<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] 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 0-7416
SHARED MEDICAL SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-1704148
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
51 Valley Stream Parkway
Malvern, Pennsylvania 19355
(Address of principal executive offices) (Zip Code)
(610) 219-6300
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
On October 31, 1995, there were 23,235,201 shares of Common Stock outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
SHARED MEDICAL SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEET
----------------------------------
<TABLE>
<CAPTION>
September 30 December 31
1995 1994
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments............. $ 21,786,000 $ 21,249,000
Accounts receivable, net of reserve of
$5,190,000 in 1995 and $5,317,000 in 1994.. 162,605,000 138,554,000
Prepaid expenses and other current assets... 25,385,000 17,675,000
------------ ------------
Total Current Assets...................... 209,776,000 177,478,000
------------ ------------
Property and Equipment, at cost:
Land and land improvements.................. 10,714,000 10,711,000
Buildings................................... 60,255,000 59,402,000
Equipment................................... 172,121,000 169,487,000
------------ ------------
243,090,000 239,600,000
Less: Accumulated depreciation and
amortization....................... 140,456,000 134,513,000
------------ ------------
102,634,000 105,087,000
------------ ------------
Computer Software, net of accumulated
amortization of $42,599,000 in 1995 and
$36,158,000 in 1994......................... 43,068,000 38,801,000
------------ ------------
Other Assets.................................. 70,394,000 58,699,000
------------ ------------
$425,872,000 $380,065,000
============ ============
</TABLE>
The accompanying note is an integral part of this statement.
2
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEET (Continued)
--------------------------------------
<TABLE>
<CAPTION>
September 30 December 31
1995 1994
------------- -------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Notes payable................................ $ 47,917,000 $ 12,383,000
Current portion of long-term obligations
under capital leases....................... 3,815,000 3,100,000
Dividends payable............................ 4,875,000 4,818,000
Accounts payable............................. 22,621,000 23,633,000
Accrued expenses............................. 32,711,000 38,189,000
Current deferred revenues.................... 24,736,000 28,133,000
Accrued and current deferred income taxes.... 7,959,000 6,591,000
------------ ------------
Total Current Liabilities.................. 144,634,000 116,847,000
------------ ------------
Deferred Revenues.............................. 14,090,000 17,352,000
------------ ------------
Long-Term Obligations Under Capital Leases..... 3,412,000 4,974,000
------------ ------------
Deferred Income Taxes.......................... 22,823,000 21,696,000
------------ ------------
Stockholders' Investment:
Preferred stock, par value $.10;
authorized 1,000,000 shares; none
issued..................................... - -
Common stock, par value $.01; authorized
60,000,000 shares;.........................
1995 1994
---------- ----------
Shares issued........ 27,242,595 26,964,821
Less-
Treasury shares:
Donated.......... 1,114,400 1,114,400
Purchased........ 2,912,420 2,907,875
Shares outstanding... 23,215,775 22,942,546 272,000 270,000
Paid-in capital.............................. 38,834,000 32,365,000
Retained earnings............................ 259,382,000 244,698,000
Purchased common stock in treasury, at cost.. (55,274,000) (55,116,000)
Cumulative translation adjustment............ (2,301,000) (3,021,000)
------------ ------------
Total Stockholders' Investment............. 240,913,000 219,196,000
------------ ------------
$425,872,000 $380,065,000
============ ============
</TABLE>
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SHARED MEDICAL SYSTEMS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
----------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- ---------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Service and system fees.. $150,623,000 $127,280,000 $428,683,000 $365,402,000
Hardware sales........... 18,590,000 11,554,000 41,148,000 31,209,000
------------ ------------ ------------ ------------
169,213,000 138,834,000 469,831,000 396,611,000
------------ ------------ ------------ ------------
Cost and Expenses:
Operating and
development............. 73,236,000 60,237,000 204,463,000 170,800,000
Marketing and
installation............ 50,206,000 42,032,000 143,319,000 122,331,000
General and
administrative.......... 13,124,000 12,213,000 38,161,000 34,426,000
Cost of hardware sales... 15,324,000 9,352,000 33,887,000 25,435,000
Interest................. 932,000 361,000 2,017,000 937,000
------------ ------------ ------------ ------------
152,822,000 124,195,000 421,847,000 353,929,000
------------ ------------ ------------ ------------
Income Before
Income Taxes............. 16,391,000 14,639,000 47,984,000 42,682,000
Provision for
Income Taxes............. 6,393,000 5,709,000 18,714,000 16,646,000
------------ ------------ ------------ ------------
Net Income................ $ 9,998,000 $ 8,930,000 $ 29,270,000 $ 26,036,000
============ ============ ============ ============
Net Income Per Common
Share.................... $.42 $.38 $1.24 $1.12
============ ============ ============ ============
Number of shares used
to compute per share
amounts.................. 23,737,000 23,252,000 23,647,000 23,237,000
============ ============ ============ ============
Dividends Per Common
Share.................... $.21 $.21 $.63 $.63
============ ============ ============ ============
</TABLE>
The accompanying note is an integral part of this statement.
4
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30
----------------------------
1995 1994
------------- -------------
(unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income.................................... $ 29,270,000 $ 26,036,000
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization................. 27,236,000 23,174,000
Asset (increase) decrease -
Accounts receivable.......................... (23,666,000) (15,986,000)
Prepaid expenses and other current assets.... (7,710,000) (5,822,000)
Other assets................................. (2,103,000) (5,187,000)
Liability increase (decrease) -
Accounts payable and accrued expenses........ (6,487,000) 4,034,000
Accrued and current deferred income taxes.... 1,368,000 (4,515,000)
Deferred revenues............................ (6,659,000) (1,652,000)
Deferred income taxes........................ 1,127,000 (1,063,000)
Other......................................... 336,000 1,430,000
------------ ------------
Net cash provided by operating activities.... 12,712,000 20,449,000
------------ ------------
Cash Flows from Investing Activities:
Property and equipment additions.............. (13,988,000) (13,255,000)
Investment in computer software............... (11,215,000) (8,657,000)
Dispositions of equipment..................... 353,000 487,000
Acquisition of businesses..................... (12,108,000) (17,000,000)
------------ ------------
Net cash used for investing activities....... (36,958,000) (38,425,000)
------------ ------------
Cash Flows from Financing Activities:
Dividends paid................................ (14,530,000) (14,378,000)
Change in treasury stock...................... (158,000) (88,000)
Payments on long-term obligations under
capital leases............................... (2,534,000) (1,772,000)
Increase in notes payable..................... 35,534,000 16,381,000
Exercise of stock options..................... 6,471,000 2,287,000
------------ ------------
Net cash provided by financing activities.... 24,783,000 2,430,000
------------ ------------
Net Increase (Decrease) in Cash and Short-Term
Investments................................... 537,000 (15,546,000)
Cash and Short Term Investments, Beginning
of Period..................................... 21,249,000 35,826,000
------------ ------------
Cash and Short-Term Investments, End
of Period..................................... $ 21,786,000 $ 20,280,000
============ ============
</TABLE>
The accompanying note is an integral part of this statement.
5
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SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Note to Consolidated Financial Statements
September 30, 1995 (unaudited) -
Note 1 - The information furnished in this Form 10-Q reflects all normal and
------
recurring adjustments which are, in the opinion of management, necessary for a
fair presentation of the financial statements as of September 30, 1995.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Material Changes in Financial Condition
- ---------------------------------------
The Company's financial condition has remained strong throughout the nine months
ended September 30, 1995. Management is not aware of any potential material
impairments or changes to the Company's current financial position.
Effective June 1, 1995, the Company acquired the business and assets of
Professional Datacare (PDC) from the National Health Systems' North West
Regional Health Authority in the United Kingdom for approximately $8,500,000.
PDC provides various financial processing services in the United Kingdom. This
acquisition was accounted for using the purchase method. Pro forma financial
information has not been provided since the acquisition was not a significant
subsidiary as defined by Regulation S-X.
The most significant requirements for funds now anticipated are for the
repayment of short-term notes payable, purchases of equipment, and payment of
cash dividends. The Company plans to fund these expenditures primarily through
internally generated funds.
At September 30, 1995, the Company had lines of credit with banks totaling
$69,185,000, primarily at their prime interest rates. At September 30, 1995,
$21,268,000 of these lines of credit remained unused.
Material Changes in Results of Operations
- -----------------------------------------
Three Months Ended September 30, 1995 Compared to the Three Months Ended
September 30, 1994.
Revenues
--------
Service and system fees revenues increased by $23,343,000 (18.3%) in the
third quarter of 1995 compared to the third quarter of 1994. Contributing to
this increase were higher levels of professional services, system processing
fees, and system sales. Also affecting this increase were revenues associated
with the Company's MedSeries4 division that was acquired on September 30,
1994. No revenues for the MedSeries4 division are included in the Company's
results of operations for the third quarter of 1994. The higher level of
professional services was generally attributable to increases in system
support and consulting fees. The increase in system
6
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SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
processing fees was primarily due to the higher level of customer
applications processed at the Company's Information Services Center.
Hardware sales revenues increased to $18,590,000 for the third quarter of
1995 from $11,554,000 in the third quarter of 1994 due primarily to changes
in the timing and product mix of systems installed.
Cost and Expenses
-----------------
Operating and development expenses increased to 48.6% of service and system
fees revenues in the third quarter of 1995 from 47.3% in the third quarter of
1994. This change was primarily due to increased computer hardware and
associated costs related to higher levels of system processing services
provided to the Company's customers.
Marketing and installation expenses increased to 33.3% of service and system
fees revenues in the third quarter of 1995 from 33.0% in the third quarter of
1994. This change was primarily due to increased personnel and related costs
to support the higher levels of professional services provided by the
Company.
General and administrative expenses as a percentage of service and system
fees revenues, decreased to 8.7% in the third quarter of 1995 from 9.6% in
the third quarter of 1994, primarily due to the Company's ongoing efforts to
control the growth of administrative costs.
Cost of hardware sales increased to 82.4% of hardware sales revenues in the
third quarter of 1995 from 80.9% in the third quarter of 1994. This change
was primarily due to the different product mixes of systems installed in each
quarter.
Interest expense was $932,000 in the quarter ended
September 30, 1995 compared to $361,000 in the same period in 1994. This
change was primarily due to a higher level of outstanding borrowings
associated with the Company's short-term loan obligations.
Provision for Income Taxes
--------------------------
The provision for income taxes in the quarter ended
September 30, 1995 increased by $684,000 (12.0%) when compared to the same
period in 1994. This change was due to an increase of $1,752,000 (12.0%) in
income before income taxes. The Company's effective tax rate was 39.0%
during the third quarter of 1995 and 1994.
Net Income
----------
Net income was $9,998,000 in the quarter ended September 30, 1995 compared to
$8,930,000 in the quarter ended September 30, 1994 for the reasons discussed
above.
7
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SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Nine Months Ended September 30, 1995 Compared to the Nine Months Ended September
30, 1994.
Revenues
--------
Service and system fees revenues increased by $63,281,000 (17.3%) for the
nine months ended September 30, 1995 compared to the same period in 1994.
Contributing to this increase were higher levels of professional services,
system processing fees, and system sales. Also affecting this increase were
revenues associated with the Company's MedSeries4 division that was acquired
on September 30, 1994. No revenues for the MedSeries4 division are included
in the Company's results of operations for the nine months ended September
30, 1994. The higher level of professional services was generally
attributable to increases in system support, installations, and consulting
fees. The increase in system processing fees was primarily due to the higher
level of customer applications processed at the Company's Information
Services Center.
Hardware sales revenues increased to $41,148,000 for the nine months ended
September 30, 1995 from $31,209,000 for the same period in 1994 due primarily
to changes in the timing and product mix of systems installed.
Cost and Expenses
-----------------
Operating and development expenses increased to 47.7% of service and system
fees revenues in the first three quarters of 1995 from 46.7% in the first
three quarters of 1994. This change was primarily due to increased computer
hardware and associated costs related to higher levels of system processing
services provided to the Company's customers.
Marketing and installation expenses decreased to 33.4% of service and system
fees revenues in the first three quarters of 1995 from 33.5% in the first
three quarters of 1994. This decrease was primarily due to improved
efficiency in providing installation and support services to the Company's
customers and the Company's efforts to control certain marketing and
installation costs.
General and administrative expenses, as a percentage of service and system
fees revenues, decreased to 8.9% in the first three quarters of 1995 from
9.4% in the first three quarters of 1994, primarily due to the Company's
efforts to control the growth of administrative costs.
Cost of hardware sales increased to 82.4% of hardware sales revenues in the
first three quarters of 1995 from 81.5% in the first three quarters of 1994.
This change was primarily due to the different product mixes of systems
installed in each nine month period.
Interest expense was $2,017,000 in the nine months ended September 30, 1995
compared to $937,000 in the same period in 1994. This change was primarily
due to a higher level of outstanding borrowings associated with the Company's
short-term loan obligations.
8
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SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Provision for Income Taxes
--------------------------
The provision for income taxes in the first three quarters of 1995 increased
by $2,068,000 (12.4%) when compared to the same period in 1994. This change
was due to an increase of $5,302,000 (12.4%) in income before income taxes.
The Company's effective tax rate was 39.0% during the first three quarters of
1995 and 1994.
Net Income
----------
Net income was $29,270,000 in the first three quarters of 1995 compared to
$26,036,000 in the first three quarters of 1994 for the reasons discussed
above.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are included in this report:
No. Description
--- -----------------------------------------------------
(3) By-laws -
By-laws as amended through August 10, 1995
(10) Material Contracts -
Deferred compensation agreement:
Marvin S. Cadwell
Performance bonus plan - 1995:
Francis W. Lavelle
(27) Financial Data Schedule
(b) No reports on Form 8-K were filed during the three-month period ended
September 30, 1995.
9
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SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Registrant
November 14, 1995 /s/ Terrence W. Kyle
- ----------------- ----------------------------------
Date Terrence W. Kyle
Vice President of Finance
Principal Financial Officer and
Duly Authorized Officer
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SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Exhibit Index
No. Description
- --- ------------------------------------
(3) By-laws
By-laws as amended through
August 10, 1995
(10) Material Contracts -
Deferred compensation agreement:
Marvin S. Cadwell
Performance bonus plan - 1995:
Francis W. Lavelle
(27) Financial Data Schedule
11
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Exhibit (3)
As Amended August 10, 1995
SHARED MEDICAL SYSTEMS CORPORATION
BY-LAWS
----------------------------
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the board of directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
Directors shall be held at such place as may be fixed from time to time by the
board of directors, either within or without the State of Delaware and specified
in the notice of the meeting. Meetings of stockholders for any other purpose
may be held at such time and place, within or without the State of Delaware, as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
Section 2. Annual meetings of stockholders shall be held on the third
Monday of April at 11:00 a.m., or at such other date and time as shall be
designated from time to time by the board of directors and stated in
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the notice of the meeting, at which they shall elect by a plurality vote a board
of directors, and transact such other business as may properly be brought before
the meeting.
Section 3. Written notice of the annual meeting stating the place,
date and hour of the meeting shall be given to each stockholder entitled to vote
at such meeting not less than ten days before the date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be so specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. The corporation shall, in advance of any meeting of
stockholders, appoint one or more inspectors to act at the meeting and make a
written report thereof. The corporation may designate one or more person as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate is able to act at a meeting of stockholders, the person presiding
at the meeting shall appoint one or more inspectors to act at the
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meeting. Each inspector, before entering upon the discharge of his duties, shall
take and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his ability.
The inspectors shall (i) ascertain the number of shares outstanding
and the voting power of each, (ii) determine the shares represented at a meeting
and the validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors, and (c) certify their
determination of the number of shares represented at the meeting, and their
count of all votes and ballots. The inspectors may appoint or retain other
persons or entities to assist the inspectors in the performance of the duties of
the inspectors.
The date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting shall be announced at
the meeting. No ballot, proxies or votes, nor any revocations thereof or
changes thereto, shall be accepted by the inspectors after the closing of the
polls unless the Court of Chancery upon application by a stockholder shall
determine otherwise.
In determining the validity and counting of proxies and ballots,
the inspectors shall be limited as provided by law.
Section 6. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the chief executive officer or the Chairman and
shall be called by the chief executive officer, the Chairman, or the Secretary
at the request in writing of a majority of the board of
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directors. Such request shall state the purpose or purposes of the proposed
meeting.
Section 7. Written notice of a special meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not less than ten days before the date of the meeting,
to each stockholder entitled to vote at such meeting.
Section 8. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 9. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be presented
or represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting, at which a quorum be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 10. When a quorum is present at any meeting the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such
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meeting, unless the question is one upon which by express provision of the
statutes or of the certificate of incorporation, a different vote is required in
which case such express provision shall govern and control the decision of such
question.
Section 11. At all meetings of stockholders, each stockholder shall
be entitled, in person or by proxy, to the number of votes provided in the
certificate of incorporation for each share of the capital stock having voting
power held by such stockholder, but no shares shall be voted pursuant to a proxy
more than ninety (90) days from the date of the proxy.
Section 12. Whenever the vote of stockholders at a meeting thereof is
required or permitted to be taken for or in connection with any corporate
action, by any provision of the statutes, the meeting and vote of stockholders
may be dispensed with if all of the stockholders who would have been entitled to
vote upon the action if such meeting were held shall consent in writing to such
corporate action being taken; or if the certificate of incorporation authorizes
the action to be taken with the written consent of the holders of less than all
of the stock who would have been entitled to vote upon the action if a meeting
were held, then on the written consent of the stockholders having not less than
such percentage of the number of votes as may be authorized in the certificate
of incorporation; provided that in no case shall the written consent be by the
holders of stock having less than the minimum percentage of the vote required by
statute for the proposed corporate action, and provided that prompt notice must
be given to all stockholders of the taking of corporate action without a meeting
and by less than unanimous written consent.
5
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ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
board shall be not less than three nor more than twelve, as may be determined
from time to time by resolution of the board of directors. The directors shall
be elected at the annual meeting of the stockholders, except as provided in
Section 2 of this Article, and each director elected shall hold office until his
successor is elected and qualified. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from
any increase in the authorized number directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
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Section 3. The business of the corporation shall be managed by or
under the direction of its board of directors which may exercise all such powers
of the corporation and do all such lawful acts and things as are not by statute
or by the certificate of incorporation or by these by-laws directed or required
to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
-----------------------------------
Section 4. The board of directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. Immediately after each annual election of directors, the
board of directors shall meet for the purpose of organization, election of
officers and the transaction of other business, at the place where such election
of directors was held or, if notice of such meeting is given, at the place
specified in such notice. Notice of such meeting need not be given. In the
absence of a quorum at said meeting, the same may be held at any other time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the board of directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the chief
executive officer or the Chairman on two days' notice to each director; special
meetings shall be called by the chief executive officer, the
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Chairman or the Secretary in like manner and on like notice on the written
request of two directors.
Section 8. At all meetings of the board a majority of the directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the board of directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
COMMITTEES OF DIRECTORS
-----------------------
Section 10. The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of two or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee, to the extent provided in the resolution, shall have and may
exercise the powers of the board of directors in the
8
<PAGE>
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers which may require it;
provided, however, that in the absence or disqualification of any member of such
committee or committees, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member. Such committee
or committees shall have such name or names as may be determined from time to
time by resolution adopted by the board of directors.
Section 11. Each committee shall keep regular minutes of its meetings
and report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
-------------------------
Section 12. The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and may be paid a fixed sum
for attendance at each meeting of the board of directors and/or a stated salary
as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings. Directors may also be reimbursed by the corporation for all
reasonable expenses incurred in traveling to and from the place of each meeting
of the board or of any such committee.
NOMINATION OF DIRECTORS
-----------------------
9
<PAGE>
Section 13. Nominations for the election of directors may be made by
(i) the board of directors; (ii) a committee appointed by the board of
directors; or (iii) any stockholder of record entitled to vote in the election
of directors generally at the record date for the meeting of stockholders at
which directors are to be elected and on the date of such meeting.
Notwithstanding the preceding sentence or anything to the contrary contained in
these by-laws, a stockholder may nominate one or more persons for election as a
director at such meeting only if written notice of such stockholder's intention
to make such nomination has been furnished in writing to the Secretary of the
corporation at the principal executive offices of the corporation not less than
45 days prior to the date of the meeting at which directors will be elected.
Each such notice shall set forth the stockholder's name and address, and the
number and type of securities of the corporation owned by such stockholder; and
shall be accompanied by a statement over the signature of proposed nominee
stating that he or she consents to being a nominee for director of the
corporation and, if elected, intends to serve as a director, and which contains
information about such nominee of the type required to be provided to
stockholders under Regulation 14A under the Securities Exchange Act of 1934, as
in effect at the time the proposed nominee submits such a statement to the
Secretary of the corporation. The officer presiding at the meeting of
stockholders may declare invalid any nomination made by a stockholder which is
not in compliance with the foregoing procedure and, in such case, any votes cast
in the election of directors for such person shall not be counted by the
inspectors of election.
ARTICLE IV
10
<PAGE>
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these by-laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail addressed to such
director or stockholder at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time the same shall be deposited in the United States Mail. Notice
to directors may also be given by telegram, telex, telecopy or by providing the
same, delivery charge prepaid, to a recognized courier service guaranteeing
delivery the next business day.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be a Secretary, a
Treasurer, and at least one of the following: a Chairman, a Vice Chairman, or a
President. The officers may also include one or more Vice Presidents, one or
more Assistant Secretaries and Assistant Treasurers and such other officers as
may be deemed necessary. Any number of offices may be held by the same person.
11
<PAGE>
Section 2. The Chairman (if any), Vice Chairman (if any), President
(if any), Secretary and Treasurer shall be chosen by the board of directors,
which shall consider that subject at its first meeting after each annual meeting
of stockholders. Either the Chairman, the Vice Chairman or the President shall
be designated by the board of directors as the chief executive officer of the
corporation.
Section 3. The officers of the corporation other than the Chairman,
Vice Chairman, President, Secretary and Treasurer may be elected by the board of
directors or appointed by the chief executive officer.
Section 4. The salaries of the Chairman (if any), the Vice Chairman
(if any) and the President (if any) of the corporation shall be fixed by the
board of directors.
Section 5. Each officer of the corporation shall hold office until
his successor is chosen and qualified or until his earlier resignation or
removal. Any officer elected or appointed by the board of directors may be
removed at any time by the affirmative vote of a majority of the board of
directors. Any vacancy occurring in any office of the corporation elected or
appointed by the board of directors may be filled by the board of directors.
Any officer appointed by the chief executive officer may be removed at any time
by the chief executive officer. Any vacancy occurring in any office of the
corporation appointed by the chief executive officer may be filled by the chief
executive officer.
THE CHIEF EXECUTIVE OFFICER
---------------------------
Section 6. The chief executive officer shall have overall
responsibility for the management of the business and operations of the
12
<PAGE>
corporation and shall see that all orders and resolutions of the board are
carried into effect. The chief executive officer shall execute bonds, mortgages
and other contracts of the corporation, except where required or permitted by
law or by these by-laws to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation.
THE CHAIRMAN
------------
Section 7. The Chairman shall preside at all meetings of the
stockholders and the board of directors, and shall perform such other duties as
may be specified by these by-laws or, from time to time, by the board of
directors or the chief executive officer.
THE VICE CHAIRMAN
-----------------
Section 8. The Vice Chairman shall perform such duties and have such
powers as may be specified by these by-laws or, from time to time, by the board
of directors or the chief executive officer.
THE PRESIDENT
-------------
Section 9. The President shall perform such duties and have such
powers as may be specified by these by-laws or, from time to time, by the board
of directors or the chief executive officer.
13
<PAGE>
THE VICE PRESIDENTS
-------------------
Section 10. The Vice Presidents shall perform such duties and have
such powers as may be specified in these by-laws or, from time to time, by the
board of directors or the chief executive officer.
THE SECRETARY AND ASSISTANT SECRETARIES
---------------------------------------
Section 11. The Secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the board of directors, and shall
perform such other duties as may be prescribed by the board of directors or
chief executive officer, under whose supervision he shall be. He shall have
custody of the corporate seal of the corporation and he, or an Assistant
Secretary, shall have authority to affix the same to any instrument requiring it
and when so affixed, it may be attested by his signature or by the signature of
such Assistant Secretary. The board of directors may give general authority to
any other officer to affix the seal of the corporation and to attest the
affixing by his signature.
Section 12. The Assistant Secretary or Secretaries, shall, in the
absence of the Secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the board of directors or the
chief executive officer may from time to time prescribe.
14
<PAGE>
THE TREASURER AND ASSISTANT TREASURERS
--------------------------------------
Section 13. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
Section 14. He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the chief executive officer or to the board
of directors, when either so requires, an account of all his transactions as
Treasurer and of the financial condition of the corporation.
Section 15. If required by the board of directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the board of directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 16. The Assistant Treasurer or Treasurers shall, in the
absence of the Treasurer or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the Treasurer and shall perform
such other duties and have such other powers as the board of directors or the
chief executive officer may from time to time prescribe.
15
<PAGE>
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled
to have a certificate, signed by, or in the name of the corporation by, the
Chairman or Vice Chairman or the President or a Vice President and by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the corporation, certifying the number of shares owned by him in the
corporation.
Section 2. Where a certificate is countersigned (1) by transfer agent
other than the corporation or its employee, or (2) by a registrar other than the
corporation or its employee, any other signature on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent, or registrar at the date of issue.
LOST CERTIFICATES
-----------------
Section 3. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of the fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the board of directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or
16
<PAGE>
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
TRANSFERS TO STOCK
------------------
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
------------------
Section 5. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting;
17
<PAGE>
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
REGISTERED STOCKHOLDERS
-----------------------
Section 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to interest in such share
or shares on the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
---------
Section 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, shares of the capital
stock, subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing
18
<PAGE>
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the directors shall think conducive to the interest of
the corporation, and the directors may modify or abolish any such reserve in the
manner which it was created.
ANNUAL STATEMENT
----------------
Section 3. The board of directors shall present at each annual
meeting, and at any special meeting of the stockholders when called for by vote
of the stockholders, a full and clear statement of the business and condition of
the corporation.
CHECKS
------
Section 4. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
FISCAL YEAR
-----------
Section 5. The fiscal year of the corporation shall be fixed by
resolution of the board of directors.
SEAL
----
Section 6. The corporate seal shall have inscribed thereon the name
of the corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE VIII
AMENDMENTS
19
<PAGE>
Section 1. These by-laws may be altered, amended or repealed or new
by-laws may be adopted by the stockholders or by the board of directors, when
such power is conferred upon the board of directors by the certificate of
incorporation at any regular meeting of the stockholders or the board of
directors or at any special meeting of the stockholders or of the board of
directors if notice of such alteration, amendment, repeal or adoption of new by-
laws be contained in the notice of such special meeting.
ARTICLE IX
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Indemnification. Any person who was or is a party or is
---------------
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such person is or was a director or officer of the
corporation, or is or was serving while a director or officer of the corporation
at the request of the corporation as a director, officer, employee, agent,
fiduciary or other representative of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, shall be indemnified
by the corporation against expenses (including attorneys' fees), judgments,
fines, excise taxes and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding to
the full extent permissible under Delaware law.
Section 2. Advances. Any person claiming indemnification within the
--------
scope of Section 1 of this Article IX shall be entitled to advances from the
corporation for payment of the expenses of defending actions against
20
<PAGE>
such person in the manner and to the full extent permissible under Delaware law.
Section 3. Procedure. On the request of any person requesting
---------
indemnification under Section 1 of this Article IX, the Board of Directors or a
Committee thereof shall determine whether such indemnification is permissible or
such determination shall be made by independent legal counsel if the Board or
Committee so directs or if the Board or Committee is not empowered by statute to
make such determination.
Section 4. Other Rights. The indemnification and advancement of
------------
expenses provided by this Article IX shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any insurance or other agreement, vote of share holders or
disinterested directors or otherwise, both as to actions in their official
capacity and as to actions in another capacity while holding an office, and
shall continue as to a person who has ceased to be a director or officer and
shall insure to the benefit of the heirs, executors and administrators of such
person.
Section 5. Insurance. The corporation shall have power to purchase
---------
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee, agent, fiduciary or
other representative of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the corporation would have
21
<PAGE>
the power to indemnify him against such liability under the provisions of these
by-laws.
Section 6. Modification. The duties of the corporation to indemnify
------------
and to advance expenses to a director or officer provided in this Article shall
be in the nature of a contract between the corporation and each such director or
officer, and no amendment or repeal of any provision of this Article shall
alter, to the detriment of such director or officer, the right of such person to
the advancement of expenses or indemnification related to a claim based on an
act or failure to act which took place prior to such amendment, repeal or
termination.
22
<PAGE>
Exhibit (10)
DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT is made this 9th day of August, 1995, between SHARED
MEDICAL SYSTEMS CORPORATION (the "Company") and MARVIN S. CADWELL ("Employee"),
who is a member of a select group of management or highly compensated employees
within the meaning of section 201(2) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA").
The parties hereto, intending to be legally bound, agree as follows:
1. Grantor Trust; Deferred Compensation Account.
--------------------------------------------
The Company has established an irrevocable grantor trust (the "Trust")
within the meaning of section 671 of the Internal Revenue Code of 1986, as
amended (the "Code"), pursuant to a trust agreement (the "Trust Agreement")
executed on August 9, 1995 with a trustee selected by the Company (the
"Trustee"). Concurrent with the execution of this Agreement, the Company will
contribute to the Trust 16,576 newly-issued shares of Company Common Stock
("Original Shares") by delivery of such Shares to the Trustee.
The Trustee shall, on behalf of the Company, hold a deferred
compensation account for Employee (the "Deferred Compensation Account" or the
"Account"). The Account shall have two sub-accounts, the Stock Account and the
Cash Account. The Trustee shall hold the Original Shares in the Stock Account.
Any stock dividends, stock splits, and other non-cash distributions received on
the Original Shares shall be held in the Stock Account, while any cash dividends
received on the Original Shares shall be held in the Cash Account and shall be
invested in accordance with investment guidelines established by the Company.
The Accounts shall also be reduced for distributions made under the terms of
this Agreement.
Notwithstanding the foregoing, the Trust assets shall be treated as
assets of the Company and shall remain, in the event the Company becomes
Insolvent (as such term is defined in Section 5(a)(i) of the Trust Agreement)
subject to the claims of the Insolvency Creditors (within the meaning of Section
5(a)(ii) of the Trust Agreement) of the Company. Employee shall not have any
property interest in the assets held in the Trust. Employee shall have only the
rights of an unsecured creditor against the Company for any distribution due
under this Agreement, and this Agreement shall constitute a mere promise by the
Company to make such distributions in the future. It is the intention of the
parties that the Agreement be unfunded for Federal income tax purposes and for
purposes of Title I of ERISA.
<PAGE>
2. Entitlement to Benefits.
-----------------------
(a) Benefits at Normal Retirement.
-----------------------------
Upon the termination of Employee's employment with the Company
occurring on or after the Employee attains the age of 60 (his "Normal
Retirement Age"), Employee shall be entitled to receive and shall have
distributed to him the balance in his sub-accounts, as provided in Exhibit
A.
(b) Termination Before Normal Retirement Age.
----------------------------------------
If Employee's employment with the Company is terminated for any
reason prior to his Normal Retirement Age, Employee shall not be entitled
to receive any amount in his Account, and no distributions shall be made to
Employee, except under the following circumstances:
(i) Disability.
----------
If Employee's termination of employment results from his
permanent disability prior to his Normal Retirement Age, Employee
shall be entitled to receive and shall have distributed to him the
balance in his sub-accounts, as provided in Exhibit A. Employee shall
be deemed "permanently disabled," only if he can no longer perform the
duties of his position, as determined by the Management and
Compensation Committee of the Company's Board of Directors, in his or
their sole discretion.
(ii) Death.
-----
If Employee's termination of employment results from the
Employee's death prior to his Normal Retirement Age, Employee's
beneficiary designated pursuant to Section 3(b) below shall be
entitled to receive within 30 days of Employee's death and shall have
distributed to him or her the balance in Employee's sub-accounts, in a
lump sum.
(iii) Discharge After Age 50.
----------------------
If Employee is discharged by the Company for any reason
other than "cause" after he reaches age 50 but prior to his Normal
Retirement Age, the balance in his sub-accounts shall be reduced to
the balance in his sub-accounts as of his date of termination
multiplied by the Adjustment Fraction. For purposes of this
subsection only, "Adjustment Fraction" shall mean a fraction, the
numerator of which shall be the number of full months the Employee
worked for the Company after attaining age 50, and the denominator of
which shall be 120. The balance
-2-
<PAGE>
in his sub-accounts shall be distributed to the Employee, as provided
in Exhibit A.
As used herein, the term "cause" shall mean Employee's (A)
dishonest or illegal conduct, (B) conduct contrary to the best
interests of the Company, (C) insubordination, incompetence,
misconduct, or neglect of his duties, or (D) willful violation of any
express direction of the senior management or the Board of Directors
of the Company, as determined by the Management and Compensation
Committee of the Company's Board of Directors, in his or their sole
discretion.
(iv) Change in Control.
-----------------
(A) Acceleration of Account.
-----------------------
If, prior to Employee's Normal Retirement Age, (aa)
there is a "Change in Control" of the Company, (bb) the Chief
Executive Officer of the Company immediately prior to the Change
in Control is replaced, and (cc) within 3 months subsequent
thereto Employee is discharged by the Company or Employee resigns
because his place of work is changed such that his commute would
be increased by 50 miles or more or his responsibilities or his
aggregate compensation is reduced, Employee shall be entitled to
receive and shall have distributed to him the balance in his sub-
accounts, as provided in Exhibit A.
(B) Definition.
----------
As used herein, the term "Change in Control" shall mean
the acquisition by any person (other than the Company or any
affiliate or associate of the Company), as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), of beneficial ownership (within
the meaning of Rule 13d-3 under the Exchange Act) of 40% or more
of the combined voting power of the Company's then outstanding
securities, or the approval by the stockholders of the Company of
(aa) any merger or consolidation where stockholders of the
Company immediately prior to the merger or consolidation do not
immediately thereafter hold more than 50% of the combined voting
power of the surviving company's then outstanding securities,
(bb) a liquidation or dissolution of the Company, or (cc) a sale
of all or substantially all of the Company's assets.
-3-
<PAGE>
(c) Forfeiture of Benefits.
----------------------
Notwithstanding the foregoing, if at any time after the
date hereof, Employee, without the express written consent of the
Company, manages, operates, or controls, or becomes an officer,
director or employee of, or consultant to, any business or
enterprise determined by the Company to be engaged in the
manufacture, distribution or marketing of any product, or the
provision of any service, substantially similar to or in
competition with any product or service offered by the Company,
Employee shall forfeit all rights to receive any benefits under
this Agreement, and no distributions under this Agreement shall
be made to Employee, or continued to be made, as the case may be.
(d) Acceleration of Payments.
------------------------
Notwithstanding any other provision of this Agreement
or the Trust Agreement, if the Company's independent public
accountants determine, based on a change in the tax or revenue
laws of the United States of America, a published ruling or
similar announcement issued by the Internal Revenue Service, a
regulation issued by the Secretary of the Treasury or his
delegate, a final decision by a court of competent jurisdiction
involving the Employee, or a closing agreement involving the
Employee made under section 7121 of the Code that is approved by
the Commissioner, that the Employee has recognized or will
recognize income for Federal income tax purposes with respect to
benefits that are or will be payable to the Employee hereunder,
before they otherwise would be paid to the Employee, the Company
shall discuss with the Employee appropriate measures to eliminate
a negative economic impact on the Employee, including if approved
by the Company, an immediate distribution by the Trustee from the
Trust to the Employee or Beneficiary of the amount so taxable.
3. Beneficiaries.
-------------
(a) Death of Employee Entitled to Benefits.
--------------------------------------
If Employee dies after becoming entitled to benefits
under Section 2(a) or 2(b)(i), 2(b)(iii) or 2(b)(iv), the balance
then in his Account, shall, within 30 days of Employee's death,
be distributed in a lump sum to Employee's beneficiary designated
pursuant to Section 3(b) below.
(b) Beneficiary Designation.
-----------------------
Employee shall have the right to designate a
beneficiary or beneficiaries to receive any benefits hereunder
which may be distributed upon Employee's death. Employee
-4-
<PAGE>
shall have the right to change any beneficiaries so designated,
provided, however, that a change of a beneficiary designation
will be effective only if made in a manner acceptable to the
Company. If Employee fails to designate a beneficiary or if no
designated beneficiary survives the Employee, his estate shall be
his beneficiary.
4. Claims and Appeals Procedure.
----------------------------
The Company has provided to the Employee a copy of the
Claims and Appeals procedures which will be followed under this Agreement
and which are incorporated herein by reference.
5. Non-alienation.
--------------
No benefits under this Agreement shall be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge, or
encumbrance, and any attempt to do so shall be void and unenforceable. Such
benefits shall not be subject to or liable for the debts, contracts,
liabilities, engagements, or torts of Employee or his beneficiary or
beneficiaries.
6. Investment Purposes.
-------------------
Unless the Company has theretofore notified Employee that a
registration statement covering Shares deposited with the Trustee has
become effective under the Securities Act of 1933 and the Company has not
thereafter notified Employee that such registration is no longer effective,
it shall be a condition of this Agreement that any Shares to be distributed
to Employee hereunder shall be acquired for investment and not with a view
to distribution in violation of the Securities Act of 1933 (or of any rules
or regulations promulgated thereunder), and Employee hereby agrees to
submit to the Company a certificate of such investment intent, together
with such other evidence supporting the same as the Company may request.
The Company shall be entitled to restrict the transferability of any Shares
distributed hereunder to the extent necessary to avoid a risk of violations
of the Securities Act of 1933 (or of any rules or regulations promulgated
thereunder) or of any state laws or regulation. Such restrictions may, at
the option of the Company, be noted or set forth in full on the Share
certificates.
7. Amendment or Termination of Agreement.
-------------------------------------
This Agreement may be amended or terminated upon the mutual
agreement of Company, by resolution of the Management and Compensation
Committee of its Board of Directors adopted at a duly held meeting of said
Committee or by unanimous written consent of said Committee, and Employee.
-5-
<PAGE>
8. Authority to Interpret Agreement Vested in Company.
--------------------------------------------------
The Company shall have full power and authority to interpret,
construe, administer and make factual determinations with respect to this
Agreement, and the interpretation and construction thereof, and actions
thereunder, including any valuation of the Deferred Compensation Account,
or any decisions regarding the amount or recipient of any distribution to
be made therefrom, shall be binding and conclusive on all persons for all
purposes. The Company shall not be liable to any person for any action
taken or omitted in connection with the interpretation and administration
of this Agreement unless attributable to its own willful misconduct or lack
of good faith.
9. No Contract of Employment.
-------------------------
Nothing contained herein shall be construed as conferring upon
the Employee the right to continue in the employ of the Company.
10. Right to Withhold.
-----------------
The Company and the Trustee shall have the right to withhold from
all distributions under the Agreement any Federal, state, or local taxes
required by law to be withheld with respect to such distributions.
11. Governing Law.
-------------
This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania to the extent not
preempted by federal law.
-6-
<PAGE>
12. Agreement Binding.
-----------------
This Agreement shall be binding upon and inure to the benefit of
the Company, its successors and assigns, and Employee and his heirs,
executors, administrators and legal representatives.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the day and year first above written.
ATTEST: SHARED MEDICAL SYSTEMS CORPORATION
[SEAL]
/s/ T.W. Kyle By: /s/ R. James Macaleer
------------------- -------------------------
Assistant Secretary R. James Macaleer
Chief Executive Officer
WITNESS:
/s/ John P. Dougherty /s/ Marvin S. Cadwell
--------------------- ----------------------------
Marvin S. Cadwell
-7-
<PAGE>
Exhibit A
I. Distribution of Benefits.
------------------------
(a) Timing of Distributions.
-----------------------
Distributions pursuant to Section 2(a) shall be made in 20 annual
installment payments, commencing on a date no later than 30 days after the date
of Employee's termination of employment. Distributions pursuant to Sections
2(b)(i), 2(b)(iii), and 2(b)(iv) shall be made in 20 annual installment
payments, commencing on a date no later than 30 days after the date the Employee
reaches his Normal Retirement Age. Annual installments shall be distributed on
the anniversary of the first such distribution.
(b) Amount of Distributions Under Sections 2(a) and 2(b)(i).
-------------------------------------------------------
For each installment payment made pursuant to Sections 2(a), 2(b)(i)
and 2(b)(iv), the Employee shall receive (i) an amount (payable in Shares, or
with respect to non-cash assets other than Company stock, in kind) equal to the
percentage of the Original Shares (and the stock dividends, stock splits and
other non-cash distributions deemed received on the Original Shares) as
indicated for the installment under II below, and (ii) cash in the amount of
$18,400. In the event that the amount of cash to be distributed in an
installment exceeds the current balance in the Cash Account on the date of such
distribution, then the amount of the cash distribution shall be limited to the
balance in the Cash Account on such date. In the event that the balance in the
Cash Account on the date of the last installment is greater than $18,400, then
the entire balance in the Cash Account shall be distributed with such last
installment.
Fractional Shares shall be disregarded in computing the amount of
distributions hereunder. All applicable taxes shall be withheld from
distributions under the Agreement.
(c) Amount of Distributions under Section 2(b)(iii).
-----------------------------------------------
For each installment payment made pursuant to Section 2(b)(iii), the
Employee shall receive (i) an amount (payable in Shares, or with respect to non-
cash assets other than Company stock, in kind)) equal to the percentage of the
Original Shares then remaining in the Stock Account, as provided in Section
2(b)(iii) (and the stock dividends, stock splits and other non-cash
distributions received on such remaining Original Shares) indicated for the
installment under II below, and (ii) cash in an amount equal to (aa) $18,400,
multiplied by (bb) the Adjustment Fraction set forth in Section 2(b)(iii). In
the event that the amount of cash to be distributed in an installment exceeds
the current balance in the Cash Account on the date of such distribution, then
A-i
<PAGE>
the amount of the cash distribution shall be limited to the balance in the Cash
Account on such date. In the event that the balance in the Cash Account on the
date of the last installment is greater than the amount of cash determined
pursuant to subclause (ii) of the preceding sentence, then the entire balance in
the Cash Account shall be distributed with such last installment.
Fractional Shares shall be disregarded in computing the amount of
distributions hereunder. All applicable taxes shall be withheld from
distributions under the Agreement.
II. Distribution Schedule.
---------------------
Percentage of Original Shares
-----------------------------
Installment (and other assets in Stock Account) Distributed
----------- -----------------------------------------------
#1 8.8%
#2 8.2%
#3 7.6%
#4 7.0%
#5 6.5%
#6 6.0%
#7 5.6%
#8 5.2%
#9 4.9%
#10 4.7%
#11 4.4%
#12 4.2%
#13 3.9%
#14 3.7%
#15 3.6%
#16 3.4%
#17 3.3%
#18 3.2%
#19 3.0%
#20 2.9%
----
Total: 100%
A-ii
<PAGE>
Exhibit (10)
1995 SMS Senior Management
Incentive Compensation Plan
for
Frank Lavelle
Senior Vice President, US Customer Operations
Plan Year: 1/1/95 - 12/31/95
-----------------
Unit: Health Systems Division (HSD)
-----------------------------
---------------------------------------------------------------------
Approved by: /s/ Marvin S. Cadwell Date: 8-16-95
---------------------------------------------------------------------
Title: President and COO
---------------------------------------------------------------------
---------------------------------------------------------------------
Received by: /s/ Francis W. Lavelle Date: 8-16-95
---------------------------------------------------------------------
Title: Sr. Vice President, US
Customer Operations
---------------------------------------------------------------------
<PAGE>
Frank Lavelle
1995 ICP
I. Compensation Components
-----------------------
The compensation paid to participants in this plan is comprised of base
salary and incentive compensation. The base bonus for this Incentive
Compensation Plan is $100,000.
II. Summary of ICP Components
-------------------------
The objective of this Incentive Compensation Plan (ICP) is to compensate
the plan participant in direct proportion to his/her contribution to the
maximization of the sales, revenue and profit of the Health Systems
Division and SMS, and their achievement of certain general management
challenges. The definitions of these performance indicators are contained
in attachment A. The ICP is composed of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Performance Indicators SMS Bonus
- ----------------------------------------------------------
<S> <C> <C>
Sales $ 27,000 27%
- ----------------------------------------------------------
Revenue $ 18,000 18%
- ----------------------------------------------------------
Profit $ 45,000 45%
- ----------------------------------------------------------
Total Performance Bonus *90,000 90%
- ----------------------------------------------------------
General Management Challenge Bonus 10,000 10%
- ----------------------------------------------------------
Total Bonus $100,000 100%
- ----------------------------------------------------------
</TABLE>
*Balanced Performance Bonus -- an additional 10% of the calculated Performance
--------------------------
Bonus will be earned if the targets for all three (3) of the Performance
Indicators above are achieved or exceeded.
The actual bonus payments for the Performance Indicators will be determined
using the related factor column in Attachment B as a multiplier of bonus values
for each of the three (3) Performance Indicators.
III. Specific Measurement of ICP Components
--------------------------------------
The ICP will be based on the achievement of the assigned objectives.
1
<PAGE>
Frank Lavelle
1995 ICP
General Management Challenges
- -----------------------------
A bonus of $10,000 will be paid for performance against the following General
Management challenges:
* 1. Success of Quality Cycle
2. Completion of New Sales and Service Structure to Address Market Change
* 3. Development of Management Succession Plan
4. Implementation of Competitive Sales Program
5. Success of Chicago CHIN
* 6. Progress on Convergence Plans
* General Management Challenges for all HSD Leadership Team Members
Bonus Computation
- -----------------
Performance against the General Management challenges and corresponding bonus
payments will be determined by your immediate Manager.
None of the above listed bonus components will be considered earned unless the
participant is an employee on March 31 of the year following the plan year, or
at the time of payment if prior to that date.
IV. ICP Payment Policies
--------------------
A. Incentive compensation earned under this plan will be paid by March
31, 1996 or as soon as possible thereafter.
B. Participants who enter the plan during the year or after the plan year
start will receive prorated payments based on the percentage of months
the participant was in the plan during the year.
C. There are no draws under this plan.
D. The maximum bonus payout under this plan is three (3) times each
performance indicator or three (3) times the bonus in paragraph I
above. If these maximums are exceeded due to special circumstances, a
senior management review will occur.
E. This plan may be adjusted for changes in business conditions such as
abnormal or unusual business events or non-fulfillment of job duties.
F. At management's discretion, up to 20% of the earned bonus may be paid
in restricted stock.
2
<PAGE>
Frank Lavelle
1995 ICP
ATTACHMENT A
DEFINITION OF TERMS
- -------------------
Sales
- -----
The present value of the new software sold as stated in SMS contracts and
reported in the Monthly Sales Report. (To be included in the Sales Report the
contract must be dated and signed by the customer and SMS.)
Revenue
- -------
Operating revenue plus gross hardware sales less the cost of hardware sales, as
reported by Accounting.
Profit
- ------
Revenue (as defined) less direct (including all bonus costs of this plan) and
overhead expenses, as reported by Accounting.
Health Systems Division (HSD)
- -----------------------------
Health Systems Division includes the following organizations:
. The former Hospital Systems Division
. Radiology
. Decision Support Systems (DSS)
. Physician Services Division (PSD)
. Healthcare Data Exchange (HDX)
. Laboratory Products Division (LPD)
SMS
- ---
SMS includes all domestic operations. It does not include SMS Europe.
3
<PAGE>
Frank Lavelle
ATTACHMENT B 1995 ICP
<TABLE>
<CAPTION>
- --------------------------------------------------
PERFORMANCE PERCENTAGE % SALES REVENUE PROFIT
==================================================
<S> <C> <C> <C>
90 0
- --------------------------------------------------
91 0.19
- --------------------------------------------------
92 0.36
- --------------------------------------------------
93 0.51
- --------------------------------------------------
94 0.64
- --------------------------------------------------
95 0.75 0
- --------------------------------------------------
96 0.84 0.36
- --------------------------------------------------
97 0.91 0.64
- --------------------------------------------------
98 0.96 0.84
- --------------------------------------------------
99 0.99 0.96
- --------------------------------------------------
100 1.0 1.0 1.0
- --------------------------------------------------
101 1.001 1.005 1.02
- --------------------------------------------------
102 1.003 1.02 1.08
- --------------------------------------------------
103 1.007 1.045 1.18
- --------------------------------------------------
104 1.013 1.08 1.32
- --------------------------------------------------
105 1.02 1.125 1.5
- --------------------------------------------------
106 1.029 1.18 1.72
- --------------------------------------------------
107 1.039 1.245 1.98
- --------------------------------------------------
108 1.051 1.32 2.28
- --------------------------------------------------
109 1.065 1.405 2.62
- --------------------------------------------------
110 1.08 1.5 3.0
- --------------------------------------------------
111 1.10 1.605
- --------------------------------------------------
112 1.115 1.72
- --------------------------------------------------
113 1.135 1.845
- --------------------------------------------------
114 1.157 1.98
- --------------------------------------------------
115 1.18 2.125
- --------------------------------------------------
116 1.205 2.28
- --------------------------------------------------
117 1.231 2.445
- --------------------------------------------------
118 1.259 2.62
- --------------------------------------------------
119 1.288 2.805
- --------------------------------------------------
120 1.32 3.0
- --------------------------------------------------
121 1.353
- --------------------------------------------------
122 1.387
- --------------------------------------------------
123 1.423
- --------------------------------------------------
124 1.461
- --------------------------------------------------
125 1.5
- --------------------------------------------------
126 1.541
- --------------------------------------------------
127 1.583
- --------------------------------------------------
128 1.627
- --------------------------------------------------
129 1.673
- --------------------------------------------------
130 1.72
- --------------------------------------------------
131 1.769
- --------------------------------------------------
132 1.819
- --------------------------------------------------
133 1.871
- --------------------------------------------------
134 1.925
- --------------------------------------------------
135 1.98
- --------------------------------------------------
136 2.037
- --------------------------------------------------
137 2.095
- --------------------------------------------------
138 2.155
- --------------------------------------------------
139 2.217
- --------------------------------------------------
140 2.28
- --------------------------------------------------
141 2.345
- --------------------------------------------------
142 2.411
- --------------------------------------------------
143 2.479
- --------------------------------------------------
144 2.549
- --------------------------------------------------
145 2.62
- --------------------------------------------------
146 2.693
- --------------------------------------------------
147 2.767
- --------------------------------------------------
148 2.843
- --------------------------------------------------
149 2.921
- --------------------------------------------------
150 3.0
- --------------------------------------------------
</TABLE>
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 21,786
<SECURITIES> 0
<RECEIVABLES> 167,795
<ALLOWANCES> 5,190
<INVENTORY> 0
<CURRENT-ASSETS> 209,776
<PP&E> 243,090
<DEPRECIATION> 140,456
<TOTAL-ASSETS> 425,872
<CURRENT-LIABILITIES> 144,634
<BONDS> 3,412
<COMMON> 272
0
0
<OTHER-SE> 240,641
<TOTAL-LIABILITY-AND-EQUITY> 425,872
<SALES> 41,148
<TOTAL-REVENUES> 469,831
<CGS> 33,887
<TOTAL-COSTS> 347,782
<OTHER-EXPENSES> 38,161
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,017
<INCOME-PRETAX> 47,984
<INCOME-TAX> 18,714
<INCOME-CONTINUING> 29,270
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,270
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.24
</TABLE>
