Exhibit (10)
DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT is made as of the 30th day of September, 1998, between
SHARED MEDICAL SYSTEMS CORPORATION (the "Company") and
______________("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.
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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 September 30, 1998 with a trustee selected by the Company (the
"Trustee"). Concurrent with the execution of this Agreement, the Company will
contribute to the Trust _______ newly-issued shares of Company Common Stock
("Original Shares") by delivery of such Shares to the Trustee.
The Trustee shall, on behalf of the Company, hold a deferred compensation
account for Employee (the "Deferred Compensation Account" or the "Account"). The
Account shall have two sub-accounts, the Stock Account and the Cash Account. The
Trustee shall hold the Original Shares in the Stock Account. Any stock
dividends, stock splits, and other non-cash distributions received on the
Original Shares shall be held in the Stock Account, while any cash dividends
received on the Original Shares shall be held in the Cash Account and shall be
invested in accordance with investment guidelines established by the Company.
The Accounts shall also be reduced for distributions made under the terms of
this Agreement.
Notwithstanding the foregoing, the Trust assets shall be treated as assets
of the Company and shall remain, in the event the Company becomes Insolvent (as
such term is defined in Section 5(a)(i) of the Trust Agreement) subject to the
claims of the Insolvency Creditors (within the meaning of Section 5(a)(ii) of
the Trust Agreement) of the Company. Employee shall not have any property
interest in the assets held in the Trust. Employee shall have only the rights of
an unsecured creditor against the Company for any distribution due under this
Agreement, and this Agreement shall constitute a mere promise by the Company to
make such
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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.
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(a) Benefits at Normal Retirement.
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Upon the termination of Employee's employment with the Company occurring on
or after the Employee attains the age of 60 (his "Normal Retirement Age"),
Employee shall be entitled to receive and shall have distributed to him the
balance in his sub-accounts, as provided in Exhibit A.
(b) Termination Before Normal Retirement Age.
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If Employee's employment with the Company is terminated for any reason
prior to his Normal Retirement Age, Employee shall not be entitled to receive
any amount in his Account, and no distributions shall be made to Employee,
except under the following circumstances:
(i) Disability.
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If Employee's termination of employment results from his permanent
disability prior to his Normal Retirement Age, Employee shall be entitled to
receive and shall have distributed to him the balance in his sub-accounts, as
provided in Exhibit A. Employee shall be deemed "permanently disabled," only if
he can no longer perform the duties of his position, as determined by the
Management and Compensation Committee of the Company's Board of Directors, in
his or their sole discretion.
(ii) Death.
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If Employee's termination of employment results from the Employee's death
prior to his Normal Retirement Age, Employee's beneficiary designated pursuant
to Section 3(b) below shall be entitled to receive within 30 days of Employee's
death and shall have distributed to him or her the balance in Employee's
sub-accounts, in a lump sum.
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(iii) Discharge After Age 50.
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Except as otherwise provided in Section 2(b)(iv) below, if Employee is
discharged by the Company for any reason other than "cause" after he reaches age
50 but prior to his Normal Retirement Age, the balance in his sub-accounts shall
be reduced to the balance in his sub-accounts as of his date of termination
multiplied by the Adjustment Fraction. For purposes of this subsection only,
"Adjustment Fraction" shall mean a fraction, the numerator of which shall be the
number of full months the Employee worked for the Company after attaining age
50, and the denominator of which shall be 120. The balance in his sub-accounts
shall be distributed to the Employee, as provided in Exhibit A.
As used herein, the term "cause" shall mean Employee's (A) dishonest or
illegal conduct, (B) conduct contrary to the best interests of the Company, (C)
insubordination, incompetence, misconduct, or neglect of his duties, or (D)
willful violation of any express direction of the senior management or the Board
of Directors of the Company, as determined by the Management and Compensation
Committee of the Company's Board of Directors, in his or their sole discretion.
(iv) Change in Control.
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(A) Acceleration of Account.
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(I) Notwithstanding the foregoing, if, prior to Employee's Normal
Retirement Age, (aa) there is a "Change in Control" which is approved
by a majority of the members of the "Prior Board," and (bb) within 30
months after the "Change in Control" the Company or any successor or
purchasing entity terminates Employee's employment for a reason other
than dishonesty, illegal conduct of a serious nature, gross
misconduct, or gross neglect of Employee's duties to the Company, or
Employee suffers an "Adverse Employment Change" and resigns, and at
the time of such termination or resignation (and immediately
thereafter) the chief executive officer of the Company immediately
prior to such Change in Control is not the chief executive officer of
the Company or any successor or purchasing entity, then, Employee
shall be
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entitled to receive and shall have distributed to him the balance in
his sub-accounts, as provided in Exhibit A.
(II) Notwithstanding the foregoing, if, prior to Employee's
Normal Retirement Age, there is a "Change in Control" which is not
approved by a majority of the members of the "Prior Board," then,
Employee shall be entitled to receive and shall have distributed to
him immediately the balance in his sub-accounts, in a lump sum.
(B) Definitions.
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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 consummation 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.
As used herein, the term "Adverse Employment Change" shall mean (aa) a
reduction in the salary or incentive compensation opportunity of Employee
when compared to that in effect immediately prior to the Change in Control,
(bb) a clear and material reduction in the duties, responsibilities or
authority of Employee when compared to those in effect immediately prior to
the Change in Control, or (cc) any change in Employee's principal place of
work which would increase Employee's commute by 50 miles or more.
As used herein, the term "Prior Board" shall mean the group of individuals
most recently elected as directors by stockholders of the Company, or
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appointed to fill Board vacancies by a majority of such stockholder-elected
individuals then serving on the Board, and not affiliates (as defined by
SEC rules) or nominees of the person or entity (1) acquiring 40% or more of
the combined voting power of the Company's then outstanding securities
described in the definition of Change in Control, (2) merging or
consolidating with the Company as described in clause (aa) of the
definition of Change in Control, (3) succeeding to the Company's business
as a result of a liquidation or dissolution of the Company as described in
clause (bb) of the definition of Change in Control, or (4) purchasing all
or substantially all of the Company's assets as described in clause (cc) of
the definition of Change in Control.
(c) Forfeiture of Benefits.
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Notwithstanding the foregoing, if at any time after the date hereof,
Employee, without the express written consent of the Company, manages, operates,
or controls, or becomes an officer, director or employee of, or consultant to,
any business or enterprise determined by the Company to be engaged in the
manufacture, distribution or marketing of any product, or the provision of any
service, substantially similar to or in competition with any product or service
offered by the Company, Employee shall forfeit all rights to receive any
benefits under this Agreement, and no distributions under this Agreement shall
be made to Employee, or continued to be made, as the case may be.
(d) Acceleration of Payments.
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Notwithstanding any other provision of this Agreement or the Trust
Agreement, if the Company's independent public accountants determine, based on a
change in the tax or revenue laws of the United States of America, a published
ruling or similar announcement issued by the Internal Revenue Service, a
regulation issued by the Secretary of the Treasury or his delegate, a final
decision by a court of competent jurisdiction involving the Employee, or a
closing agreement involving the Employee made under section 7121 of the Code
that is approved by the Commissioner, that the Employee has recognized or will
recognize income for Federal income tax purposes with respect to benefits that
are or will be payable to the Employee hereunder, before they otherwise would be
paid to the
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Employee, the Company shall discuss with the Employee appropriate measures to
eliminate a negative economic impact on the Employee, including if approved by
the Company, an immediate distribution by the Trustee from the Trust to the
Employee or Beneficiary of the amount so taxable.
3. Beneficiaries.
(a) Death of Employee Entitled to Benefits.
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If Employee dies after becoming entitled to benefits under Section
2(a) or 2(b)(i), 2(b)(iii) or 2(b)(iv), the balance then in his Account,
shall, within 30 days of Employee's death, be distributed in a lump sum to
Employee's beneficiary designated pursuant to Section 3(b) below.
(b) Beneficiary Designation.
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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 the Employee, his estate shall be his
beneficiary.
4. Claims and Appeals Procedure.
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The Company has provided to the Employee a copy of the Claims and Appeals
procedures which will be followed under this Agreement and which are
incorporated herein by reference.
5. Non-alienation.
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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.
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6. Investment Purposes.
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Unless the Company has theretofore notified Employee that a registration
statement covering Shares deposited with the Trustee has become effective under
the Securities Act of 1933 and the Company has not thereafter notified Employee
that such registration is no longer effective, it shall be a condition of this
Agreement that any Shares to be distributed to Employee hereunder shall be
acquired for investment and not with a view to distribution in violation of the
Securities Act of 1933 (or of any rules or regulations promulgated thereunder),
and Employee hereby agrees to submit to the Company a certificate of such
investment intent, together with such other evidence supporting the same as the
Company may request. The Company shall be entitled to restrict the
transferability of any Shares distributed hereunder to the extent necessary to
avoid a risk of violations of the Securities Act of 1933 (or of any rules or
regulations promulgated thereunder) or of any state laws or regulation. Such
restrictions may, at the option of the Company, be noted or set forth in full on
the Share certificates.
7. Amendment or Termination of Agreement.
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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.
8. Authority to Interpret Agreement Vested in Company.
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The Company shall have full power and authority to interpret, construe,
administer and make factual determinations with respect to this Agreement, and
the interpretation and construction thereof, and actions thereunder, including
any valuation of the Deferred Compensation Account, or any decisions regarding
the amount or recipient of any distribution to be made therefrom, shall be
binding and conclusive on all persons for all purposes. The Company shall not be
liable to any person for any action taken or omitted in connection with the
interpretation and administration of this Agreement unless attributable to its
own willful misconduct or lack of good faith.
9. No Contract of Employment.
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Nothing contained herein shall be construed as conferring upon the Employee
the right to continue in the employ of the Company.
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10. Right to Withhold.
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The Company and the Trustee shall have the right to withhold from all
distributions under the Agreement any Federal, state, or local taxes required by
law to be withheld with respect to such distributions.
11. Governing Law.
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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.
12. Agreement Binding.
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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]
----------------------------- By:
Assistant Secretary ------------------------------
Name:
Title:
WITNESS:
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Exhibit A
I. Distribution of Benefits.
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(a) Timing of Distributions.
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Distributions pursuant to Section 2(a) shall be made in 20 annual
installment payments, commencing on a date no later than 30 days after the
date of Employee's termination of employment. Distributions pursuant to
Sections 2(b)(i), 2(b)(iii), and 2(b)(iv) shall be made in 20 annual
installment payments, commencing on a date no later than 30 days after the
date the Employee reaches his Normal Retirement Age. Annual installments
shall be distributed on the anniversary of the first such distribution.
(b) Amount of Distributions Under Sections 2(a), 2(b)(i) and 2(b)(iv).
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For each installment payment made pursuant to Sections 2(a), 2(b)(i)
and 2(b)(iv), the Employee shall receive (i) an amount (payable in Shares,
or with respect to non-cash assets other than Company stock, in kind) equal
to the percentage of the Original Shares (and the stock dividends, stock
splits and other non-cash distributions deemed received on the Original
Shares) as indicated for the installment under II below, and (ii) cash in
the amount of _____. In the event that the amount of cash to be
distributed in an installment exceeds the current balance in the Cash
Account on the date of such distribution, then the amount of the cash
distribution shall be limited to the balance in the Cash Account on such
date. In the event that the balance in the Cash Account on the date of the
last installment is greater than _____ then the entire balance in the Cash
Account shall be distributed with such last installment.
Fractional Shares shall be disregarded in computing the amount of
distributions hereunder. All applicable taxes shall be withheld from
distributions under the Agreement.
(c) Amount of Distributions under Section 2(b)(iii).
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For each installment payment made pursuant to Section 2(b)(iii), the
Employee shall receive (i) an amount (payable in Shares, or with respect to
non-cash assets other than Company stock, in kind)) equal to the percentage
of the Original Shares then remaining in the Stock Account, as provided in
Section 2(b)(iii) (and the stock dividends, stock splits and other non-
A-i
cash distributions received on such remaining Original Shares) indicated
for the installment under II below, and (ii) cash in an amount equal to
(aa) _____, multiplied by (bb) the Adjustment Fraction set forth in
Section 2(b)(iii). In the event that the amount of cash to be distributed
in an installment exceeds the current balance in the Cash Account on the
date of such distribution, then the amount of the cash distribution shall
be limited to the balance in the Cash Account on such date. In the event
that the balance in the Cash Account on the date of the last installment is
greater than the amount of cash determined pursuant to subclause (ii) of
the preceding sentence, then the entire balance in the Cash Account shall
be distributed with such last installment.
Fractional Shares shall be disregarded in computing the amount of
distributions hereunder. All applicable taxes shall be withheld from
distributions under the Agreement.
II. Distribution Schedule.
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Percentage of Original Shares
(and other assets in Stock Account)
Installment Distributed
#1 9.6%
#2 8.8%
#3 8.1%
#4 7.4%
#5 6.8%
#6 6.3%
#7 5.8%
#8 5.4%
#9 5.0%
#10 4.6%
#11 4.3%
#12 4.0%
#13 3.7%
#14 3.5%
#15 3.2%
#16 3.0%
#17 2.9%
#18 2.7%
#19 2.5%
#20 2.4%
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Total: 100%
A-ii
Schedule to Exhibit (10)
A deferred compensation agreement in the form presented in the preceding pages
was implemented for each of the following executive officers of the Company:
Xxxxxx X. Xxxxxxx
X. Xxxxxxxx Xxxxx
Xxxxxxxx W. Xxxx
Xxxxxxx X. Xxxxxxx
Xxxxx X. Xxxxx
Messrs. Jones, Kyle, Xxxxxxx and Xxxxx executed agreements effective September
30, 1998, substantially in such form, covering the following amounts of shares:
Xx. Xxxxx (7,809 shares), Xx. Xxxx (5,382 shares), Xx. Xxxxxxx (6,027 shares),
and Xx. Xxxxx (5,036 shares). Xx. Xxxxx will be entitled to receive all of such
shares if he is continually employed by the company until age 65, and will be
entitled to receive a designated portion of the shares if his termination of
employment occurs between the ages of 60 and 65.
Xx. Xxxxxxx'x deferred compensation agreement, previously filed as Exhibit (10)
to the Company's Form 10-Q Report for the quarter ended September 30, 1995, was
amended, effective October 1997, so that it is now substantially in such form,
except that Xx. Xxxxxxx'x agreement provides for partial vesting in the event of
a voluntary termination of employment.
