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Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
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<SEC-DOCUMENT>0000804753-01-000056.txt : 20010410
<SEC-HEADER>0000804753-01-000056.hdr.sgml : 20010410
ACCESSION NUMBER: 0000804753-01-000056
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 8
CONFORMED PERIOD OF REPORT: 20001230
FILED AS OF DATE: 20010330
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: CERNER CORP /MO/
CENTRAL INDEX KEY: 0000804753
STANDARD INDUSTRIAL CLASSIFICATION: 7373
IRS NUMBER: 431196944
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1230
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 000-15386
FILM NUMBER: 1586224
BUSINESS ADDRESS:
STREET 1: 2800 ROCKCREEK PKWY-STE 601
CITY: KANSAS CITY
STATE: MO
ZIP: 64117
BUSINESS PHONE: 8162211024
MAIL ADDRESS:
STREET 1: 2800 ROCKCREEK PKWY
STREET 2: DROP 1624
CITY: KANSAS CITY
STATE: MO
ZIP: 64117
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>0001.txt
<TEXT>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to ___________
Commission File Number 0-15386
CERNER CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 43-1196944
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
2800 Rockcreek Parkway
North Kansas City, Missouri 64117
(816) 221-1024
(Address of principal executive offices, including zip code;
Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Preferred Stock Purchase Rights
(Title of Class)
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 _____
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
At March 15, 2001, there were 34,813,821 shares of Common
Stock outstanding, of which 7,559,789 shares were owned by
affiliates. The aggregate market value of the outstanding Common
Stock of the Registrant held by non-affiliates, based on the
average of bid and asked prices of such stock on March 15, 2001,
was $1,089,309,592.
Documents incorporated by reference: portions of the
Registrant's Proxy Statement for the 2001 Annual Meeting of
Stockholders are incorporated by reference in Part III hereof.
<PAGE>
PART I
Item 1. Business
Overview
- - - - --------
Cerner Corporation ("Cerner" or the "Company") is a Delaware
corporation incorporated in 1980. The Company's principal
offices are located at 2800 Rockcreek Parkway, North Kansas
City, Missouri 64117, and its telephone number is (816) 221-1024.
Cerner designs, develops, markets, installs, hosts and supports
software information technology and content solutions for
healthcare organizations and consumers. Cerner implements these
solutions as individual, combined or enterprise-wide systems.
Cerner's integrated suite of solutions enable healthcare
providers to improve operating effectiveness, reduce costs,
reduce medical errors, reduce variances and improve the quality
of care as measured by clinical outcomes. Cerner solutions are
designed to provide the appropriate health information and
knowledge to caregivers, clinicians and consumers and the
appropriate management information to healthcare administration
on a real-time basis. Cerner solutions allow secure access to
data by clinical, administrative and financial users in
organized settings of care and by consumers from their home.
These solutions can be implemented as a part of an enterprise-
wide solution or individually, leveraging the client's existing
investment in information technology. Cerner solutions are
available as integrated applications managed by its clients or as
a service option under the hosted solutions model. Hosted
solutions are applications that are provided to clients from
Cerner's solutions center in Lee's Summit, Missouri.
Cerner solutions are designed and developed using the Health
Network Architecture (Registered)("HNA"), a single information
architecture. HNA (Registered) is a unified technology
infrastructure for combining clinical and management information
applications. HNA allows each participating healthcare
organization to access an individual's clinical record at the
point of care, to organize it for the specific needs of the
physician, nurse, laboratory technician or other care provider
on a real-time basis, and to use the information in
management decisions to improve theefficiency and productivity
of the entire enterprise.
Cerner has developed and is licensing and installing its newest
generation of HNA solutions known as "Millennium (Trademark)".
See "Cerner's Technology - Health Network Architecture (HNA)
and HNA Millennium" for a discussion of HNA Millennium
(Registered).
Healthcare Industry
- - - - -------------------
The healthcare delivery industry in the United States is highly
fragmented, very complex and remarkably inefficient. While
science and medical technology continue to make significant
breakthrough progress in dealing with human disease and injury,
the management and clinical processes of these complex delivery
organizations have made little progress in the past twenty years.
Even today, the major clinical workflow depends on manual, paper-
based medical record systems augmented by spotty automation. This
has resulted in an industry which is economically inefficient and
produces significant variances in medical outcomes. In November
1999, the Institute of Medicine released a report called "To Err
is Human" indicating that medical error is one of the top ten
causes of death in the United States, with up to 96,000 lives
lost each year. The industry must address these issues by
identifying ways to enhance efficiencies and improve the quality
of care.
The healthcare industry has also been buffeted by significant
external forces during the 1990's. Managed Care Organizations
defined themselves as an intermediary in the flow of funds and
exerted pressure on healthcare spending. In 1997, Congress
enacted the Balanced Budget Act which reduced Medicare
reimbursements to healthcare providers by over $250 billion
dollars over a five-year period. The full impact of this
legislation hit in 1999, significantly reducing the operating
margins of hospitals and physician groups. The healthcare
industry has also seen the impact of legislative and employer-led
initiatives, such
<PAGE 2
as the Leapfrog Group, an organization of large businesses which
recommends that its members not send any of their employees to
hospitals that do not use a computerized, physician order-entry
system. These pressures have forced healthcare providers to
focus on improving their systems and processes.
In order to be competitive in this dynamic marketplace,
healthcare enterprises will need to deploy information technology
solutions that internally automate the paper-based medical record
systems and externally create smart connections between the major
participants in healthcare: the consumer, the physician, the
hospital and the managed care organization. The emergence of near
ubiquitous Internet connectivity will facilitate consumer
participation in the healthcare management process.
The complexity of healthcare's information requirements will
continue to increase with provider consolidations and the
challenging cost containment pressures created by the Balanced
Budget Act. The Health Insurance Portability and Accountability
Act of 1996 (HIPAA) adds an additional element of uncertainty for
healthcare organizations around security and patient
confidentiality. The final health data privacy regulations were
published in December 2000, and require compliance by April 2003.
While many of the rules under HIPAA have not been finalized as
yet, the provisions are focused on a centralized and systematic
method of access control that Cerner thinks is best met by a
single integrated architecture.
Cerner is responding to the changing and increasing needs of the
healthcare industry for better information systems by developing
HNA Millennium, its latest generation of solutions. See "Cerner's
Technology - Health Network Architecture (HNA) and HNA
Millennium" for a discussion of HNA Millennium.
The Cerner Vision
- - - - -----------------
Cerner's business and products are organized around a central
vision of how healthcare can and should operate. This vision is
founded on four steps:
* Automate the core processes of healthcare: eliminate the
paper medical record
* Connect the person: create the personal health system
* Structure the knowledge: position every clinical decision as
a learning event
* Close the loop: implement evidence-based medicine
These steps describe Cerner's business today and plans for
Cerner's business both in 2001 and beyond.
Automate the Process
- - - - --------------------
Cerner is dedicated to the elimination of the paper medical
record.
Medical care cannot make significant steps forward in quality and
consistency without leveraging the power and advantages
of information technology. As long as medical information is
locked and isolated in a paper record, a physician is cut off
from rapid, contextual reference to the vast knowledge available
in today's medicine. The elimination of the paper record will
lead to improved quality and safety of care, dramatic
productivity increases and enhanced documentation.
The electronic recording of medical information will lead to
improvements in the quality of care, the safety of patients and
reduced costs. By allowing care providers to access a patient's
single, longitudinal medical record in real-time, clinicians can
view demographic information, medical history, lab results and
current conditions and treatment plans along with notes from
attending and consulting physicians. Guidelines and pathways
sensitive to the person's medical condition and problems will
assist the physician in making the "appropriate" decisions on how
to diagnose and treat medical conditions. This comprehensive
view of a patient's health status allows for better medical
decision-making at the point of
<PAGE> 3
care. Online
documentation and physician order entry helps to prevent the
errors in and misinterpretation of documentation and orders,
reducing the costs of duplication and medical error. This
automation also will reduce the time for care delivery and lower
costs.
Once all the steps of care are captured electronically, the
enhanced documentation will lead to more efficient healthcare,
both in terms of treatment and finance, and will set the stage
for data collection that will be the backbone of structuring the
knowledge of healthcare. Electronic medical records reduce some
of the duplication caused by poor record-keeping. Wasteful
duplication is eliminated, redundant tests are not ordered.
Also, documentation required for health plan reimbursement is
maintained efficiently, reducing claim denials. Finally,
electronic record-keeping lays the groundwork of data collection
necessary to make dramatic changes in care delivery.
Connect the Person
- - - - ------------------
Cerner is dedicated to helping its clients build a personal
health system; creating a "new medium" between the person and
physician; empowering the individual; and creating a new center
to healthcare.
The healthcare system is undergoing fundamental change as the
person moves to the center of care delivery. Increasing access
to expert knowledge over the Internet and a cultural shift toward
more self-direction are combining to move the center of power and
control to the person.
With the electronic medical record, persons can access their
medical records securely anytime and anywhere
they have Internet access. When combined with personalized
health content, the consumer gains a better sense of the care
they are receiving and the options available to them. They will
have better communications with their providers, and can take
more ownership of their own health and work to manage it to their
satisfaction.
Structure the Knowledge
- - - - -----------------------
Cerner is dedicated to building systems that treat every clinical
decision as a learning event by structuring, storing and studying
the content of medicine.
Medicine must have a structure that allows physicians to record
treatment and outcomes in such a way as to permit comparability.
The basis of this structure is a common nomenclature that can
exactly capture the meaning of input from physicians and
clinicians. By storing this data and then providing a framework
for comparability, physicians can make sense and glean value from
the information that is gathered both through automated processes
and connected persons. Without a knowledge framework, data
collected will provide no real benefit. By building this
structure, every encounter with a patient, every piece of new
knowledge and information, can be catalogued, measured and
analyzed to improve care. This knowledge framework will deliver
better standards of care and an improved understanding of
medicine.
Close the Loop
- - - - --------------
Cerner is dedicated to building systems that implement evidence-
based medicine, dramatically reducing the current average time
from the discovery of an improved method to the change in
"standard of care" medical practice.
Advances in technology offer great opportunities to healthcare
and must be used to practical effect. The knowledge gained must
be used to deliver better care faster. The information learned
must be applied. Today, patients may wait as long as ten years
before new knowledge reaches widespread use. With systems
designed to embed evidence-based medicine inside the clinicians'
workflow using pathways, guidelines and alerts, physicians can
ensure that every medical decision is optimal, based on the best
and most recent knowledge available. The results will be better
outcomes and reduced variance.
<PAGE> 4
The Cerner Strategy
- - - - -------------------
Key elements of the Company's business strategy include the
following:
Penetrate the integrated healthcare provider market.
- - - - ---------------------------------------------------- Large
health systems represent a significant component of the
healthcare information technology market. These organizations
are focused on improving safety and reducing costs through
operating efficiencies. Cerner's enterprise-wide process-based,
clinical and management systems provide the technology to enable
an integrated system to manage healthcare across the system,
significantly reduce costs, improve the efficiency of healthcare
delivery and maintain and improve the quality of healthcare.
Expand market share in individual domains and further penetrate
- - - - -----------------------------------------------------------------
existing client base.
- - - - --------------------- Cerner expects continued
growth in clinical domain systems for specific markets such as
nursing, physician office, laboratory, pharmacy, radiology,
surgery, emergency medicine and cardiology, as institutional
providers look to restructure and reengineer these high cost
centers. The Company anticipates growth in sales of new products,
such as its new patient accounting product introduced in 2000.
This product addresses a large new market previously not covered
by the existing product suite. The Company also intends to
market aggressively Cerner clinical and management information
systems and services to its existing client base.
Remain committed to a common architecture.
- - - - ------------------------------------------ Because Cerner
believes that the constituents in health management need to work
together to benefit defined populations in a community, the
Company has made a commitment to a single unified architecture as
the platform for "fully integrated" health information and
management systems. This platform enables Cerner's process-based
HNA systems to be scaleable on a linear basis, using either
Cerner compatible modules for process-oriented applications or
competitive systems interfaced using open system protocols.
Expand products and services.
- - - - ---------------------------- Using HNA Millennium,
Cerner intends to continue expanding the range of products and
services offered to providers. These new products and services
will complement the systems currently offered, address the
emerging information needs of clients or employ technological
advances. Cerner believes that major opportunities exist as
providers and managed care organizations reach into new markets
and offer more alternative services to remain competitive. The
Company believes these organizations will find value in having
personal health records and trusted health information accessible
to the individual in the home. In addition, Cerner recognizes the
value of the aggregate database being developed by its broad
client base as a potential means to enable comparative or
normative procedure evaluations as a powerful new tool in the
healthcare industry. The substantial project management, process
redesign, technology integration and training involved in
healthcare systems taking advantage of the opportunities provided
by clinical and management information technology represent a
significant market for the Company's consulting services.
Offer products on a hosted solution basis.
- - - - ----------------------------------------- The Company
now offers its HNA Millennium applications through its new hosted
solutions delivery option. This option offers information
technology services to clients that include software, computer
hardware, implementation, technical support, wide-area network
(WAN) services and automatic software upgrades. Unlike
traditional software implementations, software delivered through
the hosted solutions delivery option is not installed at the
user's location, but is delivered, operated and maintained in
Cerner's solutions center in a rapidly accelerated implementation
timeframe. Using Cerner hosted solutions, any size organization
can access the same robust clinical applications, architecture
and user-interface advantages that were previously only available
to larger institutions.
Cerner's Technology - Health Network Architecture (HNA) and HNA
- - - - ---------------------------------------------------------------
Millennium
- - - - ----------
The cornerstone of Cerner's technology strategy is HNA, the
single architecture around which each of Cerner's information
products is developed. This person-centric, single data model,
open and highly scaleable architecture allows Cerner to meet the
clinical, financial, management and business information
<PAGE> 5
requirements of a healthcare delivery system across the continuum
of care. Cerner's newest version of its HNA computing platform
is Millennium, the core of which was developed between 1994 and
1999. Millennium uses n-tier client/server technology to
optimize distributed computing performance and scalability across
multiple client and server platforms. The HNA Millennium
architecture and applications were designed and developed to
accommodate healthcare specific requirements for mission critical
computing and secure access, whether the user is inside the
healthcare enterprise or at home via the Internet. HNA
Millennium's breadth of focus and functionality are well suited
for large-scale and enterprise application technologies for
healthcare organizations, including the ability to leverage the
Internet for ehealth-related self-service and business-to-
business functions.
The value of HNA Millennium to a client organization is the use
across a healthcare organization of a single system based on a
fully integrated common architecture and database. With its
single data model, HNA Millennium provides secure, real-time
access to all information across multiple applications, domains,
organizations and physical locations, including physician,
hospital, nursing, laboratory, pharmacy and consumers, to all of
those needing such access, wherever they are located. Given its
integrated and open design, HNA Millennium can also provide a
centralized repository of clinical and financial transactions to
help standardize access and messaging of disparate applications
across a health system.
The alternative to a single architectural approach is to use
disparate systems based on differing architectures and data
structures to automate the care processes across the continuum of
care. These disparate systems must be interfaced together and
rely on these interfaces to transmit, modify and arrange data
exchanged between them, which limits the data's usefulness across
multiple systems and inhibits real-time access. In addition,
many of these systems lack functional scalability and cannot
operate across multiple provider settings or locations within a
healthcare organization.
Two overarching capabilities are embedded into the HNA Millennium
architecture. First is the person-centric transactions and secure
messaging, which consider the breadth of requirements not only of
a patient, but also of healthy consumers. Second is healthcare
community dynamics, which take into account the flexibility
required by the constantly changing relationships between
healthcare organizations, physicians and consumers, and the need
to maintain complex security and end user preferences based on
the context and business attributes of the transaction in a
community setting.
CernerObjects
- - - - -------------
Cerner is extending HNA Millennium's reach and scope with the
goal of becoming the de facto standard for healthcare information
technology. A key element in that effort by Cerner is
CernerObjects. Cerner will use CernerObjects to extend HNA
Millennium to suppliers, supporting their development efforts and
increasing Millennium's market penetration. CernerObjects is a
collection of reusable programming elements from Cerner's HNA
Millennium architecture. These segments of code, or objects,
enable third-party developers to create front-end applications,
like Palm or Web browser solutions, that draw upon the data model
and proven functionality of HNA Millennium. With CernerObjects,
programmers can quickly and efficiently build applications that
integrate with Cerner's architecture, reusing existing objects
that achieve the tasks they are seeking to replicate. Third-
party programmers can avoid the time- and cost-intensive process
of writing new code to perform functions Cerner engineers have
already developed.
CernerObjects is the mechanism Cerner uses to extend its own
applications to the Internet. By licensing the objects library to
third parties, Cerner has an excellent opportunity to proliferate
the HNA Millennium architecture - as well as the brand, clinical
expertise and technical excellence upon which it was built.
Products
- - - - --------
Cerner's HNA Millennium platform of products is the only
healthcare information system on the market today capable of both
retrieving and disseminating clinical and financial information
across an entire health system. HNA Millennium includes seven
product families dedicated to meeting the automation needs of
virtually every segment of the care continuum.
<PAGE> 6
Cerner solutions can be acquired individually or as a fully
integrated health information system. Cerner also markets more
than 200 product options that complement Cerner's major
information systems. In addition, Cerner sells computers and
related hardware manufactured by third parties and consulting
services to its software licensees.
Cerner's product categories include:
* Enterprise Systems, which automate processes across and
throughout the health system enterprise;
* Financial and Operational Management Systems, which automate
business operations;
* Decision Support Systems and Knowledge Solutions, which
enhance clinical and business processes with information and
actions;
* Point of Care Clinical Systems, which automate the care
processes within specific domains of health systems;
* Systems for Clinical Centers, which automate the clinical
processes within specific departments;
* Personal Health Systems for individuals to manage their own
health and connect to the health system; and
* Interface Technologies for connecting other technologies and
systems to HNA Millennium.
Enterprise-wide Solutions
-------------------------
Cerner's CapStone (Registered) Enterprise Access Management
System creates the enterprise-wide master person identifier
(EMPI) and automates the identification, eligibility,
registration and scheduling processe across hospitals, clinics,
physician practices and other care delivery organizations,
integrating the health system and incorporating existing systems.
PowerChart (Registered) Electronic Medical Record System is the
enterprise clinician's desktop solution for viewing, ordering,
documenting and managing care delivery.
The Open Clinical Foundation (Registered) manages clinical
information, providing the foundation for the electronic medical
record.
The Open Management Foundation (Trademark) stores management
information of enterprise financial, operational and process
results, creating the foundation for the enterprise-wide
management and executive information system.
The Open Agreement Foundation (Trademark) manages health plan
contracts and agreements, and member information.
The Open Research Foundation (Trademark) provides open repository
storage of clinical and medical information to support medical
research.
Financial and Operational
-------------------------
The ProFit (Trademark) Enterprise Billing and Accounts Receivable
System is Cerner's system for revenue accounting, billing and
accounts receivable for the entire health system as well as each
individual domain or organization. ProFit integrates clinical
and financial data and creates a single bill.
PowerVision (Registered) Enterprise Decision Support links
comprehensive clinical and financial data and makes it available
at the point of care - allowing care to be better managed as it
occurs.
<PAGE> 7
The ProFile (Trademark) Health Information Management System
helps meet the operations management needs of the health
information management (medical records) department and includes
functionality for the various chart tracking and completion
tasks.
The ProCure (Trademark) Materials Management System automates the
business operations around supply chain, materials acquisition
and equipment management for the organization.
The ProCare (Trademark) Medical Management System automates
medical management for the health system, addressing the
areas of utilization, case and risk management, as well as
infection control.
The RadNet (Trademark) Radiology Information System addresses the
operational and management requirements of radiology departments
or services. It allows a department to replace its manual, paper-
based system of record-keeping with an efficient computer-based
system that integrates with its imaging systems. Cerner also
provides image management systems with picture archival and
communications systems (PACS) that are fully integrated with
Cerner's radiology information systems. Using Cerner's end-to-
end, fully integrated radiology information and image management
systems, radiologists can improve operational efficiencies and
reduce medical error.
Decision Support Systems and Knowledge Solutions
------------------------------------------------
Discern Expert (Registered) is an event-driven, rule-based
decision support software application that allows users to define
clinical and management rules (Alerts (Trademark)) that are
applied to event data captured or generated by other
applications. It supports both synchronous (real-time,
interactive) processing and asynchronous (noninteractive)
processing of events. Discern Expert manages the evaluation
and display of executable clinical knowledge through either
Cerner-developed Alerts, which are licensed separately, or
client-developed Alerts.
Discern Explorer (Registered) is a decision support software
application integrated with other Cerner HNA Millennium
clinical and management information systems that allows users
to execute predetermined or ad hoc queries and reports regarding
process-related data that is generated by the other applications.
Care Designs (Trademarks) are clinical pathways and protocols
that automate the specific plans of care for an individual and
operate within Cerner's clinical systems.
Point of Care Clinical Solutions
--------------------------------
The INet (Registered) Intensive Care Management System is
designed to automate the entire care process in intensive care
settings. It supports chart review and browsing, order
management, documentation management and automatic data
acquisition.
Cerner's CareNet (Registered) Acute Care Management System is
designed to automate the entire care process in acute or
institutional settings. The application collects, refines,
organizes and evaluates detailed clinical and management data.
It enables the entire care team to plan and manage individual
activities and plans, as well as measure outcomes and goals.
The CVNet (Registered) Cardiology Information System automates
the processes within the cardiology department, supporting the
scheduling, ordering, documentation and data capture required by
professionals in the cardiology domain.
The SurgiNet (Registered) Surgery Information System is designed
to address the needs of the surgical department, including
automating the functions of resource and equipment
scheduling, inventory management, anesthesia management and
operating room management.
<PAGE> 8
The FirstNet(Registered) Emergency Medicine Information System
offers patient and provider tracking and an intuitive
presentation of patient diagnoses and clinical events for
the emergency department. FirstNet provides basic emergency
department functionality, including quick admits, tracking,
triage and patient history, as well as a graphical reference
to patient location and order status.
The PowerChart Office (Trademark) Management System supports the
broad range of clinical and business activities that occur within
a physician office, clinic or large physician organization. This
system ties the office together with other medical entities and
automates key care team activities in both primary and specialty
care settings.
The ProCall (Registered) Home Care Management System automates
the clinical and business processes of home care organizations,
such as home health agencies, visiting nurse associations and
hospices.
Clinical Centers
----------------
The PathNet (Registered) Laboratory Information System addresses
the information management needs of six clinical areas: general
laboratory, microbiology, blood bank transfusion services, blood
bank donor services, anatomic pathology and Human Leukocyte
Antigen. PathNet automates the ordering and reporting of
procedures, the production of accurate and timely reports and the
maintenance of accessible clinical records.
The RadNet (Registered) Radiology Information System addresses
the operational and management requirements of radiology
departments or services. It allows a department to replace its
manual, paper-based system of record-keeping with an efficient
computer-based system that integrates with their imaging systems.
The PharmNet (Registered) Pharmacy Information System provides
full integration for rapid pharmacy order entry and support
of the clinical pharmacy in either an inpatient or retail
setting. PharmNet streamlines medication order entry, enabling
the pharmacist or technician to place all types of pharmaceutical
orders, and automates dispensing functions.
Consumer/Personal Health
------------------------
Cerner's IQHealth (Trademark) facilitates powerful business-to-
consumer and business-to-business connections via the Internet.
With IQHealth, healthcare organizations can create and brand a
"health exchange" in the community to directly connect
hospitals, physicians, payers, consumers and others. IQHealth
provides the tools to create such local connections as well
as health information to improve the quality and safety of care.
IQHealth's Personal Health Record (PHR) is a personal health
management tool that gives consumers the ability to build a
permanent electronic record in which health information can be
securely stored as it accrues over time.
Cerner Multum (Registered) drug database provides caregivers and
consumers alike with access to drug information and the ability
to perform drug interaction checking to prevent adverse events.
IQHealth's Health Risk Assessments allow organizations to create
Web-based surveys to assess individual and community health
risks.
Health Connections (Trademark), a 24x7 call center staffed by
nurses, provides ready access to accurate health information so
that consumers can better manage their health and participate in
care decisions.
Health Facts (Registered) is Cerner's comparative data warehouse
for benchmarking information and services for subscribers to
support their own improvement processes.
<PAGE> 9
Interface Technologies
----------------------
The Open Engine Application Gateway System (Trademark)
facilitates the exchange of data and assists in the management
of interfaces between foreign systems in a network environment.
It serves as a toolkit to help write interface code.
The Open Port Interface System (Trademark) represents Cerner's
standardized technology for providing reliable foreign system,
medical device and other standard interfaces in a timely
manner. Message translation and data mapping are done with
point-and-click tools and a scripting environment.
Communications protocols are configured via table driven
parameters. These sophisticated methodologies result in
decreased implementation times and greater client satisfaction.
Software Development
- - - - --------------------
Cerner commits significant resources to developing new health
information system products. As of December 30, 2000,
approximately 1,100 employees were engaged full-time in product
development activities. Total expenditures for the development
and enhancement of the Company's products were approximately
$90,694,000, $88,699,000 and $74,159,000 during the 2000, 1999
and 1998 fiscal years, respectively. These figures include both
capitalized and noncapitalized portions and exclude amounts
amortized for financial reporting purposes.
The Company expects to continue investment and development
efforts for its current and future product offerings. As new
clinical and management information needs emerge, Cerner intends
to enhance its current product lines with new versions released
to clients on a periodic basis. In addition, Cerner plans to
expand its current product lines by developing additional
information systems for clinical, financial, operational and/or
consumer use and to continue to support simultaneous use of
Cerner's products across multiple facilities, and plans to
continue to expand in the global marketplace.
See "Cerner's Technology - Health Network Architecture (HNA) and
HNA Millennium" for a discussion of the development of Cerner's
latest generation of software products.
Sales and Marketing
- - - - -------------------
The markets for Cerner's information system products include
integrated delivery networks, physician groups and networks and
their management service organizations, managed care
organizations, hospitals, medical centers, free-standing
reference laboratories, blood banks, imaging centers, pharmacies,
pharmaceutical manufacturers, employer coalitions and public
health organizations. To date, a substantial portion of system
sales have been in clinical applications in hospital-based
provider organizations. Cerner's HNA architecture is highly
scaleable, with applications being used in hospitals ranging from
under 50 beds to over 2,000 beds and managed care settings with
over 2,000,000 members. All HNA Millennium applications are
designed to operate on either computers manufactured by Compaq
Computer Corporation or IBM's RISC System/6000 AIX (UNIX)
platform, thereby allowing Cerner to be price competitive across
the full range of size and organizational structure of healthcare
providers. The sale of a health information system usually takes
approximately nine to eighteen months, from the time of initial
contact to the signing of a contract.
The Company is in the process of expanding its sales force in
anticipation of increased market demands expected to be created
by its HNA Millennium solutions. See "Cerner's Technology -
Health Network
<PAGE> 10
Architecture (HNA) and HNA Millennium" for a discussion of
the development of Cerner's latest generation of software
products.
The Company's executive marketing management is located in its
North Kansas City, Missouri, headquarters, while its client
representatives are deployed across the United States and
globally. In addition to the United States, the Company, through
subsidiaries and joint ventures, has sales staff and/or offices
in Australia, Belgium, Canada, Germany, Singapore, Malaysia,
Saudi Arabia and the United Kingdom. Cerner's consolidated
revenues include foreign sales of $25,815,000, $24,001,000 and
$17,545,000 for the 2000, 1999 and 1998 fiscal years,
respectively. The Company supports its sales force with
technical personnel who perform demonstrations of Cerner's
products and assist clients in determining the proper hardware
and software configurations. The Company's primary direct
marketing strategy is to generate sales contacts from its
existing client base and through presentations at industry
seminars and tradeshows. Cerner attends a number of major
tradeshows each year and has begun to sponsor executive
conferences, which feature industry experts who address the
information system needs of large healthcare organizations.
Client Services
- - - - ---------------
All of Cerner's clients enter into software maintenance
agreements with Cerner for support of their Cerner systems. In
addition to immediate software support in the event of problems,
these agreements allow these clients the use of new releases of
the Cerner products covered by these agreements. Each client has
24-hour access to the client support staff located at Cerner's
corporate headquarters. Most of Cerner's clients also enter into
hardware maintenance agreements with Cerner. These arrangements
normally provide for a fixed monthly fee for specified services.
In the majority of cases, Cerner subcontracts hardware
maintenance to the hardware manufacturer.
In 1999, Cerner modified its strategy of using regional business
centers to provide support for its clients. Due to the increase
in the number of Cerner associates working at client sites and
the resulting decrease in utilization and cost effectiveness of
its regional branch offices, Cerner decided to close or reduce
the size of many of its facilities in the United States. Cerner
closed its offices in Atlanta, Georgia; Boston, Massachusetts;
Irvine, California; and Washington, D.C. in the second quarter of
2000. The expenses for such closings were charged to the fourth
quarter of 1999. Additional leased office space was acquired
during 2000 as a result of acquisition of businesses in
Chesapeake, Virginia; Dallas, Texas; St. Louis, Missouri; and
Houston, Texas, and new office space was opened in Washington,
D.C. Cerner's offices in Detroit, Michigan and Denver,
Colorado remain open.
Backlog
- - - - -------
At December 30, 2000, Cerner had a contract backlog of
approximately $439,943,000. Such backlog represents system sales
from signed contracts, which had not yet been recognized as
revenue. The Company recognizes revenue on a percent of
completion basis, based on certain milestone conditions, for its
software products. At December 30, 2000, the Company had
approximately $91,090,000 of contracts receivable, which
represents revenues recognized under the percent of completion
method but not yet billable under the terms of the contract. At
December 30, 2000, Cerner had a software support and maintenance
backlog of approximately $184,360,000. Such backlog represents
contracted software support and hardware maintenance services for
a period of twelve months. The Company estimates that
approximately 55% of the aggregate backlog of $624,303,000 will
be recognized as revenue during 2001.
Number of Employees ("Associates")
- - - - ----------------------------------
As of March 1, 2001, the Company employed 3,104 associates.
Other Factors Affecting the Company's Business
- - - - ----------------------------------------------
Information under the caption "Factors That May Affect Future
Results of Operations, Financial Condition of Business"
included in "Management's Discussion and Analysis of
Financial Condition and Results of
<PAGE> 11
Operations" in Item 7 is incorporated herein by
reference. Such information includes a discussion of various
factors that could, among other things, affect the Company's
business in the future, including (a) variations in the Company's
quarterly operating results; (b) volatility of the Company's
stock price; (c) market risk of investments; (d) changes in the
healthcare industry; (e) significant competition; (f) the
Company's proprietary technology may be subjected to infringement
claims or may be infringed upon; (g) possible regulation of the
Company's software by the U.S. Food and Drug Administration or
other government regulation; (h) the possibility of product-
related liabilities; (i) possible failures or defects in the
performance of the Company's software; (j) the possibility that
the Company's anti-takeover defenses could delay or prevent an
acquisition of the Company; and (k) risks and uncertainties
related to the Year 2000 transition.
Item 2. Properties
The Company's offices are located in a Company-owned office park
in North Kansas City, Missouri, containing approximately 500,000
square feet of useable space. As of December 30, 2000, the
Company was using approximately 455,000 square feet and
substantially all of the remainder was leased to tenants. The
Company also leases office space for its branch offices in
Detroit, Michigan; Denver, Colorado; St. Louis, Missouri; Dallas,
Texas; Washington, D.C.; Chesapeake, Virginia; Houston, Texas;
Sydney, Australia; and Brussels, Belgium.
Item 3. Legal Proceedings
The Company has no material pending litigation.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the stockholders of the
Company during the fourth quarter of the fiscal year ended
December 30, 2000.
Item 4A. Executive Officers of the Company
The following table sets forth the names, ages, positions and
certain other information regarding the Company's executive
officers as of March 27, 2001. Officers are elected annually and
serve at the discretion of the board of directors.
<TABLE>
Name Age Positions
- - - - ---- --- ---------
<S> <C> <C>
Neal L. Patterson 51 Chairman of the Board of Directors and
Chief Executive Officer
Clifford W. Illig 50 Vice Chairman of the Board of Directors
Earl H. Devanny, III 49 President
Glenn P. Tobin, Ph.D. 39 Executive Vice President and Chief Operating
Officer
Paul M. Black 42 Executive Vice President and Chief Sales
Officer
Jack A. Newman, Jr. 53 Executive Vice President
Douglas M. Krebs 43 Senior Vice President and President of
Cerner International
Stephen M. Goodrich 49 Senior Vice President and Chief Quality
Officer
Richard J. Flanigan, Jr. 41 Senior Vice President and General Manager
<PAGE> 12
Stephen D. Garver 40 Senior Vice President and Managing Partner
Marc G. Naughton 46 Vice President and Chief Financial Officer
Stanley M. Sword 39 Vice President and Chief People Officer
Jeffrey A. Townsend 37 Vice President and Chief Engineering
Officer
Randy D. Sims 40 Vice President, Chief Legal Officer and
Secretary
</TABLE>
Neal L. Patterson has been Chairman of the Board of Directors and
Chief Executive Officer of the Company for more than five years.
Mr. Patterson also served as President of the Company from March
of 1999 until August of 1999.
Clifford W. Illig has been a Director of the Company for more
than five years. He also served as Chief Operating Officer of
the Company for more than five years until October 1998 and as
President of the Company for more than five years until March of
1999. Mr. Illig was appointed Vice Chairman of the Board of
Directors in March of 1999.
Earl H. Devanny, III joined the Company in August of 1999 as
President. Prior to joining the Company, Mr. Devanny served as
president of the ADAC Healthcare Information Systems, Inc. Prior
to joining ADAC, Mr. Devanny served as a Vice President of the
Company from 1994 to 1997. Prior to that he spent seventeen
years with IBM Corporation.
Glenn P. Tobin, Ph.D. joined the Company in April of 1998 as
General Manager and Senior Vice President. On October 29, 1998,
Dr. Tobin was appointed Executive Vice President and Chief
Operating Officer. Prior to joining the Company, Dr. Tobin
served as a senior consultant with McKinsey and Co., Inc. for
more than five years.
Paul M. Black joined the Company in March of 1994 as a Regional
Vice President. He was promoted in June 1998 to Senior Vice
President and Chief Sales Officer and to Executive Vice President
in September of 2000. Prior to joining Cerner, he spent twelve
years with IBM Corporation.
Jack A. Newman, Jr. joined the Company in January of 1996 as
Executive Vice President. Prior to joining the Company, he was
with KPMG LLP for twenty-two years. Immediately prior to joining
Cerner he was National Partner-in-Charge of KPMG's Healthcare
Strategy Practice.
Douglas M. Krebs joined the Company in June 1994 as a Regional
Vice President. He was promoted to Senior Vice President and
Area Manager in April 1999. On February 1, 2000, Mr. Krebs was
appointed as President of Cerner International, Inc, a wholly
owned subsidiary of the Company. Prior to joining Cerner, he
spent fifteen years with IBM Corporation.
Stephen M. Goodrich joined the Company in October 1987 as a
project leader in the product organization. In 1992 he was
promoted to Vice President and was promoted to Senior Vice
President in April 1999. He was named Chief Quality Officer in
January of 2000.
Richard J. Flanigan Jr. joined the Company in November 1994 as a
Regional Vice President. In 1997, his responsibilities were
extended and he was named as General Manager. He was promoted to
Senior Vice President in April 2000. Prior to joining Cerner,
Mr. Flanigan spent more than thirteen years in sales and
management positions at IBM Corporation.
Stephen D. Garver joined the Company in March 1992 as part of
Cerner Consulting. In March of 1999 he was named Vice President
and Managing Partner and was promoted to Senior Vice President in
April
<PAGE> 13
2000. Prior to joining the Company, Mr. Garver spent ten
years with Andersen Consulting in a variety of roles within the
systems integration practice.
Marc G. Naughton joined the Company in November 1992 as Manager
of Taxes. In November 1995 he was named Chief Financial Officer
and in February 1996 he was promoted to Vice President.
Stanley M. Sword joined the Company in August 1998 in his current
role. Prior to joining Cerner, he served as a client partner in
the outsourcing practice of AT&T Solutions and as the Vice
President of Organization Development for NCR Corporation. Prior
to joining AT&T, Mr. Sword spent ten years with Anderson
Consulting in a variety of roles within the systems integration
practice.
Jeffrey A. Townsend joined the Company in June 1985. Since that
time he has held several positions in the product organization
and was promoted to Vice President in February 1997. He was
appointed Chief Engineering Officer in March 1998.
Randy D. Sims joined the Company in March 1997 as Vice President
and Chief Legal Officer. Prior to joining the Company, Mr. Sims
worked at Farmland Industries, Inc. for three years where he
served most recently as Associate General Counsel. Prior to
Farmland, Mr. Sims was in-house legal counsel at The Marley
Company (now a division of United Dominion Industries) for seven
years, holding the position of Assistant General Counsel when he
left to join Farmland.
<PAGE> 14
PART II
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters
The Company's common stock trades on The NASDAQ Stock Market
(Service Mark) under the symbol CERN. The following table sets
forth the high, low and last sales prices for the fiscal quarters
of 2000 and 1999 as reported by The NASDAQ National Market
System. These quotations represent prices between dealers and do
not include retail mark-up, mark-down or commissions, and do not
necessarily represent actual transactions.
<TABLE>
2000 1999
--------------------------------- --------------------------------
High Low Last High Low Last
---- --- ---- ---- --- ----
<S> <C> <C> <C> <C> <C> <C>
First quarter 40 7/8 17 7/8 27 27 1/4 12 7/8 15 5/8
Second quarter 32 9/64 19 3/4 27 1/4 23 1/2 12 1/2 19 33/64
Third quarter 48 26 5/16 46 7/16 19 15/16 14 1/4 14 31/32
Fourth quarter 64 7/8 40 1/2 46 1/4 20 3/4 12 15/16 19 11/16
</TABLE>
At January 31, 2001, there were approximately 1,200 owners of
record. To date, the Company has paid no dividends and it does
not intend to pay dividends in the foreseeable future.
Management believes it is in the stockholders' best interest to
reinvest funds in the operation of the business.
Item 6. Selected Financial Data
<TABLE>
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(1)(2)(3)(4)(5) (6)(7) (8)
(In thousands, except per
share data)
<S> <C> <C> <C> <C> <C>
Statements of Earnings Data:
Revenues $ 404,504 340,197 330,902 245,057 189,107
Operating earnings 25,602 3,698 33,530 22,170 10,601
Earnings before income taxes
and extraordinary item 172,123 302 33,268 24,484 12,902
Extraordinary item - early
extinguishment of debt - (1,395) - - -
Net earnings (loss) 105,265 (1,211) 20,589 15,148 8,251
Earnings per share before
extraordinary item:
Basic 3.08 .01 .63 .46 .25
Diluted 2.96 .01 .61 .45 .25
Earnings (loss) per share:
Basic 3.08 (.04) .63 .46 .25
Diluted 2.96 (.04) .61 .45 .25
Weighted average shares
outstanding:
Basic 34,123 33,623 32,825 32,881 32,729
Diluted 35,603 33,916 33,667 33,668 33,620
Balance Sheet Data:
Working capital $ 186,181 170,053 118,681 156,808 171,204
Total assets 616,411 660,891 436,485 331,781 314,753
Long-term debt, net 102,299 100,000 25,000 30,026 30,000
Stockholders' equity 343,717 378,937 271,143 233,747 230,735
</TABLE>
(1) Includes a non-recurring investment gain of $120.4 million,
net of $68.3 million tax expense, related to the conversion
of shares of CareInsite common stock to shares of WebMD
common stock. The impact of this non-recurring investment
gain on diluted earnings per share was $3.38 for 2000.
(2) Includes a non-recurring investment loss of $24.5 million,
net of $13.9 million tax benefit, related to the sale of
shares of WebMD common stock. The impact of this
non-recurring investment loss on diluted earnings per share
was ($.69) for 2000.
<PAGE> 15
(3) Includes a non-recurring charge of $6.7 million related to
the write-down of intangible assets associated with the
acquisition of Health Network Ventures, Inc. The impact
of this non-recurring charge on diluted earnings per share
was ($.19) for 2000.
(4) Includes a non-recurring charge of $3.2 million related to
the acquisition of CITATION Computer Systems, Inc. The
impact of this non-recurring charge on diluted earnings
per share was ($.09) for 2000.
(5) Includes a non-recurring charge of $1.0 million, net of
$.7 million tax benefit, related to the acquisition of
ADAC Healthcare Information Systems, Inc. The impact of
this non-recurring charge on diluted earnings per share
was ($.03) for 2000.
(6) Includes a non-recurring charge of $5.8 million, net of
$3.6 million tax benefit, related to the cost in excess of
revenues of completing fixed fee implementation contracts.
The impact of this non-recurring charge on diluted
earnings per share was ($.17) for 1999.
(7) Includes a non-recurring charge of $.9 million, net of $.5
million tax benefit, related to the accrual of branch
restructuring costs. The impact of this non-recurring
charge on diluted earnings per share was ($.03) for 1999.
(8) Includes a non-recurring charge of $3.1 million, net of
$1.9 million tax benefit, related to the acquisition of
Multum Information Services, Inc. The impact of this
non-recurring charge on diluted earnings per share was
($.09) for 1998.
Summary Pro-Forma Financial Data
(Statements of Earnings Data Excluding Non-Recurring Gains,
Losses and Charges)
<TABLE>
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(1)(2)(3)(4)(5) (6)(7) (8)
(In thousands, except per
share data)
<S> <C> <C> <C> <C> <C>
Statements of Earnings Data,
Before Non-recurring Gains,
Losses and Charges:
Revenues $ 404,504 340,197 330,902 245,057 189,107
Operating earnings 37,189 14,505 38,568 22,170 10,601
Earnings before income taxes
and extraordinary item 33,518 11,109 38,306 24,484 12,902
Extraordinary item - early
extinguishment of debt - (1,395) - - -
Net earnings 20,366 5,462 23,687 15,148 8,251
Earnings per share before
extraordinary item:
Basic .60 .20 .72 .46 .25
Diluted .57 .20 .70 .45 .25
Earnings per share:
Basic .60 .16 .72 .46 .25
Diluted .57 .16 .70 .45 .25
Weighted average shares
outstanding:
Basic 34,123 33,623 32,825 32,881 32,729
Diluted 35,603 33,916 33,667 33,668 33,620
Balance Sheet Data:
Working capital $ 186,181 170,053 118,681 156,808 171,204
Total assets 616,411 660,891 436,485 331,781 314,753
Long-term debt, net 102,299 100,000 25,000 30,026 30,000
Stockholders' equity 343,717 378,937 271,143 233,747 230,735
</TABLE>
(1) Statement of Earnings Data excludes a non-recurring
investment gain of $120.4 million, net of $68.3 million
tax expense, related to the conversion of shares of
CareInsite common stock to shares of WebMD common stock.
The impact of this non-recurring investment gain on diluted
earnings per share was $3.38 for 2000.
(2) Statement of Earnings Data excludes a non-recurring
investment loss of $24.5 million, net of $13.9 million tax
benefit, related to the sale of shares of WebMD common
stock. The impact of this non-recurring investment loss
on diluted earnings per share was ($.69) for 2000.
<PAGE> 16
(3) Statement of Earnings Data excludes a non-recurring charge
of $6.7 million related to the write-down of intangible
assets associated with the acquisition of Health Network
Ventures, Inc. The impact of this non-recurring charge on
diluted earnings per share was ($.19) for 2000.
(4) Statement of Earnings Data excludes a non-recurring charge
of $3.2 million related to the acquisition of CITATION
Computer Systems, Inc. The impact of this non-recurring
charge on diluted earnings per share was ($.09) for 2000.
(5) Statement of Earnings Data excludes a non-recurring charge
of $1.0 million, net of $.7 million tax benefit, related to
the acquisition of ADAC Healthcare Information Systems,
Inc. The impact of this non-recurring charge on diluted
earnings per share was ($.03) for 2000.
(6) Statement of Earnings Data excludes a non-recurring charge
of $5.8 million, net of $3.6 million tax benefit, related
to the cost in excess of revenues of completing fixed fee
implementation contracts. The impact of this non-recurring
charge on diluted earnings per share was ($.17) for 1999.
(7) Statement of Earnings Data excludes a non-recurring charge
of $.9 million, net of $.5 million tax benefit, related to
the accrual of branch restructuring costs. The impact of
this non-recurring charge on diluted earnings per share was
($.03) for 1999.
(8) Statement of Earnings Data excludes a non-recurring charge
of $3.1 million, net of $1.9 million tax benefit, related
to the acquisition of Multum Information Services, Inc.
The impact of this non-recurring charge on diluted earnings
per share was ($.09) for 1998.
<PAGE> 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Introduction
- - - - ------------
Last year, the Company indicated that 2000 would be a more
stable, predictable and successful year than 1999. In 2000, the
Company set record levels of bookings, revenues and cash flow.
The Company continued to expand its product line to more than 37
products at the end of 2000. Over the last 18 months, the
Company more than doubled its direct sales force. The Company
also created a strategic presence in Europe. Between the new
client relationships created through the Company's direct sales
efforts and the acquisitions the Company completed in 2000, the
Company grew its install base of client relationships by 40%,
adding 430 new client relationships, and created 330 HNA
Millennium footprints during the year. The Company also signed
licensing agreements with over 80 other healthcare information
technology companies to use HNA components as key elements of
their architecture.
The Company's success reached into new market opportunities, as
well. The Company's hosting services became the delivery
platform of choice for over $50 million of new bookings in its
first year. Many of these clients are community hospitals and
represent an expanded market for the Company's products.
PowerChart Office, the Company's physician clinical practice
solution, is having a significant impact on the way many of the
Company's clients practice medicine. ProFit, the Company's new
patient accounting solution, completed alpha testing, opening up
a market estimated at $3 billion.
The promulgation of new HIPAA (Health Insurance Portability and
Accountability Act) regulations and the recent release of the
Institute of Medicine's second report on patient safety could
combine to create significant pressures to expand the use of
information technology in healthcare organizations. While the
budgetary pressures created by the Balanced Budget Act of 1997
have subsided, they should continue to stimulate interest in the
use of healthcare information technology to improve operational
performance. The Company believes that its investment in the HNA
Millennium architecture affords a significant competitive
advantage. HNA Millennium is the only fully integrated, large
scale, enterprise-wide architecture in the industry. It is this
integration that the Company expects will be a significant factor
in meeting the challenges posed by forces such as HIPAA, patient
safety and operational performance.
Results of Operations
- - - - ---------------------
Year Ended December 30, 2000, Compared to Year Ended January 1,
2000
The Company's revenues increased 19% to $404,504,000 in 2000 from
$340,197,000 in 1999. Net earnings, before extraordinary item
and non-recurring charges and credits was $20,366,000 in 2000
compared to $6,857,000 in 1999. Non-recurring charges and
credits in 2000, as described below, included a realized
investment gain and loss, write-off of acquired in-process
research and development and a write-down of intangible assets.
Non-recurring charges in 1999, as described below, include
contract reserves and branch restructuring charges. Including
the extraordinary item and non-recurring charges, the Company had
earnings of $105,265,000 in 2000 compared to a loss of $1,211,000
in 1999.
Revenues - In 2000, revenues increased due to an increase in
system sales and support of installed systems. System sales
increased 17% to $263,109,000 in 2000 from $224,510,000 in 1999.
The increase in system sales is due to an increase in new
contract bookings in 2000 compared to 1999.
Total sales to the installed base in 2000, including new systems,
incremental hardware and software, support and maintenance
services and discrete services, were 77% of total revenues in
2000 compared to 75% in 1999.
At December 30, 2000, the Company had $439,943,000 in contract
backlog and $184,360,000 in support and maintenance backlog,
compared to $338,614,000 in contract backlog and $162,798,000 in
support and maintenance backlog at the end of 1999.
<PAGE> 18
Support and maintenance revenues increased 22% in 2000 as
compared to 1999. These revenues represented 28% of 2000 and
1999 total revenues.
Other revenues increased 23% to $26,497,000 in 2000 from
$21,489,000 in 1999. This increase was due primarily to
additional revenues derived from subscriptions and services to
clients; these increases were $1,765,000 and $2,324,000,
respectively. The Company anticipates that other revenues will
continue to increase in 2001.
Cost of Revenues - The cost of revenues includes the cost of
third party consulting services, computer hardware and
sublicensed software purchased from computer and software
manufacturers for delivery to clients. It also includes the cost
of hardware maintenance and sublicensed software support
subcontracted to the manufacturers. The cost of revenues was 22%
of total revenues in 2000, and 25% of total revenues in 1999,
excluding a non-recurring charge relating to fixed fee
implementation contracts, as described below. Such costs, as a
percent of revenues, typically have varied as the mix of revenue
(software, hardware, services and support) components carrying
different margin rates changes from period to period. The
decrease in the cost of revenue as a percent of total revenues
resulted principally from a decrease in the percent of revenue
from computer hardware and sublicensed software, which carry a
higher cost of revenue percentage.
Included in the 1999 cost of revenues is a charge of $9,449,000,
which represents the remaining additional costs in excess of
revenues required to complete certain remaining HNA Millennium
fixed fee implementation contracts. The Company switched to an
hourly fee-for-service implementation model in 1997. Delays in
some of the older projects, primarily caused by delays in
development of the Company's HNA Millennium products, increased
the time required to complete these installations. While the
Company originally anticipated these fixed fee implementations
would be completed in 1999, in some instances the focus by
clients on their internal Y2K projects created a further delay.
As a result of the significant implementation work completed in
the last half of 1999 and the agreement between the Company and
these clients in the fourth quarter as to the scope of work
remaining, the Company estimated that the costs to complete
certain fixed fee implementation contracts would exceed the
remaining revenue by $9,449,000. The Company recognized the
impact of these excess costs in the fourth quarter income
statement as a non-recurring cost of revenues. $7,148,000 of
these additional costs were incurred in 2000, with the remaining
costs to be completed in 2001. There were no significant changes
in the estimates of the costs to complete in 2000.
Sales and Client Service - Sales and client service expenses
include salaries of client service personnel, communications
expenses and unreimbursed travel expenses. Also included are
sales and marketing salaries, travel expenses, tradeshow costs
and advertising costs. These expenses as a percent of total
revenues were 42% in 2000 and 41% in 1999, excluding a non-
recurring charge related to the closing of five branch offices,
as described below. The increase in total sales and client
service expenses is attributable to the cost of a larger field
sales and services organization and marketing of new products.
Included in 1999 sales and client service expenses is a non-
recurring charge related to the closing of five branch offices.
In December, 1999, the Company made a decision to close five of
its branch offices. The Company created a regional branch
structure in 1994 in order to bring associates closer to its
clients. The natural evolution of that strategy and the ability
to leverage internal information technology infrastructure to
create a more virtual workplace has resulted in a significant
decrease in utilization of certain regional offices. This led to
the decision to close these physical locations. The Company
recorded a charge of $1.4 million in the 1999 fourth quarter to
provide for the costs of closing these locations, primarily based
on estimated lease cancellation fees. All of these costs were
paid in 2000. The Company will continue to maintain offices in
Denver, Colorado; Detroit, Michigan; St. Louis, Missouri; Dallas,
Texas; Washington, D.C.; Chesapeake, Virginia; Houston, Texas;
Brussels, Belgium and Sydney, Australia, in addition to the world
headquarters in North Kansas City, Missouri.
Software Development - Software development expenses include
salaries, documentation and other direct expenses incurred in
product development and amortization of software development
costs. Total
<PAGE> 19
expenditures for software development, including both capitalized
and noncapitalized portions, for 2000 and 1999 were $90,694,000
and $88,699,000, respectively. These amounts exclude
amortization. Capitalized software costs were $30,982,000
and $30,192,000 for 2000 and 1999, respectively.
General and Administrative - General and administrative expenses
include salaries for corporate, financial, and administrative
staffs, utilities, communications expenses and professional fees.
These expenses as a percent of total revenues were 7% in 2000 and
8% in 1999.
Write-off of In-Process Research and Development - Write-off of
in-process research and development includes one-time expenses
resulting from the acquisitions of CITATION Computer Systems,
Inc. and ADAC Healthcare Information Systems, Inc., in 2000.
Write-down of Intangible Assets - Write-down of intangible assets
is a one-time expense resulting from the decision to discontinue
a portion of the Health Network Ventures, Inc. business as more
fully described in Note 2 to the Consolidated Financial
Statements.
Interest Expense, Net - Net interest expense was $3,671,000 in
2000 compared to $3,396,000 in 1999. The increase is due to an
increase in borrowings. On April 15, 1999, the Company completed
a $100,000,000 private placement of debt pursuant to a Note
Agreement dated April 1, 1999. The Series A Senior Notes, with a
$60,000,000 principal amount at 7.14% are payable in five equal
annual installments beginning in April 2002. The Series B Senior
Notes, with a $40,000,000 principal amount at 7.66% are payable
in six equal annual installments beginning April 2004. The
proceeds were used to retire the Company's existing $30,000,000
of debt, and the remaining funds are being used for capital
improvements and to strengthen the Company's cash position. In
connection with the early extinguishment of debt, the Company
incurred a $1,395,000, net of taxes, extraordinary loss for a
prepayment penalty and write-off of deferred loan costs. The Note
Agreement contains certain net worth, current ratio, and fixed
charge coverage covenants and provides certain restrictions on
the Company's ability to borrow, incur liens, sell assets and pay
dividends. The Company was in compliance with all covenants at
December 30, 2000.
Realized Gain on Exchange of Stock - The Realized gain on
exchange of stock is a non-recurring investment gain related to
the exchange of CareInsite shares for WebMD shares in 2000.
Realized Loss on Sale of Stock - The realized loss on sale of
stock is a non-recurring investment loss related to the sale of a
portion of the WebMD shares in 2000.
Income Taxes - The Company's effective tax rate was 39% in 2000
and 1999.
Year Ended January 1, 2000, Compared to Year Ended January 2,
1999
The Company's revenues increased 3% to $340,197,000 in 1999 from
$330,902,000 in 1998. Net earnings, before extraordinary item and
non-recurring charges were $6,857,000 in 1999 compared to
$23,687,000 in 1998. Non-recurring charges in 1999, as described
below, included contract reserves and branch restructuring
charges. Non-recurring charges in 1998 include acquisition
related charges. Including the extraordinary item and non-
recurring charges, the Company incurred a loss of $1,211,000 in
1999 compared to earnings of $20,589,000 in 1998.
Revenues - In 1999, revenues increased due to an increase in
support of installed systems and other revenues. System sales
decreased 9% to $224,510,000 in 1999 from $245,490,000 in 1998.
The decrease in system sales was due to a decrease in new
contract bookings in 1999 compared to 1998. The Company believes
that this decrease was due primarily to delays in purchasing
decisions related to Y2K and the Balanced Budget Act of
1997. The sale of additional hardware and software products to
the installed client base increased 27% in 1999 as compared to
1998.
<PAGE> 20
Total sales to the installed base in 1999, including new systems,
incremental hardware and software, support and maintenance
services, and discrete services, were 75% of total revenues in
1999 compared to 69% in 1998. The higher percentage was
primarily due to the decrease in system sales to new clients.
At January 1, 2000, the Company had $338,614,000 in contract
backlog and $162,798,000 in support and maintenance backlog,
compared to $314,965,000 in contract backlog and $153,453,000 in
support and maintenance backlog at the end of 1998.
Support and maintenance revenues increased 23% in 1999 as
compared to 1998. These revenues represented 28% of 1999 total
revenues and 23% of 1998 total revenues. The higher percentage
was primarily attributable to the decrease in system sales and an
increase in installed systems.
Other revenues increased 148% to $21,489,000 in 1999 from
$8,657,000 in 1998. This increase was due primarily to services
performed beyond contracted requirements for existing clients.
Cost of Revenues - The cost of revenues includes the cost of
third party consulting services, computer hardware and
sublicensed software purchased from computer and software
manufacturers for delivery to clients. It also includes the cost
of hardware maintenance and sublicensed software support
subcontracted to the manufacturers. The cost of revenues was 25%
of total revenues in 1999, excluding a non-recurring charge
related to fixed fee implementation contracts, as described
below, and 27% of total revenues in 1998. Such costs, as a
percent of revenues, typically have varied as the mix of revenue
(software, hardware, services and support) components carrying
different margin rates changes from period to period. The
decrease in the cost of revenue as a percent of total revenues
resulted principally from a decrease in the percent of revenue
from computer hardware and sublicensed software, which carry a
higher cost of revenue percentage.
Included in the 1999 cost of revenues is a charge of $9,449,000,
which represents the remaining additional costs in excess of
revenues required to complete certain remaining HNA Millennium
fixed fee implementation contracts, as further described above.
Sales and Client Service - Sales and client service expenses
include salaries of client service personnel, communications
expenses, and unreimbursed travel expenses. Also included are
sales and marketing salaries, travel expenses, tradeshow costs
and advertising costs. These expenses as a percent of total
revenues were 41% in 1999, excluding a non-recurring charge
related to the closing of five branch offices, as described
below, and 35% in 1998. The increase in total sales and client
service expenses is attributable to the cost of a larger field
sales and services organization and marketing of new products.
Included in 1999 sales and client service expenses is a non-
recurring charge related to the closing of five branch offices.
In December, 1999, the Company made a decision to close five of
its branch offices. The Company created a regional branch
structure in 1994 in order to bring associates closer to its
clients. The natural evolution of that strategy and the ability
to leverage internal information technology infrastructure to
create a more virtual workplace has resulted in a significant
decrease in utilization of certain regional offices. This led to
the decision to close these physical locations. The Company
recorded a charge of $1.4 million in the 1999 fourth quarter to
provide for the costs of closing these locations, primarily based
on estimated lease cancellation fees.
Software Development - Software development expenses include
salaries, documentation, and other direct expenses incurred in
product development and amortization of software development
costs. Total expenditures for software development, including
both capitalized and noncapitalized portions, for 1999 and 1998
were $88,699,000 and $74,159,000, respectively. These amounts
exclude amortization. Capitalized software costs were
$30,192,000 and $25,052,000 for 1999 and 1998, respectively. The
increase in aggregate expenditures for software development in
1999 is due to development of HNA Millennium products and
development of community care products.
<PAGE> 21
General and Administrative - General and administrative expenses
include salaries for corporate, financial, and administrative
staffs, utilities, communications expenses and professional fees.
These expenses as a percent of total revenues were 8% in 1999 and
1998.
Interest Expense, Net - Net interest expense was $3,396,000 in
1999 compared to $262,000 in 1998. The increase is due to an
increase in borrowings. On April 15, 1999, the Company completed
a $100,000,000 private placement of debt pursuant to a Note
Agreement date April 1, 1999. The Series A Senior Notes, with a
$60,000,000 principal amount at 7.14% are payable in five equal
annual installments beginning in April 2002. The Series B Senior
Notes, with a $40,000,000 principal amount at 7.66% are payable
in six equal annual installments beginning April 2004. In
connection with the early extinguishment of debt, the Company
incurred a $1,395,000 net of taxes, extraordinary loss for a
prepayment penalty and write-off of deferred loan costs.
Income Taxes - The Company's effective tax rate was 39% in 1999
and 38% in 1998.
Liquidity and Capital Resources
- - - - -------------------------------
The Company had total cash and cash equivalents of $90,893,000 at
the end of 2000 and working capital of $186,181,000, compared to
cash and cash equivalents of $75,677,000 at the end of 1999, and
working capital of $170,053,000.
The Company generated cash of $53,313,000, $27,389,000 and
$5,893,000 from operations in 2000, 1999 and 1998, respectively.
Cash flow from operations increased in 2000, due primarily to the
increase in net earnings, increased collection of receivables,
improved payment terms and record level of conversions. Cash
flow from operations increased in 1999, due primarily to
increased collection of receivables, improved payment terms and
record level of conversions.
Cash used in investing activities consisted primarily of
capitalized software development costs of $30,982,000 and
$30,192,000 and purchases of capital equipment of $16,154,000 and
$14,345,000 in 2000 and 1999, respectively. The Company also
made additional investments in affiliates in 2000 of $7,370,000
and completed acquisitions of businesses for $16,829,000. Cash
provided from investing activities came primarily from the
proceeds of $26,152,000 from the sale of WebMD shares. The major
source of cash from financing activities in 2000 was provided by
the exercise of common stock options. The major source of cash
from financing activities in 1999 was provided by the Company's
refinancing of its long-term debt, more fully described in Note 6
to the Consolidated Financial Statements.
Revenues provided under support and maintenance agreements
represent recurring cash flows. Support and maintenance revenues
increased 22%, 23% and 12%, in 2000, 1999 and 1998, respectively,
and the Company expects these revenues to continue to grow as the
base of installed systems grows.
The Company's liquidity is influenced by many factors, including
the amount and timing of the Company's revenues, its cash
collections from its clients as implementation of its products
proceed and the amounts the Company invests in software
development and capital expenditures. The Company expects to
have an increase in its cash position for 2001. The Company
believes that its present cash position, together with cash
generated from operations, will be sufficient to meet anticipated
cash requirements during 2001. The Company has an $18,000,000
line of credit available.
The effects of inflation on the Company's business during 1999
and 2000 were not significant.
Recent Accounting Pronouncements
- - - - --------------------------------
During the second quarter of 1998, the Financial Accounting
Standards Board issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (Statement 133).
Statement 133 will be adopted by the Company in the first quarter
of 2001. The Company does not anticipate Statement 133 will
have a significant impact on its reported earnings per share.
<PAGE> 22
In December of 1999, the Securities and Exchange Commission staff
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" (SAB 101). SAB 101 had no impact on the
Company's reported earnings per share.
Factors That May Affect Future Results of Operations, Financial
- - - - -----------------------------------------------------------------
Condition or Business
- - - - ---------------------
Statements made in this report, the Annual Report to Shareholders
in which this report is made a part, other reports and proxy
statements filed with the Securities and Exchange Commission,
communications to stockholders, press releases and oral
statements made by representatives of the Company that are not
historical in nature, or that state the Company's or management's
intentions, hopes, beliefs, expectations or predictions of the
future, are "forward-looking statements" within the meaning of
Section 21E of the Securities and Exchange Act of 1934, as
amended, and involve risks and uncertainties. The words "could,"
"should," "will be," "will lead," "will assist," "intended,"
"continue," "believe," "may," "expect," "hope," "anticipate,"
"goal," "forecast" and similar expressions are intended to
identify such forward-looking statements. It is important to
note that any such performance, and actual results, financial
condition or business could differ materially from those
expressed in such forward-looking statements. Factors that could
cause or contribute to such differences include, but are not
limited to, those discussed below as well as those discussed
elsewhere in reports filed with the Securities and Exchange
Commission. The Company undertakes no obligation to update or
revise forward-looking statements to reflect changed assumptions,
the occurrence of unanticipated events or changes in future
operating results, financial condition or business over time.
Quarterly Operating Results May Vary
- - - - ------------------------------------- - The Company's quarterly
operating results have varied in the past and may continue to
vary in future periods. Quarterly operating results may vary for
a number of reasons including demand for the Company's products
and services, the Company's long sales cycle, the long
installation and implementation cycle for these larger, more
complex and costlier systems and other factors described in this
section and elsewhere in this report. As a result of healthcare
industry trends and the market for the Company's HNA Millennium
products, a large percentage of the Company's revenues are
generated by the sale and installation of larger, more complex
and costlier systems. The sales process for these systems is
lengthy and involves a significant technical evaluation and
commitment of capital and other resources by the client. The
sale may be subject to delays due to clients' internal budgets
and procedures for approving large capital expenditures and by
competing needs for other capital expenditures and deploying new
technologies or personnel resources. Delays in the expected sale
or installation of these large contracts may have a significant
impact on the Company's anticipated quarterly revenues and
consequently its earnings, since a significant percentage of the
Company's expenses are relatively fixed.
These larger, more complex and costlier systems are installed and
implemented over time periods ranging from approximately six
months to three years and involve significant efforts both by the
Company and the client. In addition, implementation of the
Company's HNA Millennium products is a new and evolving process.
The Company recognizes revenue upon the completion of standard
milestone conditions and the amount of revenue recognized in any
quarter depends upon the Company's and the client's ability to
meet these project milestones. Delays in meeting these milestone
conditions or modification of the contract relating to one or
more of these systems could result in a shift of revenue
recognition from one quarter to another and could have a material
adverse effect on results of operations for a particular quarter.
In addition, support payments by clients for the Company's
products generally do not commence until the product is in use.
The Company's revenues from system sales historically have been
lower in the first quarter of the year and greater in the fourth
quarter of the year.
Stock Price May Be Volatile -
- - - - ------------------------------- The trading price of the
Company's common stock may be volatile. The market for the
Company's common stock may experience significant price and
volume fluctuations in response to a number of factors including
actual or anticipated quarterly variations in operating results,
changes in expectations of future financial performance or
changes in estimates of securities analysts,
<PAGE> 23
governmental regulatory action, healthcare reform measures,
client relationship developments and other factors, many of
which are beyond the Company's control.
Furthermore, the stock market in general, and the market for
software, healthcare and high technology companies in particular,
has experienced extreme volatility that often has been unrelated
to the operating performance of particular companies. These
broad market and industry fluctuations may adversely affect the
trading price of the Company's common stock, regardless of actual
operating performance.
Market Risk of Investments
- - - - ----------------------------- - The Company accounts for its
investments in equity securities which have readily determinable
fair values as available-for-sale. Available-for-sale securities
are reported at fair value with unrealized gains and losses
reported, net of tax, as a separate component of accumulated
other comprehensive income. Investments in the common stock of
certain affiliates over which the Company exerts significant
influence are accounted for by the equity method. Investments in
other equity securities are reported at cost. All equity
securities are reviewed by the Company for declines in fair
value. If such declines are considered to be other than
temporary, the cost basis of the individual security is written
down to fair value as a new cost basis, and the amount of the
write-down is included in earnings.
In 1998 and 1999 the Company acquired a 17.5% interest
(13,149,259 shares of common stock) in CareInsite, Inc. with a
cost basis of $81,804,000. 12,437,500 of these shares were
received in 1998 as consideration for the sale of license
software, and an additional 711,759 shares were purchased in
1999. The value assigned to the shares acquired in 1998 was
$70,000,000 and was based on a methodology which utilized both a
comparable company and the expected underlying discounted future
cash flows. The Company was also granted, by CareInsite,
1,008,445 common stock warrants with an exercise price of $4.00
per share ("THINC Warrants"). The THINC Warrants were
exercisable only in the event that The Health Information Network
Connections, LLC ("THINC") exercised warrants granted to them by
CareInsite at $4.00 per share. THINC was allowed to exercise
their warrants 180 days after the initial public offering of
CareInsite. On January 29, 2000 CareInsite completed an
acquisition of THINC. As part of that agreement, 806,756 of the
Company's 1,008,445 THINC Warrants became immediately
exercisable, with the remaining amount forfeited.
On February 13, 2000, CareInsite entered into an agreement to
merge with Healtheon/WebMD Corporation ("Merger Agreement"). As
part of the Merger Agreement, the Company received 1.3 shares of
Healtheon/WebMD Corporation (WebMD) in exchange for each common
share of CareInsite held by the Company. The warrants were also
converted at the same exchange ratio. The merger of CareInsite
and WebMD ("Merger") closed on September 12, 2000. Accordingly,
the Company recorded a non-recurring investment gain of
$120,362,000, net of tax, as a result of the exchange.
On December 12, 2000, the Company sold 4,273,509 shares of WebMD
for $25,641,000. Accordingly, the Company recorded a non-
recurring investment loss of $24,539,000, net of tax, as a result
of the sale.
At December 30, 2000, the Company owned 12,820,527 shares of
common stock of WebMD, which have a cost basis of $192,308,000
and a carrying value of $101,795,000, as these shares are
accounted for as available-for-sale. The stock of WebMD held by
the Company is registered but is subject to certain lock-up
provisions. At December 30, 2000, the Company also holds
1,048,783 warrants of WebMD with an exercise price of $3.08 and a
cost basis and carrying value of $13,685,000. The warrants are
carried at cost, as they do not have a fair value that is
currently available on a securities exchange.
If the Company realizes certain performance metrics related to
specified levels of physician usage, WebMD will issue to the
Company 3,254,063 shares of common stock at a price of $0.01 per
share ("Performance Shares"). The Performance Shares were
adjusted at a rate of 1.3 shares of WebMD for each share of
CareInsite. The contracted measurement date was February 15,
2001. The Company and WebMD are in discussions regarding the
attainment of the Performance Shares. No amounts have been
recognized in the consolidated financial statements for the
Performance Shares pending completion of the discussions. All
physician users of systems of WebMD Corporation or its affiliates
shall be included for purposes of determining the specified
levels of physician usage.
<PAGE> 24
The Company's policy is to review declines in fair value of its
marketable equity securities for declines that may be other than
temporary. If the market price of the WebMD common shares does
not recover to near the Company's $15.00 per share carrying value
in the near term, the Company will record a write-down, through a
charge to earnings, to establish a new cost basis in the security
reflecting the then current market value.
At December 30, 2000, marketable securities (which consist of
money market and commercial paper) of the Company were recorded
at cost, which approximates fair value of approximately $91
million, with an overall average return of approximately 5% and
an overall weighted maturity of less than 90 days. The
marketable securities held by the Company are not subject to
price risk as a result of the short-term nature of the
investments.
The Company is not exposed to material future earnings or cash
flow exposures from changes in interest rates on long-term debt
since 100% of its long-term debt is at a fixed rate. To date,
the Company has not entered into any derivative financial
instruments to manage interest rate risk.
The Company conducts business in several foreign jurisdictions.
However, the business transacted is in the local functional
currency and the Company does not currently have any material
exposure to foreign currency transaction gains or losses. All
other business transactions are in U.S. dollars. To date, the
Company has not entered into any derivative financial instruments
to manage foreign currency risk.
Changes in the Healthcare Industry
- - - - ---------------------------------- - The healthcare industry is
highly regulated and is subject to changing political, economic
and regulatory influences. For example, the Balanced Budget Act
of 1997 (Public Law 105-32) contains significant changes to
Medicare and Medicaid and began to have its initial impact in
1998 due to limitations on reimbursement, resulting cost
containment initiatives, and effects on pricing and demand for
capital intensive systems. In addition, the issued and pending
rules under the Health Information Portability and Accountability
Act of 1996 (HIPAA), will have a direct impact on the
healthcare industry by requiring identifiers and standardized
transactions/code sets and necessary security and privacy
measures in order to ensure the protection of patient health
information. These factors affect the purchasing practices and
operation of healthcare organizations. Federal and state
legislatures have periodically considered programs to reform or
amend the U.S. healthcare system at both the federal and state
level and to change healthcare financing and reimbursement
systems. These programs may contain proposals to increase
governmental involvement in healthcare, lower reimbursement rates
or otherwise change the environment in which healthcare industry
participants operate. Healthcare industry participants may
respond by reducing their investments or postponing investment
decisions, including investments in the Company's products and
services.
Many healthcare providers are consolidating to create integrated
healthcare delivery systems with greater market power. These
providers may try to use their market power to negotiate price
reductions for the Company's products and services. As the
healthcare industry consolidates, the Company's client base could
be eroded, competition for clients could become more intense and
the importance of acquiring each client becomes greater.
Significant Competition
- - - - ----------------------- - The market for healthcare information
systems is intensely competitive, rapidly evolving and subject to
rapid technological change. The Company believes that the
principal competitive factors in this market include the breadth
and quality of system and product offerings, the stability of the
information systems provider, the features and capabilities of
the information systems, the ongoing support for the system and
the potential for enhancements and future compatible products.
Certain of the Company's competitors have greater financial,
technical, product development, marketing and other resources
than the Company and some of its competitors offer products that
it does not offer. The Company's principal existing competitors
include Siemens Medical Solutions Health Services Corporation,
IDX Systems Corporation, McKesson HBOC, Inc. and
Eclipsys Corporation, each of which offers a suite of products
that compete with many of the Company's products. There are
other competitors that offer a more limited number of
competing products.
<PAGE> 25
In addition, the Company expects that major software information
systems companies, large information technology consulting
service providers and system integrators, Internet-based start-up
companies and others specializing in the healthcare industry may
offer competitive products or services. The pace of change in
the healthcare information systems market is rapid and there are
frequent new product introductions, product enhancements and
evolving industry standards and requirements. As a result, the
Company's success will depend upon its ability to keep pace with
technological change and to introduce, on a timely and cost-
effective basis, new and enhanced products that satisfy changing
client requirements and achieve market acceptance.
Proprietary Technology May Be Subjected to Infringement Claims or
- - - - -----------------------------------------------------------------
May Be Infringed Upon
- - - - --------------------- - The Company relies upon a combination of
trade secret, copyright and trademark laws, license agreements,
confidentiality procedures, employee nondisclosure agreements and
technical measures to maintain the trade secrecy of its
proprietary information. The Company recently initiated a patent
program but currently has a very limited patent portfolio. As a
result, the Company may not be able to protect against
misappropriation of its intellectual property.
In addition, the Company could be subject to intellectual
property infringement claims as the number of competitors grows
and the functionality of its products overlaps with competitive
offerings. These claims, even if not meritorious, could be
expensive to defend. If the Company becomes liable to third
parties for infringing their intellectual property rights, it
could be required to pay a substantial damage award and to
develop noninfringing technology, obtain a license or cease
selling the products that contain the infringing intellectual
property.
Government Regulation
- - - - ---------------------- - The United States Food and Drug
Administration (the "FDA") has declared that software products
intended for the maintenance of data used in making decisions
regarding the suitability of blood donors and the release of
blood or blood components for transfusion are medical devices
under the Federal Food, Drug and Cosmetic Act ("Act") and
amendments to the Act. As a consequence, the Company is subject
to extensive regulation by the FDA with regard to its blood bank
software. If other of the Company's products are deemed to be
actively regulated medical devices by the FDA, the Company could
be subject to extensive requirements governing pre- and post-
marketing requirements including premarket notification clearance
prior to marketing. Complying with these FDA regulations would
be time consuming and expensive. It is possible that the FDA may
become more active in regulating computer software that is used
in healthcare.
Following an inspection by the FDA in March of 1998, the Company
received a Form FDA 483 (Notice of Inspectional Observations)
alleging non-compliance with certain aspects of FDA's Quality
System Regulation with respect to the Company's PathNet HNAC
Blood Bank Transfusion and Donor products (the "Blood Bank
Products"). The Company subsequently received a Warning Letter,
dated April 29, 1998, as a result of the same inspection. The
Company responded promptly to the FDA and undertook a number of
actions in response to the Form 483 and Warning Letter including
an audit by a third party of the Company's Blood Bank Products
and improvements to Cerner's Quality System. A copy of the third
party audit was submitted to the FDA in October of 1998 and, at
the request of the FDA, additional information and clarification
were submitted to the FDA in January of 1999.
There can be no assurance, however, that the Company's actions
taken in response to the Form 483 and Warning Letter will be
deemed adequate by the FDA or that additional actions on behalf
of the Company will not be required. In addition, the Company
remains subject to periodic FDA inspections and there can be no
assurances that the Company will not be required to undertake
additional actions to comply with the Act and any other
applicable regulatory requirements. Any failure by the Company
to comply with the Act and any other applicable regulatory
requirements could have a material adverse effect on the
Company's ability to continue to manufacture and distribute its
products. FDA has many enforcement tools including recalls,
seizures, injunctions, civil fines and/or criminal
prosecutions. Any of the foregoing could have a material adverse
effect on the Company's business, results of operations or
financial condition.
Product Related Liabilities
- - - - ----------------------------- - Many of the Company's products
provide data for use by healthcare providers in providing care to
patients. Although no such claims have been brought against the
Company
<PAGE> 26
to date regarding injuries related to the use of its
products, such claims may be made in the future. Although the
Company maintains product liability insurance coverage in an
amount that it believes is sufficient for its business, there can
be no assurance that such coverage will prove to be adequate or
that such coverage will continue to remain available on
acceptable terms, if at all. A successful claim brought against
the Company which is uninsured or under-insured could materially
harm its business, results of operations or financial condition.
System Errors and Warranties
- - - - --------------------------------- - The Company's systems,
particularly the HNA Millennium versions, are very complex. As
with complex systems offered by others, the Company's systems may
contain errors, especially when first introduced. Although the
Company conducts extensive testing, it has discovered software
errors in its products after their introduction. The Company's
systems are intended for use in collecting and displaying
clinical information used in the diagnosis and treatment of
patients. Therefore, users of the Company products have a
greater sensitivity to system errors than the market for software
products generally. The Company's agreements with its clients
typically provide warranties against material errors and other
matters. Failure of a client's system to meet these criteria
could constitute a material breach under such contracts allowing
the client to cancel the contract, or could require the Company
to incur additional expense in order to make the system meet
these criteria. The Company's contracts with its clients
generally limit the Company's liability arising from such claims
but such limits may not be enforceable in certain jurisdictions.
Anti-Takeover Defenses
- - - - ------------------------ - The Company's charter, bylaws,
shareholders' rights plan and certain provisions of Delaware law
contain certain provisions that may have the effect of delaying
or preventing an acquisition of the Company. Such provisions are
intended to encourage any person interested in acquiring the
Company to negotiate with and obtain the approval of the Board of
Directors in connection with any such transaction. These
provisions include (a) a Board of Directors that is staggered
into three classes to serve staggered three-year terms, (b) blank
check preferred stock, (c) supermajority voting provisions, (d)
inability of shareholders to act by written consent or call a
special meeting, (e) limitations on the ability of shareholders
to nominate directors or make proposals at shareholder meetings
and (f) triggering the exercisability of stock purchase rights on
a discriminatory basis, which may invoke extensive economic and
voting dilution of a potential acquirer if its beneficial
ownership of the Company's common stock exceeds a specified
threshold. Certain of these provisions may discourage a future
acquisition of the Company not approved by the Board of Directors
in which shareholders might receive a premium value for their
shares.
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk
Information contained under the caption "Factors That May Affect
Future Results of Operations, Financial Condition or Business --
Market Risk of Investments" set forth under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Financial Statements and Notes required by this Item are
submitted as a separate part of this report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
<PAGE> 27
PART III
Item 10. Directors and Executive Officers of the Registrant
The Registrant's Proxy Statement to be used in connection with
the Annual Meeting of Shareholders to be held on May 25, 2001,
contains under the caption "Election of Directors" certain
information required by Item 10 of Form 10-K and such information
is incorporated herein by this reference. The information
required by Item 10 of Form 10-K as to executive officers is set
forth in Item 4A of Part I hereof.
The Registrant's Proxy Statement to be used in connection with
the Annual Meeting of Shareholders to be held on May 25, 2001,
contains under the caption "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" certain information required by
Item 10 of Form 10-K and such information is incorporated herein
by this reference.
Item 11. Executive Compensation
The Registrant's Proxy Statement to be used in connection with
the Annual Meeting of Shareholders to be held on May 25, 2001,
contains under the caption "Executive Compensation" the
information required by Item 11 of Form 10-K and such information
is incorporated herein by this reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The Registrant's Proxy Statement to be used in connection with
the Annual Meeting of Shareholders to be held on May 25, 2001,
contains under the caption "Voting Securities and Principal
Holders Thereof" the information required by Item 12 of Form 10-K
and such information is incorporated herein by this reference.
Item 13. Certain Relationships and Related Transactions
The Registrant's Proxy Statement to be used in connection with
the Annual Meeting of Shareholders to be held on May 25, 2001,
contains under the caption "Certain Transactions" the information
required by Item 13 of Form 10-K and such information is
incorporated herein by this reference.
<PAGE> 28
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
(a) Financial Statements.
(1) Consolidated Financial Statements:
Independent Auditors' Report on Consolidated
Financial Statements
Consolidated Balance Sheets -
December 30, 2000 and January 1, 2000
Consolidated Statements of Operations -
Years Ended December 30, 2000, January 1, 2000 and
January 2, 1999
Consolidated Statements of Changes In Equity
Years Ended December 30, 2000, January 1, 2000 and
January 2, 1999
Consolidated Statements of Cash Flows
Years Ended December 30, 2000, January 1, 2000 and
January 2, 1999
Notes to Consolidated Financial Statements
(2) The following financial statement,
schedule and independent auditors' report
on financial statement schedule of the
Registrant for the three-year period ended
December 30, 2000 are included herein:
Schedule II - Valuation and Qualifying Accounts,
Independent Auditors' Report on Consolidated
Financial Statement Schedule.
All other schedules are omitted, as the required information is
inapplicable or the information is presented in the consolidated
financial statements or related notes.
(3) The exhibits required to be filed by this item are
set forth below:
<TABLE>
Number Description
- - - - ------ -----------
<S> <C>
3(a) Restated Certificate of Incorporation of the
Registrant, (filed as Exhibit 3(i) to Registrant's
Quarterly Report on Form 10-Q for the year ended June
29, 1996 and hereby incorporated by reference).
3(b) Amended and Restated Bylaws, dated March 9, 2001.
4(a) Amended and Restated Rights Agreement, dated as of
March 12, 1999, between Cerner Corporation and UMB
Bank, n.a., as Rights Agents, which includes the Form
of Certificate of Designation, Preferences and Rights
of Series A Preferred Stock of Cerner Corporation, as
Exhibit A, and the Form of Rights Certificate, as
Exhibit B (filed as an Exhibit to Registrant's current
report on Form 8-A/A dated March 31, 1999 and
incorporated herein by reference).
<PAGE> 29
4(b) Specimen stock certificate (filed as Exhibit 4(a)
to Registrant's Registration Statement on Form S-8
(File No. 33-15156) and hereby incorporated herein by
reference).
4(c) Credit Agreement between Cerner Corporation and
Mercantile Bank dated April 1, 1999 (filed as Exhibit
4(d) to Registrant's Annual Report on Form 10-K for the
year ended January 2, 1999, and hereby incorporated
herein by reference).
10(a) Incentive Stock Option Plan C of Registrant (filed
as Exhibit 10(f) to Registrant's Annual Report on Form
10-K for the year ended December 31, 1993, and hereby
incorporated herein by reference).*
10(b) Indemnification Agreements between the Registrant
and Neal L. Patterson, Clifford W. Illig, Gerald E.
Bisbee, Jr., Ph.D. and Thomas C. Tinstman, M.D., (filed
as Exhibit 10(i) to Registrant's Annual report on Form
10-K for the year ended December 31, 1992, and
incorporated herein by reference).*
10(c) Indemnification Agreement between Michael E.
Herman and Registrant (filed as Exhibit 10(i)(a) to
Registrant's Quarterly Report on Form 10-Q for the year
ended June 29, 1996 and hereby incorporated by
reference).*
10(d) Indemnification Agreement between John C.
Danforth, and Registrant (filed as Exhibit 10(i)(b) to
Registrant's Quarterly Report on Form 10-Q for the year
ended June 29, 1996 and hereby incorporated by
reference).*
10(e) Indemnification Agreement between Jeff C.
Goldsmith, Ph.D. and Registrant (filed as Exhibit 10(e)
to Registrant's Annual Report on Form 10-K for the year
ended January 1, 2000, and hereby incorporated by
reference).*
10(f) Amended Stock Option Plan D of Registrant as of
December 8, 2000.*
10(g) Amended Stock Option Plan E of Registrant as of
December 8, 2000.*
10(h) Cerner Performance Plan for 2000 (filed as Exhibit
10(i) to Registrant's Annual Report on Form 10-K for
the year ended January 1, 2000, and hereby incorporated
herein by reference).*
10(i) Long-Term Incentive Plan for 1999 (filed as
Exhibit 10(l) to Registrant's Annual Report on Form 10-
K for the year ended January 2, 1999, and hereby
incorporated herein by reference).*
10(j) Promissory Note of Jack A. Newman, Jr. (filed as
Exhibit 10(m) to Registrant's Annual Report on Form 10-
K for the year ended January 2, 1999, and hereby
incorporated herein by reference).*
10(k) Promissory Notes of Earl H. Devanny, III (filed as
Exhibit 10(l) to Registrant's Annual Report on Form 10-
K for the year ended January 1, 2000, and hereby
incorporated herein by reference).*
10(l) Promissory Note of Glenn P. Tobin, Ph.D. (filed as
Exhibit 10(o) to Registrant's Annual Report on Form 10-
K for the year ended January 2, 1999, and hereby
incorporated herein by reference).*
10(m) Cerner Corporation Executive Stock Purchase Plan
(filed as Exhibit 4(g) to Registrant's Registration
Statement on Form S-8 (File No. 333-77029) and hereby
incorporated herein by reference).*
<PAGE> 30
10(n) Form of Stock Pledge Agreement for Cerner
Corporation Executive Stock Purchase Plan (filed as
Exhibit 4(h) to Registrant's Registration Statement on
Form S-8 (File No. 333-77029) and hereby incorporated
herein by reference).*
10(o) Form of Promissory Note for Cerner Corporation
Executive Stock Purchase Plan (filed as Exhibit 4(i) to
Registrant's Registration Statement on Form S-8 (File
No. 333-77029) and hereby incorporated herein by
reference).*
10(p) Employment Agreement of Earl H. Devanny, III
(filed as Exhibit 10(q) to Registrant's Annual Report
on Form 10-K for the year ended January 1, 2000, and
hereby incorporated herein by reference).*
10(q) Employment Agreement of Glenn P. Tobin, Ph.D.
(filed as Exhibit 10(r) to Registrant's Annual Report
on Form 10-K for the year ended January 1, 2000, and
hereby incorporated herein by reference).*
10(r) Employment Agreement of Stanley M. Sword (filed as
Exhibit 10(s) to Registrant's Annual Report on Form 10-
K for the year ended January 1, 2000, and hereby
incorporated herein by reference).*
10(s) Employment Agreement of Jack A. Newman, Jr.*
10(t) Cerner Corporation 2001 Long-Term Incentive Plan F
(filed as Annex I to Registrant's 2001 Proxy Statement
and hereby incorporated by reference).*
10(u) Cerner Corporation 2001 Associate Stock Purchase
Plan (filed as Annex II to Registrant's 2001 Proxy
Statement and hereby incorporated by reference).*
10(v) Qualified Performance-Based Compensation Plan.*
11 Computation of Registrant's Earnings Per Share.
(Exhibit omitted. Information contained in notes to
consolidated financial statements.)
22 Subsidiaries of Registrant.
23 Consent of Independent Auditors.
</TABLE>
* Management contracts or compensatory plans or arrangements
required to be identified by Item 14(a)(3).
(b) Reports on Form 8-K.
Report on Form 8-K was filed on November 22, 2000.
(c) Exhibits.
The response to this portion of Item 14 is submitted as a
separate section of this report.
(d) Financial Statement Schedules.
The response to this portion of Item 14 is submitted as a
separate section of this report.
<PAGE> 31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CERNER CORPORATION
Dated: March 30, 2001 By:/s/ Neal L. Patterson
------------------------------
Neal L. Patterson
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated:
Signature and Title Date
------------------- ----
/s/Neal L. Patterson March 30, 2001
- - - - -------------------------------
Neal L. Patterson, Chairman of the Board and
Chief Executive Officer (Principal Executive
Officer)
/s/Clifford W. Illig March 30, 2001
- - - - -------------------------------
Clifford W. Illig, Vice Chairman and Director
/s/Marc G. Naughton March 30, 2001
- - - - -------------------------------
Marc G. Naughton, Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer)
/s/Michael E. Herman March 30, 2001
- - - - -------------------------------
Michael E. Herman, Director
/s/Gerald E. Bisbee March 30, 2001
- - - - -------------------------------
Gerald E. Bisbee, Jr., Ph.D., Director
/s/John C. Danforth March 30, 2001
- - - - -------------------------------
John C. Danforth, Director
/s/Jeff C. Goldsmith March 30, 2001
- - - - -------------------------------
Jeff C. Goldsmith, Ph.D., Director
/s/William B. Neaves March 30, 2001
- - - - -------------------------------
William B. Neaves, Ph.D., Director
<PAGE> 32
Independent Auditors' Report
- - - - -----------------------------------------------------------------
The Board of Directors and Stockholders
Cerner Corporation:
We have audited the accompanying consolidated balance sheets of
Cerner Corporation and subsidiaries as of December 30, 2000 and
January 1, 2000, and the related consolidated statements of
operations, changes in equity, and cash flows for each of the
years in the three-year period ended December 30, 2000. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Cerner Corporation and subsidiaries as of December
30, 2000 and January 1, 2000, and the results of their operations
and their cash flows for each of the years in the three-year
period ended December 30, 2000, in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
Kansas City, Missouri
January 31, 2001
Management's Report
- - - - -----------------------------------------------------------------
The management of Cerner Corporation is responsible for the
consolidated financial statements and all other information
presented in this report. The financial statements have been
prepared in conformity with accounting principles generally
accepted in the United States of America appropriate to the
circumstances, and, therefore, included in the financial
statements are certain amounts based on management's informed
estimates and judgments. Other financial information in this
report is consistent with that in the consolidated financial
statements. The consolidated financial statements have been
audited by Cerner Corporation's independent certified public
accountants and have been reviewed by the audit committee of the
Board of Directors.
<PAGE> 33
Consolidated Balance Sheets
- - - - -----------------------------------------------------------------
December 30, 2000 and January 1, 2000
<TABLE>
2000 1999
--------------------------
(Dollars in thousands)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 90,893 75,677
Receivables 188,036 161,174
Inventory 2,174 1,262
Prepaid expenses and other 7,393 4,316
---------- ----------
Total current assets 288,496 242,429
Property and equipment, net 82,234 77,938
Software development costs, net 83,276 71,007
Intangible assets 22,227 7,511
Investments 130,626 252,123
Other assets 9,552 9,883
---------- ----------
$ 616,411 660,891
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 20,532 20,261
Current installments of long-term
debt 72 -
Deferred revenue 40,212 21,245
Income taxes 9,718 10,987
Accrued payroll and tax
withholdings 27,338 17,241
Other accrued expenses 4,443 2,642
---------- ----------
Total current liabilities 102,315 72,376
Long-term debt, net 102,299 100,000
Deferred income taxes 57,430 93,578
Deferred revenue 10,650 16,000
Stockholders' Equity:
Common stock, $.01 par value,
150,000,000 shares authorized,
35,967,618 shares issued in 2000
and 34,932,703 shares in 1999 360 349
Additional paid-in capital 192,715 166,735
Retained earnings 230,916 125,651
Treasury stock, at cost (1,201,625
shares in 2000 and 1,201,518 in 1999) (20,799) (20,796)
Accumulated other comprehensive
income:
Foreign currency translation
adjustment (743) 23
Unrealized gain (loss) on
available-for-sale equity securities
(net of deferred tax asset of
$33,036 in 2000 and deferred tax
liability of $59,806 in 1999) (58,732) 106,975
---------- ----------
Total stockholders' equity 343,717 378,937
---------- ----------
Commitments (Note 12)
$ 616,411 660,891
========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 34
Consolidated Statements of Operations
- - - - -----------------------------------------------------------------
For the years ended December 30, 2000, January 1, 2000 and
January 2, 1999
<TABLE>
2000 1999 1998
--------------------------------
(In thousands, except per share data)
<S> <C> <C> <C>
Revenues
System sales $ 263,109 224,510 245,490
Support and maintenance 114,898 94,198 76,755
Other 26,497 21,489 8,657
--------------------------------
Total revenues 404,504 340,197 330,902
--------------------------------
Costs and expenses
Cost of revenues 90,118 95,038 89,544
Sales and client service 169,289 141,234 117,107
Software development 78,425 72,663 59,754
General and administrative 29,483 27,564 25,929
Write-off of acquired in-
process research and
development 4,900 - 5,038
Write-down of intangible
assets 6,687 - -
--------------------------------
Total costs and expenses 378,902 336,499 297,372
--------------------------------
Operating earnings 25,602 3,698 33,530
Interest expense, net (3,671) (3,396) (262)
Realized gain on exchange
of stock 188,654 - -
Realized loss on sale of
stock (38,462) - -
--------------------------------
Earnings before income taxes
and extraordinary item 172,123 302 33,268
Income taxes (66,858) (118) (12,679)
--------------------------------
Earnings before extraordinary
item 105,265 184 20,589
Extraordinary item, net of tax - (1,395) -
--------------------------------
Net earnings (loss) $ 105,265 (1,211) 20,589
================================
Basic earnings per share before
extraordinary item $ 3.08 .01 .63
================================
Basic earnings (loss) per share $ 3.08 (.04) .63
================================
Diluted earnings per common
share before extraordinary
item $ 2.96 .01 .61
================================
Diluted earnings (loss) per
common share $ 2.96 (.04) .61
================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 35
Consolidated Statements of Changes in Equity
- - - - -----------------------------------------------------------------
For the years ended December 30, 2000, January 1, 2000 and
January 2, 1999
<TABLE>
Accumulated
Additional Treasury other
Common Stock paid-in Retained stock Comprehensive Comprehensive
Shares Amount capital earnings amount income income
------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 3, 1998 33,817 $ 338 $ 148,074 106,273 (20,796) (142)
-------------------------------------------------------------------------
Exercise of options 185 2 1,248 - - -
Issuance of common stock
grants as compensation 2 - 44 - - -
Issuance of common stock 670 7 14,867 - - -
Non-employee stock option
compensation expense - - 385 - - -
Tax benefit from
disqualifying
disposition of stock
options - - 621 - - -
Foreign currency
translation adjustment - - - - - (101) (101)
Unrealized loss on
available-for-sale
equity security,
net of deferred tax
benefit of $165 - - - - - (266) (266)
Net earnings - - - 20,589 - - 20,589
------------------------------------------------------------------------------------------
Comprehensive income 20,222
========
Balance at January 2, 1999 34,674 $ 347 165,239 126,862 (20,796) (509)
========================================================================
Exercise of options 257 2 623 - - -
Issuance of common stocks
grants as compensation 2 - 40 - - -
Non-employee stock option
compensation expense - - 239 - - -
Tax benefit from
disqualifying
disposition of stock
options - - 594 - - -
Foreign currency
translation adjustment - - - - - 266 266
Unrealized gain on
available-for-sale
equity securities, net
of deferred tax expense
of $59,971 - - - - - 107,241 107,241
Net loss - - - (1,211) - - (1,211)
------------------------------------------------------------------------------------------
Comprehensive income 106,296
========
Balance at January 1, 2000 34,933 $ 349 166,735 125,651 (20,796) 106,998
========================================================================
Exercise of options 439 5 7,050 - (3) -
Issuance of common stock
grants as compensation 2 - 31 - - -
Acquisition of business 594 6 14,056 - - -
Non-employee stock option
compensation expense - - 229 - - -
Fair value of employee
stock options exchanged in
acquisition of business - - 1,089 - - -
Tax benefit from
disqualifying
disposition of stock
options - - 3,525 - - -
Foreign currency
translation adjustment - - - - - (766) (766)
Unrealized loss on
available-for-sale
equity securities, net
of deferred tax benefit
of $92,842 - - - - - (165,707) (165,707)
Net earnings - - - 105,265 - - 105,265
------------------------------------------------------------------------------------------
Comprehensive income (61,208)
=========
Balance at December 30, 2000 35,968 $ 360 192,715 230,916 (20,799) (59,475)
========================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 36
Consolidated Statements of Cash Flows
- - - - -----------------------------------------------------------------
For the years ended December 30, 2000, January 1, 2000 and
January 2, 1999
<TABLE>
2000 1999 1998
------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ 105,265 (1,211) 20,589
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 37,988 31,388 25,411
Common stock received as consideration for
sale of license software (6,150) - (70,000)
Realized gain on exchange of stock (188,654) - -
Realized loss on sale of stock 38,462 - -
Write-down of intangible assets 6,687 - -
Non-recurring fixed fee implementation cost - 9,449 -
Non-recurring branch restructure charge - 1,358 -
Extraordinary item, net of tax - 1,395 -
Write-off of acquired in-process research and
development 4,900 - 5,038
Issuance of common stock grants as compensation 31 40 44
Non-employee stock option compensation expense 229 239 385
Equity in losses of affiliates 1,095 423 1,601
Provision for deferred income taxes 67,640 (3,165) 15,816
Tax benefit from disqualifying dispositions of
stock options 3,525 594 621
Loss on disposal of capital equipment 33 478 223
Changes in operating assets and liabilities (net
businesses acquired):
Receivables, net (14,994) 6,200 (39,481)
Inventory 595 1,389 (908)
Prepaid expenses and other (7,025) 844 (3,970)
Accounts payable (3,389) (5,207) 2,620
Accrued income taxes (5,329) 461 (2,334)
Deferred revenue 5,280 (16,676) 45,410
Other current liabilities 7,124 (610) 4,828
------------------------------
Total adjustments (51,952) 28,600 (14,696)
------------------------------
Net cash provided by operating 53,313 27,389 5,893
------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of capital equipment (16,154) (14,345) (20,846)
Purchase of land, buildings, and improvements - - (2,767)
Acquisition of businesses (16,829) - (6,874)
Investment in affiliates (7,370) (13,615) (1,217)
Proceeds from sale of stock of available for
sale securities 26,152 - -
Advances to affiliates 1,000 (1,000) -
Issuance of notes receivable (385) (3,628) -
Repayment of notes receivable 1,152 - -
Capitalized software development costs (30,982) (30,192) (25,052)
------------------------------
Net cash used in investing activities (43,416) (62,662) (56,756)
------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt - 99,568 -
Repayment of long-term debt 967) (32,167) (45)
Proceeds from sale of common stock - - 14,874
Proceeds from exercise of options 7,052 625 1,250
------------------------------
Net cash provided by financing activities 6,085 68,026 16,079
------------------------------
Foreign currency translation adjustment (766) 266 (101)
------------------------------
Net increase (decrease) in cash and cash
equivalents 15,216 33,019 (34,885)
Cash and cash equivalents at beginning of year 75,677 42,658 77,543
------------------------------
Cash and cash equivalents at end of year $ 90,893 75,677 42,658
==============================
Supplemental disclosures of cash flow information
Cash paid (received) during the year for:
Interest $ 7,348 5,448 2,504
Income taxes, net of refund 930 1,647 (2,112)
Noncash investing and financing activities
Issuance of common stock for acquisition of
business 14,062 - -
Issuance of notes payable for acquisition of
business 1,385 - -
Addition to paid-in capital for the fair value
of employee stock options exchanged in the
acquisition of business 1,089 - -
</TABLE>
See notes to consolidated financial statements.
<PAGE> 37
Notes to Consolidated Financial Statements
- - - - -----------------------------------------------------------------
1 Summary of Significant Accounting Policies
(a) Principles of Consolidation - The consolidated financial
statements include the accounts of Cerner Corporation and its
wholly owned subsidiaries (the Company). All significant
intercompany transactions and balances have been eliminated in
consolidation.
(b) Nature of Operations - The Company designs, develops,
markets, installs, hosts and supports software information
technology and content solutions for healthcare organizations and
consumers. The Company also implements these solutions as
individual, combined or enterprise-wide systems.
(c) Revenue Recognition - Revenues are derived primarily from
the sale of clinical information systems. The Company also
provides project implementation and consulting services. In
addition, revenue is generated from servicing installed clinical
information systems, which generally includes support of software
and maintenance of hardware. The Company also derives revenue
from the sale of computer hardware.
Clinical information system sales contracts generally include the
licensing of the Company's clinical information system software,
project-related services associated with the installation of the
systems, and the sale of computer hardware. Clinical information
system sales contracts are noncancelable and provide for a right
of return only in the event the system fails to meet the
published specifications of the software. The Company recognizes
revenue from sales of clinical information systems using a
percentage-of-completion method based on meeting key milestone
events over the term of the contracts in accordance with
Statement of Position 97-2, "Software Revenue Recognition".
Revenue associated with project implementation and consulting
services is recognized as the services are performed. Revenue
from the licensing of additional software is recognized upon
installation at the client's site. Revenue from the sale of
computer hardware is recognized upon shipment. Revenue from
ongoing software support and equipment maintenance is recognized
as the services are rendered.
(d) Fiscal Year - The Company's fiscal year ends on the Saturday
closest to December 31. Fiscal years 2000, 1999 and 1998
consisted of 52 weeks each. All references to years in these
notes to consolidated financial statements represent fiscal years
unless otherwise noted.
(e) Software Development Costs - Costs incurred internally in
creating computer software products are expensed until
technological feasibility has been established upon completion of
a detail program design. Thereafter, all software development
costs are capitalized and subsequently reported at the lower of
amortized cost or net realizable value. Capitalized costs are
amortized based on current and expected future revenue for each
product with minimum annual amortization equal to the straight-
line amortization over the estimated economic life of the
product. The Company is amortizing capitalized costs on a
straight-line basis over five years. During 2000, 1999 and 1998,
the Company capitalized $30,982,000, $30,192,000 and $25,052,000,
respectively, of total software development costs of $90,694,000,
$88,699,000 and $74,159,000, respectively. Amortization
expense of capitalized software development costs in 2000, 1999
and 1998 was $18,713,000, $14,156,000 and $10,647,000,
respectively, and accumulated amortization was $76,411,000,
$57,698,000 and $43,542,000, respectively.
(f) Cash Equivalents - Cash equivalents consist of short-term
marketable securities with original maturities less than ninety
days.
(g) Investments - The Company accounts for its investments in
equity securities which have readily determinable fair values as
available-for-sale. Available-for-sale securities are reported
at fair value with unrealized gains and losses reported, net of
tax, as a separate component of accumulated other comprehensive
income. For realized gains and losses on available-for-sale
investments, the Company utilizes the specific identification
method as the basis to determine cost. Investments in the common
stock of certain affiliates over which the Company exerts
significant influence are accounted for by the equity
<PAGE> 38
Notes to Consolidated Financial Statements
- - - - -----------------------------------------------------------------
method. Investments in other equity securities are reported at
cost. All equity securities are reviewed by the Company for
declines in fair value. If such declines are considered to be
other than temporary, the cost basis of the individual security
is written down to fair value as a new cost basis, and the amount
of the write-down is included in earnings.
(h) Inventory - Inventory consists primarily of computer
hardware held for resale and is recorded at the lower of cost
(first-in, first-out) or market.
(i) Property and Equipment - Property, equipment and leasehold
improvements are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over periods
of 5 to 39 years. Amortization of leasehold improvements is
computed using a straight-line method over the lease terms, which
range from periods of two to twelve years.
(j) Earnings per Common Share - Basic earnings per share (EPS)
excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other
contracts to issue stock were exercised or converted into common
stock or resulted in the issuance of common stock that then
shared in the earnings of the Company. A reconciliation of the
numerators and the denominators of the basic and diluted per-
share computations is as follows:
<TABLE>
(In thousands, except per share data)
2000 1999 1998
-----------------------------------------------------------------------------------------------------------
Per- Per- Per-
Earnings Shares Share Earnings Shares Share Earnings Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-----------------------------------------------------------------------------------------------------------
Earnings per share before extraordinary item
- - - - --------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic earnings
per share
Income available
to common stock
holders
$105,265 34,123 $ 3.08 184 33,623 $ .01 20,589 32,825 $ .63
======= ====== =====
Effect of dilutive
securities
Stock options
- 1,480 - 293 - 842
Diluted earnings per share
Income available to common
stockholders including
assumed
conversions
----------------------------------------------------------------------------------------------------
$105,265 35,603 $ 2.96 184 33,916 $ .01 20,589 33,667 $ .61
====================================================================================================
Net earnings (loss) per share
- - - - -----------------------------
Basic earnings (loss)
per share
Income available to
common stockholders
$105,265 34,123 $ 3.08 (1,211) 33,623 $ (.04) 20,589 32,825 $ .63
======= ====== =====
Effect of dilutive
securities
Stock options
- 1,480 - 293 - 842
Diluted earnings (loss)
per share
Income available
to common stock
holders including
assumed conversions
------------------------------------------------------------------------------------------------------
$105,265 35,603 $ 2.96 (1,211) 33,916 $ (.04) 20,589 33,667 $ .61
======================================================================================================
</TABLE>
Options to purchase 521,000, 3,185,000 and 1,652,000 shares of
common stock at per share prices ranging from $35.88 to $84.07,
$17.50 to $31.00, and $25.00 to $31.00 were outstanding at the
end of 2000, 1999 and 1998, respectively, but were not included
in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price
of the common shares.
<PAGE> 39
Notes to Consolidated Financial Statements
- - - - -----------------------------------------------------------------
(k) Foreign Currency - Assets and liabilities in foreign
currencies are translated into dollars at rates prevailing at the
balance sheet date. Revenues and expenses are translated at
average rates for the year. The net exchange differences
resulting from these translations are reported in accumulated
other comprehensive income. Gains and losses resulting from
foreign currency transactions are included in the consolidated
statements of earnings. The net gain (loss) resulting from
foreign currency transactions was ($518,000), $95,000 and
($673,000) in 2000, 1999 and 1998, respectively.
(l) Income Taxes - Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled.
(m) Goodwill - Excess of cost over net assets acquired
(goodwill) is being amortized on a straight-line basis over four
to eight years. Accumulated amortization was $5,964,000 and
$5,387,000 at the end of 2000 and 1999, respectively. The
Company assesses the recoverability of goodwill based on
forecasted undiscounted future operating cash flows.
(n) Comprehensive Income - Included in comprehensive income for
2000 are reclassification adjustments for the net realized after-
tax gain of $95,900,000 related to the exchange for and sale of
WebMD stock.
(o) Use of Estimates - The preparation of financial statements
in conformity with accounting principles generally accepted in
the United States of America requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2 Business Acquisitions
During the three years ended December 30, 2000, the Company
completed five acquisitions, which were accounted for under the
purchase method of accounting. Pro forma results of operations
have not been presented for any of the acquisitions because the
effects of these acquisitions were not material to the Company on
either an individual or an aggregate basis. Had the acquisitions
occurred at the beginning of 1999, pro-forma revenues would have
increased by $30,386,000 and $49,797,000 in 2000
and 1999, respectively. The results of operations of each
acquisition are included in the Company's consolidated statement
of operations from the date of each acquisition.
The amounts allocated to purchased in-process research and
development (IPRD) were determined through established valuation
techniques in the high-technology computer industry and were
expensed upon acquisition because technological feasibility had
not been established and no future alternative uses existed.
Research and development costs to bring the products from the
acquired companies to technological feasibility, individually or
in the aggregate, are not expected to have a material impact on
the Company's future results of operations or cash flows. Amounts
allocated to goodwill and other intangibles are amortized on a
straight-line basis over five to seven years. The IPRD amounts
in the table below are reflected as one-time charges to earnings
at the date of acquisition.
Subsequent to the acquisition of Health Network Ventures, Inc.,
the Company determined that it would discontinue the portion of
the business focused on individual physician practice
connectivity and transaction processing. As a result of this
decision, the Company recorded a non-recurring charge in the
second quarter of 2000 in the amount of $6,687,000 related to a
write-down of intangible assets.
<PAGE> 40
Notes to Consolidated Financial Statements
- - - - -----------------------------------------------------------------
A summary of the Company's purchase acquisitions for the three
years ended December 30, 2000, is included in the following table
(in millions, except share amounts):
<TABLE>
Entity Name and
Description of Business Developed Customer Form of
Acquired Date Consideration Goodwill Technology Workforce Base IPRD Consideration
- - - - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fiscal 2000 Acquisitions
- - - - ---------------------------------------------------------------------------------------------------------------------
ADAC Healthcare Information 11/00 $5.3 $1.4 $3.0 $.4 $1.7 $1.7 $3.9 cash
Systems, Inc. (a) $1.4 note payable
Image management solutions
for radiology departments
- - - - ---------------------------------------------------------------------------------------------------------------------
CITATION Computer 8/00 $17.8 $8.3 $2.7 $1.2 $2.0 $3.2 $2.6 cash
Computer Systems, Inc. $14.1 594,000
Systems, Inc. (b) shares of common
Market leader in laboratory stock issued
systems for small to mid-sized $1.1 vested
hospitals options assumed
- - - - ---------------------------------------------------------------------------------------------------------------------
Mitch Cooper & Associates 4/00 $2.0 $2.0 --- --- --- --- $2.0 cash
Supply chain re-engineering
consulting practice
- - - - ---------------------------------------------------------------------------------------------------------------------
Health Network Ventures, Inc. 4/00 $8.3 $4.2 --- --- --- --- $8.3 cash
Provides software solutions
that enable transaction
processing between providers
and other health-related
entities
- - - - ---------------------------------------------------------------------------------------------------------------------
Fiscal 1998 Acquisition
- - - - ---------------------------------------------------------------------------------------------------------------------
Multum Information 3/98 $6.9 $1.6 $.5 $.5 --- $5.0 $6.9 cash
Systems, Inc.
Healthcare industry
supplier of drug knowledge
databases and intelligent
software components designed
to improve the quality and
cost-effectiveness of medical
care
- - - - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The acquired in-process research and development is related
to HCIS's PACS (Picture Archiving and Communications Systems)
product. The PACS product, when integrated with the Company's
radiology information system, provides a comprehensive radiology
solution, from automating and streamlining the information
workflow to complete image management. PACS was approximately
86% complete at the time of the acquisition. When ADAC HCIS was
acquired, management projected that PACS would be completed in 3
months at an estimated cost of $150,000. The risks associated
with PACS are like any other software development project and
include changes in technology and competition. The PACS project
was valued using the income approach with the following
assumptions: material net cash inflows are expected to commence
in 2001; no material changes from historical pricing, margins, or
expense levels are anticipated; and, a 20% risk adjusted discount
rate was applied to the estimated net cash flows. PACS was
approximately 95% complete at the end of 2000.
(b) The acquired in-process research and development is related
to CITATION's enhanced versions of the C-LAB and C-COM products.
C-LAB addresses the complex information needs of the laboratory's
general lab, microbiology, anatomical pathology and blood bank
departments with a Windows NT client server solution. C-LAB was
approximately 68% complete at the time of the acquisition. When
CITATION was acquired, management projected that C-LAB would be
completed in 6-9 months at an estimated cost of $700,000. The
risks associated with C-LAB are like any other software
development project and include changes in technology and
competition. The C-LAB project was valued using the income
approach with the following assumptions: material net cash
inflows are expected to commence in 2001; no
<PAGE> 41
Notes to Consolidated Financial Statements
- - - - -----------------------------------------------------------------
material changes from historical pricing, margins, or expense
levels are anticipated; and, a 20% risk adjusted discount rate
was applied to the estimated net cash flows. C-LAB was
approximately 75% complete at the end of 2000. C-COM is also
designed for a Windows NT client server user and works with
other information systems in healthcare facilities by providing
a central data repository for clinical orders and results. It
then allows for routing of the patient information to all
care-providing centers throughout the healthcare enterprise.
C-COM was approximately 75% complete at the time of the
acquisition. When CITATION was acquired, management projected
that C-COM would be completed in 3-6 months at an estimated cost
of $500,000. The risks associated with C-COM are like any other
software development project and include changes in technology
and competition. The C-COM project was valued using the income
approach with the following assumptions: material net cash
inflows are expected to commence in 2001; no material changes
from historical pricing, margins, or expense levels are
anticipated; and, a 20% risk adjusted discount rate was applied
to the estimated net cash flows. C-COM was approximately 85%
complete at the end of 2000.
3 Receivables
Receivables consist of accounts receivable and contracts
receivable. Accounts receivable represent recorded revenues that
have been billed. Contracts receivable represent recorded
revenues that are billable by the Company at future dates under
the terms of a contract with a client. Billings and other
consideration received on contracts in excess of related revenues
recognized under the percentage-of-completion method are recorded
as deferred revenue. A summary of receivables is as follows:
<TABLE>
(In thousands) 2000 1999
-------------------------
<S> <C> <C>
Accounts receivable $ 96,946 85,814
Contracts receivable 91,090 75,360
--------- ---------
Total receivables $ 188,036 161,174
========= =========
</TABLE>
Substantially all receivables are derived from sales and related
support and maintenance of the Company's clinical information
systems to healthcare providers located throughout the United
States and in certain foreign countries. Included in receivables
at the end of 2000 and 1999 are amounts due from healthcare
providers located in foreign countries of $23,600,000 and
$17,704,000, respectively. Consolidated revenues include foreign
sales of $25,815,000, $24,001,000 and $17,545,000, during 2000,
1999 and 1998, respectively. Consolidated long-lived assets at
the end of 2000 and 1999, include foreign long-lived assets of
$649,000 and $638,000, respectively. Revenues and long-lived
assets from any one foreign country are not material.
The Company provides an allowance for estimated uncollectible
accounts based upon historical experience and management's
judgment. At the end of 2000 and 1999 the allowance for
estimated uncollectible accounts was $5,999,000 and $4,759,000,
respectively.
<PAGE> 42
Notes to Consolidated Financial Statements
- - - - -----------------------------------------------------------------
4 Property and Equipment
A summary of property, equipment, and leasehold improvements
stated at cost, less accumulated depreciation and amortization,
is as follows:
<TABLE>
(In thousands) 2000 1999
------------------------
<S> <C> <C>
Furniture and fixtures $ 24,004 21,623
Computer and communications equipment 82,769 67,462
Marketing equipment 2,045 1,984
Shop equipment 2,902 -
Leasehold improvements 21,533 16,905
Capital lease equipment 1,104 713
Land, buildings, and improvements 32,437 32,437
------- -------
166,794 141,124
Less accumulated depreciation and
amortization 84,560 63,186
------- -------
Total property and equipment, net $ 82,234 77,938
======= =======
</TABLE>
5 Investments
Investments consist of the following:
<TABLE>
(In thousands) 2000 1999
---------- ----------
<S> <C> <C>
Investments in available-for-sale
equity securities $ 194,268 13,057
Plus unrealized holding gain (loss) (91,768) 166,781
--------- ---------
Investment in available-for-sale
equity securities, at fair value 102,500 179,838
Investments in equity securities,
at cost 25,285 69,822
Investments accounted for under
the equity method 2,841 2,463
--------- ---------
Total investments, net $ 130,626 252,123
========= =========
</TABLE>
In 1998 and 1999 the Company acquired a 17.5% interest
(13,149,259 shares of common stock) in CareInsite with a cost
basis of $81,804,000. 12,437,500 of these shares were received in
1998 as consideration for the sale of license software, and an
additional 711,759 shares were purchased in 1999. The value
assigned to the shares acquired in 1998 was $70,000,000 and was
based on a methodology which utilized both a comparable company
and the expected underlying discounted future cash flows. The
Company was also granted, by CareInsite, 1,008,445 common stock
warrants with an exercise price of $4.00 per share ("THINC
Warrants"). The THINC Warrants were exercisable only in the
event that The Health Information Network Connections, LLC
("THINC") exercised warrants granted to them by CareInsite at
$4.00 per share. THINC was allowed to exercise their warrants
180 days after the initial public offering of CareInsite. On
January 29, 2000 CareInsite completed an acquisition of THINC.
As part of that agreement, 806,756 of the Company's 1,008,445
THINC Warrants became immediately exercisable, with the remaining
amount forfeited.
On February 13, 2000 CareInsite entered into an agreement to
merge with Healtheon/WebMD Corporation ("Merger Agreement"). As
part of the Merger Agreement, the Company received 1.3 shares of
Healtheon/WebMD Corporation (Web MD) in exchange for each common
share of CareInsite held by the Company. The warrants were also
converted at the same exchange ratio. The merger of CareInsite
and WebMD ("Merger") closed on September 12, 2000. Accordingly,
the Company recorded a non-recurring investment gain of
$120,362,000, net of tax, as a result of the exchange.
<PAGE> 43
Notes to Consolidated Financial Statements
- - - - ----------------------------------------------------------------
On December 12, 2000, the Company sold 4,273,509 shares of WebMD
for $25,641,000. Accordingly, the Company recorded a non-
recurring investment loss of $24,539,000, net of tax, as a result
of the sale.
At December 30, 2000, the Company owned 12,820,527 shares of
common stock of WebMD, which have a cost basis of $192,308,000
and a carrying value of $101,795,000, as these shares are
accounted for as available-for-sale. The stock of WebMD held by
the Company is registered but is subject to certain lock-up
provisions. At December 30, 2000 the Company also holds
1,048,783 warrants of WebMD with an exercise price of $3.08 and a
cost basis and carrying value of $13,685,000. The warrants are
carried at cost, as they do not have a fair value that is
currently available on a securities exchange.
If the Company realizes certain performance metrics related to
specified levels of physician usage, WebMD will issue to the
Company 3,254,063 shares of common stock at a price of $0.01 per
share ("Performance Shares"). The Performance Shares were
adjusted at a rate of 1.3 shares of WebMD for each share of
CareInsite. The contracted measurement date was February 15,
2001. The Company and WebMD are in discussions regarding the
attainment of the Performance Shares. No amounts have been
recognized in the consolidated financial statements for the
Performance Shares pending completion of the discussions.
6 Indebtedness
The Company has a loan agreement with a bank that provides for a
long-term revolving line of credit for working capital purposes.
The long-term revolving line of credit is unsecured and requires
monthly payments of interest only. Interest is payable at the
Company's option at a rate based on prime (9.5% at December 30,
2000) or LIBOR (6.4% at December 30, 2000) plus 1.5%. The
interest rate may be reduced by up to .4% if certain net worth
ratios are maintained. At December 30, 2000, the Company had no
outstanding borrowings under this agreement and had $18,000,000
available for working capital purposes. The agreement contains
certain net worth, current ratio, and fixed charge coverage
covenants and provides certain restrictions on the Company's
ability to borrow, incur liens, sell assets, and pay dividends.
A commitment fee of 3/10% is payable quarterly on the unused
portion of the revolving line of credit.
On April 15, 1999, the Company completed a $100,000,000 private
placement of debt pursuant to a Note Agreement dated April 1,
1999. The Series A Senior Notes, with a $60,000,000 principal
amount at 7.14% are payable in five equal annual installments
beginning in April 2002. The Series B Senior Notes, with a
$40,000,000 principal amount at 7.66% are payable in six equal
annual installments beginning April 2004. The proceeds were used
to retire the Company's existing $30,000,000 of debt, and the
remaining funds are being used for proposed capital improvements
and to strengthen the Company's cash position. In connection
with the early extinguishment of debt, the Company incurred an
extraordinary loss for a prepayment penalty and write-off of
deferred loan costs of $1,395,000 net of taxes. The note
agreement contains certain net worth, current ratio, and fixed
charge coverage covenants and provides certain restrictions on
the Company's ability to borrow, incur liens, sell assets, and
pay dividends. The Company was in compliance with all covenants
at December 30, 2000.
The Company also has capital lease obligations and other notes
payable amounting to $2,400,000, payable over the next four
years.
<PAGE> 44
Notes to Consolidated Financial Statements
- - - - -----------------------------------------------------------------
The aggregate maturities for the Company's long-term debt is as
follows (in thousands):
<TABLE>
<S> <C>
2001 $ 72
2002 14,243
2003 12,042
2004 18,682
2005 18,666
2006 and thereafter 38,666
-------
$ 102,371
=======
</TABLE>
The Company estimates the fair value of its long-term, fixed-rate
debt using discounted cash flow analysis based on the Company's
current borrowing rates for debt with similar maturities. The
fair value of the Company's long-term debt is $101,271,000 at
December 30, 2000.
7 Interest Income and Expense
A summary of interest income and expense is as follows:
<TABLE>
(In thousands) 2000 1999 1998
------------------------------------
<S> <C> <C> <C>
Interest income $ 3,645 2,582 2,242
Interest expense (7,316) (5,978) (2,504)
---------- ---------- -----------
Interest expense, net $(3,671) (3,396) (262)
========== ========== ===========
</TABLE>
8 Stock Options and Warrants
At December 30, 2000, the Company had four fixed stock option
plans. Under Stock Option Plan B, the Company could grant to
associates options to purchase up to 5,600,000 shares of common
stock through November 30, 1993. The options are exercisable at
the fair market value on the date of grant for a period
determined by the Board of Directors (not more than ten years
from the date granted). The options contain restrictions as to
transferability and exercisability after termination of
employment.
Under Stock Option Plan C, the Company is authorized to grant to
associates options to purchase up to 645,000 shares of common
stock through May 18, 2003. The options are exercisable at the
fair market value on the date of grant for a period determined by
the Board of Directors (not more than ten years from the date
granted). The options contain restrictions as to transferability
and exercisability after termination of employment. The Company
has committed not to issue any more stock options under Stock
Option Plan C.
Initially under Stock Option Plan D, the Company was authorized
to grant to associates, directors, consultants or advisors to
the Company options to purchase up to 50,000 shares of common
stock through January 1, 2005. Additional shares were approved
by the Company's shareholders on May 17, 1994, May 16, 1995 and
May 22, 1998, increasing the total authorized to grant to
4,600,000 shares. The options are exercisable at a price (not
less than fair market value on the date of grant) and during a
period determined by the Stock Option Committee. Options under
this plan currently vest over periods of up to ten years and are
exercisable for periods of up to 25 years.
Initially, under Stock Option Plan E, the Company was authorized
to grant to associates (other than officers subject to the
provisions of Section 16(a) of the Securities and Exchange Act of
1934), consultants, or advisors to the Company options to
purchase up to 2,000,000 shares of common stock through January
1, 2005. There was a 1,100,000 share increase approved by the
Company's Board of Directors on December 8, 2000, increasing
the total authorized to grant to 3,100,000 shares. The options
are exercisable at a price (not less than fair market value
on the date of grant) and during a period determined
<PAGE> 45
Notes to Consolidated Financial Statements
- - - - -----------------------------------------------------------------
by the Stock Option Committee. Options under this
plan currently vest over periods of up to ten years and are
exercisable for periods of up to 25 years.
The Company has also granted 454,542 other non-qualified stock
options under separate agreements to employees and certain third
parties. These options are exercisable at a price equal to or
greater than the fair market value on the date of grant. These
options vest over periods of up to six years and are exercisable
for periods of up to ten years. In 2000, the Company granted an
additional 350,000 stock options to a third party at an exercise
price equal to the fair market value on the date of grant. The
options are vested and become exercisable at the earlier of five
years or when certain conditions are met.
The Company accounts for associate stock options in accordance
with the provisions of Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees", and related
interpretations. As such, compensation expense is recorded on
the date of grant only if the current market price of the
underlying stock exceeds the exercise price. On December 31,
1995, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (FAS
123), which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the
date of grant. Alternatively, FAS 123 allows entities to
continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net earnings and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in FAS 123
had been applied. The Company has elected to continue to apply
the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of FAS 123.
A combined summary of the status of the Company's four fixed
stock option plans and other stock options at the end of 2000,
1999, and 1998, and changes during these years ended is presented
below:
<TABLE>
2000 1999 1998
----------------------------------------------------------------------
Weighted- Weighted- Weighted-
Number average Number average Number average
of exercise of exercise of exercise
Fixed Options shares price shares price shares price
- - - - ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at 5,529,995 $ 19.79 5,488,191 $ 20.38 4,179,258 $ 17.74
beginning of
year
Granted 1,684,144 31.50 1,447,246 16.69 1,932,710 24.15
Exercised (455,706) 17.23 (255,747) 4.91 (185,335) 6.88
Forfeited (458,168) 21.13 (1,149,695) 22.40 (438,442) 17.57
- - - - ----------------------------------------------------------------------------------------
Outstanding at
end of year 6,300,265 $ 22.50 5,529,995 $ 19.79 5,488,191 $ 20.38
========== ========== ==========
Options
exercisable at
year-end 1,458,001 $ 20.97 1,297,147 $ 19.49 1,111,943 $ 15.52
</TABLE>
The following table summarizes information about fixed and other
stock options outstanding at December 30, 2000.
<TABLE>
Options outstanding Options exercisable
- - - - ---------------------------------------------------------------------------- -----------------------------------
Range of Number Weighted-average Number
exercise Outstanding Remaining Weighted-average exercisable Weighted-average
prices At 12/30/00 contractual life exercise price at 12/30/00 exercise price
- - - - ---------------------------------------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.34-15.00 1,519,018 17.4 years $ 14.20 483,906 $ 17.74
15.13-22.00 1,705,561 12.8 18.83 450,879 19.16
22.06-27.50 1,534,954 10.8 24.75 200,664 24.52
28.00-84.07 1,540,732 12.5 35.44 322,552 32.08
--------- ---------
1.34-84.07 6,300,265 13.4 22.50 1,458,001 20.97
========= =========
</TABLE>
<PAGE> 46
Notes to Consolidated Financial Statements
- - - - -----------------------------------------------------------------
The per share weighted-average fair value of stock options
granted during 2000, 1999 and 1998 was $18.96, $10.88 and $14.97,
respectively, on the date of grant using the Black Scholes option-
pricing model with the following weighted-average assumptions:
<TABLE>
2000 1999 1998
-------------------------------
<S> <C> <C> <C>
Expected years until exercise 4.7 8 8
Risk-free interest rate 5.0% 6.9% 5.0%
Expected stock volatility 72.1% 61.3% 58.5%
Expected dividend yield 0% 0% 0%
</TABLE>
Since the Company applies APB Opinion No. 25 in accounting for
its plans, no compensation cost has been recognized for its stock
options issued to employees. Had the Company recorded
compensation expense based on the fair value at the grant date
for its stock options under FAS 123, the Company's net earnings
and earnings per share on a diluted basis would have been reduced
by approximately $7,527,000 or $.21 per share in 2000,
approximately $3,922,000 or $.12 per share in 1999 and
approximately $5,929,000 or $.18 per share in 1998.
Pro forma net earnings reflect only options granted since January
1, 1995. Therefore, the full impact of calculating compensation
expense for stock options under FAS 123 is not reflected in the
pro forma net earnings amounts presented above, because
compensation cost is reflected over the options' vesting period
of ten years for these options. Compensation expense for options
granted prior to January 1, 1995 is not considered.
9 Income Taxes
Income tax expense (benefit) before extraordinary item for the
years ended 2000, 1999, and 1998, consists of the following:
<TABLE>
(In thousands) 2000 1999 1998
----------------------------
<S> <C> <C> <C>
Current:
Federal $ 175 3,514 (1,929)
State (70) 573 (1,061)
Foreign (887) (804) (147)
-------- ------ -------
Total current (782) 3,283 (3,137)
-------- ------ -------
Deferred:
Federal 63,524 (2,891) 13,634
State 4,482 (288) 1,565
Foreign (366) 14 617
-------- ------- ------
Total deferred 67,640 (3,165) 15,816
-------- ------- ------
Total income tax expense $ 66,858 118 12,679
======== ======= ======
</TABLE>
Income tax benefit attributable to the extraordinary item (early
retirement of debt) was $865,000 in 1999. Income tax expense
(benefit) allocated to stockholders' equity for unrealized
holding gain (losses) on available-for-sale equity securities was
($92,842,000) and $59,971,000 for the years ended 2000 and 1999,
respectively.
<PAGE> 47
Notes to Consolidated Financial Statements
- - - - -----------------------------------------------------------------
Temporary differences between the financial statement carrying
amounts and tax bases of assets and liabilities that give rise to
significant portions of deferred income taxes at the end of 2000
and 1999 relate to the following:
<TABLE>
(In thousands) 2000 1999
------------------------
<S> <C> <C>
Deferred Tax Assets
Contract reserves $ - 3,615
Acquisition accrual - 1,779
Accrued expenses 6,395 4,669
Separate return net operating losses 12,281 -
Other 1,718 1,637
--------- ----------
Total deferred tax assets 20,394 11,700
--------- ----------
Deferred Tax Liabilities
Unrealized gain on investments (21,975) (59,806)
Software development costs (32,143) (26,812)
Contract and service revenues
and costs (37,930) (23,591)
Depreciation and amortization (2,764) (4,480)
Other (1,446) (5,581)
---------- ---------
Total deferred tax liabilities (96,258) (120,270)
---------- ---------
Net deferred tax liability $ (75,864) (108,570)
========== =========
</TABLE>
The effective income tax rates for 2000, 1999, and 1998 were 39%,
39%, and 38%, respectively. These effective rates differ from
the federal statutory rate of 35% as follows:
<TABLE>
(In thousands) 2000 1999 1998
<S> <C> <C> <C>
Tax expense at statutory rates $ 60,243 106 11,644
State income tax, net of
federal benefit 2,972 10 1,280
Goodwill 4,225 259 259
Other, net (582) (257) (504)
------- ------- -------
Total income tax expense $ 66,858 118 12,679
======= ======= =======
</TABLE>
Income taxes payable are reduced by the tax benefit resulting
from disqualifying dispositions of stock acquired under the
Company's stock option plans. The 2000, 1999, and 1998 benefits
of $3,525,000, $594,000, and $621,000, respectively, are treated
as increases to additional paid-in capital.
10 Foundations Retirement Plan
The Cerner Corporation Foundations Retirement Plan (the Plan) is
established under Section 401(k) of the Internal Revenue Code.
All full-time associates are eligible to participate.
Participants may elect to make pretax contributions from 1% to
20% of compensation to the Plan, subject to annual limitations
determined by the Internal Revenue Service. Participants may
direct contributions into mutual funds, a money market fund, or a
Company stock fund. The Company makes matching contributions to
the Plan, on behalf of participants, in an amount equal to 33% of
the first 6% of the participant's contribution. The Company's
expense for the plan amounted to $2,532,000, $1,187,000 and
$1,005,000 for 2000, 1999 and 1998, respectively.
The Company added a discretionary profit sharing distribution to
the Plan in 2000. Distributions are based on attainment of
established earnings per share goals for the year. Only
participants in the Plan are eligible to receive the profit
sharing distribution. For the year ended December 30, 2000, the
Company expensed $1,100,000 for discretionary distributions.
<PAGE> 48
Notes to Consolidated Financial Statements
- - - - -----------------------------------------------------------------
11 Related Party Transactions
The Company loaned $160,000 in 2000 and $3,628,000 in 1999, to
the Company's senior management under the terms of the Executive
Stock Purchase Program ("Program"). The purpose of the Program
is to advance the interests of the Company, the Company's senior
management, and the Company's shareholders by offering the
Company's senior management an incentive to purchase shares of
the Company's stock on the open market. Pursuant to the Program,
the Company provided Program loans to executives to help finance
up to 50% of the total purchase price of the stock purchased.
All Program loans have a term of five (5) years, at an interest
rate of 5.5%. Principal and interest is not due until the end of
the five-year loan term, unless the executive terminates
employment. Executives may also elect to pay interest annually.
If interest is not paid annually, it will compound annually. All
Program loans are secured by the purchased shares and any pledged
shares. The balance of these loans at December 30, 2000 was
$2,764,000.
12 Commitments
The Company leases space to unrelated parties in its North Kansas
City headquarters complex under noncancelable operating leases.
Included in other revenues is rental income of $624,000,
$1,005,000, and $1,795,000 in 2000, 1999, and 1998, respectively.
The Company is committed under operating leases for office space
through September 2005. Rent expense for office and warehouse
space for the Company's regional and global offices for 2000,
1999, and 1998 was $1,735,000, $2,226,000, and $1,847,000,
respectively. Future minimum lease revenues (in thousands) and
aggregate minimum future payments (in thousands) under these
noncancelable operating leases are as follows:
<TABLE>
Future Future
Minimum Minimum
lease lease
Years revenues commitments
------------------------------------
<S> <C> <C>
2001 $ 247 4,407
2002 40 3,449
2003 23 1,829
2004 - 1,316
2005 - 642
</TABLE>
In December, 1999, the Company made a decision to close five of
its branch offices. The Company created a regional branch
structure in 1994 in order to bring associates closer to its
clients. The natural evolution of that strategy and the ability
to leverage internal information technology infrastructure to
create a more virtual workplace has resulted in a significant
decrease in utilization of certain regional offices. This led to
the decision to close these physical locations. The Company
recorded a charge of $1.4 million in sales and client service
expenses in the 1999 fourth quarter to provide for the costs of
closing these locations, primarily based on estimated lease
cancellation fees. All of these costs were paid in 2000.
13 Stockholders' Equity
At the end of 2000 and 1999, the Company had 1,000,000 shares of
authorized but unissued preferred stock, $.01 par value.
<PAGE> 49
Notes to Consolidated Financial Statements
- - - - -----------------------------------------------------------------
14 Quarterly Results (unaudited)
Selected quarterly financial data for 2000 and 1999 is set forth
below:
<TABLE>
(In thousands, except per share data)
Earnings (loss) Basic
before Net earnings Diluted
income taxes and earnings (loss) earnings (loss)
Revenues extraordinary item (loss) per share per share
------------------------------------------------------------------------
1999 quarterly results:
<S> <C> <C> <C> <C> <C>
April 1 $ 87,107 3,986 2,392 .07 .07
July 1 (1) 93,502 44 (2,613) (.08) (.08)
September 30 (2)(3) 104,325 195,588 123,336 3.61 3.45
December 30 (4)(5) 119,570 (27,495) (17,850) (.51) (.51)
- - - - ----------------------------------------------------------------------------------------------------
Total 404,504 172,123 105,265
======= ======= =======
1999 quarterly results:
April 3 86,743 4,543 2,817 .08 .08
July 3 (6) 82,782 428 (1,135) (.03) (.03)
October 2 80,929 1,146 680 .02 .02
January 1 (7) 89,743 (5,815) (3,573) (.11) (.11)
- - - - ----------------------------------------------------------------------------------------------------
Total 340,197 302 (1,211)
======= ====== =======
</TABLE>
- - - - -----------------------------------------------------------------
(1) Includes a non-recurring charge of $6.7 million related to
the write-down of intangible assets associated with the
acquisition of Health Network Ventures, Inc. The impact of
this non-recurring charge on diluted earnings per share was
($.19) for second quarter and for 2000.
(2) Includes a non-recurring charge of $3.2 million related to
the acquisition of CITATION Computer Systems, Inc. The
impact of this non-recurring charge on diluted earnings per
share was ($.09) for the third quarter and for 2000.
(3) Includes a non-recurring investment gain of $120.4 million,
net of $68.3 million tax expense, related to the conversion
of shares of CareInsite common stock to shares of WebMD
common stock. The impact of this non-recurring investment
gain on diluted earnings per share was $3.37 for the third
quarter and $3.38 for 2000.
(4) Includes a non-recurring charge of $1.0 million, net of $.7
million tax benefit, related to the acquisition of ADAC
Healthcare Information Systems, Inc. The impact of this non-
recurring charge on diluted earnings per share was ($.03)
for the fourth quarter and for 2000.
(5) Includes a non-recurring investment loss of $24.5 million,
net of $13.9 million tax benefit, related to the sale of
shares of WebMD common stock. The impact of this
non-recurring investment loss on diluted earnings per share
was ($.67) for the fourth quarter and ($.69) for 2000.
(6) Includes an extraordinary loss on the early extinguishment
of debt of $1,395,000, net of taxes of $865,000. The
impact of this extraordinary item on diluted earnings per
share was ($.01) for the second quarter and for 1999.
(7) See Note 12 regarding a non-recurring charge in the fourth
quarter of 1999. The fourth quarter of 1999 also includes
an additional non-recurring charge of $5.8 million, net of
$3.6 million tax benefit, for contract reserves.
<PAGE> 50
Cerner Corporation
Valuation and Qualifying Accounts Schedule II
<TABLE>
Additions
Balance of Charged to Additions
Beginning Costs and Through Balance of
Description of Period Expenses Acquisitions Deductions End of Period
- - - - -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For Year Ended
January 2, 1999
Doubtful Accounts
and Sale Allowances $ 1,490,000 $ 1,915,000 $ 0 $ 0 $ 3,405,000
Additions
Balance of Charged to Additions
Beginning Costs and Through Balance of
Description of Period Expenses Acquisitions Deductions End of Period
- - - - -------------------------------------------------------------------------------------------
For Year Ended
January 1, 2000
Doubtful Accounts
and Sale Allowances $ 3,405,000 $ 1,354,000 $ 0 $ 0 $ 4,759,000
Additions
Balance of Charged to Additions
Beginning Costs and Through Balance of
Description of Period Expenses Acquisitions Deductions End of Period
- - - - -------------------------------------------------------------------------------------------
For Year Ended
December 30, 2000
Doubtful Accounts
and Sale Allowances $ 4,759,000 $ 0 $ 1,341,000 $ (101,000) $ 5,999,000
</TABLE>
<PAGE>
Independent Auditors' Report
on Financial Statement Schedule
The Board of Directors
Cerner Corporation:
Under date of January 31, 2001, we reported on the
consolidated balance sheets of Cerner Corporation and
subsidiaries as of December 30, 2000 and January 1, 2000 and
the related consolidated statements of operations, changes in
equity, and cash flows for each of the years in the three-
year period ended December 30, 2000. These consolidated
financial statements and our report thereon are included in
the Company's annual report on Form 10-K for the year 2000.
In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the
related financial statement schedule as listed under Item
14(a)(2). This financial statement schedule is the
responsibility of the Company's management. Our
responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, this financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG LLP
Kansas City, Missouri
January 31, 2001
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3
<SEQUENCE>2
<FILENAME>0002.txt
<TEXT>
BYLAWS
AMENDED AND RESTATED AS OF MARCH 9, 2001
OF
CERNER CORPORATION
------------------
Offices
1. Registered Office and Registered Agent.
-------------------------------------- The
location of the registered office and the name of the
registered agent of the corporation in the State of Delaware
shall be as stated in the certificate of incorporation or as
determined from time to time by the board of directors and
on file in the appropriate public offices of the State of
Delaware pursuant to applicable provisions of law.
2. Corporate Offices.
----------------- The corporation may have
such other corporate offices and places of business anywhere
within or without the State of Delaware as the board of
directors may from time to time designate or the business of
the corporation may require.
Seal
----
3. Corporate Seal.
-------------- The corporate seal shall have
inscribed thereon the name of the corporation and the words
"Corporate Seal, Delaware". The corporate seal may be used
by causing it or a facsimile thereof to be impressed or
affixed or in any manner reproduced.
Stockholders, Meetings
----------------------
4. Place of Meetings.
----------------- All meetings of the
stockholders shall be held at the offices of the corporation
in the City of North Kansas City, State of Missouri, or at
such other place either within or without the State of
Delaware as shall be designated from time to time by the
board of directors and stated in the notice of the meeting
or in a duly executed waiver of notice thereof.
5. Annual Meeting.
--------------
5.1 An annual meeting of the stockholders of the
corporation shall be held on the second Tuesday in May of
each year, if not a legal holiday, and if a legal holiday,
then on the next secular day following, at 10:00 a.m., or at
such other date and time as shall be designated from time to
time by the board of directors and stated in the notice of
the meeting.
5.2 At an annual meeting of the stockholders, only
such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before
an annual meeting of the stockholders, business must be (a)
specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the board of
directors, (b) otherwise properly brought before the meeting
by or at the direction of the board of directors, or (c)
otherwise properly brought before the meeting by a
stockholder of the corporation who was a stockholder of
record at the time of giving of notice provided for in these
bylaws, who is entitled to vote at the annual meeting and
who complies with the notice procedures set forth in this
<PAGE>
Section 5.2. For business to be properly brought before an
annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of
the corporation. To be timely, a stockholder's notice must
be delivered to or mailed and received at the principal
executive offices of the corporation, not less than one
hundred twenty (120) days prior to the date of such meeting
(as set forth in subparagraph 5.1); provided however, that
in the event that no annual meeting of stockholders was held
in the previous year or the date of the annual meeting has
been changed by more than thirty (30) days from the date
contemplated at the time of the previous year's proxy
statement, notice by the stockholder to be timely must be so
received not later than the close of business on the later
of one hundred twenty (120) calendar days in advance of such
annual meeting or ten (10) calendar days following the date
on which public announcement of the date of the meeting is
first made. Such stockholder's notice to the Secretary
shall set forth (a) a brief description of the business
desired to be brought before the annual meeting, the reasons
for conducting such business at the annual meeting and any
material interest in such business of such stockholder and
the beneficial owner (as such term is defined in Rule 13d-3
as then in effect under the Securities Exchange Act of 1934,
as amended (or any successor thereto) (the "Exchange Act")),
if any, on whose behalf the proposal is made, (b) as to the
stockholder giving the notice and the beneficial owner, if
any, on whose behalf the proposal is made, the name and
address of such stockholder as they appear on the
corporation's books, and of such beneficial owner, (c) the
class and number of shares of the corporation which are
beneficially owned (as such term is defined in Rule 13d-3 as
then in effect under the Exchange Act) and of record by such
stockholder and such beneficial owner and (d) all other
information with respect to each such matter as would have
been required to be included in a proxy statement filed
pursuant to Regulation 14A as then in effect under the
Exchange Act, had proxies been solicited by the board of
directors with respect thereto. Notwithstanding anything in
the Bylaws to the contrary, no business shall be conducted
at an annual meeting except in accordance with the
procedures set forth in this subparagraph 5.2. The
presiding officer of an annual meeting of stockholders
shall, if the facts warrant, have the power and duty to
determine whether the business proposed to be brought before
the meeting was not made in accordance with the provisions
of this subparagraph 5.2, and if he should so determine, he
shall have the power and duty to declare to the meeting that
such business not properly brought before the meeting shall
be disregarded and not transacted.
5.3 Notwithstanding the foregoing provisions of
subparagraph 5.2 and paragraph 18, (a) if any class or
series of stock has the right, voting separately by class or
series, to elect directors at an annual or special meeting
of stockholders, such directors shall be nominated and
elected pursuant to the terms of such class or series of
stock, and (b) a stockholder shall also comply with all
applicable requirements of the Exchange Act and the rules
and regulations thereunder with respect to the matters set
forth in subparagraph 5.2 or paragraph 18. To the extent
subparagraph 5.2 shall be deemed by the board of directors
or the Securities and Exchange Commission, or adjudged by a
court of competent jurisdiction, to be inconsistent with the
rights of stockholders to request inclusion of a proposal in
the corporation's proxy statement pursuant to Rule 14a-8
under the Exchange Act, such rule shall prevail.
6. Special Meetings.
---------------- Special meetings of the
stockholders may be held for any purpose or purposes, unless
otherwise prescribed by statute or by the certificate of
incorporation. Except as otherwise required by law and
subject to the rights, if any, of the holders of any class
or series of stock having a preference over the Common Stock
as to dividends or upon liquidation, special meetings of the
stockholders of the corporation may be called only by the
chairman of the board, by the president, or by the board of
directors pursuant to a resolution approved by a majority of
the entire board of directors. At a special meeting of
<PAGE>
the stockholders, no business shall be transacted and no
corporate action shall be taken other than that stated in
the notice of the meeting.
The "call" and the "notice" of any such meeting
shall be deemed to by synonymous.
7. Voting.
------ At all meetings of stockholders, every
stockholder having the right to vote shall be entitled to
vote in person, or by proxy appointed by an instrument in
writing subscribed by such stockholder and bearing a date
not more than three years prior to said meeting, unless said
instrument shall provide for a longer period. Unless
otherwise provided by the certificate of incorporation or
resolutions adopted by the board of directors in accordance
with the General Corporation Law of Delaware, each
stockholder shall have one vote for each share of stock
entitled to vote at such meeting registered in his name on
the books of the corporation. At all meetings of
stockholders the voting may be otherwise than by ballot,
including the election of directors, except that, unless
otherwise provided by the certificate of incorporation, any
qualified voter may demand a vote by ballot on any matter,
in which event such vote shall be taken by ballot.
8. Quorum.
------ The holders of a majority of the
outstanding shares of stock entitled to vote thereat,
present in person or represented by proxy, shall constitute
a quorum at all meetings of the stockholders for the
transaction of any business, except as otherwise provided by
law, by the certificate of incorporation, or by these
bylaws. Every decision of a majority in amount of stock of
such quorum shall be valid as a corporate act, except in
those specific instances in which a larger vote is required
by law or by the certificate of incorporation or by these
bylaws.
If the holders of a majority of the outstanding
shares of stock entitled to vote are not be present in
person or represented by proxy at a meeting of stockholders,
the holders of a majority of the stock present in person or
by proxy at such meeting shall have power successively to
adjourn the meeting from time to time to a specified time
and place, without notice to anyone other than by
announcement at the meeting, until a quorum shall be present
in person or by proxy. At such adjourned meeting at which a
quorum shall be present in person or by proxy, any business
may be transacted which might have been transacted at the
original meeting which was adjourned. If the adjournment is
for more than thirty (30) days, or if after adjournment a
new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder
of record entitled to vote at the meeting.
9. Stock Ledger.
------------ The original or duplicate stock
ledger shall be the only evidence as to who are the
stockholders entitled to examine the list required under
paragraph 10 of these bylaws or the books of the
corporation, or to vote in person or by proxy at any meeting
of the stockholders.
10. Stockholders, Lists.
------------------- The secretary or
assistant secretary, who shall have charge of the stock
ledger, shall prepare and make, at least ten (10) days
before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name
of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of
at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or,
if not so
<PAGE>
specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof, any
may be inspected by any stockholder who is present.
11. Notice.
------ Written or printed notice of each
meeting of the stockholders, whether annual or special,
stating the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes thereof,
shall be given to each stockholder of record of the
corporation entitled to vote at such meeting, either
personally or by mail, not less than ten (10) days nor more
than sixty (60) days prior to the meeting. If mailed, such
notice shall be deemed to be delivered when it is deposited
in the United States mail with postage thereon addressed to
the stockholder at his address as it appears on the records
of the corporation.
12. Stockholder Action; How Taken.
----------------------------- No action
required or permitted to be taken at any annual or special
meeting of stockholders of the corporation may be taken
without a meeting, and the power of stockholders to consent
in writing, without a meeting, to the taking of any action
is specifically denied.
13. Procedure and Conduct of Meetings.
---------------------------------
13.1 Meetings of stockholders shall be presided
over by the chairman of the board, if any, or in his or her
absence by the vice chairman of the board, if any, or in his
or her absence by the chairman of the executive committee,
if any, or in his or her absence by the president, if any,
or in his or her absence by an executive vice president, if
any, or in his or her absence by a senior vice president, if
any, or in his or her absence by a vice president, or in the
absence of such designation by a chairman chosen at the
meeting by the vote of a majority in interest of the
stockholders present in person or represented by proxy and
entitled to vote thereat. The secretary or in his or her
absence an assistant secretary or in the absence of the
secretary and all assistant secretaries a person whom the
chairman of the meeting shall appoint shall act as secretary
of the meeting and keep a record of the proceedings thereof.
13.2 The board of directors of the corporation
shall be entitled to make such rules or regulations for the
conduct of meetings of stockholders as it shall deem
necessary, appropriate or convenient. Subject to such rules
and regulations of the board of directors, if any, the
chairman of the meeting shall have the right and authority
to prescribe such rules, regulations and procedures and to
do all such acts as, in the judgment of such chairman, are
necessary, appropriate or convenient for the proper conduct
of the meeting, including, without limitation, establishing
an agenda or order of business for the meeting, rules and
procedure for maintaining order at the meeting and the
safety of those present, limitations on participation on
such meeting to stockholders of records of the corporation
and their duly authorized and constituted proxies, and such
other persons as the chairman shall permit, restrictions on
entry to the meeting after the time fixed for the
commencement thereof, limitations on the time allotted to
questions or comments by participants and regulation of the
opening and closing of the polls for balloting and matters
which are to be voted on by ballot. Unless and to the
extent determined by the board of directors or the chairman
of the meeting, meetings of stockholders shall not be
required to be held in accordance with rules of
parliamentary procedure.
13.3 The board of directors shall appoint two or
more Inspectors of Election to serve at every meeting of the
stockholders at which directors are to be elected.
<PAGE>
Board of Directors
------------------
14. Management.
---------- The property, business and affairs
of the corporation shall be managed by or under the
direction of a board of directors. The number of directors
of the corporation (including directors to be elected by the
holders of any one or more series of Preferred Stock voting
separately as a class or classes) shall be seven (7). As
used in these bylaws, the terms "whole board" or "whole
board of directors" mean the total number of directors which
the corporation would have if there were no vacancies. In
addition to the powers and authorities by these bylaws and
the certificate of incorporation expressly conferred upon
it, the board of directors may exercise all such powers of
the corporation, and do all such lawful acts and things as
are not by statute or by the certificate of incorporation or
by these bylaws directed or required to be exercised or done
by the stockholders.
15. Classes.
------- The members of the whole board of
directors, other than those who may be elected by the
holders of any Preferred Stock or series thereof, shall be
divided into three (3) classes (to be designated as Class I,
Class II and Class III), with the term of office of one
class expiring each year. Notwithstanding the foregoing,
and except as otherwise required by law, whenever the
holders of any one or more series of Preferred Stock shall
have the right, voting separately as a class, to elect one
or more directors of the corporation, the terms of the
director or directors elected by such holders shall expire
at the next succeeding annual meeting of stockholders.
Subject to the foregoing, at each annual meeting of
stockholders, the successors to the class of directors whose
term shall then expire shall be elected to hold office for a
term expiring at the third succeeding annual meeting and
until their respective successors shall be elected and
qualified or until their respective earlier resignation or
removal.
16. Vacancies and Newly Created Directorships.
-----------------------------------------
Except for directorships created pursuant to paragraph
FOURTH of the certificate of incorporation relating to the
rights of holders of Preferred Stock or any series thereof,
and except for vacancies in such directorships, any
vacancies in the board of directors for any reason, and any
newly created directorships resulting from any increase in
the authorized number of directors, may be filled by a
majority of the directors then in office, though less than
quorum, or by a sole remaining director, unless it is
otherwise provided in the certificate of incorporation or
these bylaws, and the directors so chosen shall hold office
until the next election of the class for which such
directors shall have been chosen and until their respective
successors are duly elected and qualified, or until their
earlier resignation or removal. No decrease in the number
of directors shall shorten the term of any incumbent
director.
17. Removal of Directors.
-------------------- Notwithstanding any
other provisions of these bylaws (and notwithstanding the
fact that some lesser percentage may be specified by law or
these bylaws), any director or the entire board of directors
of the corporation may be removed at any time, but only for
cause and only by the affirmative vote of the holders of
eighty percent (80%) or more of the Total Voting Power of
the then outstanding shares of Voting Stock, considered for
this purpose as one class (for purposes of this paragraph
17, each share of the Voting Stock shall have the number of
votes granted to it pursuant to paragraph FOURTH of the
corporation's certificate of incorporation). For the
purposes of this paragraph 17, (i) the term "Total Voting
Power" shall mean the aggregate of all votes of all
outstanding shares of Voting Stock; and (ii) the term
"Voting Stock" shall mean the shares of all classes of
capital stock of the corporation entitled to vote on removal
of any director or the entire board of directors in the
manner provided in this paragraph 17 (except that if the
next succeeding sentence is operative, then the outstanding
shares of Preferred Stock shall not be considered "Voting
Stock" for
<PAGE>
purposes of this paragraph 17). Notwithstanding the foregoing,
and except as otherwise required by law, whenever the holders
of any one or more series of Preferred Stock shall have the
right, voting separately as a class, to elect one or more
directors of the corporation, the foregoing provisions of
this paragraph 17 shall not apply with respect to the director
or directors elected by such holders of Preferred Stock.
As used in these bylaws, the term "for cause" is
hereby exclusively defined and limited to mean conviction of
a felony by a court of competent jurisdiction where such
conviction is no longer subject to direct appeal, or an
adjudication by a court of competent jurisdiction of
liability for negligence, or misconduct, in the performance
of the director's duty to the corporation in a matter of
substantial importance to the corporation, where such
adjudication is no longer subject to direct appeal.
18. Notification of Nominations.
--------------------------- Subject to the
rights of holders of Preferred Stock, nominations for the
election of directors may be made by the board of directors
or a proxy committee appointed by the board of directors or
by any stockholder entitled to generally vote in the
election of directors at the meeting of the stockholders at
which directors will be elected. However, any such
stockholder may nominate one or more persons for election as
directors at a meeting only if written notice of such
stockholder's intent to make such nomination or nominations
has been given, either by personal delivery or by United
States mail, postage prepaid, to the Secretary of the
corporation not later than (i) with respect to an election
to be held at an annual meeting of stockholders, one hundred
twenty (120) days in advance of the date of such meeting (as
set forth in paragraph 5 of these bylaws), and (ii) with
respect to an election to be held at a special meeting of
stockholders for the election of directors, the close of
business on the seventh (7th) day following the date on
which notice public announcement of the date of such meeting
is first made. Each such notice shall set forth: (a) the
name and address of the stockholder who intends to make the
nomination and of the person or persons to be nominated; (b)
a representation that the stockholder is a holder of record
of stock of the corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting
to nominate the person or persons specified in the notice;
(c) the name and address, as they appear on the
corporation's books, of such stockholder; (d) the class and
number of shares of the corporation which are beneficially
owned (as defined in Rule 13d-3 as then in effect under the
Exchange Act) by the nominating stockholder and each nominee
proposed by such stockholder; (e) a description of all
arrangements or understandings between the nominating
stockholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder;
(f) such other information regarding each nominee proposed
by such stockholder as would have been required to be
included in a proxy statement filed pursuant to Regulation
14A (17 CFR 240.14a-1 et seq.) as then in effect under the
Securities Exchange Act of 1934, as amended, had the nominee
been nominated, or intended to be nominated, by the board of
directors; and (g) the consent of each nominee to serve as a
director of the corporation if so elected. The chairman of
the meeting may refuse to acknowledge the nomination of any
person not made in compliance with the foregoing procedure.
19. Meetings of the Newly Elected Board - Notice.
--------------------------------------------
The first meeting of the members of the board of directors
after each election with respect to a class of directors
shall be held (i) at such time and place either within or
without the State of Delaware as shall be suggested or
provided by resolution of the stockholders at the meeting at
which such election was held with respect to a class of
directors, and no notice of such meeting shall be necessary
to the newly elected directors in order legally to
constitute the meeting, provided a quorum shall be
<PAGE>
present, (ii) if not so suggested or provided for by
resolution of the stockholders or if a quorum shall not be
present, at such time and place as shall be consented to in
writing by a majority of the newly elected directors,
provided that written or printed notice of such meeting
shall be given to each of the other directors in the same
manner as provided in paragraph 22 of these bylaws with
respect to the givingof notice for special meetings of the
board except that it shall not be necessary to state the purpose
of the meeting in such notice, or (iii) regardless of whether or
not the time and place of such meeting shall be suggested or
provided for by resolution of the stockholders, at such time
and place as shall be consented to in writing by all of the
newly elected directors.
Every director of the corporation, upon his
election, shall qualify by accepting the office of director,
and his attendance at, or his written approval of the
minutes of, any meeting of the board subsequent to his
election shall constitute his acceptance of such office; or
he may execute such acceptance by a separate writing, which
shall be placed in the minute book.
20. Regular Meetings.
---------------- Regular meetings of the
board of directors may be held without notice at such times
and places either within or without the State of Delaware as
shall from time to time be fixed by resolution adopted by
the whole board of directors. Any business may be
transacted at a regular meeting.
21. Special Meetings.
---------------- Special meetings of the
board of directors may be called at any time by the chairman
of the board, the president, any vice president or the
secretary, or by any two (2) or more of the directors. The
place may be within or without the State of Delaware as
designated in the notice.
22. Notice of Special Meetings.
-------------------------- Written or printed
notice of each special meeting of the board, stating the
place, day and hour of the meeting and the purpose or
purposes thereof, shall be mailed to each director addressed
to him at his residence or usual place of business at least
three (3) days before the day on which the meeting is to be
held, or shall be sent to him by telegram, or delivered to
him personally, at least two (2) days before the day on
which the meeting is to be held. If mailed, such notice
shall be deemed to be delivered when it is deposited in the
United States mail with postage thereon addressed to the
director at his residence or usual place of business. If
given by telegraph, such notice shall be deemed to be
delivered when it is delivered to the telegraph company.
The notice may be given by any officer having authority to
call the meeting. "Notice" and "call" with respect to such
meetings shall be deemed to be synonymous. Any meeting of
the board of directors shall be a legal meeting without any
notice thereof having been given if all directors shall be
present.
23. Meetings by Conference Telephone or Similar
-------------------------------------------
Communications Equipment.
- - - - ------------------------ Unless otherwise restricted by
the certificate of incorporation or these bylaws, members of
the board of directors of the corporation, or any committee
designated by the board, may participate in a meeting of the
board or committee by means of conference telephone or
similar communications equipment by means of which all
persons participating in the meeting can hear each other,
and participation in a meeting by that means shall
constitute presence in person at such meeting.
24. Quorum.
------ Unless otherwise required by law, the
certificate of incorporation or these bylaws, a majority of
the total number of directors shall be necessary at all
meetings to constitute a quorum for the transaction of
business and, except as may be otherwise provided by law,
the certificate of incorporation or these bylaws, the act of
a majority of the
<PAGE>
directors present at any meeting at which there is a quorum
shall be the act of the board of directors.
If at least two (2) directors or one third (1/3) of
the whole board of directors, whichever is greater, is
present at any meeting at which a quorum is not present, a
majority of the directors present at such meeting shall have
power successively to adjourn the meeting from time to time
to a subsequent date, without notice to any director other
than announcement at the meeting. At such adjourned meeting
at which a quorum is present, any business may be transacted
which might have been transacted at the original meeting
which was adjourned.
25. Standing or Temporary Committees.
-------------------------------- The board of
directors may, by resolution or resolutions passed by a
majority of the whole board, designate one (1) or more
committees, each committee to consist of one (1) or more
directors of the corporation. The board may designate one
(1) or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any
meeting of the committee. In the absence or
disqualification of a member of a committee, the member of
members thereof present at 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. Any such committee, to the
extent provided in the resolution of the board of directors
or in these bylaws, shall have and may exercise all of the
powers and authority 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; but no such committee
shall have the power or authority of the board of directors
with respect to amending the certificate of incorporation,
adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange
of all or substantially all of the corporation's property
and assets, recommending to the stockholders a dissolution
of the corporation or a revocation of a dissolution,
amending the bylaws of the corporation, declaring a dividend
or making any other distribution to the stockholders,
authorizing the issuance of stock otherwise than pursuant to
the grant or exercise of a stock option under employee stock
option plans of the corporation, or appointing any member of
any committee of the board of directors.
Such committee or committees shall have such name
or names as may be determined from time to time by
resolution adopted by the board of directors. All
committees so appointed shall, unless otherwise provided by
the board of directors, keep regular minutes of the
transactions at their meetings and shall cause them to be
recorded in books kept for that purpose in the office of the
corporation and shall report the same to the board of
directors at its next meeting. The secretary or an
assistant secretary of the corporation may act as secretary
of the committee if the committee so requests.
26. Compensation.
------------ Unless otherwise restricted by
the certificate of incorporation, the board of directors
may, by resolution, fix the compensation to be paid
directors for serving as directors of the corporation and
may, by resolution, fix a sum which shall be allowed and
paid for attendance at each meeting of the board of
directors and may provide for reimbursement of expenses
incurred by directors in attending each meeting; provided
that nothing herein contained shall be construed to preclude
any director from serving the corporation in any other
capacity and receiving his regular compensation therefor.
Members of special or standing committees may be allowed
similar compensation for attending committee meetings.
<PAGE>
27. Resignations.
------------ Any director may resign at any
time upon written notice to the corporation. Such
resignation shall take effect at the time specified therein
or shall take effect upon receipt thereof by the corporation
if no time is specified therein; and unless otherwise
specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
28. Indemnification of Directors and Officers.
-----------------------------------------
(a) Indemnification in Actions by Third Parties.
-------------------------------------------
The corporation shall indemnify each person who has been or
is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, investigative or
appellate (other than an action by or in the right of the
corporation) by reason of the fact that such person is or
was an officer or director of the corporation or is or was
serving at the corporation's request as a director or
officer of any Other Enterprise against all liabilities and
expenses, including, without limitation, judgments, amounts
paid in settlement (provided that such settlement and all
amounts paid in connection therewith are approved in advance
by the corporation in accordance with paragraph (d) of this
paragraph 28, which approval shall not be unreasonably
withheld), attorneys' fees, ERISA excise taxes or penalties,
fines and other expenses actually and reasonably incurred by
such person in connection with such action, suit or
proceeding (including without limitation the investigation,
defense, settlement or appeal of such action, suit or
proceeding) if such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful; provided, however, that
the corporation shall not be required to indemnify or
advance expenses to any such person or person seeking
indemnification or advancement of expenses in connection
with an action, suit or proceeding initiated by such person
unless the initiation of such action, suit or proceeding was
authorized by the board of directors of the corporation.
The termination of any such action, suit or proceeding by
judgment, order, settlement, conviction or under a plea of
nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the corporation, and
with respect to any criminal action or proceeding that he
had reasonable cause to believe that his conduct was
unlawful.
(b) Indemnification in Derivative Actions.
------------------------------------- The
corporation shall indemnify each person who has been or is a
party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding by or in the
right of the corporation to procure a judgment in its favor
by reason of the fact that such person is or was an officer
of director of the corporation or is or was serving at the
corporation's request as a director or officer of any Other
Enterprise against amounts paid in settlement thereof
(provided that such settlement and all amounts paid in
connection therewith are approved in advance by the
corporation in accordance with subparagraph (d) of this
paragraph 28, which approval shall not be unreasonably
withheld) and all expenses (including attorneys' fees)
actually and reasonably incurred by such person in
connection with the defense or settlement of such action,
suit or proceeding (including without limitation the
investigation, defense, settlement or appeal of such action,
suit or proceeding) if such person acted in good faith and
in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation, except
that no indemnification under this subparagraph (b) shall be
made in respect of any claim, issue or matter as to which
such person shall have been adjudged liable to the
corporation unless and only to the extent that the court in
which the action, suit or proceeding is brought determines
upon application that, despite the
<PAGE>
adjudication of liability and in view of all the circumstances of
the case, the person is fairly and reasonably entitled to such
indemnification.
(c) Indemnification for Expenses.
---------------------------- Notwithstanding
the other provisions of this paragraph 28, to the extent
that a person who is or was serving as a director or officer
of the corporation, or is or was serving at the request of
the corporation as a director or officer of any Other
Enterprise, has been successful on the merits or otherwise
in defense of any action, suit or proceeding referred to in
subparagraphs (a) and (b) of this paragraph 28 (including
the dismissal of any such action, suit or proceeding without
prejudice), or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(d) Determination of Right to Indemnification.
-----------------------------------------
Prior to indemnifying a person pursuant to the provisions of
subparagraphs (a) and (b) of this paragraph 28, unless
ordered by a court and except as otherwise provided by
subparagraph (c) of this paragraph 28, the corporation shall
determine that such person has met the specified standard of
conduct entitling such person to indemnification as set
forth under subparagraphs (a) and (b) of this paragraph 28.
Any determination that a person shall or shall not be
indemnified under the provisions of subparagraphs (a) and
(b) of this paragraph 28 shall be made by the board of
directors by a majority vote of a quorum consisting of
directors who were not parties to the action, suit or
proceeding, or if such quorum is not obtainable, or even if
obtainable, if a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion
or by the stockholders, and such determination shall be
final and binding upon the corporation; provided, however,
that in the event such determination is adverse to the
person or persons to be indemnified hereunder, such person
or persons shall have the right to maintain an action in any
court of competent jurisdiction against the corporation to
determine whether or not such person has met the requisite
standard of conduct and is entitled to such indemnification
hereunder. If such court action is successful and the
person or persons is determined to be entitled to such
indemnification, such person or persons shall be reimbursed
by the corporation for all fees and expenses (including
attorneys' fees) actually and reasonably incurred in
connection with any such action (including without
limitation the investigation, defense, settlement or appeal
of such action).
(e) Advancement of Expenses.
----------------------- Expenses (including
attorneys' fees) actually and reasonably incurred by a
person who may be entitled to indemnification hereunder in
defending an action, suit or proceeding, whether civil,
criminal, administrative, investigative or appellate, shall
be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such person to repay
such amount if it shall ultimately be determined that he is
not entitled to indemnification by the corporation.
Notwithstanding the foregoing, no advance shall be made by
the corporation if a determination is reasonably and
promptly made by (i) the board of directors by a majority
vote of a quorum consisting of directors who were not
parties to the action, suit or proceeding for which the
advancement is requested, (ii) if a quorum is not
obtainable, or even if obtainable, if a quorum of
disinterested directors so directs, by independent legal
counsel in a written opinion, or (iii) by the stockholders,
that, based upon the facts known to the board, counsel or
stockholders at the time such determination is made, such
person acted in bad faith and in a manner that such person
did not believe to be in or not opposed to the best interest
of the corporation, or, with respect to any criminal
proceeding, that such person believed or had reasonable
cause to believe his conduct was unlawful. In no event
shall any advance be made in instances where the board,
<PAGE>
stockholders or independent legal counsel reasonably
determines that such person deliberately breached his duty
to the corporation or its stockholders.
(f) Non-Exclusivity.
--------------- The indemnification and
advancement of expenses provided by this paragraph 28 shall
not be exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled
under any statute, under the certificate of incorporation,
bylaws, agreement, vote of stockholders or disinterested
directors, policy of insurance or otherwise, both as to
action in their official capacity and as to action in
another capacity while holding their respective offices, and
shall not limit in any way any right which the corporation
may have to make additional indemnifications with respect to
the same or different persons or classes of persons. The
indemnification and advancement of expenses provided by, or
granted pursuant to, this paragraph 28 shall continue as to
a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs,
executors, administrators and estate of such a person.
(g) Insurance.
--------- Upon resolution passed by the board
of directors, the corporation may purchase and maintain
insurance on behalf of any person who is or was a director
or officer of the corporation, or is or was serving at the
request of the corporation as a director or officer of any
Other Enterprise, against any liability asserted against him
and incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would
have the power to indemnify him against such liability under
the provisions of this paragraph.
(h) Vesting of Rights.
----------------- The rights granted by this
paragraph 28 shall be vested in each person entitled to
indemnification hereunder as a bargained-for, contractual
condition of such person's acceptance of his election or
appointment as a director or officer of the corporation or
serving at the request of the corporation as a director of
officer of any Other Enterprise and while this paragraph 28
may be amended or repealed, no such amendment or repeal
shall release, terminate or adversely affect the rights of
such person under this paragraph 28 with respect to any act
taken or the failure to take any act by such person prior to
such amendment or repeal or with respect to any action, suit
or proceeding with respect to such act or failure to act
filed after such amendment or repeal.
(i) Definition of the "Corporation".
------------------------------- For purposes
of this paragraph 28, references to "the corporation" shall,
if and only if the board of directors shall determine,
include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power
and authority to indemnify its directors or officers or
persons serving at the request of such constituent
corporation as a director or officer of any Other
Enterprise, so that any person who is or was a director or
officer of such constituent corporation, or is or was
serving at the request of such constituent corporation as a
director or officer of any Other Enterprise, shall stand in
the same position under the provisions of this paragraph 28
with respect to the resulting or surviving corporation as
such person would have with respect to such constituent
corporation if its separate existence had continued.
(j) Certain Definitions.
------------------- For the purpose of this
paragraph 28, references to "Other Enterprises" or "Other
Enterprise" shall include without limitation any other
corporation, partnership, joint venture, trust or employee
benefit plan; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee
benefit plan; references to "defense" shall include
investigations of any threatened, pending or completed
action, suit or
<PAGE>
proceeding as well as appeals thereof and shall also include any
defensive assertion of a cross claim or counterclaim and references
to "serving at the request of the corporation" shall include any
service as a director or officer of a corporation which imposes
duties on, or involves services by, such director or officer with
respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to
the best interests of the corporation" as referred to in
this paragraph 28. For the purpose of this paragraph 28,
unless the board of directors of the corporation shall
determine otherwise, any director or officer of the
corporation who shall serve as an officer or director of any
Other Enterprise of which the corporation, directly or
indirectly, is a stockholder or creditor, or in which the
corporation is in any way interested, shall be presumed to
be serving as such director or officer at the request of the
corporation. In all other instances where any person shall
serve as a director or officer of an Other Enterprise, if it
is not otherwise established that such person is or was
serving as such director or officer at the request of the
corporation, the board of directors of the corporation shall
determine whether such person is or was serving at the
request of the corporation, and it shall not be necessary to
show any actual or prior request for such service, which
determination shall be final and binding on the corporation
and the person seeking indemnification.
(k) Severability.
------------ If any provision of this
paragraph 28 or the application of any such provision to any
person or circumstance is held invalid, illegal or
unenforceable for any reason whatsoever, the remaining
provisions of this paragraph 28 and the application of such
provisions to other persons or circumstances shall not be
affected thereby and to the fullest extent possible the
court finding such provision invalid, illegal or
unenforceable shall modify and construe the provision so as
to render it valid and enforceable as against all persons or
entities and to give the maximum possible protection to
persons subject to indemnification hereby within the bounds
of validity, legality and enforceability. Without limiting
the generality of the foregoing, if any officer or director
of the corporation or any person who is or was serving at
the request of the corporation as a director or officer of
any Other Enterprise, is entitled under any provision of
this paragraph 28, to indemnification by the corporation for
some or a portion of the judgments, amounts paid in
settlement, attorneys' fees, ERISA excise taxes or
penalties, fines or other expenses actually and reasonably
incurred by any such person in connection with any
threatened, pending or completed action, suit or proceeding
(including without limitation, the investigation, defense,
settlement or appeal of such action, suit or proceeding),
whether civil, criminal, or administrative, investigative or
appellate, but not, however, for all of the total amount
thereof, the corporation shall nevertheless indemnify such
person for the portion thereof to which such person is
entitled.
29. Action without a Meeting.
------------------------ Unless otherwise
restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any
meeting of the board of directors or any committee thereof
may be taken without a meeting if written consent thereto is
signed by all members of the board of directors or of such
committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the board or
committee.
Officers
--------
30. (a) Officers - Who Shall Constitute.
------------------------------- The
officers of the corporation shall be a chairman of the
board, a president, one or more vice presidents, a
secretary, a treasurer, one or more assistant secretaries
and one or more assistant treasurers. The board shall elect
a president and a secretary at its first meeting after each
annual meeting of the stockholders. The
<PAGE>
board then, or from time to time, may also elect one or more of
the other prescribed officers as it may deem advisable, but need
not elect any officers other than a president and a secretary.
The board may, if it desires, elect or appoint additional
officers and may further identify or describe any one or
more of the officers of the corporation.
Officers of the corporation need not be members of
the board of directors. Any two (2) or more offices may be
held by the same person.
An officer shall be deemed qualified when he enters
upon the duties of the office to which he has been elected
or appointed and furnishes any bond required by the board;
but the board may also require his written acceptance and
promise faithfully to discharge the duties of such office.
(b) Term of Office.
-------------- Each officer of the
corporation shall hold his office at the pleasure of the
board of directors or for such other period as the board may
specify at the time of his election or appointment, or until
his death, resignation or removal by the board, whichever
first occurs. In any event, each officer of the corporation
who is not reelected or reappointed at the annual election
of officers by the board next succeeding his election or
appointment shall be deemed to have been removed by the
board, unless the board provides otherwise at the time of
his election or appointment.
(c) Other Agents.
------------ The board from time to time may
also appoint such other agents for the corporation as it
shall deem necessary or advisable, each of whom shall serve
at the pleasure of the board or for such period as the board
may specify, and shall exercise such powers, have such
titles and perform such duties as shall be determined from
time to time by the board or by an officer empowered by the
board to make such determinations.
31. The Chairman of the Board.
------------------------- If a chairman of
the board be elected, he shall preside at all meetings of
the stockholders and directors at which he may be present
and shall have such other duties, powers and authority as
may be prescribed elsewhere in these bylaws. The board of
directors may delegate such other authority and assign such
additional duties to the chairman of the board, other than
those conferred by law exclusively upon the president, as it
may from time to time determine, and, to the extent
permissible by law, the board may designate the chairman of
the board as the chief executive officer of the corporation
with all of the powers otherwise conferred upon the
president of the corporation under paragraph 32 of these
bylaws, or it may, from time to time, divide the
responsibilities, duties and authority for the general
control and management of the corporation's business and
affairs between the chairman of the board and the president.
32. The President.
------------- Unless the board otherwise
provides, the president shall be the chief executive officer
of the corporation with such general executive powers and
duties of supervision and management as are usually vested
in the office of the chief executive officer of a
corporation, and he shall carry into effect all directions
and resolutions of the board. The president, in the absence
of the chairman of the board or if there be no chairman of
the board, shall preside at all meetings of the stockholders
and directors.
The president may execute all bonds, notes,
debentures, mortgages and other instruments for and in the
name of the corporation, may cause the corporate seal to be
affixed thereto, and may execute all other instruments for
and in the name of the corporation.
<PAGE>
Unless the board otherwise provides, the president,
or any person designated in writing by him, shall have full
power and authority on behalf of this corporation (i) to
attend and to vote or take action at any meeting of the
holders of securities of corporations in which this
corporation may hold securities, and at such meetings shall
possess and may exercise any and all rights and powers
incident to being a holder of such securities, and (ii) to
execute and deliver waivers of notice and proxies for and in
the name of the corporation with respect to any securities
held by the corporation.
He shall, unless the board otherwise provides, be
ex officio a member of all standing committees.
He shall have such other or further duties and
authority as may be prescribed elsewhere in these bylaws or
from time to time by the board of directors.
If a chairman of the board be elected or appointed
and designated as chief executive officer of the
corporation, as provided in paragraph 31, of these bylaws,
the president shall perform such duties as may be
specifically delegated to him by the board of directors or
are conferred by law exclusively upon him, and in the
absence, disability, or inability or refusal to act of the
chairman of the board, the president shall perform the
duties and exercise the powers of the chairman of the board.
33. Vice Presidents.
--------------- In the absence of the
president or in the event of his disability, or inability or
refusal to act, any vice president may perform the duties
and exercise the powers of the president until the board
otherwise provides. Vice presidents shall perform such
other duties as the board may from time to time prescribe.
34. Secretary and Assistant Secretaries.
----------------------------------- The
secretary shall attend all sessions of the board and all
meetings of the stockholders, shall prepare minutes of all
proceedings at such meetings and shall preserve them in a
minute book of the corporation. He shall perform similar
duties for the executive committee and other standing
committees when requested by the board or any such
committee.
The secretary shall see that all books, records,
lists and information, or duplicates, required to be
maintained in Delaware, or elsewhere, are so maintained.
The secretary shall keep in safe custody the seal
of the corporation, and shall have authority to affix the
seal to any instrument requiring a corporate seal and, when
so affixed, he shall attest the seal by his signature. The
board of directors may give general authority to any other
officer to affix the seal of the corporation and to attest
the affixing by his signature.
The secretary shall have the general duties,
responsibilities and authorities of a secretary of a
corporation and shall perform such other duties and have
such other responsibility and authority as may be prescribed
elsewhere in these bylaws or from time to time by the board
of directors or the chief executive officer of the
corporation, under whose direct supervision he shall be.
In the absence of the secretary or in the event of
his disability, or inability or refusal to act, any
assistant secretary may perform the duties and exercise the
powers of the secretary until the board otherwise provides.
Assistant secretaries shall perform such other duties as the
board of directors may from time to time prescribe.
<PAGE>
35. The Treasurer and Assistant Treasurers.
-------------------------------------- The
treasurer shall have responsibility for the safekeeping of
the funds and securities of the corporation, shall keep or
cause to be kept full and accurate accounts of receipts and
disbursements in books belonging to the corporation and
shall keep, or cause to be kept, all other books of account
and accounting records of the corporation. He shall deposit
or cause to be deposited all moneys and other valuable
effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of
directors or by any officer of the corporation to whom such
authority has been granted by the board.
He shall disburse, or permit to be disbursed, the
funds of the corporation as may be ordered, or authorized
generally, by the board, and shall render to the chief
executive officer of the corporation and the directors
whenever they may require it, an account of all his
transactions as treasurer and of those under his
jurisdiction, and of the financial condition of the
corporation.
He shall perform such other duties and shall have
such other responsibility and authority as may be prescribed
elsewhere in these bylaws or from time to time by the board
of directors.
He shall have the general duties, powers and
responsibility of a treasurer of a corporation and shall,
unless otherwise provided by the board, be the chief
financial and accounting officer of the corporation.
If required by the board, he shall give the
corporation a bond in a sum and with one or more sureties
satisfactory to the board, for the faithful performance of
the duties of his office and for the restoration to the
corporation, in the case of his death, resignation,
retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his
possession or under his control which belong to the
corporation.
In the absence of the treasurer or in the event of
his disability, or inability or refusal to act, any
assistant treasurer may perform the duties and exercise the
powers of the treasurer. Assistant treasurers shall perform
such other duties and have such other authority as the board
of directors may from time to time prescribe.
36. Duties of Officers May be Delegated.
----------------------------------- If any
officer of the corporation be absent or unable to act, or
for any other reason that the board may deem sufficient, the
board may delegate, from the time being, some or all of the
functions, duties, powers and responsibilities of any
officer to any other officer, or to any other agent or
employee of the corporation or other responsible person,
provided a majority of the whole board concurs.
37. Removal.
------- Any officer or agent elected or
appointed by the board of directors, and any employee, may
be removed or discharged by the board whenever in its
judgment the best interests of the corporation would be
served thereby, but such removal or discharge shall be
without prejudice to the contract rights, if any, of the
person so removed or discharged.
38. Salaries and Compensation.
------------------------- Salaries and
compensation of all elected officers of the corporation
shall be fixed, increased or decreased by the board of
directors, but this power, except as to the salary or
compensation of the chairman of the board and the
<PAGE>
president, may, unless prohibited by law, be delegated by the
board to the chairman of the board or the president, or may be
delegated to a committee. Salaries and compensation of all
appointed officers, agents and employees of the corporation
may be fixed, increased or decreased by the board of
directors, but until action is taken with respect thereto by
the board of directors, the same may be fixed, increased or
decreased by the president or such other officer or officers
as may be empowered by the board of directors to do so.
39. Delegation of Authority to Hire, Discharge and
----------------------------------------------
Designate Duties.
- - - - ---------------- The board from time to time may delegate
to the chairman of the board, the president or other officer
or executive employee of the corporation, authority to hire,
discharge and fix and modify the duties, salary or other
compensation of employees of the corporation under their
jurisdiction, and the board may delegate to such officer or
executive employee similar authority with respect to
obtaining and retaining for the corporation the services of
attorneys, accountants and other experts.
Stock
-----
40. Certificates for Shares of Stock.
-------------------------------- Certificates
for shares of stock shall be issued in numerical order, and
each stockholder shall be entitled to a certificate signed
by, or in the name of the corporation by, the chairman of
the board or the president or a vice president, and by the
treasurer or an assistant treasurer or the secretary or an
assistant secretary, certifying the number of shares owned
by him. Any of or all the signatures on such certificate
may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate
is issued, such certificate may nevertheless be issued by
the corporation with the same effect as if such officer,
transfer agent or registrar who signed such certificate, or
whose facsimile signature shall have been used thereon, had
not ceased to be such officer, transfer agent or registrar
of the corporation.
41. Transfers of Stock.
------------------ Transfers of stock shall
be made only upon the stock transfer books of the
corporation, kept at the office of the corporation or of the
transfer agent designated to transfer the class of stock,
and before a new certificate is issued the old certificate
shall be surrendered for cancellation. Until and unless the
board appoints some other person, firm or corporation as its
transfer agent (and upon the revocation of any such
appointment, thereafter until a new appointment is similarly
made) the secretary of the corporation shall be the transfer
agent of the corporation without the necessity of any formal
action of the board, and the secretary, or any person
designated by him, shall perform all of the duties thereof.
42. Registered Stockholders.
----------------------- Only registered
stockholders shall be entitled to be treated by the
corporation as the holders and owners in fact of the shares
standing in their respective names, and the corporation
shall not be bound to recognize any equitable or other claim
to or interest in such shares on the part of any other
person, whether or not it shall have express or other notice
thereof, except as expressly provided by applicable federal
law or by the laws of Delaware.
43. Lost Certificates.
----------------- The board of directors may
direct that a new certificate or certificates be issued in
place of any certificate or certificates theretofore issued
by the corporation, alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate or certificates to be
lost, stolen or destroyed. When authorizing such issue of a
replacement certificate or certificates, the board of
directors
<PAGE>
may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative,
to give the corporation and its transfer agents and registrars,
if any, a bond in such sum as it may direct to indemnify it against
any claim that may be made against it with respect to the certificate
or certificates alleged to have been lost, stolen or destroyed
or with respect to the issuance of such new certificate or
certificates.
44. Regulations.
----------- The board of directors shall have
power and authority to make all such rules and regulations
as it may deem expedient concerning the issue, transfer,
conversion and registration of certificates for shares of
stock of the corporation, not inconsistent with the laws of
Delaware, the certificate of incorporation of the
corporation and these bylaws.
45. Fixing Record Date.
------------------ In order that the
corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate
action in writing without a meeting, if such action is
authorized, or entitled to receive payment of any dividend
or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty
(60) days nor less than ten (10) days before the date of
such meeting, nor more than sixty (60) days prior to any
other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new
record date for the adjourned meeting.
Dividends and Finance
---------------------
46. Dividends.
--------- Dividends upon the outstanding
shares of stock of the corporation, subject to the
provisions of the certificate of incorporation and of any
applicable law and of these bylaws, may be declared by the
board of directors at any meeting. Subject to such
provisions, dividends may be paid in cash, in property or in
shares of stock of the corporation.
47. Creation of Reserves.
-------------------- The directors may set
apart out of any of the funds of the corporation available
for dividends a reserve or reserves for any proper purpose
or may abolish any such reserve in the manner in which it
was created.
48. Depositories.
------------ The moneys of the corporation
shall be deposited in the name of the corporation in such
bank or banks or other depositories as the board of
directors shall designate, and shall be drawn out only by
check signed by persons designated by resolution adopted by
the board of directors, except that the board of directors
may delegate said powers in the manner hereinafter provided
in this paragraph 48. The board of directors may by
resolution authorize an officer or officers of the
corporation to designate any bank or banks or other
depositories in which moneys of the corporation may be
deposited, and to designate the persons who may sign checks
drawn on any particular account or accounts of the
corporation, whether created by direct designation of the
board of directors or by an authorized officer or officers
as aforesaid.
49. Fiscal Year.
----------- The board of directors shall have
power to fix and from time to time change the fiscal year of
the corporation. In the absence of action by the board of
directors, the fiscal year of the corporation shall end each
year on the date which the corporation
<PAGE>
treated as the close of its first fiscal year, until such time,
if any, as the fiscal year shall be changed by the board of
directors.
50. Directors, Annual Statement.
--------------------------- The board of
directors may present at each annual meeting of the
stockholders, and when called for by vote of the
stockholders shall present to any annual or special meeting
of the stockholders, a full and clear statement of the
business and condition of the corporation.
Books and Records
-----------------
51. Books, Accounts and Records.
--------------------------- The books,
accounts and records of the corporation, except as may be
otherwise required by the laws of the State of Delaware, may
be kept outside of the State of Delaware, at such place or
places as the board of directors may from time to time
determine. The board of directors shall determine whether,
to what extent and the conditions upon which the books,
accounts and records of the corporation, or any of them,
shall be open to the inspection of the stockholders, and no
stockholder shall have any right to inspect any book,
account or record of the corporation, except as conferred by
law or by resolution of the stockholders or directors.
Miscellaneous
-------------
52. Waiver of Notice.
---------------- Whenever any notice is
required to be given under the provisions of the statutes of
Delaware or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the
time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person
attends a meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the
stockholders, directors or members of a committee of
directors need be specified in any written waiver of notice
unless so required by the certificate of incorporation or
these bylaws.
53. Contracts.
--------- The board of directors may
authorize any officer or officers, or agent or agents, to
enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation,
and such authority may be general or confined to specific
instances.
54. Amendments.
---------- These bylaws may be altered,
amended or repealed, or new bylaws may be adopted, in the
manner provided in the certificate of incorporation.
55. Business Combinations.
--------------------- The corporation shall
not be governed by the provisions of Section 203 of the
Delaware General Corporation Law.
<PAGE>
CERTIFICATE
-----------
The undersigned secretary of Cerner Corporation, a
Delaware corporation, hereby certifies that the foregoing
bylaws are the bylaws of said corporation as amended and as
adopted by the directors of the corporation.
Dated: March 9, 2001.
/s/ Randy D. Sims
----------------------------
Randy D. Sims, Secretary
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>3
<FILENAME>0003.txt
<TEXT>
CERNER CORPORATION
NONQUALIFIED STOCK OPTION PLAN D
AS AMENDED THROUGH DECEMBER 8, 2000
1. Purpose of Plan.
---------------- The purpose of the Plan is to encourage
the employees and directors of Cerner Corporation (the "Company")
and its subsidiaries and consultants and advisors to the Company
and its subsidiaries to participate in the ownership of the
Company, and to provide additional incentive for such persons to
promote the success of its business through sharing in the future
growth of such business.
2. Effectiveness of Plan.
--------------------- The provisions of this Plan shall
become effective on the date the Plan is adopted by the Board of
Directors of the Company (the "Board of Directors"), and shall
govern all options granted hereunder. Nothing in this Plan shall
be construed as a modification of any provision of the Cerner
Corporation Incentive Stock Option Plan A, the Cerner Corporation
Incentive Stock Option Plan B or the Cerner Corporation Incentive
Stock Option Plan C.
3. Administration.
-------------- This Plan shall be administered by a
committee of the Board of Directors consisting of not less than
two nor more than five members of the Board of Directors (the
"Committee") appointed by the members of the Board of Directors.
Subject to the terms, provisions and conditions of the Plan, the
Committee shall have exclusive authority (i) to select the
persons to whom options shall be granted, (ii) to determine the
number of shares subject to each option, (iii) to determine the
time or times when options will be granted, (iv) to determine the
option price of the shares subject to each option, (v) to
determine the time when each option may be exercised, (vi) to fix
such other provisions of each option agreement as the Committee
may deem necessary or desirable, consistent with the terms of
this Plan, and (vii) to determine all other questions relating to
the administration of this Plan; provided however, that any grant
of an option to one individual in excess of 100,000 shares shall
required approval of the Board of Directors.
4. Eligibility.
----------- Options to purchase shares of common stock of
the Company ("Cerner Common Stock") shall be granted under this
Plan only to directors and employees of the Company or of any of
its subsidiaries and to advisors and consultants to the Company
and any of its subsidiaries.
5. Shares Subject to the Plan.
-------------------------- Options granted under this Plan
shall be granted solely with respect to shares of Cerner Common
Stock. Subject to any adjustments made pursuant to the
provisions of paragraph 10, the aggregate number of shares of
Cerner Common Stock which may be issued upon exercise of all the
options which may be granted under this Plan shall not exceed
1,300,000. If any option granted under this Plan shall expire or
terminate for any reason without having been exercised in full,
the unpurchased shares subject to such option shall be added to
the number of shares otherwise available for options which may be
granted in accordance with the terms of this Plan. The shares to
be delivered upon exercise of the options granted under this Plan
shall be made available, at the discretion of the Committee, from
either the authorized but unissued shares of Cerner Common Stock
or any treasury shares of Cerner Common Stock held by the
Company.
6. Option Agreement.
---------------- Each option granted under this Plan shall
be evidenced by a nonqualified stock option agreement, which
shall be signed by an officer of the Company and by the employee
to whom the option is granted (the "optionee"). The terms of
said nonqualified stock option agreement shall be in accordance
with the provisions of this Plan, but it may include such other
provisions as may be approved by the Committee. The granting of
an option under this Plan shall be deemed to occur on the date on
which the nonqualified stock option agreement evidencing such
option is executed by the
<PAGE>
Company and the optionee. Each nonqualified stock option
agreement shall constitute a binding contract between the
Company and the optionee, and every optionee, upon the
execution of a nonqualified stock option agreement, shall be
bound by the terms and restrictions of this Plan and such
nonqualified stock option agreement.
7. Option Price.
------------- The price at which shares of Cerner Common
Stock may be purchased under an option granted pursuant to this
Plan shall be determined by the Committee.
8. Period and Exercise of Option.
-----------------------------
(a) Period--The period during which each option granted
under this Plan may be exercised shall be fixed by the Committee
at the time such option is granted.
(b) Exercise--Any option granted under this Plan may be
exercised by the optionee (or such other person as the Committee
may determine), subject to designation by the Committee in the
stock option agreement, only by (i) delivering to the Company
written notice of the number of shares with respect to which he
is exercising his option right, (ii) paying in full the option
price of the purchased shares in cash or (iii) by delivery to the
Company of that number of shares of Cerner Common Stock having a
fair market value on the date of exercise equal to the sum of the
exercise price of the options to be exercised or (iv)
surrendering on the date of exercise that number of options
which, when multiplied by the excess of the fair market value of
the stock which is subject to the surrendered options on the date
of exercise over the exercise price for said options, results in
a product that is equal to the sum of the exercise price of the
remaining options being exercised. Subject to the limitations of
this Plan and the terms and conditions of the respective stock
option agreement, each option granted under this Plan shall be
exercisable in whole or in part at such time or times as the
Committee may specify in such stock option agreement.
(c) Delivery of certificates--As soon as practicable after
receipt by the Company of the notice described in subsection (b),
and of payment in full of the option price for all of the shares
being purchased pursuant to an option granted under this Plan, a
certificate or certificates representing such shares of stock
shall be registered in the name of the optionee and shall be
delivered to the optionee. However, no certificate for
fractional shares of stock shall be issued by the Company
notwithstanding any request therefor. Neither any optionee, nor
the legal representative, legatee or distributee of any optionee,
shall be deemed to be a holder of any shares of stock subject to
an option granted under this Plan unless and until the
certificate or certificates for such shares have been issued.
(d) Limitations on exercise--The Committee may impose such
limitations on the exercise of any specific nonqualified stock
option agreement as it deems appropriate.
9. Nontransferability of Options.
----------------------------- No option granted under
this Plan shall be transferable or assignable by the optionee
other than by will or by the laws of descent and distribution
unless expressly permitted under the terms of the stock option
agreement or as otherwise permitted by the Stock Option Committee
for Stock Option Plan D from time to time.
10. Adjustments Upon Changes in Capitalization.
------------------------------------------ In the event of
any change in the capital structure of the Company, including but
not limited to a change resulting from a stock dividend, stock
split, reorganization, merger, consolidation, liquidation or any
combination or exchange of shares, the number of shares of Cerner
Common Stock subject to this Plan and the number of such shares
subject to each option granted hereunder shall be correspondingly
adjusted by the Committee. The option price for
<PAGE> 2
which shares of Cerner Common Stock may be purchased pursuant
to an option granted under this Plan shall also be adjusted so
that there will be no change in the aggregate purchase price
payable upon the exercise of any option.
11. Amendment and Termination of Plan.
----------------------------------- No option shall be
granted pursuant to this Plan after January 1, 2005, on which
date this Plan will expire except as to options then outstanding,
which options shall remain in effect until they have been
exercised or have expired. The Committee may at any time before
such date amend, modify or terminate the Plan; provided, however,
that the Committee may not, without approval of the Shareholders
of the Company (i) increase the maximum number of shares of
Cerner Common Stock as to which options may be granted pursuant
to the Plan, (ii) alter the eligibility requirements for
optionees under the Plan or (iii) extend the duration of the
Nonqualified Plan. No amendment, modification or termination of
this Plan may adversely affect the rights of any optionee under
any then outstanding option granted hereunder without the consent
of such optionee.
12. Governing Law.
-------------- This Plan and the rights of all persons
claiming hereunder shall be construed and determined in
accordance with the laws of the State of Missouri.
<PAGE> 3
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>4
<FILENAME>0004.txt
<TEXT>
CERNER CORPORATION
STOCK OPTION PLAN E
-------------------
(As Amended, December 8, 2000)
1. Purpose of Plan.
---------------- The purpose of the Plan is to encourage
the employees (other than officers who are at the time of grant
subject to the provisions of Section 16(a)of the Securities and
Exchange Act of 1934) of, and consultants and advisors to, Cerner
Corporation (the "Company") and its subsidiaries to participate
in the ownership of the Company, and to provide additional
incentive for such persons to promote the success of its business
through sharing in the future growth of such business.
2. Effectiveness of Plan.
--------------------- The provisions of this Plan shall
become effective on the date the Plan is adopted by the Board of
Directors of the Company (the "Board of Directors"), and shall
govern all options granted hereunder.
3. Administration.
-------------- This Plan shall be administered by a
committee of the Board of Directors consisting of not less than
two nor more than five members of the Board of Directors (the
"Committee") appointed by the members of the Board of Directors.
The Committee shall have full power and authority to construe,
interpret and administer the Plan, and may from time to time
adopt such rules and regulations for carrying out this Plan as it
may deem proper and in the best interests of the Company.
Subject to the terms, provisions and conditions of the Plan, the
Committee shall have exclusive authority (i) to select the
persons to whom options shall be granted, (ii) to determine the
number of shares subject to each option, (iii) to determine the
time or times when options will be granted, (iv) to determine the
option price of the shares subject to each option, (v) to
determine the time when each option may be exercised, (vi) to fix
such other provisions of each option agreement as the Committee
may deem necessary or desirable, consistent with the terms of
this Plan, and (vii) to determine all other questions relating to
the administration of this Plan.
4. Eligibility.
----------- Options to purchase shares of common stock of
the Company ("Cerner Common Stock") shall be granted under this
Plan only to employees of the Company or of any of its
subsidiaries who are not officers subject to the provisions of
Section 16(a) of the Securities and Exchange Act of 1934 at the
time of grant and consultants and advisors to the Company.
5. Shares Subject to the Plan.
-------------------------- Options granted under this Plan
shall be granted solely with respect to shares of Cerner Common
Stock. Subject to any adjustments made pursuant to the
provisions of paragraph 10, the aggregate number of shares of
Cerner Common Stock which may be issued upon exercise of all the
options which may be granted under this Plan shall not exceed
2,000,000. If any option granted under this Plan shall expire or
terminate for any reason without having been exercised in full,
the unpurchased shares subject to such option shall be added to
the number of shares otherwise available for options which may be
granted in accordance with the terms of this Plan. The shares to
be delivered upon exercise of the options granted under this Plan
shall be made available, at the discretion of the Committee, from
either the authorized but
<PAGE>
unissued shares of Cerner Common Stock or any treasury shares
of Cerner Common Stock held by the Company.
6. Option Agreement.
---------------- Each option granted under this Plan shall
be evidenced by a stock option agreement, which shall be signed
by an officer of the Company and by the optionee to whom the
option is granted (the "optionee"). The terms of said stock
option agreement shall be in accordance with the provisions of
this Plan, but it may include such other provisions as may be
approved by the Committee. The granting of an option under this
Plan shall be deemed to occur on the date on which the stock
option agreement evidencing such option is executed by the
Company and the optionee. Each stock option agreement shall
constitute a binding contract between the Company and the
optionee, and every optionee, upon the execution of a stock
option agreement, shall be bound by the terms and restrictions of
this Plan and such stock option agreement.
7. Option Price.
------------- The price at which shares of Cerner Common
Stock may be purchased under an option granted pursuant to this
Plan shall be determined by the Committee.
8. Period and Exercise of Option.
-----------------------------
(a) Period--The period during which each option granted
under this Plan may be exercised shall be fixed by the Committee
at the time such option is granted.
(b) Exercise--Any option granted under this Plan may be
exercised by the optionee (or such other person as the Committee
may determine), subject to designation by the Committee in the
stock option agreement, only by (i) delivering to the Company
written notice of the number of shares with respect to which he
is exercising his option right, (ii) paying in full the option
price of the purchased shares in cash or (iii) by delivery to the
Company of that number of shares of Cerner Common Stock having a
fair market value on the date of exercise equal to the sum of the
exercise price of the options to be exercised or (iv)
surrendering on the date of exercise that number of options
which, when multiplied by the excess of the fair market value of
the stock which is subject to the surrendered options on the date
of exercise over the exercise price for said options, results in
a product that is equal to the sum of the exercise price of the
remaining options being exercised. Subject to the limitations of
this Plan and the terms and conditions of the respective stock
option agreement, each option granted under this Plan shall be
exercisable in whole or in part at such time or times as the
Committee may specify in such stock option agreement.
(c) Delivery of certificates--As soon as practicable after
receipt by the Company of the notice described in subsection (b),
and of payment in full of the option price for all of the shares
being purchased pursuant to an option granted under this Plan, a
certificate or certificates representing such shares of stock
shall be registered in the name of the optionee and shall be
delivered to the optionee. However, no certificate for
fractional shares of stock shall be issued by the Company
notwithstanding any request therefor. Neither any optionee, nor
the legal representative, legatee or distributee of any optionee,
shall be deemed to be a holder of any shares
<PAGE> 2
of stock subject to an option granted under this Plan unless
and until the certificate or certificates for such shares have
been issued.
(d) The Committee shall determine the amount necessary to
satisfy and Federal, state and local withholding obligation due
on the exercise of all or any part of the options granted
hereunder, but in no event shall such amount exceed the amount
determined by application of the maximum marginal tax rate in
effect under applicable Federal, state and local law. In lieu of
providing to the Company cash to satisfy such withholding, the
Committee may instruct the Company to withhold said amount from
the optionee's compensation or may allow the optionee to elect to
satisfy such withholding by directing the Company to retain a
number of shares of Cerner Common Stock from the shares of Cerner
Common Stock being purchased pursuant to such exercise having a
fair market value at the time of exercise equal to the amount to
be withheld.
(e) Limitations on exercise--The Committee may impose such
limitations on the exercise of any specific stock option
agreement as it deems appropriate.
9. Nontransferability of Options.
----------------------------- No option granted under this
Plan shall be transferable or assignable by the optionee other
than by will or by the laws of descent and distribution unless
expressly permitted under the terms of the stock option agreement
or as otherwise permitted by the Stock Option Committee for Stock
Option Plan E from time to time.
10. Adjustments Upon Changes in Capitalization.
------------------------------------------ In the event of
any change in the capital structure of the Company, including but
not limited to a change resulting from a stock dividend, stock
split, reorganization, merger, consolidation, liquidation or any
combination or exchange of shares, the number of shares of Cerner
Common Stock subject to this Plan and the number of such shares
subject to each option granted hereunder shall be correspondingly
adjusted by the Committee. The option price for which shares of
Cerner Common Stock may be purchased pursuant to an option
granted under this Plan shall also be adjusted so that there will
be no change in the aggregate purchase price payable upon the
exercise of any option.
11. Amendment and Termination of Plan.
----------------------------------- No option shall be
granted pursuant to this Plan after January 1, 2005, on which
date this Plan will expire except as to options then outstanding,
which options shall remain in effect until they have been
exercised or have expired. The Board of Directors may at any
time before such date amend, modify or terminate the Plan.
12. Governing Law.
------------- This Plan and the rights of all persons
claiming hereunder shall be construed and determined in
accordance with the laws of the State of Missouri.
<PAGE> 3
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>5
<FILENAME>0005.txt
<TEXT>
CERNER ASSOCIATE EMPLOYMENT AGREEMENT
This Cerner Associate Employment Agreement describes the
formal employment relationship between
Jack Newman Jr.
ASSOCIATE (Print Name)
and Cerner Corporation, a Delaware corporation
This Agreement is effective on the 2nd day of January,
1996.
1. CERNER'S LETTER OFFERING EMPLOYMENT TO YOU.
------------------------------------------
At the time you accepted employment with Cerner, you
received an offer letter outlining or confirming the
specifics of Cerner's offer of employment to you. The
position, terms, compensation, benefits and other
provisions of that offer letter represent the initial
conditions of your Cerner employment. The offer letter
is incorporated into this Agreement as Attachment I.
Any amendments or changes to the offer letter are
included as part of Attachment II to this Agreement,
and supersede the terms in the offer letter. Cerner
reserves the right to modify at anytime the conditions
of your employment by Cerner.
2. EMPLOYMENT RELATIONSHIP.
-----------------------
A. Formation.
--------- By signing this Agreement, you
represent that every material fact contained in
your resume and application for employment with
Cerner is true and accurate to the best of your
knowledge and belief. You also agree that
falsification of your resume or application is
grounds for immediate discharge.
B. Type.
---- To the extent permitted by law, your
employment relationship with Cerner is "at will",
which means that you may resign from Cerner at any
time, for any reason, or for no reason at all, and
without advance notice (except as described below).
It also means that Cerner may terminate your
employment at any time, for any legally permitted
reason, or for no reason at all, and without
advance notice.
C. Resignation and Termination.
---------------------------- You agree to
cooperate with Cerner by participating fully in an
exit interview in the event you leave the employ of
Cerner. You agree to give Cerner written notice of
your intention to resign from employment at least
ten (10) business days prior to the last day you
intend to work at Cerner. To facilitate the
provisions of paragraphs 7 and 8 of this agreement,
you also agree to report to Cerner, in conjunction
with your written notice of intent, the identity of
your new employer (if any) and the nature of your
proposed duties for that employer. Cerner,
however, reserves the right either to accelerate
your intended effective termination date to an
earlier actual date or to allow your intended
effective termination date to stand.
- - - - --------------------
Associate's Initials
<PAGE>
If you resign, however, with fewer than ten
(10) business days notice, or if you actually leave
Cerner's employ prior to expiration of the ten
business days notice period and without the
permission of Cerner, then you agree that (to the
extent permitted by law) no vacation pay, salary or
other compensation otherwise due, from the date of
your resignation notice until the time of your
approved effective termination date, will be owed
or paid to you by Cerner. Failure to provide a two
week notice period may affect your future rehire
ability with Cerner.
If Cerner terminates your employment (and
unless the termination was due to your dishonesty,
illegal conduct, or breach of Cerner's policy or
this Agreement), Cerner will pay you in conjunction
with such termination the equivalent of up to two
weeks base salary (exclusive of commissions,
advances against commissions, bonus and other non-
salary compensation and Associate benefits). This
provision also applies if you give proper notice as
outlined above and Cerner elects to accelerate your
effective termination date to a date less than two
weeks from the date of your notice.
In the event your termination occurs during a
performance period associated with a documented
bonus or incentive compensation plan, any final
payments to you as a result of your participation
in such plan will be determined by the documented
procedures of the plan.
Cerner may pay or reimburse you for certain
reasonable costs associated with any relocation
required by Cerner in conjunction with a position
with Cerner pursuant to the terms of Cerner's
published relocation policy, as may be amended from
time to time. In the event that Cerner pays or
reimburses you for any relocation costs, you agree
to repay such sums to Cerner in their entirety if
(i) you voluntarily resign from employment with
Cerner for any reason within two (2) years of the
date your relocation is complete or (ii) Cerner
terminates your employment due to your dishonesty,
illegal conduct, or breach of Cerner policy or this
Agreement within two (2) years of the date your
move is complete. You further agree that Cerner
may, at its discretion, deduct from your
paycheck(s), including your final paycheck, any
such sums required to be repaid under this
provision and that you will repay Cerner any
outstanding balance owed within 30 days of your
employment termination. Regardless of the duration
stated herein, nothing contained in this provision
shall create employment for a definite term or
otherwise modify the parties "at will" relationship
set forth in paragraph 2.B. of this Agreement.
Cerner may pay or reimburse you for certain
reasonable costs associated with Other Assistance
Programs in which Cerner provides assistance,
pursuant to the terms of such Other Assistance
Programs' policies, as may be amended from time to
time. In the event that Cerner pays or reimburses
you for any costs associated with such Other
Assistance Programs, you agree to repay such sums
to Cerner in their entirety if (i) you voluntarily
resign from employment with Cerner for any reason
within the time specified in the policy pertaining
to applicable program(s), or (ii) Cerner terminates
your employment due to your dishonesty, illegal
conduct, or breach of Cerner policy or this
Agreement within the time specified in the policy
pertaining to applicable program(s). You further
agree that Cerner may, at its discretion, deduct
from your paycheck(s), including your final
paycheck, any such sums required to be repaid under
this provision and that you will repay Cerner any
outstanding balance owed within 30 days of your
employment termination. Regardless of the duration
stated herein, nothing contained in this provision
shall create employment for a definite term or
otherwise modify the parties "at will" relationship
set forth in paragraph 2.B. of this Agreement.
In the event Cerner terminates your employment,
Cerner reserves the right to set the effective date
of such termination. Upon your resignation or the
termination of your employment, you agree to
promptly execute a Termination Statement in the
form of Attachment III.
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<PAGE>
D. SALES ASSOCIATE/CERNER CONSULTING PROVISIONS.
---------------------------------------------
If you are employed by Cerner in a sales capacity
or in certain Cerner Consulting roles, additional
provisions incorporated as Attachment IV to this
Agreement are applicable to your employment
relationship.
3. AGREEMENT NOT TO DISCLOSE OR TO USE CONFIDENTIAL
-------------------------------------------------------
INFORMATION.
-----------
You agree that you will forever maintain the
confidentiality of Confidential Information. You will
never disclose Confidential Information except to
persons who have both the right and need to know it,
and then only for the purpose and in the course of
performing Cerner duties, or of permitting or assisting
in the authorized use of Cerner products and services.
In the event your employment with Cerner terminates
(voluntarily or involuntarily), you will promptly
deliver to Cerner all Confidential Information,
including any Confidential Information on any laptop,
computer or other communication equipment used by you
during your employment with Cerner.
4. NON-CERNER EMPLOYMENT.
---------------------
Except for those part-time associates, hired to work
less than 40 hours per week, employment at Cerner is a
full-time responsibility. As a full-time associate, it
is Cerner's expectation that you devote your full time
and attention to meet your Cerner responsibilities and
that you will not engage in any other employment
activities which would detract from or conflict with
your ability to carry out your duties at Cerner. If
you are a part-time associate, it is Cerner's
expectation that you will not engage in other
employment activities that would detract from or
conflict with your ability to carry out your part-time
duties at Cerner.
5. NEW PRODUCTS AND IDEAS.
----------------------
With respect to New Products and Ideas that you
develop, author, or conceive in whole or in part while
employed at Cerner, plus for one year thereafter, you
agree to keep accurate, complete and timely records of
such New Products and Ideas, and will promptly disclose
and fully describe such New Products and Ideas in
writing to Cerner. You further agree to maintain all
information respecting any New Products and Ideas as
Confidential Information and shall not disclose such
information to any party outside of Cerner without the
express written approval of an officer of Cerner.
You agree to assign and transfer to Cerner, without
further consideration, your entire right, title and
interest in and to all such New Products and Ideas
including any patents, copyrights, trade secrets and
other proprietary rights in the same. You waive any
and all moral rights which you otherwise would have in
any New Products and Ideas.
You agree to execute promptly at Cerner's expense, a
written assignment of title to Cerner, and all letters
(and applications for letters) of patent and copyright,
in all countries, for any New Products or Ideas
required to be assigned by this Agreement. You also
agree to assist Cerner or its nominee in every
reasonable way (at Cerner's request and expense, but at
no charge to Cerner), both during and after your time
of employment at Cerner, in vesting and defending title
to the New Products and Ideas in and for Cerner, in any
and all countries, including the obtainment and
preservation of patents, copyrights, trade secrets and
other proprietary rights.
3
- - - - --------------------
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<PAGE>
This Section does not apply to your new products and
ideas which do not relate directly to the business of
Cerner, and which are developed entirely on your own
time.
6. PRIOR INVENTIONS.
----------------
Any and all patented and unpatented inventions, new
products and ideas which you made prior to your
employment by Cerner are excluded from the scope of
this Agreement and are documented on Attachment V,
Inventory of Prior Inventions.
7. NON-COMPETITION AND NON-SOLICITATION
------------------------------------
For a period of two (2) years after the voluntary or
involuntary termination of your employment with Cerner:
A. You will tell any prospective new employer,
prior to accepting employment that this Employment
Agreement exists.
B. If you have worked for Cerner in a sales
capacity, you will not provide services to any
Conflicting Organization in connection with the
marketing, sale or promotion of any Conflicting
Product:
(1) to any person or organization upon whom you
called or whose account you supervised on
behalf of Cerner any time during the last
three (3) years of your employment by Cerner,
and
(2) within any Cerner sales territory assigned to
you during the last three (3) years of your
employment by Cerner.
C. If you have not worked for Cerner in a sales
capacity during the last three years of your
employment by Cerner, you will not provide
services directly or indirectly related to your
employment at Cerner to any Conflicting
Organization in the United States or in any
country in which Cerner has a business interest.
However, you may accept employment with a large
Conflicting Organization whose business is
diversified, and with a portion of its business
that is not a Conflicting Organization, provided
that Cerner, prior to your acceptance of such
employment, shall receive separate written
assurances satisfactory to Cerner from such
Conflicting Organization and from you that you
will not render services directly or indirectly
in connection with any Conflicting Product.
D. Notwithstanding the foregoing, nothing
contained in this Paragraph 7 shall prohibit you
(after your termination of employment with Cerner)
from taking a position with a general consulting
organization whose only Conflicting Product is the
provision of consulting services to the healthcare
industry.
E. You agree not, on behalf of yourself or on behalf
of any other person, entity, or organization,
to employ, solicit for employment, or otherwise
seek to employ or retain any Cerner associate or
employee, or any employee of a Cerner client
company, or in any way assist or facilitate
any such employment, solicitation, or retention
effort.
8. POST-TERMINATION PAYMENTS BY CERNER.
-----------------------------------
If you are unable to obtain employment within
three (3) months after termination of your
employment at Cerner due solely to the non-
competition restrictions imposed on you by
Paragraph 7 of this Agreement, the provision of
Paragraph 7 shall continue to bind you only so long
as Cerner shall make to you monthly payments
4
- - - - --------------------
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<PAGE>
equivalent, on an annualized basis, to your average
earnings during the last three years of your Cerner
employment (or of your average Cerner earnings, if
you were employed fewer than 3 years), for each
month of such unemployment.
You will, during each month of such
unemployment, make conscientious and aggressive
efforts to find employment. You will also, within
ten days after the end of each calendar month, give
Cerner a detailed written account of your efforts
to obtain employment. In your monthly written
account, you will identify each Conflicting
Organization with which you have sought employment.
Cerner shall, at Cerner's option, be relieved
of making a monthly payment to you for any month
during which you fail to seek employment
conscientiously and aggressively, and to account to
Cerner as described above.
Cerner is obligated to make such payments to
you upon your fulfillment of the conditions set
forth above beginning in the 4th month of your
unemployment and continuing for the following
twenty (20) consecutive months (for a total of 21
monthly payments), unless Cerner gives you:
A. Written permission to accept available
employment, or
B. A written release from the non-competition
obligations set forth in Paragraph 7 of this
Agreement.
9. PUBLICITY RELEASE.
-----------------
You consent and agree to the use of your name, voice
and picture (including but not limited to use in still
photographs, videotape and film formats, and both
during and after your period of employment at Cerner)
for advertising, promotional, public relations, and
other business purposes (including its and their use in
newspapers, brochures, magazines, journals and films or
videotapes) by Cerner.
10. CERNER PROPERTY.
---------------
You understand that you may be assigned various items
of Cerner property and equipment to help you carry out
your Cerner responsibilities. When such property or
equipment is issued, you will formally acknowledge
receipt of it and will take all reasonable precautions
and actions necessary to safeguard and maintain it in
normal operating condition. You further agree to
accept financial responsibility for damage or wear to
the property and equipment you are issued beyond that
associated with normal business use. You will notify
Cerner immediately of any such damage or loss. If your
employment with Cerner terminates (for any reason), you
will immediately return to Cerner all property and
equipment which you have been issued or which otherwise
belongs to Cerner, including any laptops, computer
equipment, wireless telephone, pagers and/or other
computer or communication devices provided to you by
Cerner. You further agree that Cerner may, at its
discretion, deduct from your paycheck(s), including
your final paycheck, the replacement cost of any such
equipment or devices provided to you that are not
immediately returned to Cerner upon your termination of
employment and you agree to repay Cerner any
outstanding balance owed within 30 days of your
employment termination.
11. SYSTEMS AND PHYSICAL SECURITY.
-----------------------------
You understand the importance of both systems and
physical security to the daily operations of Cerner and
to the protection of business information. You will,
therefore, comply with and assist in the vigorous
enforcement of all policies, practices, and procedures
which may be developed to ensure the integrity of
Cerner systems and
5
- - - - --------------------
Associate's Initials
<PAGE>
facilities. Further, you understand that willful
violation of such policies, practices, and procedures
may result in termination of your employment.
12. PRIOR EMPLOYMENT RELATIONSHIPS AND OBLIGATIONS.
----------------------------------------------
By accepting employment with Cerner, you represent to
Cerner that you are not subject to any non-competition
or confidentiality agreements that your employment and
activities at Cerner would violate. You also represent
and agree that you will not disclose to Cerner, or
induce Cerner to use, any proprietary or confidential
information belonging to any previous employer or to
others.
13. REMEDIES.
--------
By signing this Agreement, you agree that the promises
you have made in it are of a special nature, and that
any breach, violation or evasion by you of the terms of
this Agreement will result in immediate and irreparable
harm to Cerner. It will also cause damage to Cerner in
amounts difficult to ascertain. Accordingly, Cerner
shall be entitled to the remedies of injunction and
specific performance, as well as to all other legal and
equitable remedies which may be available to Cerner.
14. INDEMNIFICATION.
---------------
You agree to indemnify and hold Cerner harmless from
and against any damages, liability, actions, suits or
other claims arising out of your breach of this
Agreement.
15. MODIFICATION.
------------
This Agreement may not be modified in any respect,
except by a written agreement executed by you and
Cerner. However, Cerner may from time to time publish
and adopt supplementary policies with respect to the
subject matter of this Agreement, and you agree that
such supplementary policies shall be binding upon you.
16. NOTICES.
-------
Any notice required or permitted to be given pursuant
to the terms of the Agreement shall be sufficient if
given in writing and if personally delivered by
receipted hand delivery to you or to Cerner, or if
deposited in the United States Mail, postage prepaid,
first class or certified mail, to you at your residence
address or to Cerner's Corporate headquarters address
or to such other addresses as each party may give the
other party notice in accordance with this Agreement.
17. TERM OF THIS AGREEMENT.
----------------------
This Agreement begins as noted above and will continue
in perpetuity, even though your employment can be
terminated by you or by Cerner as described elsewhere
herein.
18. GOVERNING LAW; JURISDICTION.
---------------------------
This Agreement will be governed by, construed,
interpreted, and its validity determined, under the
laws of the State of Missouri. You and Cerner each
hereby irrevocably and unconditionally submits to the
nonexclusive jurisdiction of any Missouri state court
or federal court of the United States of America
sitting in Kansas City, Missouri and any appellate
court from any thereof, in any action or proceeding
arising out of or relating to this Agreement.
6
- - - - --------------------
Associate's Initials
<PAGE>
19. SEVERABILITY.
------------
If any provision of this Agreement is held to be
unenforceable, then this Agreement will be deemed
amended to the extent necessary to render the otherwise
unenforceable provision, and the rest of this
Agreement, valid and enforceable.
20. ENTIRE AGREEMENT AND PRIOR AGREEMENTS.
-------------------------------------
You hereby acknowledge receipt of a signed counterpart
of this Agreement and acknowledge that it is your
entire agreement with Cerner concerning the subject
matter. This Agreement cancels, terminates, and
supersedes any of your previous oral or written
understandings or agreements with Cerner or with any
officer or representative of Cerner with respect to
your employment with Cerner.
21. SUCCESSORS.
----------
This Agreement shall be binding upon Cerner's
successors and assigns. This Agreement shall also be
binding upon your heirs, spouse, assigns and legal
representatives.
***********************************************
This Employment Agreement is executed this 29th day of
January, 2001.
/s/Jack A. Newman
-------------------------
Associate
Cerner Corporation
/s/Stanley M. Sword
--------------------------
Cerner Human Resources
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<PAGE>
APPENDIX A
DEFINITION OF TERMS
-------------------
CERNER CORPORATION and CERNER mean Cerner Corporation, the
Delaware corporation. The terms also cover all of Cerner
Corporation's parent, subsidiary and affiliate corporations
and business enterprises, both presently existing and
subsequently created or acquired. Such affiliate
corporation may be directly or indirectly controlled by
Cerner or related to Cerner by equity ownership.
CLIENT means any actual or potential customer or licensee of
Cerner.
CONFIDENTIAL INFORMATION means Cerner, Client and Vendor
trade secrets. It also means other Cerner, Cerner
Associate, Client, and Vendor information which is not
generally known, and is proprietary to Cerner Corporation or
to Cerner Associates, Clients, and Vendors. It includes,
but is not limited to, research, design, development,
installation, purchasing, accounting, marketing, selling,
servicing, finance, business systems, business practices,
documentation, methodology, procedures, manuals (both
internal and user), program listings, source codes, working
papers, Client and Vendor lists, marketing and sales
materials not otherwise available to the general public,
sales activity information, computer programs and software,
compensation plans, your personal compensation, performance
evaluations, patient information and other client-related
data, and all other non-public information of Cerner and its
Associates, Clients, and Vendors.
CONFLICTING ORGANIZATION means any person or organization
engaged (or about to become engaged) in research,
development, installation, marketing, selling, or servicing
with respect to a Conflicting Product.
CONFLICTING PRODUCT means any product, process or service
which is the same as, similar to, or competes with any
Cerner product, process or service with which you worked
during the last three years of your employment by Cerner, or
about which you have acquired Confidential Information.
NEW PRODUCTS AND IDEAS means discoveries, computer programs,
improvements, works of authorship, designs, methods, ideas
and products (whether or not they are described in writing,
reduced to practice, patentable or copyrightable) which
results from any work performed by you for Cerner, or
involve the use of any Cerner equipment, supplies,
facilities or Confidential Information, or relate directly
to the business of Cerner, or relate to Cerner's actual or
demonstrably anticipated research or development.
OTHER ASSISTANCE PROGRAMS means programs that Cerner may pay
or reimburse you for certain reasonable costs incurred and
also provide for Cerner's recovery of such amounts as
specified in the policies of such Other Assistance Programs,
as may be amended from time to time. Other Assistance
Programs include, but are not limited to: tuition
assistance, specialty external training, and immigration
assistance. Cerner reserves the right to establish future
assistance programs and designate such programs as Other
Assistance Programs for purposes of inclusion under
paragraph 2.C. of this Agreement.
VENDOR means any actual or potential licensor, supplier,
contractor, agent, consultant or other purveyor of products
or services to Cerner.
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<PAGE>
APPENDIX B
SUMMARY OF ATTACHMENTS
----------------------
The following documents, if noted, are incorporated as
attachments to this Employment Agreement.
<TABLE>
Not
Included Included Attachment Description
<S> <C> <C> <C>
X I Original Offer Letter
-------- --------
-------- -------- II Offer Letter Amendments
X III Termination Statement
-------- --------
X IV Sales Associate Provisions
-------- --------
-------- -------- V Inventory of Prior Inventions
</TABLE>
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- - - - --------------------
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<PAGE>
ATTACHMENT III
--------------
TERMINATION STATEMENT
---------------------
I represent that I have complied with all the provisions of
the Cerner Associate Employment Agreement entered into
between Cerner Corporation and me on the
______________________ day of _______________, __19____, in
that:
1. I have not improperly disclosed or otherwise
misused any of the Confidential Information
covered by such Agreement. I shall continue to
comply with all the continuing terms of the
Agreement, including but not limited to the non-
disclosure and (for the required term) non-
compete provisions, and also including but not
limited to the reporting of any New Products
and Ideas conceived or made by me as covered by
the Agreement.
2. I do not have in my possession, nor have I taken
with me or failed to return, any records, plans,
information, drawings, designs, documents,
manuals, formulae, statistics, correspondence,
client and vendor lists, specifications,
blueprints, reproductions, sketches, notes,
reports, proposals, or other documents or
materials, or copies of them, or any equipment
(including any laptops, computer equipment,
wireless telephone, pagers and/or other computer
or communication devices provided to you by
Cerner), credit cards or other property
belonging to Cerner or its Clients or Vendors.
I have returned to Cerner (or will return within
10 calendar days or earlier if requested by
Cerner) all material and information compiled or
received by me during the term of such
employment. I have returned (or will return
within 10 calendar days or earlie r if requested
by Cerner) all Confidential Information, as
specified by such Agreement, and all
correspondence and other writings. I have
returned (or will return within 10 calendar days
or earlier if requested by Cerner) all keys and
other means of access to Cerner's premises.
3. I understand and agree that, with regard to all
provisions of this Agreement relating to non-
disclosure, non-solicitation, and
confidentiality of information, such provisions
shall not cease as of this termination but shall
continue in full force and effect in perpetuity
or as otherwise indicated within this Agreement.
In compliance with the Agreement, I shall
continue to preserve as confidential all
Confidential Information as defined in the
Agreement.
--------------------------
Associate
--------------------------
Date
--------------------------
Termination Date
Cerner Corporation
--------------------------
By
--------------------------
Title
10
- - - - --------------------
Associate's Initials
<PAGE>
ATTACHMENT IV
-------------
SALES ASSOCIATE AND CERNER CONSULTING PROVISIONS
------------------------------------------------
The following provisions are incorporated into this
Employment Agreement for all associates who are responsible
for sales activities related to Cerner products and certain
associates in the Cerner Consulting group.
Should my employment by Cerner Corporation terminate for any
reason, I understand and agree that:
1. Cerner reserves the right to offset any advances made to me
against commissions or other amounts which I owe to Cerner,
against available but unpaid salary, commissions payable,
accrued vacation, expense reimbursement, or any other forms
of compensation or reimbursement which may be owed to me.
Any such offsets will be clearly documented by Cerner
before they are processed. In addition, I agree that
I will pay to Cerner the amount of any remaining balance
owed to Cerner Corporation after the foregoing deductions,
within 30 days of the end of my employment.
2. Any commissions to which I might otherwise be entitled will
be payable to me only if the associated contract for
products or services has been completed and fully executed
by both parties, and if all deposit monies related to such
contract have been paid in full by the client and received
by Cerner prior to my last date of employment, in
accordance with the terms of my Cerner Performance Plan.
Cerner will not unreasonably delay or withhold execution
of such contracts for the purpose of avoiding a commission
payment to me, if it would otherwise be due.
3. Commissions, bonuses or other incentive-based compensation
which may have accrued but are not payable as of my
termination date because of the payment schedule defined
for such compensation in the related Cerner Performance
Plan will be paid to me according to the provisions of
such Plan. Such payment will be subject to the offsets
described in item 1 above and will apply only to items
otherwise payable within one year following my termination
date.
----------------------------
Associate
----------------------------
Date
----------------------------
Termination Date
Cerner Corporation
-----------------------------
By
-----------------------------
Title
11
- - - - --------------------
Associate's Initials
<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>6
<FILENAME>0006.txt
<TEXT>
CERNER CORPORATION
PERFORMANCE PLAN
1. Name.
---- The name of the Plan is the Cerner Corporation
Performance Plan (the "Plan").
2. Basic Function.
--------------- The Plan provides for payment of quarterly
and annual bonuses to select key associates of Cerner Corporation
(the "Company") and its subsidiaries, depending upon the
financial performance of the Company or certain subsidiaries or
business units and/or the job performance of the individual
associates in question. Bonuses, if paid, may be paid on a
quarterly or annual basis and determined based on the actual
performance of the Company or its subsidiaries or business units
or on one or more pre-established financial goals or targets.
Payments of awards to certain executives are made pursuant to the
"Executive Award Feature" (see Section 10).
3. Purpose.
------- The purpose of the Plan is to provide a meaningful
incentive on both a quarterly and annual basis to key associates
and officers of the Company and to motivate them to assist the
Company in achieving ambitious, attainable, short-term goals.
Individual payments made under the Plan will vary, depending upon
individual performance and, in some cases, operational business
unit achievements.
4. Termination; Amendment.
---------------------- The Plan shall continue to be in
effect, unless and until terminated by the Compensation Committee
of the Board of Directors of the Company. The Plan is subject to
the approval of the stockholders of the Company, by the
affirmative vote of the holders of a majority of the shares
present in person or represented by proxy, and entitled to vote
thereon, at a meeting of the stockholders at which a quorum is
present or represented. The Plan may be further amended from
time to time by the Compensation Committee provided that any
amendment which, if effected without the approval of the
stockholders of the Company, would result in the loss of an
exemption from federal income taxation under Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"), for
amounts payable thereunder but would not result in such loss if
approved by the stockholders, shall become effective only upon
approval thereof by the stockholders of the Company within the
meaning of Section 162(m).
5. Administration.
-------------- The Plan is administered by the
Compensation Committee, which has sole authority to make all
discretionary determinations under the Plan. In suitable
circumstances, the Compensation Committee may evaluate and use
the Company's management's input as well as input and other
relevant information from any outside parties it deems
appropriate.
6. Participation.
------------- Key associates and officers eligible for
participation in the Plan will be determined by the Compensation
Committee on a year-to-year basis. Executive officers eligible
to receive awards under the Executive Award Feature of the Plan
will be identified each year by the Compensation Committee as
described in Section 10 below.
<PAGE>
7. General Feature; Determination of Annual Targets.
----------------------------------------------------- The
Compensation Committee will determine the measure or measures of
financial performance and/or the target levels of performance,
the attainment of which in any quarter or year will result in the
payment of awards to all eligible participants except for those
executives covered by the Executive Award Feature. Such
determinations on financial performance measures or target levels
may be made, and under appropriate circumstances may subsequently
be modified, by the Compensation Committee at any time during
the Plan year. Alternative performance measures or targets may
be established and different target levels may be selected with
different general bonus amounts established for each participant.
Following the initial determination of performance targets, the
Compensation Committee will monitor actual corporate performance
throughout each fiscal quarter, and may decide at any time before
final quarter or year-end determinations are reached to adjust
the earlier target levels as appropriate, for example, to take
account of unusual or unanticipated corporate or industry-wide
developments. Final determinations of the amounts to be paid to
a participant under the general feature of the plan may also be
adjusted upward or downward depending upon subjective evaluations
by an associate's executive or manager.
8. Performance Measures.
--------------------- Measures of financial performance
selected by the Compensation Committee on a quarter-to-quarter
or year-to-year basis for determination of payments of awards
under the general feature of the Plan may include but are not
limited to one or more of the following: stock price, earnings
per share (with or without extraordinary items), net income (with
or without extraordinary items), return on equity, return on
assets, profit margins on contract-by-contract basis, reduction
of certain accounts receivable or achievement of subsidiary or
operating plans. Target performance may be expressed as absolute
or average dollar amounts, percentages, changes in dollar amounts
or changes in percentages, and may be considered on an
institution-alone basis or measured against specified peer groups
or companies. Notwithstanding the foregoing, the measures of
financial or Company performance for determination of awards
payable under the Plan to those executive officers covered under
the Executive Award Feature and the calculation of the maximum
amount payable and amounts actually paid to such executive
officers under the Plan shall be as set forth in the Executive
Award Feature of the Plan (see Section 10).
9. Individual Factors.
-------------------- The Compensation Committee, in
exercising discretion under the Plan on determinations of cash
bonuses payable to individuals, may consider particular
individual goals as well as subjective factors, including any
unique contributions.
10. Executive Award Feature.
--------------------------- Notwithstanding any other
provision of the Plan to the contrary, any awards under the Plan
for any year granted to those individuals identified by the
Compensation Committee as Section 16 "insiders" of the Company,
within the meaning of Security Exchange Commission Regulations
(the "Covered Executives"), for purposes of this Plan, shall be
governed by the provisions of this Section 10 for such calendar
year.
(i) On or before the ninetieth (90th) day of each calendar
year (in the case of annual-based awards or combination of annual
and quarterly based awards), or on or before the twelfth (12th)
day of each fiscal quarter (in the case of awards based solely on
<PAGE> -2-
performance in such fiscal quarter) while the Plan is in effect,
the Compensation Committee will (a) identify those individuals
who it reasonably believes to be Covered Executives for such
calendar year or fiscal quarter, (b) establish in writing the
Earnings Per Share Target (as defined below) for such calendar
year, (c) establish in writing the Company Operating Margin
Target (as defined below) for such quarter or year, (d) establish
in writing the Agreement Margin Targets (as defined below) for
such quarter or year, and (e) establish in writing any other
targets for the Covered Executives as specifically determined by
the Compensation Committee and set forth in the Compensation
Committee minutes ("Other Targets") (the Earnings Per Share
Target, the Company Operating Margin Target, the Agreement Margin
Target, and all Other Targets to be referred to collectively as
the "Executive Targets"). The Compensation Committee may elect
to establish more or less than the above Executive Targets in a
given quarter or year provided that any established Executive
Target or Targets be established on or before the end of the
ninety day or twelve day period set forth above. Due to the
Compensation Committee's belief that the disclosure of the
Executive Targets would adversely affect the Company, the
Compensation Committee, the Covered Executives and all other
directors, officers and associates who become aware of such
targets shall and will treat such Executive Targets for any year
or fiscal quarter as confidential.
(ii) The Earnings Per Share Target shall be expressed as a
specific target earnings per share for such year for the
Company's common stock on a fully diluted basis, before the after-
tax effect of any extraordinary items, the cumulative effect of
accounting changes, or other nonrecurring items of income or
expense including restructuring charges.
(iii) The Company Operating Margin Target shall be expressed
as a target percentage reflecting the leverage of the Company's
revenue relative to the expense associated with that revenue.
(iv) The Agreement Margin Targets shall be expressed as a dollar
amount of booking margins on specified types of sales, adjusted
for the costs associated with delivery of the solutions.
(v) If at the end of each fiscal quarter (in the case
of quarterly-based performance targets) or at the end of the
fiscal year (in the case of annual-based or combination of
annual and quarterly based performance targets) any of the
Executive Targets established by the Compensation Committee
have been met, the maximum amount payable to the Covered
Executives in any calendar year shall be as follows: (a) for
the Chief Executive Officer, 175% of the Chief Executive
Officer's base salary, and (b) for all other executive
officers, 150% of such individual's base salary. The
Compensation Committee has discretion to reduce the amount
of the bonus payable; provided, however, under no
circumstances may the Compensation Committee increase the
amount of the bonus payment beyond its maximum limit. The
amount of the bonus reduction, if any, will depend upon a
subjective bonus reduction factor, formally known as an
Annual Performance Evaluation (APE) Factor, which will be
determined at the Covered Executive's end-of-the-year
evaluation. This factor will range from 100% of the
<PAGE> -3-
maximum bonus amount for demonstrated distinguished
performance to 40% if performance does not satisfy the
required standard.
11. Certification.
------------- Prior to any payment to any Covered Executive
of any amount accrued under Section 10 of this Plan, the
Compensation Committee shall certify in writing that an Executive
Target has been satisfied. For purposes of this certification,
approved minutes of the Compensation Committee meeting in which
the certification is made shall satisfy this Plan certification
requirement.
<PAGE> -4-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-22
<SEQUENCE>7
<FILENAME>0007.txt
<TEXT>
Exhibit 22
SUBSIDIARIES OF REGISTRANT
<TABLE>
Name State of Incorporation
---- ----------------------
<S> <C>
Cerner Corporation Pty Limited New South Wales (Australia)
Cerner Deutschland GmbH Germany
Cerner FSC, Inc. Barbados
Cerner Health Connections, Inc. Delaware
Cerner Belgium, Inc. Delaware
Cerner HealthWise, Inc. Delaware
Cerner International, Inc. Delaware
Cerner Limited United Kingdom
Cerner Citation, Inc. Delaware
Citation Professional Services, Inc. Delaware
Cerner Properties, Inc. Delaware
Cerner Singapore Limited Delaware
Cerner (Malaysia) Sdn Bnd Malaysia
Cerner Canada Limited Delaware
Cerner Multum, Inc. Delaware
Cerner Investment Corp. Nevada
Cerner Campus Redevelopment Corporation Missouri
Health Network Ventures, Inc. Delaware
Cerner Radiology Information Systems, Inc. Texas
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>8
<FILENAME>0008.txt
<TEXT>
Independent Auditors' Consent
The Board of Directors
Cerner Corporation:
We consent to incorporation by reference in the Registration
Statements (No. 333-77029, No. 33-56868, No. 33-55082, No. 33-
41580, No. 33-39777, No. 33-39776, No. 33-20155, and No. 33-
15156) on Form S-8, Registration Statement No. 33-72756 on
Form S-3 and Registration Statement No. 333-40156 on Form S-4
of Cerner Corporation of our reports, dated January 31, 2001,
relating to the consolidated balance sheets of Cerner
Corporation as of December 30, 2000 and January 1, 2000 and
the related consolidated statements of operations, changes in
equity, and cash flows and related schedule for each of the
years in the three-year period ended December 30, 2000, which
reports are included herein.
KPMG LLP
Kansas City, Missouri
March 29, 2001
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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