SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 1995
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-15386
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CERNER CORPORATION
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(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
Kansas City, Missouri 64117
(816) 221-1024
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(Address of Principal Executive Offices, including zip code;
registrant's telephone number, including area code)
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) with the
Commission, and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
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There were 14,148,271 shares of Common Stock, $.01 par value,
outstanding at April 1, 1995.
<PAGE>
CERNER CORPORATION AND SUBSIDIARIES
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I N D E X
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Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets as of April 1, 1995
and December 31, 1994 (unaudited)
Consolidated Statements of Earnings for the
three months ended April 1, 1995
and March 31, 1994 (unaudited)
Consolidated Statements of Cash Flows
for the three months ended April 1, 1995
and March 31, 1994 (unaudited)
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
<TABLE>
CERNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
April 1, December 31,
1995 1994
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(In thousands)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 16,445 $ 15,305
Receivables 69,683 65,148
Inventory 1,667 2,218
Prepaid expenses and other 1,124 979
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Total current assets 88,919 83,650
Property and equipment, net 43,608 41,129
Software development costs, net 19,537 18,784
Intangible assets, net 6,059 6,390
Noncurrent receivables 4,261 4,508
Other assets 1,911 1,949
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$ 164,295 $ 156,410
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Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 11,302 $ 13,485
Current installments of long-term debt 123 160
Advanced billings 4,112 3,737
Accrued income taxes 8,172 6,652
Accrued payroll and tax withholdings 5,186 4,689
Other accrued expenses 2,402 2,557
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Total Current Liabilities 31,297 31,280
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Long-term debt, net 31,453 30,235
Deferred income taxes 10,782 9,118
Stockholders' Equity:
Common stock, $.01 par value,50,000,000
shares authorized, 14,661,289 shares
issued in 1995 and 14,510,816 issued
in 1994 147 145
Additional paid-in capital 31,474 30,947
Retained earnings 64,895 60,353
Treasury stock, at cost
(513,018 shares in 1995 and 1994) (5,693) (5,693)
Foreign currency translation adjustment (60) 25
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Total stockholders' equity 90,763 85,777
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$ 164,295 $ 156,410
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See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CERNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<CAPTION>
Three Months Ended
April 1, March 31,
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(In thousands, except per share data)
1995 1994
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<S> <C> <C>
Revenues:
System sales $ 29,988 $ 20,106
Support and maintenance 11,647 9,600
Other 1,557 809
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Total revenues 43,192 30,515
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Costs and expenses:
Cost of revenues 12,068 8,929
Sales and client service 11,176 9,091
Software development 7,621 5,082
General and administrative 4,043 2,605
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Total costs and expenses 34,908 25,707
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Operating earnings 8,284 4,808
Interest expense, net 468 84
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Earnings before income taxes 7,816 4,724
Income taxes 3,275 1,722
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Net earnings $ 4,541 $ 3,002
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Earnings per share $ 0.30 $ 0.20
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Weighted average shares outstanding 14,946 14,866
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CERNER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three Months Ended
April 1, March 31,
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(In thousands)
1995 1994
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<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 4,541 $ 3,002
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 3,090 2,431
Issuance of stock as compensation 7 13
Provision for deferred income taxes 2,185 --
Loss on disposal of capital equipment 2 --
Changes in assets and liabilities:
Receivables (4,288) (2,444)
Inventory 551 (208)
Prepaid expenses and other (113) 2,020
Accounts payable (2,183) (1,225)
Accrued income taxes 1,000 1,270
Other accrued liabilities 717 (1,677)
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Total adjustments 968 180
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Net cash provided by operating activities 5,509 3,182
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Cash flows from investing activities:
Purchase of capital equipment (2,246) (2,237)
Purchase of land, building and improvements (1,681) --
Capitalized software development costs (2,061) (1,932)
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Net cash used in investing activities (5,988) (4,169)
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Cash flows from financing activities:
Net payments under short-term notes payable -- (2)
Proceeds from issuance of long-term debt 2,266 --
Repayment of long-term debt (1,085) (137)
Proceeds from exercise of options 523 137
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Net cash provided by (used in)
financing activities 1,704 (2)
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Foreign currency translation adjustment (85) (1)
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Net increase (decrease) in cash and cash equivalents 1,140 (990)
Cash and cash equivalents at beginning of period 15,305 16,784
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Cash and cash equivalents at end of period $ 16,445 $ 15,794
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See notes to consolidated financial statements.
</TABLE>
<PAGE>
CERNER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Interim Statement Presentation
The consolidated financial statements included herein have been
prepared by the Company without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these
consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's latest annual report on Form 10-K.
In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position at
April 1, 1995 and December 31, 1994 and the results of operations and cash
flows for the periods presented. The results of the three-month periods
are not necessarily indicative of the operating results for the entire
year.
(2) Earnings Per Share
Net earnings per share for the three months ended April 1, 1995 and
March 31, 1994 is based on the weighted average number of common shares and
common share equivalents outstanding during those periods. Common share
equivalents consist of shares issuable upon exercise of stock options using
the treasury stock method.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Revenues for the three month period ended April 1, 1995 increased
$12,677,000 (42%) over the same prior year period. Revenues for the first
quarter of 1995 reflect an increase in system sales of $9,882,000 (49%)
over the first quarter of 1994. The increases in systems sales result
principally from an increase in HNA-type agreements and incremental
hardware and software sold back to the client base. HNA contracts were 47%
of total systems sales for the first quarter of 1995 compared to 34% for
the same period in 1994. An HNA contract is an initial contract that
includes the Company's ProNet Order Management product and at least two
other clinical systems, or a contract that brings an existing client to
this level. ProNet Order Management gives clients access to the full
intrarelationship of the Company's products. The sale of additional
hardware and software products to the installed client base for the first
quarter of 1995 increased 91% over the first quarter of 1994.
Support and maintenance revenues for the first quarter of 1995
increased 21% over the same prior year period due primarily to the increase
in the Company's installed and converted client base.
Other revenues increased $748,000 (92%) over the same prior year
period. This increase is due primarily to real estate lease revenues from
unrelated parties.
The gross profit margin percentage for the first quarter of 1995 was
72% compared to 71% for the same period in 1994.
Total operating expenses (sales and client service, software
development and general and administrative) for the three month period
ended April 1, 1995 were 53% of total revenues compared to 55% in 1994.
Total operating expenses increased 36% over the same prior year period.
The increase in operating expenses is due primarily to increases in the
number of employees and employee related expenses. The increase in the
number of employees is due to the Company's expanded client base and
continued development of clinical information system products to complement
the exisiting product lines.
Net interest expense increased $384,000 in the first quarter of 1995
compared to the same period in 1994. This increase in interest expense is
due to financing the $20,000,000 purchase of its Kansas City headquarters
complex, which was completed on April 19, 1994. The higher interest expense
is more than offset by a reduction in the Company's rent expense and an
increase in lease revenues from unrelated parties.
The Company's quarterly revenues and net earnings have historically
been variable and cyclical. The variability is attributable primarily to
the number and size of system installation milestone events in any fiscal
quarter. The Company expects fluctuations in quarterly financial results
to continue.
Capital Resources and Liquidity
The Company's liquidity position remains strong with total cash and
cash equivalents of $16,445,000 at April 1, 1995 and working capital of
$57,622,000. The Company generated net cash from operations of $5,509,000
and $3,182,000 during the three month periods ended April 1, 1995 and March
31, 1994, respectively. The increase in accounts receivable was caused by
higher sales. The Company finances its operations, capital expenditures
(other than the purchase of its Kansas City headquarters complex and its
anticipated capital improvements), and working capital needs from
internally generated funds and bank borrowings. At April 1, 1995, the
Company had an availability of $16,750,000 on its line of credit.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 10 (a) Licensing Agreement between APACHE Medical
Systems, Inc. and Cerner Corporation, dated
February 2, 1995
Exhibit 11 Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended April 1, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CERNER CORPORATION
------------------
Registrant
May 15, 1995 By:/s/ Maureen M. Evans
- - - - ------------ -----------------------
Date Maureen M. Evans
Treasurer and
Chief Financial Officer
<PAGE>
LICENSING AGREEMENT
___________________
Between APACHE Medical Systems, Inc. ("APACHE") and
___________________________________________________
Cerner Corporation ("Cerner")
____________________________
Whereas APACHE has developed, acquired, and maintains updates
for certain mathematical equations, databases, computer
software programs and computer systems for use by hospitals in
managing certain areas of the hospital or monitoring the usage
and performance of such areas, or both; and whereas Cerner is
a vendor of hospital information systems. Whereas Cerner
wishes to acquire a license to use APACHE proprietary
equations in certain Cerner Systems for the purpose of
sublicensing to existing or future clients and whereas APACHE
wishes Cerner to sublicense an implementation of these
equations. Therefore, in consideration of the mutual
covenants contained herein, the parties agree as follows:
1. Definitions.
___________
Certain terms used in this Agreement are defined as set
forth below; other terms are defined in the body of this
Agreement (including Exhibits). All references to "Exhibits"
are references to Exhibits to this Agreement. All references
to "this Agreement" shall include all schedules, addenda and
exhibits to this Agreement which are referenced herein or in
the attached Exhibits.
"APACHE Acute Care Module(s)" shall mean the computer
software object code in machine-readable form developed and
owned by APACHE that implements the Licensed Equations and
which provides a programmatic interface for Cerner Supporting
Software.
"APACHE Database" shall mean the database owned by
APACHE, or to which APACHE has rights, and constructed from a
variety of data and including Raw Data and Resulting Data and
used by APACHE to create and refine the Licensed Equations
from time to time and for other purposes.
"Cerner Application Program" shall mean any Cerner
Information System with which the APACHE Acute Care Module is
bundled as a sales unit or as an add-on product.
"Cerner Database" shall mean the database owned by
Cerner, or to which Cerner has rights, and constructed from a
variety of data including Raw Data and Resulting Data.
"Cerner Information System" shall mean a Cerner hospital
software or information system product family, such as
PathNet.
"Cerner Supporting Software" shall mean the software that
is developed and owned by Cerner and designed to interact with
the APACHE Acute Care Module programmatic interface.
Supporting Software is designed to provide Raw Data inputs to
and accept Resulting Data outputs from the APACHE Acute Care
Module.
"Demonstration License" shall have the meaning ascribed
to it in Section 2(c).
"Distribution License" shall have the meaning ascribed to
it in Section 2(a).
"Installation Fee" shall mean the fee received by Cerner
from the Sublicensee for installation services under a
Sublicense.
"Licensed Equations" shall mean the mathematical
expression proprietary to and/or developed by or for APACHE
and used to create severity representative scores for certain
groups of patients in a certain disease category and to relate
those scores through functional coefficients to a normative
database in order to create expected values for certain
measures of outcomes including length of stay and mortality.
These are known as the APACHE UB92+ or "Acute Care" equations.
These Licensed Equations are represented as (i) a list of
variables to gather, (ii) the conditions which determine the
particular variable results to gather, (iii) a weighting
system to apply to the variable results, (iv) tables of
coefficients relating calculated scores to the APACHE Database
and (v) the algebraic transformations of the above into
Resulting Data.
"Licenses" shall refer collectively to the Distribution
License, the Loaner License and the Demonstration License.
"Loaner License" shall have the meaning ascribed to it in
Section 2(b).
"Nontraditional Sublicensee" shall mean any Sublicensee
other than a Traditional Hospital Sublicensee.
"Operating Platforms" shall mean the hardware and
software configurations on which APACHE certifies the APACHE
Acute Care Module will operate. A list of Operating
Platforms used for Cerner Application Programs is attached as
Exhibit E, which Exhibit may be amended from time to time.
"Raw Data" shall mean the minimal data set required to
calculate Resulting Data from the Licensed Equations. The Raw
Data includes certain laboratory results, patient
demographics, clinical diagnoses and standard billing data
(like that of UB 92 data) charges for a certain adult
inpatient in certain disease categories. Raw Data shall also
mean any additional data necessary to calculate Resulting Data
from revisions or enhancements to the Licensed Equations or to
aid in APACHE's development efforts. Such additional data
will be described in Exhibits that will be added to the
Agreement upon the Agreement of both parties.
"Resulting Data" shall mean the numbers output from the
processing of the Raw Data through the APACHE Acute Care
Module. The Resulting Data consists of a severity score and
expected values for certain measures of outcome for certain
groups of patients, including length of stay and mortality.
"Software Specifications" shall mean the programmatic
interface conventions developed jointly by APACHE and Cerner
to enable the implementation of the APACHE Acute Care Module
with Cerner Supporting Software.
"Sublicense" shall mean the non-exclusive, non-
transferable license Cerner grants to a Sublicensee to use the
APACHE Acute Care Module in connection with an Application
Program.
"Sublicensee" shall mean the third party to whom Cerner
grants a Sublicense to use the APACHE Acute Care Module.
"Sublicense Fee" shall mean the fee received by Cerner
from the Sublicensee for the purchase of a Sublicense.
"Support Fee" shall mean the fee received by Cerner from
the Sublicensee as a recurring payment for support and update
services under the Sublicense agreement.
"Traditional Hospital Sublicensee" means an entity
contracted by Cerner according to Cerner's traditional A
through F pricing schedule, the particular A - F category in
general reflecting number of beds.
2. Grant of Licenses; Limitations.
______________________________
(a) APACHE grants to Cerner a non-exclusive, non-
transferable Distribution License to Sublicense the APACHE
Acute Care Module for use in connection with an Application
Program. Cerner may not Sublicense the APACHE Acute Care
Module apart from the Application Programs or as the sole
component of a Cerner product or service. Cerner agrees to
notify APACHE in advance in writing as to which specific
Cerner Information Systems are proposed as Application
Program(s). While it is in the best interests of both parties
to have a broad range of Application Programs, APACHE reserves
the right to comment on the clinical appropriateness of any
Cerner Information System proposed as an Application Program.
In extreme cases, where providing a Cerner Information System
as an Application Program would negatively impact the APACHE
methodology or its clinical usefulness, APACHE, in its
reasonable judgment, has the ability to cause Cerner to
exclude that Cerner Information System from being an
Application Program.
(b) APACHE grants to Cerner a non-exclusive, non-
transferable Loaner License for use of the APACHE Acute Care
Module in connection with an Application Program on a trial
basis to no more than ten (10) (or such a number as is
mutually agreed upon by the parties in writing) potential
Sublicensees ("Prospects") at any one time. The Loaner
License will allow the Prospect to use the APACHE Acute Care
Module for up to three months, at which time the Prospect
would either purchase a Sublicense or return the APACHE Acute
Care Module to Cerner. The purpose of the Loaner License is
to provide Prospects with an ability to evaluate the APACHE
Acute Care Module, as such, Cerner agrees to notify Prospects
that use of the APACHE Acute Care Module under the Loaner
License is limited to those uses necessary to test the APACHE
Acute Care Module in contemplation of purchasing a Sublicense.
This Loaner License shall not apply if Cerner receives any
payment from the Prospect for the APACHE Acute Care Module.
Before the APACHE Acute Care Module is loaned to a Prospect
under the terms of this Loaner License, the Prospect must sign
an agreement with Cerner containing the same provisions as the
Sublicense agreement discussed in Section 4. The APACHE Acute
Care Modules distributed under the terms of this Loaner
License shall be called "Loaner Copies".
(c) APACHE grants to Cerner a non-exclusive, non-
transferable Demonstration License for one (1) copy of the
APACHE Acute Care Module to be provided to each Cerner Sales
Representative and the Cerner Vision Center for use in
connection with an Application Program(s). Such copies shall
be called "Demonstration Copies". The use of the
Demonstration Copies is limited to demonstration use for sales
and marketing support.
(d) Cerner is aware that APACHE has current
negotiations underway to deliver the functionality of the
APACHE Acute Care Module in APACHE's own implementation to the
hospitals and hospital systems listed on Exhibit A. In order
to allow APACHE time to complete its negotiations with those
hospitals and hospital systems, Cerner agrees not to offer,
sell or Sublicense the APACHE Acute Care Module to those
hospitals or hospital systems without APACHE's written
permission.
(e) The Licensed Equations and the APACHE Acute Care
Module are and shall remain the exclusive property of APACHE.
Cerner agrees to use the Licensed Equations and the APACHE
Acute Care Module only in accordance with the terms and
conditions set forth in this Agreement.
(f) Cerner shall not, without the prior written consent
of APACHE, directly or indirectly, or for a third party, use
the Licensed Equations or the APACHE Acute Care Module other
than as directly related to the distribution or use of the
APACHE Acute Care Module as permitted under this Agreement.
Cerner shall not disassemble, decompile, decrypt, extract,
reverse engineer or attempt to reverse engineer any Licensed
Equations or the APACHE Acute Care Module, nor, to the best of
its ability, cause or permit anyone else to do so. Cerner
shall not make the APACHE Acute Care Module available for
service bureau, time-sharing, rental or similar purposes.
(g) The right to modify or enhance the Licensed
Equations or the APACHE Acute Care Module is expressly
excluded under this Agreement.
(h) The Licenses granted in this Agreement include the
right to Sublicense, use, distribute and demonstrate the
APACHE Acute Care Module in connection with an Application
Program in those countries listed on Exhibit C, which Exhibit
may be amended by the parties in writing. Permission to
Sublicense, use, distribute and demonstrate the APACHE Acute
Care Module in other countries must be obtained by written
amendment to Exhibit C. APACHE will grant such permission
provided that Cerner's Sublicensing, use, distribution and
demonstration will not infringe any laws of the United States
or of a foreign country and that the laws of the foreign
country are sufficiently protective of APACHE's intellectual
property rights.
(i) Cerner shall not copy the APACHE Acute Care Module
other than to create the minimum number of copies required to
fulfill the purposes of this Agreement.
3. Data Delivery and Use.
_____________________
(a) For the first year of this Agreement every sixty
(60) days and thereafter each calendar quarter, Cerner shall
deliver to APACHE from the Cerner Database, in acceptable
electronic format (within the guidelines defined in Exhibit
B), (i) all Raw Data and (ii) all Resulting Data received from
the Sublicensees during that preceding period and not
previously provided to APACHE. Individual patient names,
facility or hospital names and physician names shall not be
included. Cerner shall provide patient identification which
uniquely identifies a patient within a hospital encounter.
(b) As a part of the Sublicense Agreement described in
section 4, Cerner shall obtain from Sublicensee on behalf of
APACHE or cause Sublicensees to grant directly to APACHE,
subject to protecting the confidentiality of patient, facility
or hospital and physician names, a perpetual, world-wide,
royalty-free right and license (i) to use, in any manner, the
Raw Data and to analyze and incorporate the Raw Data in
databases, reports, scores or scoring systems generated
therefrom, and (ii) to create and distribute works and
derivative works based on the Raw Data. Cerner shall use its
reasonable efforts to gather as much of the data contained in
a UB92 bill types 111, 121, 117 and 118 as possible from its
Sublicensees, and, subject to protecting the confidentiality
of patient, facility or hospital and physician names, will
provide a copy of the data received to APACHE.
(c) As a part of the Sublicense Agreement described in
section 4, Cerner shall obtain from Sublicensee on behalf of
APACHE or cause Sublicensee to grant directly to APACHE,
subject to protecting the confidentiality of patient, facility
or hospital and physician names, a perpetual, world-wide,
royalty-free right and license (i) to use, in any manner, the
Resulting Data and to analyze and incorporate the Resulting
Data in databases, reports, scores or scoring systems
generated therefrom, and (ii) to create and distribute works
and derivative works based on the Resulting Data.
(d) Cerner and APACHE agree to the following additional
provision regarding use of the Resulting Data. If Cerner
chooses to use, publish or otherwise release or distribute
Resulting Data or normative standards derived from Resulting
Data, such publication or release must be identified only as
"APACHE standards" or "APACHE Results".
4. Sublicense Agreements.
_____________________
Any Sublicense granted by Cerner for the APACHE Acute
Care Module must be granted by a written document. Cerner
shall deliver to APACHE a copy of its proposed standard
Sublicense agreement for review at least one week prior to
Cerner's first distribution or demonstration of the APACHE
Acute Care Module. The Sublicense agreement will contain
terms and conditions providing for at least the following:
(a) restrict use of the Licensed Equations and
APACHE Acute Care Module to a non-exclusive license for
internal purposes only for use in connection with an
Application Program;
(b) prohibit Sublicensee from disassembling,
decompiling, decrypting, extracting, reverse engineering or
attempting to reverse engineer the Licensed Equations or
APACHE Acute Care Module, nor cause or permit anyone else to
do so;
(c) prohibit Sublicensee from modifying or enhancing
any Licensed Equations or APACHE Acute Care Module or
preparing any derivative works;
(d) prohibit assignment, sublicense, transfer or
duplication of the APACHE Acute Care Module, with an
allowance for up to two (2) archival or back-up copies for
each Sublicensee which shall bear APACHE's copyright notice;
(e) maintain intellectual property rights and
ownership as defined in Section 11(a)-(b);
(f) prohibit title from passing to the Sublicensee;
(g) provide to Cerner a copy of all Raw Data and
Resulting Data and the right to use that data as described
in Section 3;
(h) incorporate the notices stated in Section 9;
(i) include the following:
(i) "Confidential Information" shall mean all
non-public information provided to or learned by
Sublicensee, its agents, staff or employees from APACHE
or Cerner in connection with the activities contemplated
by this Agreement and any information or documentation
regarding the Licensed Equations and the APACHE Acute
Care Module, whether in tangible or intangible form,
including, without limitation, all computer programs
(whether in source or object code), flow charts,
algorithms, data, databases, rules, templates, forms,
protocols, methodologies, procedures, concepts,
techniques and approaches relating to the Licensed
Equations and the APACHE Acute Care Module or APACHE or
Cerner's prices, fees and payment terms
(ii) Confidential Information shall not
include information already known to Sublicensee at the
time of disclosure, as shown by the Sublicensee's
records, information which has been publicly disclosed
in a lawful manner, or information which is rightfully
received from a third party in a lawful manner.
(iii) Sublicensee shall hold in strict
confidence and not disclose APACHE or Cerner's
Confidential Information to any third party nor use that
Confidential Information except in furtherance of this
Sublicense Agreement. Sublicensee shall disclose APACHE
or Cerner's Confidential Information only to its
employees who need to know such Confidential
Information. Sublicensee is responsible for ensuring
the compliance of its employees with the foregoing
confidentiality obligations. In the event that the FDA
or other regulatory body or any court requires
information from Sublicensee that might reasonably fall
within the above definition of APACHE or Cerner's
Confidential Information, Sublicensee shall notify
Cerner in writing at least ten (10) days prior to the
proposed disclosure and Cerner and APACHE, in
consultation with Sublicensee, shall determine the
appropriate steps in order to adequately safeguard the
Confidential Information, including, without limitation,
in the case of a proceeding in a court or other
tribunal, obtaining a protective order.
(iv) Each of the parties, APACHE, Cerner, and
Sublicensee, retain ownership of all right, title and
interest in its respective Confidential Information.
(j) make APACHE an express Third Party Beneficiary
entitled to enforce all of Cerner's rights against the
Sublicensee;
(k) include the following: NEITHER CERNER NOR APACHE
SHALL BE RESPONSIBLE TO SUBLICENSEE FOR ANY LOST PROFITS,
INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF
ANY KIND (INCLUDING, TO THE EXTENT PERMITTED BY LAW,
PUNITIVE OR EXEMPLARY DAMAGES) IN CONNECTION WITH THIS
SUBLICENSE EVEN IF THE SUBLICENSEE HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
(l) include the following:
(a) Sublicensee and its employees and medical
staff shall be solely responsible for all decisions
involving patient care, utilization management, peer
review and use of the APACHE Acute Care Module, License
Equations and Resulting Data.
(b) APACHE shall defend, indemnify and hold
Sublicensee and its directors, officers, employees and
agents harmless from all losses, damages, costs, and
expenses, including without limitation attorneys' fees
and court costs, arising from or in connection with use
of the APACHE Acute Care Module or License Equations by
Sublicensee so long as Sublicensee has used the APACHE
Acute Care Module or License Equations in accordance
with the terms and conditions of this Agreement, the
Documentation and applicable standards of good clinical
practice and the sole and proximate cause of the event
giving rise to a claim for indemnification is APACHE's
negligence in designing the APACHE Acute Care Module or
License Equations. APACHE shall conduct such defense,
at its expense, with attorneys selected by it, and shall
have sole control over the conduct of such defense.
(c) Sublicensee shall defend, indemnify and
hold APACHE and its directors, officers, employees and
agents harmless from all losses, damages, costs, and
expenses, including without limitation attorneys' fees
and court costs, arising from or in connection with (i)
the use of the APACHE Acute Care Module, License
Equations or Resulting Data or any component thereof by
Sublicensee or anyone other than APACHE, (ii) any breach
of any representation, warranty or covenant of
Sublicensee under this Agreement, or (iii) any
disclosure of patient identifiers to APACHE in violation
of applicable law or hospital procedures. Sublicensee
shall conduct such defense with attorneys selected by it
at its expense, and shall have sole control over the
conduct of such defense. The indemnity in part (i)
shall not apply to the extent that Sublicensee has used
the APACHE Acute Care Module or License Equations in
accordance with the terms and conditions of this
Agreement, the Documentation and applicable standards of
good clinical practice and the sole and proximate cause
of the event giving rise to a claim for indemnification
is APACHE's negligence in designing the APACHE Acute
Care Module or License Equations.
(d) APACHE shall defend (or in APACHE's
discretion, settle), indemnify and hold Sublicensee
harmless from all losses, damages, costs, and expenses,
including without limitation attorney's fees and court
costs, arising from or in connection with any third
party claim of copyright, patent or trade secret
infringement under United States law resulting from
Sublicensee's use of the APACHE Acute Care Module or
License Equations in accordance with this Agreement.
APACHE shall conduct such defense, at its expense, with
attorneys selected by it, and shall have sole control
over the conduct of such defense and all settlement
negotiations. APACHE shall not have any liability under
this paragraph (d) if a claim of infringement is based
in whole or in part upon (i) the modification of the
APACHE Acute Care Module or License Equations or
Resulting Data by anyone other than APACHE or (ii) the
use of the APACHE Acute Care Module or License
Equations, or any portion thereof, (aa) outside the
scope of the license granted hereunder; (bb) in
combination with other hardware, software or data not
furnished by APACHE; (cc) in practicing any infringing
process; or (dd) in a manner for which it was not
designed or specified by APACHE. If, as a result of a
claim of infringement for which Sublicensee is entitled
to indemnity hereunder, APACHE is enjoined from using
the APACHE Acute Care Module or License Equations, or if
APACHE believes that such injunction is likely or that
the APACHE Acute Care Module or License Equations are
likely to become the subject of a claim of infringement,
APACHE may, in its sole discretion and at its expense,
procure for Sublicensee the right to continue to use the
APACHE Acute Care Module or License Equations, replace
or modify the APACHE Acute Care Module or License
Equations so as to make it noninfringing, or terminate
this Agreement and refund the unamortized portion of the
license fees previously paid by Sublicensee for the use
of the APACHE Acute Care Module or License Equations.
Calculation of the unamortized portion of the license
fees shall be based upon three (3) years' straight line
depreciation. If the claim of infringement affects only
a portion of the APACHE Acute Care Module or License
Equations, then APACHE's obligations described in the
preceding two sentences shall apply only to the item(s)
affected. This paragraph (d) states the entire and
exclusive obligation of APACHE to Sublicensee for any
claim of infringement relating to the APACHE Acute Care
Module or License Equations. The provisions of this
paragraph (d) shall survive termination of this
Agreement.
(e) Each party shall promptly notify the other
party of any asserted or threatened claims that may be
subject to any of the indemnities in this Section, and
shall cooperate with the other party in conducting the
defense.
5. Delivery.
________
(a) Cerner and APACHE will jointly determine Software
Specifications by March 1, 1995. APACHE will provide a
"coding stub" by March 15, 1995 or fifteen (15) days after
completion of Software Specifications, whichever is later.
The coding stub will allow Cerner to begin building the Cerner
Supporting Software.
(b) APACHE will deliver the APACHE Acute Care Module
certified to operate on the Digital Equipment VAX VMS
Operating Platform (the "First APACHE Acute Care Module") not
later than May 15, 1995 or sixty (60) days after the Software
Specification is determined, whichever is later. Delivery and
payment of versions for other Operating Platforms listed on
Exhibit E will be determined jointly by Cerner and APACHE.
The timelines in Sections 5(a) and (b) are contingent upon
Cerner's provision of the Operating Platform as described in
Section 5(c) in a timely and acceptable manner.
(c) Cerner will make the Digital Equipment VAX VMS
Operating Platforms listed on Exhibit E available to APACHE
without charge for development and testing of the APACHE Acute
Care Module. Cerner will arrange for APACHE to dial into the
Operating Platform to perform the porting work under
confidential conditions such that Cerner will not have access
to the APACHE Acute Care Module during the porting process.
If dialing in to the Operating Platform is not possible or if
the confidentiality arrangements are not acceptable to APACHE
then Cerner will supply the Operating Platform. Such platform
will include, but is not limited to, a compliler, a debugger,
a linker and the necessary hardware and system software to
implement the APACHE Acute Care Modules. Cerner will also
provide responsive support for the hardware and system
software provided by Cerner. Cerner will provide access to
the additional Operating Platforms listed on Exhibit E as the
delivery time and payment, if any, is decided between the
parties.
6. Royalty Payment; Taxes.
______________________
(a) Cerner will make an initial royalty payment of
$250,000 as prepaid royalties to APACHE toward Sublicenses by
Cerner. This payment is due upon execution of this Agreement.
Any unearned royalties will be refunded by APACHE to Cerner
one year from Cerner's license of the First APACHE Acute Care
Module to a Sublicensee. If the APACHE Acute Care Module is
not delivered to Cerner ninety (90) days from the deadline in
Section 5 and APACHE is unable to return the initial royalty
payment, then, at Cerner's option, the repayment may be
converted to common equity at the price of the most recent
sale of preferred stock.
(b) Cerner will pay APACHE a royalty payment for each
Sublicense according to the following schedules:
(i) for a Traditional Hospital Sublicense the
royalty payment will be paid at the following rate, matching
the Cerner standard pricing category in use for that
Sublicensee:
A level -- less than 150 beds = $6,670
B level -- 150 to 299 beds = $11,120
C level -- 300 to 399 beds = $15,560
D level -- 400 to 599 beds = $20,000
E level -- 600 to 799 beds = $24,450
F level -- 800 to 1099 beds = $28,890.
(ii) the royalty payment for a Nontraditional
Sublicense will be fifty percent (50%) of the Sublicense Fee
received by Cerner. Such Sublicense Fee shall be
reasonable.
(c) Cerner will pay to APACHE twenty-five percent
(25%) of the amounts received by Cerner as Support Fees under
a Sublicense. The first Maintenance Fee would be due to
APACHE when Cerner receives its first Support Fee from
Sublicensee and will be prorated for the remainder of the
calendar year. Maintenance Fees will be due annually at the
first of the year thereafter.
(d) Royalty Payments are payable within thirty (30)
days from the last day of each calendar quarter. The
quarterly Royalty Payment shall be based on the number of
Sublicensees who execute Sublicense Agreements with Cerner
during the preceding quarter.
(e) No amounts will be due with respect to
Installation Fees received by Cerner from the Sublicensee.
(f) If Cerner markets a product that includes
Resulting Data, as aggregated by Cerner, then Cerner will
negotiate and pay to APACHE a fee recognizing the amount of
APACHE's contribution. Such fee will be mutually agreed to by
the parties.
(g) If the Sublicensee does not accept the
Applications Program, the Royalty Payment for that site will
be credited toward the next Royalty Payment due to APACHE.
(h) Cerner shall reimburse APACHE for its reasonable
travel, lodging and meal expenses incurred in connection with
APACHE support provided pursuant to Section 12.
(i) Failure by Cerner to make any payment within 30
days of when such payments are due shall result in the
imposition of an interest charge on any unpaid amount at an
annual rate equivalent to the lesser of (i) 1 1/2 % per month
and (ii) the highest rate allowable by law.
(j) Cerner shall pay directly to the federal
government, state or locality all sales, use, transfer or
similar taxes, whether federal, state or local, however
designated, with the exception of any taxes based upon the
income of APACHE, which are levied or imposed by reason of
this Agreement or Cerner's use, distribution or Sublicense of
the APACHE Acute Care Module, regardless of whether such taxes
are identified in any invoice, and Cerner shall indemnify
APACHE in the event Cerner fails to pay such taxes.
7. Reporting and Records Inspection.
________________________________
(a) Within thirty (30) days of the last day of each
calendar quarter Cerner shall send to APACHE a report that
shall contain the following ("Report"):
(i) the number of APACHE Acute Care Modules that
were installed at Sublicensee sites and an identification of
the sites;
(ii) the name and address of all Sublicensees who
have executed Sublicense agreements during that month;
(iii) the status of existing Loaner Copies and if
any new Loaner Copies are delivered, the name and address of
the Prospects and
date of delivery of the Loaner Copies;
(iv) a list of invoices issued by Cerner to
Sublicensees for payments under Sublicenses, both new and
then outstanding, including those for new purchases and for
Support Fees.
(b) Cerner shall maintain records of activities in
connection with this Agreement ("Records") for so long as
required by applicable law or for two (2) years after this
Agreement is terminated, whichever is longer. The Records
shall include but are not limited to executed Sublicense
agreements, the standard Sublicense agreement and the
information required for the Report. APACHE may inspect such
Records or perform an audit of the relevant books and Records
upon reasonable notice to Cerner for the purpose of ensuring
compliance with the terms and conditions of this Agreement.
Any such inspection or audit shall be conducted in such a way
as to not unreasonably interfere with Cerner's business
operations. Cerner will reimburse APACHE for the reasonable
cost of the audit if there are unreported Sublicenses or if
royalty payments due APACHE are underreported in excess of
$5,000.
8. Consulting Support for Sublicensees.
___________________________________
(a) Following the request of Sublicensees, and, if
required by APACHE, execution of APACHE's services agreement,
APACHE will provide consulting application support to
Sublicensees to assist them with interpretation and effective
use of the data produced by the APACHE Acute Care Module.
Sublicensees will pay APACHE's consulting fee to APACHE for
these services.
(b) When marketing and distributing the Apache Acute
Care Module, Cerner will make the Sublicensee aware of APACHE
applications consulting services through, for example, the
delivery of APACHE marketing materials related to these
services.
9. Notices.
_______
(a) Although the Licensed Equations and APACHE Acute
Care Module provide information that may enhance the quality
of clinical reasoning and provide useful information for
quality improvement and quality assurance, they are not a
substitute for the professional judgment of a clinician or
hospital administrator and in no event should information
provided by the Licensed Equations or the APACHE Acute Care
Module be the sole or primary basis for decision making or
clinical reasoning.
(b) Information generated by the Licensed Equations or
the APACHE Acute Care Module should not be relied upon as the
sole or primary basis for peer review or performance
evaluations of physicians or other personnel who use the
Licensed Equations or the APACHE Acute Care Module. While
comparisons of risk predictions generated by the Licensed
Equations or the APACHE Acute Care Module with actual patient
outcomes may provide useful information for quality
improvement and quality assurance and can suggest areas for
further study, such comparisons should not be relied upon as a
primary or sole basis for drawing conclusions concerning
individual competence or performance.
10. Marketing.
_________
(a) Cerner shall use the registered trademark APACHE
name and mark when referring to the Licensed Equations or the
APACHE Acute Care Module in marketing and sales materials and
when otherwise referencing the products and services of
APACHE, such as identifying that the severity adjustment is
the registered trademark APACHE Acute Care methodology.
(b) APACHE may use the list of and directly contact
Sublicensees in regards to the products and services of
APACHE. Cerner shall use its reasonable efforts to make
Sublicensees aware of the availability of the products and
services of APACHE and to secure Sublicensee's permission for
APACHE to present such products and services to Sublicensee.
(c) Cerner shall use its reasonable efforts to promote
the APACHE Acute Care Module.
(d) Cerner shall not make any false or misleading
representations to Sublicensees, Prospects or others regarding
APACHE, the Licensed Equations, Resulting Data or the Apache
Acute Care Module. Cerner shall not make any representations
or warranties concerning the Licensed Equations, Resulting
Data or the Apache Acute Care Module other than those approved
in writing by APACHE.
11. Trademark and Copyright.
_______________________
(a) Each copy of the Apache Acute Care Module must
include appropriate APACHE trademark and copyright notices as
they appear on the copy of the APACHE Acute Care Module and
any other materials provided by APACHE or as otherwise
specified by APACHE and any other proprietary notice required
by APACHE when referencing APACHE or APACHE's products and
services. Cerner will have no rights to such marks or any
ownership in such marks other than the limited, non-exclusive,
non-transferable right to use the APACHE registered trademark
in accordance with Section 10. APACHE shall have the right to
inspect all uses by Cerner of APACHE's proprietary notices,
including, without limitation, the registered trademark APACHE
and all materials on which such notices appear. Cerner shall
provide APACHE with samples of such materials upon APACHE's
request. The APACHE Acute Care Module must be at least equal
in quality to the other software products distributed by
APACHE and the Cerner Supporting Software must be at least
equal in quality to the other software products distributed by
Cerner. APACHE will provide written notice to Cerner if
APACHE discovers after such inspection that Cerner is not
maintaining these quality standards and provide an opportunity
to cure the defect. Failure to cure a material defect should
be a default under Section 18(e)(ii).
(b) In addition to all other proprietary rights
notices or labels required by APACHE, Cerner shall affix the
"restricted rights" legend prescribed by DFARS section 252.227-
7013(c)(1)(ii) to each copy of the APACHE Acute Care Module
(including all updates) and to each copy of the related
documentation distributed to governmental entities. The
restricted rights legend currently states as follows: "Use,
duplication, or disclosure by the Government is subject to
restrictions as set forth in subparagraph (c)(1)(ii) of the
Rights in Technical Data and Computer Software clause at DFARS
252.227-7013. Manufacturers are APACHE Medical Systems, Inc.
1650 Tysons Boulevard, Suite 300, McLean, Virginia 22102-3915
and Cerner Corporation 2800 Rockcreek Parkway, Suite 601,
Kansas City, MO 64117." Cerner shall maintain adequate
procedures to ensure that the restrictive markings on the
APACHE Acute Care Module and related documentation are
consistently and properly applied and shall comply in all
respects with DFARS 252.227-7018 and all other regulations
applicable to the license of copies of the APACHE Acute Care
Module and related documentation with restricted rights.
Cerner shall strictly and fully comply with all Federal
Acquisition Regulations, as the same may be amended or
supplemented from time to time, in a manner that will best
protect and preserve APACHE's proprietary rights in the
Licensed Equations and the APACHE Acute Care Module and shall
comply with all reasonable written instructions from APACHE
relating to these or any other regulations, rules or laws
applicable to any of the transactions contemplated hereunder.
(c) Cerner's use of APACHE's trademark (which term
shall include, whenever used in this Agreement, all
trademarks, tradename, service marks, logos, slogans and
designs) shall inure to the benefit of APACHE.
(d) Cerner shall promptly notify APACHE of all claims
of infringement or misuse of APACHE's trademarks, copyrights
or other intellectual property rights.
12. APACHE and Cerner Support.
_________________________
(a) APACHE will provide two (2) sessions of its
standard training program for Cerner to present basic
knowledge, materials and training for the purpose of providing
Cerner with an understanding of the scientific aspects of the
Licensed Equations. APACHE will provide additional training
sessions (including the training required to qualify Cerner
personnel to meet their obligation under Sections 12(e)-(f))
at its current rates (attached as Exhibit D).
(b) APACHE will provide eighty (80) hours worth of
consulting support to Cerner consisting of consultations with
the APACHE business, programming and statistical staff.
APACHE will provide additional consulting support at its
current rates (attached as Exhibit D).
(c) APACHE will provide Cerner with updates to the
APACHE Acute Care Module without charge and no less often than
annually.
(d) APACHE will provide Cerner and grants Cerner the
right to Sublicense models for mortality and LOS or financial
models that are derived from UB 92 data for groups of adult
patients as relates to the total hospital episode, including
extensions to the Acute Care Module such as the addition of
new disease categories and new predicted values, such as
charges, as such models are developed. Any other new models,
such as models related to individual patients or specific
treatment units, would be available for an additional royalty
payment as agreed to by the parties.
(e) Cerner shall provide sufficient qualified
personnel to market and support the APACHE Acute Care Module.
Cerner shall provide training to Sublicensees for the APACHE
Acute Care Module and proper use of the Resulting Data. All
Cerner trainers who provide such training to Sublicensees must
be trained by APACHE. Cerner shall be responsible for
installation of the APACHE Acute Care Module at Sublicensee's
sites. All support, marketing and other services provided by
Cerner shall be at its own expense.
(f) Cerner will send two or three Cerner Trainers to
APACHE for yearly training courses at APACHE's current rates.
These Cerner Trainers will be certified by APACHE to train
other Cerner personnel to train Sublicensees.
13. Warranty.
________
(a) APACHE warrants that APACHE either owns the
Licensed Equations and APACHE Acute Care Module or has the
right to license the Licensed Equations and APACHE Acute Care
Module to Cerner and the Sublicensees.
(b) APACHE warrants that, to the best of APACHE's
knowledge, the use of the Licensed Equations and the APACHE
Acute Care Module in accordance with this Agreement do not
infringe upon any copyright, trademark or other intellectual
property right of a third party.
(c) APACHE warrants that the use and distribution of
the Licensed Equations and the APACHE Acute Care Module as
contemplated by this Agreement does not cause APACHE to be in
breach of any agreement to which it is a party.
(d) Cerner warrants that Cerner owns the Application
Programs and Cerner Supporting Software.
(e) Cerner warrants that, to the best of Cerner's
knowledge, the use of the Application Programs and, Cerner
Supporting Software does not infringe upon any copyright,
trademark or other intellectual property right of a third
party.
(f) Cerner warrants that the use and distribution of
the Application Programs, Cerner Supporting Software, APACHE
Acute Care Module and Licensed Equations contemplated by this
Agreement does not cause Cerner to be in breach of any
agreement to which it is a party.
14. Disclaimer of Warranties.
________________________
THE WARRANTIES SET FORTH IN PARAGRAPH 13 ARE THE SOLE AND
EXCLUSIVE WARRANTY MADE BY APACHE AND CERNER AND ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION,
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, ARE HEREBY EXPRESSLY DISCLAIMED.
15. Limitations of Liability and Exclusive Remedy.
_____________________________________________
(a) NEITHER PARTY SHALL BE RESPONSIBLE TO THE OTHER
PARTY FOR ANY LOST PROFITS, INDIRECT, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES OF ANY KIND (INCLUDING, TO THE EXTENT
PERMITTED BY LAW, PUNITIVE OR EXEMPLARY DAMAGES) IN CONNECTION
WITH THIS AGREEMENT EVEN IF THE OTHER PARTY HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES.
(b) APACHE's liability to Cerner for any loss
whatsoever shall not exceed the amounts received by APACHE
from Cerner with respect to the particular transaction which
gives rise to the liability.
(c) No action, regardless of form, arising out of or
under this Agreement may be brought by either party more than
one year after the cause of action accrues.
16. Indemnification.
_______________
(a) Notwithstanding Sections 14 and 15 hereof, APACHE
agrees to defend, indemnify and hold harmless Cerner, and its
directors, officers, employees and agents, from and against
all claims, losses, demands, costs, expenses, judgments,
liabilities, penalties and damages including without
limitation attorneys' fees and court costs ("Claims")
resulting directly or indirectly from the use by any
Sublicensee of the Licensed Equations, the APACHE Acute Care
Module or the Resulting Data if the use of the Licensed
Equations, APACHE Acute Care Module or the Resulting Data was
the sole and proximate cause of the Claim and the APACHE Acute
Care Module did not create Resulting Data corresponding to the
Resulting Data that would have been produced if the Licensed
Equations were calculated manually, provided that such failure
was due exclusively to APACHE's negligence. APACHE shall
conduct such defense with attorneys selected by it at its
expense, and shall have sole control over the conduct of such
defense. Cerner shall promptly notify APACHE of any asserted
or threatened claim that may be subject to this indemnity, and
shall cooperate with APACHE in conducting the defense.
(b) Cerner and its employees and medical staff shall
be solely responsible for all decisions involving use of the
APACHE Acute Care Module, Licensed Equations and Resulting
Data. Cerner shall defend, indemnify and hold APACHE and its
subcontractors and affiliates harmless from all losses,
damages, costs, and expenses, including without limitation
attorneys' fees and court costs, arising from (i) the use of
the Application Program, Cerner Supporting Software, APACHE
Acute Care Module, Licensed Equations or Resulting Data or any
work derived from any of the foregoing or any components
thereof by Cerner or anyone (other than Sublicensee) who
obtains the Application Program, Cerner Supporting Software,
APACHE Acute Care Module, Licensed Equations or Resulting Data
or any work derived from any of the foregoing or any
components thereof from Cerner (other than claims covered by
Section 16(c)), or (ii) any breach of any representation,
warranty or covenant of Cerner under this Agreement. Cerner
shall conduct such defense with attorneys selected by it at
its expense, and shall have sole control over the conduct of
such defense. APACHE shall promptly notify Cerner of any
asserted or threatened claim that may be subject to this
indemnity, and shall cooperate with Cerner in conducting the
defense. Cerner's indemnity does not include claims based
solely on APACHE's failure to apply generally accepted
scientific principles to the scientific methodology embodied
in the Licensed Equations.
(c) Provided Cerner promptly notifies APACHE of any
asserted or threatened claim that may be subject to this
indemnity, and cooperates with APACHE in conducting the
defense, APACHE shall defend (or in APACHE's discretion,
settle), indemnify and hold Cerner harmless from all losses,
damages, costs, and expenses, including without limitation
attorney's fees and court costs, arising from or in connection
with any third party claim of copyright, patent or trade
secret infringement under United States law resulting from
Cerner or a Sublicensee's use of the Licensed Equations or the
APACHE Acute Care Module in accordance with this Agreement.
APACHE shall conduct such defense, at its expense, with
attorneys selected by it, and shall have sole control over the
conduct of such defense and all settlement negotiations.
APACHE shall not have any liability under this Section 16(c)
if a claim of infringement is based in whole or in part upon
(i) the modification of the Licensed Equations, the APACHE
Acute Care Module or Resulting Data by Cerner, Sublicensee or
anyone other than APACHE or (ii) the use of the Licensed
Equations or the APACHE Acute Care Module or any portion
thereof, (aa) outside the scope of the license granted
hereunder; (bb) in practicing any infringing process; or (cc)
in a manner for which it was not designed or specified by
APACHE. If, as a result of a claim of infringement for which
Cerner is entitled to indemnity hereunder, APACHE is enjoined
from using the Licensed Equations or the APACHE Acute Care
Module or if APACHE believes that such injunction is likely or
that the Licensed Equations or the APACHE Acute Care Module
are likely to become the subject of a claim of infringement,
APACHE may, in its sole discretion and at its expense, procure
for Cerner the right to continue to use the Licensed Equations
or the APACHE Acute Care Module, replace or modify the
Licensed Equations or the APACHE Acute Care Module so as to
make them noninfringing but capable of performing
substantially the same functionality, or terminate this
Agreement. If the claim of infringement affects only a
portion of the Licensed Equations or the APACHE Acute Care
Module, then APACHE's obligations described in the preceding
two sentences shall apply only to the item(s) affected. This
Section 16(c) states the entire and exclusive obligation of
APACHE to Cerner for any claim of infringement relating to the
Licensed Equations or the APACHE Acute Care Module. The
provisions of this Section 16(c) shall survive termination of
this Agreement.
17. Confidentiality.
_______________
(a) "Confidential Information" means the terms of this
Agreement, each respective party's client lists and business
plans, the APACHE Acute Care Module, Licensed Equations and
all training materials and user materials. Confidential
Information shall not include information already known to a
party at the time of disclosure, as shown by the party's
records, information which has been publicly disclosed in a
lawful manner, or information which is rightfully received
from a third party in a lawful manner. Any other disclosures
of information must be protected by separately negotiated
confidentiality agreements between the parties.
(b) Each party shall hold in strict confidence and not
disclose the other's Confidential Information to any third
party nor use the other party's Confidential Information
except in furtherance of this Agreement. Each party is
responsible for ensuring the compliance of its employees with
the foregoing confidentiality obligations. In the event that
the FDA or other regulatory body or any court requires
information from Cerner or APACHE that might reasonably fall
within the above definition of Confidential Information, the
party receiving the request shall notify the other in writing
at least ten (10) days prior to the proposed disclosure and
the party receiving the request, in consultation with the
other, shall determine the appropriate steps in order to
adequately safeguard Confidential Information, including,
without limitation, in the case of a proceeding in a court or
other tribunal, obtaining a protective order.
(c) Each of the parties retains ownership of all
right, title and interest in its Confidential Information.
18. Term and Termination.
____________________
(a) This Agreement shall begin on the effective date
set forth at the end of this Agreement ("Effective Date").
The Agreement will have an "Initial Term" of five (5) years,
provided that at the end of the first year and each year
thereafter, APACHE may review the Agreement using its
reasonable business judgment based on the criteria listed
below. Such review will be called the "Annual Review".
Cerner will provide to APACHE information regarding Cerner's
use of the APACHE Acute Care Module and Resulting Data. The
Annual Review will evaluate the following:
(i) whether the royalty payments or the fees in
Section 6(f) accurately reflect Cerner's use of the Licensed
Equations and APACHE Acute Care Module or any works derived
from or based on the Licensed Equations or the Resulting
Data. This evaluation will look at the level of use of the
APACHE Acute Care Module or any works derived from or based
on the Licensed Equations in Cerner products;
(ii) whether APACHE is appropriately involved in
outcomes innovations and development at Cerner. Cerner
acknowledges that APACHE has unique expertise in the
outcomes area and the parties intend that such expertise be
utilized in connection with outcomes innovations developed
at Cerner.
(b) If APACHE is satisfied at the Annual Review this
Agreement will continue until the next Annual Review until the
five (5) year Initial Term has expired. After the Initial
Term has expired, this Agreement will automatically renew on
an annual basis unless either party provides one hundred and
eighty (180) days written notice of termination before the end
of the existing term.
(c) If APACHE is not satisfied at the time of the
Annual Review, based on the criteria in Section 18(a), then
the following will occur:
(i) APACHE will provide written notice to Cerner
that APACHE is not satisfied according to the terms of this
Section 18.
(ii) the parties will in good faith renegotiate
the royalty or redefine APACHE's role in the outcomes area.
Negotiated terms will be implemented through a signed
addendum to this Agreement and will go into effect upon
execution of such addendum.
(iii) if the parties are unable to reach
agreement within thirty (30) days after Cerner's receipt of
APACHE's written notice, APACHE may terminate this Agreement
with written notice to Cerner such that the Agreement will
terminate three (3) years from the Effective Date if the
Annual Review occurs at the end of the first or second year,
and on the expiration of one year from the notice of
termination if the Annual Review occurs at the end of the
third or fourth year.
(d) Cerner may terminate this Agreement by written
notice to APACHE:
(i) if APACHE has not delivered the deliverables
defined in section 5(b) within ninety (90 days from the
time frame stated in that section and such delay is caused
solely by APACHE. In such case, Cerner shall be entitled to
a refund of the initial royalty payment paid by Cerner to
APACHE hereunder and neither party shall have any further
liability under this Agreement or if APACHE is unable to
refund the initial royalty payment, at Cerner's option, the
refund may be a conversion to equity as described in Section
6(a).
(ii) effective thirty (30) days after APACHE's
receipt of notice, in the event that APACHE defaults on any
material obligation or covenant or breaches any material
representation or warranty hereunder; if APACHE has not
cured such default within such thirty (30) day notice
period.
(e) APACHE may terminate this Agreement by written
notice to Cerner:
(i) effective ten (10) days after Cerner's
receipt of such notice, if Cerner exceeds the scope of any
of the Licenses granted hereunder and does not cure the same
within such ten (10) day period;
(ii) effective thirty (30) days after Cerner's
receipt of notice, in the event that Cerner (aa) fails to
make any payment required under this Agreement when due, or
(bb) defaults on any other material obligation or covenant
or breaches any material representation or warranty
hereunder; if Cerner has not cured such default within such
thirty (30) day notice period.
(f) Without limiting any right of termination
described above, APACHE may terminate any Sublicense granted
hereunder thirty (30) days after delivery of APACHE's notice
to Sublicensee and Cerner if Sublicensee has exceeded the
scope of the Sublicense and does not cure the same within such
thirty (30) day period or Cerner does not take appropriate
action against Sublicensee, as determined by APACHE in its
reasonable judgment.
19. Consequences of Termination.
___________________________
(a) The Licenses granted hereunder shall automatically
terminate when either APACHE or Cerner terminates this
Agreement.
(b) Promptly after termination, Cerner shall:
(i) discontinue use of and return to APACHE all
copies of the APACHE Acute Care Module, all other materials
respecting the APACHE Acute Care Module and any APACHE
confidential information;
(ii) purge all copies of the APACHE Acute Care
Module and all portions thereof from any storage medium or
device in which Cerner may have placed such material;
(iii) notwithstanding the above, unless the
termination is for exceeding the scope of the Licenses by
Cerner or a breach of Section 17 by Cerner, then Cerner may
continue to use the current version of the APACHE Acute Care
Module solely for the purpose of continuing technical
support to Sublicensees existing at the time of termination
without extension or renewal. Such continued use shall be
subject to all the terms and conditions of this Agreement;
and
(iv) certify in writing to APACHE that Cerner
has complied with all of its obligations under this Section
19.
(c) Termination of this Agreement shall not relieve
Cerner of its obligations to APACHE that arose prior to
termination or that survive termination, including, without
limitation, its obligations to pay all moneys due and owing
under this Agreement. All such amounts shall be paid no later
than ten (10) days following termination.
(d) Termination of this Agreement shall not
automatically cause the termination of any existing
Sublicenses.
(e) Cerner shall have the right to provide updates to
the APACHE Acute Care Module to all Sublicensees for three
years from execution of their respective Sublicense agreement
so long as Support Fees are paid by that Sublicensee and the
portion of Maintenance Fees described in section 6(c) is paid
by Cerner to APACHE for that Sublicensee. This ability to
obtain updates as described above shall not cease upon
termination of this Agreement and APACHE shall make updates to
the APACHE Acute Care Module available to Cerner as required
to comply with this paragraph.
(f) If this Agreement is terminated after the
expiration of the Initial Term, Cerner will be granted one
hundred and eighty days (180) to conclude its existing
marketing efforts and to complete any contracts pending.
However, additional marketing efforts may not commence after
termination.
20. Dispute Resolution.
__________________
(a) Disputes under any provision of this Agreement
(including any schedules, addenda or exhibits thereto) not
resolved between Cerner and APACHE within 10 days shall be
resolved in accordance with the following procedures. The
parties shall refer the dispute to the Chief Executive Officer
of each party (or other person designated by the CEO and
agreed to by both parties), who shall have authority to
resolve the dispute between the parties. Such executives
shall use all reasonable efforts to confer in person or by
telephone within forty-eight (48) hours after referral of a
dispute, and thereafter as they reasonably deem necessary, to
exchange relevant information and to attempt to resolve the
dispute. If the matter has not been resolved within 10 days
of referral of the dispute to such executives, the parties
shall proceed in accordance with Sections 20(b)-(d). All
negotiations pursuant to this paragraph are confidential and
shall be treated as compromise and settlement negotiations for
purposes of the Federal Rules of Evidence and state rules of
evidence.
(b) If the efforts described in the preceding
paragraph fail to resolve the dispute, the parties shall
institute binding arbitration proceedings pursuant to the
Commercial Arbitration Rules of the American Arbitration
Association, provided that this provision shall not apply if a
third party which is a necessary party to the arbitration
refuses to participate. The arbitrators will have the power
to award any legal or equitable remedy, including without
limitation, specific performance. Arbitration will be
conducted in a mutually agreeable location. Arbitration will
not be a condition to a party's exercise of its termination
rights under this Agreement.
(c) Each party will have the same discovery rights as
are afforded under the Federal Rules of Civil Procedure,
including such discovery of third parties as is necessary to
resolve the controversy. Each party shall bear its own costs
(e.g., filing, attorney and expert witness fees) and shall
share equally the costs of the arbitration (e.g., arbitrator,
court reporter and hearing room fees). The arbitration will
be conducted by three arbitrators, one of whom will be
specified in writing by each party within five (5) business
days of either party's receipt of the other party's demand for
arbitration, and one of whom will be chosen by the other two,
or, if the other two fail to choose the third within five (5)
business days of their designation by the parties, by the
American Arbitration Association. The arbitrators shall
provide detailed, written findings of fact and conclusions of
law to the parties in support of any award or decision the
arbitrators make.
(d) Notwithstanding the foregoing, either party may
seek a preliminary injunction or other provision of judicial
relief if in its judgment such action is necessary to avoid
irreparable damage or to preserve the status quo. Despite
such action, the parties will continue to participate in good
faith in the procedures specified in this Section 20.
21. General.
_______
(a) If no due date is set forth in this Agreement or
the relevant invoice, payment for goods or services rendered
by APACHE in connection with this Agreement shall be made by
Cerner within thirty (30) days of receipt of the relevant
invoice.
(b) The obligations of either party hereunder (other
than the obligation to make any payment hereunder) shall be
excused in the event of labor disturbances, riots, acts of war
or terrorism, fires, power surges or power failures,
governmental acts, acts of God, fires, floods, failure of
third-party suppliers to deliver, or any other cause beyond
the control of such party, for so long as such cause for non-
performance exists.
(c) This Agreement, including all other schedules,
addenda and exhibits referenced in this Agreement, contains
the entire Agreement between APACHE and Cerner concerning the
subject matter hereof and supersedes all prior and
contemporaneous proposals, discussions, understandings and all
other agreements or representations, oral and written, between
the parties relating to the subject matter hereof.
Notwithstanding the above, all confidentiality agreements
between the parties will remain in effect and are not
superseded.
(d) In addition to the provisions that by their terms
survive, the provisions contained in Sections 2(f), 3, 15-17,
18(f), 19(b)-(c)-(d)-(e)-(f) and 20 shall survive termination
of this Agreement.
(e) All notices required by this Agreement shall be in
writing, shall be effective upon receipt, and shall be
delivered by (i) hand, (ii) certified mail, return receipt
requested, (iii) U.S. Express Mail, (iv) overnight courier
service, or (v) facsimile (confirmed by U.S. Express Mail or
overnight courier service) addressed to the other party at the
address or facsimile number set forth herein, or at such
address or facsimile number as to which such party from time
to time may give proper notice to the other party. Notices
shall be deemed to have been received: if hand delivered,
when so delivered; five days after deposit as certified mail;
on the date scheduled for delivery if sent by courier; and on
the date shown on the report generated by the sending machine
if sent by facsimile. All notices shall be effective upon
receipt or, if later, deemed receipt.
(f) The parties irrevocably agree that service of
process by mail as provided in Section 21(e) shall be
sufficient service for personal jurisdiction of the party so
served.
(g) If any provision of this Agreement or any portion
thereof is declared invalid or unenforceable, such provision
shall be limited and construed so as to make it enforceable
consistent with the parties' manifest intentions or, if such
limitation or construction is not possible, such provision
will be deemed stricken from this Agreement. In such event,
all other provisions of this Agreement will remain in full
force and effect, unless such enforcement would result in an
injustice or be inconsistent with the purposes of this
Agreement.
(h) This Agreement may be assigned by either party
only with the prior written consent of the other party,
provided that no written consent is necessary if the
assignment is to an entity controlled by, controlling or under
common control with the party making the assignment. No
consent shall be required in connection with the merger or
consolidation of Cerner or the sale by Cerner of all or
substantially all of its assets or the merger or consolidation
of APACHE or the sale by APACHE of all or substantially all of
its assets.
(i) No waiver of any term of this Agreement shall be
valid unless in a writing signed by the party against whom the
waiver is sought to be enforced. The failure of either party
at any time to require performance by the other party of any
provision hereof shall not affect in any way the right to
require such performance at any time hereafter.
(j) Nothing in this Agreement is intended to create a
relationship between APACHE and Cerner other than that of
independent contractors and neither party, nor any of its
employees or staff, shall be construed to be the agent,
employee or representative of the other.
(k) This Agreement may not be modified, altered or
amended except by a written instrument executed by both
parties.
(l) This Agreement and performance hereunder shall be
governed by and construed in accordance with the laws of
Virginia.
(m) Cerner acknowledges that the unauthorized use or
distribution of any portion of the Licensed Equations or the
APACHE Acute Care Module would cause APACHE irreparable harm,
and agrees that APACHE would be entitled to injunctive relief
prohibiting such unauthorized use or distribution, or such
breach, in addition to any other right or remedy APACHE might
have in law or equity.
(n) Each party shall execute and deliver to the other
party such other documents, including, without limitation,
documents of assignment, transfer or conveyance, and take such
other actions as may be reasonably necessary in the discretion
of the requesting party to carry out more effectively the
purposes of this Agreement.
The parties have executed this Agreement by their duly
authorized representatives, effective as of the date
of the last to sign as set forth below:
CERNER CORPORATION APACHE MEDICAL SYSTEMS, INC.
2800 Rockcreek Parkway 1650 Tysons Boulevard
Suite 601 Suite 300
Kansas City, MO 64117-2551 McLean, VA 22102
Phone No.: (816) 221-1024 Phone No.: (703) 847-1400
Facsimile No.: (816) 474-1742 Facsimile No.: (703) 847-1401
By:/S/Clifford W. Illig By:/S/Gerald E. Bisbee
- - - - ----------------------------- ----------------------------------
Print Name: Clifford W. Illig Print Name: Gerald E. Bisbee
----------------- -------------------------------
Title: President Title: Chief Executive Officer and Chairman
---------------------- ------------------------------------
Date: 2/2/95 Date: 1/31/95
----------------------- -------------------
<PAGE>
Exhibit A
To the Licensing Agreement
between APACHE Medical Systems, Inc. ("APACHE")
and Cerner Corporation ("Cerner")
APACHE and Cerner agree that Cerner will not sublicense the
APACHE Acute Care Module to any of the following:
1. Baylor Health Care System, Dallas, TX
2. University of Michigan Hospitals, Ann Arbor, MI
3. The hospitals in the counties listed below, provided that
ProMedica Health Systems signs an Agreement with APACHE by
July 31, 1995:
County, State
Lenawee, MI
Monroe, MI
Fulton, OH
Lucas, OH
Ottawa, OH
Sandusky, OH
Erie, OH
Huron, OH
Crawford, OH
Allen, OH
Henry, OH
Defiance, OH
<PAGE>
Exhibit B
To the Licensing Agreement
between APACHE Medical Systems, Inc. ("APACHE")
and Cerner Corporation ("Cerner")
Lab Specifications
UB92 Specifications
<PAGE>
Exhibit C
To the Licensing Agreement
between APACHE Medical Systems, Inc. ("APACHE")
and Cerner Corporation ("Cerner")
APACHE grants Cerner the right to use, distribute,
demonstrate, and Sublicense the APACHE Acute Care Module in
the following countries:
United States of America
United Kingdom
Canada
Australia
Germany
Puerto Rico
<PAGE>
Exhibit D
To the Licensing Agreement
between APACHE Medical Systems, Inc. ("APACHE")
and Cerner Corporation ("Cerner")
APACHE per diem rates
The following are the daily and hourly billing rates for 1994
which will be used for additional consulting support or
training classes not provided for in the Licensing Agreement.
The billing rates are subject to annual changes.
Description 1994 Daily Rate 1994 Hourly Rate
Dr. William Knaus $3,400 $425.00
Dr. Gerald Bisbee $3,400 $425.00
Project/Senior Manager $2,100 $262.50
Senior Research Physician $2,100 $262.50
Senior Biostatistician $1,700 $212.50
Manager $1,500 $187.50
Senior Database Manager $1,500 $187.50
Senior Technical Personnel $1,500 $187.50
Senior Nurse Analyst $1,000 $125.00
Technical Personnel $ 700 $ 87.50
<PAGE>
Exhibit E
To the Licensing Agreement
between APACHE Medical Systems, Inc. ("APACHE")
and Cerner Corporation ("Cerner")
Operating Platforms
Digital Equipment VAX VMS
Digital Equipment Alpha VMS
RS 6000 AIX
<TABLE>
Exhibit 11
CERNER CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<CAPTION>
Three Months Ended Three Months Ended
April 1 March 31
------------------ ------------------
1995 1994
---- ----
<S> <C> <C>
Net earnings: $ 4,541,000 $ 3,002,000
Weighted average number of
common and common stock
equivalent shares:
Weighted average number of
outstanding common shares 14,065,394 13,634,574
Dilutive effect (excess of number
of shares issuable over number
of shares assumed to be
repurchased with the proceeds
of exercised options based on
the average market price
during the period) 881,058 1,231,142
---------- ----------
14,946,452 14,865,716
Earnings per common and
common stock equivalent
shares: $ .30 $ .20
------------ -----------
------------ -----------
Weighted average number of
common and common stock
equivalent shares assuming
full dilution:
Additional dilutive effect
(reduction in number of
sharesassumed to be
repurchased with the
proceeds of exercised stock
options and converted
warrants based on the
end of the period market
price of the stock,
if higher than the average
price) 8,825 --
---------- ---------
14,955,277 14,865,716
---------- ----------
---------- ----------
Earnings per common and common
stock equivalent shares
assuming full dilution: $ .30 $ .20
------------ -----------
------------ -----------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> APR-01-1995
<CASH> 8,793,000
<SECURITIES> 7,652,000
<RECEIVABLES> 69,683,000
<ALLOWANCES> 634,000
<INVENTORY> 1,667,000
<CURRENT-ASSETS> 88,919,000
<PP&E> 60,868,000
<DEPRECIATION> 17,260,000
<TOTAL-ASSETS> 164,295,000
<CURRENT-LIABILITIES> 31,297,000
<BONDS> 0
<COMMON> 147,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 90,763,000
<SALES> 43,192,000
<TOTAL-REVENUES> 43,192,000
<CGS> 12,068,000
<TOTAL-COSTS> 34,908,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 468,000
<INCOME-PRETAX> 7,816,000
<INCOME-TAX> 3,275,000
<INCOME-CONTINUING> 4,541,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,541,000
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
