<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Shared Medical Systems Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
51 Valley Stream Parkway
Malvern, Pennsylvania 19355
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
May 13, 1999
----------------
The Annual Meeting of Stockholders of Shared Medical Systems Corporation
will be held at The Union League of Philadelphia, 140 South Broad Street,
Philadelphia, Pennsylvania, on Thursday, May 13, 1999, at 11:30 a.m. for the
following purposes:
1) To elect seven directors for one-year terms;
2) To consider and vote on a proposal to approve the Company's 1999 Stock
Option Plan;
3) To transact such other business as may properly come before the meeting
or any adjournments thereof.
The Board of Directors has fixed the close of business on March 18, 1999, as
the record date for the determination of stockholders entitled to notice of,
and to vote at, the meeting or any adjournments thereof.
All stockholders are cordially invited to attend the meeting in person, but
whether or not you plan to attend, please sign, date and mail the enclosed
proxy in the enclosed envelope, which requires no postage if mailed in the
United States.
James C. Kelly
Secretary
March 31, 1999
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
51 Valley Stream Parkway
Malvern, Pennsylvania 19355
----------------
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of Shared Medical
Systems Corporation. Any stockholder giving a proxy has the power to revoke it
at any time prior to its use by giving notice to the Secretary.
On March 18, 1999, the record date for stockholders entitled to notice of
and to vote at the Annual Meeting, there were 26,631,787 shares of Common
Stock outstanding (not including 4,029,950 shares held in the Company's
treasury). Each share of the Company's Common Stock, except for the shares
held in the Company's treasury, is entitled to one vote.
This Proxy Statement and the accompanying proxy are being mailed to
stockholders on or about March 31, 1999.
ANNUAL REPORT
A copy of the Shared Medical Systems Corporation Annual Report, including
financial statements for the year ended December 31, 1998, on which no action
will be asked by the Board of Directors, is enclosed herewith. It is not to be
regarded as proxy solicitation material.
1
<PAGE>
SECURITY OWNERSHIP
Principal Stockholders
The following table sets forth, as of December 31, 1998, information
regarding the voting securities of the Company owned "beneficially," within
the meaning of the rules of the Securities and Exchange Commission, by persons
known by the Company to own beneficially more than 5% of the indicated class:
<TABLE>
<CAPTION>
Name and Address Amount and Nature
Title of Class of Beneficial Owner of Beneficial Ownership Percent of Class
- -------------- ------------------- ----------------------- ----------------
<S> <C> <C> <C>
Common William Blair & Company, L.L.C. 2,911,605(1) 10.9%
Stock 222 West Adams Street
Chicago, Illinois 60606
Common Wellington Management Company, LLP 2,327,800(2) 8.7%
Stock 75 State Street
Boston, Massachusetts 02109
Common FMR Corp. 1,944,053(3) 7.3%
Stock 82 Devonshire Street
Boston, Massachusetts 02109
Common Firstar Corporation 1,331,300(4) 5.0%
Stock 777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
</TABLE>
- --------
(1) As reflected in the Schedule 13G Amendment filed on March 17, 1999 with
the Securities and Exchange Commission by William Blair & Company, L.L.C.
("William Blair"), a registered investment adviser, William Blair has sole
voting power over 770,685 of such shares and sole dispositive power over
all of the shares indicated.
(2) As reflected in the Schedule 13G filed on February 9, 1999 with the
Securities and Exchange Commission by Wellington Management Company LLP.
("WMC"), a registered investment adviser, WMC has shared voting power over
916,100 of such shares and shared dispositive power over all of the shares
indicated.
(3) As reflected in a Schedule 13G Amendment filed on February 12, 1999 with
the Securities and Exchange Commission by FMR Corp. ("FMR"), Edward C.
Johnson 3rd and Abigail P. Johnson, FMR has sole dispositive power over
all of the shares indicated and sole voting power over 307,053 of such
shares; Fidelity Management & Research Company, a registered investment
adviser and subsidiary of FMR, is the beneficial owner of 1,457,000 of
such shares, Fidelity Management and Trust Company, a bank subsidiary of
FMR, is the beneficial owner of 479,753 of such shares, and Fidelity
International Limited, a foreign investment adviser, is the beneficial
owner of 7,300 of such shares.
(4) As reflected in a Schedule 13G Amendment filed on February 16, 1999 with
the Securities and Exchange Commission by Firstar Corporation ("Firstar"),
Firstar has shared dispositive power over all of the shares indicated,
sole voting power over 1,283,000 of such shares and shared voting power
over 48,300 of such shares.
2
<PAGE>
Directors and Management
The following table sets forth, as of December 31, 1998, the name, age,
position(s) with the Company, principal occupation(s) for the past five years,
other directorships, and beneficial Common Stock ownership of the directors of
the Company; the name, age, position held and beneficial Common Stock
ownership of each of the Company's executive officers named in this Proxy
Statement; and the beneficial Common Stock ownership of all of the Company's
executive officers and directors as a group:
<TABLE>
<CAPTION>
Director Common Stock Percent of
Name of Beneficial Owner Since Beneficially Owned(1) Class(1)
------------------------ -------- --------------------- ----------
<S> <C> <C> <C>
Directors
R. James Macaleer, 64 1969 957,098(2) 3.6%
Chairman of the Board of the
Company; Chairman of the Board and
Chief Executive Officer (1969-
1995). Director, Arrow
International, Inc.
Raymond K. Denworth, Jr., 66 1976 47,500(3) *
Attorney, Of Counsel to Drinker
Biddle & Reath LLP, counsel to the
Company, since 1997; Partner,
Drinker Biddle & Reath (1968-
1997).
Frederick W. DeTurk, 70 1981 22,300(4) *
President, DeTurk Enterprises,
Inc., a management consulting
firm.
Josh S. Weston, 70 1987 9,599(5) *
Honorary Chairman, Automatic Data
Processing, Inc., an information
processing services company;
Chairman of the Board (1996-1998);
Chairman of the Board and Chief
Executive Officer (1982-1996).
Director, Olsten Corp., Public
Service Enterprise Group, Inc.,
Vanstar Corporation.
Jeffrey S. Rubin, 55 1993 14,800(6) *
Partner, Boles Knop and Company
LLC, an investment banking
company, since 1997; Vice
Chairman, Vanstar Corporation, a
technology services company (1995-
1997); Senior Vice President, GTE
Corporation, a telecommunications
company (1994-1995); Executive
Vice President and Chief Financial
Officer, NYNEX Corporation, a
regional telecommunications
company (1993-1994).
Marvin S. Cadwell, 55 1995 126,086(7) *
President and Chief Executive
Officer of the Company since 1995;
Executive Vice President (1993-
1995).
Gail R. Wilensky, Ph.D., 55 1996 8,800(8) *
Senior Fellow, Project Hope, an
international health foundation,
since 1993. Director, Advanced
Tissue Sciences, Inc., HCR Manor
Care, Inc., NeoPath, Inc.,
Pharmerica Inc., Quest Diagnostics
Incorporated, St. Jude Medical,
Inc., Syncor International
Corporation, United Healthcare
Corporation.
Non-Director Executive Officers
Francis W. Lavelle, 49 61,082(9) *
Senior Vice President
Terrence W. Kyle, 48 42,392(10) *
Senior Vice President, Treasurer
and Assistant Secretary
David F. Perri, 49 41,366(11) *
Senior Vice President
V. Brewster Jones, 54 13,750(12) *
Senior Vice President
All executive officers and directors
as a group (16 persons) 1,433,768(13) 5.3%
</TABLE>
- --------
Less than 1%
3
<PAGE>
(1) Except as otherwise noted, the beneficial ownership reflected in this
table is based on present, direct and sole voting and investment power
with respect to the shares. Beneficial ownership of shares held in the
Company's Retirement Savings Plan is based on investment power. Beneficial
ownership of shares of restricted stock, which are subject to vesting, is
based on voting power. In accordance with SEC rules regarding beneficial
ownership disclosure, shares which are not outstanding but which are
deemed beneficially owned by a person or group of persons are considered
outstanding for purposes of computing the percentage of the Company's
Common Stock owned by such person or group of persons, but such shares are
not considered outstanding for purposes of computing the percentage of the
Company's Common Stock owned by any other person.
(2) Includes 30,923 shares owned jointly by Mr. Macaleer and his wife;
includes 15,335 shares held in the Company's Retirement Savings Plan.
(3) Includes 18,000 shares which Mr. Denworth had the right to acquire within
60 days after December, 31, 1998, upon exercise of stock options; includes
500 shares of restricted stock; does not include shares owned beneficially
by Mr. Denworth's wife or son, as to which he disclaims beneficial
ownership.
(4) Includes 18,000 shares which Mr. DeTurk had the right to acquire within 60
days after December 31, 1998, upon exercise of stock options; includes 500
shares of restricted stock.
(5) Includes 8,000 shares which Mr. Weston had the right to acquire within 60
days after December 31, 1998, upon exercise of stock options; includes 500
shares of restricted stock.
(6) Includes 14,000 shares which Mr. Rubin had the right to acquire within 60
days after December 31, 1998, upon exercise of stock options; includes 400
shares of restricted stock.
(7) Includes 124,500 shares which Mr. Cadwell had the right to acquire within
60 days after December 31, 1998, upon exercise of stock options; includes
162 shares owned jointly by Mr. Cadwell and his wife; does not include
16,576 shares held in a rabbi trust pursuant to the deferred compensation
arrangement for Mr. Cadwell described on page 10 below.
(8) Includes 8,000 shares which Dr. Wilensky had the right to acquire within
60 days after December 31, 1998, upon exercise of stock options; includes
400 shares of restricted stock.
(9) Includes 54,207 shares which Mr. Lavelle had the right to acquire within
60 days after December 31, 1998, upon exercise of stock options; includes
4,000 shares of restricted stock; includes 1,431 shares held in the
Company's Retirement Savings Plan; does not include 6,027 shares held in a
rabbi trust pursuant to the deferred compensation arrangement for Mr.
Lavelle described on page 10 below.
(10) Includes 30,748 shares which Mr. Kyle had the right to acquire within 60
days after December 31, 1998, upon exercise of stock options; includes
4,000 shares of restricted stock; includes 6,817 shares held in the
Company's Retirement Savings Plan; does not include 5,382 shares held in
a rabbi trust pursuant to the deferred compensation arrangement for Mr.
Kyle described on page 10 below.
(11) Includes 37,250 shares which Mr. Perri had the right to acquire within 60
days after December 31, 1998, upon exercise of stock options; includes
4,000 shares of restricted stock; does not include 5,036 shares held in a
rabbi trust pursuant to the deferred compensation arrangement for Mr.
Perri described on page 10 below.
(12) Includes 3,750 shares which Mr. Jones had the right to acquire within 60
days after December 31, 1998, upon exercise of stock options; includes
8,250 shares of restricted stock; does not include 7,809 shares held in a
rabbi trust pursuant to the deferred compensation arrangement for Mr.
Jones described on page 10 below.
(13) Includes 375,645 shares which certain executive officers and directors
had the right to acquire within 60 days after December 31, 1998, upon
exercise of stock options, 50,217 shares as to which beneficial ownership
is based on shared voting and investment power, 26,736 shares of
restricted stock, and 24,501 shares held in the Company's Retirement
Savings Plan.
4
<PAGE>
ELECTION OF DIRECTORS
The Board of Directors has determined that the number of directors to be
elected at the Annual Meeting to be held on May 13, 1999 shall be seven. The
Board has nominated Messrs. Macaleer, Denworth, DeTurk, Weston, Rubin and
Cadwell and Dr. Wilensky for election as directors of the Company at the 1999
Annual Meeting. It is the intention of the persons named in the proxy to vote
for the nominees listed above unless otherwise directed. Each of the nominees
is presently serving as a director for a term which will expire on the date of
the 1999 Annual Meeting provided his or her successor is then elected. All of
the nominees were elected by the stockholders at the Annual Meeting held in
1998. If, prior to the election, any of the nominees should become unable to
serve for any reason, the persons named as proxies will have full discretion
to vote for such other persons as may be nominated by the Board. The Board of
Directors has no reason to believe that any nominee will be unable to serve.
Necessary Votes
In the election of directors, assuming a quorum is present, the seven
nominees receiving the highest number of votes cast at the meeting will be
elected directors. Shares represented by proxies which are marked to withhold
authority to vote in the election of directors and shares subject to a
specific direction not to cast a vote, such as a broker non-vote, will not be
included in the vote totals.
Meetings and Committees of Board
The Board of Directors held fourteen meetings during 1998.
The Board of Directors has established an Audit Committee, a Management and
Compensation Committee and a Stock Option Committee, but has not established a
nominating committee.
The Audit Committee is currently composed of Messrs. DeTurk (Chairman) and
Rubin and Dr. Wilensky. This Committee makes recommendations to the Board of
Directors concerning the engagement, retention or discharge of independent
public accountants, reviews with the Company's independent public accountants
the plans for and results of their auditing engagement, reviews their
independence, considers the range of fees for audit and non-audit functions,
reviews the scope and results of the Company's internal auditing procedures,
reviews the adequacy of the Company's system of internal accounting controls,
directs and supervises any investigations into matters within the scope of the
foregoing duties, and performs such other related functions as the Board of
Directors may from time to time delegate to the Audit Committee. During 1998,
the Audit Committee held three meetings.
The Management and Compensation Committee is currently composed of Messrs.
Denworth (Chairman), DeTurk, and Weston. This Committee makes recommendations
to the Board of Directors concerning remuneration arrangements for certain
executive officers. During 1998, the Management and Compensation Committee
held four meetings.
The Stock Option Committee is currently composed of Messrs. Weston
(Chairman) and DeTurk. This Committee grants stock options and awards
restricted stock to Company employees and directors under the terms of the
Company's stock option and restricted stock plans. During 1998, the Stock
Option Committee held four meetings.
Compensation of Directors
Each director who is not otherwise employed by the Company is paid a fee of
$2,000 for attendance at each meeting of the Board of Directors, an additional
fee of $1,000 for attendance at any separately-scheduled meeting of any
committee thereof, and an additional fee of $500 for committee meetings
scheduled in conjunction with Board meetings. Directors are also reimbursed
for any expenses attendant to membership on the Board.
5
<PAGE>
Non-employee directors are currently eligible to receive stock option grants
and restricted stock awards under Company plans. At the time of each Annual
Meeting of the Company's stockholders each elected non-employee director is
granted 400 shares of Company restricted stock, and each non-employee director
who is appointed as Chairman of a committee of the Board is granted an
additional 100 shares of Company restricted stock. The shares of restricted
stock vest on the later of six months after the date of grant, or January 1 of
the following year. The shares of restricted stock are forfeited if the
director's service on the Board is terminated prior to vesting. In 1998, at
the time of the Annual Meeting of Stockholders, Messrs. Denworth, DeTurk and
Weston were each granted 500 shares of Company restricted stock, and Mr. Rubin
and Dr. Wilensky were each granted 400 shares of Company restricted stock.
In addition, non-employee directors receive options to purchase 20,000
shares of the Company's Common Stock upon joining the Board and every five
years thereafter during the term of their service. These options vest in
installments of 20% per year and unvested options are forfeited if the
director's service on the Board is terminated prior to vesting. In 1998 Mr.
Rubin was granted options to purchase 20,000 shares of the Company's Common
Stock as a result of a five-year service anniversary.
The Company from time to time may make donations to one or more charitable
institutions on behalf of directors. In 1998, donations totaling $30,000 were
made on behalf of Mr. Weston to charities specified by him.
EXECUTIVE COMPENSATION
REPORT OF MANAGEMENT AND COMPENSATION COMMITTEE AND STOCK OPTION COMMITTEE ON
EXECUTIVE COMPENSATION
The Management and Compensation Committee of the Board of Directors (the
"Committee") is composed of three non-employee directors. The Committee is
responsible for setting the salaries of the Chief Executive Officer, Chairman
(if any), Vice Chairman (if any) and President (if any) of the Company,
recommending to the full Board compensation arrangements for those executive
officers, and advising the Chief Executive Officer on compensation for other
key executives. All recommendations relating to grants of stock options and
restricted stock awards to the Company's executive officers are reviewed by,
and subject to the approval of, the Stock Option Committee of the Board.
Executive Officer Compensation Policies
The Company's executive compensation policies, endorsed by the Committee, are
designed to provide competitive levels of compensation that relate pay to the
Company's performance goals, reward above-average corporate performance,
recognize individual initiative and achievement, and assist the Company in
attracting and retaining qualified executives. Compensation is individually
set for each executive officer from among the following primary components:
salary, performance bonuses, and stock-based compensation (stock option grants
and restricted stock awards). Each of these components contributes towards
helping the Company meet its compensation policy objectives.
The orientation of executive compensation toward Company and organizational
performance is accomplished through the use of bonus plans that include
various corporate and operating segment performance criteria. These plans
create a direct link between an executive's compensation and the Company's
achievement of its performance goals. Bonus plans are also structured with
individual performance criteria in order to reward individual achievement. The
Committee believes that stock-based compensation aligns executive interests
with stockholder interests by tying an executive's compensation to stockholder
return, gives executives a significant long-term interest in the Company's
success, and helps to retain executives. Therefore, the Company has utilized
stock-based compensation arrangements in the Company's compensation packages
for its executive officers.
In recommending and approving stock option grants and restricted stock awards
for executive officers, the Committee and the Stock Option Committee consider
the executive's current and anticipated contribution to the long-term
performance of the Company and the executive's overall compensation package,
including the
6
<PAGE>
executive's current stock options and restricted stock holdings. Stock option
grants and restricted stock awards are not necessarily made to each executive
officer during each year. From time to time, a portion of the performance
bonuses payable to the Company's executive officers are paid in the form of
restricted stock.
In addition to the primary components of compensation described above, the
Company has also adopted individual life insurance and deferred compensation
arrangements for certain named executive officers as described in this proxy
statement. The Company also provides medical and other benefits to its
executive officers under broad-based benefit plans which are generally
available to the Company's other employees.
The Company's compensation policies have not changed in response to the
Revenue Reconciliation Act of 1993's treatment of annual compensation
exceeding $1 million paid to any individual executive officer.
Chief Executive Officer Compensation
The Committee's general approach in setting the Chief Executive Officer's
annual compensation is to set compensation in accordance with the policies set
forth in this report. Specifically, the Committee's objective is to correlate
the Chief Executive Officer's compensation with the performance of the
Company, while seeking to keep his compensation competitive with that provided
by comparable companies.
The Committee set Mr. Cadwell's salary for 1998 at $550,000, representing an
increase of 8.9% from the salary set for him for 1997. This increase was based
on the positive financial results achieved by the Company during 1997, as well
as the Committee's consideration of comparative data and Mr. Cadwell's
individual performance and responsibilities.
The Committee adopted a performance bonus plan for Mr. Cadwell for 1998 in
which the amount of Mr. Cadwell's bonus was determined based on objective
measures of corporate performance (consolidated earnings per share; a defined
"sales" component, primarily consisting of the present value of software,
remote processing, and certain professional service fee sales, plus current
year revenues from certain other professional services, adjusted for the
impact, if any, of deinstallations and the rate of revenue retained in renewal
agreements; and accounts receivable days outstanding). The plan provided for a
target bonus amount to be established based upon the relative attainment of
corporate earnings per share, with no bonus payable if earnings per share fell
below certain designated levels. The target bonus amount was then subject to
further adjustment based upon defined "sales" attained against target, and the
Company's accounts receivable days outstanding during the fourth quarter of
1998 measured against a target. The Company failed to achieve the minimum
earnings per share level for 1998 specified in the plan, and accordingly Mr.
Cadwell was not paid a bonus for 1998.
The Committee has compared the compensation provided to Mr. Cadwell with the
compensation paid to the Chief Executive Officers of the other companies
included in the S&P Computers (Software and Services) Index (the published
industry index against which the performance of the Company's stock is
measured in the graph on page 13) and three publicly-held competitors of the
Company which were not included in such index. As a result of such comparison,
the Committee has determined that the Company's Chief Executive Officer
compensation is in line with that provided by such other companies given the
relative amount of the Company's revenues and net income.
Compensation of non-CEO Executive Officers
Salary levels for the Company's non-CEO executive officers are determined
based on individual performance, experience and responsibilities, comparative
market data and consideration of the other primary components of compensation
provided.
In establishing performance bonus plans for the Company's non-CEO executive
officers, the Company utilizes objective measurements of consolidated and
applicable operating segment performance, as well as subjective considerations
of individual performance. Consolidated and operating segment performance
measurements include criteria such as target versus actual attainment of
revenue, pretax income, sales to new and existing
7
<PAGE>
customers and accounts receivable days outstanding. Considerations of
individual performance include the executive officer's initiative and
contribution to overall corporate performance, managerial performance and
successful accomplishment of any special projects, if applicable. The relative
weighting of consolidated and operating segment performance measurements
varied among the individual bonus plans for the Company's named non-CEO
executive officers for 1998.
In 1998 the Stock Option Committee approved grants of stock options to various
executive officers, including the four non-CEO executive officers named in
this Proxy Statement as shown in the Summary Compensation Table and the Option
Grants in Last Fiscal Year Table.
Respectfully submitted,
Management and Compensation Committee: Stock Option Committee:
Raymond K. Denworth, Jr. Josh S. Weston
Frederick W. DeTurk Frederick W. DeTurk
Josh S. Weston
Compensation Committee Interlocks and Insider Participation
Mr. Denworth, Chairman of the Management and Compensation Committee, is Of
Counsel to the law firm Drinker Biddle & Reath LLP, counsel to the Company.
Compensation Summaries
In order to provide the Company's stockholders with a concise and
comprehensive overview of compensation awarded, earned or paid to the
Company's executive officers named in this Proxy Statement, several tables and
narrative descriptions have been prepared, detailing this information.
The Summary Compensation Table, and its accompanying explanatory footnotes,
includes individual annual and long-term compensation information on the named
executive officers, for services rendered in all capacities during the years
ended December 31, 1998, December 31, 1997, and December 31, 1996.
8
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
----------------------------- ------------------------
Other Securities
Annual Restricted Underlying All Other
Name and Compen- Stock Options Compen-
Principal Position Year Salary (2) Bonus sation Awards (4) (# sh.) sation (11)
------------------ ---- ---------- -------- ------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Marvin S. Cadwell 1998 $566,695(3) $ -- $-- $ -- -- $3,267
President and Chief 1997 524,706(3) 320,000 -- -- -- 3,655
Executive Officer 1996 478,543(3) 176,000 -- -- -- 3,679
Terrence W. Kyle 1998 $311,115 $ 25,610 $-- $286,255(5) 30,000 $2,357
Senior Vice President, 1997 289,448 114,000 -- 243,075(6) 10,000 2,239
Treasurer and Assistant 1996 276,946 70,560 -- -- 5,000 2,239
Secretary
Francis W. Lavelle 1998 $300,796 $ 80,559 $-- $320,561(7) 40,000 $2,357
Senior Vice President 1997 264,553 226,000 -- 243,075(6) 10,000 2,239
1996 249,141 217,980 -- -- 10,000 2,239
David F. Perri 1998 $269,453 $ 53,196 $-- $267,852(8) 20,000 $2,357
Senior Vice President 1997 251,071 151,000 -- 243,075(6) 15,000 2,239
1996 210,914 107,920 -- -- 10,000 2,239
V. Brewster Jones (1) 1998 $261,155 $ 58,812 $-- $415,341(9) 40,000 $1,100
Senior Vice President 1997 135,241 91,000 -- 556,775(10) 25,000 660
</TABLE>
- --------
(1) In accordance with SEC rules regarding compensation disclosure, no
information is reported for those years in which an individual was not an
executive officer of the Company.
(2) Includes amounts contributed by the Company towards the purchase of the
Common Stock of the Company under the Employee Stock Purchase Plan, where
applicable.
(3) Includes imputed interest on the Company loan to Mr. Cadwell described on
page 10 of $14,893 for 1998, $18,554 for 1997, $17,391 for 1996.
(4) The number and value of shares of restricted stock held on December 31,
1998, by the named executive officers was as follows: Mr. Cadwell, 0
shares ($0); Mr. Kyle, 4,000 shares ($199,460); Mr. Lavelle, 4,000 shares
($199,460); Mr. Perri, 4,000 shares ($199,460); and Mr. Jones, 8,250
shares ($411,386). Dividends on these shares are paid directly to the
holders of the stock, at the same rate as dividends paid to all other
stockholders. Each of the named executive officers is the beneficiary of
separate rabbi trusts which hold shares of the Company's Common Stock, as
described on page 10. Dividends on these shares are paid to the trustee at
the same rate as dividends paid to all other stockholders and held as
trust assets for the named executive officer's benefit. The number and
value of shares held in trust for each named executive officer on December
31, 1998 was as follows: Mr. Cadwell, 16,576 shares ($826,728 ); Mr. Kyle,
5,382 shares ($268,427); Mr. Lavelle, 6,027 shares ($300,597); Mr. Perri,
5,036 shares ($251,171); and Mr. Jones, 7,809 shares ($389,474).
(5) Represents the dollar value of 5,382 shares issued in 1998 to a rabbi
trust pursuant to the deferred compensation arrangement for Mr. Kyle
described on page 10.
(6) Represents the dollar value of 5,000 shares of restricted stock awarded to
the named executive officer in 1997 which vest in 20% increments on August
14, 1998, 1999, 2000, 2001 and 2002.
(7) Represents the dollar value of 6,027 shares issued in 1998 to a rabbi
trust pursuant to the deferred compensation arrangement for Mr. Lavelle
described on page 10.
(8) Represents the dollar value of 5,036 shares issued in 1998 to a rabbi
trust pursuant to the deferred compensation arrangement for Mr. Perri
described on page 10.
(9) Represents the dollar value of 7,809 shares issued in 1998 to a rabbi
trust pursuant to the deferred compensation arrangement for Mr. Jones
described on page 10.
(10) Represents the dollar value of a total of 10,000 shares of restricted
stock awarded to Mr. Jones in 1997. The shares vest in the following
increments: 1,750 shares on October 24, 1998, 1,750 shares on October 24,
1999, 2,000 shares on October 24, 2000, 2,000 shares on October 24, 2001,
2,000 shares on October 24, 2002, and 500 shares on October 24, 2003.
(11) Amounts indicated in this column for 1998 include Company contributions
to the Company's Retirement Savings Plan for the named individuals in the
following amounts: Mr. Cadwell, $2,357, Mr. Kyle, $2,357, Mr. Lavelle,
$2,357, Mr. Perri, $2,357, and Mr. Jones, $1,100; and income attributable
to the provision of additional life insurance for Mr. Cadwell in the
amount of $910. Under the terms of this insurance arrangement, Mr.
Cadwell has not and will not receive or be allocated an interest in any
cash surrender value under the related insurance policy.
9
<PAGE>
The Company has entered into deferred compensation arrangements with all of
the named executive officers. Under these arrangements, shares of restricted
Company stock were placed into separate rabbi trusts to be held for each such
executive officer's benefit. The number of shares placed into these trusts for
the benefit of each named executive officer is as follows: Mr. Cadwell, 16,576
shares; Mr. Kyle, 5,382 shares; Mr. Lavelle, 6,027 shares; Mr. Perri, 5,036
shares; and Mr. Jones, 7,809 shares. These arrangements generally provide that
if the employee remains employed by the Company until age 60, the shares
placed in trust for his benefit and their dividend proceeds will be
distributed to him over a twenty-year period after termination of employment.
The arrangements also provide for the distribution to the employee or his
estate of all or specified portions of the shares and related assets held by
the trust in the event of earlier termination of employment caused by death,
disability, a change in control of the Company, or discharge without cause, or
in the case of Mr. Cadwell, voluntary termination of employment. The values of
the shares placed in the rabbi trusts for the each named executive officer's
benefit are reflected in the Summary Compensation Table in the column marked
"Restricted Stock Awards," or in the related footnote to the table.
The Company is party to an employment agreement with Mr. Cadwell, which is
terminable at any time by either party. Pursuant to this agreement, Mr.
Cadwell has been granted stock options and awarded restricted stock under the
Company's plans described below. The agreement also provides for termination
benefits to be paid to Mr. Cadwell if he is terminated without cause or upon a
reduction, without cause, in his responsibilities, compensation and/or title.
Pursuant to the terms of his employment agreement, in 1992, Mr. Cadwell
received an interest-free, six-year term loan in the principal amount of
$300,000. In 1998 the Company extended the repayment term for this loan by an
additional three years. This loan is secured by a mortgage on Mr. Cadwell's
principal residence. Imputed interest on the loan is reflected in the Summary
Compensation Table in the column marked "Salary."
The Company has entered into employment agreements with most of its
executive officers, including Messrs. Kyle, Lavelle, Perri and Jones. The
agreements with Messrs. Kyle, Lavelle, Perri and Jones provide for termination
benefits, consisting of monthly base salary, incentive compensation and COBRA
payments, to be paid for an eighteen-month period following termination of
their employment without cause. Their agreements also provide for the payment
of a benefit consisting of one year of base salary and incentive compensation
in the event their employment is terminated within one year following a
"change in control" of the Company. Generally, a "change in control" means an
acquisition by any person of 40% or more of the outstanding voting securities
of the Company, a merger or consolidation where majority ownership of the
Company is changed, a liquidation or dissolution of the Company, or a sale of
substantially all of the Company's assets. The agreements also provide for the
payment of certain benefits in the event employment is terminated as a result
of death or disability. These employment agreements include covenants on the
part of the executive to keep Company information confidential during and
after the executive's employment, and not to compete with the Company's
business during the executive's employment and for a period extending eighteen
months following termination of the executive's employment.
The Company agreed to guarantee a $500,000 loan received by Mr. Lavelle in
1998 from PNC Bank, N.A. and to reimburse Mr. Lavelle for interest payments
made on the loan and for the additional taxes incurred by Mr. Lavelle as a
result of such reimbursement. No interest payments on the loan or tax
reimbursement payments were made in or for 1998.
The Company has a Retirement Savings Plan that is funded by the
participants' salary reduction contributions. All US employees of the Company
are eligible to participate in the plan upon joining the Company. The plan is
intended to permit any eligible employee who wishes to participate to
contribute up to 15% of the employee's compensation on a before-tax basis
under Section 401(k) of the Internal Revenue Code, subject to certain
limitations. The plan provides for discretionary Company matching
contributions which are to be made in proportion to each employee's
contribution as well as discretionary Company profit-sharing contributions,
subject to certain limitations. Discretionary Company matching contributions
and profit-sharing contributions vest based upon the employee's length of
service and are payable upon an employee's retirement,
10
<PAGE>
death, disability or termination of employment or, under specified
circumstances, upon an employee's immediate and heavy financial emergency.
Contributions are invested, in such proportions as the employee may elect, in
Common Stock of the Company or in any of nine mutual investment funds. In
1998, the Company made no discretionary profit-sharing contributions to the
plan. The Summary Compensation Table shows the value of Company matching
contributions made to the plan for the named executive officers in the column
marked "All Other Compensation."
Under the Company's Employee Stock Purchase Plan, all US employees of the
Company may elect to designate up to 10% of gross compensation to be withheld
by the Company and invested in shares of the Company's Common Stock through
open-market purchases made by a bank custodian. The Company contributes 15% of
the price of the Company shares acquired and also pays brokerage fees and
other expenses of the plan. During 1998, Messrs. Cadwell, Kyle, Lavelle, Perri
and Jones were eligible to participate in the Company's Employee Stock
Purchase Plan under the same terms and conditions as all other US employees of
the Company. Amounts contributed by the Company towards the purchase of Common
Stock of the Company for the named executive officers under the Employee Stock
Purchase Plan are included in the column marked "Salary" in the Summary
Compensation Table.
The Company currently maintains the following plans under which stock
options and restricted stock may be granted and awarded: the 1988 Incentive
Stock Option and Non-Qualified Stock Option Plan, the 1990 Non-Qualified Stock
Option and Restricted Stock Plan, the 1994 Non-Qualified Stock Option and
Restricted Stock Plan, the 1999 Restricted Stock Plan and the 1999 Stock
Option Plan. Depending upon the plan, options may not have a term exceeding
ten or twenty years. Restricted stock awards are subject to vesting schedules.
In 1998 the Company amended all of its outstanding stock options to provide
protection to stock option holders in the event of certain changes in control
of the Company. Under these amendments, generally all outstanding stock
options will accelerate (become immediately exercisable) in the event of a
change in control (as defined above) which is not approved by the Company's
Board of Directors. In the event of change in control which is approved by the
Board of Directors, depending on the type of transaction, outstanding stock
options will either be converted into options to purchase stock in the
acquiring company or into the right to receive deferred payments of a cash
amount. These options or payments will then accelerate (become immediately
exercisable or payable) in the event the holder is terminated from employment
without cause or suffers an "adverse employment change" within 30 months after
the change in control transaction, so long as the former CEO of the Company is
not then the CEO of the combined or parent company. An "adverse employment
change" generally means a reduction in compensation, a material reduction in
duties, responsibilities or authority of the option holder or a significant
change in work location.
11
<PAGE>
The following summary table details for the named executive officers stock
options granted in 1998 and the potential realizable values for the respective
options granted based on assumed rates of annual compound stock appreciation
of 5% and 10% computed from the date the options were granted over the full
option term.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------
Potential Realizable Value at
Number of % of Total Assumed Annual Rates of
Securities Options Stock Price Appreciation
Underlying Granted to Exercise for Option Term
Options Employees Price Expiration ------------------------------- ---
Name Granted in Fiscal Year ($/Sh) Date 5% 10%
- ---- ---------- -------------- -------- ---------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mr. Cadwell -- -- $ -- -- $ -- $ --
Mr. Kyle 15,000(2) 1.3% 74.50 05/15/08 702,790 1,781,007
15,000(2) 1.3% 47.06 11/06/08 443,960 1,125,083
Mr. Lavelle 20,000(1) 1.8% 74.50 05/15/08 937,053 2,374,676
20,000(1) 1.8% 47.06 11/06/08 591,947 1,500,110
Mr. Perri 10,000(2) 0.9% 74.50 05/15/08 468,527 1,187,338
10,000(2) 0.9% 47.06 11/06/08 295,974 750,055
Mr. Jones 20,000(3) 1.8% 74.50 05/15/08 937,053 2,374,676
20,000(3) 1.8% 47.06 11/06/08 591,947 1,500,110
</TABLE>
- --------
(1) The options become exercisable in increments of 15% on the first, second
and third anniversaries of the date of grant, a 35% increment on the
fourth anniversary of the date of grant, and a 20% increment on the fifth
anniversary of the date of grant.
(2) The options become exercisable in increments of 10% on the first, second
and third anniversaries of the date of grant, a 30% increment on the
fourth anniversary of the date of grant, and a 40% increment on the fifth
anniversary of the date of grant.
(3) The options become exercisable in 20% increments on the first through
fifth anniversaries of the date of grant.
The following summary table details stock option exercises for the named
executive officers during 1998, including the aggregate value of gains on the
date of exercise. In addition, this table includes the number of shares
covered by both exercisable and unexercisable stock options as of December 31,
1998. Also reported are the values for "in-the-money" options which represent
the positive spread between the exercise price of any such existing stock
options and the year-end fair market value of the Company's Common Stock.
Aggregated Option Exercises in the Last Fiscal Year
and F-Y End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at FY-End Options at FY-End
------------------------- --------------------------
Shares Acquired
Name on Exercise Value Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- -------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Cadwell -- $ -- 124,500 155,000 $4,008,031 $3,587,500
Mr. Kyle -- -- 30,748 73,000 837,097 548,063
Mr. Lavelle -- -- 54,207 86,000 1,592,469 578,125
Mr. Perri -- -- 37,250 52,750 1,057,094 341,031
Mr. Jones -- -- 3,750 61,250 7,031 102,344
</TABLE>
12
<PAGE>
PERFORMANCE GRAPH ANALYSIS
Set forth below is a line graph comparing the cumulative total stockholder
return on the Company's Common Stock, based on the market price of the Common
Stock and assuming reinvestment of dividends, with the cumulative total return
of companies in the S&P 500 Index and the S&P Industry Group index for
Computers (Software & Services).
Comparison of Five-Year
Cumulative Total Return(/1/)
Among Shared Medical Systems Corporation, S&P 500 Index and
S&P Computers (Software and Services) Index
[Performance Graph Appears Here]
1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ ------
Shared Medical
Systems Corporation $100.00 $135.77 $229.93 $211.34 $287.64 $220.36
S&P 500 Index 100.00 101.32 139.40 171.40 228.59 293.91
S&P Computers (Software
& Services) Index 100.00 118.21 166.13 258.26 359.77 651.87
- --------
(1) Assumes $100 invested on December 31, 1993 in Shared Medical Systems
Corporation Common Stock, the S&P 500 Index and the S&P Computers
(Software & Services) Index.
13
<PAGE>
ADOPTION OF THE COMPANY'S 1999 STOCK OPTION PLAN
The Company's Board of Directors proposes and recommends that stockholders
approve the Company's 1999 Stock Option Plan (the "Plan"), which provides for
the granting of stock options to employees and non-employee directors of the
Company and its majority-owned subsidiaries.
In February 1999, the Company's Board of Directors adopted the Plan which is
designed to aid the Company in attracting and retaining capable employees and
directors and to provide an inducement to such personnel, through stock
ownership in the Company, to promote the best interests of the Company. The
Plan is intended to supplement the Company's 1990 and 1994 Non-Qualified Stock
Option and Restricted Stock Plans. Options covering a significant portion of
the shares available under those plans have been granted. In connection with
the adoption of the Plan, the Company terminated a 2,000,000 share stock
option and restricted stock plan which was adopted in 1998 but never utilized.
The principal features of the Plan are summarized below.
Shares Subject to the Plan
Under the Plan, options may be granted to purchase up to an aggregate of
1,500,000 shares of the Company's Common Stock, subject to adjustments to
reflect any stock splits, stock dividends, share combinations or similar
changes in the capitalization of the Company. Shares subject to options
remaining unexercised, upon expiration or earlier termination of an option,
will again be available for the granting of options under the Plan. Shares
issuable under the Plan may be authorized but unissued shares or treasury
shares, and the Company may purchase shares for this purpose. The market value
of the shares of Common Stock reserved for issuance under the Plan at December
31, 1998, was $50.1875 per share (based upon the mean between the highest and
lowest sale prices on December 31, 1998).
The exercisability of each option under the Plan will be conditioned upon
completion of whatever listings, registrations, qualifications or governmental
approvals the Committee (as defined below) may deem to be necessary or
desirable in connection with the grant or exercise of an option. An optionee
may also be required to give adequate assurance that shares purchased upon
exercise of an option are being acquired for investment and not with a view to
distribution, and share certificates so purchased or received may be legended
accordingly.
Types of Options
The Plan provides for the granting of both stock options intended to qualify
as "incentive stock options" under Section 422 of the Internal Revenue Code
("ISOs") and non-qualified stock options that do not qualify as ISO's
("NQSOs"). Employees may be granted either ISOs or NQSOs. Non-employee
directors may be granted only NQSOs.
Administration
The Plan will be administered by the Company's Stock Option Committee (the
"Committee"), consisting of at least two directors appointed by the Company's
Board of Directors. The Committee will have full authority, subject to the
terms of the Plan, to select optionees and to determine the terms and
conditions of the options.
Duration and Amendment of the Plan
The Board of Directors will have the power, without the consent of the
stockholders, to suspend or amend the terms of Plan, and the Committee may
amend any outstanding Options, except that no such suspension or amendment
shall materially impair the rights of any holder of an outstanding Option
without the consent of such holder, or cause the modification (within the
meaning of Section 424(h) of the Internal Revenue Code) of an ISO, unless the
optionee consents to such modification. The Board of Directors may terminate
the Plan at any time for any reason; no options may be granted after such
termination, but options outstanding at the time of termination will remain
exercisable in accordance with their terms. No ISOs can be granted under the
Plan after February 2009.
14
<PAGE>
Limits
The maximum number of shares of Common Stock with respect to one or more
options which may be granted to any one individual over the term of the Plan
shall be 750,000, subject to adjustments to reflect any stock splits, stock
dividends, share combinations or similar changes in the capitalization of the
Company.
The aggregate fair market value of the Common Stock with respect to which
ISOs are exercisable for the first time by an employee during any calendar
year shall not exceed $100,000.
Terms and Conditions of Options
The per-share option price will be determined by the Committee, but may not
be less than the greater of 100% of the fair market value of the optioned
shares of Common Stock, or the par value thereof, on the date of grant.
The term of an ISO granted under the Plan may not exceed ten years. The term
of an NQSO granted under the Plan may not exceed twenty years.
If the grantee of an ISO under the Plan owns more than 10% of the Company's
Common Stock, the option price may not be less than 110% of the fair market
value at the date of grant, and the term of the option may not be more than
five years.
Options will become exercisable in such installments and on such dates as
the Committee may specify, but no option will be exercisable within the first
six months following its grant. The Committee may accelerate the exercise date
of any outstanding options in its discretion. The Committee may provide that
any option held by an individual who dies while employed by the Company or
whose employment with the Company or its subsidiaries is terminated prior to
the expiration date specified for such option will be exercisable by the
former employee or his personal representative (to the extent exercisable upon
death or termination or to any greater extent permitted by the Committee) only
for a limited period of time following the employee's termination of
employment or death. ISOs are not transferable. NQSOs are not transferable,
unless otherwise specified in the option agreement.
The option price is payable (i) in cash or its equivalent, (ii) in the
discretion of the Committee, in Company Common Stock previously acquired by
the key employee, provided that if such shares of Common Stock were acquired
through exercise of an ISO, an NQSO or an option under a similar plan, such
shares have been held by the key employee for a period of more than one year
on the date of exercise, (iii) through the Company's "cashless exercise"
program, by delivering a properly executed notice of exercise of the option to
the Company and a broker, with irrevocable instructions to the broker promptly
to deliver to the Company the amount of sale or loan proceeds necessary to pay
the exercise price of the option, or (iv) in the discretion of the Committee,
in any combination of the foregoing.
Change in Control; Forfeiture Provisions
The Committee has the authority to include in any option agreement, or in
any separate agreement or statement approved by the Committee, (i) provisions
accelerating the exercise date of, or modifying the benefits to be received
under any option upon the occurrence of specified events, including an
acquisition of a specified percentage of the voting power of the Company's
outstanding securities, a specified change in the membership of the Company's
Board of Directors, the dissolution or liquidation of the Company, the sale of
all or substantially all of the property and assets of the Company or any
other "change in control" event, and (ii) provisions cancelling or providing
for the forfeiture of benefits provided under any option in the event the
optionee acts in a specified manner which is contrary to the best interests of
the Company.
15
<PAGE>
Federal Income Tax Consequences
This discussion, which is based upon federal income tax law as in effect on
December 31, 1998, summarizes certain federal income tax consequences
associated with the Plan. The tax consequences to executive officers,
directors, and others subject to Section 16 of the Securities Exchange Act of
1934 may be different than those summarized below.
An optionee generally will not realize taxable income upon the grant or
exercise of an ISO and the Company is not entitled to any deduction at the
time of grant or at the time of exercise. If shares issued to an optionee upon
exercise of an ISO are not disposed of in a disqualifying disposition within
two years from the date of grant or within one year from the date the option
is exercised, then upon the sale of the shares any amount realized in excess
of the option price generally will be taxed to the optionee as a long-term
capital gain, and any loss sustained will be a long-term capital loss. Under
such circumstances, the Company will not be entitled to any deduction for
federal income tax purposes. If shares acquired upon exercise of an ISO are
disposed of prior to the expiration of either holding period described above,
the optionee generally will recognize ordinary income in the year of
disposition in an amount equal to any excess of the fair market value of the
shares at the time of exercise (or, if less, the amount realized on
disposition of the shares) over the option price, and the Company will be
entitled to a deduction equal to such income.
Subject to certain exceptions for death and disability, if an optionee
exercises an ISO more than three months after termination of employment, the
exercise of the option will be taxed as the exercise of an NQSO. In addition,
if an optionee is subject to federal "alternative minimum tax," the exercise
of an ISO will be treated essentially the same as an NQSO for purposes of the
alternative minimum tax.
Upon the grant of a non-qualified stock option, an optionee will not realize
taxable income, and the Company will not be entitled to a deduction. Upon
exercise of such option, the optionee will realize ordinary income as of the
date of exercise equal to the excess of the fair market value of the shares of
Common Stock over the option price. Upon a disposition of shares acquired by
exercise of a non-qualified stock option, the gain or loss will generally
constitute a capital gain or loss. Generally, whenever a recipient realizes
ordinary income upon the exercise of a non-qualified stock option, the Company
will be entitled to a deduction for a corresponding amount.
Under the Revenue Reconciliation Act of 1993, otherwise allowable deductions
for compensation paid or accrued with respect to the Company's Chief Executive
Officer and four other highest paid executive officers are generally limited
to $1,000,000 per year for years after 1993.
Withholding
If the exercise of an option is subject to the withholding requirements of
applicable federal tax laws, the Committee, in its discretion, may permit the
optionee to satisfy the federal withholding tax, in whole or in part, by
electing to have the Company withhold (or by returning to the Company) shares
of Common Stock, which shares shall generally be valued for this purpose at
their fair market value on the date of exercise of the option, in the case of
an NQSO, and in the case of a disqualifying disposition of an ISO, on the date
on which the optionee recognizes ordinary income with respect to such
exercise.
Stockholder Approval
The affirmative vote of the holders of a majority of the shares of Company
stock present in person or by proxy at the meeting and entitled to vote will
be required to approve the Plan. Abstentions on this proposal will be included
within the number of shares present at the meeting and entitled to vote for
purposes of determining whether the Plan has been approved, but broker and
other specified non-votes will not be so included.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
APPROVAL OF THE PLAN.
16
<PAGE>
ACCOUNTANTS
The firm of Arthur Andersen LLP served as the Company's independent public
accountants for 1998. In accordance with past Company practice, the Company
has not yet selected its independent public accountants for 1999. A
representative of Arthur Andersen LLP is expected to be present at the Annual
Meeting of Stockholders and will be available to respond to appropriate
questions. He will also have the opportunity to make a statement if he desires
to do so.
ANNUAL REPORT ON FORM 10-K
Upon the written request of any beneficial owner, as of March 18, 1999, of
the Company's Common Stock, the Company will provide, without charge, a copy
of its Annual Report on Form 10-K (including financial statements and
schedules) for the year ended December 31, 1998. A list of the exhibits to
such Annual Report will also be provided, and copies of such exhibits will be
furnished upon request and payment of a reasonable fee. Requests should be
directed to Terrence W. Kyle, Senior Vice President, Shared Medical Systems
Corporation, 51 Valley Stream Parkway, Malvern, Pennsylvania 19355.
STOCKHOLDER PROPOSALS
Under Securities and Exchange Commission rules, certain stockholder
proposals may be included in the Company's proxy statement. Any stockholder
desiring to have such a proposal included in the Company's proxy statement for
the annual meeting to be held in 2000 must cause a proposal in full compliance
with Rule 14a-8 under the Securities Exchange Act of 1934 to be received at
the Company's executive offices not later than December 1, 1999.
OTHER MATTERS
Management of the Company knows of no matters other than those discussed
herein which will be brought before the meeting by any person. If, however,
any such matter shall properly come before the meeting, the persons named in
the enclosed proxy will vote the same in accordance with their best judgment.
All expenses in connection with the solicitation of proxies, including the
cost of preparing, printing and mailing the Notice of Annual Meeting, this
Proxy Statement and the proxy will be borne by the Company. Employees of the
Company may solicit proxies by personal interview, mail, telephone, facsimile
transmission and telegraph. The Company will reimburse brokers and other
persons holding stock in their names or in the names of nominees for their
expenses in forwarding proxies and proxy materials to beneficial owners of the
shares.
By Order of the Board of Directors
James C. Kelly
Secretary
17
<PAGE>
This Proxy is Solicited By The Board of Directors Of The Company
P SHARED MEDICAL SYSTEMS CORPORATION
R PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
O May 13, 1999
X The undersigned hereby appoints R. James Macaleer and James C. Kelly, or
each of them, as Proxies, each with full power of substitution and
Y revocation, to attend the Annual Meeting of Stockholders of Shared Medical
Systems Corporation on May 13, 1999 and any adjournment thereof, and thereat
to vote all shares which the undersigned would be entitled to vote if
personally present upon the matters as set forth in the Notice of Annual
Meeting and Proxy Statement and, in their discretion, upon any other matters
which may properly come before the meeting.
(Continued and to be signed on other side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
Please mark
your vote as [X]
indicated in
this example
1. Election of Directors
To withhold authority to vote for one or FOR all AUTHORITY
more but less than all of the seven nominees nominees WITHHELD
named in the Proxy Statement (Messrs.
Macaleer, Denworth, DeTurk, Weston, Rubin [_] [_]
and Cadwell and Dr. Wilensky), please list
the name(s) of the nominee(s) for whom
authority is withheld:
- -----------------------------------------------
A vote FOR is recommended by the Board of Directors:
2. Approval of the 1999 Stock Option FOR AGAINST ABSTAIN
Plan
[_] [_] [_]
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE SEVEN NOMINEES LISTED IN ITEM 1 AND FOR APPROVAL OF THE 1999 STOCK
OPTION PLAN REFERRED TO IN ITEM 2.
Signature_______________________Signature_______________________Date___________
NOTE: (Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such).
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
SHARED MEDICAL SYSTEMS CORPORATION
1999 STOCK OPTION PLAN
1. Introduction
------------
(a) Purpose. The Plan is intended to provide a means whereby the Company
-------
may, through the grant of ISOs and NQSOs to Employees and Non-Employee
Directors, attract and retain such individuals and motivate them to exercise
their best efforts on behalf of the Company and of any Related Corporation.
(b) Definitions. For purposes of the Plan:
-----------
(1) "Board" shall mean the Board of Directors of the Company.
(2) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(3) "Committee" shall mean the Stock Option Committee of the Board,
which shall consist of not less than two (2) directors of the Company who shall
be appointed by, and shall serve at the pleasure of, the Board.
(4) "Common Stock" shall mean the common stock of the Company, par
value $.01 per share.
(5) "Company" shall mean Shared Medical Systems Corporation.
(6) "Employee" shall mean officers, employee directors and other
employees of the Company and/or of a Related Corporation.
(7) "Fair Market Value" shall mean the following, arrived at by a good
faith determination of the Committee:
(A) The mean between the highest and lowest quoted selling price
on the date of grant, if there are sales of Common Stock on a national
securities exchange or in an over-the-counter market on the date of grant; or
(B) The weighted average of the means between the highest and
lowest sales on the nearest date before and the nearest date after the date of
grant, if there are no sales on the date of grant but there are sales on dates
within a reasonable period both before and after the date of grant; or
(C) The mean between the bid and asked prices, as reported by the
National Quotation Bureau on the date of grant, if actual sales are not
available during a reasonable period beginning before and ending after the date
of grant; or
(D) if (A) through (C) are not applicable, such other method of
determining fair market value as shall be authorized by the Code, or the rules
or regulations thereunder, and adopted by the Committee.
Where the fair market value of the optioned shares of Common Stock is determined
under (B) above, the average of the means between the highest and lowest sales
on the nearest date before and the nearest date after the date of grant is to be
weighted inversely by the respective numbers of trading days between the sale
dates and the date of grant, in accordance with Treas. Reg. Section 20.2031-
2(b)(1), or any successor thereto.
1
<PAGE>
(8) "ISO" shall mean an option which, at the time such option is
granted, qualifies as an incentive stock option within the meaning of section
422 of the Code, unless the Option Agreement states that the option will not be
treated as an ISO.
(9) "Non-Employee Director" shall mean a director of the Company who is
not an employee of the Company or a Related Corporation.
(10) "NQSO" shall mean an option which, at the time such option is
granted, does not qualify as an ISO.
(11) "Option Agreement" shall mean a written document evidencing the
grant of an Option, as described in Section 7(k).
(12) "Optionee" shall mean an Employee or Non-Employee Director who has
been granted an Option under the Plan.
(13) "Options" shall mean ISOs and NQSOs.
(14) "Plan" shall mean the SHARED MEDICAL SYSTEMS CORPORATION 1999
STOCK OPTION PLAN as set forth herein and as amended from time to time.
(15) "Related Corporation" shall mean either a "subsidiary
corporation" of the Company, as defined in section 424(f) of the Code, or the
"parent corporation" of the Company, as defined in section 424(e) of the Code.
(16) "Termination of Service" shall mean (A) with respect to an Option
granted to an Employee, the termination of the employment relationship between
the Employee and the Company and all Related Corporations; and (B) with respect
to an Option granted to a Non-Employee Director, the cessation of the provision
of services as a director of the Company and all Related Corporations; provided,
however, that if an Optionee's status changes from Employee to Non-Employee
Director or from Non-Employee Director to Employee, the Committee may provide
that no Termination of Service occurs for purposes of the Plan until the
Optionee's new status with the Company and all Related Corporations terminates.
2. Administration.
--------------
The Plan shall be administered by the Committee. Each member of such
Committee, while serving as such, shall be deemed to be acting in his/her
capacity as a director of the Company.
The Committee shall have full authority, subject to the terms of the Plan,
to select the Employees and Non-Employee Directors to be granted Options under
the Plan, to grant Options on behalf of the Company and to set the date of grant
and the other terms of such Options in accordance with the Plan.
The Committee also shall have the authority to establish such rules and
regulations, not inconsistent with the provisions of the Plan, for the proper
administration of the Plan, and to amend, modify or rescind any such rules and
regulations, and to make such determinations and interpretations under, or in
connection with, the Plan, as it deems necessary or advisable. All such rules,
regulations, determinations and interpretations shall be binding and conclusive
upon the Company, its stockholders and all Optionees, and their respective legal
representatives, beneficiaries, successors and assigns and upon all other
persons claiming under or through any of them. Except as otherwise provided by
the bylaws of the Company or by applicable law, no
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member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Option granted
under it.
3. Eligibility.
-----------
Employees shall be eligible to receive Options under the Plan. Non-
Employee Directors shall be eligible to receive NQSOs under the Plan. More than
one Option may be granted to any grantee under the Plan.
4. Stock.
-----
The maximum number of shares of Common Stock for which Options may be
granted under the Plan shall be, in the aggregate, one million, five hundred
thousand (1,500,000) shares of Common Stock, subject to adjustment as
hereinafter provided. Notwithstanding any provision in the Plan to the
contrary, the maximum number of shares of Common Stock with respect to one or
more grants which may be awarded to any one individual over the term of the Plan
shall be 750,000, subject to adjustment as hereinafter provided. Shares
issuable under the Plan may be authorized but unissued shares, treasury shares
or otherwise reacquired shares, and the Company may purchase shares required for
this purpose, from time to time, if it deems such purchase to be advisable.
If any Option granted under the Plan expires or otherwise terminates for
any reason whatever (including, without limitation, the holder's surrender
thereof) without having been exercised, the shares subject to the unexercised
portion of such Option shall continue to be available for the granting of
Options under the Plan as fully as if such shares had never been subject to an
Option; provided, however, that (i) if an Option is cancelled, the shares of
Common Stock covered by the cancelled Option shall be counted against the
maximum number of shares specified above for which grants may be made to any one
individual, and (ii) if the exercise price of an Option is reduced after the
date of grant, the transaction shall be treated as a cancellation of the
original Option and the grant of a new Option for purposes of such maximum.
5. Granting of Options.
-------------------
From time to time until the expiration or earlier suspension or
discontinuance of the Plan, the Committee may, on behalf of the Company, grant
such Options to Employees or Non-Employee Directors under the Plan as it
determines are warranted, provided, however, that grants of ISOs and NQSOs shall
be separate and not in tandem, and further provided that Non-Employee Directors
shall not be eligible to receive ISOs under the Plan. In making any
determination as to whether an Employee or Non-Employee Director shall be
granted an Option and as to the number of shares to be covered by such Option,
the Committee may take into account the duties of such Employee or Non-Employee
Director, his/her present and potential contributions to the success of the
Company or a Related Corporation, the tax implications to the Company and the
Optionee of any Option granted, and such other factors as the Committee shall
deem relevant in accomplishing the purposes of the Plan.
6. ISO Annual Limit.
----------------
The aggregate Fair Market Value of the Common Stock with respect to which
ISOs are exercisable for the first time by an Employee during any calendar year
(counting ISOs under this Plan and under any other stock option plan of the
Company or a Related Corporation) shall not exceed $100,000. If an Option
intended as an ISO is granted to an Employee and the Option may not be treated
in whole or in part as an ISO pursuant to the $100,000 limitation, the Option
shall be treated as an ISO to the extent it may be so treated under the
limitation and as an NQSO as to the remainder. For purposes of determining
whether an ISO would cause the limitation to be
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<PAGE>
exceeded, ISOs shall be taken into account in the order granted. The annual
limits set forth above for ISOs shall not apply to NQSOs.
7. Terms and Conditions of Options.
-------------------------------
Options granted pursuant to the Plan shall include expressly or by
reference the following terms and conditions, as well as such other provisions
and conditions not inconsistent with the provisions of the Plan (and, for ISOs
granted under the Plan, the provisions of section 422(b) of the Code), as the
Committee shall deem desirable:
(a) Number of Shares. The Option shall state the number of shares of
----------------
Common Stock to which it pertains.
(b) Price. The Option shall state the option price which shall be
-----
determined and fixed by the Committee in its discretion, but shall not be less
than the higher of 100 percent (110% in the case of an ISO granted to a more-
than-10-percent shareholder, as provided in subsection (j) below) of the Fair
Market Value of the shares of Common Stock subject to the Option on the date the
Option is granted, or the par value thereof.
(c) Term.
----
(1) ISOs. Subject to earlier termination as provided in subsections
----
(e), (f) and (g), the term of each ISO shall be not more than 10 years (five
years in the case of a more-than-10-percent shareholder, as provided in
subsection (j) below) from the date of grant.
(2) NQSOs. Subject to earlier termination as provided in subsections
-----
(e), (f) and (g), the term of each NQSO shall be not more than 20 years from
the date of grant.
(d) Exercise. Options shall be exercisable in such installments and on
--------
such dates as the Committee may specify but not earlier than six months from the
date of grant. The Committee may accelerate the exercise date of any
outstanding Options in its discretion, if it deems such acceleration to be
desirable. Moreover, the Committee may provide in the Option that said Option
may be exercised only if certain conditions, as determined by the Committee, are
fulfilled.
Any exercisable Options may be exercised at any time up to the
expiration or termination of the Option. Exercisable Options may be exercised,
in whole or in part from time to time, by giving written notice of exercise to
the Company at its principal office, specifying the number of shares to be
purchased and paying the option price for such shares in the manner specified in
the Option Agreement. Only full shares shall be issued under the Plan, and any
fractional share which might otherwise be issuable upon exercise of an Option
granted hereunder shall be forfeited.
The manner in which the option price may be paid shall be determined by
the Committee, in its sole discretion, and shall be set forth in the Option
Agreement. The Committee may determine that the option price shall be payable:
(1) In cash or its equivalent;
(2) In Common Stock previously acquired by the Optionee, provided that
(i) if such shares of Common Stock were acquired through the exercise of an ISO
and are used to pay the option price of an ISO, such shares have been held by
the Optionee for a period of not less than the holding period described in
section 422(a)(1) of the Code on the date of exercise, or (ii) if such shares of
Common Stock were acquired through the exercise of an NQSO and are used to pay
the option price of an ISO, or if such shares of Common Stock were acquired
through the
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<PAGE>
exercise of an ISO or an NQSO and are used to pay the option price of an NQSO,
such shares have been held by the Optionee for a period of more than one (1)
year on the date of exercise;
(3) Through the Company's "cashless exercise" program, by delivering a
properly executed notice of exercise of the Option to the Company and a broker,
with irrevocable instructions to the broker promptly to deliver to the Company
the amount of sale or loan proceeds necessary to pay the exercise price of the
Option; or
(4) In any combination of the foregoing.
In the event such Option price is paid, in whole or in part, with shares of
Common Stock, the portion of the Option price so paid shall be equal to the Fair
Market Value on the date of exercise of the Common Stock so tendered in payment
of such Option price.
(e) Termination of Service for a Reason Other Than Death or Disability. If
------------------------------------------------------------------
an Optionee's Termination of Service occurs prior to the expiration date fixed
for his/her Option for any reason other than death or disability, such Option
may be exercised, to the extent of the number of shares with respect to which
the Optionee could have exercised it on the date of such Termination of Service,
or to any greater extent permitted by the Committee, by the Optionee at any time
prior to the earlier of (i) the expiration date specified in such Option; or
(ii) not more than three months after the date of such Termination of Service
(or such later expiration date as shall be specified in the Option Agreement in
the case of such a Termination).
(f) Disability. If an Optionee shall become disabled (within the meaning
----------
of section 22(e)(3) of the Code) prior to the expiration date fixed for his/her
Option, and the Optionee's Termination of Service occurs as a consequence of
such disability, such Option may be exercised, to the extent of the number of
shares with respect to which the Employee could have exercised it on the date of
such Termination of Service, or to any greater extent permitted by the
Committee, by the Optionee at any time prior to the earlier of (i) the
expiration date specified in such Option; or (ii) not more than one year after
the date of such Termination of Service (or such later expiration date as shall
be specified in the Option Agreement in the case of such a Termination). In the
event of the Optionee's legal disability, such Option may be so exercised by the
Optionee's legal representative.
(g) Death. If an Optionee's Termination of Service occurs as a result of
-----
death, prior to the expiration date fixed for his/her Option, or if an Optionee
dies following his/her Termination of Service but prior to the earlier of (i)
the expiration date fixed for his/her Option, or (ii) the expiration of the
period determined under subsections (e) and (f) above, such Option may be
exercised, to the extent of the number of shares with respect to which the
Optionee could have exercised it on the date of his/her death, or to any greater
extent permitted by the Committee, by the Optionee's estate, personal
representative or beneficiary who acquired the right to exercise such Option by
bequest or inheritance or by reason of the death of the Optionee. However, such
exercise must occur prior to the earlier of (i) the expiration date specified in
such Option; or (ii) one (1) year after the date of the Optionee's death (or
such later expiration date as shall be specified in the Option Agreement in the
case of death).
(h) Non-Transferability. No ISO shall be assignable or transferable by the
-------------------
Optionee other than by will or by the laws of descent and distribution. Except
as otherwise provided in the Option Agreement, no NQSO shall be assignable or
transferable by the Optionee other than by will or by the laws of descent and
distribution. During the lifetime of the Optionee, an ISO shall be exercisable
only by the Optionee or, in the event of Optionee's legal disability, by the
Optionee's guardian or legal representative.
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<PAGE>
(i) Rights as a Stockholder. An Optionee shall have no right to receive
-----------------------
any dividend on or to vote or exercise any rights as a stockholder with respect
to any shares covered by his/her Option until the issuance to him/her of a stock
certificate for such shares.
(j) Ten-Percent Stockholder. If the Optionee owns more than 10 percent of
-----------------------
the total combined voting power of all shares of stock of the Company or of a
Related Corporation at the time an ISO is granted to him or her, the option
price for the ISO shall be not less than 110 percent of the Fair Market Value of
the optioned shares of Common Stock on the date the ISO is granted, and such
ISO, by its terms, shall not be exercisable after the expiration of five years
from the date the ISO is granted. The conditions set forth in this subsection
shall not apply to NQSOs.
(k) Option Agreements; Other Provisions. Options granted under the Plan
-----------------------------------
shall be evidenced by Option Agreements in such form as the Committee shall from
time to time approve, and containing such provisions and conditions not
inconsistent with the provisions of the Plan (and, for ISOs granted under the
Plan, the provisions of section 422(b) of the Code), as the Committee shall deem
advisable. Each Option Agreement shall specify whether the Option is an ISO or
NQSO. Each Optionee shall enter into, and be bound by, an Option Agreement, as
soon as practicable after the grant of an Option.
8. Listing and Registration of Shares.
----------------------------------
Each Option shall be subject to the requirement that, if at any time the
Committee shall determine, in its discretion, that the listing, registration or
qualification of the shares covered thereby upon any securities exchange or
under any state or federal law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in connection
with, the granting of such Option or the purchase of shares thereunder, or that
action by the Company, its stockholders, or the Optionee should be taken in
order to obtain an exemption from any such requirement or to continue any such
listing, registration or qualification, no such Option may be exercised, in
whole or in part, unless and until such listing, registration, qualification,
consent, approval, or action shall have been effected, obtained, or taken under
conditions acceptable to the Committee. Without limiting the generality of the
foregoing, each Optionee or the legal representative or beneficiary of such
Optionee may also be required to give satisfactory assurance that such person is
an eligible purchaser under applicable securities laws, and that the shares
purchased upon exercise of an Option are being acquired for investment and not
with a view to distribution, and certificates representing such shares may be
legended accordingly.
9. Withholding and Use of Shares to Satisfy Tax Obligations.
--------------------------------------------------------
The obligation of the Company to deliver shares of Common Stock upon the
exercise of any Option, shall be subject to applicable federal, state and local
tax withholding requirements.
If the exercise of any Option is subject to the withholding requirements of
applicable federal tax laws, the Committee, in its discretion, may permit the
Optionee to satisfy the federal withholding tax, in whole or in part, by
electing to have the Company withhold (or by returning to the Company) shares of
Common Stock, which shares shall be valued, for this purpose, at their Fair
Market Value on the date of exercise of the Option (or if later, the date on
which the Optionee recognizes ordinary income with respect to such exercise)
(the "Determination Date"). In the event shares of Common Stock acquired under
the exercise of an ISO are used to satisfy such withholding requirements, such
shares of Common Stock must have been held by the Optionee for a period of not
less than the holding period described in section 422(a)(1) of the Code on the
Determination Date.
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<PAGE>
The Committee may adopt such withholding rules as it deems necessary to
carry out the provisions of this Section.
10. Capital Adjustments; Change in Control; Forfeiture Provisions.
-------------------------------------------------------------
The number of shares which may be issued under the Plan and the maximum
number of shares with respect to which grants may be made to any one individual,
both as stated in Section 4 hereof, and the number of shares issuable upon
exercise of outstanding Options under the Plan (as well as the Option price per
share under such outstanding Options) shall be adjusted, as may be deemed
appropriate by the Committee, to reflect any stock dividend, stock split,
recapitalization, reorganization, merger, combination, spin-off, share
combination, or other similar event or similar change in the capitalization of
the Company, except that (i) to the extent such transaction involves a "change
in control" event as may be provided in any Option Agreement or in any separate
agreement or statement approved by the Committee as provided below, the
provisions concerning the impact of such event shall control, and (ii) no
adjustment shall be made to an outstanding ISO if such adjustment would
constitute a modification under section 424(h) of the Code, unless the Optionee
consents to such modification. In the event any such change in capitalization
cannot be reflected in a straight mathematical adjustment of the number of
shares issuable upon the exercise of outstanding Options (and a straight
mathematical adjustment of the exercise price thereof), the Committee shall make
such adjustments as are appropriate to reflect most nearly such straight
mathematical adjustment. Such adjustments shall be made only as necessary to
maintain the proportionate interest of Optionees, and preserve, without
exceeding, the value of Options.
The Committee shall have the authority to include in any Option Agreement,
or in any separate agreement or statement approved by the Committee, (i)
provisions accelerating the exercise date of, or modifying the benefits to be
received under any Option upon the occurrence of specified events, including an
acquisition of a specified percentage of the voting power of the Company's
outstanding securities, a specified change in the membership of the Company's
Board of Directors, the dissolution or liquidation of the Company, the sale of
all or substantially all of the property and assets of the Company or any other
"change in control" event, and (ii) provisions cancelling or providing for the
forfeiture of benefits provided under any Option in the event the Optionee acts
in a specified manner which is contrary to the best interests of the Company.
11. Amendment or Discontinuance of the Plan.
---------------------------------------
The Board from time to time may suspend or amend the Plan in any respect
whatsoever, and the Committee may amend any outstanding Options in any respect
whatsoever, provided, that no such suspension or amendment shall materially
impair the rights of any holder of an outstanding Option without the consent of
such holder, and provided further that no such amendment or suspension shall
cause the modification (within the meaning of section 424(h) of the Code) of an
ISO, unless the Optionee consents to such modification.
12. Rights.
------
Neither the adoption of the Plan nor any action of the Board or the
Committee shall be deemed to give any individual any right to be granted an
Option or any other right hereunder, unless and until the Committee shall have
granted such individual an Option, and then his/her rights shall be only such as
are provided by the Option Agreement.
Notwithstanding any provisions of the Plan or any Option Agreement with an
Optionee, the Company shall have the right, in its discretion, to retire an
Employee at any time pursuant to its retirement rules or otherwise to terminate
his/her employment at any time for any reason whatsoever, with or without cause.
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<PAGE>
13. Indemnification of Board and Committee.
--------------------------------------
(a) Indemnification. Without limiting any other rights of indemnification
---------------
which they may have from the Company and any Related Corporation, any member of
the Board and any member of the Committee 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 any action taken or failure to act under, or in connection with, the Plan or
any Option granted thereunder, shall be indemnified by the Company 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.
(b) Advances. Any person claiming indemnification within the scope of
--------
subsection (a) of this Section 13 shall be entitled to advances from the Company
for payment of the expenses of defending actions against such person in the
manner and to the full extent permissible under Delaware law.
(c) Procedure. On the request of any person requesting indemnification
---------
under Subsection (a) of this Section 13, the Board 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.
14. Application of Funds.
--------------------
Any cash received in payment for shares upon exercise of an Option to
purchase Common Stock or otherwise shall be added to the general funds of the
Company. Any Common Stock received in payment for shares upon exercise of an
Option to purchase Common Stock shall become treasury stock.
15. No Obligation to Exercise Option.
--------------------------------
The granting of an Option shall impose no obligation upon an Optionee to
exercise such Option.
16. Effective Date; Termination of Plan.
-----------------------------------
(a) Effective Date. The effective date of the Plan is February 11, 1999,
--------------
the date of its adoption by the Board, provided, however, that if the Plan is
not approved by the stockholders of the Company at the next annual meeting of
stockholders, ISOs granted hereunder shall be null and void and no additional
ISOs shall be granted hereunder.
(b) Termination of Plan. The Board may terminate the Plan at any time for
-------------------
any reason. No ISOs shall be granted hereunder after February 10, 2009, which
date is within ten (10) years after the date the Plan was adopted by the Board.
Nothing contained in this Section, however, shall terminate or affect the
continued existence of rights created under Options issued hereunder and
outstanding on the date the Plan is terminated, which by their terms extend
beyond such date.
17. Governing Law.
-------------
The laws of the State of Delaware shall govern the operation of the Plan,
the Option Agreements and any Options granted thereunder.
8
