Exhibit (10.1)
DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT is made this 15th day of August, 1996, between SHARED
MEDICAL SYSTEMS CORPORATION (the "Company") and XXXXX X. XXXXX ("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 March 29, 1996 with a trustee selected by the Company (the
"Trustee"). Concurrent with the execution of this Agreement, the Company will
contribute to the Trust 6,000 newly-issued shares of Company Common Stock
("Original Shares") by delivery of such Original Shares to the Trustee.
The Trustee shall, on behalf of the Company, hold a deferred
compensation account for Employee (the "Deferred Compensation Account" or the
"Account"). The Account shall have three sub-accounts, Stock Account No.1, Stock
Account No.2, and a Cash Account. The Trustee shall hold 3,600 of the Original
Shares in Stock Account No.1. Any stock dividends, stock splits, and other non-
cash distributions received on such shares shall be held in Stock Account No.1.
The Trustee shall hold the remaining 2,400 of the Original Shares in Stock
Account No.2. Any stock dividends, stock splits, and other non-cash
distributions received on such shares shall be held in Stock Account No.2. Any
cash dividends received on the Original Shares shall be held in the Cash Account
and shall be invested in accordance with investment guidelines established by
the Company. All accounts shall be reduced for distributions made under the
terms of this Agreement.
Notwithstanding the foregoing, the Trust assets shall be treated as
assets of the Company and shall remain, in the event the Company becomes
Insolvent (as such term is defined in Section 5(a)(i) of the Trust Agreement)
subject to the claims of the Insolvency Creditors (within the meaning of Section
5(a)(ii) of the Trust Agreement) of the Company. Employee shall not have any
property interest in the assets held in the Trust. Employee shall have only the
rights of an unsecured creditor against the Company for any distribution due
under this Agreement, and this Agreement
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shall constitute a mere promise by the Company to make such distributions in the
future. It is the intention of the parties that the Agreement be unfunded for
Federal income tax purposes and for purposes of Title I of ERISA.
2. Entitlement to Benefits - Stock Account No.1.
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(a) Vesting.
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If Employee is continuously employed by the Company from the
date hereof until September 30, 2001 (the "Vesting Date"), he shall be
entitled to receive and shall have distributed to him the balance in Stock
Account No.1 at the time and in the manner provided in Exhibit A-1.
(b) Termination Before Vesting.
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If Employee's employment with the Company is terminated for any
reason prior to the Vesting Date, Employee shall not be entitled to receive
any amount in Stock Account No.1, and no such distributions shall be made
to Employee, except under the following circumstances:
(i) Disability.
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If Employee's employment with the Company is terminated
as a result of his permanent disability prior to the Vesting Date,
Employee shall be entitled to receive and shall have distributed to
him the balance in Stock Account No.1, at the time and in the manner
provided in Exhibit A-1. Employee shall be deemed "permanently
disabled," only if he can no longer perform the duties of his
position, as determined by the Management and Compensation Committee
of the Company's Board of Directors, in his or their sole discretion.
(ii) Death.
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If Employee's employment with the Company is terminated
prior to the Vesting Date as a result of Employee's death, Employee's
beneficiary designated pursuant to Section 6(b) below shall be
entitled to receive within 30 days of Employee's death and shall have
distributed to him or her the balance in Stock Account No.1, in a lump
sum.
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(iii) Discharge For Other Than Cause.
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Except as otherwise provided in Section 2(b)(iv) below,
if Employee's employment with the Company is terminated prior to the
Vesting Date as a result of his discharge by the Company for any
reason other than "cause", the balance in Stock Account No.1 shall be
reduced to the balance in Stock Account No.1 as of his date of
termination multiplied by a fraction (the "1st Adjustment Fraction"),
the numerator of which shall be the number of full months Employee
worked for the Company after the date hereof, and the denominator of
which shall be 58. The balances in Stock Account No.1, as reduced,
shall be distributed to Employee, at the time and in the manner
provided in Exhibit A-1.
As used herein, the term "cause" shall mean Employee's
(A) dishonest or illegal conduct, (B) conduct contrary to the best
interests of the Company, (C) insubordination, incompetence,
misconduct, or neglect of his duties, or (D) willful violation of any
express direction of the senior management or the Board of Directors
of the Company, as determined by the Management and Compensation
Committee of the Company's Board of Directors, in his or their sole
discretion.
(iv) Change in Control.
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(A) Acceleration of Stock Account No.1.
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If, prior to the Vesting Date, (aa) there is a
"Change in Control" of the Company, (bb) the Chief Executive
Officer of the Company immediately prior to the Change in
Control is replaced, and (cc) within 3 months subsequent thereto
Employee is discharged by the Company or Employee resigns
because his place of work is changed such that his commute would
be increased by 50 miles or more or his responsibilities or his
aggregate compensation is reduced, Employee shall be entitled to
receive and shall have distributed to him the balance in Stock
Account No.1, at the time and in the manner provided in Exhibit
A-1.
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(B) Definition.
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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 approval by the stockholders of
the Company of (aa) any merger or consolidation where
stockholders of the Company immediately prior to the merger or
consolidation do not immediately thereafter hold more than 50%
of the combined voting power of the surviving company's then
outstanding securities, (bb) a liquidation or dissolution of the
Company, or (cc) a sale of all or substantially all of the
Company's assets.
3. Entitlement to Benefits - Stock Account No.2. It is currently
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anticipated that Employee will leave the employment of the Company on or shortly
after the Vesting Date and that Employee may return to the Company's employment
after a 2 to 4 year leave of absence. The pro rata vesting provisions set forth
below are designed so that Employee will be entitled to 100% of the balance in
Stock Account No.2 if he takes a 2 year leave of absence during the period
between September 30, 2001 and September 30, 2005 and continues to work for the
Company until June 30, 2009.
(a) Vesting.
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If Employee (i) is continuously employed by the Company from the
date hereof until September 30, 2001, and (ii) is employed by the Company
at any time during the period from the Vesting Date until June 30, 2009
(the "2nd Vesting Period"), Employee shall be entitled to receive and shall
have distributed to him all or a portion of the balance in Stock Account
No.2 determined as follows. If Employee is entitled to benefits pursuant to
this subsection (a), except as provided in subsection (b) below, prior to
its distribution the balance in Stock Account No.2 shall be reduced to the
balance in Stock Account No.2 as of the latest date of Employee's
employment by the Company during the 2nd Vesting Period multiplied by a
fraction (the "2nd Adjustment
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Fraction"), the numerator of which shall be the number of full months
Employee was employed by the Company during the 2nd Vesting Period, and the
denominator of which shall be 69. The balances in Stock Account No.2, as
reduced, shall be distributed to Employee, at the time and in the manner
provided in Exhibit A-2.
(b) Termination of Vesting.
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Notwithstanding the foregoing, if Employee voluntarily leaves
the employment of the Company (i) prior to September 30, 2005 and does not
return to such employment by September 30, 2005, or (ii) on or after
September 30, 2005, or (iii) more than once during the 2nd Vesting Period,
then prior to its distribution the balance in Stock Account No.2 shall be
reduced to the balances in Stock Account No.2 as of the latest date of
Employee's employment with the Company prior to such leave of employment,
multiplied by the 2nd Adjustment Fraction. (Any months during which
Employee is employed by the Company after returning from any such leave of
employment described in clauses (i), (ii) or (iii) above shall not be
included in the numerator of the 2nd Adjustment Fraction.)
4. Entitlement to Benefits - Cash Account.
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If Employee is entitled to receive any benefits under Sections 2 or 3
above, he shall also be entitled to receive, and shall have distributed to him,
the portion of the Cash Account determined as provided in the next sentence, at
the time and in the manner set forth in Exhibit A-3. At such time as a final
determination can be made as to Employee's entitlement to benefits under
Sections 2 and 3 above, the balance in the Cash Account shall be reduced to the
balance in the Cash Account as of such date multiplied by a fraction (the
"Entitlement Fraction"), the numerator of which shall be the total number of the
Original Shares to which Employee is entitled pursuant to Sections 2 and 3
above, and the denominator of which shall be 6,000 (the total number of Original
Shares).
5. Forfeiture of Benefits.
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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
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competition with any product or service offered by the Company, Employee shall
forfeit all rights to receive any benefits under this Agreement, and no
distributions under this Agreement shall be made to Employee, or continued to be
made, as the case may be.
6. Acceleration of Payments.
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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 Employee, or a closing
agreement involving Employee made under section 7121 of the Code that is
approved by the Commissioner, that Employee has recognized or will recognize
income for Federal income tax purposes with respect to benefits that are or will
be payable to Employee hereunder, before they otherwise would be paid to
Employee, the Company shall discuss with Employee appropriate measures to
eliminate a negative economic impact on Employee, including if approved by the
Company, an immediate distribution by the Trustee from the Trust to Employee or
Beneficiary of the amount so taxable.
7. Beneficiaries.
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(a) Death of Employee Entitled to Benefits.
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If Employee dies after becoming entitled to benefits hereunder
the portion of the balances in Stock Account No.1, Stock Account No.2 and
the Cash Account to which Employee was entitled at the time of his death
shall, within 30 days of Employee's death, be distributed in a lump sum to
Employee's beneficiary designated pursuant to Section 7(b) below.
(b) Beneficiary Designation.
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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 Employee, his estate shall be his
beneficiary.
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8. Claims and Appeals Procedure.
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The Company has provided to Employee a copy of the Claims and Appeals
procedures which will be followed under this Agreement and which are
incorporated herein by reference.
9. Non-alienation.
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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.
10. 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.
11. 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.
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12. 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.
13. No Contract of Employment.
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Nothing contained herein shall be construed as conferring upon
Employee the right to continue in the employ of the Company.
14. 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.
15. 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.
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16. 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]
/s/ Xxxxxx X. Xxxxxx By: /s/ Xxxxxxxx X. Xxxx
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Assistant Secretary Name: Xxxxxxxx X. Xxxx
Title: Vice President of Finance
WITNESS:
/s/ Xxxx X. Xxxxxxxxx /s/ Xxxxx X. Xxxxx
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Xxxxx X. Xxxxx
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Exhibit A-1
I. Distribution of Benefits - Stock Account No.1.
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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 June 30,
2009, or if Employee is then employed by the Company, the date of the
termination of Employee's employment occurring on or after June 30, 2009.
Distributions pursuant to Sections 2(b)(i), 2(b)(iii), and 2(b)(iv) shall be
made in 20 annual installment payments, commencing on a date no later than 30
days after June 30, 2009. Annual installments shall be distributed on the
anniversary of the first such distribution.
(b) Amount of Distributions Under Sections 2(a), 2(b)(i) and 2(b)(iv).
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For each installment payment made pursuant to Sections 2(a), 2(b)(i) and
2(b)(iv), Employee shall receive an amount (payable in Shares, or with respect
to non-cash assets other than Company stock, in kind) equal to the percentage of
the 3,600 Original Shares in Stock Account No.1 (and the stock dividends, stock
splits and other non-cash distributions deemed received on such Original Shares)
as indicated for the installment under II below. Fractional Shares shall be
disregarded in computing the amount of distributions hereunder. All applicable
taxes shall be withheld from distributions under the Agreement.
(c) Amount of Distributions under Section 2(b)(iii).
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For each installment payment made pursuant to Section 2(b)(iii),
Employee shall receive an amount (payable in Shares, or with respect to non-cash
assets other than Company stock, in kind)) equal to the percentage of the
Original Shares then remaining in Stock Account No.1, as provided in Section
2(b)(iii) (and the stock dividends, stock splits and other non-cash
distributions received on such remaining Original Shares) indicated for the
installment under II below. Fractional Shares shall be disregarded in computing
the amount of distributions hereunder. All applicable taxes shall be withheld
from distributions under the Agreement.
A-i
II. Distribution Schedule.
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Percentage of Original Shares
(and other assets in Stock Account)
Installment Distributed
#1 7.8%
#2 7.4%
#3 6.9%
#4 6.5%
#5 6.2%
#6 5.8%
#7 5.5%
#8 5.2%
#9 5.0%
#10 4.8%
#11 4.6%
#12 4.4%
#13 4.3%
#14 4.1%
#15 3.9%
#16 3.8%
#17 3.6%
#18 3.5%
#19 3.4%
#20 3.3%
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Total: 100%
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Exhibit A-2
I. Distribution of Benefits - Stock Account No.2.
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(a) Timing of Distributions.
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Distributions pursuant to Section 3 shall be made in 20 annual
installment payments on the same dates as the installment payments made pursuant
to Section 2(a) as provided in Exhibit A-1.
(b) Amount of Distributions Under Section 3.
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For each installment payment made pursuant to Section 3, Employee shall
receive an amount (payable in Shares, or with respect to non-cash assets other
than Company stock, in kind)) equal to the percentage of the Original Shares
then remaining in Stock Account No.2, as reduced as provided in Section 3(a) or
3(b), (and the stock dividends, stock splits and other non-cash distributions
received on such remaining Original Shares) indicated for the installment under
Section II of Exhibit A-1 above. Fractional Shares shall be disregarded in
computing the amount of distributions hereunder. All applicable taxes shall be
withheld from distributions under the Agreement.
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Exhibit A-3
I. Distribution of Benefits - Cash Account.
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(a) Timing of Distributions.
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Distributions pursuant to Section 4 shall be made in 20 annual
installment payments on the same dates as the installment payments are made from
Stock Account No.1 are made under Exhibit A-1.
(b) Amount of Distributions Under Section 3.
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For each installment payment made pursuant to Section 4, Employee shall
receive cash in an amount equal to (aa) $11,700 multiplied by (bb) the
Entitlement Fraction. In the event that the amount of cash to be distributed in
an installment exceeds the current balance in the Cash Account on the date of
such distribution, then the amount of the cash distribution shall be limited to
the balance in Cash Account on such date. In the event that the balance in the
Cash Account on the date of the last installment is greater than the amount of
cash determined pursuant to the first sentence of this paragraph, then the
entire balance in the Cash Account shall be distributed with such last
installment.
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