UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

(RULE 14a-101)

 

INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934

 

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o  Soliciting Material Pursuant to § 240.14a-12

 

EMAGEON 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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1200 Corporate Drive
Suite 200
Birmingham, Alabama 35242

 

          , 2008

 

Dear Fellow Stockholder:

 

I cordially invite you to attend Emageon’s 2008 Annual Meeting of Stockholders, which will be held at our offices in Birmingham, Alabama, at 11:00 a.m. Central Daylight Time on Monday, June 23, 2008. The formal meeting notice and proxy statement are enclosed.

 

At this year’s Annual Meeting, stockholders will be asked to elect three directors, to ratify the appointment of Ernst & Young LLP to serve as Emageon’s independent registered public accounting firm for the year ending December 31, 2008, and to transact any other business that may properly come before the meeting.

 

This year’s Annual Meeting is a particularly important one and YOUR vote is extremely important.

 

As you may be aware, earlier this year Davenport Partners, L.P. notified us of its intent to nominate three candidates for election to our Board of Directors at the Annual Meeting and to solicit proxies for these nominees in opposition to the three nominees that our Board and Governance Committee have selected. Davenport Partners is part of a group of New York-based activist hedge funds that are controlled by Oliver Press Partners, LLC and its principals, Augustus K. Oliver and Clifford Press.

 

Our Board of Directors unanimously recommends that you vote FOR the Board’s three nominees using the enclosed WHITE proxy card. We strongly urge you not to sign or return any proxy card that Oliver Press Partners or its affiliates may send to you. Even if you have previously signed and returned a proxy card sent to you by Oliver Press Partners, you can revoke it by signing, dating and returning the enclosed WHITE proxy card in accordance with the instructions in the enclosed proxy statement.

 

Whether or not you plan to attend, it is important that your shares be represented and voted at the Annual Meeting. We urge you to vote promptly by mailing a completed WHITE proxy card in the enclosed postage-paid envelope, or by voting electronically over the Internet or by telephone. If you will be voting over the Internet or by telephone, please review the voting instructions included with this mailing. Timely voting by any of these methods will ensure your representation at the Annual Meeting.

 

We look forward to seeing you June 23.

 

Sincerely,

 

Charles A. Jett, Jr.

Chairman of the Board, President and

Chief Executive Officer

 

NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 23, 2008

 

NOTICE IS HEREBY GIVEN that the 2008 Annual Meeting of Stockholders (the “Annual Meeting”) of Emageon Inc., a Delaware corporation (the “Company”), will be held at the principal office of the Company at 1200 Corporate Drive, Suite 200, Birmingham, Alabama 35242, at 11:00 A.M., CDT, Monday, June 23, 2008, for the following purposes, as more fully described in the Proxy Statement accompanying this notice:

 

1. To elect three directors to serve on our Board of Directors until the expiration of their terms and/or until their successors are duly elected and qualified. The nominees for election are Arthur P. Beattie, Fred C. Goad, Jr. and Charles A. Jett, Jr.

 

2. To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2008.

 

3. To transact such other business as may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof.

 

Only stockholders of record at the close of business on April 24, 2008 are entitled to notice of and to vote at the Annual Meeting and any adjournment(s) or postponement(s) thereof.

 

Our Board of Directors unanimously recommends that you vote FOR the Board’s three director nominees using the enclosed WHITE proxy card.

 

Whether or not you plan to attend in person, it is important that your shares be represented and voted at the Annual Meeting. If you are a holder of record, you can vote your shares by completing and returning the enclosed WHITE proxy card or by voting electronically over the Internet or by telephone. If your shares are held in “street name” (that is, your shares are held in the name of a brokerage firm, bank, or other nominee), you should receive from that institution, in lieu of a WHITE proxy card, an instruction form for voting by mail, and you may also be eligible to vote your shares electronically. Your shares may also be voted in person at the Annual Meeting.

 

BY ORDER OF THE BOARD OF DIRECTORS

 

John W. Wilhoite

Corporate Secretary

 

Birmingham, Alabama

          , 2008

TABLE OF CONTENTS

 

EMAGEON INC.

 

 

PROXY STATEMENT
FOR THE 2008 ANNUAL MEETING OF STOCKHOLDERS
JUNE 23, 2008

 

The enclosed proxy is solicited on behalf of the Board of Directors (the “Board”) of Emageon Inc., a Delaware corporation (the “Company”), for use at the Company’s 2008 Annual Meeting of Stockholders to be held Monday, June 23, 2008 (the “Annual Meeting”), and at any adjournment(s) or postponement(s) thereof. The Annual Meeting will be held at 11:00 a.m. Central Daylight Time, at the principal office of the Company at 1200 Corporate Drive, Suite 200, Birmingham, Alabama 35242. This Proxy Statement, the enclosed form of proxy, and the attached Notice of the Annual Meeting will be mailed, or made available electronically for stockholders who have elected to access these materials over the Internet, on or about          , 2008, to all stockholders entitled to vote at the Annual Meeting.

 

On February 14, 2008, Davenport Partners, L.P. gave the Company written notice of its intent to nominate three candidates for election to the Board of Directors at the Annual Meeting and to solicit proxies for these nominees in opposition to the three nominees that your Board and Governance Committee have selected. Davenport Partners is part of a group of New York-based activist hedge funds that are controlled by Oliver Press Partners, LLC and its principals, Augustus K. Oliver and Clifford Press.

 

Your Board of Directors has not approved or endorsed the nominees of Oliver Press Partners and strongly urges you not to sign or return any proxy card that Oliver Press Partners or its affiliates may send to you. Your Board of Directors unanimously recommends that you vote FOR the Board’s three nominees, Arthur P. Beattie, Fred C. Goad, Jr. and Charles A. Jett, Jr., using the enclosed WHITE proxy card.

 

 

 

MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING

 

PROPOSAL 1:

 

ELECTION OF DIRECTORS

be voted for such other person or persons as may be designated by the Board. As of the date of this Proxy Statement, the Board is not aware of any such nominee who is unable or will decline to serve as a director.

 

The following is a brief description of the business experience and educational background of each of the Board’s nominees for director as well as the Company’s other directors whose terms will continue after the Annual Meeting.

 

Arthur P. Beattie has served as a member of the Board since August 2004 and serves as the Chairman of the Board’s Audit Committee. Mr. Beattie has served as Executive Vice President, Chief Financial Officer and Treasurer of Alabama Power Company, a subsidiary of Southern Company, since February 2005. Mr. Beattie previously served as Vice President and Comptroller of Alabama Power Company beginning in 1997. Mr. Beattie is a director of several non-profit entities.

 

Fred C. Goad, Jr. has served as a member of the Board since June 2004. Mr. Goad is a partner in Voyent Partners LLC, a private equity firm that he co-founded in August 2001. Mr. Goad served as Co-Chief Executive Officer of the Transaction Services Division of Healtheon/WebMD Corporation (now Emdeon Corporation) from 1999 to 2001. From 1985 to 1997, he served as Chief Executive Officer, and subsequently, from 1997 to 1999, as Co-Chief Executive Officer and Chairman, of ENVOY Corporation, a provider of electronic transaction processing services for the health care industry, which was acquired by WebMD in 1999. Mr. Goad is a director of Performance Food Group Company, Luminex Corp., and several private companies.

 

Charles A. Jett, Jr. has served as Chairman of the Board and Chief Executive Officer since January 2000, and was appointed President in March 2006. From 1997 through 1999, Mr. Jett was Vice President and General Manager of Walker Interactive Systems, Inc. (now Elevon, Inc.), a provider of enterprise financial and management software. He joined Walker Interactive upon its acquisition of Revere, Inc., a software company, where Mr. Jett’s position prior to the acquisition was Chairman, President, and Chief Executive Officer. Mr. Jett joined Revere, Inc. in 1988 as Vice President of Sales, was promoted to President in 1991, and assumed the Chairman and CEO positions in 1994. Prior to his tenure at Revere, Mr. Jett was national sales manager of Shoptrac Data Collection Systems, Inc. Mr. Jett is a director of several non-profit entities.

 

Roddy J.H. Clark has served as a member of the Board since June 2000. Mr. Clark has been a managing partner of Redmont Venture Partners, Inc., a private equity firm concentrating in technology markets, since 1998. Mr. Clark is a director of several private companies.

 

Douglas D. French has served as a member of the Board since October 2006. Since July 2007, Mr. French has been a Managing Director of Sante Health Ventures, a venture capital firm focused on investments in early-stage companies developing innovative new medical technologies and healthcare services. Mr. French was previously a Principal of JD Resources, LLC, a private equity firm that provides strategic advisory and venture capital services for early stage healthcare companies. From January 2000 through May 2004, Mr. French served as President and Chief Executive Officer of Ascension Health, the nation’s largest not-for-profit healthcare system and an Emageon customer. Mr. French previously served as Executive Vice President and Chief Operating Officer of Ascension Health from 1999 to 2000. Prior to joining Ascension Health, Mr. French served, from 1998 to 1999, as Executive Vice President and Chief Operating Officer of Daughters of Charity National Health System, and from 1994 to 1998, as President and Chief Executive Officer of The Central Indiana Health System St. Vincent Hospitals and Health Systems. Mr. French has over twenty-five years of professional experience in hospital administration.

 

John W. Thompson has served as a member of the Board since May 2003. Mr. Thompson has served as President of Thompson Investment Management, LLC, a mutual fund investment advisor, since January 2004. Previously, he served as President of Thompson Plumb & Associates, LLC, a mutual fund investment advisor, from 1984 to January 2004 and as its Treasurer from 1993 to January 2004.

 

Mylle H. Mangum has served as a member of the Board since June 2004 and serves as the Chairman of the Board’s Governance Committee. Mrs. Mangum is Chairman and Chief Executive Officer of IBT

Enterprises, LLC, a retail bank design, build and consulting firm, since October 2003. She was Chief Executive Officer of True Marketing Services LLC, a marketing services company, from June 2002 through October 2003. She was Chief Executive Officer of MMS Incentives, LLC, a private equity company concentrating on high-tech marketing solutions, from 1999 to 2002. She previously served as Senior Vice President of Carlson Wagonlit Travel Holdings, Inc. and Executive Vice President of Holiday Inn Worldwide, and has held many management positions with General Electric. Mrs. Mangum is a director of Barnes Group Inc., Haverty Furniture Companies, Inc., Collective Brands, Inc. (formerly, Payless ShoeSource, Inc.), and Matria. She is also a director of privately-owned Decatur First Bank.

 

Hugh H. Williamson, III has served as a member of the Board since January 2000, as Lead Director since May 2007 and is the Chairman of the Board’s Compensation Committee. Mr. Williamson has served as Chairman of the Board and Chief Executive Officer of XeDAR Corporation (XDRC) since January 2007. Previously he was Chief Executive Officer of Cherry Creek Capital Partners, LLC, a private financial services and venture capital firm, from January 1999 until May of 2007. He also served as Manager of Humanade, LLC, a private equity technology and real estate firm from 1995 until May of 2007. From July of 1992 until June of 2007 he served as Chief Executive Officer of Schutte & Koerting, Inc. (formerly Ketema, Inc.) an industrial manufacturer of advanced materials, components, and equipment, formerly an AMEX listed company that was taken private in 1994. Mr. Williamson is also a director of several private technology companies.

 

Election of the nominees for director requires the affirmative vote of a plurality of the votes cast by the stockholders entitled to vote at the Annual Meeting.

 

The Board of Directors unanimously recommends a vote FOR the election of each of Arthur P. Beattie, Fred C. Goad, Jr. and Charles A. Jett, Jr. Unless authority to do so is withheld, the proxy holders named in each WHITE proxy card will vote the shares represented thereby FOR the election of each of these nominees.

 

PROPOSAL 2:

 

RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS

 

The Audit Committee has appointed the firm of Ernst & Young LLP (“Ernst & Young”), our independent registered public accounting firm in 2007, to serve in the same capacity for the year ending December 31, 2008, and has requested that the Board submit this appointment to our stockholders for ratification at the Annual Meeting.

 

A representative of Ernst & Young is expected to be present at the Annual Meeting, will have the opportunity to make a statement if he or she desires to do so, and will be available to respond to appropriate questions from stockholders.

 

The affirmative vote of the holders of shares of common stock having a majority of the votes cast by the holders of all of the shares of common stock present or represented and voting at the Annual Meeting is required to ratify the appointment of Ernst & Young. Abstentions will have the same effect as votes against the proposal, and broker non-votes will have no effect on the outcome of voting on the proposal.

 

In the event that stockholders do not ratify the appointment of Ernst & Young, the appointment will be reconsidered by the Audit Committee. Even if the appointment is ratified, the Audit Committee in its discretion may direct the appointment of a different independent accounting firm at any time during the year if

the Audit Committee believes that such a change would be in the best interests of the Company and its stockholders.

 

The Board of Directors unanimously recommends a vote FOR the ratification of the appointment of Ernst & Young to serve as the Company’s independent registered public accounting firm for the year ending December 31, 2008. Unless otherwise instructed, the proxy holders named in each WHITE proxy card will vote the shares represented thereby FOR the ratification of the appointment of Ernst & Young.

 

The Board held eight meetings during the year ended December 31, 2007. Each director attended 75% or more of the aggregate number of (i) meetings of the Board and (ii) meetings of those committees of the Board on which he or she served during 2007. Members of the Board and its committees also consulted informally with management from time to time and acted at various times by written consent without a meeting during 2007.

 

We encourage our directors to attend our annual stockholder meetings. Two of our eight directors attended the 2007 annual meeting of stockholders.

 

The Board has established a standing Audit Committee, Compensation Committee, and Governance Committee. Each committee has a written charter that is reviewed annually and revised as appropriate. A copy of each committee’s charter is available on our website at www.emageon.com. Additionally, a copy of each charter may be obtained, free of charge, by writing to the Corporate Secretary, Emageon Inc., 1200 Corporate Drive, Suite 200, Birmingham, Alabama 35242.

 

Audit Committee.  The Board has determined that each of the current members of the Audit Committee, consisting of Mr. Beattie (Chairman), Mr. French, and Mr. Thompson, are “independent” under the NASDAQ Marketplace Rules and satisfy the other requirements of the NASDAQ Marketplace Rules and rules of the Securities and Exchange Commission (“SEC”) regarding audit committee membership. The Board has also determined that Mr. Beattie qualifies as an “audit committee financial expert” under applicable SEC rules and regulations governing the composition of audit committees and satisfies the “financial sophistication” requirements of the NASDAQ Marketplace Rules. The Committee held eight meetings during 2007.

 

The Audit Committee assists the Board in fulfilling its oversight responsibility relating to (i) the integrity of the Company’s financial statements, (ii) the Company’s compliance with legal and regulatory requirements, (iii) the independent registered auditor’s qualifications and independence, (iv) the compensation and performance of the Company’s independent registered public accounting firm, (v) the functioning of the Company’s systems of internal accounting and financial reporting controls, (vi) the portions of the Code of Ethics that relate to the integrity of accounting and financial reporting, and (vii) review and approval of any related party transactions. The Committee’s procedures for receipt, retention, and treatment of complaints regarding accounting, internal accounting and financial controls or auditing matters, and the confidential anonymous submission by employees of concerns regarding questionable accounting and auditing practices may be found on our website at www.emageon.com.

 

Our independent registered public accounting firm has unrestricted access to, and reports directly to, the Audit Committee. The Audit Committee has selected Ernst & Young LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2008, and the Board is recommending that stockholders ratify that appointment at the Annual Meeting.

 

The Report of the Audit Committee for 2007 may be found on page 31 of this Proxy Statement.

Compensation Committee.  The Board has determined that each of the current members of the Compensation Committee, consisting of Mr. Williamson (Chairman), Mr. Clark, and Mrs. Mangum, are “independent” under the current NASDAQ Marketplace Rules. The Compensation Committee held seven meetings during 2007.

 

The Compensation Committee assists the Board in fulfilling its oversight responsibility regarding (i) executive compensation, including that of the Chief Executive Officer, including salaries, bonuses, and equity grants, (ii) evaluation of the performance of executive officers, (iii) approval of stock options, restricted stock, restricted stock units, and other equity grants to executive officers of the Company, and (iv) approval of the adoption, amendment, or termination of executive compensation plans and other employee plans in which executive officers may participate.

 

The Report of the Compensation Committee for 2007 may be found on page 19 of this Proxy Statement.

 

Governance Committee.  The Board has determined that each of the current members of the Governance Committee, consisting of Mrs. Mangum (Chairman), Mr. Clark, and Mr. Goad, are “independent” under the current NASDAQ Marketplace Rules. The Committee held seven meetings during 2007.

 

The Governance Committee assists the Board in fulfilling its oversight responsibility regarding (i) the size, composition, and structure of the Board, (ii) the structure, responsibilities, and membership of the Board’s committees, (iii) criteria for the selection of qualified directors and nominees for Board membership for recommendation to the Board and stockholders, (iv) nominees for the Board submitted by the stockholders in accordance with established procedures for such nominations, (v) the resignation or termination of directors, (vi) director compensation, benefits, tenure, and retirement, (vii) evaluation of Board and committee performance, and (viii) policies, practices, and procedures regarding the Board’s oversight of management, and the Board’s self-governance.

 

The Board believes that it should be composed of directors with varied, complementary backgrounds, and that directors should, at a minimum, exhibit proven leadership capabilities and experience at a high level of responsibility within their chosen fields. Directors should possess the highest personal and professional ethics, integrity and values and should be committed to representing the long-term interests of the stockholders.

 

When considering a candidate for director, the Committee takes into account a number of factors, including the following:

 

 

Prior to nominating a sitting director for re-election at an annual meeting of stockholders, the Committee will consider the director’s past attendance at, and participation in, meetings of the Board and its committees and the director’s formal and informal contributions to the work of the Board and its committees.

 

When seeking candidates for director, the Committee may solicit suggestions from incumbent directors, management, stockholders, and others, and may use the services of third party search firms to assist in identifying appropriate candidates. After an initial evaluation of a candidate, the Committee will interview that candidate and may ask the candidate to meet with management. If the Committee believes a candidate will be a valuable addition to the Board, it may recommend to the Board the nomination of that candidate.

 

The Governance Committee will consider candidates for director recommended by any stockholder who beneficially owns shares representing more than 5% of our then-outstanding shares of common stock and who has beneficially owned those shares for more than two years at the time of submission. The Committee will evaluate such recommendations applying its regular criteria for nominees and may consider the additional information set forth below. Eligible stockholders wishing to recommend a candidate for nomination as a director are requested to send the recommendation in writing to the Chairman, Governance Committee, Emageon Inc., 1200 Corporate Drive, Suite 200, Birmingham, Alabama, 35242. A stockholder recommendation to the Governance Committee must contain the following information:

 

 

In connection with its evaluation of director candidates, the Governance Committee may request additional information from the candidate or the recommending stockholder and may request an interview with the candidate. The Committee has discretion to decide which individuals, if any, to recommend for nomination as directors.

 

Oliver Press Partners has notified us that it intends to solicit proxies for three dissident nominees in opposition to the three nominees that your Board and Governance Committee have selected. The Governance Committee considered and evaluated the three nominees of Oliver Press Partners in accordance with the foregoing criteria. In addition to reviewing the information provided by Oliver Press Partners with respect to those persons, certain of our independent directors, as well as certain of our officers, met with and held numerous conversations with representatives of Oliver Press Partners. As a result of this process, our Governance Committee believes that the nominees of Oliver Press Partners do not satisfy the criteria established by the Board for its director nominees, and the Board has determined not to endorse the nominees of Oliver Press Partners.

 

Other than as described above, no candidates for director nominations were submitted to the Governance Committee by any stockholder in connection with the election of directors at the Annual Meeting.

 

The Board believes that good corporate governance is paramount in ensuring that Emageon is managed for the long-term benefit of its stockholders. In establishing this governance, the Board and management have looked to suggestions by various authorities in corporate governance, the practices of other public companies,

the provisions of the Sarbanes-Oxley Act of 2002, various rules of the SEC, and the NASDAQ Marketplace Rules.

 

The Board has adopted a Code of Business Ethics and Conduct and charters for each of the Board committees that together reflect the corporate governance principles that guide its actions with respect to, among other things, the composition of the Board and its decision making processes, Board meetings and involvement of management, the Board’s standing committees and procedures for appointing members of the committees, and its performance evaluation of the Chief Executive Officer. The Code of Business Ethics and Conduct applies to all directors, officers, and employees, including the Chief Executive Officer, Chief Financial Officer, principal accounting officer, and other senior financial officers. The Code of Business Ethics and Conduct, as applied to our principal financial officers, constitutes its “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act and is its “code of conduct” within the meaning of the NASDAQ Marketplace Rules. We intend to disclose future amendments to its Code of Ethics, if any, and any waivers of its provisions required to be disclosed under the rules of the SEC or the NASDAQ Marketplace Rules, at the same location on our website.

 

We maintain a corporate governance section on our website that contains copies of our principal governance documents. The corporate governance section may be found at www.emageon.com under “Investor — Corporate Governance.” This section contains the following documents, which are also available in print to any stockholder who requests a copy in writing to Emageon Inc., 1200 Corporate Drive, Suite 200, Birmingham, Alabama, 35242:

 

 

Stockholders and other interested parties may send communications to the Board of Directors, the Lead Independent Director, the non-management directors as a group, or any specific director by mailing the communication to the Board of Directors, c/o Corporate Secretary, Emageon Inc., 1200 Corporate Drive, Suite 200, Birmingham, Alabama, 35242. Emageon’s Corporate Secretary will forward the correspondence to the Chairman of the Governance Committee unless it is addressed to an individual director or the Lead Independent Director, in which case the correspondence will be forwarded accordingly. The Board of Directors has requested that certain items unrelated to its duties be excluded, such as solicitations and advertisements, junk mail, product-related communications, job referral materials such as resumes, and surveys.

 

The Compensation Committee currently consists of Mr. Williamson (Chairman), Mr. Clark, and Mrs. Mangum. None of the members of the Committee were officers or employees of the Company during 2007 or at any other time. During 2007 no executive officer of the Company served as a member of the board of directors or compensation committee of any other entity whose executive officer(s) served on the Company’s Board or Compensation Committee.

 

Our Corporate Governance Guidelines provide that a majority of our Board of Directors and all members of the Audit, Compensation, and Governance Committees of the Board shall be independent. The Board makes an annual determination as to the independence of each member in accordance with the current standards for “independence” under NASDAQ Marketplace Rules and federal securities laws. Before the meeting at which

this review occurs, each director is asked to supply the Governance Committee and the full Board with complete information about the director’s relationship with the Company and with its senior management and their affiliates. Senior management provides additional information about transactions, relationships or arrangements between the Company and the directors or parties related to the directors. The Governance Committee reviews this information and makes its own determinations of the independence of each director. It reports its findings and the reasons for those findings to the full Board, which then makes the final determinations of director independence. In April 2008, the Board determined that, except for Mr. Jett, who is the Chairman, Chief Executive Officer, and President of the Company, all of its directors and nominees for election at the Annual Meeting are independent under these standards.

 

Policy on Related Party Transactions

 

We recognize that transactions between the Company or its subsidiaries and any of its directors or executive officers can present potential or actual conflicts of interest. Accordingly, as a general matter it is our preference to avoid such transactions. Nevertheless, we recognize that there are circumstances where such transactions may be in, or not inconsistent with, the best interests of the Company. Therefore, we have adopted a formal policy that requires our Audit Committee to review and, if appropriate, approve or ratify any such transactions. Pursuant to the policy, the Audit Committee will review any transaction in which the Company is or will be a participant and the amount involved exceeds $120,000, and in which any of the Company’s directors, executive officers or 5% stockholders had, has or will have a direct or indirect material interest. After its review, the Audit Committee will only approve or ratify those transactions that are in, or are not inconsistent with, the best interests of the Company and its stockholders.

 

Ascension Health

 

From January 2001 to May 2004, Douglas D. French, a member of our Board of Directors, served as the President and Chief Executive Officer of Ascension Health. Ascension Health is the Company’s largest customer, accounting for 17% of the Company’s total revenue during 2007. In addition, from May 2005 to October 2006, the Company was party to a consulting arrangement with French Management Group, LLC, a limited liability company founded and managed by Mr. French. Under the consulting arrangement, French Management Group received a monthly retainer of $5,000 from the Company in exchange for certain management and consulting services. The consulting arrangement was terminated prior to the appointment of Mr. French to the Board on October 16, 2006, and neither French Management Group nor the Company have any continuing obligations related thereto.

 

The following table sets forth certain information known to us with respect to the beneficial ownership of our common stock as of March 31, 2008 by (i) each member of our Board of Directors, (ii) our named executive officers, (iii) all of our directors and officers as a group, and (iv) any person who is known by us to be the beneficial owner of more than 5% of our common stock as defined in accordance with Rule 13d-3 under the Exchange Act.

 

 

 

 

 

 

 

 

Members of our Board of Directors, our executive officers, and persons who beneficially own more than 10% of our outstanding common stock, if any, are subject to the requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended, which requires them to file reports with the SEC with respect to their ownership and changes in their ownership of our common stock. Based solely upon (i) the copies of Section 16(a) reports received by us from such persons for their transactions in 2007 in our common stock and their common stock holdings, and (ii) the written representations received from such persons that no annual Form 5 reports were required to be filed by them for 2007, we believe that all reporting requirements under Section 16(a) for such year were met in a timely manner by our directors and executive officers, and by greater than 10% owners of our common stock, except that Robert W. Grubb filed two late reports with respect to awards of stock options in February 2007 and August 2007. These awards were reported to the SEC on April 30, 2008.

 

This Compensation Discussion and Analysis section addresses the following topics: (i) the members and role of the Compensation Committee of the Board of Directors; (ii) the process by which executive compensation is set; (iii) the Company’s compensation philosophy; (iv) the components of the Company’s executive compensation program; (v) executive compensation decisions for 2007; and (vi) certain executive compensation decisions for 2008.

 

In this Proxy Statement, the individuals whose compensation is reported in the “Summary Compensation Table” are referred to as the “named executive officers” and in this “Compensation Discussion and Analysis” section, the terms, “we,” “our,” “us,” and the “Committee” refer to the Compensation Committee.

 

The Compensation Committee

 

Committee Members and Independence.  Mr. Williamson (Chairman), Mrs. Mangum, and Mr. Clark are the current members of the Committee. Mr. Williamson is also the Company’s Lead Independent Director. Each member of the Committee qualifies as an independent director under the NASDAQ Marketplace Rules.

Role of the Committee.  The Committee administers the compensation program for the named executive officers and certain key employees of the Company and makes all related decisions. The Committee also administers the Company’s equity incentive plans. The Committee ensures that the total compensation paid to the named executive officers is fair, reasonable and competitive. In 2006, the Committee enlisted the services of Mercer Human Resource Consulting, an internationally recognized compensation consulting firm, to provide additional information for its evaluation of the competitiveness of the compensation packages of the Company’s named executive officers. The Committee operates under a written charter adopted by the Board. The charter is available at www.emageon.com.

 

The fundamental responsibilities of the Committee are:

 

 

Committee Meetings.  The Compensation Committee meets as often as necessary to perform its duties and responsibilities. The Committee held seven meetings during 2007 and has held four meetings during 2008. The Committee typically meets with the Chief Executive Officer and also meets in executive session without management.

 

The Compensation-Setting Process

 

The Committee meets in executive session each year to evaluate the performance of the named executive officers and certain key employees, to determine their incentive bonuses for the prior fiscal year, to set their base salaries for the next calendar year, and to consider and approve any grants to them of equity incentive compensation.

 

Although many compensation decisions are made in the fourth and first quarters, the compensation planning process continues throughout the year. Compensation decisions are designed to promote the Company’s fundamental business objectives and strategy. Business and succession planning, evaluation of management performance and consideration of the business environment are year-round processes.

 

Management plays a significant role in the compensation-setting process. The most significant aspects of management’s role are:

 

 

The Chief Executive Officer also participates in Committee meetings at the Committee’s request to provide:

 

 

Executive Compensation Philosophy

 

The Company bases its executive compensation program on a pay-for-performance philosophy. The Company believes in rewarding executives based on individual performance and aligning the executives’ interests with those of the stockholders with the ultimate objective of improving stockholder value. To that end, the Committee believes that executive compensation packages provided by the Company to its executives should include both cash and stock-based compensation that reward performance. The Committee has not adopted any formal or informal policy for allocating compensation between long-term and short-term, between cash and non-cash or among the different possible forms of non-cash compensation.

 

The Committee seeks to attract, retain and motivate key executives and to reward executives for value creation. The individual judgments made by the Committee are subjective and are based largely on the Committee’s perception of each executive’s contribution to both past performance and the long-term growth potential of the Company. Therefore, a substantial portion of executive officers’ compensation is determined by each executive officer’s contribution to the growth of the Company’s revenue and earnings per share.

 

The Committee also believes that total compensation and accountability should increase with position and responsibility. Consistent with this philosophy, total compensation is higher for individuals with greater responsibility and greater ability to influence the Company’s targeted results and strategic initiatives. Typically, as position and responsibility increase, a greater portion of the named executive officer’s total compensation is performance-based pay.

 

In addition, our compensation methods focus management on achieving annual performance in a manner that supports and ensures the Company’s long-term success and profitability. The Committee believes that stock options and restricted stock units issued under the Company’s equity compensation plans create long-term incentives that align the interests of management with the interests of long-term stockholders.

 

Finally, while the Company’s overall compensation levels must be sufficiently competitive to attract talented leaders, the Committee believes that compensation should be set at responsible levels. The Company’s executive compensation programs are intended to be consistent with its cost control strategies.

 

2007 Compensation

 

Executive Summary.  The primary components of total compensation for the Company’s named executive officers during fiscal year 2007 were base salary and equity incentive compensation. The overall compensation decisions made for fiscal 2007 for the named executive officers were as follows:

 

 

Base Salary.  On an annual basis the Committee determines the base salary for each of the named executive officers. In determining base salaries, the Committee considers the executive’s qualifications and experience, scope of responsibilities, the goals and objectives established for the executive, the executive’s past performance, internal pay equity, the tax deductibility of base salary and cash incentive payments and the extent to which the Company’s earnings were affected by the executive’s actions. The minimum levels of some of these base salaries are mandated by employment agreements with the named executive officers (which are described in more detail below under the heading “Additional Discussion of Material Items in Summary Compensation Table and Grant of Plan Based Awards Table — 2007”). The relative amounts of the base salary

and bonus of the named executive officers are set at levels so that a significant portion of the total compensation that such executive can earn is performance-based pay. The Committee believes that base salaries are an important part of the Company’s executive compensation program because they provide the named executive officers with a steady income stream that is not contingent upon the Company’s overall performance.

 

The amount of base salary is largely determined based on the subjective judgment of the Committee without the use of a formula, taking into account the factors described above. In determining the base salary of the named executive officers, the Committee may informally assess salaries paid to executives in comparable industries and refer to surveys of compensation data for similar positions with similar companies. The base salaries in 2007 for the named executive officers are set forth below in the “Summary Compensation Table.”

 

Cash Bonus.  The Company utilizes annual cash bonuses to reward the named executive officers for their performance and the performance of the Company during the prior year. The Company utilizes an informal performance-based annual bonus program whereby the Committee approves a target bonus for each named executive officer as a percentage of base salary. The named executive officer may earn his bonus based on the achievement of financial goals set by the Committee. Additional details regarding the Company financial goals and related bonus levels set by the Committee for 2007 are set forth under the heading “Additional Discussion of Material Items in Summary Compensation Table and Grant of Plan Based Awards Table — 2007” below. No cash bonus payments were made to named executive officers with respect to fiscal 2007.

 

Equity Incentives.  We consider equity-based awards to be an important part of the Company’s executive compensation program. Stock options, restricted stock awards (including restricted stock units), and other equity-based awards provide the named executive officers with a strong link to the Company’s long-term performance, promote an ownership culture, and more closely align the interests of the named executive officers with those of the Company’s stockholders.

 

The named executive officers are eligible to receive stock options and restricted stock awards under the Emageon Inc. 2005 Equity Incentive Plan. This plan provides the Committee with broad discretion to fashion the terms of awards to provide eligible participants with such stock-based incentives as the Committee deems appropriate. It permits the issuance of awards in a variety of forms, including non-qualified stock options and incentive stock options, stock appreciation rights, restricted stock awards (including restricted stock units) and performance shares.

 

In determining the number of options and restricted stock awards to be granted to named executive officers, and the frequency of such grants, the Committee takes into account the executive’s title, scope of responsibility, ability to affect the profitability of the Company, the executive’s performance and the value of stock options and restricted stock awards in relation to other elements of total compensation. The Company also believes that revenue and stock price appreciation are useful measures of management’s effectiveness in creating value for the Company’s stockholders. Therefore, the Company’s revenue and stock price appreciation over the applicable performance measurement periods are also taken into account when determining the number of options and restricted stock awards to be granted to executives. These factors are weighed by the Committee taking into account the overall goals of its equity-based award program.

 

The Company grants all stock options and restricted stock units based on the fair market value of its common stock as of the date of grant. The exercise price for stock option grants is determined by reference to the closing price per share on the NASDAQ Global Market at the close of business on the date of grant.

 

Option and restricted stock awards under the compensation programs discussed above are made at regular or special Compensation Committee meetings. The effective date for such grants is the date of such meeting, or such future date as the Committee may specify. The Company may also make grants of equity incentive awards at the discretion of the Committee or the Board of Directors in connection with the hiring of new executive officers and other employees.

 

During 2007, the named executive officers received options to purchase an aggregate of 299,650 shares and 30,000 restricted stock units under the Company’s 2005 Equity Compensation Plan. Most of those awards

were made in February 2007, and also in connection with Mr. Perkins’ appointment as our Chief Operating Officer in December 2007. For a more complete description of the individual awards, see the “Grants of Plan Based Awards — 2007” table below.

 

Perquisites and Other Personal Benefits Compensation.  The Company provides named executive officers with perquisites and other personal benefits that the Company and the Committee believe are reasonable and consistent with its overall compensation program to better enable the Company to attract and retain superior employees for key positions. The Committee periodically reviews the levels of perquisites and other personal benefits provided to named executive officers. The amounts shown in the Summary Compensation Table under the heading “All Other Compensation” represent the value of Company matching contributions to the executive officers’ 401(k) Plan accounts, the value of certain life insurance benefits, and club memberships. Except as shown in the Summary Compensation Table, executive officers did not receive any other perquisites or other personal benefits or property.

 

Accounting for Stock-Based Compensation.  Effective January 1, 2006, the Company began accounting for stock-based payments, including its 2005 Equity Incentive Plan, in accordance with the requirements of Statement of Financial Accounting Standards No. 123 (Revised), “Share-Based Payment” (“FAS 123R”).

 

Other Compensation.  The named executive officers are entitled to the same benefits that are otherwise available to all employees. Benefits which are available to all employees generally include company-paid basic group term life insurance and basic accidental death and dismemberment insurance, and an employer match of eligible compensation that employees invest in their 401(k) Plan accounts.

 

2008 Compensation Decisions

 

The following table summarizes the Committee’s 2008 base salary decisions for our executive officers in 2008. As a result of the Company’s failure to achieve the fiscal 2007 performance metrics established by the Committee in March 2007, no increases were made in base salaries for the named executive officers for fiscal 2008.

 

 

To the Stockholders of Emageon Inc.:

 

The Compensation Committee has submitted the following report for inclusion in this Proxy Statement:

 

Our Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this Proxy Statement with management. Based on our Committee’s review of and the discussions with management with respect to the Compensation Discussion and Analysis, our Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, and in the Company’s Proxy Statement for its 2008 Annual Meeting of Stockholders, for filing with the SEC.

 

Notwithstanding anything to the contrary set forth in any of the Company’s previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that incorporate future filings, including the Company’s Annual Report on Form 10-K, as amended, or its Proxy Statement for its 2008 Annual Meeting of Stockholders, in whole or in part, the foregoing Compensation Committee Report shall not be incorporated by reference into any such filings.

The foregoing report is provided by the following directors, who constitute the Committee:

 

COMPENSATION COMMITTEE

 

Hugh H. Williamson, III (Chairman)
Roddy J.H. Clark
Mylle H. Mangum

 

The following table provides certain summary information concerning the compensation earned for services rendered in all capacities to the Company for the fiscal years ended December 31, 2007 and 2006, by our named executive officers.

 

 

 

 

 

The following table set forth information on non-equity incentive plans and grants of equity awards to our named executive officers in fiscal 2007.

 

 

 

 

The Company’s executive compensation policies and practices, pursuant to which the compensation set forth in the Summary Compensation Table was paid or awarded, and pursuant to which the awards set forth in the Grant of Plan Based Awards Table — 2007 were made, are described above under “Compensation Discussion and Analysis.” A summary of certain material terms of the Company’s compensation plans and arrangements is set forth below.

 

Employment Agreements of Named Executive Officers

 

Charles A. Jett, Jr. and Chris E. Perkins.  Mr. Jett, Chairman of the Board, Chief Executive Officer and President, and Mr. Perkins, Chief Operating Officer, have employment agreements with the Company. The term of Mr. Jett’s employment agreement is two years and the term of Mr. Perkins’s employment agreement is one year. The terms of the agreements automatically renew on a daily basis unless notice is given by the Company or by the executive to cease the automatic renewal.

 

Pursuant to the terms of the agreements, each of these executive officers is entitled to a base annual salary, subject to annual increase as recommended by the Compensation Committee, and is eligible for an annual targeted cash bonus equal to a percentage of annual salary. Target bonuses are paid if in the judgment of the Compensation Committee certain target levels of revenue and earnings are achieved and if certain other criteria are met. In addition, these executives are eligible for the same employee benefits, including health, life, disability, dental, and retirement benefits, as are available to all employees of the Company.

 

W. Randall Pittman and Grady O. Floyd.  Mr. Pittman, the Company’s former Chief Financial Officer and Treasurer, and Mr. Floyd, the Company’s former Chief Operating Officer, are parties to employment agreements with the Company. The term of Mr. Pittman’s employment agreement was one year, the term of Mr. Floyd’s employment agreement was 18 months, and the agreements otherwise contained terms with respect to salary, bonus and benefits similar to those set forth in the employment agreements of Messrs. Jett and Perkins. The employment agreements contain certain rights and obligations, including non-competition and confidentiality obligations on the part of the former executive and indemnification obligations on the part of the Company, that continued following the termination of the executive’s employment.

 

On February 20, 2008, the Company and Mr. Pittman entered into a Severance Agreement and General Release with respect to the termination of Mr. Pittman’s employment, which termination was effective March 31, 2008, and on January 14, 2008, the Company and Mr. Floyd entered into a Severance Agreement and General Release with respect to the termination of Mr. Floyd’s employment, which termination was effective December 31, 2007. The terms of these severance agreements are described in further detail under the heading “Potential Payments Upon Termination or Change in Control” below.

 

Robert W. Grubb.  The Company is party to a letter agreement with Mr. Grubb, dated September 11, 2006, regarding severance payments to be made to Mr. Grubb in the event that his employment is terminated other than for cause or as a result of a change in control of the Company. The terms of these severance arrangements are described in more detail under the heading “Potential Payments Upon Termination or Change in Control” below.

 

2005 Equity Incentive Plan

 

The Board of Directors adopted the Emageon Inc. 2005 Equity Incentive Plan in January 2005. The plan gives the Compensation Committee broad discretion to fashion the terms of awards to provide eligible participants with such equity-based incentives as the Compensation Committee deems appropriate. It permits the issuance of awards in a variety of forms, including non-qualified stock options and incentive stock options, restricted stock, restricted stock units, stock appreciation rights, and performance shares.

Cash Bonus Program

 

The Company utilizes a performance-based annual bonus program whereby the Committee approves a target bonus for each named executive officer (and certain other employees) as a percentage of base salary, with the bonus payable if the Company reaches certain financial performance metrics and the executive meets certain performance objectives. Additional detail regarding the program is set forth under the heading “Compensation Discussion and Analysis” above.

 

For 2007, the Compensation Committee established two performance metrics for this bonus plan: (i) $136 million in Company revenue, and (ii) earnings per share of $.24 (before acquisition-related charges). In addition, the Compensation Committee determined that the target cash incentive amount for which Mr. Jett would be eligible would be 63% of his base salary, and the target cash incentive amounts for which the Company’s other named executive officers would be eligible would be 45% of the executive’s base salary. One-half of the cash incentive amount would be payable to the named executive officer if the Company achieved the total revenue target, and one-half would be payable if the Company achieved the earnings per share target. No cash incentive would be paid in the event the Company’s performance fell below both the revenue target and the earnings per share target. The Company did not achieve either the revenue performance metric or the earnings per share target; thus, no non-equity cash incentive bonus payments were made to named executive officers for 2007.

 

For 2006, the Compensation Committee established two performance metrics for this bonus plan: (i) $122-125 million in Company revenue, and (ii) earnings per share of $.02 (before acquisition-related charges). In addition, the Compensation Committee determined that the target cash incentive amount for which Mr. Jett would be eligible would be 50% of his base salary, and the target cash incentive amounts for which the Company’s other named executive officers would be eligible would range from 33% to 40% of the executive’s base salary. One-half of the cash incentive amount would be payable to the named executive officer if the Company achieved the total revenue target, and one-half would be payable if the Company achieved the earnings per share target. No cash incentive would be paid in the event the Company’s performance fell below both the revenue target and the earnings per share target. The Company achieved the revenue performance metric, but did not achieve the earnings per share target; thus, non-equity cash incentive bonus payments were made to executives at 50% of target bonus range.

 

The amounts of the target bonuses for each named executive officer are set forth in the “Grants of Plan-Based Awards Table — 2007” above, and the actual cash bonus payments made to the named executive officers for 2006 and 2007 are set forth in the “Summary Compensation Table” above.

 

Sales Incentive Compensation Plan

 

The Company agreed to a sales incentive compensation plan with Mr. Grubb for 2006 and 2007 that provided for payment of quarterly and annual incentive compensation equal to a percentage of new sales bookings by the Company’s sales team, subject to achievement of certain minimum bookings targets and certain minimum annual revenue targets.

 

Defined Contribution Benefit Plan

 

The Company has established a 401(k) plan for all eligible employees pursuant to Section 401(k) of the Internal Revenue Code. Prior to 2006, the Company made no contributions to this plan. Effective January 1, 2006, the Company began matching employee contributions to the plan at a rate of 50% of employee contributions up to a maximum of 3% of the employee’s annual salary. The Company’s aggregate contributions to the plan for all participating employees for the years ended December 31, 2007 and 2006 were $295,938 and $437,532, respectively.

 

The following table sets forth information on stock options and stock awards held by the named executive officers at December 31, 2007. The market value of the stock awards is based upon the closing market price for the Company’s common stock as of December 31, 2007, the last trading day in 2007, which was $4.03.

 

 

 

 

 

The following table provides information, for the named executive officers, on stock option exercises during 2007, including the number of shares acquired upon exercise and the value realized.

 

 

 

 

The Company is party to employment agreements with certain of its named executive officers. These employment agreements address, among other things, compensation and benefits that would be paid to each of the named executive officers if his employment is terminated for various reasons, including termination for cause or without cause, and termination in connection with a change in control of the Company.

 

Recently, the Company entered into severance agreements with two of its named executive officers, W. Randall Pittman and Grady O. Floyd. These severance agreements address, among other things, the compensation and benefits payable to each of these named executive officers in connection with the termination of his employment.

 

In addition, certain of the Company’s equity-based incentive plans and the award agreements under those plans call for compensation to be provided under certain circumstances in connection with the termination of a named executive officer’s employment or a change in control of the Company.

 

Potential Payments — Charles A. Jett, Jr., Chris E. Perkins and W. Randall Pittman

 

Assuming that a termination event or change in control had occurred on December 31, 2007, the value of potential payments and benefits payable to each of Messrs. Jett, Perkins and Pittman is set forth in the following tables. Additional information regarding these potential payments, as well as potential payments to certain of the Company’s other named executive officers in connection with a termination event or change in control, is provided following these tables.

 

Information regarding payments and benefits payable to Mr. Pittman in connection with a termination event or change in control is included in the following tables because he was an executive officer of the Company as of December 31, 2007. However, Mr. Pittman resigned his positions as Chief Financial Officer and Treasurer effective as of March 31, 2008. In connection with the termination of his employment, Mr. Pittman entered into a severance agreement pursuant to which he will receive the benefits provided for

under the terms of his employment agreement with the Company in the event of a termination without “cause.” The terms of Mr. Pittman’s severance agreement are described in further detail under the heading “Severance Agreements” below.

 

The price per share of the Company’s common stock used for purposes of the following calculations is the closing market price on the NASDAQ Global Market as of December 31, 2007, the last trading day in 2007, which was $4.03. The tables exclude (i) amounts accrued through December 31, 2007 that would be paid in the normal course of continued employment, such as accrued but unpaid salary and earned annual bonus for 2007, (ii) vested account balances in our contributory retirement plan that are generally available to all of the Company’s U.S. salaried employees, and (iii) any amounts to be provided under any arrangement that does not discriminate in scope, terms, or operation in favor of named executive officers and that is available generally to all salaried employees. Actual amounts to be paid can only be determined at the time of such executive’s termination.

 

Charles A. Jett, Jr.

 

 

 

 

Chris E. Perkins

 

 

 

 

W. Randall Pittman

 

 

 

 

Employment and Related Agreements

 

Charles A. Jett, Jr. and Chris E. Perkins.  The Company’s employment agreements with Messrs. Jett and Perkins address the rights and obligations of the Company in connection with the termination of the executive’s employment in different situations. Under each agreement:

 

 

Each of the employment agreements provides for tax protection in the form of a gross up payment to reimburse the executive for any excise tax under Internal Revenue Code Section 4999 as well as any additional income and employment taxes resulting from such reimbursement. Code Section 4999 imposes a 20% non-deductible excise tax on the recipient of an “excess parachute payment” and Code Section 280G disallows the tax deduction to the payor of any amount of an excess parachute payment that is contingent on a change in control. Additionally, each of the employment agreements contains non-compete, non-solicitation, confidentiality and related provisions covering the term of employment and, post-termination, for the longer of the severance period or one year.

 

Under the employment agreements, the definition of “cause” includes (i) the willful and continued breach of duties by the executive, (ii) willfully engaging in illegal conduct or gross misconduct that is demonstrably and materially injurious to the Company, (iii) material breach by the executive of the employment agreement, (iv) breach by the executive of the non-solicitation, non-compete or confidentiality provisions in the employment agreement, and (v) conviction of a felony or serious misdemeanor involving moral turpitude, theft, or dishonesty.

 

Under the employment agreements, the definition of “good reason” includes (i) a material reduction in the executive’s duties or responsibilities, (ii) a reduction in the executive’s base salary or target bonus, (iii) the relocation of the executive’s office or the Company’s headquarters to a location more than 35 miles away from its present location, and (iv) material breach by the Company of the employment agreement. In addition, under Mr. Jett’s employment agreement, “good reason” includes the failure by the Company to maintain a benefit program that is material to the executive’s overall compensation, and Mr. Jett may terminate his employment for any reason during specified periods following a “change in control” of the Company.

 

Mr. Perkins’ Restricted Stock Unit Award Agreement and Stock Option Agreement also address the rights and obligations of the Company in connection with the termination of Mr. Perkins’ employment in different situations.

 

 

Robert W. Grubb.  The Company’s severance letter agreement with Mr. Grubb provides that if his employment is terminated for any reason other than for “cause,” or is terminated in connection with a change in control of the Company, Mr. Grubb will be entitled to receive a lump sum payment equal to six months of his then-current base salary. Assuming that Mr. Grubb’s employment was terminated on December 31, 2007, by the Company other than for cause or in connection with a change in control of the Company, Mr. Grubb would have been entitled to receive a payment of $92,500.

 

Under the severance letter agreement, “cause” is defined to include (i) insubordination, (ii) any act or omission that is, or is likely to be, injurious to the Company or its business reputation, (iii) dishonesty, fraud, malfeasance, gross negligence, or misconduct, (iv) failure to satisfactorily perform duties or follow the policies, procedures, and rules of the Company, and (v) arrest, indictment for, or conviction of, or entry of a plea of guilty or no contest to, a felony or crime involving moral turpitude.

 

Severance Agreements

 

W. Randall Pittman and Grady O. Floyd.  Each of Mr. Pittman’s and Mr. Floyd’s employment agreements with the Company contain provisions relating to the rights and obligations of the Company in connection with the termination of his employment in different situations similar to those set forth in the employment agreements of Messrs. Jett and Perkins. Mr. Pittman resigned his positions as Chief Financial Officer and Treasurer effective as of March 31, 2008, and Mr. Floyd resigned his position as Chief Operating Officer of the Company effective as of December 6, 2007 (although he remained employed by the Company through December 31, 2007). In connection therewith, each of Mr. Pittman and Mr. Floyd entered into a Severance Agreement and General Release with the Company. Under the severance agreements, the former executive received all base salary accrued through the effective date of his termination (less all applicable statutory withholdings and deductions) and the following other benefits, which are the benefits provided for under the terms of his employment agreement with the Company in the event of a termination without “cause”:

 

W. Randall Pittman

 

 

 

 

Grady O. Floyd

 

 

 

 

In addition, under each severance agreement, all outstanding stock options and restricted stock units held by the former executive became fully vested as of the date of termination.

 

Under the severance agreements, the former executive also agreed to a general release of the Company for all claims through the date of the agreement, and the Company agreed to release the former executive from all claims based on his employment with the Company.

 

Change in Control and Termination Provisions of the Company’s Other Benefit Plans

 

2005 Equity Incentive Plan.  Under the terms of the Company’s 2005 Equity Incentive Plan, unless otherwise provided in a restricted stock unit, employment or other agreement, if one of the named executive officers becomes disabled, his restricted stock units will become fully vested and nonforfeitable, but if he dies while actively employed by the Company or his employment is terminated for any other reason, all unvested restricted stock units are forfeited.

 

The following table sets forth the compensation earned by or awarded to each director who is not an employee of the Company and also served on the Company’s Board of Directors in 2007. Mr. Jett, the only employee director of the Company, receives no additional cash compensation for his service as a director. Information regarding the compensation awarded Mr. Jett for his service as an employee is shown under “Summary Compensation Table” in this Proxy Statement.

 

Non-Employee Director Compensation Table — 2007

 

 

 

 

Director Compensation

 

Directors of the Company receive both cash compensation and equity compensation.

 

Cash Compensation.  For the year ended December 31, 2007, and subsequent years, the Board has approved cash compensation to be paid non-employee directors as follows:

 

 

Equity Compensation.  Under the Company’s 2005 Non-Employee Director Stock Incentive Plan (the “Director Plan”), the Compensation Committee of the Board, or other committee designated by the Board, may grant to the group of non-employee directors a maximum of 500,000 shares of the Company’s common stock in the form of non-qualified stock options, stock appreciation rights, restricted stock, or restricted stock units. The Committee has the discretion to determine the terms and conditions of the awards, including the type, number of shares, duration, conditions of exercise, and consequences of a director’s termination of service or a change in control of the Company. The Committee may amend or terminate the Director Plan and may amend outstanding awards provided that no such amendment will adversely affect the rights and obligations of a non-employee director without his or her consent. All options are granted at the fair market value of the Company’s stock on the date of grant.

 

The Director Plan provides for an automatic award of stock options to each non-employee director each year on the day following the annual meeting of stockholders, and for the award of stock options to each person first elected as a director on a date other than the annual meeting date. The Director Plan also allows the administering committee to make discretionary grants to non-employee directors. For the year ended December 31, 2007, and subsequent years, the Board approved the automatic award to non-employee directors of an option for 7,500 shares of common stock on the day following the annual meeting of stockholders in 2007.

 

The following sets forth information regarding the Company’s equity compensation plans as of December 31, 2007:

 

 

 

 

Notwithstanding anything to the contrary set forth in any of our previous or future filings under the Securities Act of 1933 or the Securities Exchange Act of 1934 that might incorporate future filings by reference, including this Proxy Statement, in whole or in part, the following report of the Audit Committee shall not be deemed to be incorporated by reference into any such filings and shall not otherwise be deemed filed under such acts.

 

The Audit Committee of the Board of Directors of the Company is currently composed of three members and acts under a written charter adopted and approved by the Board of Directors in January 2005, which is available on our website at www.emageon.com. The current members of the Audit Committee are Mr. Beattie (Chairman), Mr. French and Mr. Thompson. The current members of the Audit Committee are independent directors, as defined under the NASDAQ Marketplace Rules, and those independence requirements contemplated by Rule 10A-3 under the Exchange Act.

 

The Audit Committee is responsible for reviewing the Company’s financial reporting process, its systems of internal controls, the audit process and compliance with laws and regulations. Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal control. In this context, the Audit Committee has met and held discussions with management and the Company’s independent registered public accounting firm. The Audit Committee also has the authority and responsibility to select, evaluate and, when it deems it to be appropriate, replace the independent registered public accounting firm.

 

The Audit Committee has met and held discussions with management and the independent registered public accounting firm. Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles, and the Audit Committee has reviewed and discussed the consolidated financial statements with management and Ernst & Young LLP, the Company’s independent registered public accounting firm. The Audit Committee discussed with the independent registered public accounting firm matters required to be discussed by Statement on Auditing Standards No. 61 Communications with Audit Committees, as amended.

 

The Company’s independent registered public accounting firm also provided to the Audit Committee the written disclosures and letter required by Independence Standards Board Standard No. 1 Independence

Discussions with Audit Committees, and the Audit Committee discussed with the independent registered public accounting firm that firm’s independence.

 

Based upon the Audit Committee’s discussion with management and the independent registered public accounting firm and the Audit Committee’s review of the representation of management and the report of the independent registered public accounting firm to the Audit Committee, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, filed with the Securities and Exchange Commission.

 

By the Audit Committee:

 

Arthur P. Beattie, Chairman
Douglas D. French
John W. Thompson

 

The following table presents the aggregate fees billed for the indicated services performed by Ernst & Young LLP during the years ended December 31, 2007 and 2006:

 

 

Audit fees.  Audit fees consist of fees billed by Ernst & Young LLP for professional services rendered in connection with the audit of our annual consolidated financial statements and the review of interim consolidated financial statements included in our quarterly reports on Form 10-Q.

 

Audit related fees.  Audit related fees consist of fees billed for professional services that are reasonably related to the performance of the audit or review of our consolidated financial statements but not reported under “Audit fees”.

 

Tax fees and all other fees.  There were no fees billed by Ernst & Young LLP for tax or other services in 2006 and 2007.

 

Our Audit Committee has determined that all non-audit services provided by Ernst & Young LLP are compatible with maintaining Ernst & Young’s LLP audit independence.

 

Under its charter, our Audit Committee must pre-approve all engagements of our independent registered public accounting firm. Any proposed services exceeding pre-approved cost parameters also require specific pre-approval. The Audit Committee has delegated to its Chairman the authority to evaluate and approve service engagements on behalf of the full Committee in the event a need arises for specific pre-approval between Committee meetings.

 

In the event a stockholder desires to have a proposal considered for presentation at the 2009 Annual Meeting of Stockholders and included in the Company’s proxy statement and form of proxy card used in connection with that meeting, the proposal must be forwarded in writing to the Secretary of the Company at the Company’s principal executive offices so that it is received no later than           , 2008. Any such proposal must comply with the requirements of Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended.

 

In addition, for any proposal or nomination for director that a stockholder wishes to present at the 2009 Annual Meeting, regardless of whether the stockholder is seeking to have such proposal included in the Company’s proxy statement, notice as required by the Company’s bylaws must be received by the Secretary of the Company at the Company’s principal executive offices no later than           , 2009; if such notice is not timely received, the matter or nomination will not be considered at the 2009 Annual Meeting. Notwithstanding the foregoing, if the number of directors to be elected to the Board of Directors of the Company is increased and there is no public announcement by the Company naming all of the nominees for director or specifying the size of the increased Board of Directors on or before           , 2009, a stockholder’s notice of a nomination for director at the 2009 Annual Meeting will be considered timely, but only with respect to nominees for any new positions created by such increase, if it is delivered to the Secretary at the principal executive offices of the Company not later than the close of business on the 10th day following the day on which such public announcement is first made by the Company.

 

A copy of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, as filed with the SEC on March 7, 2008 and amended on April 29, 2008, has been mailed concurrently with this Proxy Statement to all stockholders entitled to notice of and to vote at the Annual Meeting. Stockholders may also obtain a copy of the Form 10-K and any of our other SEC reports free of charge from the SEC website at www.sec.gov or from our website at www.emageon.com, or by writing to the Company at 1200 Corporate Drive, Suite 200, Birmingham, Alabama 35242. The 2007 Annual Report on Form 10-K and information contained on our website, other than this Proxy Statement, are not considered proxy solicitation material and are not incorporated by reference herein.

 

 

The Company and its Board know of no other matters that will be presented for consideration at the Annual Meeting. If any other business properly comes before the Annual Meeting, it is the intention of the proxy holders to vote the shares they represent as the Board may recommend. Discretionary authority with respect to such other business is expressly granted by the completion of the enclosed proxy card or voting instruction form. The proxy holders shall vote in their discretion on any procedural matters that may come before the Annual Meeting.

 

BY ORDER OF THE BOARD OF DIRECTORS

 

John W. Wilhoite
Corporate Secretary

 

Birmingham, Alabama

          , 2008

 

General Information Regarding Participants

 

The Company’s directors, director nominees and certain of its officers and employees are, under SEC rules, considered to be “participants” in our solicitation of proxies from stockholders in connection with the Annual Meeting. Each such participant, along with his or her business address, principal occupation, the name and principal business and address of each corporation or organization in which such occupation is carried out, and the number of equity securities of the Company that he or she beneficially owns, is listed in the following table.

 

 

 

 

 

Information Regarding Certain Transactions in Company Securities by Participants

 

The following table sets forth information regarding purchases and sales during the past two years of shares of the Company’s common stock by each “participant” identified above. Except as set forth below or as otherwise disclosed in the attached Proxy Statement, none of the purchase price or market value of those shares is represented by funds borrowed or otherwise obtained for the purpose of acquiring or holding such securities. To the extent that any part of the purchase price or market value of any of those shares is represented by funds borrowed or otherwise obtained for the purpose of acquiring or holding such securities, the amount of the indebtedness as of the latest practicable date is set forth below. If those funds were borrowed or obtained otherwise than pursuant to a margin account or bank loan in the regular course of business of a bank, broker or dealer, a description of the transaction and the parties is also set forth below.