<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, 1996
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, 1996, there were 23,528,629 shares of Common Stock
outstanding.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
SHARED MEDICAL SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEET
----------------------------------
(Amounts in thousands)
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
------------ -----------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments................... $ 17,986 $ 23,310
Accounts receivable, net.......................... 194,036 171,320
Prepaid expenses and other current assets......... 27,415 25,975
------------ -----------
Total Current Assets............................ 239,437 220,605
Property and Equipment, net........................ 101,156 101,164
Computer Software, net............................. 49,130 42,955
Other Assets....................................... 73,176 70,249
------------ -----------
$462,899 $434,973
============ ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Notes payable..................................... $ 43,809 $ 20,920
Current portion of long-term debt and
capital leases................................... 2,991 4,654
Dividends payable................................. 4,940 4,885
Accounts payable.................................. 15,918 28,301
Accrued expenses.................................. 36,376 39,469
Current deferred revenues......................... 25,504 23,557
Accrued and current deferred income taxes......... 9,825 10,913
------------ -----------
Total Current Liabilities....................... 139,363 132,699
------------ -----------
Deferred Revenues.................................. 9,405 13,209
------------ -----------
Long-Term Debt and Capital Leases.................. 15,193 16,960
------------ -----------
Deferred Income Taxes.............................. 25,316 23,285
------------ -----------
Commitments
Stockholders' Investment:
Preferred stock, par value $.10;
authorized 1,000,000 shares; none issued........ - -
Common stock, par value $.01; authorized
60,000,000 shares; 27,558,591 shares issued in
1996 and 27,288,942 in 1995..................... 275 273
Paid-in capital.................................. 47,455 39,561
Retained earnings................................ 283,942 265,010
Common stock in treasury, at cost, 4,033,127
shares in 1996 and 4,027,815 in 1995............ (55,699) (55,286)
Cumulative translation adjustment................ (2,351) (738)
------------ -----------
Total Stockholders' Investment.................. 273,622 248,820
------------ -----------
$462,899 $434,973
============ ===========
</TABLE>
The accompanying notes are an integral part of this statement.
2
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
----------------------------------
(Amounts in thousands except for per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
-------------------- ------------------
1996 1995 1996 1995
-------------------- ------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Service and system fees..... $172,559 $150,623 $496,585 $428,683
Hardware sales.............. 14,298 18,590 51,590 41,148
-------------------- ------------------
186,857 169,213 548,175 469,831
-------------------- ------------------
Cost and Expenses:
Operating and development... 82,947 73,236 237,478 204,463
Marketing and installation.. 57,253 50,206 164,943 143,319
General and administrative.. 15,135 13,124 44,410 38,161
Cost of hardware sales...... 11,827 15,324 43,922 33,887
Interest.................... 956 932 2,667 2,017
-------------------- ------------------
168,118 152,822 493,420 421,847
-------------------- ------------------
Income Before Income Taxes... 18,739 16,391 54,755 47,984
Provision for Income Taxes... 7,196 6,393 21,026 18,714
-------------------- ------------------
Net Income................... $ 11,543 $ 9,998 $ 33,729 $ 29,270
==================== ==================
Net Income Per Common Share.. $.48 $.42 $1.40 $1.24
==================== ==================
Number of shares used to
compute per share amounts... 24,137 23,737 24,144 23,647
==================== ==================
Dividends Per Common Share... $.21 $.21 $.63 $.63
==================== ==================
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
------------------
1996 1995
-------- --------
(unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income...................................... $ 33,729 $ 29,270
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization................ 28,157 27,236
Asset (increase) decrease -
Accounts receivable........................ (27,602) (23,666)
Prepaid expenses and other current assets.. (1,440) (7,710)
Other assets............................... 466 (2,103)
Liability increase (decrease) -
Accounts payable and accrued expenses...... (15,473) (6,487)
Accrued and current deferred income taxes.. (1,088) 1,368
Deferred revenues.......................... (1,858) (6,659)
Deferred income taxes...................... 2,031 1,127
Other........................................ (1,233) 336
-------- --------
Net cash provided by operating activities.. 15,689 12,712
-------- --------
Cash Flows from Investing Activities:
Property and equipment additions................ (20,114) (13,988)
Investment in computer software................. (13,749) (11,215)
Dispositions of equipment....................... 223 353
Acquisition of businesses....................... - (12,108)
-------- --------
Net cash used for investing activities..... (33,640) (36,958)
-------- --------
Cash Flows from Financing Activities:
Dividends paid.................................. (14,742) (14,530)
Change in treasury stock........................ (413) (158)
Payments on long-term obligations............... (3,003) (2,534)
Increase in notes payable....................... 22,889 35,534
Exercise of stock options....................... 7,896 6,471
-------- --------
Net cash provided by financing activities.. 12,627 24,783
-------- --------
Net (Decrease) Increase in Cash and Short-Term
Investments..................................... (5,324) 537
Cash and Short-Term Investments, Beginning
of Period....................................... 23,310 21,249
-------- --------
Cash and Short-Term Investments, End of Period... $ 17,986 $ 21,786
======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Notes to Consolidated Financial Statements
September 30, 1996 (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, 1996.
Note 2 - At September 30, 1996 and December 31, 1995, the Company's trade
------
accounts receivable were reduced by allowances for doubtful accounts of
$5,611,000 and $4,847,000, respectively.
Note 3 - The major classes of property and equipment at September 30, 1996
------
and December 31, 1995 were as follows (amounts in thousands):
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
------------ -----------
(unaudited)
<S> <C> <C>
Land and land improvements....... $ 11,560 $ 10,719
Buildings........................ 61,619 60,597
Equipment........................ 175,957 172,335
------------ -----------
249,136 243,651
Less accumulated depreciation
and amortization............. 147,980 142,487
------------ -----------
$101,156 $101,164
============ ===========
</TABLE>
Note 4 - The accumulated amortization for capitalized internally produced
------
computer software and purchased software at September 30, 1996 and December
31, 1995 was $52,247,000 and $45,317,000, respectively.
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, 1996. Management is not aware of any potential material
impairments to, or material changes in, the Company's current financial
position.
The most significant requirements for funds now anticipated are for purchases of
equipment and payment of cash dividends. The Company plans to fund anticipated
expenditures primarily through internally generated funds supplemented from time
to time by bank borrowings.
At September 30, 1996, the Company had lines of credit with banks of
approximately $71,598,000, generally at their prime interest rates. At
September 30, 1996, approximately $27,789,000 of these lines of credit were
unused.
5
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SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Material Changes in Results of Operations
- -----------------------------------------
Three Months Ended September 30, 1996 Compared to the Three Months Ended
September 30, 1995.
Revenues
--------
Service and system fees revenues were $172,559,000, an increase of 14.6%
compared to the third quarter of 1995. This increase was primarily due to
higher levels of professional services and system processing fees. The
higher level of professional services was generally attributable to system
support, installations, and facilities management service 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 decreased to $14,298,000 for the third quarter of
1996 from $18,590,000 in the third quarter of 1995, primarily due to
differences in the timing and product mix of systems installed.
Cost and Expenses
-----------------
Operating and development expenses decreased to 48.1% of service and system
fees revenues in the third quarter of 1996 from 48.6% for the third quarter
1995. This change was primarily due to efficiencies gained through
decreased computer hardware and associated costs at the Company's
Information Services Center, partially offset by increased personnel and
related costs to support the higher level of professional services provided
by the Company.
Marketing and installation expenses decreased to 33.2% of service and
system fees revenues in the third quarter of 1996 from 33.3% in the third
quarter of 1995, primarily due to a lower rate of growth for personnel and
related costs as compared to the growth in service and system fees
revenues.
General and administrative expenses, as a percentage of service and system
fees revenues, increased to 8.8% in the third quarter of 1996 from 8.7% in
the third quarter of 1995, primarily due to increased personnel and related
costs to support the business.
Cost of hardware sales increased to 82.7% of hardware sales revenues in the
third quarter of 1996 from 82.4% in the third quarter of 1995. This change
was primarily due to the different product mixes of systems installed in
each quarter.
Interest expense was $956,000 in the quarter ended September 30, 1996
compared to $932,000 in the same period in 1995. This change was primarily
due to a higher level of outstanding borrowings throughout the current
period.
6
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Provision for Income Taxes
--------------------------
Income taxes increased $803,000 in the quarter ended September 30, 1996
when compared to the same period in 1995. This change was primarily due to
an increase of $2,348,000 in income before income taxes. The Company's
effective tax rate for federal, state, and foreign income taxes was 38.4%
in the third quarter of 1996 and 39.0% in the third quarter of 1995. The
change in the effective tax rate was primarily due to a decrease in the
Company's effective state income tax rate.
Net Income
----------
Net income was $11,543,000 in the quarter ended September 30, 1996 compared
to $9,998,000 in the quarter ended September 30, 1995 for the reasons
discussed above.
Nine Months Ended September 30, 1996 Compared to the Nine Months Ended
September 30, 1995.
Revenues
--------
Service and system fees revenues were $496,585,000, an increase of 15.8%
compared to the same period in 1995. This increase was primarily due to
higher levels of professional services and system processing fees. The
higher level of professional services was generally attributable to system
installations, support, and facilities management service 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 $51,590,000 for the nine months ended
September 30, 1996 from $41,148,000 for the same period in 1995. The higher
level of hardware sales revenues was primarily due to increased
installations of IBM mainframe systems during the second quarter of 1996 to
new and existing customers that process the Company's INVISION product at
their site.
Cost and Expenses
-----------------
Operating and development expenses increased to 47.8% of service and system
fees revenues in the first three quarters of 1996 from 47.7% in the first
three quarters of 1995. This change was primarily due to increases in
certain customer related expenses, partially offset by efficiencies gained
through decreased computer hardware and associated costs at the Company's
Information Services Center.
Marketing and installation expenses decreased to 33.2% of service and
system fees revenues in the first three quarters of 1996 from 33.4% in the
first three quarters of 1995, primarily due to a lower rate of growth for
personnel and related costs as compared to the growth in service and system
fees revenues, partially offset by increases in certain customer related
expenses related to the higher level of professional services provided by
the Company for system installations and support.
7
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
General and administrative expenses, as a percentage of service and system
fees revenues, remained at 8.9% in the first three quarters of 1996
compared to the first three quarters of 1995.
Cost of hardware sales increased to 85.1% of hardware sales revenues in the
first three quarters of 1996 from 82.4% in the first three quarters of
1995. This change was primarily due to differences in the timing and
product mix of systems installed in each quarter.
Interest expense was $2,667,000 in the nine months ended
September 30, 1996 compared to $2,017,000 in the same period in 1995. This
change was primarily due to a higher level of outstanding borrowings
throughout the current period, which was partially attributable to funds
used for the acquisitions of two businesses in Europe in June and September
1995.
Provision for Income Taxes
--------------------------
The provision for income taxes increased $2,312,000 in the first three
quarters of 1996 when compared to the same period in 1995. This change was
due to an increase of $6,771,000 in income before income taxes. The
Company's effective tax rate for federal, state and foreign income taxes
was 38.4% in the first three quarters of 1996 and 39.0% in the first three
quarters of 1995. The change in the effective tax rate was primarily due to
a decrease in the Company's effective state income tax rate.
Net Income
----------
Net income was $33,729,000 in the first three quarters of 1996 compared to
$29,270,000 in the first three quarters of 1995 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
------ ---------------------------------------------------------
Material Contracts -
(10.1) Deferred compensation agreement:
Terry A. Pitts
(10.2) Form of executive employment agreement:
Terrence W. Kyle
Francis W. Lavelle
Robert J. McNeill
8
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
No. Description
------ ----------------------------------------------------------
David F. Perri
Terry A. Pitts
Guillermo N. Ramas, Sr.
Marion G. Tomlin
Matthew B. Townley
(10.3) Form of senior management employment agreement:
Edward J. Grady
Bonnie L. Shuman
(10.4) Form of performance bonus plan - 1996:
Terrence W. Kyle
Francis W. Lavelle
Robert J. McNeill
David F. Perri
Terry A. Pitts
Guillermo N. Ramas, Sr.
Marion G. Tomlin
Matthew B. Townley
(27) Financial Data Schedule
(b) No reports on Form 8-K were filed during the three-month
period ended September 30, 1996.
9
<PAGE>
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, 1996 /S/ Terrence W. Kyle
- ----------------- ----------------------------------
Date Terrence W. Kyle
Senior Vice President
Principal Financial Officer and
Duly Authorized Officer
10
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
Exhibit Index
No. Description
------ ------------------------------------
Material Contracts -
(10.1) Deferred compensation agreement:
Terry A. Pitts
(10.2) Form of executive employment agreement:
Terrence W. Kyle
Francis W. Lavelle
Robert J. McNeill
David F. Perri
Terry A. Pitts
Guillermo N. Ramas, Sr.
Marion G. Tomlin
Matthew B. Townley
(10.3) Form of senior management employment agreement:
Edward J. Grady
Bonnie L. Shuman
(10.4) Form of performance bonus plan - 1996:
Terrence W. Kyle
Francis W. Lavelle
Robert J. McNeill
David F. Perri
Terry A. Pitts
Guillermo N. Ramas, Sr.
Marion G. Tomlin
11
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
----------------------------------
No. Description
- ------- -----------------------------------
Matthew B. Townley
(27) Financial Data Schedule
12
<PAGE>
Exhibit (10.1)
DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT is made this 15th day of August, 1996, between SHARED
MEDICAL SYSTEMS CORPORATION (the "Company") and TERRY A. PITTS ("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 March 29, 1996 with a trustee selected by the Company (the
"Trustee"). Concurrent with the execution of this Agreement, the Company will
contribute to the Trust 6,000 newly-issued shares of Company Common Stock
("Original Shares") by delivery of such Original 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 three sub-accounts, Stock Account No.1, Stock
Account No.2, and a Cash Account. The Trustee shall hold 3,600 of the Original
Shares in Stock Account No.1. Any stock dividends, stock splits, and other non-
cash distributions received on such shares shall be held in Stock Account No.1.
The Trustee shall hold the remaining 2,400 of the Original Shares in Stock
Account No.2. Any stock dividends, stock splits, and other non-cash
distributions received on such shares shall be held in Stock Account No.2. 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. All accounts shall 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
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<PAGE>
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.
2. Entitlement to Benefits - Stock Account No.1.
--------------------------------------------
(a) Vesting.
-------
If Employee is continuously employed by the Company from the
date hereof until September 30, 2001 (the "Vesting Date"), he shall be
entitled to receive and shall have distributed to him the balance in Stock
Account No.1 at the time and in the manner provided in Exhibit A-1.
(b) Termination Before Vesting.
--------------------------
If Employee's employment with the Company is terminated for any
reason prior to the Vesting Date, Employee shall not be entitled to receive
any amount in Stock Account No.1, and no such distributions shall be made
to Employee, except under the following circumstances:
(i) Disability.
----------
If Employee's employment with the Company is terminated
as a result of his permanent disability prior to the Vesting Date,
Employee shall be entitled to receive and shall have distributed to
him the balance in Stock Account No.1, at the time and in the manner
provided in Exhibit A-1. 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 employment with the Company is terminated
prior to the Vesting Date as a result of Employee's death, Employee's
beneficiary designated pursuant to Section 6(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 Stock Account No.1, in a lump
sum.
-2-
<PAGE>
(iii) Discharge For Other Than Cause.
------------------------------
Except as otherwise provided in Section 2(b)(iv) below,
if Employee's employment with the Company is terminated prior to the
Vesting Date as a result of his discharge by the Company for any
reason other than "cause", the balance in Stock Account No.1 shall be
reduced to the balance in Stock Account No.1 as of his date of
termination multiplied by a fraction (the "1st Adjustment Fraction"),
the numerator of which shall be the number of full months Employee
worked for the Company after the date hereof, and the denominator of
which shall be 58. The balances in Stock Account No.1, as reduced,
shall be distributed to Employee, at the time and in the manner
provided in Exhibit A-1.
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 Stock Account No.1.
----------------------------------
If, prior to the Vesting Date, (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 Stock
Account No.1, at the time and in the manner provided in Exhibit
A-1.
-3-
<PAGE>
(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. Entitlement to Benefits - Stock Account No.2. It is currently
--------------------------------------------
anticipated that Employee will leave the employment of the Company on or shortly
after the Vesting Date and that Employee may return to the Company's employment
after a 2 to 4 year leave of absence. The pro rata vesting provisions set forth
below are designed so that Employee will be entitled to 100% of the balance in
Stock Account No.2 if he takes a 2 year leave of absence during the period
between September 30, 2001 and September 30, 2005 and continues to work for the
Company until June 30, 2009.
(a) Vesting.
-------
If Employee (i) is continuously employed by the Company from the
date hereof until September 30, 2001, and (ii) is employed by the Company
at any time during the period from the Vesting Date until June 30, 2009
(the "2nd Vesting Period"), Employee shall be entitled to receive and shall
have distributed to him all or a portion of the balance in Stock Account
No.2 determined as follows. If Employee is entitled to benefits pursuant to
this subsection (a), except as provided in subsection (b) below, prior to
its distribution the balance in Stock Account No.2 shall be reduced to the
balance in Stock Account No.2 as of the latest date of Employee's
employment by the Company during the 2nd Vesting Period multiplied by a
fraction (the "2nd Adjustment
-4-
<PAGE>
Fraction"), the numerator of which shall be the number of full months
Employee was employed by the Company during the 2nd Vesting Period, and the
denominator of which shall be 69. The balances in Stock Account No.2, as
reduced, shall be distributed to Employee, at the time and in the manner
provided in Exhibit A-2.
(b) Termination of Vesting.
----------------------
Notwithstanding the foregoing, if Employee voluntarily leaves
the employment of the Company (i) prior to September 30, 2005 and does not
return to such employment by September 30, 2005, or (ii) on or after
September 30, 2005, or (iii) more than once during the 2nd Vesting Period,
then prior to its distribution the balance in Stock Account No.2 shall be
reduced to the balances in Stock Account No.2 as of the latest date of
Employee's employment with the Company prior to such leave of employment,
multiplied by the 2nd Adjustment Fraction. (Any months during which
Employee is employed by the Company after returning from any such leave of
employment described in clauses (i), (ii) or (iii) above shall not be
included in the numerator of the 2nd Adjustment Fraction.)
4. Entitlement to Benefits - Cash Account.
--------------------------------------
If Employee is entitled to receive any benefits under Sections 2 or 3
above, he shall also be entitled to receive, and shall have distributed to him,
the portion of the Cash Account determined as provided in the next sentence, at
the time and in the manner set forth in Exhibit A-3. At such time as a final
determination can be made as to Employee's entitlement to benefits under
Sections 2 and 3 above, the balance in the Cash Account shall be reduced to the
balance in the Cash Account as of such date multiplied by a fraction (the
"Entitlement Fraction"), the numerator of which shall be the total number of the
Original Shares to which Employee is entitled pursuant to Sections 2 and 3
above, and the denominator of which shall be 6,000 (the total number of Original
Shares).
5. 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
-5-
<PAGE>
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.
6. 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 Employee, or a closing
agreement involving Employee made under section 7121 of the Code that is
approved by the Commissioner, that Employee has recognized or will recognize
income for Federal income tax purposes with respect to benefits that are or will
be payable to Employee hereunder, before they otherwise would be paid to
Employee, the Company shall discuss with Employee appropriate measures to
eliminate a negative economic impact on Employee, including if approved by the
Company, an immediate distribution by the Trustee from the Trust to Employee or
Beneficiary of the amount so taxable.
7. Beneficiaries.
-------------
(a) Death of Employee Entitled to Benefits.
--------------------------------------
If Employee dies after becoming entitled to benefits hereunder
the portion of the balances in Stock Account No.1, Stock Account No.2 and
the Cash Account to which Employee was entitled at the time of his death
shall, within 30 days of Employee's death, be distributed in a lump sum to
Employee's beneficiary designated pursuant to Section 7(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 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 Employee, his estate shall be his
beneficiary.
-6-
<PAGE>
8. Claims and Appeals Procedure.
----------------------------
The Company has provided to Employee a copy of the Claims and Appeals
procedures which will be followed under this Agreement and which are
incorporated herein by reference.
9. 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.
10. 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.
11. 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.
-7-
<PAGE>
12. 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.
13. No Contract of Employment.
-------------------------
Nothing contained herein shall be construed as conferring upon
Employee the right to continue in the employ of the Company.
14. 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.
15. 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.
-8-
<PAGE>
16. 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/ Bonnie L. Shuman By: /s/ Terrence W. Kyle
- ---------------------- --------------------------------
Assistant Secretary Name: Terrence W. Kyle
Title: Vice President of Finance
WITNESS:
/s/ John P. Dougherty /s/ Terry A. Pitts
- ---------------------- -----------------------------------
Terry A. Pitts
-9-
<PAGE>
Exhibit A-1
I. Distribution of Benefits - Stock Account No.1.
----------------------------------------------
(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 June 30,
2009, or if Employee is then employed by the Company, the date of the
termination of Employee's employment occurring on or after June 30, 2009.
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 June 30, 2009. Annual installments shall be distributed on the
anniversary of the first such distribution.
(b) Amount of Distributions Under Sections 2(a), 2(b)(i) and 2(b)(iv).
------------------------------------------------------------------
For each installment payment made pursuant to Sections 2(a), 2(b)(i) and
2(b)(iv), Employee shall receive an amount (payable in Shares, or with respect
to non-cash assets other than Company stock, in kind) equal to the percentage of
the 3,600 Original Shares in Stock Account No.1 (and the stock dividends, stock
splits and other non-cash distributions deemed received on such Original Shares)
as indicated for the installment under II below. 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),
Employee shall receive 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 Stock Account No.1, 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. Fractional Shares shall be disregarded in computing
the amount of distributions hereunder. All applicable taxes shall be withheld
from distributions under the Agreement.
A-i
<PAGE>
II. Distribution Schedule.
----------------------
Percentage of Original Shares
(and other assets in Stock Account)
Installment Distributed
#1 7.8%
#2 7.4%
#3 6.9%
#4 6.5%
#5 6.2%
#6 5.8%
#7 5.5%
#8 5.2%
#9 5.0%
#10 4.8%
#11 4.6%
#12 4.4%
#13 4.3%
#14 4.1%
#15 3.9%
#16 3.8%
#17 3.6%
#18 3.5%
#19 3.4%
#20 3.3%
----
Total: 100%
A-ii
<PAGE>
Exhibit A-2
I. Distribution of Benefits - Stock Account No.2.
----------------------------------------------
(a) Timing of Distributions.
------------------------
Distributions pursuant to Section 3 shall be made in 20 annual
installment payments on the same dates as the installment payments made pursuant
to Section 2(a) as provided in Exhibit A-1.
(b) Amount of Distributions Under Section 3.
----------------------------------------
For each installment payment made pursuant to Section 3, Employee shall
receive 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 Stock Account No.2, as reduced as provided in Section 3(a) or
3(b), (and the stock dividends, stock splits and other non-cash distributions
received on such remaining Original Shares) indicated for the installment under
Section II of Exhibit A-1 above. Fractional Shares shall be disregarded in
computing the amount of distributions hereunder. All applicable taxes shall be
withheld from distributions under the Agreement.
A-iii
<PAGE>
Exhibit A-3
I. Distribution of Benefits - Cash Account.
---------------------------------------
(a) Timing of Distributions.
-----------------------
Distributions pursuant to Section 4 shall be made in 20 annual
installment payments on the same dates as the installment payments are made from
Stock Account No.1 are made under Exhibit A-1.
(b) Amount of Distributions Under Section 3.
---------------------------------------
For each installment payment made pursuant to Section 4, Employee shall
receive cash in an amount equal to (aa) $11,700 multiplied by (bb) the
Entitlement Fraction. 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 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 the first sentence of this paragraph, then the
entire balance in the Cash Account shall be distributed with such last
installment.
A-iv
<PAGE>
Exhibit (10.2)
EXECUTIVE EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of _______________, 19 ___, between Shared
Medical Systems Corporation (Employer or "Company"), a Delaware
corporation having its principal office at Malvern, PA, and
___________________, an individual residing at ________________________
("Executive").
Executive and Employer agree as follows:
1.0 EMPLOYMENT, COMPENSATION AND BENEFITS.
1.1 Employer hereby provides to Executive, in consideration for Executive's
covenants contained herein, employment, compensation and
benefits as outlined in the memorandum attached and incorporated by
reference herein ("Memorandum"), and Executive hereby accepts such
employment, compensation and benefits, upon the terms and conditions
hereinafter set forth.
1.2 Executives salary shall remain as described in the memorandum until a
new salary is determined and approved by the Company's chief executive
officer ("CEO"). Executive's monthly salary is referred to herein as
"Base Compensation."
1.3 Executive shall perform such duties as may be assigned from time to time
by Employer, shall devote full time, attention, and energies to the
business of Employer, and shall faithfully perform his duties in
accordance with the direction of Employer. Executive also agrees to
adhere to all policies of the Employer.
1.4 Executive shall be entitled to participate in all group life insurance,
medical, and other benefit plans, except as provided herein, established
by Employer and generally available to all Employees, in accordance with
the applicable terms and conditions of such plans.
1.5 Executive shall be entitled to an annual vacation of four weeks, and
holidays and sick leave as set forth in Employer's policy manual.
1.6 In addition to the annual salary described in the Memorandum and Section
1.2 above, Executive shall be entitled to such annual bonus or incentive
compensation of the Employer, as may be approved from time to time by
the CEO in his sole discretion. Such additional compensation is referred
to herein as "Incentive Compensation."
1.7 This Agreement shall remain in full force and effect until Executive's
change to a non-Executive level position or upon termination of
employment and those post-employment obligations described in Sections
4.0 and 5.0 shall continue in full force and effect thereafter.
2.0 DEFINITIONS. For purposes of this Agreement, the following definitions
shall apply.
2.1 "Severance Pay" is a monthly payment made up of three components: (i)
Base
Page 1
<PAGE>
Compensation (as defined above); (ii) Incentive Compensation (as
defined above): Average of Incentive Compensation payments made to
Executive over the last thirty six months preceding Executive's
termination of employment, divided by thirty six; and (iii) the monthly
cost of continued medical insurance coverage under COBRA. This right to
premium payments does not expand an Executive's right to medical
coverage.
2.2 "Cause" shall mean termination of Executive due to Executive's (i)
dishonest or illegal conduct; (ii) breach of his obligations under this
Agreement; (iii) conduct contrary to the best interests of Employer;
(iv) insubordination, incompetence, misconduct, poor performance or
neglect of his duties; or (v) willful violation of any express direction
of the CEO.
2.3 "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 (i) 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; (ii) a liquidation or dissolution of the Company; or (iii) a
sale of all or substantially all of the Company's assets.
3.0 SEVERANCE PAY.
3.1 Notwithstanding any provision in this Agreement, the Company retains its
right to terminate Executive's employment without Cause. Upon
termination without Cause, Company shall pay to Executive Severance Pay
for a period of eighteen (18) months.
Except as provided in Section 3.2, the payments required to be made by
Employer to Executive pursuant to this Section 3.1 shall be Executive's
sole severance benefit in the event of Executive's discharge without
cause. Payment of such severance benefit is conditioned upon Executive
executing a general release of all claims against the Company, and
Executive's continued adherence to his/her obligations under Sections
4.0 and 5.0 of this Agreement. Notwithstanding the above, in no event
will Severance Pay be less than one week of Executive's Base
Compensation for every year of Executive's employment with the Company.
3.2 If Employer terminates Executive's employment at any time within one
year after a Change in Control, Employer shall pay to Executive in a
lump sum an amount equal to one year of Executive's Base Compensation
plus a pro rata portion of the maximum amount of Incentive Compensation,
if any, which could have been paid to Executive for the year in which
such termination occurred. Under this Section 3.2, such payments will
not be less than the total of Executive's Base Compensation and
Incentive Compensation for the year prior to the year in which Executive
is
Page 2
<PAGE>
terminated. Such payment required to be made by Employer to Executive
pursuant to this Section 3.2 shall be in lieu of those referred to in
Section 3.1 and shall be Executive's sole severance benefit. Payment of
such severance benefit is conditioned upon Executive executing a general
release of all claims against the Company, and Executive's continued
adherence to his/her obligations under Sections 4.0 and 5.0 of this
Agreement. Executive hereby agrees to repay to Company a pro rata
portion of such severance benefit should he/she violate his/her
obligations under Sections 4.0 and/or 5.0.
3.3 Employer may terminate Executive's employment immediately at any time
for Cause. In the event of termination for Cause, Employer shall not be
obligated to make any payments other than the payment of earned but
unpaid salary and benefits. Payments of Incentive Compensation, if any,
will only be those amounts actually earned under the Incentive
Compensation Plan prior to Employee's termination.
3.4 If Executive is unable to perform his duties and responsibilities by
reason of a disability as defined under Company's short term disability
plan (irrespective of whether employment has been terminated), Company
shall provide Executive with short term disability benefits for a period
of six months at a rate equal to Executive's Base Compensation and a pro
rata portion of the amount of Incentive Compensation, if any, paid in
the normal process under the Plan for the year during which Executive
first became disabled. This short term disability benefit shall be
reduced by the amount of payments due Executive for this time period
under any applicable disability benefit programs, including Social
Security disability, workers' compensation and disability retirement
benefits.
3.5 In the event that Executive dies during the term of his Employment,
Employer shall pay to his executors or administrators, as appropriate,
for a period of three months, Executive's Base Compensation and a pro
rata portion of the amount of Incentive Compensation, if any, paid in
the normal process under the Plan for the year in which Executive died.
To the extent reasonably possible, such payments will be structured as
non-taxable death benefits under the Internal Revenue Code.
4.0 CONFIDENTIAL INFORMATION.
4.1 Executive represents and warrants that Executive is free of any
contractual restrictions and restraints in entering this Agreement, and
has not, and will not, in connection with this employment, divulge any
confidential information, trade secrets, or copyright-protected
information of any prior employer or of any other third party.
4.2 Employer will provide to Executive or Executive will learn, trade
secrets and other proprietary information of Employer and third parties
which are not generally available to the public. Examples of this
information include computer programs, marketing and development plans,
proprietary product and service offerings data about Employer, customer
and prospect lists and requirements, employee lists, salaries and
benefits, financial information
Page 3
<PAGE>
and customer and vendor data. During Executive's employment and at all
times afterward, Executive shall keep confidential all such information
and material and will not disclose such information to any person or
entity or make any use of this information, except as required in the
performance of Executive's current employment responsibilities. When
Executive leaves Employer's employment, Executive will immediately
return to Employer all materials containing such information. Such
materials shall, at all times, be the property of the Employer.
4.3 Employer may seek and obtain injunctive relief against the breach or
threatened breach of Executive's obligations under this paragraph, in
addition to any other legal remedies which may be available.
5.0 NON-COMPETITION.
5.1 During the term of this Agreement and for eighteen (18) months following
termination of Executive's employment for any reason:
(i) Executive will not, without Employer's prior written consent,
(a) compete with Employer's business activities or accept similar
employment with a competitor of Employer, or (b) solicit any customer or
prospect of Employer that Executive or his subordinates solicited or
serviced for Employer, or (c) solicit other individuals who were
Employer's employees on the date Executive left Employer to also leave
Employer. If Executive's responsibilities for Employer have a geographic
territory, this provision will apply only within the geographic
territory for which Executive had responsibility during the year before
Executive left Employer; otherwise it will apply where Employer does or
has existing plans to do business.
(ii) Executive hereby acknowledges that the limitation as to time and
the limitation on the character or nature placed on his subsequent
employment are reasonable and fair and will not prevent or
materially impair his/her ability to earn a livelihood.
5.2 Employer may seek and obtain injunctive relief against the breach or
threatened breach of Executive's obligations under this paragraph, in
addition to any other legal remedies which may be available.
6.0 OWNERSHIP OF WORK PRODUCT.
The parties agree that all "Work" (which shall include for purposes of
this Section all ideas, processes, methodologies, software, algorithms,
formulae, notes, outlines, photographs, inventions, improvements, and
other information and work product developed or generated by or on
behalf of Employer during the course of the Executive's performance
under this Agreement and for six months thereafter), shall be considered
"works made for hire" within the meaning of the Copyright Act of 1976,
17 U.S.C. (S)101 et seq., and that Employer is and shall be the sole
owner of all rights therein, including but not limited to all rights of
copyright. In the event any of the Work is deemed not to be a "work made
for hire," then Executive
Page 4
<PAGE>
hereby transfers to Employer, without further consideration, all right,
title, and interest to such Work, including any and all patents,
copyrights, trade secrets and other proprietary rights related thereto.
Executive agrees to promptly execute and deliver, or cause to be
promptly executed and delivered, all documents and instruments requested
by Employer to evidence the foregoing assignment.
7.0 MISCELLANEOUS.
This Agreement: (i) may not be amended except in a writing executed by
both parties; (ii) shall only be governed by and construed in accordance
with the laws of the State of Delaware; (iii) shall be binding upon and
inure to the benefit of Employer and Executive and their respective
successors and permitted assigns; and (iv) represents the entire
Agreement and understanding of the parties with respect to the subject
matter hereof and supersedes all prior agreements and understandings of
the parties in connection therewith. If any portion of this Agreement is
deemed to be unenforceable, the balance of this Agreement shall
nevertheless continue in effect and any court may enforce any provision
to the extent permitted by law, even though the entire provision may not
be enforced. This Agreement shall not be assignable by Executive, and
shall be assignable by Employer only to any person, firm, or corporation
which may become a successor in interest by purchase, merger or
otherwise.
IN WITNESS WHEREOF, the undersigned, intended to be legally bound, have
duly executed this Agreement as of the date first above written.
ACCEPTED:
SHARED MEDICAL SYSTEMS CORPORATION
By: _________________________
(Signature)
By: _______________________________
(Signature)
_______________________________
Executive Name
Name: ______________________________
Title: ___________________________
Page 5
<PAGE>
Schedule to Exhibit (10.2)
The following executive officers of the Registrant executed executive employment
agreements in the form of this Exhibit (10.2) on the dates indicated opposite
their names listed below:
Terrence W. Kyle August 6, 1996
Francis W. Lavelle August 15, 1996
Robert J. McNeill August 12, 1996
David F. Perri August 7, 1996
Terry A. Pitts August 10, 1996
Guillermo N. Ramas, Sr. September 29, 1996
Marion G. Tomlin August 9, 1996
Matthew B. Townley August 7, 1996
<PAGE>
Exhibit (10.3)
SENIOR MANAGEMENT EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of _______________, 19 ___, between Shared
Medical Systems Corporation (Employer or "Company"), a Delaware
corporation having its principal office at Malvern, PA, and ___________,
an individual residing at ________________________ ("Executive").
Executive and Employer agree as follows:
1.0 EMPLOYMENT, COMPENSATION AND BENEFITS.
1.1 Employer hereby provides to Executive, in consideration for Executive's
covenants contained herein, employment, compensation and
benefits as outlined in the memorandum attached and incorporated by
reference herein ("Memorandum"), and Executive hereby accepts such
employment, compensation and benefits, upon the terms and conditions
hereinafter set forth.
1.2 Executive's salary shall remain as described in the Memorandum until a
new salary is determined and approved by the Company's chief executive
officer ("CEO"). Executive's monthly salary is referred to herein as
"Base Compensation."
1.3 Executive shall perform such duties as may be assigned from time to time
by Employer, shall devote full time, attention, and energies to the
business of Employer, and shall faithfully perform his duties in
accordance with the direction of Employer. Executive also agrees to
adhere to all policies of the Employer.
1.4 Executive shall be entitled to participate in all group life insurance,
medical, and other benefit plans, except as provided herein, established
by Employer and generally available to all Employees, in accordance with
the applicable terms and conditions of such plans.
1.5 Executive shall be entitled to an annual vacation of four weeks, and
holidays and sick leave as set forth in Employer's policy manual.
1.6 In addition to the annual salary described in the Memorandum and Section
1.2 above, Executive shall be entitled to such annual bonus or incentive
compensation of the Employer, as may be approved from time to time by
the CEO in his sole discretion. Such additional compensation is referred
to herein as "Incentive Compensation."
1.7 This Agreement shall remain in full force and effect until Executive's
change to a non-Executive level position or upon termination of
employment and those post-employment obligations described in Sections
4.0 and 5.0 shall continue in full force and effect thereafter.
2.0 DEFINITIONS. For purposes of this Agreement, the following definitions
shall apply.
Page 1
<PAGE>
2.1 "Severance Pay" is a monthly payment made up of three components: (i)
Base Compensation (as defined above); (ii) Incentive Compensation (as
defined above): Average of Incentive Compensation payments made to
Executive over the last thirty six months preceding Executive's
termination of employment, divided by thirty six; and (iii) the monthly
cost of continued medical insurance coverage under COBRA. This right to
premium payments does not expand an Executive's right to medical
coverage.
2.2 "Cause" shall mean termination of Executive due to Executive's (i)
dishonest or illegal conduct; (ii) breach of his obligations under this
Agreement; (iii) conduct contrary to the best interests of Employer;
(iv) insubordination, incompetence, misconduct, poor performance or
neglect of his duties; or (v) willful violation of any express direction
of the CEO.
2.3 "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 (i) 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; (ii) a liquidation or dissolution of the Company; or (iii) a
sale of all or substantially all of the Company's assets.
3.0 SEVERANCE PAY.
3.1 Notwithstanding any provision in this Agreement, the Company retains its
right to terminate Executive's employment without Cause. Upon
termination without Cause, Company shall pay to Executive Severance
Pay for a period of fifteen (15) months.
Except as provided in Section 3.2, the payments required to be made by
Employer to Executive pursuant to this Section 3.1 shall be Executive's
sole severance benefit in the event of Executive's discharge without
cause. Payment of such severance benefit is conditioned upon Executive
executing a general release of all claims against the Company, and
Executive's continued adherence to his/her obligations under Sections
4.0 and 5.0 of this Agreement. Notwithstanding the above, in no event
will Severance Pay be less than one week of Executive's Base
Compensation for every year of Executive's employment with the Company.
3.2 If Employer terminates Executive's employment at any time within one
year after a Change in Control, Employer shall pay to Executive in a
lump sum an amount equal to one year of Executive's Base Compensation
plus a pro rata portion of the maximum amount of Incentive Compensation,
if any, which could have been paid to Executive for the year in which
such
Page 2
<PAGE>
termination occurred. Under this Section 3.2, such payments will
not be less than the total of Executive's Base Compensation and
Incentive Compensation for the year prior to the year in which Executive
is terminated. Such payment required to be made by Employer to Executive
pursuant to this Section 3.2 shall be in lieu of those referred to in
Section 3.1 and shall be Executive's sole severance benefit. Payment of
such severance benefit is conditioned upon Executive executing a general
release of all claims against the Company, and Executive's continued
adherence to his/her obligations under Sections 4.0 and 5.0 of this
Agreement. Executive hereby agrees to repay to Company a pro rata
portion of such severance benefit should he/she violate his/her
obligations under Sections 4.0 and/or 5.0.
3.3 Employer may terminate Executive's employment immediately at any time
for Cause. In the event of termination for Cause, Employer shall not be
obligated to make any payments other than the payment of earned but
unpaid salary and benefits. Payments of Incentive Compensation, if any,
will only be those amounts actually earned under the Incentive
Compensation Plan prior to Employee's termination.
3.4 If Executive is unable to perform his duties and responsibilities by
reason of a disability as defined under Company's short term disability
plan (irrespective of whether employment has been terminated), Company
shall provide Executive with short term disability benefits for a period
of six months at a rate equal to Executive's Base Compensation and a pro
rata portion of the amount of Incentive Compensation, if any, paid in
the normal process under the Plan for the year during which Executive
first became disabled. This short term disability benefit shall be
reduced by the amount of payments due Executive for this time period
under any applicable disability benefit programs, including Social
Security disability, workers' compensation and disability retirement
benefits.
3.5 In the event that Executive dies during the term of his Employment,
Employer shall pay to his executors or administrators, as appropriate,
for a period of three months, Executive's Base Compensation and a pro
rata portion of the amount of Incentive Compensation, if any, paid in
the normal process under the Plan for the year in which Executive died.
To the extent reasonably possible, such payments will be structured as
non-taxable death benefits under the Internal Revenue Code.
4.0 CONFIDENTIAL INFORMATION.
4.1 Executive represents and warrants that Executive is free of any
contractual restrictions and restraints in entering this Agreement, and
has not, and will not, in connection with this employment, divulge any
confidential information, trade secrets, or copyright-protected
information of any prior employer or of any other third party.
4.2 Employer will provide to Executive or Executive will learn, trade
secrets and other proprietary information of Employer and third parties
which are not generally available to the public. Examples of this
information include
Page 3
<PAGE>
computer programs, marketing and development plans, proprietary product
and service offerings data about Employer, customer and prospect lists
and requirements, employee lists, salaries and benefits, financial
information and customer and vendor data. During Executive's employment
and at all times afterward, Executive shall keep confidential all such
information and material and will not disclose such information to any
person or entity or make any use of this information, except as required
in the performance of Executive's current employment responsibilities.
When Executive leaves Employer's employment, Executive will immediately
return to Employer all materials containing such information. Such
materials shall, at all times, be the property of the Employer.
4.3 Employer may seek and obtain injunctive relief against the breach or
threatened breach of Executive's obligations under this paragraph, in
addition to any other legal remedies which may be available.
5.0 NON-COMPETITION.
5.1 During the term of this Agreement and for fifteen (15) months following
termination of Executive's employment for any reason:
(i) Executive will not, without Employer's prior written consent, (a)
compete with Employer's business activities or accept similar
employment with a competitor of Employer, or (b) solicit any
customer or prospect of Employer that Executive or his
subordinates solicited or serviced for Employer, or (c) solicit
other individuals who were Employer's employees on the date
Executive left Employer to also leave Employer. If Executive's
responsibilities for Employer have a geographic territory, this
provision will apply only within the geographic territory for which
Executive had responsibility during the year before Executive left
Employer; otherwise it will apply where Employer does or has
existing plans to do business.
(ii) Executive hereby acknowledges that the limitation as to time and
the limitation on the character or nature placed on his subsequent
employment are reasonable and fair and will not prevent or
materially impair his/her ability to earn a livelihood.
5.2 Employer may seek and obtain injunctive relief against the breach or
threatened breach of Executive's obligations under this paragraph, in
addition to any other legal remedies which may be available.
6.00 OWNERSHIP OF WORK PRODUCT.
The parties agree that all "Work" (which shall include for purposes of
this Section all ideas, processes, methodologies, software, algorithms,
formulae, notes, outlines, photographs, inventions, improvements, and
other information and work product developed or generated by or on
behalf of Employer during the course of the Executive's performance
under this Agreement and for six months thereafter),
Page 4
<PAGE>
shall be considered "works made for hire" within the meaning of the
Copyright Act of 1976, 17 U.S.C. (S)101 et seq., and that Employer is
and shall be the sole owner of all rights therein, including but not
limited to all rights of copyright. In the event any of the Work is
deemed not to be a "work made for hire," then Executive hereby transfers
to Employer, without further consideration, all right, title, and
interest to such Work, including any and all patents, copyrights, trade
secrets and other proprietary rights related thereto. Executive agrees
to promptly execute and deliver, or cause to be promptly executed and
delivered, all documents and instruments requested by Employer to
evidence the foregoing assignment.
7.0 MISCELLANEOUS.
This Agreement: (i) may not be amended except in a writing executed by
both parties; (ii) shall be governed by and construed in accordance with
the laws of the State of Delaware; (iii) shall be binding upon and inure
to the benefit of Employer and Executive and their respective successors
and permitted assigns; and (iv) represents the entire Agreement and
understanding of the parties with respect to the subject matter hereof
and supersedes all prior agreements and understandings of the parties in
connection therewith. If any portion of this Agreement is deemed to be
unenforceable, the balance of this Agreement shall nevertheless continue
in effect and any court may enforce any provision to the extent
permitted by law, even though the entire provision may not be enforced.
This Agreement shall not be assignable by Executive, and shall be
assignable by Employer only to any person, firm, or corporation which
may become a successor in interest by purchase, merger or otherwise.
IN WITNESS WHEREOF, the undersigned, intended to be legally bound, have
duly executed this Agreement as of the date first above written.
ACCEPTED:
SHARED MEDICAL SYSTEMS CORPORATION
___________________________
Executive (Name)
___________________________ ____________________________________
(Signature) By (Signature)
Name: ______________________________
Title: ______________________________
Page 5
<PAGE>
Schedule to Exhibit (10.3)
The following executive officers of the Registrant executed senior management
employment agreements in the form of this Exhibit (10.3) on the dates indicated
opposite their names listed below:
Edward J. Grady August 28, 1996
Bonnie L. Shuman August 28, 1996
<PAGE>
Exhibit (10.4)
1996 SMS Senior Management
Incentive Compensation Plan for:
----------------------------
(Name)
Plan Year: 1/1/96 - 12/31/96
-----------------
Approved by :
--------------------------
Marv Cadwell, CEO
Date:
--------------------------
<PAGE>
1996 SMS Senior Management ICP
I. Compensation Components
-----------------------
The compensation paid to plan Participants is comprised of a base salary and
this incentive compensation. The base bonus targeted for this Incentive
Compensation Plan is $________
II. Summary of ICP Components
-------------------------
The objective of this Incentive Compensation Plan (ICP) is to compensate the
plan Participant in proportion to his/her contributions to SMS' achievement of
its worldwide sales, revenue, pretax income, and accounts receivable/cash flow
objectives, and to the 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>
- -----------------------------------------------------------------------------------------------------------
Focus Area SMS Targets Total Bonus
(Potential @100% (Potential @100% (Potential @ 100%
Achievement) Achievement) Achievement)
- -----------------------------------------------------------------------------------------------------------
1. Performance Indicators: Dollars % Dollars % Dollars %
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales
- -----------------------------------------------------------------------------------------------------------
Revenue
- -----------------------------------------------------------------------------------------------------------
Pretax Income
- -----------------------------------------------------------------------------------------------------------
Accounts Receivable Days
- -----------------------------------------------------------------------------------------------------------
Capital Expenditure
- -----------------------------------------------------------------------------------------------------------
Subtotal - Perf Indicators Bonus
- -----------------------------------------------------------------------------------------------------------
2. General Mgmt. Challenge Bonus
- -----------------------------------------------------------------------------------------------------------
Total Bonus (Before [A])
- -----------------------------------------------------------------------------------------------------------
</TABLE>
[A] Balanced Performance Bonus -- an additional 10% of the actual
--------------------------
calculated Performance Indicators Bonus will be earned if the targets for
all five (5) of the SMS Performance Indicators are achieved or exceeded.
III. Specific Measurement of ICP Components
--------------------------------------
A) Performance Indicators - The incentive compensation will be based on
----------------------
the achievement of the targets for five (5) Performance Indicators,
namely Sales, Revenue, Pretax Income, Accounts Receivable Days and
Capital Expenditure. These indicators will apply to SMS' worldwide
operations, and may, at management's discretion, also apply to a
relevant subset (ex. a specific business unit) that the Participant is
directly responsible to manage. The specific targets for both the SMS
Targets and each Participant's unique Focus Areas, if applicable, are
documented in a separate memo. The actual bonus payments related to
the Sales, Revenue, Pretax Income and Accounts Receivable Days
Performance Indicators will be determined using the table on
Attachment B (by first computing actual performance against each
Performance Indicator target in order to determine the payout factor;
then multiplying each payout factor by the relevant Bonus Potential
amount specified in the table in Section II above). The actual bonus
payment related to the Capital Expenditure Performance Indicator will
be determined based solely on whether or not the Capital Expenditure
budget is exceeded.
1
<PAGE>
1996 SMS Senior Management ICP
B) General Management Challenges - A bonus of up to 10% of this plan's
-----------------------------
Bonus Potential will be paid for performance against the following
General Management challenges:
1.
2.
3.
4.
5.
Performance against these General Management Challenges, and the
determination of the corresponding bonus payments, will be determined by
the Participant's immediate manager.
IV. ICP Payment Policies
--------------------
A) None of the above listed bonus components will be considered earned
unless the participant is an employee on March 31, 1997, or at the time
of payment, if prior to that date.
B) Incentive compensation earned under this plan will be paid by March 31,
1997 or as soon as practical thereafter.
C) Participants who enter the plan during the year or after the plan year
starts will receive prorated payments based on the percentage of months
the Participant was in the plan during the year.
D) There are no draws under this plan.
E) The maximum bonus payout under this plan is three (3) times the Bonus
Potential for each of the Sales, Revenue, Pretax Income and Accounts
Receivable Days Performance Indicators, plus 100% of the General
Management Challenges Bonus, plus 100% of the bonus potential for the
Capital Expenditure Performance Indicator, plus the Balanced
Performance Bonus. If performance exceeds the thresholds at which the
Performance Indicator maximums are set, a senior management review will
occur to determine whether any additional bonuses will be paid.
F) This plan may be adjusted for changes in business conditions, abnormal
or unusual business events, or non-fulfillment of job duties.
G) At management's discretion, up to 20% of the earned bonus may be paid
in restricted stock.
2
<PAGE>
1996 SMS Senior Management ICP ATTACHMENT A
DEFINITION OF ICP TERMS
-----------------------
Sales
- -----
The present value of the new software, support, professional services, and net
hardware sold by SMS organizations during 1996, as stated in SMS contracts and
reported in the monthly Sales Report produced by Marketing Administration. To
be included in the Sales Report the contract must be signed and dated by both
the customer and SMS. Exceptions to this definition, as it applies to specific
Focus Area Performance Indicators, will be clarified in a separate memo
customized for individual Participants.
Revenue
- -------
Worldwide operating revenue plus net hardware sales (i.e. gross hardware sales
reduced by the cost of hardware sales), as reported by Accounting. These
targets are subject to increases during the year (e.g. use of rebilled
consultants, budget exceptions, etc.).
Pretax Income
- -------------
Worldwide revenue, as defined above, less worldwide direct expenses (including
all bonus costs of this plan) and overhead expenses, as reported by Accounting.
For the Focus Area targets relevant to certain Participants, the specific
revenues and expenses included in their Focus Area target will be clarified in a
separate memo. These targets are subject to increases during the year (e.g. use
of rebilled consultants, budget exceptions, etc.).
Accounts Receivable Days
- ------------------------
The 12 Month Average A/R Days, as determined by Accounting, using each month's
A/R Days for all domestic receivables. This includes worldwide billed,
unbilled, and accrued receivables, less the relevant bad debt reserves. Each
month's A/R Days are calculated using the month-end accounts receivable balance
divided by the average monthly revenues for the three most recent months.
Capital Expenditure
- -------------------
The 1996 Capital Expenditure budget amount for the Focus Area.
3
<PAGE>
ATTACHMENT B
1996 SR. MANAGEMENT ICP - BONUS SCALE
-------------------------------------
<TABLE>
<CAPTION>
-------------------------------------------
% PERFORMANCE % BONUS EARNED
-------------------------------------------
ATTAINMENT PRETAX
-------------------------------------------
vs. TARGET SALES REVENUE INCOME A/R DAYS
---------------- -------------------------------------------
<S> <C> <C> <C> <C>
= or less than 80 300%
-------------------------------------------
81 290%
-------------------------------------------
82 280%
-------------------------------------------
83 270%
-------------------------------------------
84 260%
-------------------------------------------
85 250%
-------------------------------------------
86 240%
-------------------------------------------
87 230%
-------------------------------------------
88 220%
-------------------------------------------
89 210%
-------------------------------------------
90 0% 200%
-------------------------------------------
91 35% 190%
-------------------------------------------
92 45% 180%
-------------------------------------------
93 55% 170%
-------------------------------------------
94 65% 160%
-------------------------------------------
95 75% 0% 150%
-------------------------------------------
96 80% 25% 140%
-------------------------------------------
97 85% 50% 130%
-------------------------------------------
98 90% 75% 120%
-------------------------------------------
99 95% 90% 110%
-------------------------------------------
100 100% 100% 100% 100%
-------------------------------------------
101 102% 105% 110% 80%
-------------------------------------------
102 104% 110% 120% 60%
-------------------------------------------
103 106% 115% 130% 40%
-------------------------------------------
104 108% 120% 140% 20%
-------------------------------------------
105 110% 125% 150% 0%
-------------------------------------------
106 112% 130% 175%
-------------------------------------------
107 114% 135% 200%
-------------------------------------------
108 116% 140% 225%
-------------------------------------------
109 118% 145% 275%
-------------------------------------------
110 120% 150% 300%
-------------------------------------------
111 122% 160%
-------------------------------------------
112 124% 170%
-------------------------------------------
113 126% 180%
-------------------------------------------
114 128% 190%
-------------------------------------------
115 130% 200%
-------------------------------------------
116 132% 220%
-------------------------------------------
117 134% 240%
-------------------------------------------
118 136% 260%
-------------------------------------------
119 138% 280%
-------------------------------------------
120 140% 300%
-------------------------------------------
(A) (A)
-------------------------------------------
</TABLE>
(A) For each % of Sales Attainment over 120%, the Sales-
related bonus % will increase by an additional 2%, up
to a maximum payout of 300% of the Sales Bonus
Potential (@ 200% Attainment).
<PAGE>
Schedule to Exhibit 10.4
An SMS Senior Management Incentive Compensation Plan for the plan year ended
December 31, 1996 in the form of Exhibit 10.4 was implemented for each of the
following executive officers of the Registrant during the reporting period.
Under each plan, 90% of the base bonus value is based upon performance against
corporate and focus area (consisting of certain segments of business operations
) sales, revenue, pre-tax income, accounts receivable days and capital
expenditure targets. The relative weighting and combination of these performance
factors vary for each individual, with an emphasis upon the individual's
particular area of business operations. The remaining 10% of the base bonus
value is tied to subjective considerations of managerial performance against
certain pre-defined goals.
Terrence W. Kyle
Francis W. Lavelle
Robert J. McNeill
David F. Perri
Terry A. Pitts
Guillermo N. Ramas, Sr.
Marion G. Tomlin
Matthew B. Townley
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 17,986
<SECURITIES> 0
<RECEIVABLES> 199,647
<ALLOWANCES> 5,611
<INVENTORY> 0
<CURRENT-ASSETS> 239,437
<PP&E> 249,136
<DEPRECIATION> 147,980
<TOTAL-ASSETS> 462,899
<CURRENT-LIABILITIES> 139,363
<BONDS> 15,193
0
0
<COMMON> 275
<OTHER-SE> 273,347
<TOTAL-LIABILITY-AND-EQUITY> 462,899
<SALES> 51,590
<TOTAL-REVENUES> 548,175
<CGS> 43,922
<TOTAL-COSTS> 402,421
<OTHER-EXPENSES> 44,410
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,667
<INCOME-PRETAX> 54,755
<INCOME-TAX> 21,026
<INCOME-CONTINUING> 33,729
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,729
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.40
</TABLE>
