-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GBr5TvodVMw0Ee3LpBWYLjvk+IJ2/9mPD60nVKobawYL3Sj3DPHw0J+XiSVRURbP Y8hDfSHoOkKgMLZD5Old6g== 0001036050-97-000654.txt : 19970815 0001036050-97-000654.hdr.sgml : 19970815 ACCESSION NUMBER: 0001036050-97-000654 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHARED MEDICAL SYSTEMS CORP CENTRAL INDEX KEY: 0000089415 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 231704148 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-07416 FILM NUMBER: 97661244 BUSINESS ADDRESS: STREET 1: 51 VALLEY STREAM PKWY CITY: MALVERN STATE: PA ZIP: 19355 BUSINESS PHONE: 6102196300 MAIL ADDRESS: STREET 1: 51 VALLEY STREAM PKWY CITY: MALVERN STATE: PA ZIP: 19355 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended June 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ___________ to___________ Commission file number 0-7416 SHARED MEDICAL SYSTEMS CORPORATION (Exact name of registrant as specified in its charter) Delaware 23-1704148 (State or other jurisdiction (I.R.S.Employer Identification No.) of incorporation or organization) 51 Valley Stream Parkway Malvern, Pennsylvania 19355 (Address of principal executive offices) (Zip Code) (610) 219-6300 (Registrant's telephone number, including area code) Not Applicable (Former name, former address, and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No ----- ------ On July 31, 1997, there were 24,950,741 shares of Common Stock outstanding. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. SHARED MEDICAL SYSTEMS CORPORATION CONSOLIDATED BALANCE SHEET ------------------------------------ (Amounts in thousands)
June 30 December 31 1997 1996* ------------ ------------ (unaudited) ASSETS Current Assets: Cash and short-term investments.................. $ 25,811 $ 40,286 Accounts receivable, net......................... 227,830 212,061 Prepaid expenses and other current assets........ 26,091 24,980 ------------ ------------ Total Current Assets........................... 279,732 277,327 Property and Equipment, net....................... 102,104 102,532 Computer Software, net............................ 56,086 51,331 Other Assets...................................... 85,547 76,288 ------------ ------------ $523,469 $507,478 ============ ============ LIABILITIES AND STOCKHOLDERS' INVESTMENT Current Liabilities: Notes payable.................................... $ 44,446 $ 21,941 Current portion of long-term debt and capital leases.................................. 3,432 4,144 Dividends payable................................ 5,233 4,944 Accounts payable................................. 15,851 27,042 Accrued expenses................................. 41,341 56,323 Current deferred revenues........................ 31,354 42,422 Accrued and current deferred income taxes........ 21,857 14,862 ------------ ------------ Total Current Liabilities...................... 163,514 171,678 ------------ ------------ Deferred Revenues................................. 11,002 9,048 ------------ ------------ Long-Term Debt and Capital Leases................. 17,579 15,361 ------------ ------------ Deferred Income Taxes............................. 28,025 26,054 ------------ ------------ Commitments Stockholders' Investment: Preferred stock, par value $.10; authorized 1,000,000 shares; none issued....... - - Common stock, par value $.01; authorized 120,000,000 shares in 1997 and 60,000,000 in 1996; 28,982,288 shares issued in 1997 and 28,835,333 in 1996............................. 290 288 Paid-in capital................................. 52,898 48,721 Retained earnings............................... 314,075 295,915 Common stock in treasury, at cost, 4,060,637 shares in 1997 and 4,035,101 in 1996........... (55,792) (55,782) Cumulative translation adjustment............... (8,122) (3,805) ------------ ------------ Total Stockholders' Investment................. 303,349 285,337 ------------ ------------ $523,469 $507,478 ============ ============
* Restated to reflect the acquisition of American Healthware Systems, Inc. in February 1997, which was accounted for as a pooling of interests. The accompanying notes are an integral part of this statement. 2 SHARED MEDICAL SYSTEMS CORPORATION CONSOLIDATED STATEMENT OF INCOME ----------------------------------- (Amounts in thousands except for per share amounts)
Three Months Ended Six Months Ended June 30 June 30 -------------------- -------------------- 1997 1996* 1997 1996* -------------------- -------------------- (unaudited) (unaudited) Revenues: Service and system fees..... $185,372 $167,300 $369,352 $329,524 Hardware sales.............. 28,022 26,422 53,921 37,292 -------------------- -------------------- 213,394 193,722 423,273 366,816 -------------------- -------------------- Cost and Expenses: Operating and development... 88,074 80,557 175,994 157,540 Marketing and installation.. 61,086 55,283 120,170 108,541 General and administrative.. 15,527 15,399 32,636 30,102 Cost of hardware sales...... 24,190 22,651 46,535 32,095 Interest.................... 1,097 907 1,782 1,711 -------------------- -------------------- 189,974 174,797 377,117 329,989 -------------------- -------------------- Income Before Income Taxes... 23,420 18,925 46,156 36,827 Provision for Income Taxes... 8,899 7,096 17,539 13,830 -------------------- -------------------- Net Income................... $ 14,521 $ 11,829 $ 28,617 $ 22,997 ==================== ==================== Net Income Per Common Share.. $.57 $.46 $1.13 $.91 ==================== ==================== Number of shares used to compute per share amounts... 25,342 25,464 25,355 25,402 ==================== ==================== Dividends Declared Per Common Share............ $.21 $.21 $.42 $.42 ==================== ====================
* Restated to reflect the acquisition of American Healthware Systems, Inc. in February 1997, which was accounted for as a pooling of interests. The accompanying notes are an integral part of this statement. 3 SHARED MEDICAL SYSTEMS CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS ------------------------------------ (Amounts in thousands)
Six Months Ended June 30 -------------------------- 1997 1996* ----------- ----------- (unaudited) Cash Flows from Operating Activities: Net Income...................................... $ 28,617 $ 22,997 Adjustments to reconcile net income to net cash used for operating activities - Depreciation and amortization................ 18,962 18,672 Asset (increase) decrease - Accounts receivable........................ (15,769) (21,099) Prepaid expenses and other current assets.. (1,111) 526 Other assets............................... (10,643) 2,280 Liability increase (decrease) - Accounts payable and accrued expenses...... (26,173) (20,890) Accrued and current deferred income taxes.. 6,995 (1,226) Deferred revenues.......................... (9,115) (733) Deferred income taxes...................... 1,971 1,281 Other........................................ (2,110) (1,934) ----------- ---------- Net cash used for operating activities..... (8,376) (126) ----------- ---------- Cash Flows from Investing Activities: Property and equipment additions................ (10,075) (13,704) Investment in computer software................. (10,119) (7,952) Dispositions of equipment....................... 1,098 221 ----------- ---------- Net cash used for investing activities..... (19,096) (21,435) ----------- ---------- Cash Flows from Financing Activities: Dividends paid.................................. (10,168) (10,955) Exercise of stock options....................... 4,178 7,032 Increase in notes payable....................... 22,505 20,269 Payments of long-term debt and capital lease obligations.............................. (3,509) (2,157) Change in treasury stock........................ (9) (374) ----------- ---------- Net cash provided by financing activities.. 12,997 13,815 ----------- ---------- Net Decrease in Cash and Short-Term Investments.. (14,475) (7,746) Cash and Short-Term Investments, Beginning of Period....................................... 40,286 25,473 ----------- ---------- Cash and Short-Term Investments, End of Period... $ 25,811 $ 17,727 =========== ==========
* Restated to reflect the acquisition of American Healthware Systems, Inc. in February 1997, which was accounted for as a pooling of interests. The accompanying notes are an integral part of this statement. 4 SHARED MEDICAL SYSTEMS CORPORATION ---------------------------------- Notes to Consolidated Financial Statements - June 30, 1997 (unaudited): 1. Basis of Presentation: The information furnished in this Form 10-Q reflects all normal and recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the financial statements contained herein. Prior period financial statements have been restated to reflect the Company's business combination with American Healthware Systems, Inc. (AHS), which was completed on February 28, 1997 and accounted for as a pooling of interests. 2. Business Combination: On February 28, 1997, the Company completed a merger with AHS, a provider of financial information systems and facilities management services to health organizations in New York State. Under the terms of the merger agreement, the Company issued 1,255,325 shares of the Company's common stock in exchange for all outstanding shares of AHS. This transaction was accounted for as a pooling of interests. AHS is currently operating as a wholly owned subsidiary of the Company. Separate operating results for Shared Medical Systems Corporation (SMS) and AHS for the quarter and six months ended June 30, 1996 were as follows (amounts in thousands):
Three Months Six Months Ended Ended June 30, 1996 June 30, 1996 --------------- --------------- (unaudited) (unaudited) Revenues: SMS......................... $190,966 $361,318 AHS......................... 2,756 5,498 --------------- --------------- $193,722 $366,816 =============== =============== Net Income: SMS......................... $ 11,383 $ 22,186 AHS......................... 446 811 --------------- --------------- $ 11,829 $ 22,997 =============== ===============
3. Accounts Receivable: At June 30, 1997 and December 31, 1996, the Company's trade accounts receivable were reduced by allowances for doubtful accounts of $8,467,000 and $8,094,000, respectively. 4. Property and Equipment: The major classes of property and equipment at June 30, 1997 and December 31, 1996 were as follows (amounts in thousands):
June 30 December 31 1997 1996 ----------- ----------- (unaudited) (unaudited) Land and land improvements...... $ 11,603 $ 11,630 Buildings....................... 62,478 61,993 Equipment....................... 181,786 181,786 ----------- ----------- 255,867 255,409 Less accumulated depreciation and amortization............. 153,763 152,877 ----------- ----------- $102,104 $102,532 =========== ===========
5 SHARED MEDICAL SYSTEMS CORPORATION ---------------------------------- 5. Computer Software: The accumulated amortization for capitalized internally produced computer software and purchased software at June 30, 1997 and December 31, 1996 was $60,879,000 and $55,016,000, respectively. 6. Net Income Per Common Share: In February 1997, the Financial Accounting Standards Board issued Statement 128 (FAS 128), Earnings Per Share (EPS). This statement is effective for both interim and annual financial statements for periods ending after December 15, 1997. FAS 128 replaces primary and fully diluted EPS as required by Accounting Principles Opinion No. 15 (APB 15) with basic and diluted EPS, respectively. Under the terms of this statement for the applicable period, basic EPS is calculated using the weighted average shares of common stock outstanding, and diluted EPS is calculated using the weighted average shares of common stock outstanding and the effects of any potentially dilutive securities such as stock options. The Company expects that basic EPS will be approximately 2-3% greater than EPS as previously reported and that diluted EPS will be equal to EPS as previously reported by the Company under APB 15. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Material Changes in Financial Condition - --------------------------------------- The Company's financial condition has remained strong throughout the six months ended June 30, 1997. Management is not aware of any potential material impairments to, or material changes in, the Company's current financial position. The most significant requirements for funds now anticipated are for purchases of equipment and payment of cash dividends. The Company plans to fund anticipated expenditures primarily through internally generated funds supplemented from time to time by bank borrowings. At June 30, 1997, the Company had lines of credit with banks of approximately $76,154,000, generally at their prime interest rates. At June 30, 1997, approximately $31,708,000 of these lines of credit were unused. Material Changes in Results of Operations - ----------------------------------------- Three Months Ended June 30, 1997 Compared to the Three Months Ended June 30, 1996. Revenues -------- Service and system fees revenues were $185,372,000, an increase of 10.8% compared to the second quarter of 1996. This increase was primarily due to higher levels of system fees and system processing fees. The higher level of system fees was due to the installation of systems to new and existing customers during the current quarter. The increase in system processing fees was primarily due to the higher level of customer applications processed at the Company's Information Services Center. Hardware sales revenues increased to $28,022,000 for the second quarter of 1997 from $26,422,000 in the second quarter of 1996, primarily due to changes in the timing and product mix of systems installed. 6 SHARED MEDICAL SYSTEMS CORPORATION ---------------------------------- Cost and Expenses ----------------- Operating and development expenses decreased to 47.5% of service and system fees revenues in the second quarter of 1997 from 48.2% for the second quarter 1996. This change was primarily due to a lower rate of growth, as compared to the growth in service and system fees revenues, for certain customer-related expenses and computer hardware and associated costs at the Company's Information Services Center, partially offset by a higher rate of personnel and related costs to support professional services provided to customers. Marketing and installation expenses remained at 33.0% of service and system fees revenues in the second quarter of 1997 compared to the second quarter of 1996. General and administrative expenses, as a percentage of service and systems fees revenues, decreased to 8.4% in the second quarter of 1997 from 9.2% in the second quarter of 1996, primarily due to the Company's continuing efforts to leverage administrative costs over an increasing revenue base. Cost of hardware sales increased to 86.3% of hardware sales revenues in the second quarter of 1997 from 85.7% in the second quarter of 1996. This change was primarily due to the different product mixes of systems installed in each quarter. Interest expense was $1,097,000 in the quarter ended June 30, 1997 compared to $907,000 in the same period in 1996. This change was generally attributable to a higher level of average outstanding short-term borrowings during the current period. Provision for Income Taxes -------------------------- Income taxes increased $1,803,000 in the quarter ended June 30, 1997 when compared to the same period in 1996. This change was primarily due to an increase of $4,495,000 in income before income taxes. The Company's effective tax rate for federal, state and foreign income taxes was 38.0% in the second quarter of 1997 and 37.5% in the second quarter of 1996. The increase in the effective tax rate was primarily due to the change in the tax status of AHS from an "S" Corporation, which is not subject to federal income taxes, to a "C" Corporation upon its merger with the Company. Net Income ---------- Net income was $14,521,000 in the quarter ended June 30, 1997 compared to $11,829,000 in the quarter ended June 30, 1996 for the reasons discussed above. Six Months Ended June 30, 1997 Compared to the Six Months Ended June 30, 1996. Revenues -------- Service and system fees revenues were $369,352,000, an increase of 12.1% compared to the same period in 1996. This increase was primarily due to higher levels of system fees, professional services, and system processing fees. The higher level of system fees was due to the installation of systems to new and existing customers in the first two quarters of 1997. The higher level of professional services was generally attributable to facilities management, system support, and consulting fees. The increase in system processing fees was primarily due to the higher level of customer applications processed at the Company's Information Services Center. 7 SHARED MEDICAL SYSTEMS CORPORATION ---------------------------------- Hardware sales revenues increased to $53,921,000 for the six months ended June 30, 1997 from $37,292,000 for the same period in 1996, primarily due to the installation of IBM mainframe systems to new and existing customers that process the Company's INVISION product at their site. Cost and Expenses ----------------- Operating and development expenses decreased to 47.6% of service and system fees revenues in the first two quarters of 1997 from 47.8% in the first two quarters of 1996. This change was primarily due to a lower rate of growth, as compared to the growth in service and system fees revenues, for certain customer-related expenses and computer hardware and associated costs at the Company's Information Services Center, partially offset by a higher rate of personnel and related costs to support professional services provided to customers. Marketing and installation expenses decreased to 32.5% of service and system fees in the first two quarters of 1997 from 32.9% in the first two quarters of 1996, primarily due to a lower rate of growth, as compared to the growth in service and system fees revenues, for personnel and related costs. These changes were partially offset by an increased rate of growth for certain customer-related expenses. General and administrative expenses, as a percentage of service and system fees revenues, decreased to 8.8% in the first two quarters of 1997 from 9.1% in the first two quarters of 1996, primarily due to the Company's continuing efforts to leverage administrative costs over an increasing revenue base, partially offset by costs associated with the Company's business combination with American Healthware Systems, Inc., in the first quarter of 1997. Cost of hardware sales increased to 86.3% of hardware sales revenues in the first two quarters of 1997 from 86.1% in the first two quarters of 1996. This change was primarily due to the different product mixes of systems installed in each period. Interest expense was $1,782,000 for the six months ended June 30, 1997 compared to $1,711,000 in the same period in 1996. This change was primarily due to a higher level of average outstanding short-term borrowings throughout the current period. Provision for Income Taxes -------------------------- Income taxes increased $3,709,000 in the first two quarters of 1997 when compared to the same period in 1996. This change was primarily due to an increase of $9,329,000 in income before income taxes. The Company's effective tax rate for federal, state and foreign income taxes was 38.0% in the first two quarters of 1997 and 37.6% in the first two quarters of 1996. The increase in the effective tax rate was primarily due to the change in the tax status of AHS from an "S" Corporation, which is not subject to federal income taxes, to a "C" Corporation upon its merger with the Company. Net Income ---------- Net income was $28,617,000 in the first two quarters of 1997 compared to $22,997,000 in the first two quarters of 1996 for the reasons discussed above. 8 SHARED MEDICAL SYSTEMS CORPORATION ---------------------------------- PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. The annual meeting of stockholders of the Company was held on May 9, 1997. At the meeting the Company's stockholders were requested to vote on the following matters: a) To elect seven directors for one-year terms. The following is a summary of the votes for elected directors: Votes Broker Nominee Votes For Withheld Non-Votes --------------------------------------------------------------- R. James Macaleer.......... 22,221,407 153,734 0 Raymond K. Denworth, Jr.... 22,217,631 157,510 0 Frederick W. DeTurk........ 22,300,970 74,171 0 Josh S. Weston............. 22,298,030 77,111 0 Jeffrey S. Rubin........... 22,304,629 70,512 0 Marvin S. Cadwell.......... 22,302,512 72,629 0 Gail R. Wilensky........... 22,286,381 88,760 0 ---------------------------------------------------------------- There are no other persons whose terms as director continued after the annual stockholders meeting. b) To approve an amendment to the Company's Restated Certificate of Incorporation to increase the number of authorized shares of Common Stock, par value $.01 per share, from 60,000,000 to 120,000,000. The following is a summary of the voting on the amendment to the Company's Restated Certificate of Incorporation: Votes Broker Votes For Against Abstentions Non-Votes ----------------------------------------------------- 18,595,092 3,726,353 53,696 0 Item 6. Exhibits and Reports on Form 8-K. (a) The following exhibits are included in this report: No. Description ---- ---------------------------------------------------------------- (3) Articles of Incorporation - Certificate of Amendment of Restated Certificate of Incorporation dated May 21, 1997 Restated Certificate of Incorporation dated May 14, 1992 (10) Material Contracts - Performance bonus plans - 1997: Marvin S. Cadwell Form of performance bonus plan: V. Brewster Jones Terrence W. Kyle 9 SHARED MEDICAL SYSTEMS CORPORATION ---------------------------------- No. Description ---- ---------------------------------------------------------------- Francis W. Lavelle David F. Perri Guillermo N. Ramas, Sr. Employment agreement - V. Brewster Jones (27) Financial Data Schedule (b) No reports on Form 8-K were filed during the three-month period ended June 30, 1997. 10 SHARED MEDICAL SYSTEMS CORPORATION ---------------------------------- SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SHARED MEDICAL SYSTEMS CORPORATION ---------------------------------- Registrant August 14, 1997 /s/ Terrence W. Kyle - --------------- ------------------------------------------- Date Terrence W. Kyle Senior Vice President, Treasurer, and Assistant Secretary, Principal Financial Officer and Duly Authorized Officer 11 SHARED MEDICAL SYSTEMS CORPORATION ---------------------------------- Exhibit Index No. Description ---- ---------------------------------------------------------------- (3) Articles of Incorporation - Certificate of Amendment of Restated Certificate of Incorporation dated May 21, 1997 Restated Certificate of Incorporation dated May 14, 1992 (10) Material Contracts - Performance bonus plans - 1997: Marvin S. Cadwell Form of performance bonus plan: V. Brewster Jones Terrence W. Kyle Francis W. Lavelle David F. Perri Guillermo N. Ramas, Sr. Employment agreement - V. Brewster Jones (27) Financial Data Schedule 12 EX-3.1 2 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE Exhibit (3) CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION SHARED MEDICAL SYSTEMS CORPORATION, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Company"), DOES HEREBY CERTIFY THAT: FIRST: The Board of Directors of the Company has adopted the following resolutions proposing and declaring advisable the following amendment to the Certificate of Incorporation of the Company: RESOLVED, that the amendment to the first paragraph of Article FOURTH of the Company's Restated Certificate of Incorporation to read in its entirety as follows (the "Amendment") is hereby proposed and declared to be advisable and in the best interests of the Company: "FOURTH: The total number of shares of stock which the Corporation shall have the authority to issue is 121,000,000 shares, divided into 1,000,000 shares of Preferred Stock, each of which shall have the par value of $.10 per share, and 120,000,000 shares of Common Stock, each of which shall have the par value of $.01 per share." FURTHER RESOLVED, that the Amendment be submitted for action to the stockholders of the Company at the 1997 Annual Meeting of Stockholders referred to in these minutes; FURTHER RESOLVED, that upon stockholder approval of the Amendment, the President, each Vice President, and the Treasurer of this Company are hereby each severally authorized and directed to execute and file on behalf of the Company such certificate or certificates as are required to effectuate the Amendment under Delaware law and to take such other actions as they consider necessary or appropriate to carry out the foregoing resolutions. SECOND: Thereafter, pursuant to resolution of its Board of Directors, the annual meeting of the stockholders of the Company was duly called and held and at such meeting the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: The Amendment has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Company has caused this Certificate to be signed by R. James Macaleer, its Chairman, and attested by Bonnie L. Shuman, its Assistant Secretary, this 21st day of May, 1997. By: /s/ R. James Macaleer ------------------------------- R. James Macaleer Chairman ATTEST: By: /s/ Bonnie L. Shuman (SEAL) ------------------------------ Bonnie L. Shuman Assistant Secretary EX-3.2 3 RESTATED CERTIFICATE OF INCORPORATION Exhibit (3) SHARED MEDICAL SYSTEMS CORPORATION RESTATED CERTIFICATE OF INCORPORATION ------------------------- SHARED MEDICAL SYSTEMS CORPORATION, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, having filed its original Certificate of Incorporation with the Secretary of State of the State of Delaware on January 2, 1969, DOES HEREBY CERTIFY: I. That the Certificate of Incorporation is hereby restated to read as follows: "FIRST: The name of the corporation is SHARED MEDICAL SYSTEMS CORPORATION. SECOND: The address of its registered office in the State of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD: The nature of the business or purposes to be conducted or promoted is: To provide shared computing and related service to medical organizations. To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of stock which the Corporation shall have the authority to issue is 61,000,000 shares, divided into 1,000,000 shares of Preferred Stock, each of which shall have the par value of $.10 per share, and 60,000,000 shares of Common Stock, each of which shall have the par value of $.01 per share. A statement of the designations and the powers, preferences and rights, and the qualifications, limitations and restrictions granted to or imposed upon the shares of each class, except such thereof as the Board of Directors of the corporation (the "Board of Directors") is authorized to fix by resolution or resolutions, as hereinafter provided, is as follows: I. PREFERRED STOCK I. General. The Board of Directors shall have authority, by ------- resolution, to divide any or all of the shares of Preferred Stock into, and to authorize the issuance of, one or more series and with respect to each such series to establish and, prior to the issue thereof, to fix and determine: (a) a distinguishing designation for such series and the number of shares comprising such series, which number may (except as otherwise provided by the Board of Directors in creating such series) be increased or decreased from time to time (but not below the number of shares then outstanding) by action of the Board of Directors; (b) the rate and times at which and the other conditions on which dividends on the shares may be declared and paid or set aside for payment; whether the shares shall be entitled to any participating or other dividends in addition to dividends at the rate so determined and, if so, on what terms; and whether dividends shall be cumulative, and if so, from what date or dates and on what terms; (c) whether or not the shares shall have voting rights in addition to the voting rights provided by law and, if so, the terms and conditions thereof; (d) whether the shares shall be convertible, or exchangeable, at the option of either the holder or the corporation or upon the happening of a specified event, and, if so, the terms and conditions of such conversion or exchange, including provisions for any adjustment of the conversion or exchange rate; (e) whether or not the shares shall be redeemable and, if so, the terms and conditions, if any, upon which they may be redeemed, including the date or dates or event or events upon or after which they shall be redeemable, the cash, property or rights (including securities of the corporation and of a corporation or corporations other than the corporation) for which they may be redeemed, whether they shall be redeemable at the option of the holder or the corporation, or both, or upon the happening of a specified event or events and the amount or rate of cash, property or rights (including securities of the corporation and of a corporation or corporations other than the corporation) per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates, including provisions for any adjustment of the redemption prices or rates; (f) whether any shares shall be redeemed through sinking fund payments and, if so, on what terms; (g) the amounts payable upon shares in the event of voluntary or involuntary liquidation, dissolution, winding up or distribution of the assets of the corporation; and (h) subject to the provisions of the next succeeding paragraph of this Section 1, any other relative powers, preferences and rights and qualifications, limitations and restrictions of such series. In the resolution establishing a new series of Preferred Stock, the Board of Directors may provide for such additional rights, and with respect to rights as to dividends, redemption and liquidation, such relative preferences between shares of different series, as are consistent with the rights of all outstanding shares of previously- established series, and with all other provisions of this Article FOURTH, but in the resolution establishing a new series of Preferred Stock the Board of Directors may only provide that such series shall have a preference over outstanding shares of any previously- established series of Preferred Stock with respect to rights as to dividends, redemption and liquidation to the extent that the resolutions of the Board of Directors authorizing such previously- established series expressly so permitted. All shares of Preferred Stock of all series shall be identical except as to the above mentioned rights and preferences which the Board of Directors is authorized as aforesaid to fix and determine. Except to the extent that the resolution of the Board of Directors establishing a particular series shall otherwise provide: (i) in case the stated dividends are not paid in full, all shares of Preferred Stock of all series shall participate ratably in the payment of dividends, including accumulated but unpaid dividends, in accordance with the sums which would be payable thereon if all dividends thereon were declared and paid in full and (ii) in case amounts payable upon liquidation of all series are not paid in full, all shares of Preferred Stock of all series having a liquidation preference shall participate ratably in any distribution of assets other than by way of dividends, in accordance with the sums which would be payable on such distribution if all sums payable thereon to holders of all shares of Preferred Stock were discharged in full. 2. Dividends. The holders of the shares of Preferred Stock --------- shall be entitled to receive, when and as declared by the Board of Directors, in their discretion or upon the occurrence of specified conditions, out of any funds of the corporation lawfully available for dividends under the laws of the State of Delaware, cash dividends at such fixed rate (or, if participating, such participating rate and such fixed rate, if any) per share for each particular series, and no more, payable with such frequency and on such dates, in each case as the Board of Directors may determine in fixing and determining the rights and preferences of such series as above provided. Except to the extent that the resolution of the Board of Directors establishing a particular series shall provide that dividends on shares of such series shall not be cumulative or shall otherwise provide, such dividends on the Preferred Stock shall be cumulative from the dates as follows: (a) in the case of shares issued prior to the record date for the initial dividend on shares of the series of which such shares shall constitute a part, then from the date of issuance of such shares; (b) if issued during the period commencing immediately after the record date for a dividend on shares of such series and terminating at the close of the payment date for such dividends, then from such dividend payment date; and (c) otherwise, from the dividend payment date next preceding the date of issue of such shares. Accrued but undeclared or unpaid dividends on any shares of Preferred Stock shall not bear interest. Further restrictions with respect to dividends and distributions on, and acquisitions for value of, shares of Preferred Stock and shares of Common Stock are set forth in Section 6 of this Part I. 3. Redemption of Preferred Stock. Except as otherwise ----------------------------- provided in Section 6 of this Part I, and except to the extent that the resolution of the Board of Directors establishing a particular series shall provide that shares of such series shall not be redeemable by the corporation or that the shares of such series shall be redeemable in another manner, the corporation may redeem all or any of the outstanding shares of Preferred Stock, or all or any shares of any series thereof, at any time or from time to time, upon payment in respect of the shares so redeemed of the amount payable upon redemption thereof fixed as aforesaid by the Board of Directors in respect of the series of which such shares shall constitute a part, together in each case, to the extent that such shares have cumulative dividend rights, with an amount equal to all accumulated and unpaid dividends accrued thereon to the date of redemption, whether or not such dividends shall have been earned or declared (such price, including such amount equal to such accumulated and unpaid dividends, and whether payable in cash or property or partly in cash and partly in property, as hereinafter provided, being hereinafter called the "redemption price"). In fixing the redemption price for shares of Preferred Stock of a particular series as aforesaid, the Board of Directors shall specify whether such redemption price shall be paid in cash, in property or in rights (including securities of the corporation and of a corporation or corporations other than the corporation), or a combination thereof. If the redemption price of shares of a particular series may be paid in whole or in part in property or rights, the resolution fixing the redemption price shall specify the method to be followed in valuing the property or rights which may be used to make such payment. Any redemption by the corporation shall be in such amount, at such place and in such manner as the Board of Directors shall determine. Except to the extent that the resolution of the Board of Directors authorizing a particular series of Preferred Stock shall otherwise provide, in the case of a redemption by the corporation of less than all the outstanding shares of Preferred Stock of any series, the particular shares to be redeemed shall be selected by lot in such manner as the Board of Directors shall determine. Unless otherwise waived in writing by the holder thereof, notice of every redemption shall be (i) mailed at least 30 days prior to the date fixed for such redemption to the holders of record of the shares so to be redeemed at their respective addresses as the same shall appear on the books of the corporation and (ii) published at least once in a newspaper of general circulation customarily published each business day in the Borough of Manhattan, City of New York. From and after the date fixed in any such notice as the date of redemption by the corporation, unless default shall be made by the Corporation in providing the redemption price at the time and place specified for the payment thereof pursuant to said notice, all dividends on the shares of Preferred Stock thereby called for redemption shall cease to accrue and all rights of the holders thereof as stockholders in the corporation, except the right to receive the redemption price upon surrender of their share certificates, shall cease and terminate, and such shares shall not be deemed outstanding for any purpose. The corporation may, however, give or irrevocably authorize the Depository hereinafter mentioned forthwith to give written notice (in the same manner as the notice of redemption is required to be given as aforesaid) to the holders of all the shares of Preferred Stock selected for redemption by the corporation that the redemption price has been or will on a date specified be deposited with a designated bank, bank and trust company, or private bank, which shall have an office in Philadelphia, Pennsylvania, or New York, New York, and shall have a capital and surplus of not less than $25,000,000 (hereinafter called the "Depositary"), in trust for the account of the holders of such shares of Preferred Stock, and that such holders may receive the redemption price of such shares of Preferred Stock from such Depositary on or after the date of such deposit upon the surrender of their share certificates without awaiting the date fixed for redemption. In such event, if the redemption price shall have been so deposited by the corporation with such Depositary, all rights as stockholders in the corporation of the holders of the shares so called, except the right to receive the redemption price from such Depositary upon such surrender, shall cease and terminate upon the date of such deposit or the date of the giving of such notice or authority, whichever be later, and such shares of Preferred Stock shall thereafter not be deemed to be outstanding for any purpose; provided, that if any shares so called for redemption shall at that time be convertible, the conversion privilege may be exercised in accordance with its terms, but not later than the close of business on the day prior to the date fixed for redemption. Any portion of the redemption price so deposited which represents the redemption price of convertible shares which are actually converted shall promptly be repaid by the Depositary to the corporation. Any remaining portion of the redemption price so deposited which shall remain unclaimed by the holders of such shares of Preferred Stock at the end of two years after the date so fixed for redemption shall be paid by such Depositary to the corporation, after which the holders of such shares of Preferred Stock shall look only to the corporation for payment of the redemption price thereof. Shares of Preferred Stock of any series redeemed, purchased or otherwise acquired may be cancelled by the Board of Directors and thereupon restored to the status of authorized but unissued shares of Preferred Stock undesignated as to series. 4. Liquidation or Dissolution. Except to the extent that the -------------------------- resolution of the Board of Directors establishing a particular series shall otherwise provide with respect to shares of such series, on any voluntary or involuntary liquidation or dissolution of the corporation, before any payment or distribution shall be made to the holders of any Common Stock, the holders of the shares of Preferred Stock shall be entitled to be paid the amounts, if any, respectively fixed therefor as aforesaid by the Board of Directors in respect of each outstanding series of Preferred Stock, together in each case, to the extent such shares have cumulative dividend rights, with an amount equal to all accumulated and unpaid dividends thereon to the date of such payment, whether or not such dividends shall have been earned or declared. After such payment shall have been made in full to the holders of shares of Preferred Stock, they shall be entitled to no further payment or distribution, and the holders of Common Stock shall be entitled to share ratably in all remaining assets of the corporation. A consolidation with or merger with or into any other corporation or corporations shall not be deemed a liquidation or dissolution of the corporation within the meaning of this Section 4. 5. Voting Rights. Except to the extent that the ------------- resolution of the Board of Directors establishing a particular series shall otherwise provide and except as otherwise provided herein or by law, at each meeting of stockholders of the corporation, each holder of shares of Preferred Stock shall be entitled to one vote for each such share on each matter to come before the meeting. The resolution of the Board of Directors establishing a particular series may confer on holders of the shares of such series, voting separately or with holders of shares of Preferred Stock of other series, the right to elect a member or members of the Board of Directors at any time or from time to time. 6. Restrictions on Dividends and Purchase of Shares of --------------------------------------------------- Preferred and Common Stock. So long as any shares of Preferred Stock -------------------------- shall be outstanding, no dividend (other than dividends payable in shares of Common Stock) shall be paid or distribution shall be made on the Common Stock, nor shall any shares of Common Stock be purchased, retired, or otherwise acquired by the corporation (except out of the proceeds of the sale of shares of Common Stock received by the corporation after January 1, 1977), nor shall any shares of Preferred Stock be redeemed, purchased or otherwise acquired (for sinking fund purposes or otherwise) by the corporation except in accordance with a stock purchase offer (which may vary as to terms offered with respect to shares of different series but not with respect to shares of the same series) made to all holders of record of shares of Preferred Stock, or except in accordance with a redemption made at the option of the holder pursuant to the terms of the resolution of the Board of Directors authorizing such series of Preferred Stock, unless in each such case, (a) all accumulated and unpaid dividends on all outstanding shares of Preferred Stock for all past dividend periods shall have been paid and full dividends on all shares of Preferred Stock for the then-current dividend period declared and a sum sufficient for the payment thereof set apart; and (b) the corporation shall not be in arrears in respect of any sinking fund obligation or obligations of a similar nature in respect of any series of Preferred Stock. 7. Certain Matters Requiring Consent of Holders of Two-Thirds ---------------------------------------------------------- of Preferred Stock. So long as any --------------- shares of Preferred Stock shall be outstanding, and subject to the provisions of the last sentence of this Section 7, the corporation shall not, without the consent of the holders of at least two-thirds of the shares of Preferred Stock at the time outstanding, given in person or by proxy, either in writing or at a meeting called for the purpose: (a) adopt or effect any amendment to the corporation's Certificate of Incorporation, including the terms of any previously created series of Preferred Stock, other than an amendment of the nature described under Section 8 below, which would adversely affect the powers, preferences or special rights of the Preferred Stock; provided, however, that if any such amendment shall adversely affect the powers, preferences or special rights of one or more, but not all, of the several series of Preferred Stock at the time outstanding, the consent of the holders of at least two-thirds of the shares then outstanding of those series adversely affected, voting together and not by series, shall be required in lieu of the consent of the holders of two-thirds of the Preferred Stock; or (b) authorize any new class of stock which is senior to the Preferred Stock with respect to the payment of dividends or distribution on liquidation or dissolution. Notwithstanding the foregoing provisions, the resolution of the Board of Directors creating a particular series may provide that the consent of the holders of the outstanding shares of such series shall not be required with respect to some or all of the foregoing matters and, to the extent so provided, such shares shall not be deemed outstanding for the purpose of applying the provisions of this Section 7. 8. Certain Matters Requiring Consent of Holders of a Majority ---------------------------------------------------------- of All Outstanding Shares. The corporation may increase the ------------------------- authorized number of shares of Preferred Stock, or authorize any new class of stock which is on a parity with the Preferred Stock with respect to the payment of dividends or distributions on liquidation or dissolution, by obtaining the affirmative vote, given in person or by proxy, of the holders of at least a majority of the then-outstanding Common Stock and Preferred Stock, voting together and not by class. * * * * * * DESIGNATION OF POWERS, PREFERENCES, RIGHTS AND QUALIFICATIONS OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK Section 1. Designation and Amount. The shares of stock of such ---------------------- series shall be designated as "Series A Junior Participating Preferred Stock" and the number of shares of stock constituting such series shall be 60,000. Section 2. Dividends and Distributions. --------------------------- (A) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series A Junior Participating Preferred Stock with respect to dividends, the holders of shares of Series A Junior Participating Preferred Stock which are issued and outstanding shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, dividends in an amount per share (rounded to the nearest cent) subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the per share amount of all cash dividends (payable in cash), and 1,000 times the per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on shares of the Common Stock, $.01 par value, of the Company (the "Common Stock"). In the event the Company shall at any time after May 1, 1991 (the "Rights Declaration Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount of cash dividends or other distributions to which holders of shares of Series A Junior Participating Preferred Stock were entitled pursuant to the preceding sentence immediately prior to such event shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Company shall declare a dividend or distribution on the issued and outstanding shares of Series A Junior Participating Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock). (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Junior Participating Preferred Stock from the date of declaration of any dividend on the Common Stock. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Junior Participating Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A ------------- Junior Participating Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Junior Participating Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Company. In the event the Company shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein or required by law, the holders of shares of Series A Junior Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of the stockholders of the Company. (C) (i) If at any time dividends on any Series A Junior Participating Preferred Stock shall be in arrears for a period of two (2) full fiscal quarters, the occurrence of such contingency shall mark the beginning of a period (herein called a "default period") which shall extend until such time as all accrued and unpaid dividends then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of Preferred Stock which does not rank senior to the Series A Junior Participating Preferred Stock (including the Series A Junior Participating Preferred Stock) with dividends in arrears thereon for a period of two (2) full fiscal quarters, voting as a class, irrespective of series, shall have the right to elect one (1) Director. (ii) During any default period, such voting right of the holders of Series A Junior Participating Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(C) or at any annual meeting of stockholders, and thereafter at annual meetings of stockholders, provided that neither such voting right nor the right of the holders of any other series of Preferred Stock, if any, to increase, in certain cases, the authorized number of Directors shall be exercised unless the holders of ten percent (10%) in number of shares of Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of Preferred Stock of such voting right. At any meeting at which the holders of Preferred Stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect Directors to fill such vacancies, if any, in the Board of Directors as may then exist up to one (1) Director or, if such right is exercised at an annual meeting, to elect one (1) Director. If the number which may be so elected at any special meeting does not amount to the required number, the holders of the Preferred Stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them of the required number. After the holders of the Preferred Stock shall have exercised their right to elect Directors in any default period and during the continuance of such period, the number of Directors shall not be increased or decreased except by vote of the holders of Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series A ---- ----- Junior Participating Preferred Stock. (iii) Unless the holders of Preferred Stock shall, during an existing default period, have previously exercised their right to elect Directors, the Board of Directors may order, or any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding, irrespective of series, may request, the calling of a special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the Chairman, the President, a Vice-President or the Secretary of the Company. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this paragraph (C) (iii) shall be given to each holder of record of Preferred Stock by mailing a copy of such notice to him at his last address as the same appears on the books of the Company. Such meeting shall be called for a time not earlier than 20 days and not later than 60 days after such order or request or in default of the calling of such meeting within 60 days after such order or request, such meeting may be called on similar notice by any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding. Notwithstanding the provisions of this paragraph (C)(iii), no such special meeting shall be called during the period within 60 days immediately preceding the date fixed for the next annual meeting of the stockholders. (iv) In any default period, the holders of Common Stock and of Series A Junior Participating Preferred Stock, and other classes of stock of the Company if applicable, shall continue to be entitled to elect the whole number of Directors until the holders of Preferred Stock shall have exercised their right to elect one (1) Director voting as a class, after the exercise of which right (x) the Director so elected by the holders of Preferred Stock shall continue in office until his successor shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board of Directors may (except as provided in paragraph (C) (ii) of this Section 3 or in the articles or certificate of incorporation of the Company) be filled by vote of a majority of the remaining Directors theretofore elected by the holders of the class of stock which elected the Director whose office shall have become vacant. References in this paragraph (C) to Directors elected by the holders of a particular class of stock shall include Directors elected by such Directors to fill vacancies as provided in clause (y) of the foregoing sentence. (v) Immediately upon the expiration of a default period, (x) the right of the holders of Preferred Stock as a class to elect a Director shall cease, (y) the term of any Director elected by the holders of Preferred Stock as a class shall terminate, and (z) the number of Directors shall be such number as may be provided for in the articles or certificate of incorporation or by-laws irrespective of any increase made pursuant to the provisions of paragraph (C)(ii) of this Section 3 (such number being subject, however, to change thereafter in any manner provided by law or in the articles or certificate of incorporation or by-laws). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining Directors. (D) Except as set forth herein or as required by law, holders of Series A Junior Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. -------------------- (A) Whenever any dividends or distributions payable on the Series A Junior Participating Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Junior Participating Preferred Stock outstanding shall have been paid in full, the Company shall not (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock, provided, that the Company may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for any stock of the Company ranking no higher (either as to dividends or rights upon liquidation, dissolution or winding up) than such junior stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with Series A Junior Participating Preferred Stock, except dividends paid ratably on the Series A Junior Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Company ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Junior Participating Preferred Stock or as provided in clause (iv) below; (iv) purchase or otherwise acquire for consideration any shares of Series A Junior Participating Preferred Stock, or any shares of stock ranking on a parity with the Series A Junior Participating Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Junior ----------------- Participating Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. Section 6. Liquidation, Dissolution or Winding Up. (A) Upon -------------------------------------- any liquidation (voluntary or otherwise), dissolution or winding up of the Company, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Series A Junior Participating Preferred Stock shall have received $1.00 per share, plus an amount equal to any accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Series A Liquidation Preference"). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 1,000 (as appropriately adjusted as set forth in subparagraph C below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii), the "Adjustment Number"). Following the payment of the full amount of the Series A Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series A Junior Participating Preferred Stock and Common Stock, respectively, holders of Series A Junior Participating Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on a per share basis, respectively. (B) Notwithstanding paragraph (A) of this Section 6, (i) in the event, however, that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of preferred stock, if any, which rank on a parity with the Series A Junior Participating Preferred Stock, then such remaining assets shall be distributed ratably to the holders of the Series A Participating Preferred Stock and of any such parity shares in proportion to their respective liquidation preferences; and (ii) in the event that after the required distributions to holders of Preferred Stock there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock. (C) In the event the Company shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Company -------------------------- shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Junior Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision of adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Company shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Junior Participating Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series A Junior ------------- Participating Preferred Stock shall not be redeemable. Section 9. Ranking. The Series A Junior Participating Preferred ------- Stock shall rank junior to all other series of the Company's Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise. Section 10. Amendment. The Certificate of Incorporation of the --------- Company shall not be further amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Junior Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority or more of the outstanding shares of Series A Junior Participating Preferred Stock, voting separately as a class. Section 11. Fractional Shares. Series A Junior Participating ----------------- Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holder's of Series A Junior Participating Preferred Stock. * * * * * * II. COMMON STOCK 1. Junior to Preferred Stock. The Common Stock shall rank junior ------------------------- to the Preferred Stock with respect to payment of dividends and distributions on liquidation or dissolution. 2. Voting Rights. Except as expressly provided by law, or as ------------- otherwise provided in Part I, above, or by resolution of the Board of Directors pursuant to the authority granted under Part I above, all voting rights shall be vested in the holders of the Common Stock. At each meeting of stockholders of the corporation, each holder of Common Stock shall be entitled to one vote for each such share on each matter to come before the meeting, except as otherwise provided in this Certificate of Incorporation or by law. Further provisions affecting or concerning voting rights of the holders of shares of Common Stock are contained in Sections 5 and 8 of Part I above, and in Article EIGHTH hereof. 3. Dividends. After all accumulated and unpaid dividends upon --------- all shares of Preferred Stock for all previous dividend periods shall have been paid and full dividends on all shares of Preferred Stock for the then current dividend period declared and a sum sufficient for the payment thereof set apart therefor, and after or concurrently with the setting aside of any and all amounts then or theretofore required to be set aside for any sinking fund obligation or obligation of a similar nature in respect of any series of Preferred Stock, then and not otherwise, and subject to any other applicable provisions of Part I hereof, dividends may be declared upon and paid to the holders of the Common Stock, to the exclusion of the holders of the Preferred Stock. 4. Rights Upon Liquidation. In the event of voluntary or ----------------------- involuntary liquidation or dissolution of the corporation, after payment in full of amounts, if any, required to be paid to the holders of the Preferred Stock, the holders of the Common Stock shall be entitled, to the exclusion of the holders of the Preferred Stock, to share ratably in all remaining assets of the Corporation. FIFTH: The corporation is to have perpetual existence. SIXTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized: To make, alter or repeal the By-Laws of the corporation. To authorize and cause to be executed mortgages and liens upon the real and personal property of the corporation. To set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created. By a majority of the whole Board of Directors, to designate one or more committees, each committee to consist of two or more of the Directors of the corporation. The Board may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in a resolution or in the By-Laws of the corporation, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; provided, however, the By-Laws may provide that in the absence or disqualification of any member of such committee or committees, the member or members thereof present of any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. When and as authorized by the affirmative vote of the holders of a majority of the stock issued and outstanding having voting power given at a stockholders' meeting duly called upon such notice as is required by statute, or when authorized by the written consent of the holders of a majority of the voting stock issued and outstanding to sell, lease or exchange all or substantially all of the property and assets of the corporation, including its good will and its corporate franchises, upon such terms and conditions and for such consideration, which may consist in whole or in part of money or property including shares of stock in, and/or other securities of, any other corporation or corporations, as the Board of Directors shall deem expedient and for the best interests of the corporation. SEVENTH: Meetings of stockholders may be held within or without the State of Delaware, as the By-Laws may provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By- Laws of the corporation. Elections of Directors need not be by written ballot unless the By-Laws of the corporation shall so provide. EIGHTH: Stockholders shall not have cumulative voting rights in the election of Directors. NINTH: The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. TENTH: The stockholder vote required to approve Business Combinations (as hereinafter defined) shall be as set forth in this Article TENTH. 1. Higher Vote for Business Combinations. In addition to any ------------------------------------- affirmative vote required by law, this Certificate of Incorporation or the By-Laws of the Corporation, and except as otherwise expressly provided in Section 2 of this Article TENTH, a Business Combination shall not be consummated without the affirmative vote of the holders of at least 75% of the combined voting power of the then outstanding shares of all capital stock of the Corporation (the "Capital Stock") entitled to vote generally in the election of directors (such Capital Stock hereinafter called the "Voting Stock") voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage or separate class vote may be specified, by law or in any agreement with any national securities exchange or otherwise. 2. When Higher Vote is Not Required. The provisions of Section 1 -------------------------------- of this Article TENTH shall not be applicable to a Business Combination if the conditions specified in either of the following paragraphs A or B are met. A. Approval by Continuing Directors. The Business Combination -------------------------------- shall have been approved by a majority of the Continuing Directors (as hereinafter defined), whether such approval is made prior to or subsequent to the date on which the Interested Stockholder (as hereinafter defined) became an Interested Stockholder (the "Determination Date"). B. Price and Procedure Requirements. Each of the seven -------------------------------- conditions specified in the following subparagraphs (i) through (vii) shall have been met: (i) The aggregate amount of the cash and the Fair Market Value (as hereinafter defined) as of the date of the consummation of the Business Combination (the "Consummation Date") of any consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be an amount at least equal to the higher of the amounts determined under clauses (a) or (b) below (the requirements of this paragraph (B)(i) shall be applicable with respect to all shares of Common Stock outstanding whether or not the Interested Stockholder has previously acquired any shares of the Common Stock): (a) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf of the Interested Stockholder for any shares of Common Stock acquired beneficially by it, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to Common Stock, (1) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the "Announcement Date") or (2) in the transaction in which it became an Interested Stockholder, whichever is higher, plus interest compounded annually from the Determination Date through the Consummation Date at the prime rate of interest, from time to time in effect, of Provident National Bank, Philadelphia, Pennsylvania, or any other major bank headquartered in Philadelphia, Pennsylvania or New York, New York, selected by a majority of the Continuing Directors, less the aggregate amount of any cash dividends paid, and the Fair Market Value of any dividends paid in other than cash, per share of Common Stock from the Determination Date in an amount up to but not exceeding the amount of such interest payable per share of Common Stock, and (b) the Fair Market Value per share of Common Stock on the Announcement Date or on the Determination Date, whichever is higher, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to Common Stock. (ii) The aggregate amount of the cash and the Fair Market Value as of the Consummation Date of any consideration other than cash to be received per share by holders of shares of any class or series of outstanding Capital Stock other than the Common Stock in such Business Combination shall be an amount at least equal to the highest of the amounts determined under clauses (a), (b) or (c) below (the requirements of this paragraph B(ii) shall be applicable with respect to all shares of every class or series of outstanding Capital Stock, whether or not the Interested Stockholder has previously acquired any shares of a particular class or series of Capital Stock). (a) The highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf of the Interested Stockholder for any shares of such class or series of Capital Stock acquired beneficially by it, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to the class or series of Capital Stock, (1) within the two-year period immediately prior to the Announcement Date or (2) in the transaction in which it became an Interested Stockholder, whichever is higher, plus interest compounded annually from the Determination Date through the Consummation Date at the prime rate of interest, from time to time, in effect, of Provident National Bank, Philadelphia, Pennsylvania, or any other major bank headquartered in Philadelphia, Pennsylvania or New York, New York, selected by a majority of the Continuing Directors, less the aggregate amount of any cash dividends paid, and the Fair Market Value of any dividends paid in other than cash, per share of such class or series of Capital Stock from the Determination Date through the Consummation Date in an amount up to but not exceeding the amount of such interest payable per share of such class or series of Capital Stock; (b) the Fair Market Value per share of such class or series of Capital Stock on the Announcement Date or on the Determination Date, whichever is higher, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification with respect to the class or series of Capital Stock, and (c) the highest preferential amount per share to which the holders of shares of such class or series of Capital Stock would be entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, regardless of whether the Business Combination to be consummated constitutes such an event. (iii) The consideration to be received by holders of a particular class or series of outstanding Capital Stock (including Common Stock) shall be in cash or in the same form as previously has been paid by or on behalf of the Interested Stockholder in its direct or indirect acquisition of beneficial ownership of shares of such class or series of Capital Stock. If the consideration so paid for shares of any class or series of Capital Stock varied as to form, the form of consideration for such class or series of Capital Stock shall be either cash or the form used to acquire beneficial ownership of the largest portion of shares of such class or series of Capital Stock previously acquired by the Interested Stockholder. (iv) After the Determination Date and prior to the consummation of such Business Combination, except as approved by a majority of the Continuing Directors (a) there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) payable in accordance with the terms of any outstanding Capital Stock, (b) there shall have been no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any stock split, stock dividend or subdivision of the Common Stock), (c) there shall have been an increase in the annual rate of dividends paid on the Common Stock as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of Common Stock, and (d) such Interested Stockholder shall not have become the beneficial owner of any additional shares of Capital Stock except as part of the transaction that results in such Interested Stockholder becoming an Interested Stockholder and except in a transaction which, after giving effect thereto, would not result in any increase in the Interested Stockholder's percentage beneficial ownership of any class or series of Capital Stock. (v) After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder of the Corporation), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise. (vi) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to all stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). The proxy or information statement shall contain on the first page thereof, in a prominent place, any statement as to the advisability of the Business Combination that the Continuing Directors, or any of them, may choose to make and, if deemed advisable by a majority of the Continuing Directors, the opinion of an investment banking firm, selected for and on behalf of the Corporation by a majority of the Continuing Directors, as to the fairness of the terms of the Business Combination from a financial point of view to the holders of the outstanding shares of Capital Stock other than the Interested Stockholder and its Affiliates or Associates (as hereinafter defined). (vii) Such Interested Stockholder shall not have made any material change in the Corporation's business or equity capital structure without the approval of a majority of the Continuing Directors. Any Business Combination to which Section 1 of this Article TENTH shall not apply by reason of this Section 2 shall require only such affirmative vote as is required by law, any other provision of this Certificate of Incorporation, the By-Laws of the Corporation or any agreement with any national securities exchange. 3. Certain Definitions. For the purpose of this Article TENTH: ------------------- A. a "Business Combination" shall mean: (i) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (i) any Interested Stockholder or (ii) any other corporation (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate or Associate of an Interested Stockholder; or (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition or security arrangement, investment, loan, advance, guarantee, agreement to purchase, agreement to pay, extension of credit, joint venture participation or other arrangement (in one transaction or a series of transactions) with or for the benefit of any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder involving any assets, securities or commitments of the Corporation, any Subsidiary or any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder; or (iii) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Stockholder or any Affiliate or Associate of any Interested Stockholder; or (iv) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) that has the effect, directly or indirectly, of increasing the proportionate share of any class or series of Capital Stock or any securities convertible into Capital Stock or into equity securities of any Subsidiary, that is beneficially owned by any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder; or (v) any agreement, contract, arrangement or other understanding providing for any one or more of the actions specified in clauses (i) through (iv) above. B. A "person" shall mean any individual, firm, corporation or other entity and shall include any group composed of any person and any other person with whom such person or any Affiliate or Associate of such person has any agreement, arrangement or understanding, directly or indirectly, for the purpose of acquiring, holding, voting or disposing of Capital Stock. C. "Interested Stockholder" shall mean any person (other than the Corporation or any Subsidiary and other than any profit-sharing, employee stock ownership or other employee benefit plan of the Corporation or any Subsidiary or any trustee of or fiduciary with respect to any such plan when acting in such capacity) who or which: (i) is, or has announced or publicly disclosed a plan or intention to become, the beneficial owner of Voting Stock having 15% or more of the votes entitled to be cast by the holders of all then outstanding shares of Voting Stock; or (ii) is an Affiliate or Associate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner of Voting Stock having 15% or more of the votes entitled to be cast by the holders of all the then outstanding shares of Voting Stock; or (iii) is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. D. A person shall be a "beneficial owner" of any Capital Stock: (i) which such person or any Affiliate or Associate of such person beneficially owns, directly or indirectly; or (ii) which such person or any Affiliate or Associate of such person, has, directly or indirectly, (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote pursuant to any agreement, arrangement or understanding; or (iii) which are beneficially owned, directly or indirectly, by any other person with which such person or any Affiliate or Associate of such person has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Capital Stock. For the purpose of determining whether a person is an Interested Stockholder pursuant to paragraph C of this Section 3, the number of shares of Capital Stock deemed to be outstanding shall include shares deemed owned by the Interested Stockholder through application of this paragraph D but shall not include any other shares of Capital Stock that may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. E. "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on January 1, 1986 (the term "registrant" in such Rule 12b-2 meaning in this case the Corporation). F. "Subsidiary" means any corporation of which a majority of any class of equity security is beneficially owned by the Corporation, provided, however, that for the purposes of the definition of Interested Stockholder set forth in paragraph C of this Section 3, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is beneficially owned by the Corporation. G. "Continuing Director" means any member of the Board of Directors of the Corporation (the "Board") who is not an Affiliate or Associate or representative of the Interested Stockholder and was a member of the Board prior to the time that the Interested Stockholder became an Interested Stockholder, as well as any successor of a Continuing Director who is not an Affiliate or Associate or representative of the Interested Stockholder and is recommended or elected to succeed a Continuing Director by a majority of Continuing Directors then members of the Board. H. "Fair Market Value" means (i) in the case of cash, the amount of such cash; (ii) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on such Composite Tape, on the New York Stock Exchange or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period immediately preceding the date in question on the National Association of Securities Dealers, Inc., Automated Quotations System or any system then in use, or, if no such quotations are available, the fair market value on the date in question of a share of such stock as determined in good faith by a majority of the Continuing Directors, and (iii) in the case of property other than cash or stock, the fair-market value of such property on the date in question as determined in good faith by a majority of the Continuing Directors. I. In the event of any Business Combination in which the Corporation survives, the phrase "consideration other than cash to be received" as used in paragraphs B(i) and (ii) of Section 2 of this Article TENTH shall include the shares of Common Stock and/or the shares of any other class or series of Capital Stock retained by the holder of such shares. 4. Powers of Continuing Directors. Any determination as to ------------------------------ compliance with this Article TENTH, including without limitation (a) whether a person is an Interested Stockholder, (b) the number of shares of Capital Stock or other securities beneficially owned by any person, (c) whether a person is an Affiliate or Associate of another, and (d) whether the requirements of paragraph B of Section 2 have been met with respect to any Business Combination, shall be made only upon action by a majority of the Continuing Directors of the Corporation, and the good faith determination of a majority of the Continuing Directors on such matters shall be conclusive and binding for all the purposes of this Article TENTH. 5. Fiduciary Obligations. Nothing contained in this Article --------------------- TENTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. The fact that any Business Combination complies with the provisions of Section B of this Article TENTH shall not be construed to impose any fiduciary duty, obligation or responsibility on the Board of Directors, or any member thereof, to approve such Business Combination or recommend its adoption or approval to the stockholders of the Corporation, nor shall such compliance limit, prohibit or otherwise restrict in any manner the Board of Directors, or any member thereof, with respect to evaluations of or actions and responses taken with respect to such Business Combination. 6. Amendments, Repeals, etc. Notwithstanding any other provision ------------------------ of this Certificate of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that a lesser percentage or separate class vote may be specified by law, this Certificate of Incorporation or the By-Laws of the Corporation), the affirmative vote of the holders of at least 75% of the voting power of the then outstanding shares of Voting Stock, voting together as a single class, shall be required to amend or repeal, or adopt any provisions inconsistent with, this Article TENTH, provided, however, that the preceding provisions of this Section 6 shall not apply to any amendment to, repeal of, or adoption of any provisions inconsistent with, this Article TENTH, and such action shall require only such affirmative vote as is required by law and any other provisions of this Certificate of Incorporation or the By-Laws of the Corporation, if such action shall have been approved by a majority of the members of the Board who are persons who would be eligible to serve as Continuing Directors. ELEVENTH: No action shall be taken by stockholders of the Corporation except at an annual or special meeting of stockholders of the Corporation. TWELFTH: A director of the Corporation shall have no personal liability to the Corporation or to its stockholders for monetary damages for breach of fiduciary duty as a director except to the extent that Section 102(b)(7) (or any successor provision) of the General Corporation Law of the State of Delaware, as amended from time to time, expressly provides that the liability of a director may not be eliminated or limited." II. That the above Restated Certificate of Incorporation only restates and integrates and does not further amend the provisions of the Corporation's Certificate of Incorporation as heretofore restated, amended or supplemented, and that there is no discrepancy between those provisions and the provisions of the above Restated Certificate of Incorporation. III. That the provisions of the above Restated Certificate of Incorporation were duly adopted by the directors without a vote of the stockholders of the Corporation in accordance with the provisions of Section 245 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, SHARED MEDICAL SYSTEMS CORPORATION has caused its corporate seal to be hereunto affixed and this certificate to be signed by R. James Macaleer, its Chairman, and attested by James C. Kelly, its Secretary, this 14th day of May, 1992. SHARED MEDICAL SYSTEMS CORPORATION By: /s/ R. James Macaleer ------------------------------- Chairman ATTEST: By: /s/James C. Kelly ------------------------- Secretary [CORPORATE SEAL] EX-10.1 4 PERFORMANCE BONUS PLAN MARVIN S. CADWELL Exhibit (10) 1997 INCENTIVE COMPENSATION PLAN FOR MARVIN S. CADWELL ------------------------------------------------------ The incentive compensation plan for Mr. Cadwell for 1997 is not set forth in a formal document. In summary, Mr. Cadwell's calculated bonus amount will be computed using a targeted bonus, which will be adjusted based on the Company's performance against targeted earnings per share. The calculated bonus may range from 0% to 120% of the targeted bonus. The calculated bonus is subject to further adjustment based on sales attainment versus target. Such adjustment may range from 50% to 120% of the calculated bonus. The result from the preceding sentence is subject to a final adjustment, which may range from 80% and 120%, based on improvement in accounts receivable days outstanding versus target. EX-10.2 5 PERFORMANCE BONUS PLAN SENIOR MANAGEMENT Exhibit (10) 1997 SMS Senior Management Incentive Compensation Plan for: ---------------------------------------- (Name) Plan Year: 1/1/97 - 12/31/97 ----------------- Approved by : ------------------------- Marv Cadwell, CEO Date: -------------------------------- I. Compensation Components ----------------------- The compensation paid to plan Participants is comprised of a base salary and this incentive compensation. The base bonus targeted for this Incentive Compensation Plan is __________. II. Summary of ICP Components ------------------------- The objective of this Incentive Compensation Plan (ICP) is to compensate the plan Participant in proportion to his/her contributions to SMS' achievement of its sales, revenue, pretax income margin, and accounts receivable/cash flow objectives, and to the achievement of certain general management challenges. The definitions of these Performance Indicators are contained in Section V below. The ICP is composed of the following: ================================================================================================================================== Focus Area SMS Targets Total Bonus EXAMPLE ONLY (Potential @ 100% (Potential @ 100% (Potential @ 100% Achievement) Achievement) Achievement) - ---------------------------------------------------------------------------------------------------------------------------------- 1. Performance Indicators: Dollars % Dollars % Dollars % - ---------------------------------------------------------------------------------------------------------------------------------- Sales - ---------------------------------------------------------------------------------------------------------------------------------- Revenue & Pretax Income Margin % - ---------------------------------------------------------------------------------------------------------------------------------- Accounts Receivable Days - --------------------------------------------====================================================================================== Subtotal - Perf. Indicators Bonus - ---------------------------------------------------------------------------------------------------------------------------------- 2. General Mgmt. Challenge Bonus - ---------------------------------------------------------------------------------------------------------========================= Total Bonus (Before [A]) ==================================================================================================================================
[A] Balanced Performance Bonus -- an additional 10% of the actual -------------------------- calculated Performance Indicators Bonus will be earned if the targets for all three (3) of the SMS worldwide Performance Indicators are achieved or exceeded. III. Specific Measurement of ICP Components A) Performance Indicators - The incentive compensation will be ---------------------- based on the achievement of the targets for three (3) Performance Indicators, namely Sales, Revenue & Pretax Income Margin %, and Accounts Receivable Days. These indicators will apply to SMS' worldwide operations, and to the Participant's more customized Focus Area. Specific Performance Indicator targets for both the consolidated SMS Targets and each Participant's unique Focus Areas, if applicable, are documented in a separate memo for each Participant. The actual bonus payments related to these Performance Indicators will be determined using the tables on Attachment A (by first computing actual performance against each Performance Indicator target in order to determine the payout factor; then multiplying each payout factor by the relevant Bonus Potential amount specified in the table in Section II above). B) General Management Challenges - A bonus of up to 10% of this ----------------------------- plan's Bonus Potential will be paid for performance against the following General Management challenges: 1. 2. 3. 4. 5. 6. 7. Performance against these General Management Challenges, and the determination of the corresponding bonus payments, will be determined by the Participant's immediate manager. IV. ICP Payment Policies -------------------- A) None of the above listed bonus components will be considered earned unless the participant is an employee on March 31, 1998, or at the time of payment, if prior to that date. B) Incentive compensation earned under this plan will be paid by March 31, 1998 or as soon as practical thereafter. C) Participants who enter the plan during the year or after the plan year starts will receive prorated payments based on the percentage of months the Participant was in the plan during the year. D) There are no draws under this plan. E) The maximum bonus payout under this plan is three (3) times the Bonus Potential for each Performance Indicator, plus 100% of the General Management Challenges Bonus, plus the Balanced Performance Bonus. If performance exceeds the thresholds at which the Performance Indicator maximums are set, a senior management review will occur to determine whether any additional bonuses will be paid. F) This plan may be adjusted for changes in business conditions, abnormal or unusual business events, or non-fulfillment of job duties. G) At management's discretion, up to 20% of the earned bonus may be paid in restricted stock. V. Definitions of ICP Terms ------------------------ A) Sales - The present value of the incremental/new SMS solutions ----- (includes software, support, professional services, and hardware), net of direct costs, sold by SMS organizations during 1997, as reported in the monthly Sales Report produced by Marketing Administration (labeled SOLUTION GROWTH SALES). This does not include the renewals, extensions, or conversions of existing revenue streams. To be included in the Sales Report the contract must be signed and dated by both the customer and SMS. Exceptions to this definition, as it applies to specific Focus Area Performance Indicators, will be clarified in separate memos customized for individual Participants. B) Revenues - Gross revenue (i.e. operating revenue plus gross -------- hardware sales), as reported by Accounting. These targets are subject to increases during the year, for any material changes to SMS' financial plan (ex. significant acquisition). C) Pretax Income - Revenues, as defined above, less direct expenses ------------- (including all bonus costs of this plan) and overhead expenses, as reported by Accounting. These targets are subject to increases during the year, for any material changes to SMS' financial plan (ex. significant acquisition). D) Pretax Income Margin % - The result of dividing Pretax Income by ---------------------- Revenues, both as defined above. For Focus Area targets relevant to certain Participants, their specific revenues and expenses will be clarified in a separate memo. E) Accounts Receivable Days - The 12 Month Average A/R Days, as ------------------------ determined by Accounting, using each month's A/R Days for all receivables (including billed, unbilled, and accrued receivables, less the relevant bad debt reserves). Each month's A/R Days are calculated using the month-end accounts receivable balance divided by the average monthly revenues for the three most recent months. ATTACHMENT A 1997 SENIOR MANAGEMENT ICP - BONUS SCALES ----------------------------------------- 1. SALES -
- --------------------------- % ATTAINED % BONUS vs. TARGET EARNED - --------------------------- = or (less than) 90 0% 91% 35% 92% 45% 93% 55% 94% 65% 95% 75% 96% 80% 97% 85% 98% 90% 99% 95% 100% 100% (A) (A) - ---------------------------
(A) For each % of Sales Attainment over 100%, the Sales-related bonus % will increase by an additional 2%, up to a maximum payout of 300% of the Sales Bonus Potential (@ 200% Attainment). 2. PRETAX INCOME MARGIN % -
- ----------------------------------------------------------------------------------------------------- Revenue Attainment vs. Target 1997 Pretax Income Margin Percentage = or (greater (less If margin attainment equals or exceeds Margin Target % plus... than) than) (0.4%) (0.3%) (0.2%) (0.1%) 0.0% 0.1% 0.2% 0.3% 0.4% - ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------- 110% 200% 225% 250% 275% 300% 300% 300% 300% 300% 109% 110% 175% 200% 225% 250% 300% 300% 300% 300% 300% 108% 109% 150% 175% 200% 225% 275% 300% 300% 300% 300% 107% 108% 125% 150% 175% 200% 250% 275% 300% 300% 300% 106% 107% 110% 125% 150% 175% 225% 250% 275% 300% 300% 105% 106% 100% 110% 125% 150% 200% 225% 250% 275% 300% 104% 105% 90% 100% 110% 125% 175% 200% 225% 250% 275% 103% 104% 80% 90% 100% 110% 150% 175% 200% 225% 250% 102% 103% 70% 80% 90% 100% 125% 150% 175% 200% 225% 101% 102% 60% 70% 80% 90% 110% 125% 150% 175% 200% 100% 101% 50% 60% 70% 80% 100% 110% 125% 150% 175% 99% 100% 40% 50% 60% 70% 90% 100% 110% 160% 150% 98% 99% 30% 40% 50% 60% 80% 90% 100% 100% 125% 97% 98% 20% 30% 40% 50% 70% 80% 90% 90% 100% 96% 97% 10% 20% 30% 40% 60% 70% 80% 80% 90% 95% 96% 0% 10% 20% 30% 50% 60% 70% 70% 80% 95% 0% 0% 10% 20% 40% 50% 60% 60% 70% - ----------------------------------------------------------------------------------------------------- BONUS PAYOUT % IS DETERMINED BY INTERSECTING REVENUE ATTAINMENT ROW & PRETAX % COLUMN. - -----------------------------------------------------------------------------------------------------
3. A/R DAYS -
- --------------------------- % ATTAINED vs. TARGET - --------------- (less than) % BONUS or = EARNED - --------------------------- (B) (B) 100% 100% 101% 80% 102% 60% 103% 40% 104% 20% 105% 0% - ---------------------------
(B) For each % of A/R Days Attainment under the Target, the bonus % will increase by an additional 10%, up to a maximum payout of 300% of the A/R Days Bonus Potential (@ 80% of Target). Schedule to Exhibit (10) An SMS Senior Management Incentive Compensation Plan for the plan year ended December 31, 1997 in the form presented in the preceding pages was implemented for each of the following executive officers of the Company during the reporting period. Under each plan, 90% of the base bonus value is based upon performance against corporate and focus area (consisting of certain segments of business operations) sales, revenue, pre-tax income margin, and accounts receivable days. The relative weighting and combination of these performance factors vary for each individual, with an emphasis on the individual's particular area of business operations. The remaining 10% of the base bonus value is tied to subjective considerations of managerial performance against certain pre-defined goals. V. Brewster Jones Terrence W. Kyle Francis W. Lavelle David F. Perri Guillermo N. Ramas, Sr. EX-10.3 6 EMPLOYMENT AGREEMENT Exhibit (10) EXECUTIVE EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT made as of May 27, 1997 , between Shared Medical Systems Corporation ("Employer" or "Company"), a Delaware corporation having its principal office at Malvern, PA, and V. Brewster Jones, an individual residing at 10301 Cutler's Lane, Potomac, Maryland 20854 ("Executive"). Executive and Employer agree as follows: 1.0 EMPLOYMENT, COMPENSATION AND BENEFITS. 1.1 Employer hereby provides to Executive, in consideration for Executive's covenants contained herein, employment, compensation and benefits as outlined in the letter attached and incorporated by reference herein ("Letter"), and Executive hereby accepts such employment, compensation and benefits, upon the terms and conditions hereinafter set forth. 1.2 Executive's salary shall remain as described in the Letter until such time a change is determined by the Company's chief executive officer ("CEO") in his sole discretion. Executive's monthly salary (as may be increased from time to time) is referred to herein as "Base Compensation." 1.3 Executive shall perform such duties as may be assigned from time to time by Employer, shall devote full time, attention, and energies to the business of Employer, and shall faithfully perform his duties in accordance with the direction of Employer. Executive also agrees to adhere to all policies of the Employer. 1.4 Executive shall be entitled to participate in all group life insurance, medical, and other benefit plans, except as provided herein, established by Employer in accordance with the applicable terms and conditions of such plans. 1.5 Executive shall be entitled to an annual vacation of four weeks, and holidays and sick leave as set forth in Employer's policy manual. 1.6 In addition to the annual salary described in the Letter and Section 1.2 above, Executive shall be entitled to such annual bonus or incentive compensation of the Employer as set forth in the Letter, and as may be approved from time to time by the CEO in his sole discretion. Such additional compensation is referred to herein as "Incentive Compensation." 1 1.7 This Agreement shall remain in full force and effect until Executive's change to a non-Executive level position or upon Termination of Employment and those post-employment obligations described in Sections 4.0 and 5.0 shall continue in full force and effect thereafter. 2.0 DEFINITIONS. For purposes of this Agreement, the following definitions shall apply. 2.1 "Severance Pay" is a monthly payment made up of three components: (i) Base Compensation; (ii) the monthly cost of continued medical insurance coverage under COBRA; and (iii) a pro rata portion of the maximum amount of Incentive Compensation, if any, which could have been paid to the Executive for the year. The right to premium payments does not expand an Executive's right to medical coverage. 2.2 "Cause" shall mean termination of Executive due to Executive's (i) dishonest or illegal conduct; (ii) breach of his obligations under this Agreement; (iii) conduct contrary to the best interests of Employer; (iv) insubordination, incompetence, misconduct, poor performance or neglect of his duties; or (v) willful violation of any express direction of the CEO. 2.3 "Change in Control" shall mean the acquisition by any person (other than the Company or any affiliate or associate of the Company) as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of 40% or more of the combined voting power of the Company's then outstanding securities, or the approval by the stockholders of the Company of (i) any merger or consolidation where stockholders of the Company immediately prior to the merger or consolidation do not immediately thereafter hold more than 50% of the combined voting power of the surviving company's then outstanding securities; (ii) a liquidation or dissolution of the Company; or (iii) a sale of all or substantially all of the Company's assets. 2.4 "Termination of Employment" shall mean the termination of employment of the Executive by the Employer, including constructive discharge which is defined for this purpose to mean an act by the Employer regarding Executive's terms or conditions of employment which would cause a reasonable person in Executive's position to resign from employment. 3.0 SEVERANCE PAY. 3.1. Notwithstanding any provision in this Agreement, the Company retains its right to terminate Executive's employment without Cause. Upon 2 Termination of Employment without Cause, Company shall pay to Executive Severance Pay for a period of eighteen (18) months. Except as provided in Section 3.2, the payments required to be made by Employer to Executive pursuant to this Section 3.1 shall be Executive's sole severance benefit in the event of Executive's discharge without cause. Payment of such severance benefit is conditioned upon Executive executing a general release of all claims against the Company, and Executive's continued adherence to his/her obligations under Sections 4.0 and 5.0 of this Agreement. 3.2 In the event (a) there is a "Change of Control" of the Company, and (b) within twenty four (24) months after the Change in Control (i) the Chief Executive Officer of the Company immediately prior to the Change in Control is replaced and (ii) there is a Termination of Employment of Executive, Employer shall pay to Executive in a lump sum an amount equal to eighteen (18) months of Severance Pay. Such payment required to be made by Employer to Executive pursuant to this Section 3.2 shall be in lieu of those referred to in Section 3.1 and shall be Executive's sole severance benefit. Payment of such severance benefit is conditioned upon Executive executing a general release of all claims against the Company, and Executive's continued adherence to his/her obligations under Sections 4.0 and 5.0 of this Agreement. Executive hereby agrees to repay to Company any severance benefit paid to Executive should he/she violate his/her obligations under Sections 4.0 and/or 5.0. 3.3 Employer may terminate Executive's employment immediately at any time for Cause, provided that Employer has given Executive prior written notice of such Cause and Executive has failed to cure such Cause within 21 days after receipt of such notice. In the event of Termination for Cause, Employer shall not be obligated to make any payments other than the payment of earned but unpaid salary and benefits. 3.4 If Executive is unable to perform his duties and responsibilities by reason of a disability as defined under Company's short term disability plan, Company shall provide Executive with short term disability for a period of six (6) months equal to Executive's Base Compensation and a pro rata portion of the maximum amount of Incentive Compensation, if any, which could have been paid to Executive for the year during which Executive first became disabled. This short term disability benefit shall be reduced by the amount of payments due Executive for this time period under any applicable disability benefit programs, including Social Security disability, workers' compensation and disability retirement benefits. 3.5 In the event that Executive dies during the term of his Employment, 3 Employer shall pay to his executors or administrators, as appropriate, for a period of three (3) months, Executive's Base Compensation and a pro rata portion of the maximum amount of Incentive Compensation, if any, which could have been paid to Executive for the year in which he/she died. To the extent possible, such payments will be non-taxable death benefits under the Internal Revenue Code. 4.0 CONFIDENTIAL INFORMATION. 4.1 Executive represents and warrants that Executive is free of any contractual restrictions and restraints in entering this Agreement, and has not, and will not, in connection with this employment, divulge any confidential information, trade secrets, or copyright-protected information of any prior employer or of any other third party. 4.2 Employer will provide to Executive or Executive will learn, trade secrets and other proprietary information of Employer and third parties which are not generally available to the public. Examples of this information include computer programs, marketing and development plans, proprietary product and service offerings data about Employer, customer and prospect lists and requirements, employee lists, salaries and benefits, financial information and customer and vendor data. During Executive's employment and at all times afterward, Executive shall keep confidential all such information and material and will not disclose such information to any person or entity or make any use of this information, except as required in the performance of Executive's current employment responsibilities. When Executive leaves Employer's employment, Executive will immediately return to Employer all materials containing such information. Such materials shall, at all times, be the property of the Employer. 4.3 Employer may seek and obtain injunctive relief against the breach or threatened breach of Executive's obligations under this paragraph, in addition to any other legal remedies which may be available. 5.0 NON-COMPETITION. 5.1 During the term of this Agreement and for eighteen (18) months following termination of Executive's employment for any reason: (i) Executive will not, without Employer's prior written consent, (i) compete with Employer's business activities or accept similar employment with a competitor of Employer, or (ii) solicit any customer or prospect of Employer that Executive or his subordinates solicited or serviced for Employer, or (iii) solicit for 4 hire other individuals who were Employer's employees on the date Executive left Employer to also leave Employer. If Executive's responsibilities for Employer have a geographic territory, this provision will apply only within the geographic territory for which Executive had responsibility during the year before Executive left Employer; otherwise it will apply where Employer does or has plans to do business. (ii) Executive hereby acknowledges that the limitation as to time and the limitation on the character or nature placed on his subsequent employment are reasonable and fair and will not prevent or materially impair his/her ability to earn a livelihood. 5.2 Employer may seek and obtain injunctive relief against the breach or threatened breach of Executive's obligations under this paragraph, in addition to any other legal remedies which may be available. 6.0 OWNERSHIP OF WORK PRODUCT. The parties agree that all "Work" (which shall include for purposes of this Section all ideas, processes, methodologies, software, algorithms, formulae, notes, outlines, photographs, inventions, improvements, and other information and work product developed or generated by or on behalf of Employer during the course of the Executive's employment), shall be considered "works made for hire" within the meaning of the Copyright Act of 1976, 17 U.S.C. ss.101 et seq., and that Employer is and shall be the sole owner of all rights therein, including but not limited to all rights of copyright. In the event any of the Work is deemed not to be a "work made for hire," then Executive hereby transfers to Employer, without further consideration, all right, title, and interest to such Work, including any and all patents, copyrights, trade secrets and other proprietary rights related thereto. Executive agrees to promptly execute and deliver, or cause to be promptly executed and delivered, all documents and instruments requested by Employer to evidence the foregoing assignment. 7.0 MISCELLANEOUS. This Agreement: (i) may not be amended except in a writing executed by both parties; (ii) shall only be governed by and construed in accordance with the laws of the State of Delaware; (iii) shall be binding upon and inure to the benefit of Employer and Executive and their respective successors and permitted assigns; and (iv) represents the entire Agreement and understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings of the parties in connection therewith. If any portion of this Agreement is deemed to be unenforceable, the balance of this Agreement shall nevertheless continue in effect and any court may enforce any provision to the 5 extent permitted by law, even though the entire provision may not be enforced. This Agreement shall not be assignable by Executive, and shall be assignable by Employer only to any person, firm, or corporation which may become a successor in interest by purchase, merger or otherwise. IN WITNESS WHEREOF, the undersigned, intended to be legally bound, have duly executed this Agreement as of the date first above written. ACCEPTED: V. Brewster Jones Shared Medical Systems Corporation - ----------------- ---------------------------------- /S/V. Brewster Jones /S/Marvin S. Cadwell - --------------------------- -------------------------------- (Signature) By (Signature) Name: Marvin S. Cadwell Title: President and CEO 6 EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 25,811 0 236,297 8,467 0 279,732 255,867 153,763 523,469 163,514 17,579 0 0 290 303,059 523,469 53,921 423,273 46,535 296,164 32,636 0 1,782 46,156 17,539 28,617 0 0 0 28,617 1.13 1.13
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