and foster greater consistency with market practices. Accordingly, our NEOs were not granted any equity awards in May 2017 (i.e., near the beginning of fiscal year 2018) as they had been near the beginning of previous fiscal years.
Although the RSAs and PSAs were made during fiscal year 2017 and therefore appear in the fiscal year 2017 compensation tables in this proxy statement, they are viewed as advances on our fiscal year 2018 Executive Compensation Program. Nevertheless, the fiscal year 2017 total direct compensation values for our NEOs, as indicated in the Summary Compensation Table of this proxy statement, are below the Peer Group median target total compensation values for all positions, even including the value of the RSAs and PSAs that were considered advances on the next year’s compensation. The Compensation Committee views total compensation value below the median target total compensation of our peers as indicative of the reasonableness of our executive compensation program, particularly since fiscal year 2017 includes both fiscal year 2017 equity awards and advances on a portion of fiscal year 2018 equity compensation.
Name
 
Restricted Stock Awards ("RSAs")
 
Grant Date Value
 
Performance Stock Awards ("PSAs")
 
Grant Date Value
Rusty Frantz
 
65,000

 
$
854,750

 
35,000

 
$
372,050

James R. Arnold
 
52,000

 
683,800

 
28,000

 
297,640

Daniel J. Morefield (1)
 
7,583

 
99,716

 
4,083

 
43,402

David A. Metcalfe
 
33,583

 
441,616

 
18,083

 
192,222

Jocelyn A. Leavitt
 
7,583

 
99,716

 
4,083

 
43,402

Scott E. Bostick (2)
 
33,583

 
441,616

 
18,083

 
192,222


(1) Effective April 15, 2017, Mr. Morefield resigned as the Company’s Executive Vice President and Chief Operating Officer. Upon his resignation, Mr. Morefield’s RSAs and PSAs were cancelled.
(2) Effective April 15, 2017, concurrent with the effectiveness of Mr. Morefield’s resignation from the Company, Mr. Bostick was appointed as the Company’s Executive Vice President and Chief Operating Officer. Mr. Bostick is one of our executive officers for our fiscal year 2018 Executive Compensation Program and is therefore included in this table.

Restricted Stock Awards (“RSAs”) Made in December 2016
The RSAs vest in four equal increments, with 25% of the total shares vesting on each of the first four anniversaries of the grant date, subject in each case to the NEO’s continued service to the Company. In the event of a change in control of the Company either during the executive officer’s service to the Company or within two months following an involuntary termination of the executive officer without cause, the RSAs are eligible for 100% accelerated vesting. The RSAs granted to Messrs. Frantz and Arnold are also eligible for accelerated vesting with respect to up to 50% of the RSAs’ grant date value (reduced by the value of any shares that vest based on service) if they experience a qualifying termination of employment and satisfy certain other eligibility conditions set forth in the relevant agreements (including provision of a full release of claims).
Performance Stock Awards (“PSAs”) Made in December 2016
The PSAs are subject to both time and performance-based vesting requirements. The PSAs vest in four equal increments, with 25% of the total shares vesting on each of the first four anniversaries of the grant date, subject in each case to the NEO’s continued service to the Company and the achievement of the performance goal. The performance goal is defined as achievement of at least a $15 per share average closing price of the Company’s common stock on NASDAQ over any period of 120 consecutive calendar days prior to the fourth anniversary of the date of grant. The Compensation Committee set the performance goal at $15, with a requirement that this price be sustained for at least 120 consecutive days, in order to ensure that the executive team achieves at least this threshold level of stock value for the shareholders before the shares can vest. Once the performance goal is achieved for the required period, the PSAs shall vest only as to the number of shares for which the NEO has already satisfied the time-based vesting requirement. In the event of a change in control of the Company either during the NEO’s service to the Company or within two months following an involuntary termination of the NEO without cause, the PSAs are eligible for 100% accelerated vesting, but only if the consideration payable in the change of control is equal to at least the performance goal (i.e., $15 per share of the Company’s common stock). In the event of a change in control where the consideration is not $15 per share or more, the PSAs will be forfeited.
Performance Equity Incentive Bonus Plan - Restricted Shares Under Prior Multi-Year Legacy Plan (Not Part of Fiscal Year 2017 Executive Compensation Program)
Under a legacy multi-year equity incentive bonus arrangement from a prior year’s executive compensation program, Messrs. Frantz and Morefield and Ms. Leavitt were, and Mr. Frantz and Ms. Leavitt are, eligible to receive an aggregate of up to

22


210,000 restricted shares of common stock over a three year period based on the Company meeting certain average 30 day trading price targets for the thirty day periods ending April 30th following the end of each of fiscal years 2016 (i.e., April 30, 2016), 2017 (i.e. April 30, 2017), and 2018 (i.e., April 30, 2018) as indicated in the table below. This equity incentive bonus program has continuing effect through fiscal year 2018 for eligible NEOs who were grandfathered into the program, but was not part of the 2017 Executive Compensation Program. Awards that are not earned in their period are forfeited. Because no awards were earned during the fiscal year 2016 and fiscal year 2017 periods, these awards relating to those periods were forfeited for all eligible NEOs. The fiscal year 2018 performance period under this program is not yet complete, but the awards would be forfeited if the fiscal year were to end as of the date of this proxy statement based on the Company’s current stock price.
Name
 
Aggregate Potential Shares over Three Year Period
 
Potential Shares for the Post Fiscal Year 2016 Period (3)
 
Potential Shares for the Post Fiscal Year 2017 Period (3)
 
Potential Shares for the Post Fiscal Year 2018 Period
Rusty Frantz (1)
 
150,000
 
45,000
 
45,000
 
60,000
Daniel J. Morefield (2)
 
30,000
 
9,000
 
9,000
 
12,000
Jocelyn A. Leavitt
 
30,000
 
9,000
 
9,000
 
12,000

(1)
Mr. Frantz joined the Company on July 1, 2015, after the beginning of the 2016 fiscal year. Any equity incentive bonus payable to Mr. Frantz pursuant for the fiscal year 2016 period was to be prorated as a percentage of days of fiscal year 2016 Mr. Frantz was employed by the Company.
(2)
Mr. Morefield departed the Company effective April 15, 2017. Pursuant to the terms of Mr. Morefield’s separation agreement described under the caption “Separation Agreement with Mr. Morefield” under the Summary Compensation Table, Mr. Morefield is not eligible for any awards based on the Company’s average 30 day stock trading price following the end of the 2018 fiscal year.
(3)
Because the minimum average 30 day trading price targets for the applicable periods were not met, no awards were earned and all awards were forfeited.

For each of our NEOs eligible for the equity incentive bonus, (i) 30% of the aggregate equity incentive bonus amount set forth in the table above was calculated based on the average 30 day trading price for the thirty calendar day period ending April 30, 2016, (ii) 30% of the aggregate equity incentive bonus amount set forth in the table above was calculated based on the average 30 day trading price for the thirty calendar day period ending April 30, 2017, and (iii) 40% of the aggregate equity incentive bonus amount set forth in the table above will be calculated based on the average 30 day trading price for the thirty calendar day period ending April 30, 2018.
The portions of the equity incentive bonus based on average 30 day trading price for the thirty day period ending April 30, 2016 (i.e., the first year of this three-year equity incentive bonus program) were determined as follows:
Average 30 Day Trading Price
 
% of Criteria Amount
$20.00
 
10.0%
$22.00
 
20.0%
$24.00
 
30.0%

The portions of the equity incentive bonus based on the average 30 day trading price for the thirty day period ending April 30, 2017 were 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 equity incentive bonus based on the average 30 day trading price for the thirty day period ending April 30, 2018 will be determined as follows:

23


Average 30 Day Trading Price
 
% of Criteria Amount
$32.00
 
10.0%
$34.00
 
20.0%
$36.00
 
40.0%

The percentage shown in the right hand columns was or 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 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 30 day trading price of each of our NEOs’ total available potential equity incentive shares.    
The average 30 day trading price for the thirty calendar day period ended April 30, 2017 was $14.31. Accordingly, no awards were earned by eligible NEOs for the fiscal year 2017 period of this program, and all awards for this period were forfeited, as set forth in the table below.

Name
 
Post Fiscal 2017 Target Equity Bonus (shares)
 
Equity Bonus Earned (shares)
Rusty Frantz
 
45,000

 
James R. Arnold
 
N/A

 
N/A
Daniel J. Morefield
 
9,000

 
0
David A. Metcalfe
 
N/A

 
N/A
Jocelyn A. Leavitt
 
9,000

 
0

2018 Executive Compensation Program Terms
Based on the principles described above under the caption “Compensation Philosophy, Objectives and Components,” on December 2, 2016, May 17, 2017 and June 8, 2017, our Compensation Committee approved the components of the 2018 Executive Compensation Program for our executive officers for the fiscal year ending March 31, 2018. The 2018 Executive Compensation Program includes three components: (i) base salaries in the form of cash, (ii) cash incentive bonus compensation, and (iii) equity awards in the form of restricted stock awards (“RSAs”) and performance stock awards (“PSAs”). As set forth above under the caption “Restricted Stock Awards and Performance Stock Awards Made in December 2016”, the RSAs and PSAs granted in December 2016 were intended as forward awards as a component of the 2018 Executive Compensation Plan. In addition, the Compensation Committee determined that it may grant future equity awards under the 2018 Executive Compensation Program, but has deferred any such potential equity awards until a later date in its discretion. The cash incentive compensation component for each of our executive officers will be based on two performance measures for fiscal year 2018, which are the same performance measures used for fiscal year 2017: Revenue and Non-GAAP EPS. Any revenues, expenses, and dilutive shares associated with acquisitions and divestitures that close prior to the end of fiscal year 2018 will not be included in the calculation of these performance measures. A reconciliation of Non-GAAP EPS with the most directly comparable GAAP financial measures is provided above under the caption “Reconciliation of Non-GAAP Earnings Per Share Performance Measure with GAAP Financial Measures”. Our executive officers for fiscal year 2018 are Messrs. Frantz, Arnold, and Metcalfe, and Ms. Leavitt, as well as Mr. Scott A. Bostick, who became our Executive Vice President and Chief Operating Officer effective April 15, 2017 upon the resignation of Mr. Morefield from that position on that date.
Base Salaries
Salary levels are considered annually as part of our Compensation Committee’s performance review process. From time to time, the Compensation Committee will approve adjustments in the base salary of our executive officers based on its assessment of the Company’s competitiveness for executive talent, organizational structure, market trends, and the interplay of the base salary component with other features and components in our overall executive compensation program. Under the 2018 Executive Compensation Program, the Compensation Committee increased cash salaries for our executive officers by 3% over fiscal year 2017 levels, as follows:
John R. Frantz - $618,000;
James R. Arnold - $412,000;

24


David A. Metcalfe - $412,000;
Scott E. Bostick - $412,000;
Jocelyn A. Leavitt - $344,020;

Cash Incentive Bonuses

The following table sets forth the potential cash incentive bonus payable to each of our executive officers under the 2018 Executive Compensation Program:
Name
 
Target Potential Cash Bonus as % of Base Salary
 
Target Potential Cash
Bonus Amount
Rusty Frantz
 
100%
 
$618,000
James R. Arnold
 
60%
 
247,200
David A. Metcalfe
 
60%
 
247,200
Scott E. Bostick
 
60%
 
247,200
Jocelyn A. Leavitt
 
60%
 
206,412

Under the 2018 Executive Compensation Program, the cash incentive bonus performance measures are the same as those used for fiscal year 2017, and are calculated in the same manner as in fiscal year 2017: Revenue and Non-GAAP Earnings Per Share (“Non-GAAP EPS”). These performance measures are the same measures of financial performance that the Company reports to its shareholders on a quarterly basis, and the same measures on which the Company provides forward-looking financial guidance, except that all revenues, expenses and dilutive shares associated with acquisitions or divestitures closed after the 2018 Executive Compensation Program was fully approved and before the end of the fiscal year are not included in the calculation of these performance measures. These performance measures recognize both long-term shareholder value creation and short-term success on execution of our business plan. For these reasons, we believe these are appropriate performance measures for our executive cash incentive bonus plan
In the fiscal year 2018 program, as in the fiscal year 2017 program, for each of our executive officers, (i) 50% of the potential cash incentive bonus is based on the Revenue performance measure, and (ii) 50% of the potential cash incentive bonus is based on the Non-GAAP EPS performance measure. Under the Revenue performance measure for fiscal year 2018, the cash incentive bonus plan is calibrated to pay 90% of each executive officer’s bonus target for 100% achievement of the fiscal year 2018 Revenue target, which is $524.7 million. The Compensation Committee determined this to be an appropriate Revenue target based on the management team’s budget as the Company’s turnaround strategy continues and the Company pursues an evolving revenue profile. The plan pays 100% of target for achieving $529.9 million in Revenue. Under the Non-GAAP EPS performance measure for fiscal year 2018, the cash incentive bonus plan is calibrated to pay 85% of each executive officer’s bonus target for 100% achievement of the fiscal year 2018 Non-GAAP EPS target, which is $0.72. The Compensation Committee determined that this Non-GAAP EPS target appropriately aligns with the fresh management team’s business turnaround strategy, which includes investing in organic and non-organic growth opportunities. The plan pays 100% of target for achieving $0.77 in Non-GAAP EPS, which is viewed as highly challenging as the Company shifts its business mix and invests in future growth opportunities.

Legacy Multi-Year Performance Equity Incentive Bonus Plan (not part of Fiscal Year 2018 Executive Compensation Program)

Under a legacy multi-year performance equity incentive bonus plan dating to a prior year that was not reimplemented for fiscal year 2018 but that has carry-over effect for Mr. Frantz and Ms. Leavitt, these two NEOs remain eligible to earn restricted stock awards based on the Company meeting certain average 30 day stock price targets for the thirty day period ending April 30th subsequent to the end of fiscal year 2018 (i.e., April 30, 2018). This equity incentive bonus plan has continuing effect through fiscal year 2018 for Mr. Frantz and Ms. Leavitt, who were grandfathered into the plan, but was discontinued beginning with the fiscal year 2017 Executive Compensation Program. Mr. Frantz is eligible to receive up to 60,000 restricted shares, and Ms. Leavitt is eligible to receive up to 12,000 restricted shares, based on the Average 30 Day Trading Price of the Company’s common stock for the thirty day period ending April 30, 2018. A detailed description of this plan is provided in the “2017 Executive Compensation Program Terms and Results” section above, under the caption “Performance Equity Incentive Bonus Plan - Restricted Shares Under Prior Multi-Year Legacy Plan.” These performance shares are not currently tracking to be earned as of the date of this proxy statement, although the performance period is not yet complete.


25


General Terms for the 2018 Executive Compensation Program
The following terms will apply to all officers participating in our 2018 Executive Compensation Program:
For purposes of calculating cash incentive bonuses for all officers, both the Revenue and Non-GAAP EPS performance measures shall be defined and calculated consistent with the methodology used by the Company in its fiscal year 2018 earnings release, provided that Revenue and Non-GAAP EPS shall not include any revenues, expenses, and dilutive shares associated with acquisitions and divestitures that occur after the 2018 Executive Compensation Program was fully approved and prior to the end of fiscal year 2018. The calculation of Non-GAAP EPS will be adjusted for stock splits.
Officer must be in good standing as a full time employee of the Company (or a wholly owned subsidiary thereof) on May 31, 2018 to be eligible to receive the cash incentive bonus.
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 have executed the Company’s standard confidential information and non-compete agreement.
Payment of cash incentive compensation shall only be as approved by the Compensation Committee based on, among other things, audited financial statements, and subject to the Company’s standing compensatory policies (e.g., the Company’s Clawback Policy and Executive Stock Ownership Policy), as such policies may be amended by the Company or applicable law.
The quantity of equity awards will adjust pro-rata with any stock splits that may occur.
Officer must be in compliance with the Company’s Executive Stock Ownership Policy to receive cash bonus and equity awards.

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. Matching contributions for the NEOs are included in the “All Other Compensation” column of the Summary Compensation Table for Fiscal Year Ended March 31, 2017.
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, 2017.
These retirement plans may be amended or discontinued at the discretion of our Board.

Perquisites and Other Personal Benefits
We do not provide any meaningful perquisites to our NEOs, other than gym membership reimbursement, pooled use of a corporate van and a corporate apartment allowance for our Chief Financial Officer, as detailed in the Summary Compensation Table for Fiscal Year Ended March 31, 2017. We do not provide tax gross-ups to our NEOs in connection with perquisites or benefits.

Executive Stock Ownership Policy
In early fiscal year 2018, we improved our executive stock ownership policy to better align our executive officers’ long-term interests with those of our shareholders and to discourage excessive risk taking. Previously, our policy required executive officers to acquire 25% of their base salary value in shares. The revised policy requires all executive officers to acquire within five years, and retain for the full duration of their tenure as executive officers, shares of the Company’s common stock with a value of at least six times annual base salary for our Chief Executive Officer and two times annual base salary for our other executive officers. Executive officers who have not achieved the policy requirements within five years are required to hold all of their after-tax profit shares acquired upon option exercises or other share vestings until they achieve compliance.

Insider Trading Policy
We have an insider trading policy that generally prohibits Board members, officers and employees from transacting in our Company's shares while in the possession of material nonpublic information and 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.

26



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, 2017.
    

Summary Compensation Table for Fiscal Year Ended March 31, 2017

The following table provides certain summary information concerning the compensation for the fiscal years ended March 31, 2017, 2016 and 2015 for the individuals who served as our principal executive officer (i.e., Mr. Frantz), our principal financial officer (i.e., Mr. Arnold), and the three other most highly compensated executive officers whose total compensation exceeded $100,000 during fiscal year 2017 and who were serving as executive officers at the end of fiscal year 2017 (i.e., Mr. Morefield, Ms. Leavitt, and Mr. Metcalfe) (collectively, the “NEOs”). No executive officers that would have otherwise been includable in the table on the basis of total compensation for fiscal year 2017 have been excluded by reason of their termination of employment or change in officer status during that year.



27


Name and Title
 
Fiscal Year
 
Salary
($)
 
Bonus
($)
 
Stock Awards
($) (1)
 
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
($)
Rusty Frantz
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
President and
 
2017
 
$
600,008

 
$

 
$
1,226,961

 
$
1,967,000

 
$
420,000

 
$
8,363

 
$
34,785

 
$
4,257,117

Chief Executive Officer (5)
 
2016
 
450,006

 

 
315,250

 
384,000

 
236,250

 

 
1,537

 
1,387,043

 
 
2015 *
 

 

 

 

 

 

 

 

James R. Arnold, Jr.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Executive Vice President and
 
2017
 
400,005

 

 
981,569

 

 
168,000

 

 
52,585

 
1,602,159

Chief Financial Officer (6)
 
2016
 
33,333

 

 
1,134,120

 
1,280,000

 
14,000

 

 
4,269

 
2,465,722

 
 
2015 *
 

 

 

 

 

 

 

 

Daniel J. Morefield
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Executive Vice President and
 
2017
 
408,638

 

 
143,138

 
593,040

 
192,000

 

 
15,404

 
1,352,220

Chief Operating Officer (7)
 
2016
 
460,682

 

 

 
55,095

 
163,450

 
7,699

 
2,678

 
689,604

 
 
2015
 
446,810

 

 

 
70,080

 
312,708

 
4,435

 
2,289

 
836,322

David A. Metcalfe
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Executive Vice President and
 
2017
 
400,005

 

 
633,922

 

 
192,000

 

 
29,641

 
1,255,568

Chief Technology Officer (8)
 
2016
 
66,667

 
190,000

 

 
930,000

 
28,000

 

 
2,037

 
1,216,704

 
 
2015 *
 

 

 

 

 

 

 

 

Jocelyn A. Leavitt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Executive Vice President,
 
2017
 
350,516

 

 
143,138

 
296,520

 
133,600

 

 
5,326

 
929,100

General Counsel and
 
2016
 
343,269

 

 

 
55,095

 
116,900

 
5,648

 
418

 
521,330

Secretary
 
2015
 
328,789

 
2,363

 

 
70,080

 
223,871

 
3,264

 
405

 
628,772

____________


*
Amounts are not reported, as the individual was not a Company employee or NEO during any part of the fiscal year.
(1)
The amounts in the Stock Awards and Option Awards columns 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 13 to our audited financial statements for the fiscal year ended March 31, 2017, included in our Annual Report on Form 10-K filed with the SEC on May 19, 2017.
(2)
The amounts reflected in this column represent the amount earned as cash incentive compensation in the fiscal year.
(3)
The amounts reflected in this column represent 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 amounts reflected in this column represent our Company’s contributions to the 401(k) plan, long-term disability insurance, gym membership reimbursement, and pooled use of the Company’s corporate van for Messrs. Frantz and Metcalfe. The 401(k) plan contribution amounts for fiscal year 2017 were: Mr. Frantz - $11,250; Mr. Arnold - $7,973; Mr. Morefield - $5,273; Mr. Metcalfe - $7,613; Ms. Leavitt - $1,253. The long-term disability insurance amounts for fiscal year 2017 were: Mr. Frantz - $6,344; Mr. Arnold - $4,508; Mr. Morefield - $8,332; Mr. Metcalfe - $4,836; Ms. Leavitt - $2,274. Gym membership reimbursement was $1,800 for each NEO. The value of use of the corporate van was $15,392 for each of Messrs. Frantz and Metcalfe. In addition, the amount reflected in this column for Mr. Arnold includes $38,304 in reimbursement for a corporate apartment, as provided for in Mr. Arnold’s employment offer letter.
(5)
Mr. Frantz was appointed President and Chief Executive Officer effective July 1, 2015. Mr. Frantz’s compensation for fiscal year 2016 consists of non-prorated amounts earned from July 1, 2015 through the end of fiscal year 2016 in March 31, 2016, as well as a signing grant of 150,000 stock options and 25,000 restricted shares pursuant to the terms of Mr. Frantz’s employment agreement.
(6)
Mr. Arnold was appointed Executive Vice President and Chief Financial Officer effective March 1, 2016. Mr. Arnold’s compensation for fiscal year 2016 consists of non-prorated amounts earned from March 1, 2016 through the end of fiscal year 2016 on March 31, 2016, as well as a signing grant of 250,000 stock options and 72,700 restricted shares pursuant to Mr. Arnold’s employment offer.
(7)
Mr. Morefield resigned as the company's Executive Vice President and Chief Operating Officer effective April 15, 2017, after fiscal year 2017 ended on March 31, 2017.
(8)
Mr. Metcalfe was appointed Executive Vice President and Chief Technology Officer effective February 1, 2016. Mr. Metcalfe’s compensation for fiscal year 2016 consists of non-prorated amounts earned from February 1, 2016 through the end of fiscal year 2016 on March 31, 2016, as well as a signing bonus of $190,000 and a signing grant of 200,000 stock options pursuant to Mr. Metcalfe’s employment offer.



28


Compensation Program Information
Additional information about our executive compensation program can be found in the “Compensation Discussion and Analysis” section of this proxy statement.

Separation Agreement with Mr. Morefield
In connection with Mr. Morefield’s resignation from his position as Executive Vice President and Chief Operating Officer of the Company, the Company entered into a separation agreement with Mr. Morefield effective after fiscal year 2017 ended, on April 15, 2017. Pursuant to the separation agreement, Mr. Morefield received a lump sum separation payment of $450,333 following his departure from the Company.
The separation agreement also provided that the Company would reimburse Mr. Morefield for his and his spouse’s continued coverage under the Company’s group health care plan until April 15, 2018 (or until such earlier date as Mr. Morefield becomes eligible for coverage under another employer’s group health care plan). Mr. Morefield, but not his spouse, elected to receive such coverage, and he was continuing to receive such coverage as of the date of this proxy statement.
Pursuant to the separation agreement, subject to the Company’s attainment of applicable performance goals for the full fiscal year ending March 31, 2017, Mr. Morefield was eligible to receive a cash payment equal to the prorated value of his cash bonus payable under the 2017 Executive Compensation Program that is tied to the Company's fiscal year 2017 performance. Based on the Company’s performance, Mr. Morefield received a cash bonus of $192,000. Please see the Compensation Discussion and Analysis section of this proxy statement for additional information on cash bonuses.

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 and as part of Mr. Frantz’s new hire compensation package, we granted Mr. Frantz (i) options to purchase up to 150,000 shares of our common stock at an exercise price of $12.80 and a grant date of August 17, 2015, 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, with a grant date of August 17, 2015, which restricted shares will vest in three equal, annual consecutive installments with the first vesting date occurring on July 1, 2016. In addition, following the end our 2016 fiscal year, we granted Mr. Frantz options to purchase up to 100,000 shares of our common stock at an exercise price of $12.71. These options were approved in connection with Mr. Frantz’s commencement of employment during our fiscal year 2016 but had a deferred grant date of May 31, 2016 conditioned upon Mr. Frantz remaining employed through that date, with an exercise price of $12.71 (the closing price of our stock on May 31, 2016), which options have an eight year term and vest in in five equal, annual installments with the first vesting date occurring on May 31, 2017. Also, Mr. Frantz’s employment agreement provided him eligibility under our 2016 Executive Compensation Program to receive a cash incentive bonus, as well as an equity incentive bonus in the form of restricted shares, depending on the Company’s fiscal year 2016 performance. The employment agreement also provides that Mr. Frantz shall receive three weeks of vacation each year. For a full description of Mr. Frantz’s potential cash and equity incentive awards for fiscal year 2017, please see the disclosure under “2017 Executive Compensation Program Terms” above.

Grants of Plan-Based Awards for Fiscal Year Ended March 31, 2017

The following table sets forth information regarding plan-based awards granted to our NEOs during the fiscal year ended March 31, 2017.

29


 
 
 
 

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
(#) (4)
 
All Other Stock Awards: Number of Securities Under-lying Options (#)
 
Exer-cise or Base Price of Option Awards
 
Grant Date Fair Value of Stock and Option Awards
 (5)
Name
 
Grant Date (2)
 
Thres-hold
($)
 
Target
($) (3)
 
Maxi-mum
($) (3)
 
Thres-hold
Perform-ance Shares (3)
 
Target
Perform-ance Shares (3)
 
Maxi-mum
Perform-ance Shares (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rusty Frantz
 
 
 
$

 
$
600,000

 
$
900,000

 

 
 45,000 (7)

 
 45,000 (7)

 

 

 

 

 
 
5/24/16
 

 

 

 

 

 

 

 
300,000

 
$
12.93

 
1,482,600

 
 
5/31/16
 

 

 

 

 

 

 

 
100,000

 
12.71

 
484,400

 
 
12/29/16
 

 

 

 

 

 

 
65,000

 

 

 
854,750

 
 
12/29/16
 

 

 

 

 
35,000 (8)

 
35,000 (8)

 

 

 

 
372,211

James R. Arnold, Jr.
 
 
 

 
240,000

 
360,000

 

 

 

 

 

 

 

 
 
12/29/16
 

 

 

 

 

 

 
52,000

 

 

 
683,800

 
 
12/29/16
 

 

 

 

 
28,000 (8)

 
28,000 (8)

 

 

 

 
297,769

Daniel J. Morefield (6)
 
 
 

 
240,000

 
360,000

 

 
 9,000 (7)

 
 9,000 (7)

 

 

 

 

 
 
5/24/16
 

 

 

 

 

 

 

 
120,000

 
12.93

 
593,040

 
 
12/29/16
 

 

 

 

 

 

 
7,583

 

 

 
99,716

 
 
12/29/16
 

 

 

 

 
4,083 (8)

 
4,083 (8)

 

 

 

 
43,421

David A. Metcalfe
 
 
 

 
240,000

 
360,000

 

 

 

 

 

 

 

 
 
12/29/16
 

 

 

 

 

 

 
33,583

 

 

 
441,616

 
 
12/29/16
 

 

 

 

 
18,083 (8)

 
18,083 (8)

 

 

 

 
192,305

Jocelyn A. Leavitt
 
 
 

 
167,000

 
250,500

 

 
 9,000 (7)

 
 9,000 (7)

 

 

 

 

 
 
5/24/16
 

 

 

 

 

 

 

 
60,000

 
12.93

 
296,520

 
 
12/29/16
 

 

 

 

 

 

 
7,583

 

 

 
99,716

 
 
12/29/16
 

 

 

 

 
4,083 (8)

 
4,083 (8)

 

 

 

 
43,421

____________________
(1)
The actual cash and equity incentive compensation paid is described above under the heading “Compensation Discussion and Analysis-2017 Executive Compensation Program Payouts” and represents threshold, target, and maximum cash or share incentive awards possible based on fiscal year 2017 performance. 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 2017 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 2017 Executive Compensation Program is included in the Outstanding Equity Awards at Fiscal Year End March 31, 2017 table below.
(2)
All equity grants in fiscal year 2017 were made under our 2015 Equity Incentive Plan.
(3)
The amounts set forth in these columns reflect the threshold, target and maximum cash or share incentive awards possible based on fiscal year 2017 performance.
(4)
These amounts represent restricted awards granted to each NEO on December 29, 2016 and vest in four equal, annual installments commencing one year after the grant date. Accordingly, the unvested shares are scheduled to vest on December 29, 2017, December 29, 2018, December 29, 2019, and December 29, 2020.
(5)
The amounts set forth in these column reflects the grant date fair value of the stock awards and stock option awards, computed in accordance with FASB ASC Topic 718, Compensation - Stock Compensation. Assumptions made in the calculation of these amounts are included in Note 13 to our audited financial statements for the fiscal year ended March 31, 2017, included in our Annual Report on Form 10-K filed with the SEC on May 19, 2017.
(6)
Mr. Morefield resigned as the company's Executive Vice President and Chief Operating Officer effective April 15, 2017, after the end of the fiscal year 2017.
(7)
These amounts represent restricted shares that eligible NEOs (for fiscal year 2017, these were Messrs. Frantz and Morefield, and Ms. Leavitt) could have earned under a legacy multi-year performance equity incentive bonus plan adopted in a previous year but that was not part of the 2017 Executive Compensation Program. This legacy multi-year performance equity incentive bonus plan had continuing effect for fiscal year 2017 for the three eligible participants, who were grandfathered into the program. This plan provided that certain NEOs are eligible to receive restricted shares of common stock based on the Company’s stock price meeting certain average 30 day trading price targets for the thirty day periods ending April 30th following the end of the fiscal year. The stock price targets for the current fiscal year were not met. Accordingly, the shares were not earned and were forfeited. Please see the Compensation Discussion and Analysis section of this proxy statement for additional information.

30


(8)
These amounts represent performance stock awards that were granted to certain executive officers on December 29, 2016. These awards are subject to the executive officer's continued service and achievement of certain Company performance goals. Please see the Compensation Discussion and Analysis section of this proxy statement for additional information.

Outstanding Equity Awards at Fiscal Year Ended March 31, 2017
 
 
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
(#)
 
Market Value of Shares of Stock That Have Not Vested
($)
 
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
($)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rusty Frantz
 
30,000

 
120,000

(2) 
 

 
$
12.80

 
08/17/23

 
 
 
$—
 
 
 

 
 

 
300,000

(3) 
 

 
12.93

 
05/24/24

 
 
 
 
 
 

 
 

 
100,000

(4) 
 

 
12.71

 
05/31/24

 
 
 
 
 
 

 
 

 

 
 

 

 

 
16,666
(12) 
 
213,325
 
 
 

 
 

 

 
 

 

 

 
65,000
(13) 
 
854,750
 
 
 

 
 

 

 
 

 

 

 
 
 
 
35,000
(15) 
 
460,250

James R. Arnold, Jr.
 
62,500

 
187,500

(5) 
 

 
15.60

 
03/01/24

 
 
 
 
 
 

 
 

 

 
 

 

 

 
48,466
(14) 
 
756,070
 
 
 

 
 

 

 
 

 

 

 
52,000
(13) 
 
683,800
 
 
 

 
 

 

 
 

 

 

 
 
 
 
28,000
(15) 
 
368,200

Daniel J. Morefield (1)
 
16,000

 
4,000

(6) 
 

 
18.42

 
09/25/20

 
 
 
 
 
 

 
 
8,000

 
12,000

(7) 
 

 
15.99

 
06/03/22

 
 
 
 
 
 

 
 
3,000

 
12,000

(8) 
 

 
16.64

 
05/22/23

 
 
 
 
 
 

 
 

 
120,000

(3) 
 

 
12.93

 
05/24/24

 
 
 
 
 
 

 
 

 

 
 

 

 

 
7,583
(13) 
 
99,716
 
 
 

 
 

 

 
 

 

 

 
 
 
 
4,083
(15) 
 
53,691

David A. Metcalfe
 
50,000

 
150,000

(9) 
 

 
14.20

 
02/01/24

 
 
 
 
 
 

 
 

 

 
 

 

 

 
33,583
(13) 
 
441,616
 
 
 

 
 

 

 
 

 

 

 
 
 
 
18,083
(15) 
 
237,791

Jocelyn A. Leavitt
 
6,400

 
1,600

(10) 
 

 
29.17

 
05/24/20

 
 
 
 
 
 

 
 
6,000

 
4,000

(11) 
 

 
17.95

 
05/29/21

 
 
 
 
 
 

 
 
8,000

 
12,000

(7) 
 

 
15.99

 
06/03/22

 
 
 
 
 
 

 
 
3,000

 
12,000

(8) 
 

 
16.64

 
05/22/23

 
 
 
 
 
 

 
 

 
60,000

(3) 
 

 
12.93

 
05/24/24

 
 
 
 
 
 

 
 

 

 
 

 

 

 
7,583
(13) 
 
99,716
 
 
 

 
 

 

 
 

 

 

 
 
 
 
4,083
(15) 
 
53,691

________________________

(1)
Mr. Morefield resigned as the company's Executive Vice President and Chief Operating Officer effective April 15, 2017, after the end of the fiscal year 2017. Any options awarded to Mr. Morefield terminate and are forfeited on the date that is three months after his separation date. Any unvested restricted shares awarded to Mr. Morefield terminated and were forfeited upon his separation date.
(2)
Option was granted August 17, 2015 and vests in five equal, annual installments commencing on each of the following dates: July 1, 2016, July 1, 2017, July 1, 2018, July 1, 2019 and July 1, 2020.
(3)
Option was granted May 24, 2016 and vests in four equal, annual installments commencing one year after the grant date. Accordingly, the remaining unexercisable shares are scheduled to vest on May 24, 2017, May 24, 2018, May 24, 2019 and May 24, 2020.
(4)
Option was granted May 31, 2016 and vests in five equal, annual installments commencing one year after the grant date. Accordingly, the remaining unexercisable shares are scheduled to vest on May 31 2017, May 31, 2018, May 31, 2019, May 31, 2020 and May 31, 2021.

31


(5)
Option was granted March 1, 2016 and vests in four equal, annual installments commencing one year after the grant date. Accordingly, the remaining unexercisable shares are scheduled to vest on March 1, 2018, March 1, 2019 and March 1, 2020.
(6)
Option was granted September 25, 2012 and vests in five equal, annual installments commencing one year after the grant date. Accordingly, the remaining unexercisable shares are scheduled to vest on September 25, 2017.
(7)
Option was granted June 3, 2014 and vests in five equal, annual installments commencing one year after the grant date. Accordingly, the remaining unexercisable shares are scheduled to vest on June 3, 2017, June 3, 2018 and June 3, 2019.
(8)
Option was granted May 22, 2015 and vests in five equal, annual installments commencing one year after the grant date. Accordingly, the remaining unexercisable shares are scheduled to vest on May 22, 2017, May 22, 2018, May 22, 2019 and May 22, 2020.
(9)
Option was granted February 1, 2016 and vests in four equal, annual installments commencing one year after the grant date. Accordingly, the remaining unexercisable shares are scheduled to vest on February 1, 2018, February 1, 2019 and February 1, 2020.
(10)
Option was granted May 24, 2012 and vests in five equal, annual installments commencing one year after the grant date. Accordingly, the remaining unexercisable shares are scheduled to vest on May 24, 2017.
(11)
Option was granted May 23, 2013 and vests in five equal, annual installments commencing one year after the grant date. Accordingly, the remaining unexercisable shares are scheduled to vest on May 29, 2017 and May 29, 2018.
(12)
Restricted stock award was granted August 17, 2015 and vests in three equal, annual installments commencing one year after the grant date. Accordingly, the remaining unvested shares are scheduled to vest on July 1, 2017 and July 1, 2018.
(13)
Restricted stock award was granted December 29, 2016 and vests in four equal, annual installments commencing one year after the grant date. Accordingly, the remaining unvested shares are scheduled to vest on December 29, 2017, December 29, 2018, December 29, 2019 and December 29, 2020.
(14)
Restricted stock award was granted March 1, 2016 and vests in three equal, annual installments commencing one year after the grant date. Accordingly, the remaining unvested shares are scheduled to vest on March 1, 2017, March 1, 2018 and March 1, 2019.
(15)
Performance stock award was granted December 29, 2016 and vests in four equal, annual installments commencing one year after the grant date, subject in each case to the executive officer’s continued service and achievement of certain Company performance goals.

Option Exercises and Stock Vested During Fiscal Year Ended March 31, 2017

The following table sets forth information regarding options exercised and stock awards vested during fiscal year 2017 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
($)
 
 
 
 
 
 
 
 
 
 
Rusty Frantz
 

 
$

 
8,334

(2) 
 
$
100,758

James R. Arnold, Jr.
 

 

 
24,234

 
 
373,809

Daniel J. Morefield (1)
 

 

 

 
 

David A. Metcalfe
 

 

 

 
 

Jocelyn A. Leavitt
 

 

 

 
 


(1)
Mr. Morefield resigned as the company's Executive Vice President and Chief Operating Officer effective April 15, 2017, after the end of the fiscal year 2017.
(2)
Includes 3,131 shares cancelled on July 1, 2016 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, 2017

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

32


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
($)
 
Aggregate Withdrawals/ Distributions
($)
 
Aggregate Balance at Last Fiscal Year End
($)
 
 
 
 
 
 
 
 
 
 
 
Rusty Frantz
 
$
15,000

 
$

 
$
407

 
$

 
$
15,407

James R. Arnold, Jr.
 

 

 

 

 

Daniel J. Morefield (1)
 
76,299

 
7,699

 
(1,612
)
 

 
124,092

David A. Metcalfe
 

 

 

 

 

Jocelyn A. Leavitt
 
48,364

 
5,648

 
(2,598
)
 

 
232,351


(1)
Mr. Morefield resigned as the company's Executive Vice President and Chief Operating Officer effective April 15, 2017, after the end of the fiscal year 2017.

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

The following discussion describes and illustrates 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, 2017 termination date.

Change in Control Severance Agreements

Effective December 27, 2016, the Company entered into change of control severance agreements with each of the NEOs. Additional information on these agreements can be found in the Compensation Discussion and Analysis section of this proxy statement. Under the change in control severance agreements, if the NEO is terminated by the Company without “cause”, or terminates his or her employment for “good reason” within the two-month period before or 18-month period after a “change in control” of the Company, he or she is entitled to the following benefits:

Mr. Frantz: (i) severance equal to 150% of base salary and target bonus, (ii) 18 months of Company-paid continuation health benefits, (iii) prorated current year cash bonus based on actual performance and (iv) certain other limited benefits, including outplacement services and legal fee reimbursement.
Other NEOs: (i) severance equal to 100% of base salary and target bonus, (ii) 12 months of Company-paid continuation health benefits, (iii) prorated current year cash bonus based on actual performance and (iv) certain other limited benefits, including outplacement services and legal fee reimbursement.

Assuming a change in control followed by a qualifying termination as of March 31, 2017, our NEOs would have been eligible for the following payments under the change of control severance agreements.
Named Executive Officer
 
Severance (2)
 
Continuation of Health Benefits (3)
 
Cash Bonus (4)
 
Outplacement Services (5)
 
Legal Fee Reimbursement (5)
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Rusty Frantz
 
$
1,800,000

 
$
31,029

 
$
420,000

 
$
42,000

 
$
5,000

 
$
2,388,029

James R. Arnold, Jr.
 
960,000

 
21,045

 
168,000

 
42,000

 
5,000

 
1,232,045

Daniel J. Morefield (1)
 
960,000

 
7,068

 
192,000

 
42,000

 
5,000

 
1,218,068

David A. Metcalfe
 
960,000

 
16,143

 
192,000

 
42,000

 
5,000

 
1,227,143

Jocelyn A. Leavitt
 
751,500

 

 
133,600

 
42,000

 
5,000

 
940,450


(1)
Mr. Morefield resigned as the company's Executive Vice President and Chief Operating Officer effective April 15, 2017, after the end of the fiscal year 2017.
(2)
These amounts are calculated based on fiscal year 2017 salary and target bonus amounts, both at 100%, with the exception for Mr. Frantz, as his salary amount is calculated at 150%.

33


(3)
These amounts are calculated based on actual average monthly health coverage costs for each respective NEO for fiscal year 2017 and pro-rated 18 months for Mr. Frantz and 12 months for the other NEOs.
(4)
These amounts are actual cash bonus earned for fiscal year 2017, which ended on March 31, 2017.
(5)
The amounts in these columns represent the maximum amount of benefits that would be reimbursed to each respective NEO, upon a qualifying termination in connection with a change in control.

Restricted Stock Awards and Performance Stock Awards Made in December 2016
Effective December 29, 2016, the Company granted restricted stock awards (“RSAs”) and performance stock awards (“PSAs”) to the NEOs, intended as advances on fiscal year 2018 equity awards. In the event of a “change in control” of the Company either during the NEO’s service to the Company or within two months following an involuntary termination of the NEO without “cause”, the RSAs and PSAs are eligible for 100% accelerated vesting, but, in the case of the PSAs, only if the Company performance goals are achieved as of the change in control. The RSAs granted to Mr. Frantz and Mr. Arnold are also eligible for accelerated vesting with respect to up to 50% of the RSAs’ grant date value (reduced by the value of any shares that vest based on service) if they experience a qualifying termination of employment outside a change in control context and satisfy certain other eligibility conditions set forth in the agreements (including provision of a full release of claims). Additional information on the RSAs and PSAs can be found in the Compensation Discussion and Analysis section of this proxy statement.
Acceleration of December 2016 Restricted Stock Awards (“RSAs”) - Upon Qualifying Termination in Connection with Change in Control

Assuming a qualifying termination in connection with a change of control as of March 31, 2017, our NEOs would have been eligible for the following payments under the RSAs granted in December 2016 based on 100% accelerated vesting.
Named Executive Officer
 
Value of Accelerated RSAs (2)