<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 10, 1995.
REGISTRATION NO. 33-61307
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CERNER CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 43-1196944
(STATE OR OTHER JURISDICTIONOF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2800 ROCKCREEK PARKWAY, SUITE 601
KANSAS CITY, MISSOURI 64117
(816) 221-1024
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
CLIFFORD W. ILLIG, PRESIDENT
2800 ROCKCREEK PARKWAY, SUITE 601
KANSAS CITY, MISSOURI 64117
(816) 221-1024
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
PATRICK A. POHLEN, ESQ. RICHARD G. SWANSON, ESQ.
STINSON, MAG & FIZZELL, P.C. DORSEY & WHITNEY P.L.L.P.
1201 WALNUT STREET 220 SOUTH SIXTH STREET
KANSAS CITY, MISSOURI 64106 MINNEAPOLIS, MINNESOTA 55402
(816) 842-8600 (612) 340-2600
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
AUGUST 10, 1995
3,440,000 Shares
LOGO
Common Stock
--------
Of the 3,440,000 shares of Common Stock offered hereby, 3,200,000 shares are
being sold by Cerner Corporation ("Cerner" or the "Company") and 240,000 shares
are being sold by certain stockholders of the Company (the "Selling
Stockholders"). See "Selling Stockholders." The Company will not receive any of
the proceeds from the sale of shares by the Selling Stockholders. The share
numbers give effect to the Company's 2-for-1 stock split in the form of a 100%
stock dividend to be distributed on August 4, 1995 to stockholders of record on
July 24, 1995.
The Common Stock of the Company is traded on the Nasdaq National Market under
the symbol "CERN." On July 24, 1995, the last reported sale price for the
Company's Common Stock on the Nasdaq National Market was $63.125 per share
($31.5625 after taking into account the stock split).
--------
FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE "RISK
FACTORS" APPEARING ON PAGES 6 AND 7.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS PROCEEDS TO
TO COMMISSIONS TO SELLING
PUBLIC (1) COMPANY (2) STOCKHOLDERS
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
--------------------------------------------------------------------------------------------
Total (3)........................ $ $ $ $
--------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company, estimated
at $400,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
516,000 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent that the option is exercised, the Underwriters will
offer the additional shares at the Price to Public shown above. If the
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
--------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the
offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
August , 1995.
Alex. Brown & Sons
INCORPORATED
Donaldson, Lufkin & Jenrette
SECURITIES CORPORATION
Smith Barney Inc.
THE DATE OF THIS PROSPECTUS IS AUGUST , 1995
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information concerning the Company may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices at Seven World Trade Center, New York, New York 10048 and at Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can also be obtained upon written request addressed to the Commission,
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Common Stock is included for quotation on the Nasdaq
National Market, and such reports, proxy statements and other information
should be available for inspection and copying at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
The Company has filed with the Commission a registration statement on Form S-
3 (herein, together with all amendments and exhibits, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the shares of Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Statements made in this Prospectus
as to the content of any contract, agreement or other document referred to are
not necessarily complete. With respect to each such contract, agreement or
other document filed or incorporated by reference as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
the Exchange Act are incorporated herein by reference: (i) the Company's Annual
Report on Form 10-K for the year ended December 31, 1994; (ii) the Company's
Quarterly Reports on Form 10-Q for the quarters ended April 1, 1995 and July 1,
1995; (iii) the Company's Reports on Form 8-K dated January 5, 1995, July 17,
1995 and July 18, 1995; and (iv) the description of the Common Stock contained
in the Company's Registration Statement on Form 8-A (File No. 0-15386),
including any amendments or reports filed for the purpose of updating such
description.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering contemplated hereby shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents, except that in no event shall any information
included in any such document in response to Item 402(i), (k) or (l) of
Regulation S-K be deemed to constitute a part of this Prospectus. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein, or in any
subsequently filed document which is deemed to be incorporated by reference
herein, modifies or supersedes such earlier statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person,
a copy of any or all of the documents incorporated by reference herein (other
than exhibits thereto, unless such exhibits are specifically incorporated by
reference into the information that this Prospectus incorporates). Written or
telephone requests for such copies should be directed to the Company's
principal office: Cerner Corporation, 2800 Rockcreek Parkway, Suite 601, Kansas
City, Missouri 64117, Attention: Kim Stevens, (816) 221-1024.
--------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON THE NASDAQ
NATIONAL MARKET SYSTEM IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
PathNet, RadNet, PharmNet, MSmeds, ProNet, ProNet II, CareNet, MedNet,
SurgiNet, MRNet, PowerChart, Power-Vision and Discern Expert are trademarks of
the Company.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and the notes thereto appearing elsewhere
in this Prospectus or incorporated herein by reference. Except as otherwise
noted, all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option and gives effect to the Company's 2-for-1
stock split in the form of a 100% stock dividend to be distributed on August 4,
1995 to stockholders of record on July 24, 1995. Unless the context requires
otherwise, references herein to Cerner or the Company include Cerner
Corporation and its subsidiaries.
THE COMPANY
Cerner designs, develops, markets, installs and supports member/patient-
focused clinical and management information systems that are capable of being
implemented on an individual, combined or enterprise-wide basis. Cerner systems
are designed to automate the process of healthcare by accumulating data on care
provided to members/patients, maintaining such data in a member/patient
database repository and providing access to such data for users of clinical
information across a healthcare system. Cerner's systems are designed and
developed using Health Network Architecture ("HNA"), a single architecture. HNA
is a unified system for combining clinical and management information
applications. HNA allows each participating facility within an integrated
healthcare enterprise 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 the efficiency and productivity
of the location and the entire enterprise.
The Company's products include: (i) process-based systems, which automate
clinical care processes throughout and between entities, (ii) repository
systems, which capture, sort, present and analyze clinical and process related
data and (iii) clinical domain systems, which automate complex clinical
processes within specific departments or domains. Cerner markets over 200
product options that complement Cerner's major information systems. At July 1,
1995, the Company had 1,041 system placements with 731 clients, principally for
clinical laboratory, blood bank, radiology, pharmacy, internal medicine and
other clinical and management applications. Of these clients, 39 had contracted
for the use of two or more clinical or management applications in conjunction
with ProNet, the Company's proprietary orders management application. It is
through the use of ProNet that a client achieves the full benefits of the HNA
architecture.
The cornerstone of Cerner's information systems strategy is HNA, the single
architecture around which each of Cerner's products is developed. This highly
scalable architecture allows Cerner to meet the clinical and management
information requirements of a healthcare delivery system across the continuum
of care from the physician practice to the community-wide, integrated
healthcare system by allowing its applications to work together as one system.
The value of HNA is the creation of systems that "intrarelate" as opposed to
being integrated. With "intrarelated" systems, all caregivers can be kept
apprised of a patient's condition, allowing the activities of the care team to
be more carefully and efficiently orchestrated in an effort to deliver the
highest possible quality of care. Cerner's approach to system design is to
first understand the intricate processes of providing care and then to design
systems that support and streamline those processes.
The Company's business strategy is (i) to penetrate the integrated healthcare
market by providing systems that decrease costs, utilize fewer resources per
patient/member encounter, decrease the amount of care required by focusing on
preventive measures and increase member populations by attracting additional
members through better quality healthcare and services, (ii) to penetrate the
physician market by providing systems that can provide the member/patient data
repositories and
3
<PAGE>
clinical management tools that are required by physicians in the changing
healthcare marketplace, (iii) to expand its core business through increased
demand from existing clients and providers looking to restructure and
reengineer high cost centers, (iv) to remain committed to the Cerner vision of
the unified architecture and (v) to expand products and services through
continued internal development, acquisitions or joint ventures.
Cerner is a Delaware corporation and was organized in 1980. The Company's
principal executive offices are located at 2800 Rockcreek Parkway, Kansas City,
Missouri 64117, and its telephone number is (816) 221-1024.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company........................... 3,200,000 shares
Common Stock offered by the Selling
Stockholders...................... 240,000 shares
Common Stock to be outstanding
after the offering................ 31,625,458 shares(1)
Use of proceeds.................... For general corporate purposes, including
expansion of the Company's client base and
product offerings through continued
internal development, acquisitions or joint
ventures.
Nasdaq National Market symbol...... CERN
</TABLE>
--------
(1) Based upon the number of shares outstanding as of July 1, 1995, excluding
2,648,632 shares reserved as of such date for issuance upon the exercise of
outstanding options.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND STATISTICAL DATA
(IN THOUSANDS, EXCEPT PER SHARE, CLIENTS, SYSTEM PLACEMENTS AND ASSOCIATE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
------------------------------------------ -----------------------
JUNE 30, JULY 1,
1990 1991 1992 1993 1994 1994 1995(1)
------- ------- -------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
DATA:
Revenues............... $57,110 $77,240 $101,145 $120,572 $155,917 $ 70,309 $ 92,158
Operating earnings..... 4,296 8,068 16,587 24,330 33,779 13,395 19,049
Earnings before income
taxes................. 4,185 7,552 16,293 24,120 32,451 12,977 18,088
Net earnings........... 2,636 4,688 9,932 14,558 19,501 7,905 10,725
Primary earnings per
share................. $ .10 $ .17 $ .35 $ .50 $ .66 $ .27 $ .36
Primary weighted
average shares
outstanding........... 27,632 26,873 28,681 29,158 29,762 29,699 29,920
<CAPTION>
JULY 1, 1995
-----------------------
AS
ACTUAL ADJUSTED(2)
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................................... $ 59,206 $155,009
Total assets...................................................... 179,010 274,813
Long-term debt, net of current installments....................... 32,781 32,781
Stockholders' equity.............................................. 97,113 192,916
<CAPTION>
DECEMBER 31,
------------------------------------------ JUNE 30, JULY 1,
1990 1991 1992 1993 1994 1994 1995(1)
------- ------- -------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATISTICAL DATA(3):
Revenue Backlog:
Contract(4).......... $11,957 $30,158 $ 36,194 $ 42,183 $ 57,547 $ 46,935 $ 58,806(5)
Support and
maintenance(6)...... 24,649 32,909 43,149 57,341 77,223 69,070 90,819
------- ------- -------- -------- -------- -------- --------
Total................ $36,606 $63,067 $ 79,343 $ 99,524 $134,770 $116,005 $149,625
======= ======= ======== ======== ======== ======== ========
Clients:
HNA(7)............... 1 6 11 22 31 25 39
Total(8)............. 227 269 322 649 711 690 731
System Placements(9):
Process-based
systems............. 2 11 14 30 52 37 67
Repository systems... 0 3 6 21 42 28 59
Clinical domain
systems(8).......... 254 305 387 764 879 836 915
------- ------- -------- -------- -------- -------- --------
Total................ 256 319 407 815 973 901 1,041
======= ======= ======== ======== ======== ======== ========
Number of
associates(10)........ 428 505 653 918 1,091 1,038 1,200
</TABLE>
--------
(1) Effective January 1, 1995, the Company changed its fiscal year from a
fiscal year ending December 31 of each year to a fiscal year ending on the
Saturday nearest to December 31 of each year and changed its fiscal
quarters from fiscal quarters ending on the last day of March, June,
September and December of each year to fiscal quarters ending on the
Saturday nearest to the last day of March, June, September and December of
each year.
(2) Adjusted to give effect to the issuance and sale of 3,200 shares of Common
Stock offered by the Company hereby at an assumed public offering price of
$31.5625 per share and the application of the net proceeds thereof. See
"Use of Proceeds."
(3) All statistical data is unaudited and, except for revenue backlog and
number of associates, is reported on a cumulative basis.
(4) Represents system sales from signed contracts, which have not yet been
recognized as revenue.
(5) At July 1, 1995, $31,320 (53%) of contract backlog of $58,806 related to
sales of HNA systems.
(6) Represents contracted software support and hardware maintenance services
for a period of twelve months.
(7) An HNA client is a client that has contracted for the Company's ProNet
Order Management product and at least two other clinical systems.
(8) Includes clients of Megasource, Inc. from November 1, 1993, the date on
which the Company acquired Megasource, Inc.
(9) Includes systems for which the Company has a signed contract.
(10) Associates is the term used by the Company for its employees.
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Common Stock offered by this Prospectus.
Variability of Quarterly Operating Results; Seasonality. Based on healthcare
industry trends, the Company believes that, in the future, a greater
percentage of its revenues may be generated by the sale and installation of
larger, more complex, costlier systems. These systems are installed over time
periods ranging from approximately six months to three years. The Company
recognizes revenue upon the completion of standard milestone conditions.
Delays in meeting these milestone conditions or modification of the contracts
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 the Company's results of operations for a particular quarter. In
addition, the Company's quarterly operating results could be adversely
affected by the timing of new product and service introductions and product
upgrade releases during a particular quarter. 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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Changes in the Healthcare Industry. The healthcare industry is currently
undergoing significant changes, including consolidation of healthcare
providers to form larger healthcare delivery enterprises as well as market-
driven and government initiatives to reform healthcare. The increased
bargaining power of these combined enterprises may lead to a reduction in the
gross margins of the Company's products, which could have a material adverse
effect on the Company's business, financial condition or results of
operations. As the number of healthcare delivery enterprises decreases due to
further industry consolidation, each sale becomes more significant and
competition for such sale is greater. The Company's business, financial
condition or results of operations may be materially and adversely affected in
the event that the Company is unable to make sales of its systems to
healthcare providers that are combining, or replacing or substantially
modifying their healthcare information systems. In addition, numerous
proposals relating to healthcare reform have been, and additional proposals
may be, introduced in the United States Congress and state legislatures.
Although the effects of federal and state initiatives for healthcare reform
are unknown, the Company believes that competitive factors in the healthcare
industry will continue to drive reform of healthcare delivery. The Company
cannot predict with any certainty what impact, if any, such market or
government initiatives might have on its business, financial condition or
results of operations.
Competition. The market for healthcare information systems is intensely
competitive and rapidly changing. 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, the potential for enhancements and future compatible products, and
technical resources. Many of the Company's competitors have greater financial,
technical, product development and marketing resources than the Company, and
some of these competitors offer products, such as financial, billing and
collection systems, not offered by the Company. In addition, other companies
with significant technological and other resources may enter the market in
which the Company competes. There can be no assurance that future competition
will not have a material adverse effect on the Company's business, financial
condition or results of operations.
Rapid Technological Change. The Company's market is characterized by rapidly
changing technology and the frequent introduction of new products and product
enhancements. The Company's continued success will, therefore, 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
customer requirements and achieve market acceptance. There can be no assurance
that the Company will be able to respond effectively to changes in technology
or customer demands.
6
<PAGE>
Moreover, there can be no assurance that the Company's competitors will not
develop competitive products, or that any such products will not have an
adverse effect upon the Company's business, financial condition or results of
operations.
Dependence on Proprietary Technology; Intellectual Property Rights. 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 has not filed any patent applications or
copyrights covering its software technology. Due to the nature of the
software, the Company believes that patent, trade secret and copyright
protection are less significant than the Company's ability to further develop,
enhance and modify its products. There can be no assurance, however, that the
Company will be able to prevent misappropriation of the Company's proprietary
information.
Dependence on Key Personnel. The Company depends to a significant extent on
key management and technical personnel. The Company's growth and future
success will depend in large part on its ability to attract, motivate and
retain highly qualified personnel, particularly trained and experienced
professionals capable of developing, selling and installing complex healthcare
information systems. Competition for such personnel is intense and there can
be no assurance that the Company will be successful in hiring, motivating or
retaining such qualified personnel. The loss of key personnel or the inability
to hire or retain qualified personnel could have a material adverse effect on
the Company's business, financial condition or results of operations.
Government Regulation. The healthcare industry is subject to extensive
federal and state regulation governing, among other things, the addition of
new services, certain capital expenditures and reimbursement. The effect of
future legislation and regulation upon prospective clients may, in certain
circumstances, have an adverse effect upon the Company's business, financial
condition or results of operations. In addition, the United States Food and
Drug Administration (the "FDA") has declared that software products that are
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 1976 Medical Device Amendments to
the federal Food, Drug and Cosmetic Act and the Safe Medical Devices Act of
1990. As a consequence, the Company is subject to extensive regulation by the
FDA with regard to its blood bank software. To the extent that other Company
products are deemed by the FDA to be medical devices, the Company could be
subject, depending on the product, to extensive requirements governing pre-
and post-marketing conditions, such as device investigation, approval,
labeling and manufacturing.
Product Liability. Certain of the Company's products provide data for use by
healthcare providers in providing care to patients. The Company does not
maintain insurance with respect to potential claims associated with the use of
its products. Although no such claims have been brought against the Company to
date, there can be no assurance that such claims will not be made in the
future. A successful claim brought against the Company could have a material
adverse effect on the Company's business, financial condition or results of
operations.
Possible Volatility of Stock Price. Companies engaged in software,
healthcare and high technology businesses frequently experience volatility in
the market price of their stocks. The market for the Company's Common Stock
may experience significant price and volume fluctuations in response to
factors such as variations in quarterly results of operations, announcements
of technological innovations or new products by the Company or its
competitors, governmental regulatory action, healthcare reform measures,
acquisitions, disputes with respect to proprietary rights, general trends in
the industry and overall market conditions.
7
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,200,000 shares of
Common Stock offered by the Company are estimated to be $95,803,000
($111,315,000 if the Underwriters' over-allotment option is exercised in full)
assuming a public offering price of $31.5625 per share. The Company will use
the proceeds from the sale of the shares of Common Stock offered hereby for
general corporate purposes, including expansion of the Company's client base
and product offerings through continued internal development, acquisitions or
joint ventures. The Company currently has no commitments or agreements with
respect to any future acquisitions. Pending such uses, the net proceeds may be
used to reduce amounts outstanding under the Company's revolving credit
facility or be invested in short-term, interest-bearing securities or money
market funds. The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders.
8
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data which
have been derived from the consolidated financial statements of Cerner
Corporation and its subsidiaries as of and for the years ended December 31,
1990 through 1994. The financial statements as of and for the years ended
December 31, 1990 through 1994 have been audited by KPMG Peat Marwick LLP. The
financial statements as of and for the six-month periods ended June 30, 1994
and July 1, 1995 are unaudited. The Company's Statement of Earnings Data for
each of the years in the three-year period ended December 31, 1994 and the
Balance Sheet Data as of December 31, 1993 and 1994 should be read in
conjunction with and are qualified in their entirety by the Consolidated
Financial Statements and related notes included elsewhere and incorporated by
reference in this Prospectus. The amounts presented below give effect to the
Company's 2-for-1 stock split in the form of a 100% stock dividend to be
distributed on August 4, 1995 to stockholders of record on July 24, 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
------------------------------------------ -----------------------
JUNE 30, JULY 1,
1990 1991 1992 1993 1994 1994 1995(1)
------- ------- -------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
DATA:
Revenues:
System sales......... $41,132 $54,147 $ 71,586 $ 84,024 $108,322 $48,376 $65,322
Support and
maintenance......... 14,191 20,898 26,664 33,200 41,322 19,765 23,362
Other................ 1,787 2,195 2,895 3,348 6,273 2,168 3,474
------- ------- -------- -------- -------- ------- -------
Total revenues..... 57,110 77,240 101,145 120,572 155,917 70,309 92,158
------- ------- -------- -------- -------- ------- -------
Costs and expenses:
Cost of revenues..... 30,132 39,407 44,818 43,921 46,426 21,600 26,286
Sales and client
service............. 11,331 14,660 20,067 28,248 39,857 19,073 23,991
Software development. 8,143 10,562 12,962 16,000 22,688 10,477 15,053
General and
administrative...... 3,208 4,543 6,711 8,073 13,167 5,764 7,779
------- ------- -------- -------- -------- ------- -------
Total costs and
expenses 52,814 69,172 84,558 96,242 122,138 56,914 73,109
------- ------- -------- -------- -------- ------- -------
Operating earnings..... 4,296 8,068 16,587 24,330 33,779 13,395 19,049
Interest expense, net.. 111 516 294 210 1,328 418 961
------- ------- -------- -------- -------- ------- -------
Earnings before income
taxes................. 4,185 7,552 16,293 24,120 32,451 12,977 18,088
Income taxes........... 1,549 2,864 6,361 9,562 12,950 5,072 7,363
------- ------- -------- -------- -------- ------- -------
Net earnings........... $ 2,636 $ 4,688 $ 9,932 $ 14,558 $ 19,501 $ 7,905 $10,725
======= ======= ======== ======== ======== ======= =======
Primary earnings per
share................. $ .10 $ .17 $ .35 $ .50 $ .66 $ .27 $ .36
======= ======= ======== ======== ======== ======= =======
Primary weighted
average shares
outstanding........... 27,632 26,873 28,681 29,158 29,762 29,699 29,920
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------- JULY 1,
1990 1991 1992 1993 1994 1995(1)
------- ------- ------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: (IN THOUSANDS)
Working capital......... $19,461 $22,588 $30,522 $ 42,603 $ 52,370 $ 59,206
Total assets............ 44,175 56,155 66,667 104,910 156,410 179,010
Long-term debt, net of
current installments... 7,729 7,982 8,310 10,354 30,235 32,781
Stockholders' equity.... 22,728 27,517 38,643 64,230 85,777 97,113
</TABLE>
--------
(1) Effective January 1, 1995, the Company changed its fiscal year from a
fiscal year ending December 31 of each year to a fiscal year ending on the
Saturday nearest to December 31 of each year and changed its fiscal
quarters from fiscal quarters ending on the last day of March, June,
September and December of each year to fiscal quarters ending on the
Saturday nearest to the last day of March, June, September and December of
each year.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table shows the percentage of total revenues represented by
various expense categories reflected in the Company's Consolidated Statement of
Earnings.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
------------------- --------------
JULY
JUNE 30, 1,
1992 1993 1994 1994 1995
----- ----- ----- -------- -----
<S> <C> <C> <C> <C> <C>
Total revenues............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of revenues......................... 44.4 36.4 29.7 30.8 28.6
Sales and client service................. 19.8 23.4 25.6 27.1 26.0
Software development..................... 12.8 13.3 14.6 14.9 16.3
General and administrative............... 6.6 6.7 8.4 8.2 8.4
----- ----- ----- ----- -----
Total costs and expenses............... 83.6 79.8 78.3 81.0 79.3
----- ----- ----- ----- -----
Operating earnings......................... 16.4 20.2 21.7 19.0 20.7
Interest expense, net...................... 0.3 0.2 0.9 0.6 1.1
----- ----- ----- ----- -----
Earnings before income taxes............... 16.1 20.0 20.8 18.4 19.6
Income taxes............................... 6.3 7.9 8.3 7.2 8.0
----- ----- ----- ----- -----
Net earnings............................... 9.8% 12.1% 12.5% 11.2% 11.6%
===== ===== ===== ===== =====
</TABLE>
Six Months Ended July 1, 1995 Compared to Six Months Ended June 30, 1994
The Company's revenues increased 31% from $70,309,000 for the six-month
period ended June 30, 1994 to $92,158,000 for the six-month period ended July
1, 1995. Net earnings increased 36% from $7,905,000 in the 1994 period to
$10,725,000 for the 1995 period.
In the 1995 period, revenues increased due to an increase in system sales and
support of installed systems. System sales increased 35% from $48,376,000 for
the six-month period ended June 30, 1994 to $65,322,000 for the corresponding
period in 1995. This increase in system sales resulted principally from an
increase in installations under HNA contracts and additional hardware and
software sales to the Company's existing client base. HNA contracts comprised
44% of total system sales in the first six months of 1995 compared to 33% 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 the ability to access the full
"intrarelationship" of the Company's HNA products. The sale of additional
hardware and software products to the installed client base increased 58% in
the first six months of 1995 over the same period in 1994.
At July 1, 1995, the Company had $58,806,000 in contract backlog and
$90,819,000 in support and maintenance backlog, compared to $46,935,000 in
contract backlog and $69,070,000 in support and maintenance backlog at June 30,
1994. The HNA contracts signed in 1994 and in the first six months of 1995 will
contribute significantly to future revenues and margin due to the relatively
large amount of revenue generated by such contracts, which is recognized over a
longer time period for HNA contracts than for other products offered by the
Company.
10
<PAGE>
Support and maintenance revenues increased 18% from $19,765,000 during the
first six months of 1994 to $23,362,000 during the same period in 1995. This
increase was due primarily to the increase in the Company's installed and
converted client base. The number of clients converted and paying monthly
software support fees was 570 at July 1, 1995, compared to 530 at June 30,
1994. The number of clients paying monthly hardware maintenance fees was 297 at
July 1, 1995, compared to 268 at June 30, 1994.
Other revenues increased 60% from $2,168,000 in the first half of 1994 to
$3,474,000 in the same period of 1995. This increase was due primarily to real
estate lease revenues from the rental to outside tenants of space in the
Company's headquarters complex not currently being utilized by the Company.
The cost of revenues includes the cost of 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 manufacturers. The cost of revenue was 29% of
total revenues in the first six months of 1995 and 31% of total revenues in the
comparable period in 1994. Such costs, as a percent of revenues, typically have
varied as the mix of revenue (software, hardware, 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 an
increase in multi-product projects which carry a lower cost of revenue
percentage.
Sales and client service expenses include salaries of client service
personnel, communications expenses and travel expenses. Also included are sales
and marketing salaries, trade show costs and advertising costs. These expenses
as a percent of total revenues were 26% and 27% in the first half of 1995 and
1994, respectively. The increase in total sales and client service expenses
from $19,073,000 in 1994 to $23,991,000 in 1995 was attributable to the cost of
a larger regional field sales and service organization, marketing of new
products and international marketing initiatives.
Software development expenses include salaries, documentation and other
direct expenses incurred in product development, as well as amortization of
software development costs previously capitalized. Total expenditures for
software development, including both capitalized and noncapitalized portions,
for the first half of 1995 and 1994 were $16,717,000 and $12,575,000,
respectively. These amounts exclude amortization of previously capitalized
expenditures. Capitalized software costs were $4,633,000 and $3,918,000 for the
first six months of 1995 and 1994, respectively. The increase in aggregate
expenditures for software development in 1995 was due to development of
clinical information system products to complement the Company's existing
product line.
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 the
first six months of both 1995 and 1994.
Net interest expense was 130% higher in the first half of 1995 than in the
same period in 1994. This increase in interest expense was due to interest
costs associated with the $30,000,000 principal amount of 8.30% Senior Notes
issued by the Company in July 1994 to refinance the purchase of the Company's
headquarters complex and to finance capital improvements to the complex. The
higher interest expense was offset by a reduction in the Company's rent expense
and an increase in lease revenues from the rental to outside tenants of space
in the Company's headquarters complex not currently being utilized by the
Company.
The Company's effective tax rates were 41% and 39% for the first six months
of 1995 and 1994, respectively.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
The Company's revenues increased 29% from $120,572,000 in 1993 to
$155,917,000 in 1994. Net earnings increased 34% from $14,558,000 in 1993 to
$19,501,000 in 1994.
11
<PAGE>
In 1994, revenues increased due to an increase in system sales and support of
installed systems. System sales increased 29% from $84,024,000 in 1993 to
$108,322,000 in 1994. The sale of additional hardware and software products to
the installed client base increased 40% in 1994 compared to 1993.
The Company has experienced a significant increase in the number of clients
that have purchased two or more clinical system units in their initial
contract, or clients from the installed base that purchase one or more system
units subsequent to their initial contract. Total sales to the installed base
in 1994, including new systems, incremental hardware and software and recurring
and discrete services, were 73% of total revenues in 1994 compared to 63% in
1993.
A significant amount of the 1994 and 1993 system sales revenue was in backlog
at the beginning of the respective year, including portions of HNA contracts
that had been signed in prior years. At the end of 1994, the Company had
$57,547,000 in contract backlog and $77,223,000 in support and maintenance
backlog, compared to $42,183,000 in contract backlog and $57,341,000 in support
and maintenance backlog at the end of 1993.
Support and maintenance revenues increased 24% from $33,200,000 during 1993
to $41,322,000 during 1994. These revenues represented 27% of 1994 total
revenues compared to 28% of 1993 total revenues. The number of clients
converted and paying monthly software support fees was 581 at the end of 1994
compared to 527 at the end of 1993. These numbers include clients of
Megasource, Inc., which the Company acquired on November 1, 1993. The average
support fee for the Megasource clients is significantly lower than the average
support fee for the Company's other clients. The number of clients installed
and paying monthly hardware maintenance fees was 290 at the end of 1994,
compared to 275 at the end of 1993.
Other revenues increased 87% from $3,348,000 in 1993 to $6,273,000 in 1994.
This increase was due primarily to real estate lease revenues from the rental
to outside tenants of space in the Company's headquarters complex not currently
being utilized by the Company and certain international activities.
The cost of revenues was 30% of total revenues in 1994 compared to 36% of
total revenues in 1993. This percentage for 1994 was affected positively by
three factors. First, system sales reflected an increase of multi-product
projects, which carry a lower cost percentage. Second, the cost of support and
maintenance decreased as more systems were converted and the client began
paying support. Third, the incremental hardware and software sold to existing
clients had a larger software component.
Sales and client service expenses as a percent of total revenues were 26% in
1994 compared to 23% in 1993. The increase in total sales and client service
expenses from $28,248,000 in 1993 to $39,857,000 in 1994 was attributable to
the cost of a larger regional field sales and services organization, marketing
of new products and international marketing initiatives.
Total expenditures for software development, including both capitalized and
noncapitalized portions, for 1994 were $26,897,000 compared to $19,432,000 for
1993. These amounts exclude amortization of previously capitalized
expenditures. Capitalized software costs were $8,131,000 for 1994 compared to
$6,181,000 for 1993. This increase in aggregate expenditures for software
development in 1994 was due to the development of more clinical information
system products to complement the Company's existing product line.
General and administrative expenses as a percent of total revenues were 8%
for 1994 compared to 7% for 1993.
Net interest expense was considerably higher in 1994 than in 1993. This
increase in interest expense was due to financing the purchase of the Company's
headquarters complex. This higher
12
<PAGE>
interest expense was offset by a reduction in the Company's rent expense and an
increase in lease revenues from the rental to outside tenants of space in the
Company's headquarters complex not currently being utilized by the Company.
The Company's effective tax rate was 40% for both 1994 and 1993.
Year Ended December 31, 1993 Compared to Year Ended December 31, 1992
The Company's revenues increased 19% from $101,145,000 in 1992 to
$120,572,000 in 1993. Net earnings increased 47% from $9,932,000 in 1992 to
$14,558,000 in 1993.
In 1993, revenues increased 17% due to an increase in system sales and
support of installed systems. System sales increased from $71,586,000 in 1992
to $84,024,000 in 1993. The increase in 1993 was due primarily to the
relatively larger software component of the 1993 sales. A significant amount of
the 1993 and 1992 system sales revenue was in the backlog at the beginning of
the respective years. The sale of additional hardware and software products to
the installed client base increased by 9% in 1993 compared to 1992.
Total sales to the installed base in 1993, including new systems, incremental
hardware and software, and recurring and discrete services, were 63% of total
revenues in 1993 compared to 51% in 1992.
At the end of 1993, the Company had $42,183,000 in contract backlog and
$57,341,000 in support and maintenance backlog compared to $36,194,000 in
contract backlog and $43,149,000 in support and maintenance backlog at the end
of 1992.
Support and maintenance revenues increased 25% from $26,664,000 in 1992 to
$33,200,000 in 1993. These revenues represented 28% of 1993 total revenues and
26% of 1992 total revenues. The number of clients converted and paying monthly
software support fees was 527 at the end of 1993 compared to 264 at the end of
1992. The numbers for 1993 include clients of Megasource, Inc., which the
Company acquired on November 1, 1993. The number of clients installed and
paying monthly hardware maintenance fees was 275 at the end of 1993 and 234 at
the end of 1992.
Other revenues increased 16% from $2,895,000 in 1992 to $3,348,000 in 1993.
This increase was due primarily to international activities.
The cost of revenues was 36% of total revenues in 1993 and 44% in 1992. The
percentage for 1993 was affected positively by three factors. First, system
sales reflected an increase of multi-product projects, which carry a lower cost
percentage. Second, the cost of support and maintenance decreased as more
systems were converted and the client began paying support. Third, the
incremental hardware and software sold to existing clients had a larger
software component.
Sales and client service expenses as a percent of total revenues were 23% and
20% in 1993 and 1992, respectively. This increase in total sales and client
service expenses from $20,067,000 in 1992 to $28,248,000 in 1993 was
attributable to the cost of a larger field sales and service organization,
marketing of new products and international marketing initiatives.
Total expenditures for software development, including both capitalized and
noncapitalized portions, for 1993 and 1992 were $19,432,000 and $14,522,000,
respectively. These amounts exclude
13
<PAGE>
amortization of previously capitalized expenditures. Capitalized software costs
were $6,181,000 and $4,098,000 for 1993 and 1992, respectively. This increase
in aggregate expenditures for software development in 1993 was due to
development of more clinical information system products to complement the
Company's existing product line.
General and administrative expenses as a percent of total revenues were 7%
for both 1993 and 1992.
The Company's effective tax rates were 40% and 39% for 1993 and 1992,
respectively.
Quarterly Results of Operations
The following table sets forth certain unaudited quarterly financial data for
1993 and 1994 and the first two quarters of fiscal 1995. In the opinion of the
Company, this unaudited information has been prepared on the same basis as the
audited information and includes all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the results for the
period set forth. The results for any quarter are not necessarily indicative of
results for any future period.
<TABLE>
<CAPTION>
1993 1994 1995
QUARTER ENDED QUARTER ENDED QUARTER ENDED
--------------------------------- --------------------------------- ---------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 APRIL 1 JULY 1
-------- ------- -------- ------- -------- ------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $24,137 $29,834 $32,334 $34,267 $30,515 $39,795 $40,933 $44,674 $43,192 $48,967
Operating earnings...... 4,370 5,594 6,901 7,466 4,808 8,587 8,796 11,589 8,285 10,764
Earnings before income
taxes.................. 4,320 5,568 6,809 7,423 4,724 8,253 8,387 11,087 7,817 10,271
Net earnings............ 2,560 3,314 4,072 4,612 3,002 4,903 5,069 6,527 4,541 6,184
Primary earnings per
share.................. $ .09 $ .11 $ .14 $ .16 $ .10 $ .17 $ .17 $ .22 $ .15 $ .21
Primary weighted average
shares outstanding..... 29,008 28,920 29,100 29,528 29,732 29,648 29,714 29,864 29,892 29,942
</TABLE>
The Company's quarterly revenues and net earnings historically have been
variable and cyclical. This variability is attributable primarily to new client
contracts signed and the number and size of project milestone conditions
satisfied in any fiscal quarter. The Company believes that this cyclicality
results primarily from increased client commitments in the fourth quarter
resulting from clients' spending their remaining budget allocations at year-end
and to decreased client commitments in the first quarter as clients' budget
allocations are being developed. The Company expects the fluctuation in
quarterly financial results to continue.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity position remains strong, with total cash and cash
equivalents of $18,531,000 and working capital of $59,206,000 at July 1, 1995,
compared to cash and cash equivalents of $15,305,000 and working capital of
$52,370,000, at December 31, 1994. The Company historically has financed its
capital expenditures (other than the purchase of its headquarters complex and
anticipated related capital improvements), and working capital needs from
internally generated funds and bank borrowings.
The Company generated cash of $13,564,000 and $8,820,000 from operations in
the first six months of 1995 and 1994, respectively. The Company has
$18,000,000 of long-term, revolving credit from banks. At July 1, 1995, the
Company had $15,390,000 available under its line of credit.
14
<PAGE>
Revenues provided under the Company's support and maintenance agreements
represent recurring cash flows. The Company's revenue backlog at July 1, 1995
included $90,819,000 representing twelve months of equipment maintenance and
software support associated with signed contracts.
In April 1994, the Company purchased its headquarters complex. The purchase
was financed initially by a term loan for $17,425,000, with the remainder
provided by additional borrowing under the Company's revolving line of credit.
In July 1994, the Company issued $30,000,000 in Senior Notes bearing an
interest rate of 8.30% maturing on August 1, 2004. The proceeds of the Senior
Notes were used to repay the term loan and reduce the outstanding borrowings
under the revolving line of credit. The remaining proceeds will be used for
capital improvements to the headquarters complex.
The Company believes its present cash and cash equivalent position, together
with cash generated from operations and available under its current bank
borrowing facility, will be sufficient to meet anticipated cash requirements
during the next 12 months.
15
<PAGE>
BUSINESS
GENERAL
Cerner designs, develops, markets, installs and supports member/patient-
focused clinical and management information systems that are capable of being
implemented on an individual, combined or enterprise-wide basis. Cerner systems
are designed to automate the process of healthcare by accumulating data on care
provided to members/patients, maintaining such data in a member/patient
database repository and providing access to such data for users of clinical
information across a healthcare system. Cerner's systems are designed and
developed using the Health Network Architecture ("HNA"), a single architecture.
HNA is a unified system for combining clinical and management information
applications. HNA allows each participating facility within an integrated
healthcare enterprise 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 the efficiency and productivity
of the location and the entire enterprise.
HEALTHCARE INDUSTRY
The dramatic increase in healthcare costs in the United States, which
historically were based on a fee-for-service model, has caused significant
changes in the healthcare industry. Managed care organizations and other payers
have developed alternative payment models to control costs, including
procedure-based cost limits, contractually approved providers and capitation (a
fixed monthly fee per member in payment for all required services). The result
has been a continuing shift of financial risk from the payer to both the
physician provider and the institutional provider (hospitals, clinics, long-
term care, subacute providers and rehabilitative care centers). In response,
institutional providers are aligning with one another and with physician groups
to form Integrated Delivery Systems ("IDSs"), and IDSs are aligning with payer
organizations to form Integrated Health Organizations ("IHOs"), in each case in
an effort to compete more effectively in the changing healthcare environment.
The changes occurring in the healthcare industry have resulted in changes in
the needs for clinical and management information systems by hospitals,
physicians, managed care organizations and integrated delivery systems.
Hospitals' information requirements have become more complex as cost
containment pressures have driven the needs for efficiency and process
automation while the increasing number of relationships they have with other
providers requires additional sophistication. As physicians combine into a
variety of provider configurations, management structures and incentive plans,
they are increasingly utilizing member/patient focused information systems to
improve quality and efficiency for their growing practices and physician
networks, to develop the data necessary to compete for contracts with payers
and to be able to share the financial risks of healthcare delivery. Managed
care organizations are increasingly recognizing the value of process-oriented
and clinically-driven information as it relates to understanding and improving
the health of their members. Information system requirements for IDSs and IHOs
encompass many of the same needs as hospitals, physicians and managed care
organizations. Many IDSs and IHOs are becoming aggressively involved with
institutional providers and physicians in various relationships where
information sharing and process automation are paramount. Many of these larger,
more complex organizations are seeking closer relationships with suppliers that
can provide comprehensive information systems solutions. Information system
requirements for IDSs and IHOs include integrated process-based systems for
clinical domains, data repositories and applications for physicians and
management teams.
HEALTHCARE INFORMATION SYSTEMS INDUSTRY
Healthcare information systems are evolving to meet the needs of a changing
marketplace. Initially, computer systems developed for use in healthcare were
financially oriented, with a focus on the ability to capture charges and
generate patient bills. Beginning in the mid-1960s, institutional provider
organizations began to use clinical information systems, which automate the
activities within clinical departments, such as laboratory, pharmacy, radiology
and surgery departments, to improve
16
<PAGE>
the productivity of resources and automate the production and use of
significant amounts of clinical information. Individual departments selected
systems based upon specific features on a "best of breed" basis resulting in
disparate information systems within the institutional provider.
More recently, there has been a shift from the purchase of disparate clinical
systems on a "best of breed" basis to systems which are able to integrate
communication effectively throughout the healthcare enterprise. The two
principal approaches to meet this need are a common architecture, in which
systems communicate through inherent design, and point-to-point interfaces, in
which systems with different architectures communicate through interface
linkages. This infrastructure trend also affects the relationship between the
health system and the suppliers of information technology. The approach of
interfacing disparate systems typically involves multiple system suppliers and
the health system must act as the intermediary and integrator. The common
architecture approach relies more on a strategic relationship with one or very
few suppliers dedicated to implementing a shared vision for the role of
information in the operation of the health system.
The same forces that are causing other healthcare providers to join together
are causing physicians to combine into larger organizations, including
Independent Practice Associations ("IPAs") and Preferred Provider Organizations
("PPOs"). In some cases, such organizations align with IDSs and IHOs. Cerner
believes that such physician groups require clinical and management information
systems that allow them to participate in the community-wide clinical and
management information systems employed by the IDSs and IHOs.
THE CERNER VISION
As a result of the rapid transformation of the healthcare industry, Cerner
believes that a new center of healthcare will emerge--the IHO, which is a
combination of payers, physicians and institutional providers, into a single
organization to service a community or defined member population. IHOs have the
capacity to contract with both the government and employers to provide
healthcare services to member/patients. The focus of the IHO is to be
accountable for the health status of a defined population, with strong
financial incentives to manage health on a preventive or wellness basis and
reduce costs.
Cerner believes that many large IHOs will emerge in the United States in the
next decade. The creation of IHOs results from the combination of existing
payers, physicians and institutional providers. These IHOs will need to
implement information systems that manage the delivery of care across its
entire community while simultaneously managing the business side of health
management. Only through automating the core process of healthcare delivery
from member enrollment through the ordering and delivery of care will IHOs be
able to actually manage and measure care. Process automation will enable
healthcare systems interactively to affect the care that is delivered
throughout the entire system at each point of delivery. Cerner believes that
managing these integrated healthcare systems will require the accumulation and
refining of enormous amounts of process-related data in order to monitor
performance against projected plan and to make informed business decisions.
This process-oriented approach will also provide the information basis to
measure health system performance, in values known as outcomes, from clinical,
functional, process, member satisfaction and economic perspectives. When all of
the complex clinical processes that comprise care delivery in IHOs are
automated using fully integrated information systems, it becomes possible to
extend automation to the management processes of healthcare.
CERNER'S HNA APPROACH
The cornerstone of Cerner's information systems strategy is HNA, the single
architecture around which each of Cerner's products is developed. This highly
scalable architecture allows Cerner to meet the clinical and management
information requirements of a healthcare delivery system across the continuum
of care from the physician practice to the IHO. The value of HNA is the
creation of systems
17
<PAGE>
that "intrarelate" as opposed to being integrated. Most healthcare
organizations are using some form of information technology to manage their
clinical, financial and administrative operations. Typically, a multitude of
systems, operating on differing technology platforms from various suppliers,
are used within a single organization. These systems rely on a series of
interfaces to transmit information to one another which may inhibit real-time
access to comprehensive patient information. In addition, the data collected
by disparate systems is usually maintained in a variety of formats, and is
indexed or codified using different approaches, which dilutes the data's
usefulness.
Cerner's approach to system design is to first understand the intricate
processes of providing care and then to design systems that support and
streamline those processes. Cerner's system architecture allows its
applications to work together as one system. Cerner's systems are
"intrarelated", which means that they are designed around a single
architecture that automatically organizes and presents information in a manner
relevant to a clinician's decision process. With "intrarelated" systems, all
caregivers are kept apprised of each patient's condition, allowing the
activities of the care team to be more carefully and efficiently orchestrated
in an effort to deliver the highest possible quality of care.
STRATEGY
Key elements of the Company's business strategy include:
To penetrate the integrated healthcare market. The transformation of
healthcare delivery must deal with the changing financial model from fee-
for-service to fixed or controlled fee payments for services provided. In
order to accomplish the transition, integrated healthcare systems must
decrease costs generally, utilize fewer resources per patient or member
encounter, decrease the amount of care required by focusing on preventative
measures and increase member populations by attracting additional members
through better quality healthcare and services. Cerner's process-based,
repository and clinical systems provide the technology to enable an
integrated system to manage healthcare to significantly reduce costs,
improve the efficiency of healthcare delivery and maintain and improve the
quality of healthcare.
To penetrate the physician market. As physicians combine to form
organizations such as IPAs and PPOs, they require clinical and process-
based systems to manage the member/patient care processes within their own
practices. As such groups align with IDSs and IHOs, they further require
clinical and management information systems that allow them to share
clinical and management processes with these community-wide systems.
Cerner's systems provide the member/patient data repositories and clinical
and management tools required by physicians in order for them to
participate effectively in the changing healthcare marketplace.
To expand its core business. Cerner expects continued growth in core
business areas, including clinical domain systems such as PathNet, RadNet
and PharmNet, as institutional providers look to restructure and reengineer
these high cost centers within their IDSs and IHOs. The Company also
intends to market aggressively Cerner clinical and management information
systems and services, such as RadNet, PharmNet and ProNet, to its existing
client base.
To remain committed to a unified 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 "intrarelated" health
information and management systems. This platform enables Cerner's process-
based HNA system to be scalable on a linear basis, using either Cerner
compatible modules for process-oriented applications or competitive systems
interfaced using open system protocols. In addition, the HNA system can be
accessed throughout the enterprise at the point of
18
<PAGE>
care, which improves data integrity, allows for coordination of procedures
at multiple locations and enables reliable communication without delay.
To expand its products and services. Using its HNA platform, Cerner
intends to expand the range of products and services offered to providers,
including IDSs and IHOs, either through internal development or by
acquisitions or joint ventures. 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 IHOs begin to include service organizations
and on-line services to the home, particularly because the member/patient
focus of Cerner's architecture provides the basis for individual electronic
medical records which can be used throughout a member-focused health
system. 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.
PRODUCTS
The Company's products include: (i) process-based systems, which automate
clinical care processes throughout and between entities; (ii) repository
systems, which capture, sort, present and analyze clinical and process related
data; and (iii) clinical domain systems, which automate complex clinical
processes within specific departments or domains. These systems can be
acquired individually or as a fully intrarelated health information system.
The individual systems perform together even if installed at different times.
Cerner also markets over 200 product options that complement Cerner's major
information systems.
PROCESS-BASED SYSTEMS
ProNet Patient Management, Orders Management and Schedule Management
Information Systems address the needs of care providers and medical staff in
the areas of member/patient identification and registration, order entry,
order review and/or validation, interdepartmental/ interfacility communication
order result inquiry and reporting, and enterprise-wide resource and patient
scheduling. Management and use of the system are driven by a comprehensive
security matrix. Orders can be placed for any ancillary department by
healthcare personnel, depending on their security level and appropriate
interfaces with non-Cerner departmental systems. Order and result inquiries
are secured in the same manner. ProNet also gives care providers and medical
staff access to patient demographic, admission, transfer and discharge
information. These data are retained on-line for extended periods of time,
making them easy to update. Access to patient management functions is
determined by user-defined security levels, based on personnel credentials.
ProNet also provides functionality to help clinicians and medical staff track
patients through the health organization and to establish and maintain patient
appointment schedules for locations within an institution.
CareNet Nursing Information System automates documentation and planning
related to nursing care delivery. All information that nursing staff members
enter into CareNet is automatically transcribed to all appropriate locations
in the patient's computer-based health record. This includes information
obtained from the delivery of nursing care (e.g., vital signs, assessments,
medication administration and data automatically captured from bedside
equipment and monitoring devices). CareNet enables nurses to have more time
for patient care and greater job satisfaction. CareNet also facilitates
nursing staff activities for patient care. It can be used to plan and
organize patient care activities from admission to discharge.
Discern Expert is an event-driven, rule-based, decision support software
application integrated with other Cerner HNA clinical and management
information systems. This tool allows users to define clinical and management
rules that are applied to events accessing data that is captured or generated
19
<PAGE>
by other HNA applications. Discern Expert accomplishes a variety of tasks,
including cost reduction, resource utilization, quality-assurance and risk
management. The users can define the action to be taken by the system ranging
broadly from sending an alert to the appropriate caregiver to creation,
cancellation or suspension of an active clinical order.
ProNet II Provider Network System applications extend Cerner's process
automation and information to community-based users. ProNet II Communication
Management applications control connections and enforce access privileges to
functional services throughout the IDS and the IHO. It performs translation
and routing functions for data feeds from external systems and provides
electronic mail and multifacility-wide calendar capabilities.
REPOSITORY SYSTEMS
Open Clinical Foundation Data Repository ("OCF") is a structured repository
of clinical information of members/patients. OCF forms the foundation of
Cerner's computer-based patient record functionality. This information can
originate from numerous sources and is maintained in an easily accessible,
standardized format. OCF can be used on a stand-alone basis, but is
significantly more effective when used as part of the comprehensive HNA
solution. For most enterprises in which the various laboratories and
ancillaries cooperatively share data over the entire enterprise, OCF provides
a means of sorting and retrieving data. With OCF, the amount of on-line
clinical data that are retained in departmental systems can be significantly
reduced. Furthermore, health enterprises can scale OCF for a particular
clinical area's use and integrate it into an environment containing products
from different suppliers, including competitors. The interface specifications
to OCF are available for use by suppliers who comply with the interface
requirements.
PowerChart is a PC-workstation-based product that enables care providers to
electronically view, organize, annotate and amend a patient record so that it
is presented in a manner that allows them to navigate through the chart using
patient-provider and encounter relationships. PowerChart gives healthcare
providers structured access to the clinical information contained
electronically in OCF. The format of the on-line patient chart consists of
pages displayed from a patient's computer-based patient record and information
electronically transmitted from connected systems. Clinicians are able to
browse through pages much the same as with printed documents. Clinicians can
access documents through tables of contents or search for terms in the
document text. The scope of documents available is limited only by the system
interfaces to OCF.
Open Management Foundation Data Repository ("OMF") is a structured
repository for process- and activity-related information useful for management
of a healthcare institution. Information can originate from numerous sources
and can be maintained in an easily accessible, standardized format. OMF can be
scaled for a particular department's use and can be integrated into an
architecture containing products from different suppliers.
PowerVision is a comprehensive, PC-based health management information
system used to view information in OMF in much the same manner as PowerChart
is used with OCF. This management access tool presents summary information
through a graphical user interface, making key information available to all
levels of management. PowerVision is equipped with features that allow the
user to pursue "what if " and other investigatory information paths. This
enables an executive to determine the status of the institution in many
critical areas, as well as provides managers with a quick, up-to-the-minute
view of leading business management indicators regarding the performance of a
department, care area or facility.
Open Engine Application Gateway System facilitates the exchange of data and
assists in the management of point-to-point interfaces between foreign systems
and serves as a toolkit to help clients write interface code.
20
<PAGE>
CLINICAL DOMAIN SYSTEMS
PathNet Laboratory Information System addresses the information management
needs of five clinical areas: general laboratory, microbiology, blood bank
transfusion services, blood bank donor services and anatomic pathology.
PathNet automates the ordering and reporting of procedures, the production of
accurate and timely reports and the maintenance of accessible clinical
records. PathNet can be interfaced with automated instruments and databases,
allowing for efficient and accurate transfer of information. PathNet
communicates laboratory information to patient care areas and other
information systems. Cerner attributes PathNet's acceptance to its functional
capability, ease of use and event-level cost accounting, which allows
healthcare managers to better control costs and assess profitability.
MedNet Internal Medicine Information System is a family of software products
that addresses the clinical information needs of various internal medicine
areas within the health organization. Introduced as a pulmonary information
system in 1987, MedNet's functionality now serves the disciplines of
cardiology, neuro-diagnostics, rehabilitation services and nutritional
services, as well as many ancillary areas. Like PathNet, MedNet automates
procedure requests, patient and therapist scheduling and the processing,
validation and presentation of results. The system provides reports on
clinical activity, workload and billing charges by drawing from the
departmental databases.
RadNet Radiology Information System addresses the operational and management
requirements of diagnostic radiation and radiation oncology departments. It
allows a department to replace its manual, paper-based system of record-
keeping with an efficient computer-based system. RadNet is designed to adapt
easily to the department's existing operations. In addition, the system
addresses such tasks as scheduling patients, modifying orders, tracking
patients, locating films, transcribing reports, upgrading the quality and
content of reports and reporting on productivity.
PharmNet Pharmacy Information System provides intrarelation in an HNA
environment for rapid pharmacy order entry and support of the clinical
pharmacy in either an inpatient or outpatient setting. PharmNet streamlines
medication order entry, enabling the pharmacist or technician to place all
types of pharmaceutical orders on one easy-to-use screen. Dispensing functions
also are fully automated. Medication, intravenous fill lists and medication
administration records are produced automatically or on demand. Charges are
automatically captured at the time the fill list is generated. Patient
profiles and pharmaceutical inventories are maintained without the
intervention of the pharmacist, saving significant time and resources.
Features are designed to address the special needs of the clinical pharmacy,
including on-line order entry screening for drug-drug interactions, drug-food
and drug-lab interferences, drug-disease states, intravenous
incompatibilities, dose range and therapeutic treatment duplication. Clinical
notes can be recorded on-line and sent to other clinicians for comment or
follow-up.
MSmeds Pharmacy Information System focuses on automating the pharmacy
department. MSmeds was developed by a company acquired by Cerner in 1993.
MSmeds is sold on a stand-alone basis, but can be interfaced to the Company's
HNA products. Designed to meet the specialized and individual needs of the
pharmacy department, MSmeds incorporates windows, on-line help, menu and
table-driven entry, a built-in system customization tool, and an application
generator. The order entry application gives the pharmacist fast order entry
capabilities with a high level of quality control. Safeguards that ensure the
integrity of patient therapy include: dose level checking by 36 parameters,
drug warnings, drug-drug interaction checking and pharmacokinetics. The system
generates a number of reports to assure the appropriateness of drug therapy,
including drug interaction, patients on specific drugs, drug utilization by
therapeutic category and dose checking. On-line storage on removable disks
provides full patient detail for a period of up to ten years. MSmeds offers
the availability of full detail patient information for drug utilization
evaluation, as well as labor and cost efficiencies. Admission, discharge and
transfer, billing, results display and order entry interfaces are contained
within the system.
21
<PAGE>
SurgiNet Surgery Information System and MRNet Medical Record Department
Information System are scheduled for commercial release in the first half of
1996. SurgiNet is intended to address the needs of the surgical department,
including automating the functions of resource and equipment scheduling,
inventory management and operating room management. MRNet is intended to help
meet the operations management needs of the medical records department and
includes functionality for the various chart tracking and completion tasks
commonly associated with maintaining medical records.
SOFTWARE DEVELOPMENT
Cerner commits significant resources to developing new health information
system products. As of July 1, 1995, 542 associates were engaged full-time in
product development activities. Total expenditures for the development and
enhancement of the Company's products were approximately $14,522,000,
$19,432,000 and $26,897,000 in 1992, 1993 and 1994, respectively. These
figures include the amounts capitalized 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 HNA-based
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 use in clinical departments and to support
simultaneous use of Cerner's HNA products across multiple facilities. All
Cerner systems are developed under HNA using a proprietary systems development
methodology. This methodology defines and controls each task throughout the
product development cycle and ensures that current and future products can be
fully intrarelated.
The Company is committed to maintaining open attributes in its system
architecture through operability in a diverse set of technical and application
environments. The Company strives to design its systems to co-exist with
disparate applications developed and supported by other suppliers. This effort
is exemplified by Cerner's Open Engine, OCF and OMF product lines.
Cerner is developing a new version (referred to as V500) of its software,
which will incorporate a client-server architecture, a comprehensive graphical
user interface and open systems concepts for relational databases, operating
systems, networks and hardware platforms. Development of V500 began in the
summer of 1993. The Company is committed to maintaining open attributes in its
V500 system architecture. Cerner expects its V500 applications to run on
multiple operating systems, networks, databases and hardware platforms and to
co-exist with disparate applications developed and supported by other
companies.
SALES AND MARKETING
The market for Cerner's information system products includes IDSs, physician
groups and networks, managed care organizations, hospitals, free-standing
reference laboratories, blood banks, imaging centers and pharmacies. To date,
a substantial portion of system sales have been in clinical applications in
hospital-based provider organizations. Cerner's architecture is highly
scalable, 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
current HNA systems are designed to operate on computers manufactured by
Digital Equipment Corporation ("Digital"). In addition, Open Engine, PathNet,
RadNet and MSmeds are available on IBM's RISC System/6000 AIX (UNIX) platform.
Over time, all HNA applications will be available on both the Digital and IBM
platforms, 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 fifteen
months, from the time of initial contact to the signing of a contract.
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<PAGE>
The Company's executive marketing management is located in its Kansas City,
Missouri, headquarters, while its account representatives are deployed through
regional offices across the United States. The Company, through subsidiaries,
has offices and sales staff in the United Kingdom, Australia and Germany and
has a joint venture in Saudi Arabia. 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 has developed a demonstration and presentation facility at its
headquarters in Kansas City, Missouri, called the Cerner Vision Center. This
facility enables the Company to actually demonstrate the processes automated
through HNA and adapt the presentations to the clients' environments. The
Company's primary direct marketing strategy is to generate sales contacts from
its existing client base and through presentations at industry seminars and
trade shows. Cerner attends a number of major trade shows each year and has
begun to sponsor executive conferences, which feature industry experts who
address the information system needs of large healthcare organizations.
Consolidated revenues include foreign sales of $10,018,000, $8,417,000 and
$13,274,000 for the years ended December 31, 1992, 1993 and 1994, respectively.
CLIENT SERVICES
Cerner uses a regional strategy to provide the full range of product and
service capabilities to its clients from eight locations throughout the United
States and four international locations. Each regional center reflects Cerner's
corporate culture and interfaces with the Company's clients on a regular and
highly accessible basis. In this way, Cerner can provide on-site personnel for
the development and management of systems projects, learn the evolving
information needs of clients based on geographical trends in the healthcare
industry, work with clients in the development of new products and services and
share with clients Cerner's vision of the changing healthcare delivery market
and the role of information systems in that transformation. The Company has
regional offices in Atlanta, Boston, Dallas, Detroit, Kansas City, Los Angeles,
Seattle and Washington, D.C. and international offices in Luton, England;
Munich, Germany; Riyadh, Saudi Arabia; and Sydney, Australia. Each regional
office is focused on long-term marketplace development, product marketing,
client project management, long-term client service and client satisfaction for
a group of clients within a specific geographical region.
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.
BACKLOG
At July 1, 1995 Cerner had contract backlog of $58,806,000. Such backlog
represents system sales from signed contracts which have 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 July 1, 1995, the Company had $39,471,000 of contracts receivable,
which represents revenues recognized under the percent of completion method but
not yet billable under the terms of the contract. At July 1, 1995, Cerner had a
software support and maintenance backlog of $90,819,000. Such backlog
represents contracted software support and hardware maintenance services for a
period of twelve months.
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<PAGE>
MANAGEMENT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<C> <C> <S>
Neal L. Patterson (1) 45 Chairman of the Board of Directors and Chief
Executive Officer
Clifford W. Illig (1) 44 President, Chief Operating Officer and Director
Charles S. Runnion, III (1) 47 Executive Vice President, Area General Manager
and Director
David M. Margulies, M.D. 43 Executive Vice President of Product Engineering
and Director
Jeffrey C. Reene 40 Executive Vice President and Area General
Manager
P. Michael Breedlove 50 Group Vice President and Area General Manager
Alan D. Dietrich 32 Group Vice President and Area General Manager
Charles O. Whitcraft 43 Group Vice President of Product Engineering
Gary W. Willett 50 Group Vice President and Chief Operating Officer
of Cerner International
Maureen M. Evans 39 Treasurer
Gerald E. Bisbee, Jr. (2)(3)(4) 52 Director
Michael E. Herman (3)(4) 54 Director
Thomas C. Tinstman, M.D. (3)(4) 50 Director
David J. Hart (2)(3)(4) 58 Director
</TABLE>
--------
(1) Member of Executive Committee.
(2) Member of Stock Option Committee.
(3) Member of Audit Committee.
(4) Member of Compensation Committee.
Mr. Patterson was President, Chairman of the Board of Directors and Chief
Executive Officer of the Company from its incorporation to May 1987. Since May
1987 he has been Chairman of the Board of Directors and Chief Executive Officer
of the Company. Mr. Patterson has served as a director of LabOne, Inc. since
August 1988.
Mr. Illig was Executive Vice President, Secretary, Treasurer and Chief
Financial Officer and a Director of the Company from its incorporation to May
1987. From May 1987 to May 1993, he was a Director, President, Chief Operating
Officer and Chief Financial Officer of the Company. Since May 1993, he has been
a Director, President and Chief Operating Officer of the Company.
Mr. Runnion joined the Company in July 1989 and since that date has been an
Executive Vice President and Director of the Company. Prior to joining the
Company, he spent fourteen years with the IBM Corporation in a variety of
marketing and management positions.
Dr. Margulies joined the Company in February 1991 and since that date has
been an Executive Vice President of the Company. Prior to joining the Company,
for four years, he was Vice President in charge of information systems at
Children's Hospital, a healthcare institution located in Boston, Massachusetts.
During this time, Dr. Margulies also was the Director of the Program in Medical
Information Sciences at Harvard Medical School. Dr. Margulies has served as a
Director of the Company since May 1991.
24
<PAGE>
Mr. Reene joined the Company in September 1991 as Group Vice President of
Client Services. He was promoted to Executive Vice President in June 1994.
Prior to joining the Company, he was with Andersen Consulting from July 1978 to
August 1991, having been a Partner with Andersen Consulting since September
1988.
Mr. Breedlove joined the Company as National Sales Manager in May 1984 and
has held various executive positions with the Company since then.
Mr. Dietrich joined the Company in 1990 as Director of Business, Planning and
Development. Prior to joining the Company, he spent seven years with IBM
Corporation.
Mr. Whitcraft joined the Company as Vice President of Technology in January
1984. Since that time he has served in several executive positions dealing with
technology and engineering.
Mr. Willett joined the Company in April 1990 as Group Vice President of
Client Services and has served in various executive capacities. Prior to
joining the Company, he spent twenty-one years with IBM Corporation in a
variety of marketing and management positions.
Ms. Evans joined the Company in 1983 and has held various positions with the
Company dealing with finance and accounting since then.
Mr. Bisbee has been a Director of the Company since February 1988. He has
been Chairman of the Board of Directors and Chief Executive Officer of Apache
Medical Systems, Inc. since December 1989. Apache Medical Systems, Inc.
implements and analyzes healthcare support systems for intensive care units.
Mr. Bisbee has served as a director of Geriatric and Medical Centers, Inc.
since 1988 and has served as a director of Yamarchi Capital Funds since 1989.
Mr. Herman has been a Director of the Company since May 1995. He is President
of the Kansas City Royals Baseball Team, Chairman of the Finance Committee of
the Ewing-Marion Kauffman Foundation (President from 1985 to 1990) and was the
Executive Vice President and Chief Financial Officer of Marion Laboratories,
Inc. from 1974 to 1990. Mr. Herman is a director of Janus Capital Corporation,
Seafield Capital Corporation and Agouron Pharmaceuticals, Inc.
Dr. Tinstman has been a Director of the Company since May 1989. Since
February 1994, Dr. Tinstman has been Director of Medical Informatics with the
University of Texas Medical Branch in Galveston, Texas. Prior to that he was a
physician in private practice with Internal Medicine Associates, P.C. in Omaha,
Nebraska. From 1977 to January 1994, Dr. Tinstman served as Associate Medical
Director of Pulmonary Medical Services at Bishop Clarkson Memorial Hospital and
as Medical Director of the Respiratory Therapy Department of Midland Hospital,
both in Omaha, Nebraska. Dr. Tinstman has served as a director of Smith-Haynes
Trust, Inc. since 1988.
Mr. Hart has been a Director of the Company since May 1991. He was the
President and Chief Executive Officer of The General Hospital (Grey Nuns) of
Edmonton, a hospital with 1100 beds located in Edmonton, Canada, from 1981
until his retirement in December 1991.
25
<PAGE>
SELLING STOCKHOLDERS
The table below sets forth information regarding the beneficial ownership of
Common Stock, as of July 1, 1995, by the Selling Stockholders, both before and
after giving effect to this offering.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER THE
THE OFFERING SHARES TO BE OFFERING
-------------------- SOLD IN THE -----------------
SELLING STOCKHOLDERS NUMBER PERCENT OFFERING NUMBER PERCENT
-------------------- --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Neal L. Patterson........... 3,383,692(1) 11.9 120,000 3,263,692 10.3
Clifford W. Illig........... 3,500,088(2) 12.3 120,000 3,380,088 10.7
</TABLE>
--------
(1) Includes 89,000 shares which Mr. Patterson gifted to a charitable
foundation, of which he has shared voting and dispositive power, some of
which may be sold in the offering.
(2) Includes 99,000 shares which Mr. Illig gifted to a charitable foundation,
of which he has shared voting and dispositive power, some of which may be
sold in the offering.
26
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation and Smith Barney Inc., have severally agreed to purchase from the
Company and the Selling Stockholders the following respective numbers of shares
of Common Stock at the public offering price less the underwriting discounts
and commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Alex. Brown & Sons Incorporated.................................
Donaldson, Lufkin & Jenrette Securities Corporation.............
Smith Barney Inc................................................
---------
Total ...................................................... 3,440,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Common Stock offered hereby if any of such shares
are purchased.
The Company and the Selling Stockholders have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the public offering price set forth on
the cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the public offering, the offering price and other
selling terms may be changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 516,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 3,440,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 3,440,000 shares are being offered.
In connection with this offering, certain Underwriters and selling group
members (if any) or their respective affiliates who are qualified registered
market makers on The Nasdaq Stock Market may engage in passive market making on
Nasdaq in accordance with Rule 10b-6A under the Exchange Act during the two
business day period before the commencement of the offers or sales of the
Common Stock. The passive market making transactions must comply with
applicable volume and price limits and be identified as such. In general, a
passive market maker may display its bid at a price not in excess of the
highest independent bid for such security; if all independent bids are lowered
before the passive market maker's bid, however, such bid must then be lowered
when certain purchase limits are exceeded.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
27
<PAGE>
The Company and certain of its directors and executive officers have agreed,
subject to certain limited exceptions, not to offer, sell or otherwise dispose
of any Common Stock for a period of 90 days after the date of this Prospectus
without the prior consent of the Representatives of the Underwriters.
Alex. Brown & Sons Incorporated served as placement agent for the Company's
8.30% Senior Notes, due in 2004, issued in July 1994. Alex. Brown & Sons
Incorporated was paid customary fees in connection with this transaction. Each
of the Representatives of the Underwriters makes a market in the Company's
Common Stock.
LEGAL MATTERS
Certain legal matters relating to the validity of the shares of Common Stock
offered hereby will be passed upon for the Company and the Selling Stockholders
by John V. Donner, Corporate Counsel, and by Stinson, Mag & Fizzell, P.C.,
counsel to the Company. Mr. Donner is of counsel to Stinson, Mag & Fizzell,
P.C. with respect to a particular client of such law firm, which is not the
Company. As of July 27, 1995, attorneys of such law firm, including Mr. Donner,
owned in the aggregate 90,392 shares of Common Stock. Certain legal matters in
connection with this offering will be passed upon for the Underwriters by
Dorsey & Whitney P.L.L.P.
EXPERTS
The financial statements and schedules of Cerner Corporation as of December
31, 1993 and 1994 and for each of the years in the three-year period ended
December 31, 1994, included herein and incorporated by reference herein and
elsewhere in the Registration Statement, have been included herein and
incorporated by reference herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, included and incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
Documents incorporated by reference herein in the future will include
financial statements, related schedules (if required) and auditors' reports,
which financial statements and schedules will have been examined to the extent
and for the periods set forth in such reports by the firm or firms providing
such reports, and will be incorporated by reference herein in reliance upon
such reports given upon the authority of such firms as experts in accounting
and auditing.
28
<PAGE>
CERNER CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF CERNER CORPORATION:
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Earnings...................................... F-4
Consolidated Statements of Stockholders' Equity.......................... F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
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 31, 1993 and 1994 and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1994. 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 generally accepted auditing
standards. 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 31, 1993 and 1994, and the results
of their operations and their cash flows for each of the years in the three-
year period ended December 31, 1994, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Kansas City, Missouri
February 10, 1995, except as to
note 15 which is as of July 17,
1995
F-2
<PAGE>
CERNER CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JULY 1,
1993 1994 1995
--------- -------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................... $ 16,784 $ 15,305 $ 18,531
Receivables................................. 46,435 65,148 75,128
Inventory................................... 1,024 2,218 2,539
Prepaid expenses and other.................. 2,926 979 1,342
--------- -------- --------
Total current assets.................... 67,169 83,650 97,540
Property and equipment, net................. 13,818 41,129 47,068
Software development costs, net............... 14,571 18,784 20,786
Intangible assets, net........................ 8,564 6,390 6,062
Noncurrent receivables........................ -- 4,508 5,523
Other assets.................................. 788 1,949 2,031
--------- -------- --------
$ 104,910 $156,410 $179,010
========= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................ $ 11,516 $ 13,485 $ 13,901
Notes payable............................... 975 -- --
Current installments of long-term debt...... 511 160 125
Advanced billings........................... 4,178 3,737 4,799
Deferred income taxes....................... 1,993 6,652 11,913
Accrued payroll and tax withholdings........ 3,812 4,689 4,506
Other accrued expenses...................... 1,581 2,557 3,090
--------- -------- --------
Total current liabilities............... 24,566 31,280 38,334
Long-term debt, net........................... 10,354 30,235 32,781
Deferred income taxes......................... 5,760 9,118 10,782
Stockholders' Equity:
Common stock, $.01 par value, 50,000,000
shares authorized, 27,729,640 shares issued
in 1993, 28,508,614 in 1994 and 28,938,476
shares in 1995............................. 277 285 289
Additional paid-in capital.................. 28,803 30,807 31,514
Retained earnings........................... 40,852 60,353 71,078
Treasury stock, at cost (513,018 shares in
1993, 1994 and 1995)....................... (5,693) (5,693) (5,693)
Foreign currency translation adjustment..... (9) 25 (75)
--------- -------- --------
Total stockholders' equity................ 64,230 85,777 97,113
--------- -------- --------
Commitments (Note 11)
$ 104,910 $156,410 $179,010
========= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
CERNER CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
-------------------------- --------------------------
1992 1993 1994 JUNE 30, 1994 JULY 1, 1995
-------- -------- -------- ------------- ------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
System sales........... $ 71,586 $ 84,024 $108,322 $48,376 $65,322
Support and
maintenance........... 26,664 33,200 41,322 19,765 23,362
Other.................. 2,895 3,348 6,273 2,168 3,474
-------- -------- -------- ------- -------
Total revenues....... 101,145 120,572 155,917 70,309 92,158
-------- -------- -------- ------- -------
Costs and expenses:
Cost of revenues....... 44,818 43,921 46,426 21,600 26,286
Sales and client
service............... 20,067 28,248 39,857 19,073 23,991
Software development... 12,962 16,000 22,688 10,477 15,053
General and
administrative........ 6,711 8,073 13,167 5,764 7,779
-------- -------- -------- ------- -------
Total costs and
expenses............ 84,558 96,242 122,138 56,914 73,109
-------- -------- -------- ------- -------
Operating earnings....... 16,587 24,330 33,779 13,395 19,049
Interest expense, net.... 294 210 1,328 418 961
-------- -------- -------- ------- -------
Earnings before income
taxes................... 16,293 24,120 32,451 12,977 18,088
Income taxes............. 6,361 9,562 12,950 5,072 7,363
-------- -------- -------- ------- -------
Net earnings............. $ 9,932 $ 14,558 $ 19,501 $ 7,905 $10,725
======== ======== ======== ======= =======
Primary earnings per
share................... $ .35 $ .50 $ .66 $ .27 $ .36
======== ======== ======== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CERNER CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK ADDITIONAL TREASURY CURRENCY
------------- PAID-IN RETAINED STOCK TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS AMOUNT ADJUSTMENT TOTAL
------ ------ ---------- -------- -------- ----------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1991................... 25,783 $257 $16,623 $16,362 $(5,693) $(32) $27,517
Exercise of options.... 389 4 324 -- -- -- 328
Issuance of stock
grants................ -- -- 5 -- -- -- 5
Tax benefit from
disqualifying
dispositions of stock
options............... -- -- 896 -- -- -- 896
Foreign currency
translation
adjustment............ -- -- -- -- -- (35) (35)
Net earnings........... -- -- -- 9,932 -- -- 9,932
------ ---- ------- ------- ------- ---- -------
Balance at December 31,
1992................... 26,172 261 17,848 26,294 (5,693) (67) 38,643
------ ---- ------- ------- ------- ---- -------
Exercise of options.... 1,038 11 979 -- -- -- 990
Issuance of stock
grants................ -- -- 8 -- -- -- 8
Issuance of stock for
acquisition........... 520 5 6,768 -- -- -- 6,773
Tax benefit from
disqualifying
dispositions of stock
options............... -- -- 3,200 -- -- -- 3,200
Foreign currency
translation
adjustment............ -- -- -- -- -- 58 58
Net earnings........... -- -- -- 14,558 -- -- 14,558
------ ---- ------- ------- ------- ---- -------
Balance at December 31,
1993................... 27,730 277 28,803 40,852 (5,693) (9) 64,230
------ ---- ------- ------- ------- ---- -------
Exercise of options.... 778 7 980 -- -- -- 987
Issuance of stock
grants................ 1 1 24 -- -- -- 25
Tax benefit from
disqualifying
dispositions of stock
options............... -- -- 1,000 -- -- -- 1,000
Foreign currency
translation
adjustment............ -- -- -- -- -- 34 34
Net earnings........... -- -- -- 19,501 -- -- 19,501
------ ---- ------- ------- ------- ---- -------
Balance at December 31,
1994................... 28,509 285 30,807 60,353 (5,693) 25 85,777
------ ---- ------- ------- ------- ---- -------
Exercise of options.... 429 4 702 -- -- -- 706
Issue of stock grants.. -- -- 5 -- -- -- 5
Foreign currency
translation
adjustment............ -- -- -- -- -- (100) (100)
Net earnings........... -- -- -- 10,725 -- -- 10,725
------ ---- ------- ------- ------- ---- -------
Balance at July 1, 1995
(unaudited)............ 28,938 $289 $31,514 $71,078 $(5,693) $(75) $97,113
====== ==== ======= ======= ======= ==== =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
CERNER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
------------------------- ----------------------
JUNE 30, JULY 1,
1992 1993 1994 1994 1995
------- ------- ------- ---------- ----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net earnings.............. $ 9,932 $14,558 $19,501 $ 7,905 $10,725
Adjustments to reconcile
net earnings to net cash
provided by operating
activities:
Depreciation and
amortization........... 5,293 6,434 10,062 4,609 6,148
Issuance of stock as
compensation........... 5 8 25 19 5
Provision for deferred
income taxes........... 536 7,500 8,017 2,712 4,925
Tax benefit from
disqualifying
dispositions of stock
options................ 896 3,200 1,000 -- --
Loss on disposal of
capital equipment...... -- -- 165 -- 10
Changes in assets and
liabilities:
Receivables............. (60) (13,426) (23,221) (11,249) (10,995)
Inventory............... (359) 821 (1,194) (747) (321)
Prepaid expenses and
other.................. (519) 391 1,213 1,323 (761)
Accounts payable........ (2,995) 2,901 1,969 2,934 416
Accrued income taxes.... (1,218) (5,791) -- 1,750 2,000
Other accrued
liabilities............ 2,364 (740) 1,412 (436) 1,412
------- ------- ------- ------- -------
Total adjustments.......... 3,943 1,298 (552) 915 2,839
------- ------- ------- ------- -------
Net cash provided by
operating activities...... 13,875 15,856 18,949 8,820 13,564
------- ------- ------- ------- -------
Cash flows from investing
activities:
Purchase of capital
equipment................ (4,615) (7,078) (11,291) (3,971) (5,110)
Purchase of land, building
and improvements......... -- -- (20,939) (20,145) (3,712)
Proceeds on disposal of
capital equipment........ -- -- 21 -- --
Capitalized software
development costs........ (4,098) (6,181) (8,131) (3,918) (4,633)
Acquisition of business... -- (585) -- -- --
------- ------- ------- ------- -------
Net cash used in investing
activities................ (8,713) (13,844) (40,340) (28,034) (13,455)
------- ------- ------- ------- -------
Cash flows from financing
activities:
Net borrowings (payments)
under short-term notes
payable.................. -- 388 (639) (485) --
Proceeds from issuance of
long-term debt........... 6,281 109 50,273 19,845 3,626
Repayment of long-term
debt..................... (6,692) (511) (30,743) (269) (1,115)
Proceeds from exercise of
options.................. 328 990 987 602 706
------- ------- ------- ------- -------
Net cash provided by (used
in) financing activities.. (83) 976 19,878 19,693 3,217
------- ------- ------- ------- -------
Foreign currency
translation adjustment.... (35) 58 34 16 (100)
------- ------- ------- ------- -------
Net increase (decrease) in
cash and cash equivalents. 5,044 3,046 (1,479) 495 3,226
------- ------- ------- ------- -------
Cash and cash equivalents
at beginning of period.... 8,694 13,738 16,784 16,784 15,305
------- ------- ------- ------- -------
Cash and cash equivalents
at end of period.......... $13,738 $16,784 $15,305 $17,279 $18,531
======= ======= ======= ======= =======
Supplemental disclosures of
cash flow information:
Cash paid for:
Interest.................. $ 636 $ 686 $ 1,110 $ 628 $ 1,282
Income taxes, net of
refund................... 6,171 4,499 3,574 216 194
Noncash investing and
financing activities:
Acquisition of business.... $ -- $ 6,773 $ -- $ -- $ --
Acquisition of equipment
through capital leases.... 840 139 386 -- --
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
CERNER CORPORATION
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.
All significant intercompany transactions and balances have been eliminated in
consolidation.
(b) Revenue Recognition--Revenues are derived primarily from the sale of
clinical information systems. 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 are negotiated separately and
generally include the licensing of the Company's clinical information system
software 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 performance criteria set forth in the
contracts. 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
91-1, "Software Revenue Recognition."
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.
(c) 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 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 the years ended December 31, 1992,
1993, and 1994, the Company capitalized $4,098,000, $6,181,000 and $8,131,000,
respectively, of total software development costs of $14,522,000, $19,432,000
and $26,897,000, respectively. Amortization expense of capitalized software
development costs for the years ended December 31, 1992, 1993 and 1994, was
$2,538,000, $2,652,000 and $3,918,000, respectively, and accumulated
amortization was $7,284,000, $9,936,000 and $13,854,000, respectively.
(d) Inventory--Inventory consists primarily of computer hardware held for
resale and is recorded at the lower of cost (first-in, first-out) or market.
(e) 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 five years.
(f) Earnings Per Share--Earnings per share is based on the weighted average
number of common shares and common share equivalents outstanding. Common share
equivalents consist of shares issuable upon exercise of stock options using
the treasury stock method. The computation of fully diluted earnings per share
reflects additional dilution under the treasury stock method when the
Company's stock price at the end of a reporting period exceeds the average
price. Fully diluted earnings per share is not materially different from
primary earnings per share. Weighted average shares
F-7
<PAGE>
CERNER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
outstanding utilized in the computation of primary earnings per share were
28,680,816, 29,158,356 and 29,762,208, and fully diluted earnings per share
were 29,013,916, 29,285,798 and 29,807,504, for the years ended December 31,
1992, 1993 and 1994, respectively.
(g) 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
stockholders' equity. 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 ($180,000),
($83,000), and $107,000, in 1992, 1993 and 1994, respectively.
(h) Income Taxes--The Company accounts for income taxes using the asset and
liability method pursuant to Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." Under the asset and liability method,
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.
(i) Goodwill--Excess of cost over net assets acquired (goodwill) is being
amortized on a straight-line basis over eight years. Accumulated amortization
was $151,000 at December 31, 1993 and $916,000 at December 31, 1994.
(j) Reclassifications--Certain prior year amounts have been reclassified to
conform with current year presentation.
2. ACQUISITION
On November 1, 1993, the Company completed the acquisition of Megasource,
Inc. through the merger of Megasource, Inc. into a new wholly owned subsidiary
of the Company. The Company issued 519,540 shares of common stock, valued at
approximately $6,773,000, in the merger. Megasource, Inc. was engaged in the
design, sale and support of several clinical information systems, the most
significant of which was its pharmacy system. The acquisition has been
accounted for as a purchase with the operating results of Megasource, Inc.
included in the Company's consolidated statement of earnings from November 1,
1993. The Company has determined that the consolidated results of operations
as if the acquisition had occurred at the beginning of 1992 and 1993 would
have had no material effect on the overall results of the Company.
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
1993 1994
------- ------
(IN THOUSANDS)
<S> <C> <C>
Cash and overnight repurchase agreements................... $ 4,721 6,643
Commercial paper........................................... 7,967 3,982
Variable rate securities................................... 500 500
Fixed rate securities...................................... 2,746 3,330
Certificates of deposit.................................... 850 850
------- ------
Total cash and cash equivalents.......................... $16,784 15,305
======= ======
</TABLE>
F-8
<PAGE>
CERNER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. Cash equivalents are
carried at cost, which approximates market. The carrying value of cash and cash
equivalents approximates fair value due to the short maturity of those
instruments.
4. 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. Contract receivables
that are not expected to be collected within one year are classified as
noncurrent. Billings on contracts in excess of related revenues recognized
under the percentage of completion method are recorded as advanced billings. A
summary of current receivables is as follows:
<TABLE>
<CAPTION>
1993 1994
------- ------
(IN THOUSANDS)
<S> <C> <C>
Current receivables:
Accounts receivable...................................... $28,251 37,019
Contracts receivable..................................... 18,184 28,129
------- ------
Total current receivables.............................. $46,435 65,148
======= ======
</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 December 31, 1993 and 1994, are amounts
due from healthcare providers located in foreign countries of $4,108,000 and
$3,777,000, respectively. Consolidated revenues include foreign sales of
$10,018,000, $8,417,000 and $13,274,000, for the years ended December 31, 1992,
1993 and 1994, respectively.
The Company provides an allowance for estimated uncollectible accounts based
upon historical experience and management's judgment. The fair value of the
Company's noncurrent receivables at December 31, 1994 is estimated to be
$4,155,000, based on current interest rates offered to the Company for debt of
the same maturities.
5. PROPERTY AND EQUIPMENT
A summary of property, equipment and leasehold improvements stated at cost,
less accumulated depreciation and amortization, is as follows:
<TABLE>
<CAPTION>
1993 1994
------- ------
(IN THOUSANDS)
<S> <C> <C>
Furniture and fixtures..................................... $ 7,041 9,942
Computer equipment......................................... 12,796 18,163
Marketing equipment........................................ 280 913
Communications equipment................................... 1,178 1,612
Leasehold improvements..................................... 2,782 4,319
Capital lease equipment.................................... 1,770 1,055
Land, building and improvements............................ -- 20,939
------- ------
25,847 56,943
Less accumulated depreciation and amortization............. 12,029 15,814
------- ------
Total property and equipment, net........................ $13,818 41,129
======= ======
</TABLE>
F-9
<PAGE>
CERNER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. INDEBTEDNESS
At December 31, 1993, the Company had a loan agreement with a bank that
provided for a term loan, a line of credit for financing contract receivables,
and a long-term, revolving line of credit for working capital purposes. The
lines of credit were secured by eligible receivables, inventory, property and
equipment, and bore interest at the bank's prime rate. At December 31, 1993,
the Company had borrowings of $481,000 under the contract receivables line of
credit and $10,251,000 under the long-term, revolving line of credit.
On April 19, 1994, the Company entered into a loan agreement with two banks
that provided 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 (8.5% at December 31, 1994) or LIBOR plus 1.75% (7.75%
at December 31, 1994). The interest rate may be reduced by up to .5% if certain
net worth ratios are maintained. At December 31, 1994, 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 3/16% is payable quarterly on the unused portion of the
revolving line of credit.
On April 19, 1994, the Company entered into a loan agreement with two banks
that provided for a term loan of $17,425,000 to fund the $20,000,000 purchase
of its Kansas City headquarters complex. On July 29, 1994, the Company issued
$30,000,000 of Senior Notes. The note proceeds were used to repay the term
loan, which then terminated, and to reduce the outstanding borrowings under the
revolving line of credit.
The Senior Notes are payable in five equal annual installments beginning in
August 2000. Interest is payable on February 1 and August 1 at a rate of 8.3%.
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 fair value of the Company's Senior Notes is estimated to be $28,716,000,
based on the quoted market prices for similar issues offered to the Company for
debt of the same remaining maturities. Although the fair value of the long-term
debt is less than the carrying amount, settlement at the reported fair value
does not include potential taxes and other expenses that would be incurred in
an actual settlement. The Company estimates that the fair value of the long-
term portion of capital leases approximates the carrying value.
Long-term debt is as follows:
<TABLE>
<CAPTION>
1993 1994
------- ------
(IN THOUSANDS)
<S> <C> <C>
Revolving line of credit, interest payable monthly at prime (8.5%
at December 31, 1994), secured by receivables, inventory and all
property and equipment.......................................... $10,251 --
Senior Notes, 8.3% due 2004...................................... -- 30,000
Obligation under capital lease agreements, interest at 6-10%
payable in monthly installments through August 1997, secured by
equipment....................................................... 614 395
------- ------
10,865 30,395
Less current installments........................................ 511 160
------- ------
Long-term debt, excluding current installments................. $10,354 30,235
======= ======
</TABLE>
F-10
<PAGE>
CERNER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Scheduled maturities of long-term debt (in thousands) at December 31, 1994,
are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31
------------
<S> <C>
1995.......................... $ 160
1996.......................... 130
1997.......................... 105
2000 and thereafter........... 30,000
-------
$30,395
=======
</TABLE>
7. INTEREST INCOME AND EXPENSE
A summary of interest income and expense is as follows:
<TABLE>
<CAPTION>
1992 1993 1994
----- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income...................................... $ 403 438 542
Interest expense..................................... (697) (648) (1,870)
----- ---- ------
Interest expense, net.............................. $(294) (210) (1,328)
===== ==== ======
</TABLE>
8. STOCK OPTIONS
The Company has three incentive stock option plans and a nonqualified stock
option plan. Stock Option Plan A (Plan A) was approved by the Board of
Directors on September 20, 1983, and expired on September 20, 1993. Stock
Option Plan B (Plan B) was approved by the Board of Directors on November 30,
1983, and expired on November 30, 1993. Stock Option Plan C (Plan C) was
approved by the Board of Directors on May 18, 1993. The NonQualified Stock
Option Plan was approved by the Board of Directors on February 19, 1991.
All associate stock options authorized under Plan A were granted prior to
December 31, 1983. Options granted under Plan A were exercisable through
September 20, 1993, at $.19 per share (fair market value on the date of grant)
and contained restrictions as to transferability and exercisability after
termination of employment. Transactions for associate stock options under Plan
A are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE SHARES
UNDER OPTION PRICE EXERCISABLE
---------------- -------- -----------
<S> <C> <C> <C>
Outstanding, December 31, 1991..... 358,400 $.19 358,400
Exercised........................ (120,000) .19
--------
Outstanding, December 31, 1992..... 238,400 .19 238,400
Exercised........................ (238,400) .19
--------
Outstanding, December 31, 1993 and
1994.............................. -- $-- --
========
</TABLE>
Under Plan B, the Company could grant to associates options to purchase
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).
F-11
<PAGE>
CERNER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The options contain restrictions as to transferability and exercisability after
termination of employment. Transactions for associate stock options under Plan
B are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE SHARES
UNDER OPTION PRICE EXERCISABLE
---------------- ----------- -----------
<S> <C> <C> <C>
Outstanding, December 31,
1991..................... 3,138,104 $ .50- 2.50 1,409,200
Granted................. 88,000 1.84-12.06
Canceled................ (62,624) 1.19- 1.52
Exercised............... (267,704) .50- 2.50
---------
Outstanding, December 31,
1992..................... 2,895,776 .50-12.06 1,634,408
Granted................. 142,000 8.63-17.56
Canceled................ (49,200) 1.34-10.69
Exercised............... (719,162) .50- 2.25
---------
Outstanding, December 31,
1993..................... 2,269,414 .50-17.56 1,469,334
Canceled................ (36,800) 1.34
Exercised............... (697,560) .50- 4.47
---------
Outstanding, December 31,
1994..................... 1,535,054 $ .50-17.56 1,129,454
=========
</TABLE>
Under Plan C, the Company may grant to associates options to purchase 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. Transactions for associate stock options under Plan C are
summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE SHARES
UNDER OPTION PRICE EXERCISABLE
---------------- ------------ -----------
<S> <C> <C> <C>
Outstanding, December 31,
1993......................... -- $ -- --
Granted..................... 95,000 12.56-18.88
Canceled.................... (600) 14.13
------
Outstanding, December 31,
1994......................... 94,400 $12.56-18.88 --
======
</TABLE>
Under the NonQualified Stock Option Plan, the Company may grant to
associates, consultants, or advisors options to purchase shares of common stock
through January 1, 2000. The options are exercisable at a price and during a
period determined by the Stock Option Committee.
Transactions under the NonQualified Stock Option Plan and other nonqualified
stock option agreements are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE SHARES
UNDER OPTION PRICE EXERCISABLE
---------------- ------------ -----------
<S> <C> <C> <C>
Outstanding, December 31,
1991......................... 584,000 $ 1.25- 1.53 144,000
Granted..................... -- --
-------
Outstanding, December 31,
1992......................... 584,000 1.25- 1.53 228,000
Exercised................... (80,000) 1.34- 1.53
-------
Outstanding, December 31,
1993......................... 504,000 1.25- 1.53 212,000
Granted..................... 315,832 12.56-18.88
Exercised................... (80,000) 1.34
-------
Outstanding, December 31,
1994......................... 739,832 $ 1.25-18.88 244,000
=======
</TABLE>
F-12
<PAGE>
CERNER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES
Income taxes for the years ended December 31, 1992, 1993, and 1994, consist
of the following:
<TABLE>
<CAPTION>
1992 1993 1994
------ ----- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................................... $5,001 1,767 3,740
State............................................. 768 333 692
Foreign........................................... 56 (38) 501
------ ----- ------
Total current................................... 5,825 2,062 4,933
------ ----- ------
Deferred:
Federal........................................... 295 6,531 7,043
State............................................. 241 969 919
Foreign........................................... -- -- 55
------ ----- ------
Total deferred.................................. 536 7,500 8,017
------ ----- ------
Total income tax expense...................... $6,361 9,562 12,950
====== ===== ======
</TABLE>
Included in 1993 deferred income tax expense is approximately $88,000
resulting from the increase in the statutory tax rate.
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 December 31, 1993 and 1994, relate to the following:
<TABLE>
<CAPTION>
1993 1994
------ ------
(IN
THOUSANDS)
<S> <C> <C>
Software development costs................................ $5,401 6,776
Contract and service revenues and costs................... -- 1,704
Depreciation and amortization............................. 594 789
Operating leases.......................................... (235) (151)
------ ------
Noncurrent deferred income tax liability................ 5,760 9,118
------ ------
Contract and service revenues and costs................... 2,669 8,136
Other..................................................... (676) (1,484)
------ ------
Current deferred income tax liability................... 1,993 6,652
------ ------
Net deferred income taxes............................... $7,753 15,770
====== ======
</TABLE>
At December 31, 1993, deferred tax liabilities were $11,113,000 and deferred
tax assets were $3,360,000. Net deferred income taxes at December 31, 1994, are
composed of deferred tax liabilities of $17,758,000 and deferred tax assets of
$1,988,000. There was no valuation allowance provided for deferred tax assets
at December 31, 1993 or 1994.
F-13
<PAGE>
CERNER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The effective income tax rates for 1992, 1993, and 1994 were 39%, 40%, and
40%, respectively. These effective rates differ from the federal statutory rate
of 34% in 1992 and 35% in 1993 and 1994 as follows:
<TABLE>
<CAPTION>
1992 1993 1994
------ ----- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax expense at statutory rates........................ $5,540 8,442 11,358
State income tax, net of federal benefit.............. 666 846 1,047
Other, net............................................ 155 274 545
------ ----- ------
Total income tax expense............................ $6,361 9,562 12,950
====== ===== ======
</TABLE>
Income taxes payable at December 31, 1992, 1993, and 1994, are reduced by the
tax benefit resulting from disqualifying dispositions of stock acquired under
the Company's stock option plans. The 1992, 1993, and 1994 benefits of
$896,000, $3,200,000, and $1,000,000, respectively, are treated as increases to
additional paid-in capital.
10. ASSOCIATE STOCK PURCHASE RETIREMENT PLAN
The Company established the Cerner Corporation Associate Stock Purchase
Retirement Plan (the Plan) under Section 401(k) of the Internal Revenue Code.
All full-time associates are eligible to participate. Participants may elect to
make pre-tax contributions from 1% to 15% 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 20% of the participant's contribution,
limited to a maximum of $600 per participant. The Company's expense for the
plan amounted to $154,000, $275,000, and $316,000 for 1992, 1993, and 1994,
respectively.
11. COMMITMENTS
The Company is committed under operating leases for office space through
December 1999 and for computer equipment through March 1995. Rent expense for
office and warehouse space for the Company's regional and international offices
for 1992, 1993, and 1994 was $1,604,000, $2,195,000, and $1,721,000,
respectively. Lease expense for computer equipment was $315,000, $323,000, and
$328,000, in 1992, 1993, and 1994, respectively. Aggregate minimum future
payments (in thousands) under these noncancelable leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31
------------
<S> <C>
1995............................. $1,253
1996............................. 1,243
1997............................. 1,253
1998............................. 1,047
1999............................. 319
</TABLE>
At December 31, 1994, the Company was committed to spending $3,332,000 under
a construction contract for a new building at its Kansas City headquarters
complex. The completed cost of the new building is estimated to be $6,000,000
to $8,000,000.
F-14
<PAGE>
CERNER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. REAL ESTATE LEASE REVENUE
The Company leases space to unrelated parties in its Kansas City headquarters
complex under noncancelable operating leases. Rental income from April 19, 1994
(the date of the Company's purchase of its headquarters complex), to December
31, 1994, was $1,843,000. Future minimum lease revenues (in thousands) under
these noncancelable operating leases expiring in 1999 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31
------------
<S> <C>
1995............................. $2,099
1996............................. 2,023
1997............................. 1,752
1998............................. 1,333
1999............................. 1,016
</TABLE>
13. STOCKHOLDERS' EQUITY
At December 31, 1993 and 1994, the Company had 1,000,000 shares of authorized
but unissued preferred stock, $.01 par value.
14. QUARTERLY RESULTS (UNAUDITED)
Selected quarterly financial data for 1993 and 1994 is set forth below:
<TABLE>
<CAPTION>
EARNINGS
BEFORE PRIMARY
INCOME NET EARNINGS
REVENUES TAXES EARNINGS PER SHARE
-------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
1993 Quarterly Results:
March 31........................... $ 24,137 4,320 2,560 .09
June 30............................ 29,834 5,568 3,314 .11
September 30....................... 32,334 6,809 4,072 .14
December 31........................ 34,267 7,423 4,612 .16
-------- ------ ------ ---
Total............................ $120,572 24,120 14,558 .50
======== ====== ====== ===
1994 Quarterly Results:
March 31........................... $ 30,515 4,724 3,002 .10
June 30............................ 39,795 8,253 4,903 .17
September 30....................... 40,933 8,387 5,069 .17
December 31........................ 44,674 11,087 6,527 .22
-------- ------ ------ ---
Total............................ $155,917 32,451 19,501 .66
======== ====== ====== ===
</TABLE>
15. SUBSEQUENT EVENT
On July 17, 1995, the Company's Board of Directors announced a two-for-one
stock split payable on August 4, 1995, in the form of a one hundred percent
(100%) stock dividend to stockholders of record on July 24, 1995. All share and
per share data have been restated for all periods presented herein to reflect
the stock split.
F-15
<PAGE>
CERNER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. UNAUDITED INTERIM FINANCIAL INFORMATION
The consolidated balance sheet of Cerner Corporation and subsidiaries as of
July 1, 1995 and the related consolidated statements of earnings, stockholders'
equity and cash flows for the six months ending June 30, 1994 and July 1, 1995
and related footnote disclosures have been prepared by Cerner Corporation (the
"Company") in accordance with generally accepted accounting principles for
interim financial reporting and in accordance with Rule 10-01 of Regulation S-X
and are unaudited. In the opinion of the Company, the interim financial
information includes all adjustments consisting of only normal recurring
adjustments, necessary for a fair presentation of the results of the interim
periods. The results for the six-month periods may not be indicative of
operating results for the entire year.
F-16
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEI-
THER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 8
Selected Consolidated Financial Data...................................... 9
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 10
Business.................................................................. 16
Management................................................................ 24
Selling Stockholders...................................................... 26
Underwriting.............................................................. 27
Legal Matters............................................................. 28
Experts................................................................... 28
Index to Financial Statements............................................. F-1
</TABLE>
-----------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
3,440,000 Shares
LOGO
Common Stock
-----------
PROSPECTUS
-----------
Alex. Brown & Sons
INCORPORATED
Donaldson, Lufkin & Jenrette
SECURITIES CORPORATION
Smith Barney Inc.
August , 1995
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses to be paid in connection with the issuance and distribution of
the securities being registered hereunder, other than underwriting discounts
and commissions, estimated for purposes of this filing, will be substantially
as follows:
<TABLE>
<CAPTION>
ITEM AMOUNT
---- --------
<S> <C>
SEC Registration Fee............................................ $ 42,715
NASD Filing Fee................................................. $ 12,888
Blue Sky Fees and Expenses...................................... $ 10,000
Accounting Fees and Expenses.................................... $ 60,000
Legal Fees and Expenses......................................... $125,000
Printing........................................................ $125,000
Stock Certificates.............................................. $ 4,000
Nasdaq Fee...................................................... $ 17,500
Miscellaneous Expenses.......................................... $ 2,897
--------
Total......................................................... $400,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) The Delaware General Corporation Law ("DGCL") (Section 145) gives
Delaware corporations broad powers to indemnify their present and former
directors and officers and those of affiliated corporations against expenses
incurred in the defense of any lawsuit to which they are made parties by reason
of being or having been such directors or officers, subject to specified
conditions and exclusions, gives a director or officer who successfully defends
an action the right to be so indemnified and authorizes the Registrant to buy
directors' and officers' liability insurance. Such indemnification is not
exclusive of any other rights to which those indemnified may be entitled under
any by-laws, agreement, vote of stockholders or otherwise.
(b) The Company's Bylaws provide that the Company shall indemnify officers
and directors to the extent provided therein. The Bylaws also permit the Board
of Directors to authorize the Company to purchase and maintain insurance
against any liability asserted against any director, officer, employee or agent
of the Company arising out of his capacity as such.
(c) In accordance with Section 102(b)(7) of the DGCL, the Registrant's
Certificate of Incorporation provides that directors shall not be personally
liable for monetary damages for breaches of their fiduciary duty as directors
except for (1) breaches of their duty of loyalty to the Registrant or its
stockholders, (2) acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law, (3) under Section 174 of
the DGCL (unlawful payment of dividends) or (4) transactions from which a
director derives an improper personal benefit.
(d) The Company has entered into Indemnification Agreements with the
Company's directors, Clifford W. Illig, Neal L. Patterson, Charles S. Runnion,
III, David J. Hart, Gerald E. Bisbee, Jr., Thomas C. Tinstman, M.D. and David
M. Margulies, M.D., which provide for indemnification of such persons in
certain circumstances.
II-1
<PAGE>
(e) The Company has obtained directors and officers liability insurance for
each of its directors and executive officers which (subject to certain limits
and deductibles) (i) insures such persons against loss arising from certain
claims made against them by reason of such persons being directors or officers
and (ii) insures the Company against loss which it may be required or permitted
to pay as indemnification due such persons for certain claims. Such insurance
may provide coverage for certain matters as to which the Company may not be
permitted by law to provide indemnification.
ITEM 16. EXHIBITS.
A list of the exhibits included as part of this Registration Statement is set
forth in the Exhibit Index, which immediately precedes such exhibits and is
incorporated by reference herein.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions referred to in Item 15, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF KANSAS CITY, STATE OF MISSOURI, ON AUGUST 7,
1995.
CERNER CORPORATION
/s/ Clifford W. Illig
By: _________________________________
Clifford W. Illig
President
POWER OF ATTORNEY
EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY CONSTITUTES AND APPOINTS
CLIFFORD W. ILLIG THE TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT OF THE
UNDERSIGNED, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR AND IN THE
NAME, PLACE AND STEAD OF THE UNDERSIGNED, IN ANY AND ALL CAPABILITIES, TO SIGN
ANY AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH) WITH THE SECURITIES AND EXCHANGE COMMISSION,
AND HEREBY GRANTS TO SUCH ATTORNEY-IN-FACT AND AGENT FULL POWER AND AUTHORITY
TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE
DONE, AS FULLY TO ALL INTENTS AND PURPOSES AS THE UNDERSIGNED MIGHT OR COULD DO
IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEY-IN-FACT AND
AGENT OR HIS SUBSTITUTE, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board and August 7, 1995
____________________________________ Director (Principal
Neal L. Patterson Executive Officer)
/s/ Clifford W. Illig President and Director August 7, 1995
____________________________________
Clifford W. Illig
* (Principal Financial and August 7, 1995
____________________________________ Accounting Officer)
Maureen M. Evans
* Director August 7, 1995
____________________________________
Gerald E. Bisbee, Jr.
* Director August 7, 1995
____________________________________
Michael E. Herman
* Director August 7, 1995
____________________________________
Charles S. Runnion, III
* Director August 7, 1995
____________________________________
Thomas C. Tinstman, M.D.
* Director August 7, 1995
____________________________________
David M. Margulies, M.D.
* Director August 7, 1995
____________________________________
David J. Hart
</TABLE>
/s/ Clifford W. Illig
*By: _____________________
Clifford W. Illig
Attorney-in-fact
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER DESCRIPTION NO.
------ ----------- ----
<C> <S> <C>
1 Proposed Form of Underwriting Agreement.
4(a)(i) Restated Certificate of Incorporation, as amended through De-
cember 31, 1993 (filed as Exhibit 3(a) to Registrant's An-
nual Report on Form 10-K for the year ended December 31,
1994 and hereby incorporated by reference).
4(a)(ii) Amendment to the Restated Certificate of Incorporation (filed
as Exhibit 3(a) to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993, and hereby incorpo-
rated by reference).
4(b) Amended Bylaws (filed as Exhibit 3 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended July 1, 1995 and
hereby incorporated by reference).
4(c) Specimen stock certificate (filed as Exhibit 4(a) to Regis-
trant's Registration Statement on Form S-8 (File No. 33-
15156) and hereby incorporated herein by reference).
5 Opinion of Stinson, Mag & Fizzell, P.C., Counsel for the Reg-
istrant, with respect to the legality of the Common Stock of
the Registrant registered hereby.*
23(a) Consent of Registrant's Independent Accountants.
23(b) Consent of Registrant's Counsel (contained in the Opinion of
Counsel filed as Exhibit 5).
24(a) Power of Attorney (included on the signature page of the Reg-
istration Statement).*
</TABLE>
--------
* Previously filed.
<PAGE>
Draft: August 10, 1995
3,440,000 SHARES
CERNER CORPORATION
COMMON STOCK
($.01 PAR VALUE)
UNDERWRITING AGREEMENT
----------------------
August , 1995
Alex. Brown & Sons Incorporated
Donaldson, Lufkin & Jenrette Securities Corporation
Smith Barney Inc.
As Representatives of the Several Underwriters
c/o Alex. Brown & Sons Incorporated
135 East Baltimore Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
Cerner Corporation, a Delaware corporation (the "Company"), and certain
shareholders of the Company (the "Selling Shareholders") propose to sell to
the several underwriters (the "Underwriters") named in Schedule I hereto for
whom you are acting as representatives (the "Representatives") an aggregate of
3,440,000 shares of the Company's Common Stock, $.01 par value (the "Firm
Shares"), of which 3,200,000 shares will be sold by the Company and 240,000
shares will be sold by the Selling Shareholders. The respective amounts of the
Firm Shares to be so purchased by the several Underwriters are set forth
opposite their names in Schedule I hereto, and the respective amounts to be
sold by the Selling Shareholders are set forth opposite their names in
Schedule II hereto. The Company and the Selling Shareholders are sometimes
referred to herein collectively as the "Sellers." The Company also proposes to
sell at the Underwriters' option an aggregate of up to 516,000 additional
shares of the Company's Common Stock (the "Option Shares") as set forth below.
As the Representatives, you have advised the Company and the Selling
Shareholders (a) that you are authorized to enter into this Agreement on
behalf of the several Underwriters, and (b) that the several Underwriters are
willing, acting severally and not jointly, to purchase the numbers of Firm
Shares set forth opposite their respective names in Schedule I, plus their pro
rata portion of the Option Shares if you elect to exercise the over-allotment
option in whole or in part for the accounts of the several Underwriters. The
Firm Shares and the Option Shares (to the extent the aforementioned option is
exercised) are herein collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. Representations and Warranties of the Company and the Selling
Shareholders.
(a) The Company represents and warrants to each of the Underwriters as
follows:
(i) A registration statement on Form S-3 (File No. 33-61307) with
respect to the Shares has been prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as amended (the
"Act"), and the Rules and Regulations promulgated thereunder (the
<PAGE>
"Rules and Regulations") by the Securities and Exchange Commission (the
"Commission") and has been filed with the Commission. The conditions
for the use of Form S-3 under the Act have been satisfied. Copies of
such registration statement, including any amendments thereto, the
preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements
and schedules, as finally amended and revised, have heretofore been
delivered by the Company to you. Such registration statement, as
amended at the time when it was declared effective and including any
registration statement filed by the Company pursuant to Rule 462(b) of
the Act, is herein referred to as the "Registration Statement," which
shall be deemed to include all information omitted therefrom in
reliance upon Rule 430A and contained in the Prospectus referred to
below. The Registration Statement has become effective under the Act
and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. "Prospectus" means (a) the form
of prospectus first filed with the Commission pursuant to Rule 424(b),
(b) the last form of prospectus included in the Registration Statement
filed prior to the time it becomes effective or (c) the form of
prospectus filed pursuant to Rule 424(a) under the Act that is
delivered by the Company to the Underwriters for delivery to purchasers
of the Shares, together with the term sheet or abbreviated term sheet
filed with the Commission pursuant to Rule 424(b)(7) under the Act.
Each prospectus subject to completion included in the Registration
Statement prior to the time it becomes effective is herein referred to
as a "Preliminary Prospectus." Any reference herein to the Registration
Statement, any Preliminary Prospectus or to the Prospectus shall be
deemed to refer to and include any documents incorporated by reference
therein filed with the Commission under the Securities and Exchange Act
of 1934 (the "Exchange Act"), and, in the case of any reference herein
to any Prospectus, also shall be deemed to include any documents
incorporated by reference therein, and any supplements or amendments
thereto, filed with the Commission under the Exchange Act after the
date of filing of the Prospectus under Rules 424(b) or 430A, and prior
to the termination of the offering of the Shares by the Underwriters.
(ii) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement. Each
of the subsidiaries of the Company as listed in Exhibit A hereto
(collectively, the "Subsidiaries") has been duly organized and is
validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, with corporate power and
authority to own or lease its properties and conduct its business as
described in the Registration Statement. The Subsidiaries are the only
subsidiaries, direct or indirect, of the Company. The Company and each
of the Subsidiaries are duly qualified to transact business in all
jurisdictions in which the conduct of their business requires such
qualification, except to the extent that the failure to be so qualified
would not have a material adverse effect on the business, financial
condition or results of operations of the Company and its Subsidiaries,
taken as a whole. The outstanding shares of capital stock of each of
the Subsidiaries have been duly authorized and validly issued, are
fully paid and nonassessable and to the extent shown in Exhibit A
hereto are owned by the Company or another Subsidiary, free and clear
of all liens, encumbrances and equities and claims; and no options,
warrants or other rights to purchase, agreements or other obligations
to issue or other rights to convert any obligations into shares of
capital stock or ownership interests in the Subsidiaries are
outstanding.
(iii) The shares of Common Stock of the Company outstanding prior to
the issuance of the Shares by the Company, including all shares to be
sold by the Selling Shareholders, have been duly authorized and validly
issued and are fully paid and nonassessable; the portion of the Shares
to be issued and sold by the Company have been duly authorized and when
issued and paid for as contemplated by this Agreement will be validly
issued, fully paid and nonassessable; and no preemptive rights of
stockholders exist with respect to any of the Shares or the issue and
sale thereof. Neither the filing of the Registration Statement nor the
offering or sale of the Shares as
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contemplated by this Agreement gives rise to any rights for or relating
to the registration of any shares of Common Stock, other than those
which have been waived or satisfied.
(iv) All of the Shares conform to the description thereof contained
in the Registration Statement.
(v) The Commission has not issued an order preventing or suspending
the use of any Prospectus relating to the proposed offering of the
Shares nor instituted proceedings for that purpose. The Registration
Statement at the time it was declared effective contained, and any
post-effective amendments thereto when filed under the Act will
contain, all statements which are required to be stated therein by the
Act and the Rules and Regulations, and conformed or will conform, as
the case may be, in all material respects to the requirements of the
Act and the Rules and Regulations. The Prospectus contains, and any
amendments or supplements thereto when first used will contain, and any
form thereof filed with the Commission pursuant to Rule 424(b) will
contain, all statements required to be stated therein by the Act and
the Rules and Regulations, and conformed or will conform, as the case
may be, in all material respects to the requirements of the Act and the
Rules and Regulations. The documents incorporated by reference in the
Prospectus conformed, at the time they were filed with the Commission,
in all material respects to the requirements of the Exchange Act or the
Act, as applicable, and the respective rules and regulations of the
Commission thereunder, and any documents subsequently filed with the
Commission and incorporated by reference in the Prospectus will conform
in all material respects to the requirements of the Exchange Act or the
Act, as applicable, and the respective rules and regulations of the
Commission thereunder. The Registration Statement, including any post-
effective amendments thereto, at the time it was declared effective did
not contain any untrue statement of a material fact and did not omit to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus, including
any amendments and supplements thereto and the form thereof filed with
the Commission pursuant to Rule 424(b), does not contain, and will not
contain, any untrue statement of material fact, and does not omit, and
will not omit, to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the Company makes no representations or warranties as to
information contained in or omitted from the Registration Statement or
the Prospectus, or any such amendment or supplement, in reliance upon,
and in conformity with, written information furnished to the Company by
or on behalf of any Underwriter through the Representatives,
specifically for use in the preparation thereof.
(vi) The consolidated financial statements of the Company and the
Subsidiaries, together with related notes and schedules as set forth or
incorporated by reference in the Registration Statement, present fairly
the financial position and the results of operations and cash flows of
the Company and its consolidated Subsidiaries, at the indicated dates
and for the indicated periods. Such financial statements and related
schedules have been prepared in accordance with generally accepted
principles of accounting, consistently applied throughout the periods
involved, except as disclosed herein, and all adjustments necessary for
a fair presentation of results for such periods have been made. The
summary financial and statistical data included or incorporated by
reference in the Registration Statement presents fairly the information
shown therein and such data has been compiled on a basis consistent
with the financial statements presented therein and the books and
records of the Company.
(vii) KPMG Peat Marwick LLP, who have certified certain of the
financial statements filed with the Commission as part of, or
incorporated by reference in, the Registration Statement, are
independent public accountants as required by the Act and the Rules and
Regulations.
(viii) There is no action, suit, claim or proceeding pending or, to
the knowledge of the Company, threatened against the Company or any of
its Subsidiaries before any court or administrative agency or otherwise
which if determined adversely to the Company or any of its
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Subsidiaries might result in any material adverse change in the
earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company and of
the Subsidiaries taken as a whole or to prevent the consummation of the
transactions contemplated hereby, except as set forth in the
Registration Statement.
(ix) The Company and its Subsidiaries have good and marketable title
to all of the properties and assets reflected in the financial
statements (or as described in the Registration Statement) hereinabove
described, subject to no lien, mortgage, pledge, charge or encumbrance
of any kind, except those reflected in such financial statements and
the related notes (or as described in the Registration Statement) or
which do not materially or adversely affect the value of such property
or its use in the business of the Company and its Subsidiaries. The
Company and its Subsidiaries occupy their leased properties under valid
and binding leases conforming in all material respects to the
description thereof set forth or incorporated by reference in the
Registration Statement.
(x) The Company and its Subsidiaries have filed, or have requested
extensions of the filing periods thereof, all Federal, State, local and
foreign income tax returns which have been required to be filed and
have paid all taxes indicated by said returns and all assessments
received by them or any of them to the extent that such taxes have
become due, except for any such assessment, fine or penalty that they
are currently contesting in good faith. All tax liabilities have been
adequately provided for in the financial statements of the Company.
(xi) Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or supplemented, there
has not been any material adverse change, or any development involving
a prospective material adverse change, in or affecting the earnings,
business, management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company and its
Subsidiaries, taken as a whole, whether or not occurring in the
ordinary course of business, and there has not been any material
transaction entered into or any material transaction that is probable
of being entered into by the Company or the Subsidiaries, other than
transactions in the ordinary course of business and changes and
transactions described in the Registration Statement, as it may be
amended or supplemented. The Company and the Subsidiaries have no
material contingent obligations which are not disclosed in the
Company's financial statements or the related notes which are included
or incorporated by reference in the Registration Statement.
(xii) Neither the Company nor any of its Subsidiaries is or with the
giving of notice or lapse of time or both, will be, in violation of or
in default under its Charter or By-Laws or under any agreement, lease,
contract, indenture or other instrument or obligation to which it is a
party or by which it, or any of its properties, is bound and which
default is of material significance in respect of the business,
management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company and its
Subsidiaries, taken as a whole. The execution and delivery of this
Agreement and the consummation of the transactions herein contemplated
and the fulfillment of the terms hereof will not conflict with or
result in a breach of any of the terms or provisions of, or constitute
a default under, any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company or any Subsidiary is a
party, or of the Charter or by-laws of the Company or any order, rule
or regulation applicable to the Company or any Subsidiary of any court
or of any regulatory body or administrative agency or other
governmental body having jurisdiction.
(xiii) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or
other governmental body necessary in connection with the execution and
delivery by the Company of this Agreement and the consummation of the
transactions herein contemplated has been obtained or made and is in
full force and effect, except as may be required by the Commission, the
National Association of Securities Dealers, Inc. (the "NASD") or as may
be necessary to qualify the Shares for public offering by the
Underwriters under state securities or Blue Sky laws.
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(xiv) The Company and each of its Subsidiaries hold all material
licenses, certificates and permits from governmental authorities or
others which are necessary to the conduct of their businesses; and, to
the Company's and Subsidiaries' knowledge, neither the Company nor any
of its Subsidiaries has infringed any patents, patent rights, trade
names, trademarks or copyrights, which infringement is material to the
business of the Company and the Subsidiaries, taken as a whole. The
Company knows of no material infringement by others of patents, patent
rights, trade names, trademarks or copyrights owned by or licensed to
the Company.
(xv) Neither the Company, nor to the Company's best knowledge, any of
its affiliates, has taken or may take, directly or indirectly, any
action designed to cause or result in, or which has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock to facilitate
the sale or resale of the Shares. The Company acknowledges that the
Underwriters may engage in passive market making transactions in the
Shares on the Nasdaq National Market System in accordance with Rule
10b-6A under the Exchange Act.
(xvi) Neither the Company nor any Subsidiary is an "investment
company" within the meaning of such term under the Investment Company
Act of 1940, as amended (the "1940 Act"), and the rules and regulations
of the Commission thereunder.
(xvii) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(xviii) The Company and each of its Subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks as is
adequate for the conduct of their respective businesses and the value
of their respective properties and as is customary for companies
engaged in similar industries.
(xix) The Company and each of its Subsidiaries is in compliance in
all material respects with all presently applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended, including
the regulations and published interpretations thereunder ("ERISA"); no
"reportable event" (as defined in ERISA) has occurred with respect to
any "pension plan" (as defined in ERISA) for which the Company or any
of its Subsidiaries would have any liability; none of the Company or
its Subsidiaries has incurred, nor does it expect to incur, liability
under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each
"pension plan" for which the Company or any of its Subsidiaries would
have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing
has occurred, whether by action or by failure to act, which would cause
the loss of such qualification.
(xx) The Company and each of its Subsidiaries is in compliance with
all applicable existing federal, state and local laws, regulations,
orders and policies relating to protection of human health or the
environment or imposing liability or standards of conduct concerning
any Hazardous Material (as hereinafter defined) ("Environmental Laws"),
except, in each case, where such noncompliance, singly or in the
aggregate, would not have a material adverse effect upon the business
of the Company and its Subsidiaries, taken as a whole. The term
"Hazardous Material" means (i) any "hazardous substance" as defined by
the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, (ii) any "hazardous waste" as
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defined by the Resources Conservation and Recovery Act, as amended,
(iii) any petroleum or petroleum product, (iv) any polychlorinated
biphenyl, (v) asbestos and asbestos containing materials and (vi) any
pollutant or contaminant or hazardous, dangerous or toxic chemical,
material, waste or substance regulated under or within the meaning of
any other Environmental Law.
(xxi) There is no alleged liability, or, to the best of the Company's
knowledge, potential liability (including, without limitation, alleged
or potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property
damages, personal injuries, or penalties), of the Company or any of its
Subsidiaries arising out of, based on or resulting from (i) the
presence or release into the environment of any Hazardous Material at
any location, whether or not owned by the Company or any of its
Subsidiaries, or (ii) any violation or alleged violation of any
Environmental Law (x) which alleged or potential liability is required
to be disclosed in the Registration Statement, other than as disclosed
therein, or (y) which alleged or potential liability, singly or in the
aggregate, would have a material adverse effect upon the business of
the Company and its Subsidiaries, taken as a whole.
(xxii) As of the date hereof the Company and its Subsidiaries are in
compliance with all provisions of Section 1 of Laws of Florida, Chapter
92-198, An Act Relating to Disclosure of doing Business with Cuba, and
the Company agrees that if it or any of its Subsidiaries commences
engaging in business with the government of Cuba or with any person or
affiliate located in Cuba after the date the Registration Statement
becomes or has become effective with the Commission or with the Florida
Department of Banking and Finance (the "Department"), whichever date is
later, or if the information reported or incorporated by reference in
the Prospectus, if any, concerning the Company's or its Subsidiary's
business with Cuba or with any person or affiliate located in Cuba
changes in any material way, the Company will provide the Department
notice of such business or change, as appropriate, in a form acceptable
to the Department.
(b) Each of the Selling Shareholders severally represents and warrants as
follows:
(i) Such Selling Shareholder now has and at the Closing Date (as such
date is hereinafter defined) will have good and marketable title to the
Firm Shares to be sold by such Selling Shareholder, free and clear of
any liens, encumbrances, equities and claims, and full right, power and
authority to effect the sale and delivery of such Firm Shares; and upon
the delivery of, against payment for, such Firm Shares pursuant to this
Agreement, the Underwriters will acquire good and marketable title
thereto, free and clear of any liens, encumbrances, equities and
claims.
(ii) Such Selling Shareholder has full right, power and authority to
execute and deliver this Agreement, the Power of Attorney, and the
Custodian Agreement referred to below and to perform its obligations
under this Agreement, the Power of Attorney and the Custodian
Agreement. The execution and delivery of this Agreement and the
consummation by such Selling Shareholder of the transactions herein
contemplated and the fulfillment by such Selling Shareholder of the
terms hereof will not require any consent, approval, authorization, or
other order of any court, regulatory body, administrative agency or
other governmental body (except as may be required under the Act, state
securities laws or Blue Sky laws) and will not result in a breach of
any of the terms and provisions of, or constitute a default under,
governing documents of such Selling Shareholder, if not an individual,
any indenture, mortgage, deed of trust or other agreement or instrument
to which such Selling Shareholder is a party, or of any order, rule or
regulation applicable to such Selling Shareholder of any court or of
any regulatory body or administrative agency or other governmental body
having jurisdiction.
(iii) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to, or which has
constituted, or which might reasonably be expected to cause or result
in the stabilization or manipulation of the price of the Common Stock
of the Company
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and, other than as permitted by the Act, the Selling Shareholder will
not distribute any prospectus or other offering material in connection
with the offering of the Shares.
(iv) The information pertaining to such Selling Shareholder under the
caption "Selling Stockholders" in the Prospectus is complete and
accurate in all material respects.
2. Purchase, Sale and Delivery of the Firm Shares.
(a) On the basis of the representations, warranties and covenants herein
contained, and subject to the conditions herein set forth, the Sellers agree
to sell to the Underwriters and each Underwriter agrees, severally and not
jointly, to purchase, at a price of $ per share, the number of Firm Shares
set forth opposite the name of each Underwriter in Schedule I hereof, subject
to adjustments in accordance with Section 9 hereof. The number of Firm Shares
to be purchased by each Underwriter from each Seller shall be as nearly as
practicable in the same proportion to the total number of Firm Shares being
sold by each Seller as the number of Firm Shares being purchased by each
Underwriter bears to the total number of Firm Shares to be sold hereunder. The
obligations of the Company and of each of the Selling Shareholders shall be
several and not joint.
(b) Certificates in negotiable form for the total number of Firm Shares to
be sold hereunder by the Selling Shareholders have been placed in custody with
Mark Twain Bank, as custodian (the "Custodian"), pursuant to the Custodian
Agreement executed by each Selling Shareholder for delivery of all Firm Shares
to be sold hereunder by the Selling Shareholders. Each of the Selling
Shareholders specifically agrees that the Firm Shares represented by the
certificates held in custody for the Selling Shareholders under the Custodian
Agreement are subject to the interests of the Underwriters hereunder, that the
arrangements made by the Selling Shareholders for such custody are to that
extent irrevocable, and that the obligations of the Selling Shareholders
hereunder shall not be terminable by any act or deed of the Selling
Shareholders (or by any other person, firm or corporation including the
Company, the Custodian or the Underwriters) or by operation of law (including
the death of an individual Selling Shareholder or the dissolution or
termination of a Selling Shareholder which is not an individual person) or by
the occurrence of any other event or events, except as set forth in the
Custodian Agreement. If any such event should occur prior to the delivery to
the Underwriters of the Firm Shares hereunder, certificates for the Firm
Shares shall be delivered by the Custodian in accordance with the terms and
conditions of this Agreement as if such event has not occurred. The Custodian
is authorized to receive and acknowledge receipt of the proceeds of sale of
the Firm Shares held by it against delivery of such Firm Shares.
(c) Payment for the Firm Shares to be sold hereunder is to be made in New
York Clearing House funds by certified or bank cashier's checks drawn to the
order of the Company for the shares to be sold by it and to the order of Mark
Twain Bank, "as Custodian" for the shares to be sold by the Selling
Shareholders, in each case against delivery of certificates therefor to the
Representatives for the several accounts of the Underwriters. Such payment and
delivery are to be made at the offices of Alex. Brown & Sons Incorporated, 135
East Baltimore Street, Baltimore, Maryland, at 10:00 a.m., Baltimore time, on
the third business day after the date of this Agreement or at such other time
and date not later than five business days thereafter as you and the Company
shall agree upon, such time and date being herein referred to as the "Closing
Date." (As used herein, "business day" means a day on which the New York Stock
Exchange is open for trading and on which banks in New York are open for
business and not permitted by law or executive order to be closed.) The
certificates for the Firm Shares will be delivered in such denominations and
in such registrations as the Representatives request in writing not later than
the second full business day prior to the Closing Date, and will be made
available for inspection by the Representatives at least one business day
prior to the Closing Date.
(d) In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the
Company hereby grants an option to the several Underwriters to purchase the
Option Shares at the price per share as set forth in the first paragraph of
this Section 2. The option granted hereby may be exercised in whole or in part
by giving prior written
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notice (i) at any time before the Closing Date and (ii) only once thereafter
within 30 days after the date of this Agreement, by you, as Representatives of
the several Underwriters, to the Company, setting forth the number of Option
Shares as to which the several Underwriters are exercising the option, the
names and denominations in which the Option Shares are to be registered and
the time and date at which such certificates are to be delivered. The time and
date at which certificates for Option Shares are to be delivered shall be
determined by the Representatives but shall not be earlier than three nor
later than 10 full business days after the exercise of such option, nor in any
event prior to the Closing Date (such time and date being herein referred to
as the "Option Closing Date"). If the date of exercise of the option is three
or more days before the Closing Date, the notice of exercise shall set the
Closing Date as the Option Closing Date. The number of Option Shares to be
purchased by each Underwriter shall be in the same proportion to the total
number of Option Shares being purchased as the number of Firm Shares being
purchased by such Underwriter bears to the total number of Firm Shares,
adjusted by you in such manner as to avoid fractional shares. The option with
respect to the Option Shares granted hereunder may be exercised only to cover
over-allotments in the sale of the Firm Shares by the Underwriters. You, as
Representatives of the several Underwriters, may cancel such option at any
time prior to its expiration by giving written notice of such cancellation to
the Company. To the extent, if any, that the option is exercised, payment for
the Option Shares shall be made on the Option Closing Date in New York
Clearing House funds by certified or bank cashier's check drawn to the order
of the Company against delivery of certificates therefor at the offices of
Alex. Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore,
Maryland.
3. Offering by the Underwriters.
It is understood that the several Underwriters are to make a public offering
of the Firm Shares as soon as the Representatives deem it advisable to do so.
The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may
from time to time thereafter change the public offering price and other
selling terms. To the extent, if at all, that any Option Shares are purchased
pursuant to Section 2 hereof, the Underwriters will offer them to the public
on the foregoing terms.
It is further understood that you will act as the Representatives for the
Underwriters in the offering and sale of the Shares in accordance with a
Master Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. Covenants of the Company and the Selling Shareholders.
(a) The Company covenants and agrees with the several Underwriters that:
(i) The Company will use its best efforts to cause the Registration
Statement, including any post-effective amendment thereto, to become and
remain effective. If the procedure in Rule 430A of the Rules and
Regulations is followed, the Company will prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a
form approved by the Representatives containing information previously
omitted at the time of effectiveness of the Registration Statement in
reliance on Rule 430A of the Rules and Regulations. The Company will not
file any amendment to the Registration Statement or supplement to the
Prospectus or document incorporated by reference therein of which the
Representatives shall not previously have been advised and furnished with a
copy or to which the Representatives shall have reasonably objected in
writing or which is not in compliance with the Rules and Regulations. The
Company will file on a timely basis all reports and any definitive proxy or
information statements required to be filed by the Company with the
Commission subsequent to the date of the Prospectus and prior to the
termination of the offering of the Shares by the Underwriters.
(ii) The Company will advise the Representatives promptly (A) when the
Registration Statement or any post-effective amendment thereto shall have
become effective, (B) of receipt of any comments from the Commission, (C)
of any request of the Commission for amendment of the Registration
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Statement or for supplement to the Prospectus or for any additional
information, and (D) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the use of
the Prospectus or of the institution of any proceedings for that purpose.
The Company will use its best efforts to prevent the issuance of any such
stop order preventing or suspending the use of the Prospectus and to obtain
as soon as possible the lifting thereof, if issued.
(iii) The Company will cooperate with the Representatives in endeavoring
to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in
writing and will make such applications, file such documents, and furnish
such information as may be reasonably required for that purpose, provided
the Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction where it
is not now so qualified or required to file such a consent. The Company
will, from time to time, prepare and file such statements, reports, and
other documents, as are or may be required to continue such qualifications
in effect for so long a period as the Representatives may reasonably
request for distribution of the Shares.
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company will
deliver to, or upon the order of, the Representatives during the period
when delivery of a Prospectus is required under the Act, as many copies of
the Prospectus in final form, or as thereafter amended or supplemented, as
the Representatives may reasonably request. The Company will deliver to the
Representatives at or before the Closing Date, four signed copies of the
Registration Statement and all amendments thereto including all exhibits
filed therewith, and will deliver to the Representatives such number of
copies of the Registration Statement (including such number of copies of
the exhibits filed therewith that may reasonably be requested), including
documents incorporated by reference therein, and of all amendments thereto,
as the Representatives may reasonably request.
(v) The Company will comply with the Act, the Rules and Regulations, the
Exchange Act and the rules and regulations of the Commission under the
Exchange Act, so as to permit the completion of the distribution of the
Shares as contemplated in this Agreement and the Prospectus. If during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, any event shall occur as a result of which, in the
judgment of the Company or in the reasonable opinion of the Underwriters,
it becomes necessary to amend or supplement the Prospectus in order to make
the statements therein, in the light of the circumstances existing at the
time the Prospectus is delivered to a purchaser, not misleading, or, if it
is necessary at any time to amend or supplement the Prospectus to comply
with any applicable securities law, the Company promptly will either (i)
prepare and file with the Commission an appropriate amendment to the
Registration Statement or supplement to the Prospectus or (ii) prepare and
file with the Commission an appropriate filing under the Exchange Act which
shall be incorporated by reference in the Prospectus so that the Prospectus
as so amended or supplemented will not, in the light of the circumstances
when it is so delivered, be misleading, or so that the Prospectus will
comply with the applicable securities law.
(vi) The Company will make generally available to its security holders,
as soon as it is practicable to do so, but in any event not later than 15
months after the effective date of the Registration Statement, an earning
statement (which need not be audited) in reasonable detail, covering a
period of at least 12 consecutive months beginning after the effective date
of the Registration Statement, which earning statement shall satisfy the
requirements of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations and will advise you in writing when such statement has been so
made available.
(vii) The Company will, for a period of five years from the Closing Date,
deliver to the Representatives copies of annual reports and copies of all
other documents, reports and information furnished by the Company to its
stockholders or filed with any securities exchange pursuant to the
requirements of such exchange or with the Commission pursuant to the Act or
the Exchange Act.
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(viii) No offering, sale, short sale or other disposition of any shares
of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of
Common Stock (or agreement for such) will be made for a period of 90 days
after the date of this Agreement, directly or indirectly, by the Company,
except (x) as provided hereunder, (y) with the prior written consent of
Alex. Brown & Sons Incorporated or (z) issuances of Common Stock upon
exercise of outstanding stock options or offers of Common Stock pursuant to
grants of options under the Company's existing stock option plans or
agreements; provided that the filing of amendments to the Company's
registration statements on Form S-8 (and the related distribution of
materials constituting part of a prospectus) in connection with the
Company's 100% stock dividend distributed on August 4, 1995 shall not be
prohibited by this paragraph.
(ix) The Company will use its best efforts to list, subject to notice of
issuance, the Shares on the Nasdaq National Market System.
(x) The Company has caused each officer and director of the Company named
under the caption "Management" in the Prospectus to furnish to you, on or
prior to the date of this Agreement, a letter or letters ("Lockup
Agreements"), in form and substance satisfactory to the Underwriters,
pursuant to which each such person shall agree not to offer, sell, sell
short or otherwise dispose of any shares of Common Stock of the Company or
other capital stock of the Company, or any other securities convertible,
exchangeable or exercisable for Common Stock of the Company or derivative
of Common Stock of the Company owned by such person or request the
registration for the offer or sale of any of the foregoing (or as to which
such person has the right to direct the disposition of) for a period of 90
days after the date of this Agreement, directly or indirectly, except with
the prior written consent of Alex. Brown & Sons Incorporated. The
restrictions contained in the Lockup Agreements shall not prohibit such
officers and directors from exercising options granted by the Company to
purchase shares of Common Stock of the Company, subject to the restrictions
set forth therein regarding Common Stock of the Company received upon such
exercise.
(xi) The Company shall apply the net proceeds of its sale of the Shares
as set forth in the Prospectus.
(xii) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Shares in such a manner as
would require the Company or any of the Subsidiaries to register as an
investment company under the 1940 Act.
(xiii) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar for the
Common Stock.
(xiv) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably
be expected to constitute, the stabilization or manipulation of the price
of any securities of the Company.
(b) Each of the Selling Shareholders covenants and agrees with the several
Underwriters that:
(i) No offering, sale, short sale or other disposition of any shares of
Common Stock of the Company or other capital stock of the Company or other
securities convertible, exchangeable or exercisable for Common Stock or
derivative of Common Stock owned by the Selling Shareholder or request for
the registration for the offer or sale of any of the foregoing (or as to
which the Selling Shareholder has the right to direct the disposition of)
will be made for a period of 90 days after the date of this Agreement,
directly or indirectly, by such Selling Shareholder otherwise than
hereunder or with the prior written consent of Alex. Brown & Sons
Incorporated.
(ii) In order to document the Underwriters' compliance with the reporting
and withholding provisions of the Tax Equity and Fiscal Responsibility Act
of 1982 and the Interest and Dividend Tax Compliance Act of 1983 with
respect to the transactions herein contemplated, each of the Selling
Shareholders agrees to deliver to you prior to or at the Closing Date a
properly completed and executed United States Treasury Department Form W-9
(or other applicable form or statement specified by Treasury Department
regulations in lieu thereof).
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(iii) Such Selling Shareholder will not take, directly or indirectly, any
action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation of
the price of any securities of the Company.
5. Costs and Expenses.
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Sellers under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting
fees of the Sellers; the fees and disbursements of counsel for the Company;
the cost of printing and delivering to, or as requested by, the Underwriters
copies of the Registration Statement, Preliminary Prospectuses, the
Prospectus, this Agreement, the Underwriters' Selling Memorandum, the
Underwriters' Invitation Letter, the Listing Application, the Blue Sky Survey
and any supplements or amendments thereto; the filing fees of the Commission;
the filing fees and expenses (including legal fees and disbursements) incident
to securing any required review by the National Association of Securities
Dealers, Inc. (the "NASD") of the terms of the sale of the Shares; the Listing
Fee of the Nasdaq National Market System; and the expenses, including the fees
and disbursements of counsel for the Underwriters, incurred in connection with
the qualification of the Shares under State securities or Blue Sky laws. Any
transfer taxes imposed on the sale of the Shares to the several Underwriters
will be paid by the Sellers pro rata. The Sellers shall not, however, be
required to pay for any of the Underwriters expenses (other than those related
to qualification under NASD regulation and State securities or Blue Sky laws)
except that, if this Agreement shall not be consummated because the conditions
in Section 6 hereof are not satisfied, or because this Agreement is terminated
by the Representatives pursuant to Section 11 hereof, or by reason of any
failure, refusal or inability on the part of the Company or the Selling
Shareholders to perform any undertaking or satisfy any condition of this
Agreement or to comply with any of the terms hereof on its part to be
performed, unless such failure to satisfy said condition or to comply with
said terms be due to the default or omission of any Underwriter, then the
Company shall reimburse the several Underwriters for reasonable out-of-pocket
expenses, including fees and disbursements of counsel, reasonably incurred in
connection with investigating, marketing and proposing to market the Shares or
in contemplation of performing their obligations hereunder; but the Sellers
shall not in any event be liable to any of the several Underwriters for
damages on account of loss of anticipated profits from the sale by them of the
Shares.
6. Conditions of Obligations of the Underwriters.
The several obligations of the Underwriters to purchase the Firm Shares on
the Closing Date and the Option Shares, if any, on the Option Closing Date are
subject to the accuracy, as of the Closing Date or the Option Closing Date, as
the case may be, of the representations and warranties of the Company and the
Selling Shareholders contained herein, and to the performance by the Company
and the Selling Shareholders of their respective covenants and obligations
hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments thereto
shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any
request of the Commission for additional information (to be included in the
Registration Statement or otherwise) shall have been disclosed to the
Representatives and complied with to their reasonable satisfaction. No stop
order suspending the effectiveness of the Registration Statement, as
amended from time to time, shall have been issued and no proceedings for
that purpose shall have been taken or, to the knowledge of the Company or
the Selling Shareholders, shall be contemplated by the Commission and no
injunction, restraining order, or order of any nature by a Federal or state
court of competent jurisdiction shall have been issued as of the Closing
Date which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinions of Stinson, Mag &
Fizzell, P.C., counsel for the Company and the Selling Shareholders, or
with respect to certain matters relating to certain of the Selling
Shareholders, such other counsel as is acceptable to the Representatives,
dated the Closing Date or the Option Closing
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Date, as the case may be, addressed to the Underwriters (and stating that
they may be relied upon by counsel to the Underwriters) to the effect that:
(i) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement.
(ii) The Company has authorized and outstanding capital stock as set
forth or incorporated by reference in the Prospectus; the authorized
shares of the Company's Common Stock have been duly authorized; the
shares of Common Stock outstanding prior to the issuance of the Shares
by the Company, but including the Shares to be sold by the Selling
Shareholders, have been duly authorized and validly issued and are
fully paid and nonassessable; all of the Shares conform to the
description thereof contained or incorporated by reference in the
Prospectus; the Shares to be sold by the Company pursuant to this
Agreement have been duly authorized and will be validly issued, fully
paid and nonassessable when issued and paid for as contemplated by this
Agreement; and no preemptive rights of stockholders exist with respect
to any of the Shares or the issue or sale thereof.
(iii) Except as described in or contemplated by the Prospectus, to
the knowledge of such counsel, there are no outstanding securities of
the Company convertible or exchangeable into or evidencing the right to
purchase or subscribe for any shares of capital stock of the Company
and there are no outstanding or authorized options, warrants or rights
of any character obligating the Company to issue any shares of its
capital stock or any securities convertible or exchangeable into or
evidencing the right to purchase or subscribe for any shares of such
stock; and except as described in the Prospectus, to the knowledge of
such counsel, no holder of any securities of the Company or any other
person has the right, contractual or otherwise, which has not been
satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of,
any of the Shares or the right to have any Common Stock or other
securities of the Company included in the Registration Statement or the
right, as a result of the filing of the Registration Statement, to
require registration under the Act of any shares of Common Stock or
other securities of the Company.
(iv) The Registration Statement has become effective under the Act
and, to the best of the knowledge of such counsel, no stop order
proceedings with respect thereto have been instituted or are pending or
threatened under the Act.
(v) The Registration Statement, the Prospectus and each amendment or
supplement thereto comply as to form in all material respects with the
requirements of the Act or the Exchange Act, as applicable, and the
applicable rules and regulations (except that such counsel need express
no opinion as to the financial statements and related schedules and
other financial or statistical information included or incorporated by
reference therein). The conditions for the use of Form S-3 under the
Act have been satisfied.
(vi) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company or any of its
Subsidiaries, or against any Selling Shareholder with respect to the
Firm Shares being sold by such Selling Shareholder, except as set forth
in the Prospectus.
(vii) The execution and delivery of this Agreement by the Company and
the consummation of the transactions herein contemplated on the part of
the Company do not and will not conflict with or result in a breach of
any of the terms or provisions of, or constitute a default under, the
Charter or by-laws of the Company, or any agreement or instrument
included in the list of documents reviewed by such counsel.
(viii) The execution and delivery of this Agreement have been duly
authorized by all necessary corporate action of the Company, and this
Agreement has been duly executed and delivered by the Company.
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<PAGE>
(ix) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in connection with the execution
and delivery of this Agreement by the Company or by the Selling
Shareholders and the consummation of the transactions herein
contemplated (other than as may be required by the NASD or as required
by State securities and Blue Sky laws as to which such counsel need
express no opinion) except such as have been obtained or made,
specifying the same.
(x) The Company is not, and will not become, as a result of the
consummation of the transactions contemplated by this Agreement, and
application of the net proceeds therefrom as described in the
Prospectus, required to register as an investment company under the
1940 Act.
(xi) The execution and delivery of this Agreement have been duly
authorized by all necessary actions of the Selling Shareholders, and
this Agreement has been duly executed and delivered on behalf of the
Selling Shareholders.
(xii) Each Selling Shareholder has full legal right, power and
authority, and any approval required by law (other than as required by
State securities and Blue Sky laws as to which such counsel need
express no opinion), to sell, assign, transfer and deliver the portion
of the Firm Shares to be sold by such Selling Shareholder.
(xiii) The Custodian Agreement and the Power of Attorney executed and
delivered by each Selling Shareholder is legal, valid and binding
obligation of each such Selling Shareholder.
(xiv) The Underwriters (assuming that they are bona fide purchasers
within the meaning of the Uniform Commercial Code) have acquired good
and marketable title to the Shares being sold by each Selling
Shareholder on the Closing Date, free and clear of all liens,
encumbrances, equities and claims.
In rendering such opinion Stinson, Mag & Fizzell, P.C. will only
address matters governed by the laws of Missouri, Delaware General
Corporation Law and Federal laws. In addition to the matters set forth
above, such opinion shall also include a statement to the effect that
nothing has come to the attention of such counsel which leads them to
believe that (i) the Registration Statement, at the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) and as of the
Closing Date or the Option Closing Date, as the case may be, contained
an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and Regulations
and as of the Closing Date or the Option Closing Date, as the case may
be, contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements, in the
light of the circumstances under which they are made, not misleading
(except that such counsel need express no view as to financial
statements and related schedules and other financial or statistical
information therein and no view as to the matters set forth in Section
6(d) below). With respect to such statement, Stinson, Mag & Fizzell,
P.C. may state that their belief is based upon the procedures set forth
therein, but is without independent check and verification.
(c) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinions of John V. Donner,
Corporate Counsel of the Company, dated the Closing Date or the Option
Closing Date, as the case may be, addressed to the Underwriters (and
stating that they may be relied upon by counsel to the Underwriters) to the
effect that:
(i) Except with respect to Subsidiaries organized under the laws of
jurisdictions outside the United States of America, but including the
Company's foreign sales corporation, as defined under the Internal
Revenue Code of 1986, as amended, each of the Subsidiaries has been
duly organized and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, with
corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement; the
Company and
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each of the Subsidiaries are duly qualified to transact business in all
jurisdictions in which the conduct of their business requires such
qualification, or in which the failure to qualify would have a
materially adverse effect upon the business of the Company and the
Subsidiaries taken as a whole; and the outstanding shares of capital
stock of each of the Subsidiaries have been duly authorized and validly
issued and are fully paid and nonassessable and are owned by the
Company or a Subsidiary; and, to the best of such counsel's knowledge,
the outstanding shares of capital stock of each of the Subsidiaries is
owned free and clear of all liens, encumbrances, equities and claims,
and no options, warrants or other rights to purchase, agreements or
other obligations to issue or other rights to convert any obligations
into any shares of capital stock or of ownership interests in the
Subsidiaries are outstanding.
(ii) The certificates for the Shares are in due and proper form and
comply with the laws of the State of Delaware.
(iii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company or any of its
Subsidiaries, or against any Selling Shareholder with respect to the
Firm Shares being sold by such Selling Shareholder, except as set forth
in the Prospectus.
(iv) The documents incorporated by reference in the Prospectus as
amended or supplemented (other than the financial statements and
related schedules and other financial or statistical information
included therein, as to which such counsel need express no opinion),
when they became effective or were filed with the Commission, as the
case may be, complied as to form in all material respects with the
requirements of the Act or the Exchange Act, as applicable, and the
rules and regulations of the Commission thereunder, and such counsel
has no reason to believe that any such documents, when they became
effective or were so filed, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made when such documents were so
filed, not misleading.
(d) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the statement of Kokjer, Kircher,
Bowman & Johnson, P.C., special counsel for the Company, addressed to the
Underwriters and in a form satisfactory to counsel for the Underwriters, to
the effect that, to such counsel's knowledge, the statements contained in
the Registration Statement and the Prospectus, including any of the
documents incorporated by reference therein (other than any statements
contained in such incorporated documents which gave been modified or
superseded in accordance with the Rules and Regulations), regarding patent,
trademark, service mark, copyright or other intellectual property matters
relating to the Company do not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(e) The Representatives shall have received from Dorsey & Whitney
P.L.L.P., counsel for the Underwriters, an opinion dated the Closing Date
or the Option Closing Date, as the case may be, with respect to the valid
incorporation and existence in good standing of the Company under the laws
of the State of Delaware, this Agreement, the validity of the Shares and
such other matters as you may reasonably request. In rendering such opinion
Dorsey & Whitney P.L.L.P. may rely as to all matters governed other than by
the Delaware General Corporation Law or Federal laws on the opinions of
counsel referred to in Paragraphs (b) or (c) of this Section 6. In addition
to the matters set forth above, such opinion shall also include a statement
to the effect that nothing has come to the attention of such counsel which
leads them to believe that (i) the Registration Statement, or any amendment
thereto, as of the time it became effective under the Act (but after giving
effect to any modifications incorporated therein pursuant to Rule 430A
under the Act) as of the Closing Date or the Option Closing Date, as the
case may be, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and (ii) the Prospectus, or any
supplement thereto, on the date it was filed pursuant to
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<PAGE>
the Rules and Regulations and as of the Closing Date or the Option Closing
Date, as the case may be, contained an untrue statement of a material fact
or omitted to state a material fact, necessary in order to make the
statements, in the light of the circumstances under which they are made,
not misleading (except that such counsel need express no view as to
financial statements and related schedules and other financial or
statistical information therein and no view as to the matters set forth in
Section 6(d) above). With respect to such statement, Dorsey & Whitney,
P.L.L.P. may state that their belief is based upon the procedures set forth
therein, but is without independent check and verification.
(f) The Representatives shall have received at or prior to the Closing
Date from Dorsey & Whitney P.L.L.P. a memorandum or summary, in form and
substance satisfactory to the Representatives, with respect to the
qualification for offering and sale by the Underwriters of the Shares under
the State securities or Blue Sky laws of such jurisdictions as the
Representatives may reasonably have designated to the Company.
(g) You shall have received, on each of the dates hereof, the Closing
Date and the Option Closing Date, as the case may be, a letter dated the
date hereof, the Closing Date or the Option Closing Date, as the case may
be, in form and substance satisfactory to you, of KPMG Peat Marwick LLP
confirming that they are independent public accountants within the meaning
of the Act and the applicable published Rules and Regulations thereunder
and stating that in their opinion the financial statements and schedules
examined by them and included in the Registration Statement comply in form
in all material respects with the applicable accounting requirements of the
Act and the related published Rules and Regulations; and containing such
other statements and information as is ordinarily included in accountants'
"comfort letters" to Underwriters with respect to the financial statements
and certain financial and statistical information contained in the
Registration Statement and Prospectus.
(h) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of
the President of the Company to the effect that, as of the Closing Date or
the Option Closing Date, as the case may be, he represents as follows:
(i) The Registration Statement has become effective under the Act and
no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for such purpose have
been taken or are, to his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company contained in
Section 1 hereof are true and correct as of the Closing Date or the
Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to Rules 424 or
430A under the Act have been made;
(iv) He has carefully examined the Registration Statement and the
Prospectus and, in his opinion, as of the effective date of the
Registration Statement, the statements contained in the Registration
Statement did not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the
statements made in such Prospectus do not, as of the Closing Date or
the Option Closing Date, as the case may be, contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading,
and since the effective date of the Registration Statement, no event
has occurred which should have been set forth in a supplement to or an
amendment of the Prospectus which has not been so set forth in such
supplement or amendment; and
(v) Since the respective dates as of which information is given in
the Registration Statement and Prospectus, there has not been any
material adverse change, or any development involving a prospective
material adverse change, in or affecting the earnings, business,
management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company and the
Subsidiaries, taken as a whole, whether or not arising in the ordinary
course of business.
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(i) The Company and the Selling Shareholders shall have furnished to the
Representatives such further certificates and documents confirming the
representations and warranties, covenants and conditions contained herein
and related matters as the Representatives may reasonably have requested.
(j) The Firm Shares and Option Shares, if any, have been listed subject
to notice of issuance on the Nasdaq National Market System.
(k) The Lockup Agreements described in Section 4(x) are in full force and
effect.
The opinions and certificates mentioned in this Agreement shall be deemed to
be in compliance with the provisions hereof only if they are in all material
respects satisfactory to the Representatives and to Dorsey & Whitney P.L.L.P.,
counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company and the Selling Shareholders of
such termination in writing or by telegram at or prior to the Closing Date or
the Option Closing Date, as the case may be.
In such event, the Selling Shareholders, the Company and the Underwriters
shall not be under any obligation to each other (except to the extent provided
in Sections 5 and 8 hereof).
7. Conditions of the Obligations of the Sellers.
The obligations of the Sellers to sell and deliver the portion of the Shares
required to be delivered as and when specified in this Agreement are subject
to the conditions that at the Closing Date or the Option Closing Date, as the
case may be, no stop order suspending the effectiveness of the Registration
Statement shall have been issued and in effect or proceedings therefor
initiated or threatened.
8. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of the
Act, against any losses, claims, damages or liabilities to which such
Underwriter or any such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or (ii) the omission or alleged omission to
state in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, a material fact required
to be stated therein or necessary to make the statements therein not
misleading; and will reimburse each Underwriter and each such controlling
person upon demand for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating or
defending any such loss, claim, damage or liability, action or proceeding or
in responding to a subpoena or governmental inquiry related to the offering of
the Shares, whether or not such Underwriter or controlling person is a party
to any action or proceeding; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement, or omission or alleged omission made in the Registration Statement,
any Preliminary Prospectus, the Prospectus, or such amendment or supplement,
in reliance upon and in conformity with written information furnished to the
Company by or through the Representatives specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) The Selling Shareholders, severally and not jointly, agree to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of the Act, against
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any losses, claims, damages or liabilities to which such Underwriter or any
such controlling person may become subject under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the information
pertaining to such Selling Shareholder under the caption "Selling
Stockholders" in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or (ii) the omission or
alleged omission to state in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, under the
caption "Selling Stockholders," a material fact required to be stated therein
or necessary to make the statements therein not misleading; and will reimburse
each Underwriter and each such controlling person upon demand for any legal or
other expenses reasonably incurred by such Underwriter or such controlling
person in connection with investigating or defending any such loss, claim,
damage or liability, action or proceeding or in responding to a subpoena or
governmental inquiry related to the offering of the Shares, whether or not
such Underwriter or controlling person is a party to any action or proceeding;
provided, however, that the Selling Shareholders will not be liable in any
such case to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement, or
omission or alleged omission made in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Representatives specifically for use in the
preparation thereof. In no event, however, shall the liability of any Selling
Shareholder for indemnification under this Section 8(b) exceed the proceeds
received by such Selling Shareholder from the Underwriters in the offering.
This indemnity agreement will be in addition to any liability which the
Selling Shareholders may otherwise have.
(c) Each Underwriter severally and not jointly will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, the Selling Shareholders and each person,
if any, who controls the Company within the meaning of the Act, against any
losses, claims, damages or liabilities to which the Company or any such
director, officer, Selling Shareholder or controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or (ii)
the omission or the alleged omission to state in the Registration Statement,
any Preliminary Prospectus, the Prospectus, or any amendment or supplement
thereto, a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances under
which they were made; and will reimburse the Company or any such director,
officer, Selling Shareholder or controlling person upon demand for any legal
or other expenses reasonably incurred by the Company or such director,
officer, Selling Shareholder or controlling person, in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding or responding to a subpoena or governmental inquiry related to the
offering of the Shares, whether or not the Company or such director, officer,
Selling Shareholder or controlling person is a party to any action or
proceeding; provided, however, that each Underwriter will be liable in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(d) In case any proceeding (including any governmental investigation) shall
be instituted involving any person in respect of which indemnity may be sought
pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a), (b) or (c) shall be available to any party who shall fail to give notice
as provided in this Section 8(d) if the party to whom
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notice was not given was unaware of the proceeding to which such notice would
have related and was materially prejudiced by the failure to give such notice,
but the failure to give such notice shall not relieve the indemnifying party
or parties from any liability which it or they may have to the indemnified
party for contribution or otherwise than on account of the provisions of
Section 8(a), (b) or (c). In case any such proceeding shall be brought against
any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party and shall pay as incurred the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel at its own expense. Notwithstanding the foregoing, the indemnifying
party shall pay as incurred (or within 30 days of presentation) the fees and
expenses of the counsel retained by the indemnified party in the event (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel, (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them
or (iii) the indemnifying party shall have failed to assume the defense and
employ counsel acceptable to the indemnified party within a reasonable period
of time after notice of commencement of the action. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such indemnified parties. Such
firm shall be designated in writing by you in the case of parties indemnified
pursuant to Section 8(a) and (b) and by the Company and the Selling
Shareholders in the case of parties indemnified pursuant to Section 8(c). The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by
reason of such settlement or judgment. In addition, the indemnifying party
will not, without the prior written consent of the indemnified party, settle
or compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding of which indemnification may be sought
hereunder (whether or not any indemnified party is an actual or potential
party to such claim, action or proceeding) unless such settlement, compromise
or consent includes an unconditional release of each indemnified party from
all liability arising out of such claim, action or proceeding.
(e) If the indemnification provided for in this Section 8 is unavailable to
or insufficient to hold harmless an indemnified party under Section 8(a), (b)
or (c) above in respect of any losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions or proceedings in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by each of the Company,
the Selling Shareholders and the Underwriters from the offering of the Shares.
If, however, the allocation provided by the immediately preceding sentence is
not permitted by applicable law then each indemnifying party shall contribute
to such amount paid or payable by such indemnified party in such proportion as
is appropriate to reflect not only such relative benefits but also the
relative fault of the Company, the Selling Shareholders and the Underwriters
in connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, (or actions or proceedings in respect
thereof), as well as any other relevant equitable considerations. The
respective relative benefits received by the Company, the Selling Shareholders
and the Underwriters shall be deemed to be in the same proportion, in the case
of the Company and the Selling Shareholders, as the total net proceeds to the
Company and to the Selling Shareholders, respectively, for the Shares sold by
them to the Underwriters (before deducting expenses), and in the case of the
Underwriters, as the underwriting discounts and commissions received by them,
bears to the total of such amount paid to the Company and to the Selling
Shareholders and received by the Underwriters as underwriting discounts and
commissions, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among
other things,
18
<PAGE>
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company, the Selling Shareholders or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company, the Selling Shareholders and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this Section 8(e)
were determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation which
does not take account of the equitable considerations referred to above in
this Section 8(e). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to above in this Section 8(e) shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this subsection (e), (i) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter, (ii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation, and (iii) no Selling Shareholder shall be required to
contribute any amount in excess of the proceeds received by such Selling
Shareholder from the Underwriters in the offering. The Underwriters'
obligations in this Section 8(e) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(f) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it
as an additional defendant in any such proceeding in which such other
contributing party is a party.
(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement
shall remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor
to any Underwriter, or to the Company, its directors or officers, or any
person controlling the Company, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this Section
8.
9. Default by Underwriters.
If on the Closing Date or the Option Closing Date, as the case may be, any
Underwriter shall fail to purchase and pay for the portion of the Shares which
such Underwriter has agreed to purchase and pay for on such date (otherwise
than by reason of any default on the part of the Company or a Selling
Shareholder), you, as Representatives of the Underwriters, shall use your
reasonable efforts to procure within 36 hours thereafter one or more of the
other Underwriters, or any others, to purchase from the Company and the
Selling Shareholders such amounts as may be agreed upon and upon the terms set
forth herein, the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If during such 36
hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option Shares, as
the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the
19
<PAGE>
aggregate number of shares with respect to which such default shall occur does
not exceed 10% of the Firm Shares or Option Shares, as the case may be,
covered hereby, the other Underwriters shall be obligated, severally, in
proportion to the respective numbers of Firm Shares or Option Shares, as the
case may be, which they are obligated to purchase hereunder, to purchase the
Firm Shares or Option Shares, as the case may be, which such defaulting
Underwriter or Underwriters failed to purchase, or (b) if the aggregate number
of shares of Firm Shares or Option Shares, as the case may be, with respect to
which such default shall occur exceeds 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the Company and the Selling
Shareholders or you as the Representatives of the Underwriters will have the
right, by written notice given within the next 36-hour period to the parties
to this Agreement, to terminate this Agreement without liability on the part
of the non-defaulting Underwriters or of the Company or of the Selling
Shareholders except to the extent provided in Section 8 hereof. In the event
of a default by any Underwriter or Underwriters, as set forth in this Section
9, the Closing Date or Option Closing Date, as the case may be, may be
postponed for such period, not exceeding seven days, as you, as
Representatives, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section
9 shall not relieve any defaulting Underwriter from liability in respect of
any default of such Underwriter under this Agreement.
10. Notices.
All communications hereunder shall be in writing and, except as otherwise
provided herein, will be mailed, delivered, telecopied or telegraphed and
confirmed as follows: if to the Underwriters, to Alex. Brown & Sons
Incorporated, 135 East Baltimore Street, Baltimore, Maryland 21202, Attention:
Russell T. Ray; with a copy to Alex. Brown & Sons Incorporated, 135 East
Baltimore Street, Baltimore, Maryland 21202, Attention: General Counsel; if to
the Company or the Selling Shareholders, to
Cerner Corporation
2800 Rockcreek Parkway, Suite 601
Kansas City, Missouri 64117
Attention: Clifford W. Illig
11. Termination.
This Agreement may be terminated by you by notice to the Sellers as follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m.
on the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given
in the Registration Statement and the Prospectus, any material adverse
change or any development involving a prospective material adverse change
in or affecting the earnings, business, management, properties, assets,
rights, operations, condition (financial or otherwise) or prospects of the
Company and its Subsidiaries, taken as a whole, whether or not arising in
the ordinary course of business, (ii) any outbreak or escalation of
hostilities or declaration of war or national emergency or other national
or international calamity or crisis or change in economic or political
conditions if the effect of such outbreak, escalation, declaration,
emergency, calamity, crisis or change on the financial markets of the
United States would, in your reasonable judgment, make it impracticable to
market the Shares or to enforce contracts for the sale of the Shares, or
(iii) suspension of trading in securities generally on the New York Stock
Exchange or the American Stock Exchange or the Nasdaq National Market
System or limitation on prices (other than limitation on hours or numbers
of days of trading) for securities on any such Exchange, (iv) the
enactment, publication, decree or other promulgation of any statute,
regulation, rule or order of any court or other governmental authority
which in your opinion materially and adversely affects or may materially
and adversely affect the business or operations of the Company, (v)
declaration of a
20
<PAGE>
banking moratorium by United States or New York State authorities, (vi) any
downgrading in the rating of the Company's debt securities by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Exchange Act); (vii) the suspension of
trading of the Company's Common Stock by the Commission on the Nasdaq
National Market System or (viii) the taking of any action by any
governmental body or agency in respect of its monetary or fiscal affairs
which in your reasonable opinion has a material adverse effect on the
securities markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. Successors.
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and the Selling Shareholders and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other person will
have any right or obligation hereunder. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign merely because of such
purchase.
13. Information Provided by Underwriters.
The Company, the Selling Shareholders and the Underwriters acknowledge and
agree that the only information furnished or to be furnished by any
Underwriter to the Company for inclusion in any Prospectus or the Registration
Statement consists of the information set forth in the last paragraph on the
front cover page of the Prospectus (insofar as such information relates to the
Underwriters), legends required by Item 502(d) of Regulation S-K under the Act
and the information under the caption "Underwriting" in the Prospectus.
14. Miscellaneous.
The reimbursement, indemnification and contribution agreements contained in
this Agreement and the representations, warranties and covenants in this
Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of
any Underwriter or controlling person thereof, or by or on behalf of the
Company or its directors or officers and (c) delivery of and payment for the
Shares under this Agreement.
The Greater Kansas City Community Foundation (the "Community Foundation") is
a party to this Agreement solely and exclusively in its capacity as Co-Trustee
of the Neal L. Patterson Charitable Remainder Unitrust (the "Unitrust")
created under Indenture dated December 28, 1994, and not in its separate
corporate capacity. The liability of the Community Foundation to any party
under this Agreement for breach of any of its representation, warranties,
covenants, agreements or otherwise, shall be strictly limited to the Trust
Estate of the Unitrust actually in the possession of the Community Foundation
at any time any such liability is due and payable.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
and the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Maryland.
21
<PAGE>
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Selling Shareholder, the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
Cerner Corporation
By __________________________________
Clifford W. Illig
President
Selling Shareholders
Listed on Schedule II
By __________________________________
Attorney-in-Fact
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
Alex. Brown & Sons Incorporated
Donaldson, Luflin & Jenrette Securities Corporation
Smith Barney Inc.
As Representatives of the several Underwriters listed on Schedule I
By: Alex. Brown & Sons Incorporated
By: _________________________________
Authorized Officer
22
<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF FIRM SHARES
UNDERWRITER TO BE PURCHASED
----------- ---------------------
<S> <C>
Alex. Brown & Sons Incorporated..........................
Donaldson, Lufkin & Jenrette Securities Corporation......
Smith Barney Inc. .......................................
---------
Total................................................ 3,440,000
=========
</TABLE>
<PAGE>
SCHEDULE II
SCHEDULE OF SELLING SHAREHOLDERS
<TABLE>
<CAPTION>
NUMBER OF FIRM SHARES
SELLING SHAREHOLDER TO BE SOLD
------------------- ---------------------
<S> <C>
Clifford W. Illig........................................ 120,000
The Neal L. Patterson Charitable Remainder Unitrust...... 80,000
Neal L. Patterson........................................ 40,000
-------
Total................................................ 240,000
=======
</TABLE>
<PAGE>
EXHIBIT A
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
SUBSIDIARY PLACE OF INCORPORATION
---------- ----------------------
<S> <C>
Cerner Megasource, Inc. ................................ Delaware
Cerner Properties, Inc. ................................ Delaware
Cerner International, Inc. ............................. Delaware
Cerner Corporation Pty, Ltd. ........................... Australia
Cerner Deutschland GmbH................................. Germany
Cerner Limited.......................................... United Kingdom
Cerner Singapore Ltd. .................................. Delaware
Cerner FSC, Inc. ....................................... Barbados
</TABLE>
The outstanding shares of capital stock of the Subsidiaries are owned by the
Company or another Subsidiary, free and clear of all liens, encumbrances and
equities and claims.
<PAGE>
The Board of Directors
Cerner Corporation:
We consent to the use of our reports included herein and incorporated herein by
reference and to the references to our firm under the headings "Experts" and
"Selected Consolidated Financial Data" in the prospectus.
KPMG Peat Marwick LLP
Kansas City, Missouri
August 10, 1995
