##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K/A
 (AMENDMENT NO. 1)
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
 TRANSITION PERIOD FROM  TO
 Commission file number 0-22019
 HEALTH GRADES, INC.
  DELAWARE
    
    62-1623449(State or other jurisdiction
    
    (I.R.S. Employer Identification No.)of incorporation or organization)
 500 Golden Ridge Road, Suite 100
GOLDEN, CO
(Address of Principal Executive Offices)
    
    80401

(Zip Code)
   Title of each class
    
    Name of each exchange on which registeredCommon stock, $0.001 par value per share
    
    The Nasdaq Stock Market LLC
(Nasdaq Global Select Market)
   o þ
 o þ
 þ o
 þ
 
 Large Accelerated Filer o
    
    Accelerated Filer þ
    
    Non-Accelerated Filer o
    
    Smaller Reporting Company o(Do not check if a smaller reporting company)
 o þ




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##### 



Explanatory Note
    
    
    3PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    3Item 11. Executive Compensation
    
    
    4Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    15Item 13. Certain Relationships, Related Transactions and Director Independence
    
    
    17Item 14. Principal Accounting Fees and Services
    
    
    19PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    20Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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Directors of the Registrant
 Kerry R. Hicks
 Michael Beaudoin
 Mary Boland
 Leslie S. Matthews, M.D.
 John Quattrone,
  Audit Committee
  Audit Committee Financial Expert
   3




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Code of Conduct
  Stockholder Communications
  Section 16(a) Beneficial Ownership Reporting Compliance
  Compensation Committee Interlocks and Insider Participation
  
  Report of the Compensation Committee
  
 Compensation Discussion and Analysis
 Overview and History of Our Compensation Program
    4




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Compensation Objectives
   The Elements of Our Executive Compensation Program
  
    
    Base salary
    
    Annual cash incentive
    
    Equity-based awards
 Base salary
  Annual cash incentive
   5




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
    
    No payment for the annual revenue target if our actual annual revenue was less than 85% of
our annual operating budget; and no payment for the pre-tax income target if our actual
pre-tax income was less than 75% of our annual operating budget;
 
    
    A payment of 40% of the total potential incentive amount for the annual revenue target if
our actual annual revenue was greater than 85% but less than 100% of our annual operating
budget; and a payment of 40% of the total potential incentive amount for the annual pre-tax
income target if our actual pre-tax income was greater than 85% but less than 100% of our
annual operating budget;
 
    
    A payment of 70% of the total potential incentive amount for the annual revenue target if
our actual annual revenue was greater than 100% but less than 115% of our annual operating
budget; and a payment of 70% of the total potential incentive amount for the annual pre-tax
income target if our actual pre-tax income was greater than 100% but less than 115% of our
annual operating budget;
 
    
    A payment of 100% of the total potential incentive amount for the annual revenue target if
our actual annual revenue was greater than 115% of our annual operating budget; and a payment
of 70% of the total potential incentive amount for the annual pre-tax income target if our
actual pre-tax income was greater than 115% of our annual operating budget.
  Equity Compensation
   
  Post-Termination Compensation
   6




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Equity Grant Practices
  Tax Deductibility of Compensation
  Perquisites and Other Benefits
    Potential Impact on Compensation from Executive Misconduct
  Accounting for Stock-Based Compensation
 Share Based Payment 123(R)).
  7




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Summary Compensation Table
  Non-EquityStock
    
    
    Incentive Plan
    
    
    All OtherName and Principal
    
    
    
    
    
    Salary
    
    
    Awards(1)
    
    
    Compensation(2)
    
    
    Compensation(3)
    
    
    TotalPosition
    
    Year
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)Kerry Hicks
    
    
    2007
    
    
    
    328,311
    
    
    
    76,613
    
    
    
    140,500
    
    
    
    56,675
    
    
    
    602,099Chairman, President and
    
    
    2006
    
    
    
    315,683
    
    
    
    19,338
    
    
    
    130,000
    
    
    
    34,058
    
    
    
    499,079Chief Executive OfficerAllen Dodge
    
    
    2007
    
    
    
    205,000
    
    
    
    28,729
    
    
    
    35,000
    
    
    
    6,150
    
    
    
    274,879Executive Vice President
    
    
    2006
    
    
    
    189,422
    
    
    
    7,252
    
    
    
    26,000
    
    
    
    5,654
    
    
    
    228,328and Chief Financial
OfficerDavid Hicks
    
    
    2007
    
    
    
    218,400
    
    
    
    28,729
    
    
    
    35,000
    
    
    
    6,550
    
    
    
    288,679Executive Vice President
    
    
    2006
    
    
    
    214,665
    
    
    
    7,252
    
    
    
    26,000
    
    
    
    6,435
    
    
    
    254,352Sarah Loughran
    
    
    2007
    
    
    
    218,400
    
    
    
    28,729
    
    
    
    35,000
    
    
    
    6,547
    
    
    
    288,676Executive Vice President
    
    
    2006
    
    
    
    210,000
    
    
    
    7,252
    
    
    
    26,000
    
    
    
    6,283
    
    
    
    249,535Steven Wood
    
    
    2007
    
    
    
    213,200
    
    
    
    45,170
    
    
    
    35,000
    
    
    
    6,391
    
    
    
    299,761Executive Vice President
    
    
    2006
    (4)
    
    
    98,557
    
    
    
    14,503
    
    
    
    5,000
    
    
    
    1,656
    
    
    
    119,716
 (1)
    
    The amounts in the stock awards column reflect the accounting charge taken in 2007 and 2006
for outstanding unvested RSAs, and are not necessarily an indication of which executives received
the most gains from previously granted equity awards. Accounting costs are determined, as
required, under SFAS 123(R). For a more detailed discussion on the compensation chares for our
RSAs, refer to note 10 to the consolidated financial statements contained in our 2007 Annual Report
on Form 10-K filed on March 17, 2008.(2)
    
    This column represents the amounts earned by our NEOs under our annual cash incentive program
for 2007, and paid in 2008. A portion of the non-equity incentive plan compensation was paid out
to our NEOs as a discretionary bonus as follows: Kerry Hicks   $40,500; Allen Dodge  $3,000;
David Hicks  $3,000; Sarah Loughran  $3,000; and Steven Wood  $3,000.(3)
    
    For all of our NEOs except our Chief Executive Officer, this column reflects amounts that we
contributed to the accounts of the NEOs under our retirement savings plan. With respect to our
Chief Executive Officer, this column also includes a $15,000 auto allowance, $13,592 related to
home security and $21,333 paid by us with respect to a fractional ownership interest in a suite at
the Pepsi Center in Denver, Colorado. This ownership interest entitles our Chief Executive Officer
to certain seats in the suite to a number of events that are held at the Pepsi Center throughout a
calendar year. The majority of these tickets were given to our employees as a non-cash benefit.(4)
    
    Mr. Wood began his employment with us on July 10, 2006.  8




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2007 Grants of Plan-Based Awards
  All other stock
    
    
    Grant Date Fairawards: Number
    
    
    Value of Stockof shares of stock
    
    
    and OptionGrant
    
    
    or units(2)
    
    
    Awards(3)Name
    
    Date(1)
    
    
    (#)
    
    
    ($)Kerry Hicks
    
    
    7/1/2007
    
    
    
    40,000
    
    
    
    260,400Allen Dodge
    
    
    7/1/2007
    
    
    
    15,000
    
    
    
    97,650David Hicks
    
    
    7/1/2007
    
    
    
    15,000
    
    
    
    97,650Sarah Loughran
    
    
    7/1/2007
    
    
    
    15,000
    
    
    
    97,650Steven Wood
    
    
    7/1/2007
    
    
    
    15,000
    
    
    
    97,650
 (1)
    
    All awards with a grant date of July 1, 2007 were approved by our Compensation Committee.(2)
    
    This column represents the number of shares of restricted stock granted in 2007 to the NEOs.
These shares vest and become exercisable over a four year period (10% in 2008, 20% in 2009, 30% in
2010 and 40% in 2011).(3)
    
    Stock awards are shown at their grant date fair value under SFAS 123(R). The fair value of
each RSA is measured based on the closing price of our common stock on the date of grant. For a
more detailed discussion on the valuation of RSAs, refer to note 10 to the consolidated financial
statements in our 2007 Annual Report on Form 10-K filed on March 17, 2008. Outstanding Equity Awards at 2007 Year-End
   9




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##### Table of Contents



Option Awards
    
    
    Stock AwardsEquityIncentiveEquity
    
    
    PlanIncentive
    
    
    Awards:Plan Awards:
    
    
    Market orNumber of
    
    
    Market
    
    
    Number of
    
    
    Payout ValueNumber of
    
    
    
    
    
    
    
    
    
    
    Shares or
    
    
    Value of
    
    
    Unearned
    
    
    of UnearnedSecurities
    
    
    
    
    
    
    
    
    
    
    Units of
    
    
    Shares or
    
    
    Shares, Units
    
    
    Shares, UnitsUnderlying
    
    
    
    
    
    
    
    
    
    
    Stock That
    
    
    Units of
    
    
    or Other
    
    
    or OtherUnexercised
    
    
    
    
    
    
    
    
    
    
    Have Not
    
    
    Stock That
    
    
    Rights That
    
    
    Rights ThatOptions
    
    
    Option
    
    
    Option
    
    
    Been
    
    
    Have Not
    
    
    Have Not
    
    
    Have NotGrant
    
    
    Exercisable
    
    
    Exercise
    
    
    Expiration
    
    
    Vested
    
    
    Been Vested
    
    
    Vested
    
    
    VestedName
    
    Date
    
    
    (#)
    
    
    Price ($)
    
    
    Date
    
    
    (#)
    
    
    ($)
    
    
    (#)
    
    
    ($)Kerry Hicks
    
    
    4/29/99
    
    
    
    475,000
    
    
    
    0.5625
    
    
    
    4/28/0911/20/00
    
    
    
    260,000
    
    
    
    0.6250
    
    
    
    11/19/102/9/01
    
    
    
    61,719
    
    
    
    0.7500
    
    
    
    2/8/112/7/02
    
    
    
    1,493,104
    
    
    
    0.1000
    
    
    
    2/6/127/24/06
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,000
    (1)
    
    
    214,2007/24/06
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    431,348
    (2)
    
    
    2,566,5217/1/07
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,000
    (1)
    
    
    238,000Allen Dodge
    
    
    4/29/99
    
    
    
    28,000
    
    
    
    0.5625
    
    
    
    4/28/097/31/01
    
    
    
    15,500
    
    
    
    0.1700
    
    
    
    7/30/112/7/02
    
    
    
    580,000
    
    
    
    0.1000
    
    
    
    2/6/127/24/06
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,500
    (1)
    
    
    80,3257/24/06
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000
    (2)
    
    
    595,0007/1/07
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    (1)
    
    
    89,250Dave Hicks
    
    
    4/29/99
    
    
    
    200,000
    
    
    
    0.5625
    
    
    
    4/28/0911/20/00
    
    
    
    100,000
    
    
    
    0.6250
    
    
    
    11/19/102/9/01
    
    
    
    24,940
    
    
    
    0.7500
    
    
    
    2/8/112/7/02
    
    
    
    800,000
    
    
    
    0.1000
    
    
    
    2/6/127/24/06
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,500
    (1)
    
    
    80,3257/24/06
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115,000
    (2)
    
    
    684,2507/1/07
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    (1)
    
    
    89,250Sarah Loughran
    
    
    7/31/00
    
    
    
    100,000
    
    
    
    0.8750
    
    
    
    7/30/102/9/01
    
    
    
    16,369
    
    
    
    0.7500
    
    
    
    2/8/112/7/02
    
    
    
    770,000
    
    
    
    0.1000
    
    
    
    2/6/127/24/06
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,500
    (1)
    
    
    80,3257/24/06
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    157,136
    (2)
    
    
    934,9597/1/07
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    (1)
    
    
    89,250Steven Wood
    
    
    7/24/06
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,000
    (1)
    
    
    160,6509/27/06
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,000
    (2)
    
    
    178,5007/1/07
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    (1)
    
    
    89,250
 Note
    
    Vesting Schedule(1)
    
    10%/20%/30%/40% vesting per year beginning on the anniversary of the grant(2)
    
    Performance vesting in 25% increments upon achievement of:
 
    
    Annual revenues of $60 million;
 
    
    Annual revenues of $80 million;
 
    
    Operating income of $18 million and 30% operating margin; and
 
    
    Operating income of $25 million and 30% operating margin.
 Upon a change in control, grants will vest from the grant date (7/24/06):
 
    
    25% within six months of grant date;
 
    
    50% if more than six months, but less than one year of grant date;
 
    
    75% more than one year, but less than two years;
 
    
    100% more than two years from grant date; and
 
    
    100% if our stockholders receive $8.00 or more per share
  10




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Option Exercises and Stock Vested in 2007
  Stock AwardsNumber ofShares
    
    
    ValueAcquired on
    
    
    Realized onVesting(1)
    
    
    Vesting(1)Name
    
    (#)
    
    
    ($)Kerry Hicks
    
    
    4,000
    
    
    
    25,200Allen Dodge
    
    
    1,500
    
    
    
    9,450David Hicks
    
    
    1,500
    
    
    
    9,450Sarah Loughran
    
    
    1,500
    
    
    
    9,450Steven Wood
    
    
    3,000
    
    
    
    18,900
 (1)
    
    All shares above vested from July 24, 2006 RSA grant. Potential Payments upon Separation of Services
  Involuntary forGood ReasonExecutive
    
    
    
    
    
    Involuntary Not
    
    
    
    
    
    
    TerminationBenefit and
    
    Voluntary
    
    
    For Cause
    
    
    For Cause
    
    
    (Change inPayments Upon
    
    Termination
    
    
    Termination
    
    
    Termination
    
    
    Control)
    
    
    Disability
    
    
    DeathName
    
    Separation
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)Kerry Hicks
    
    Compensation:(1)Salary
    
    
    7,576
    
    
    
    417,935
    
    
    
    62,265
    
    
    
    992,479
    
    
    
    171,702
    
    
    
    7,576Incentive
Compensation
    
    
    140,500
    
    
    
    140,500
    
    
    
    140,500
    
    
    
    421,500
    
    
    
    140,500
    
    
    
    140,500Long-Term Incentive Compensation:(2)RSA
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    452,200RSA-Performance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,924,890Benefits
& Perquisites(3)Health & Welfare
Benefits
    
    
    
    
    
    
    5,175
    
    
    
    
    
    
    
    5,175Accrued Vacation Pay
    
    
    48,931
    
    
    
    48,931
    
    
    
    48,931
    
    
    
    48,931
    
    
    
    48,931
    
    
    
    48,931Allen Dodge
    
    Compensation:(4)Salary
    
    
    4,731
    
    
    
    107,231
    
    
    
    4,731
    
    
    
    107,231
    
    
    
    4,731
    
    
    
    4,731Incentive
Compensation
    
    
    35,000
    
    
    
    35,000
    
    
    
    35,000
    
    
    
    35,000
    
    
    
    35,000
    
    
    
    35,000Long-Term Incentive
Compensation:(2)RSA
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    169,575RSA-Performance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    446,250Benefits & Perquisites(5)Accrued Vacation Pay
    
    
    26,366
    
    
    
    26,366
    
    
    
    26,366
    
    
    
    26,366
    
    
    
    26,366
    
    
    
    26,366
  11




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##### Table of Contents



Involuntary forGood ReasonExecutive
    
    
    
    
    
    Involuntary Not
    
    
    
    
    
    
    TerminationBenefit and
    
    Voluntary
    
    
    For Cause
    
    
    For Cause
    
    
    (Change inPayments Upon
    
    Termination
    
    
    Termination
    
    
    Termination
    
    
    Control)
    
    
    Disability
    
    
    DeathName
    
    Separation
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)David Hicks
    
    Compensation:(1)Salary
    
    
    5,040
    
    
    
    259,840
    
    
    
    41,440
    
    
    
    660,240
    
    
    
    114,240
    
    
    
    5,040Incentive
Compensation
    
    
    35,000
    
    
    
    35,000
    
    
    
    35,000
    
    
    
    105,000
    
    
    
    35,000
    
    
    
    35,000Long-Term Incentive
Compensation:(2)RSA
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    169,575RSA-Performance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    513,188Benefits &
Perquisites(3)Health & Welfare
Benefits
    
    
    
    
    
    
    6,960
    
    
    
    
    
    
    
    6,960Accrued Vacation Pay
    
    
    16,183
    
    
    
    16,183
    
    
    
    16,183
    
    
    
    16,183
    
    
    
    16,183
    
    
    
    16,183Sarah Loughran
    
    Compensation:(6)Salary
    
    
    5,040
    
    
    
    5,040
    
    
    
    5,040
    
    
    
    5,040
    
    
    
    5,040
    
    
    
    5,040Incentive
Compensation
    
    
    35,000
    
    
    
    35,000
    
    
    
    35,000
    
    
    
    35,000
    
    
    
    35,000
    
    
    
    35,000Long-Term Incentive
Compensation:(2)RSA
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    169,575RSA-Performance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    701,219Benefits &
Perquisites(5)Accrued Vacation Pay
    
    
    19,858
    
    
    
    19,858
    
    
    
    19,858
    
    
    
    19,858
    
    
    
    19,858
    
    
    
    19,858Steven Wood
    
    Compensation:(7)Salary
    
    
    4,920
    
    
    
    106,600
    
    
    
    4,920
    
    
    
    106,600
    
    
    
    4,920
    
    
    
    4,920Incentive
Compensation
    
    
    35,000
    
    
    
    35,000
    
    
    
    35,000
    
    
    
    35,000
    
    
    
    35,000
    
    
    
    35,000Long-Term Incentive
Compensation:(2)RSA
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    249,900RSA-Performance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    133,875Benefits &
Perquisites(8)Health & Welfare
Benefits
    
    
    
    
    
    
    5,120
    
    
    
    
    
    
    
    5,120Accrued Vacation Pay
    
    
    3,948
    
    
    
    3,948
    
    
    
    3,948
    
    
    
    3,948
    
    
    
    3,948
    
    
    
    3,948
 (1)
    
    This amount represents the base salary and incentive compensation due to the NEO under the
employment agreement between us and the NEO. The salary component payment depends upon the type of
separation event (e.g., change in control, for cause termination, voluntary termination) and varies
from a minimum amount upon voluntary termination (which represents accrued salary as of December
31, 2007 related to 2007 service which had not been paid as of December 31, 2007) to a maximum of
300% of base salary upon a change in control. The incentive compensation component is dependent
upon the type of event and varies from a minimum amount (which represents the accrued incentive
compensation as of December 31, 2007 related to 2007 service which had not been paid as of December
31, 2007) to a maximum of 300% of the accrued incentive compensation.(2)
    
    The restricted stock award (RSA) represents the value of the shares that would become vested
upon a change in control, valued as of December 31, 2007. The performance restricted stock award
(RSA  Performance) represents the value of the shares that would become vested upon a change in
control as of December 31, 2007. In accordance with the terms of the RSA  Performance, because
our stock price was less than $8.00 as of December 31, 2007, 75% of the awards would vest.(3)
    
    The health and welfare benefits represent payment to be made in accordance with the NEOs
employment agreement. Accrued vacation pay represents amounts accrued for paid-time off earned,
but not yet taken, as of December 31, 2007.  12




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(4)
    
    The salary amount represents the accrued salary for Mr. Dodge as of December 31, 2007 (for
2007 service which had not been paid as of December 31, 2007) for all separation events with the
exception of an involuntary termination without cause or a change in control. For an involuntary
termination without cause or a change in control, Mr. Dodge would receive a payment equivalent to
six months of his base salary. The incentive compensation amount represents the amount accrued for
incentive compensation as of December 31, 2007 (related to 2007 incentive compensation which had
not been paid as of December 31, 2007).(5)
    
    Accrued vacation pay represents amounts accrued for paid-time off earned, but not yet taken,
as of December 31, 2007.(6)
    
    The salary and incentive compensation amounts represent the amounts accrued for salary and
incentive compensation for 2007 service for Ms. Loughran which had not yet been paid as of December
31, 2007. The incentive compensation amount represents the amount accrued for incentive
compensation as of December 31, 2007 (related to 2007 incentive compensation which had not been
paid as of December 31, 2007).(7)
    
    The salary amount represents the accrued salary for Mr. Wood as of December 31, 2007 (for 2007
service which had not been paid as of December 31, 2007) for all separation events with the
exception of an involuntary termination without cause or a change in control. For an involuntary
termination without cause or a change in control, Mr. Wood would receive a payment equivalent to
six months of his base salary. The incentive compensation amount represents the amount accrued for
incentive compensation as of December 31, 2007 (related to 2007 incentive compensation which had
not been paid as of December 31, 2007).(8)
    
    These payments would be made to Mr. Wood solely in the event of a termination on a not for
cause basis or a change in control. Accrued vacation pay represents amounts accrued for paid-time
off earned, but not yet taken, as of December 31, 2007. Employment Agreements
    Compensation of Directors
  (i)
    
    $15,000 in cash; and
 (ii)
    
    5,000 shares of restricted stock issued under our 2006 Health Grades Inc. Equity
Compensation Plan, with 50% vesting on each of the first two anniversaries of the date
of grant.
  13




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Fees Earnedor Paid in
    
    
    Stock
    
    
    OptionCash(1)
    
    
    Awards(2)
    
    
    Awards(3)
    
    
    TotalName and Principal Position
    
    
    
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)John Quattrone (4)
    
    
    2007
    
    
    
    15,000
    
    
    
    15,660
    
    
    
    
    
    
    
    30,660Chairman, Compensation CommitteeLeslie Matthews, M.D. (5)
    
    
    2007
    
    
    
    15,000
    
    
    
    15,660
    
    
    
    
    
    
    
    30,660Chairman, Nominating CommitteeMary Boland (6)
    
    
    2007
    
    
    
    15,000
    
    
    
    37,580
    
    
    
    
    
    
    
    52,580Chairperson, Audit CommitteeJ.D. Kleinke (7)
    
    
    2007
    
    
    
    15,000
    
    
    
    8,182
    
    
    
    40,464
    
    
    
    63,646Michael Beaudoin (8)
    
    
    2007
    
    
    
    7,500
    
    
    
    24,568
    
    
    
    
    
    
    
    32,068
 (1)
    
    This column represents the amount of cash compensation earned in 2007 for Board
and committee service.(2)
    
    The amounts in the stock awards column reflect the accounting charge taken in
2007 and for outstanding unvested RSAs, and are not necessarily an indication of which
directors received the most gains from previously granted equity awards. Accounting
costs are determined, as required, under SFAS 123(R). For a more detailed discussion on
how we calculate the fair value of our RSAs, refer to note 10 to the consolidated
financial statements contained in our Annual Report on Form 10-K filed on March 17,
2008.(3)
    
    The amounts in the stock awards column reflect the accounting charge taken in
2007 for outstanding stock options, and are not necessarily an indication of which
directors received the most gains from previously granted equity awards. Accounting
costs are determined, as required, under SFAS 123(R). For a more detailed discussion on
the valuation model and assumptions used to calculate the fair value of our options,
refer to note 10 to the consolidated financial statements contained in our 2007 Annual
Report on Form 10-K filed on March 17, 2008.(4)
    
    At December 31, 2007, Mr. Quattrone held options to purchase 150,000 shares of
common stock and 6,708 unvested RSAs.(5)
    
    At December 31, 2007, Dr. Matthews held 6,708 unvested RSAs.(6)
    
    At December 31, 2007, Ms. Boland held 21,708 unvested RSAs(7)
    
    At December 31, 2007, Mr. Kleinke held options to purchase 66,667 shares of
common stock and 5,000 unvested RSAs. Mr. Kleinke resigned as a director March 7, 2008.(8)
    
    At December 31, 2007, Mr. Beaudoin held 25,000 unvested RSAs. Mr. Beaudoin
joined our Board of Directors on June 27, 2007.  14




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Ownership of Our Common Stock by Certain Persons
  Number of Shares
    
    
    Percent ofName of Beneficial Owner
    
    Beneficially Owned
    
    
    Outstanding Shares (1)FMR Corp. (2)
    
    
    4,512,704
    
    
    
    19.9
    %Janus Capital Management LLC (3)
    
    
    1,900,310
    
    
    
    8.4
    %Magnetar Capital Partners LP (4)
    
    
    2,427,508
    
    
    
    10.7
    %Kerry R. Hicks (5)
    
    
    4,628,641
    
    
    
    18.5
    %David G. Hicks (6)
    
    
    1,719,098
    
    
    
    7.2
    %Sarah Loughran (7)
    
    
    1,622,467
    
    
    
    6.9
    %Allen Dodge (8)
    
    
    797,294
    
    
    
    3.4
    %Steven Wood (9)
    
    
    92,350
    
    
    
    *Leslie S. Matthews, M.D.
    
    
    117,379
    
    
    
    *John Quattrone (10)
    
    
    158,416
    
    
    
    *Mary Boland
    
    
    28,416
    
    
    
    *Michael Beaudoin (11)
    
    
    104,240
    
    
    
    *All directors and executive officers as a group (9 persons) (12)
    
    
    9,218,301
    
    
    
    33.2
    %
 *
    
    Less than one percent.(1)
    
    Applicable percentage of ownership is based on 22,692,396 shares of common stock outstanding
on April 21, 2008. Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and means voting or investment power with respect to
securities. Shares of common stock issuable upon the exercise of stock options exercisable
currently or within 60 days of April 21, 2008 (unless otherwise noted) are deemed outstanding
and to be beneficially owned by the person holding such option for purposes of computing such
persons percentage ownership but are not deemed outstanding for the purpose of computing the
percentage ownership of any other person. Except for shares held jointly with a persons
spouse or subject to applicable community property laws, or as indicated in the footnotes to
this table, each stockholder identified in the table possesses sole voting and investment
power with respect to all shares of common stock shown as beneficially owned by such
stockholder. Unless otherwise provided, all stockholders address is 500 Golden Ridge Road,
Suite 100, Golden, Colorado 80401.(2)
    
    FMR Corp. has sole dispositive power with respect to 4,512,704 shares. Fidelity Management &
Research Company (Fidelity), a wholly-owned subsidiary of FMR Corp. and a registered
investment advisor, beneficially owns 4,512,704 of these shares as a result of acting as an
investment adviser to various registered investment companies. Edward C. Johnson 3d and FMR
Corp., through their control of Fidelity and the funds each has sole power to dispose of
4,512,704 shares owned by the Funds. Members of the family of Edward C. Johnson 3d, Chairman
of FMR Corp., are the predominant owners, directly or through trusts, of Series B shares of
common stock of FMR Corp., representing 49% of the voting power of FMR Corp. The Johnson
family group and all other Series B shareholders of FMR Corp. have entered into a
shareholders voting agreement under which all Series B shares will be voted in accordance
with the majority vote of Series B shares. Accordingly, through their ownership of voting
common stock and the execution of the shareholders voting agreement, members of the Johnson
family may be deemed, under the Investment Company Act of 1940, to form a controlling group
with respect to FMR Corp. Neither FMR Corp., nor Edward C. Johnson 3d has the sole power to
vote or direct the voting of shares owned directly by the Fidelity Funds, which power resides
with the Funds Board of Trustees. Fidelity carries out the voting of the shares under
written guidelines established by the Funds Board of Trustees. The address of each of
Fidelity Management & Research Company, FMR Corp., Fidelity Management Trust Company and
Edward C. Johnson 3d is 82 Devonshire Street, Boston, Massachusetts 02109. The information in
this note is based solely on a Schedule 13G/A filed with the SEC on February 14, 2008 by FMR
Corp. and Edward C. Johnson 3d.(3)
    
    This information is based solely upon a Schedule 13G/A filed with the SEC on February 14,
2008 by Janus Capital Management LLC (Janus Capital) and its affiliate, Janus Venture Fund.
Janus Capital provides investment advice to Janus Venture Fund, an investment company
registered under the Investment Act of 1940. Shares beneficially owned include 1,640,185
shares held by Janus Venture Fund and shares owned held by Enhanced Investment Technologies
LLC (Enhanced) and Perkins, Wolf, McDonnell and Company (Perkins Wolf). Both Enhanced and
Perkins Wolf are indirectly owned by Janus Capital. The address for Janus Capital and Janus
Venture Fund is 151 Detroit Street, Denver, Colorado, 80206.  15




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(4)
    
    This information is based solely upon a Schedule 13G/A filed with the SEC on February 13,
2008 by Magnetar Capital Partners LP (Magnetar Capital Partners), and its affiliates
Magnetar Financial LLC (Magnetar Financial), Supernova Management LLC (Supernova
Management) and Alec N. Litowitz (Mr. Litowitz). Mr. Litowitz is the manager of Supernova
Management, which is the general partner of Magnetar Financial and Magnetar Investment
Management LLC (Magnetar Investment Management). Each of Magnetar Financial and Magnetar
Investment Managers are registered investment advisers under the Investment Advisers Act of
1940. Magnetar Financial serves as investment advisor to Magnetar Capital Master Fund, Ltd.
Magnetar Investment Management serves as investment advisor to certain managed accounts of
Magnetar Capital Master Fund, Ltd., Magnetar SGR Fund LP, Magnetar SGR Fund, Ltd., and certain
managed accounts. The address for Magnetar Capital Partners, Magnetar Financial, Supernova
Management and Mr. Litowitz is 1603 Orrington Avenue, 13th Floor, Evanston, Illinois.(5)
    
    Includes 10,000 shares of common stock held by The David G. Hicks Irrevocable Childrens
Trust and 2,289,823 shares underlying stock options. Does not include 60,000 shares of common
stock held by The Hicks Family Irrevocable Trust, for which shares Mr. Hicks disclaims
beneficial ownership.(6)
    
    Includes 1,124,940 shares underlying stock options.(7)
    
    Includes 886,369 shares underlying stock options.(8)
    
    Includes 623,500 shares underlying stock options.(9)
    
    Includes 13,750 shares held by The Wood Family Trust.(10)
    
    Includes 150,000 shares underlying stock options.(11)
    
    Includes 2,240 shares held by immediate family.(12)
    
    Includes 5,074,632 shares underlying stock options.  16




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Indemnification of our Chief Executive Officer and Derivative Complaint
     th
    17




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th
   18




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th th
   Review, Approval or Ratification of Transactions with Related Parties
  Board of Directors Independence
  
             19




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EXHIBITNUMBER
    
    DESCRIPTION3.1
    
    
    Form of Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to our Annual Report on Form 10-K for the year ended December 31, 2001)3.2
    
    
    Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to our amendment to our Quarterly Report on Form 10-Q/A
for the quarter ended September 30, 2004, filed on May 2, 2005)10.1*+
    
    
    2006 Equity Compensation Plan (incorporated by reference to our Proxy Statement, filed on June 26, 2006)10.1.2*+
    
    
    Form of Grant Notice of Restricted Stock Award (incorporated by reference to Exhibit 10.1.2 to our Form 10-K for the year
ended December 31, 2006)10.3*
    
    
    Employment Agreement dated as of April 1, 1996 by and between Specialty Care Network, Inc. and Kerry R. Hicks (incorporated
by reference to Exhibit 10.3 to our Registration Statement on Form S-1(File No. 333-17627))10.4.1*
    
    
    Employment Agreement between Specialty Care Network, Inc. and David Hicks, dated March 1, 1996 (incorporated by reference to
Exhibit 10.8 to our Registration Statement on Form S-1(File No. 333-17627))10.4.2*
    
    
    Amendment to Employment Agreement between Specialty Care Network, Inc. and David Hicks, dated December 2, 1997. (incorporated
by reference to Exhibit 10.8.1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1997)10.5
    
    
    Building Lease between GR Development One, LLC, Landlord and Health Grades, Inc. Tenant. (incorporated by reference to
exhibit 10.5 to our Form 10-K for the year ended December 31, 2005)10.5.1+
    
    
    Building Lease Amendment (incorporated by reference to exhibit 10.5.1 to our Form 10-K for the year ended December 31, 2006)10.6*+
    
    

Directors Compensation (incorporated by reference to Exhibit 10.6 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2007)10.7*
    
    
    Steven D. Wood Offer of Employment Letter (incorporated by reference to exhibit 99.1 to our Form 8-K, filed on July 10, 2006)21.1+
    
    

List
of subsidiaries of Registrant (incorporated by reference to Exhibit 21.1
to our Annual Report on Form 10-K for the fiscal year ended December 31, 2007)23.1+
    
    

Consent
of Grant Thornton LLP (incorporated by reference to Exhibit 23.1
to our Annual Report on Form 10-K for the fiscal year ended December 31, 2007)31.1++
    
    
    Certification of the Chief Executive Officer pursuant to Rule 15d-14(a) under the Securities Exchange Act.31.2++
    
    
    Certification of the Chief Financial Officer pursuant to Rule 15d-14(a) under the Securities Exchange Act.32.1++
    
    
    Certification of the Chief Executive Officer pursuant to Rule 15d-14(b) under the Securities Exchange Act.32.2++
    
    
    Certification of the Chief Financial Officer pursuant to Rule 15d-14(b) under the Securities Exchange Act.
 *
    
    Constitutes a management contract, compensatory plan or arrangement required to be filed as an exhibit to this report.+
    
    Previously filed.++
    
    Filed herewith.  20




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HEALTH GRADES, INC.Date: April 29, 2008
    By:
    /s/   Allen DodgeAllen DodgeChief Financial Officer, Secretary and Treasurer
(Principal Financial and Accounting Officer)  21




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EXHIBITNUMBER
    
    DESCRIPTION3.1
    
    
    Form of Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to our Annual Report on Form 10-K for the year ended December 31, 2001)3.2
    
    
    Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to our amendment to our Quarterly Report on Form 10-Q/A
for the quarter ended September 30, 2004, filed on May 2, 2005)10.1*+
    
    
    2006 Equity Compensation Plan (incorporated by reference to our Proxy Statement, filed on June 26, 2006)10.1.2*+
    
    
    Form of Grant Notice of Restricted Stock Award (incorporated by reference to Exhibit 10.1.2 to our Form 10-K for the year
ended December 31, 2006)10.3*
    
    
    Employment Agreement dated as of April 1, 1996 by and between Specialty Care Network, Inc. and Kerry R. Hicks (incorporated
by reference to Exhibit 10.3 to our Registration Statement on Form S-1(File No. 333-17627))10.4.1*
    
    
    Employment Agreement between Specialty Care Network, Inc. and David Hicks, dated March 1, 1996 (incorporated by reference to
Exhibit 10.8 to our Registration Statement on Form S-1(File No. 333-17627))10.4.2*
    
    
    Amendment to Employment Agreement between Specialty Care Network, Inc. and David Hicks, dated December 2, 1997. (incorporated
by reference to Exhibit 10.8.1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 1997)10.5
    
    
    Building Lease between GR Development One, LLC, Landlord and Health Grades, Inc. Tenant. (incorporated by reference to
exhibit 10.5 to our Form 10-K for the year ended December 31, 2005)10.5.1+
    
    
    Building Lease Amendment (incorporated by reference to exhibit 10.5.1 to our Form 10-K for the year ended December 31, 2006)10.6*+
    
    

Directors Compensation (incorporated by reference to Exhibit 10.6 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2007)10.7*
    
    
    Steven D. Wood Offer of Employment Letter (incorporated by reference to exhibit 99.1 to our Form 8-K, filed on July 10, 2006)21.1+
    
    

List
of subsidiaries of Registrant (incorporated by reference to Exhibit 21.1
to our Annual Report on Form 10-K for the fiscal year ended December 31, 2007)23.1+
    
    

Consent
of Grant Thornton LLP (incorporated by reference to Exhibit 23.1
to our Annual Report on Form 10-K for the fiscal year ended December 31, 2007)31.1++
    
    
    Certification of the Chief Executive Officer pursuant to Rule 15d-14(a) under the Securities Exchange Act.31.2++
    
    
    Certification of the Chief Financial Officer pursuant to Rule 15d-14(a) under the Securities Exchange Act.32.1++
    
    
    Certification of the Chief Executive Officer pursuant to Rule 15d-14(b) under the Securities Exchange Act.32.2++
    
    
    Certification of the Chief Financial Officer pursuant to Rule 15d-14(b) under the Securities Exchange Act.
 *
    
    Constitutes a management contract, compensatory plan or arrangement required to be filed as an exhibit to this report.+
    
    Previously filed.++
    
    Filed herewith.  22