SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 2, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to ___________
Commission File Number 0-15386
CERNER CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 43-1196944
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
2800 Rockcreek Parkway, Suite 601
Kansas City, Missouri 64117
(816) 221-1024
(Address of principal executive offices, including zip code;
Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Preferred Stock Purchase Rights
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
At March 15, 1999, there were 33,573,446 shares of Common
Stock outstanding, of which 7,884,975 shares were owned by
affiliates. The aggregate market value of the outstanding Common
Stock of the Registrant held by non-affiliates, based on the
average of bid and asked prices of such stock on March 15, 1999,
was $340,372,241.
Documents incorporated by reference: portions of the
Registrant's Proxy Statement for the 1999 Annual Meeting of
Stockholders are incorporated by reference in Part III hereof.
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PART I
Item 1. Business
General
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Cerner Corporation ("Cerner" or the "Company") is a Delaware
corporation incorporated in 1980. The Company's principal
offices are located at 2800 Rockcreek Parkway, Kansas City,
Missouri 64117, and its telephone number is (816) 221-1024.
Cerner designs, develops, markets, installs and supports
person/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
database repository and providing access to such data for users
of clinical information across a healthcare system, including in
the home, at physician's offices and at ambulatory, inpatient and
intensive care settings. Cerner's systems are designed and
developed using the Health Network Architecture (''HNA''), a
single information 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. Cerner has developed
and is licensing and installing its newest generation of HNA
products known as "Millennium". See "Cerner's HNA Approach and
HNA Millennium" for a discussion of Millennium.
Healthcare Industry
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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
(''IDS's''), and IDS's are aligning with payer organizations to
form Integrated Health Organizations (''IHO's''), in each case to
reduce costs 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 IDS's. 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 IDS's and IHO's
encompass many of the same needs as hospitals, physicians and
managed care organizations. Many IDS's and IHO's 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 IDS's and IHO's
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include integrated process-based systems for clinical domains,
data repositories and applications for physicians and management
teams. Cerner is responding to the changing and increasing needs
of the healthcare industry for better information systems by
developing HNA Millennium, its latest generation of products. See
"Cerner's HNA Approach and HNA Millennium" for a discussion of
Millennium.
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 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 principle
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
(''IPA's'') and Preferred Provider Organizations (''PPO's''), and
are increasingly supported administratively through Management
Services Organizations ("MSO's") which offer management and
administrative services to physicians. In some cases, such
organizations align with IDS's and IHO's. 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 IDS's
and IHO's.
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 affiliated to service a community or
defined member population. 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 IHO's will emerge in the
United States in the next decade. These IHO's will need to
implement information systems that manage the delivery of care
across an 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 IHO's 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
plans 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.
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When all of the complex clinical processes that comprise
care delivery in IHO's are automated using fully integrated
information systems, it becomes possible to extend automation to
the management processes of healthcare.
Cerner's HNA Approach and HNA Millennium
- ----------------------------------------
The cornerstone of Cerner's information systems strategy is
HNA, the single architecture around which each of Cerner's
products is developed. This highly scaleable architecture allows
Cerner to meet the clinical, management, and business information
requirements of a healthcare delivery system across the continuum
of care from the physician practice to the IHO and to integrate
the information requirements of clinical operations and business
functions. Cerner's newest HNA platform, HNA Millennium, utilizes
three-tiered client/server technology to optimize distributed
computing performance and functionality advantages. Millennium's
breadth of focus and functionality are well suited for large-
scale and enterprise application technologies for healthcare
organizations. HNA Millennium's system architecture allows its
applications to work together as one system. The value of HNA
Millennium to a client is the use across a healthcare
organization of a single system based on a fully integrated
common architecture and data structure. With its single data
structure HNA Millennium provides real time access to all
information across multiple applications, such as laboratory,
pharmacy, nursing and physicians, to all of those needing such
access, wherever they are located. Systems based on differing
architectures and data structures must be interfaced together and
rely on these interfaces to transmit, modify and arrange data
exchanged between them, which limits the data's usefulness across
multiple systems and inhibits real-time access. In addition,
many of these systems cannot operate across multiple provider
settings or locations within a healthcare organization.
March of 1998 marked the completion of the major development
cycle of HNA Millennium. During that development cycle the
Company expended approximately $130 million developing HNA
Millennium. At the end of 1998, 187 HNA Millennium systems were
being used by Cerner clients. As of March of 1999, 23 of HNA
Millennium's initial 30 product lines were being used by Cerner
clients. By comparison, the Classic version of Cerner's products
had 7 product lines. Cerner expects to have more than 400
Millennium systems in use by the end of 1999. Implementation of
Millennium at client sites is a much more complex process than
implementation of HNA Classic due to the greater range of
capability of the Millennium products and its complexity.
Substantial project management, process redesign, technology
integration and training are all required in order for clients to
achieve the full benefits offered by Millennium.
Cerner's systems also allow the use of other vendors
products in conjunction with Cerner's system through the use of
Cerner's Open Engine Gateway System that allows the exchange of
data with the foreign system.
Strategy
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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, clinical and management
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.
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To penetrate the physician market.
---------------------------------- As physicians combine to
form organizations such as IPA's and PPO's, and then participate
in MSO's, they require clinical and process-based systems to
manage the member/patient care processes within their own
practices. As such groups align with IDS's and IHO's, they
further require clinical and management information systems that
allow them to share clinical and management processes with these
community-wide systems. Healthcare organizations are developing
strategies for connecting community-based physicians to the
information resources of the health system using the internet.
Cerner's systems provide the member/patient data repositories,
clinical, management tools and connectivity 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
for specific markets such as PathNet, RadNet and PharmNet, as
institutional providers look to restructure and reengineer these
high cost centers within their IDS's and IHO's. The Company also
intends to market aggressively Cerner clinical and management
information systems and services 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 integrated'' health
information and management systems. This platform enables
Cerner's process-based HNA systems to be scaleable on a linear
basis, using either Cerner compatible modules for process-
oriented applications or competitive systems interfaced using
open system protocols.
To expand its products and services.
--------------------------------------- Using Millennium,
Cerner intends to expand the range of products and services
offered to providers, including IDS's and IHO's, 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 IHO's 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. The substantial
project management process redesign, technology integration, and
training involved in healthcare systems taking advantage of the
opportunities provided by clinical and management information
technology represent a significant market for the Company's
consulting services.
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Products
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The Company's products include Enterprise Systems, which
automate processes across and throughout the health system
enterprise; Enterprise Repositories, which capture, sort, present
and analyze clinical and business information; Clinical Systems
for Direct Care, which automate the clinical processes within
hospitals and the physicians practice; Clinical Systems for Care
Centers, which automate the clinical processes within specific
departments or domains; Decision Support and Executable Knowledge
systems, which enhance clinical and business processes with
information and actions; Financial and Operational Management
Systems, which automate the business operations; Population
Health Management systems for managing health; Demand Management
systems and services for managing the need for care; Personal
Health systems for individuals to manage their own health; and
Interface Technologies for connecting other technologies to HNA
Millennium. These systems can be acquired individually or as a
fully integrated 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. In connection with the
licensing of an information system, Cerner also generally sells
to its clients computers and related hardware that are
manufactured and supplied to Cerner by third parties.
Enterprise Systems
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Cerner's Enterprise Systems automate processes across the
entire health system. Capstone automates the identification,
eligibility, registration and scheduling processes across
hospitals, clinics, physician practices and other care delivery
organizations, integrating the health system and incorporating
existing systems. Powerlink connects community-based physicians
to health systems for referrals, authorizations, claims,
eligibility, and reporting. PowerChart is the enterprise
clinician's desktop solution for viewing, ordering and
documenting the electronic medical record.
Enterprise Repositories
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Open Agreement Foundation Data Repository is a structured
repository for the storage and viewing of health plan
information, records, contracts, eligibility and coverage data.
Open Clinical Foundation Data Repository is a structured
repository for the storage of member/patient orders; discrete
results; clinical reports and other documents; indexes to
document images from foreign document imaging systems; and
indexes to third-party dictation systems.
Open Management Foundation Data Repository is a structured
repository for process- and activity-related information useful
for management of a healthcare organization. Information can
originate from numerous sources and can be maintained in an
easily accessible, standardized format. OMF can be integrated
into an architecture containing products from different
suppliers.
Open Health Foundation Data Repository is a structured
repository for the storage and viewing of health information
related to populations, in support of applications and services
designed to manage the health status of those populations.
Open Outcome Foundation Data Repository is a structured
repository for the storage and viewing of the data that supports
the reporting and management of outcomes in the areas of
clinical, medical, process, economic and satisfaction.
Clinical Systems for Direct Care
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Cerner's CareNet Acute Care Management System is designed to
automate the entire care process in acute or institutional
settings. It collects, refines, organizes, and evaluates
detailed clinical and management data. It enables the entire care
team to plan and manage individual activities and plans, as
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well as measure outcomes and goals. CareNet consists of five major
solutions - patient registration, scheduling, orders,
documentation, care planning and diagnostic and therapeutic care.
The INet Intensive Care Management System is designed to
automate the entire care process in intensive care settings. It
supports patient management, chart review and browsing, order
management, documentation management, scheduling, and automatic
data acquisition. It automatically acquires patient data from
bedside medical devices, manages information flow and
presentation at the bedside, supports care management through
care planning and critical pathways, and encourages timely
decisions based on comprehensive data availability; information
tailored to the practitioner and the patient; and rule-based
decision support.
The ProVide Physician Office Management System supports the
broad range of clinical and business activities that occur within
a physician office, clinic, or large physician organization (such
as a multi-site clinic or management service organization) and
ties the office together with others in the community. It
automates key activities of the care team in both primary and
specialty care settings. ProVide offers clinicians and staff a
variety of functional capabilities, including patient/member
tracking, clinical records access and navigation, eligibility
checking, order and referral processing, and reference library
access and navigation.
The ProCall Home Care Management System automates the
clinical and business processes of home health organizations,
such as visiting nurse associations and hospices. It is
appropriate for Medicare-certified or noncertified agencies
providing skilled nursing, specialized care, supervisory
activities, assessments, and unskilled attendant or medical
delivery services. ProCall facilitates the documentation of care
activities in the home and provides access to the electronic
medical record. It automates the referral, scheduling, and
management reporting processes performed by office personnel in
home care agencies, and supports their business and
administrative processes. Financial and management reporting
capabilities provide needed information to directors and managers
in home care agencies to allow them to compete in a prospective-
pay environment.
Clinical Systems for Care Centers
- ---------------------------------
The PathNet Laboratory Information System addresses the
information management needs of six clinical areas: general
laboratory, microbiology, blood bank transfusion services, blood
bank donor services, anatomic pathology, and HLA. PathNet
automates the ordering and reporting of procedures, the
production of accurate and timely reports, and the maintenance of
accessible clinical records.
The RadNet Radiology Information System addresses the
operational and management requirements of diagnostic radiology
departments or services. It allows a department to replace its
manual, paper-based system of record-keeping with an efficient
computer-based system
The PharmNet Pharmacy Information System provides full
integration 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 fill lists,
intravenous fill lists and medication administration records are
produced automatically or on demand.
The SurgiNet Surgery Information System is designed to
address the needs of the surgical department, including
automating the functions of resource and equipment scheduling,
inventory management, and operating room management.
The FirstNet Emergency Department Information System offers
patient and provider tracking and an intuitive presentation of patient
diagnoses and clinical events for the emergency department. FirstNet
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provides basic emergency department functionality, including quick
admits, tracking, triage, and patient history, as well as a graphical
reference to patient location and order status.
The CVNet Cardiology Department Information System automates
the processes within the department of cardiology, supporting the
scheduling, ordering, documentation and data capture required by
professionals in the cardiology domain.
Decision Support and Executable Knowledge
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Discern Structured Care Design is clinical pathways and
protocols that automate the specific plans of care for an
individual, and operates within Cerner's clinical systems.
Discern Dialogue is a real-time decision support software
application that incorporates executable knowledge and provides
order advice to clinicians. It manages the display of clinical
alerts through Discern Insights, which are licensed separately.
Discern Dialogue provides specific recommendations to change,
cancel, or create orders.
Discern Expert and Alerts are an event-driven, rule-based,
decision support software application that allows users to define
clinical and management rules that are applied to events
accessing data that is captured or generated by other HNA
applications.
Discern Explorer is a decision support software application
integrated with other Cerner HNA clinical and management
information systems that allows users to execute predetermined or
ad hoc queries and reports regarding process-related data that is
generated by the other HNA applications.
Health Facts is Cerner's comparative data warehouse for
benchmarking information and services for subscribers to support
their own improvement processes.
Financial and Operational Management Systems
- --------------------------------------------
ProFit is Cerner's application for revenue accounting,
billing and accounts receivables for the entire health system as
well as each individual domain or organization.
ProRate is an application to automate the managed care
processes around membership, eligibility tracking, claims
processing and contract management.
The ProLogue Enterprise Management System includes a suite
of management applications specifically designed to assemble and
use the information to help an organization complete its
strategic plans, including clinical metrics, case profiling, and
performance profiling of individuals and organizations.
The ProFile Health Information Management System helps meet
the operations management needs of the health information
management (medical records) department and includes
functionality for the various chart tracking and completion tasks
commonly associated with maintaining medical records.
ProCure and ProTrack automates the business operations
around materials and equipment management for the organization.
Population Health Management
- ----------------------------
IQ Health produces personal health risk assessments and
analyzes those to create interventions that promote self care and
improve health.
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Demand Management
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Health Connections includes applications and services to
automate and manage the operations of telecare, including
protocol-based triage and person information.
Personal Health
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Vitality is Cerner's home software product designed to
extend medical care to the consumer's home. It provides a way
for the consumer to interact on a regular basis with a healthcare
provider. Vitality can store health and medical records for easy
access. By providing health appraisals and personalized health
plans, Vitality takes the first step toward improving health
education for members in a community.
Interface Technologies
- ----------------------
The Open Engine Application Gateway System facilitates the
exchange of data and assists in the management of point-to-point
interfaces between foreign systems. It serves as a toolkit to
help write interface code.
Software Development
- --------------------
Cerner commits significant resources to developing new
health information system products. As of January 2, 1999, 1,032
employees were engaged full-time in product development
activities. Total expenditures for the development and
enhancement of the Company's products were approximately
$74,159,000, $54,524,000 and $43,133,000 during the 1998, 1997
and 1996 fiscal years respectively. These figures include both
capitalized and noncapitalized portions and exclude amounts
amortized for financial reporting purposes.
The Company expects to continue investment and development
efforts for its current and future product offerings. As new
clinical and management information needs emerge, Cerner intends
to enhance its current product lines with new versions released
to clients on a periodic basis. In addition, Cerner plans to
expand its current product lines by developing additional
information systems for use in clinical departments and to
continue to support simultaneous use of Cerner's 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 integrated.
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.
See "Cerner's HNA Approach and HNA Millennium" for a
discussion of the development of Cerner's latest generation of
software products.
Sales and Marketing
- -------------------
The markets for Cerner's information system products include
IHO's, IDS's, physician groups and networks and their MSO's,
managed care organizations, hospitals, medical centers, free-
standing reference laboratories, blood banks, imaging centers,
pharmacies, employer coalitions, and public health organizations.
To date, a substantial portion of system sales have been in
clinical applications in hospital-based provider organizations.
Cerner's HNA architecture is highly scaleable, with applications
being used in hospitals ranging from under 50 beds to over 2,000
beds and managed care settings with over 2,000,000 members. All
Cerner systems are designed to operate on computers manufactured
by Compaq Computer Corporation (''Compaq''). In addition, many
Cerner Classic applications are available
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on IBM's RISC System/6000 AIX (UNIX) platform. All HNA
Millennium applications are designed to operate on either
Compaq or 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
eighteen months, from the time of initial contact to the
signing of a contract.
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, and joint
ventures has offices and sales staff in Australia, Singapore and
Saudi Arabia. The Company has a nonexclusive distribution
agreement with Siemens Health Service GmbH & Co. KG by which its
products are marketed, implemented and supported in Europe and
elsewhere. Cerner's consolidated revenues include foreign sales
of $17,545,000, $16,272,000 and $15,874,000 for the 1998, 1997
and 1996 fiscal years, respectively. The Company supports its
sales force with technical personnel who perform demonstrations
of Cerner's products and assist clients in determining the proper
hardware and software configurations. The Company has 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 tradeshows. Cerner attends a number of major
tradeshows each year and has begun to sponsor executive
conferences, which feature industry experts who address the
information system needs of large healthcare organizations.
During 1998 Cerner entered into a technology and marketing
agreement with General Electric Company, acting through its GE
Medical Systems division. Cerner is a leader in radiology
information systems and GE is a leader in radiology imaging
systems, as well as picture archiving communication systems.
Picture archiving communication systems are designed to store,
retrieve and enhance digital images produced by modern radiology
imaging systems such as CAT SCAN systems, MRIs and ultrasound
medical technology. This agreement is focused upon building and
marketing the next generation of solutions in the radiology
suite, a fully integrated radiology information system and
picture archiving communication system.
At the end of 1998 Cerner licensed HNA Millenium
functionality to Synetic Healthcare Communications, Inc., in
exchange for a 19.9% equity interest in such company. Synetic
Healthcare Communications is majority owned by Synetic, Inc. and
was formed for the purpose of creating Internet-based physician
connectivity and electronic commerce.
Client Services
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Cerner uses a regional strategy to provide the full range of
product and service capabilities to its clients from seven
locations throughout the United States. Each regional center
reflects Cerner's corporate culture and provides support services
and resources, including training and development opportunities,
for Company personnel working in the geographical area. The
regional centers are also used for client education activities.
Through the regional centers, Cerner provides 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 and Washington, D.C. 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
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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 January 2, 1999, Cerner had contract backlog of
$314,965,000. Such backlog represents system sales from signed
contracts which had not yet been recognized as revenue. The
Company recognizes revenue on a percent of completion basis,
based on certain milestone conditions, for its software products.
At January 2, 1999, the Company had $94,627,000 of contracts
receivable, which represents revenues recognized under the
percent of completion method but not yet billable under the terms
of the contract. At January 2, 1999, Cerner had a software
support and maintenance backlog of $153,453,000. Such backlog
represents contracted software support and hardware maintenance
services for a period of twelve months. The Company estimates
that approximately 43% of the aggregate backlog of $468,418,000
will be recognized as revenue during 1999.
Other Factors Affecting the Company's Business
- ----------------------------------------------
Information under the caption "Factors that may Affect
Future Results of Operations, Financial Condition or Business"
included in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Item 7 is incorporated
herein by reference. Such information includes a discussion of
various factors that could, among other things, affect the
Company's business in the future, including (i) variations in the
Company's quarterly operating results; (ii) volatility of the
Company's stock price; (iii) market risk of investments; (iv)
changes in the healthcare industry; (v) significant competition;
(vi) the Company's proprietary technology may be subjected to
infringement claims or may be infringed upon; (vii) possible
regulation of the Company's software by the U.S. Food and Drug
Administration or other government regulation; (viii) the
possibility of product-related liabilities; (ix) risks and
uncertainties related to the Year 2000; (x) possible failures or
defects in the performance of the Company's software; and (xi)
the possibility that the Company's anti-takeover defenses could
delay or prevent an acquisition of the Company.
Item 2. Properties
The Company's offices are located in a Company-owned office
park in North Kansas City, Missouri, containing approximately
500,000 square feet of useable space. As of January 2, 1999, the
Company was using approximately 434,000 square feet and
substantially all of the remainder was leased to tenants. The
Company also leases office space for its branch offices in
Atlanta, Boston, Dallas, Detroit, Los Angeles and Washington D.C.
Item 3. Legal Proceedings
The Company is not involved in any material pending
litigation.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the stockholders of
the Company during the fourth quarter of the fiscal year ended
January 2, 1999.
10
<PAGE>
Item 4A. Executive Officers of the Company
The following table sets forth the names, ages, positions
and certain other information regarding the Company's executive
officers as of April 1, 1999. Officers are elected annually and
serve at the discretion of the board of directors.
<TABLE>
Name Age Positions
- ---- --- ---------
<S> <C> <C>
Neal L. Patterson 49 Chairman of the Board of Directors,
Chief Executive Officer and President
Clifford W. Illig 48 Vice Chairman of the Board of Directors
Glenn P. Tobin, Ph.D. 37 Executive Vice President and
Chief Operating Officer
Jack A. Newman, Jr. 51 Executive Vice President
Paul M. Black 40 Senior Vice President and
Chief Sales Officer
Robert C. Dieterle 48 Senior Vice President and
General Manager
Alan D. Dietrich 36 Senior Vice President
Stephen M. Goodrich 47 Senior Vice President
Douglas M. Krebs 41 Senior Vice President and
Area Manager
Marvin G. Pember 45 Senior Vice President and
General Manager
Thomas C. Tinstman, M.D. 53 Senior Vice President and
Chief Medical Officer
Marc G. Naughton 44 Vice President and
Chief Financial Officer
Stanley M. Sword 37 Vice President and
Chief People Officer
Jeffrey A. Townsend 35 Vice President and
Chief Engineering Officer
</TABLE>
11
<PAGE>
Neal L. Patterson has been Chairman of the Board of
Directors and Chief Executive Officer of the Company for more
than five years. Mr. Patterson was appointed President of the
Company in March of 1999.
Clifford W. Illig has been a Director of the Company for
more than five years. He also served as Chief Operating Officer
of the Company for more than five years until October, 1998 and
as President of the Company for more than five years until March
of 1999. Mr. Illig was appointed Vice Chairman of the Board of
Directors in March of 1999.
Glenn P. Tobin, Ph.D. joined the Company in early 1998 as
General Manager and Senior Vice President. On October 29, 1998,
Dr. Tobin was appointed Executive Vice President and Chief
Operating Officer. Prior to joining the Company, Dr. Tobin
served as a senior consultant with McKinsey and Co., Inc. for
more than five years.
Jack A. Newman, Jr. joined the Company in January 1996 as
Executive Vice President. Prior to joining the Company, he was
with KPMG LLP for 22 years. Immediately prior to joining Cerner
he was National Partner-in-Charge of KPMG's Health Care Strategy
Practice.
Paul M. Black joined the Company in March, 1994 as a
Regional Vice President. He was promoted in December 1998 to his
current position. Prior to joining Cerner, he spent twelve years
with IBM Corporation.
Robert C. Dieterle joined the Company in July, 1995 as
Senior Vice President and General Manager. Prior to joining
Cerner, he spent over 20 years in a variety of executive health
care positions throughout the country.
Alan D. Dietrich joined the Company in 1990 as Director of
Business, Planning and Development. In January 1994 he was
promoted to Senior Vice President.
Stephen M. Goodrich joined the Company in October 1987 as a
project leader in the product organization. In 1992 he was
promoted to Vice President and was promoted to Senior Vice
President effective April 1, 1999.
Douglas M. Krebs joined the Company in June 1994 as Regional
Vice President. He was promoted to Senior Vice President and
Area Manager effective April 1, 1999. Prior to joining Cerner,
he spent 15 years with IBM Corporation.
Marvin G. Pember joined the Company in April, 1998 in his
current role. Prior to joining Cerner, he served as Chief
Financial Officer and Managing Director for Integris Health in
Oklahoma City for more than five years.
Thomas C. Tinstman, M.D. joined the Company in November 1995
as Senior Vice President and Chief Medical Officer and has been a
Director of the Company since May 1989. Prior to joining the
Company, Dr. Tinstman was Director of Medical Informatics with
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.
Marc G. Naughton joined the Company in November 1992 as
Manager of Taxes. In November 1995 he was elected Chief
Financial Officer and in February 1996 he was promoted to Vice
President.
12
<PAGE>
Stanley M. Sword joined Cerner in July 1998 in his current
role. Prior to joining Cerner, he served as a client partner in
the outsourcing practice of AT&T Solutions for more than five
years.
Jeffrey A. Townsend joined the Company in June 1985. Since
that time he has held several positions in the product
organization and was promoted to Vice President in February 1997.
He was appointed Chief Engineering Officer in March 1998.
13
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Security
Holder Matters
The Company's common stock trades on The NASDAQ Stock
MarketSM under the symbol CERN. The following table sets forth
the high, low, and last sales prices for the fiscal quarters of
1998 and 1997 as reported by The NASDAQ National Market System.
<TABLE>
1998 1997
-------------------------------- ----------------------------
High Low Last High Low Last
_________ ________ _________ _______ _______ _______
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First quarter 24 9/16 19 1/16 21 15/16 16 1/4 13 1/4 13 1/4
Second quarter 29 15/16 20 7/8 27 7/8 22 1/8 11 7/8 21 3/8
Third quarter 31 7/16 22 22 5/8 32 7/8 20 3/4 25
Fourth quarter 27 1/16 20 1/2 26 3/4 30 1/2 20 1/4 22
</TABLE>
At February 3, 1999, there were approximately 1,300 owners
of record. To date, the Company has paid no dividends and it
does not intend to pay dividends in the foreseeable future.
Management believes it is in the stockholders' best interest to
reinvest funds in the operation of the business.
Item 6. Selected Financial Data
<TABLE>
1998(1) 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Earnings Data:
Revenues $ 330,902 245,057 189,107 186,901 155,917
Operating earnings 38,568 22,170 10,601 37,256 33,779
Earnings before income taxes 38,306 24,484 12,902 37,220 32,451
Net earnings 23,687 15,148 8,251 22,521 19,501
Earnings per share:
Basic .72 .46 .25 .75 .71
Diluted .70 .45 .25 .72 .66
Weighted average shares
outstanding:
Basic 32,825 32,881 32,729 29,845 27,651
Diluted 33,667 33,667 33,620 31,448 29,762
Balance Sheet Data:
Working capital $ 118,681 156,808 171,204 174,064 52,370
Total assets 436,485 331,781 314,753 303,945 156,410
Long-term debt, net 25,000 30,026 30,000 30,104 30,235
Stockholders'equity 271,143 233,747 230,735 221,374 85,777
</TABLE>
(1) 1998 Statement of Earnings Data excludes acquisition related charges.
14
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
____________
1998 reflected major accomplishments that will provide long-
term financial and strategic benefits for the Company, but also
included disappointments in bookings and stock performance
despite a 35% increase in revenues and 56% increase in net
earnings (excluding acquisition related charges) as compared to
1997. Most notably, the Company completed the major development
cycle of HNA Millennium. The Company believes HNA Millennium
provides a significant competitive advantage because it utilizes
the only fully integrated, large-scale, enterprise-wide
architecture in the industry and thus can deliver a superior
combination of functionality, efficiency, cost-containment and
quality control through intrarelated clinical and management
information systems.
The Company is now effectively positioned to meet the
complex needs of a dynamic and consolidating health-care industry
that requires sophisticated, powerful and comprehensive solutions
to information sharing and process automation. Many analysts
expect that the overall health information marketplace will grow
at least 20% per year for the next five years following the
millennium. The Company expects that the clinical information
segments of this marketplace will grow even faster. With over 30
product lines currently in HNA Millennium, which will grow over
the next few years, the Company believes it can sustain its
technological leadership and capitalize on this opportunity.
These 30 product lines will include, early in 2000, patient
accounting and other business and management systems, where the
Company currently has no or limited market share.
In the fourth quarter of 1998, the Company licensed a broad
set of HNA Millennium applications to Synetic Healthcare
Communications, Inc. ("SHC") which is focused on clinical e-
commerce through an Internet platform that connects payers,
physicians and patients. In exchange for granting this license
and entering into related marketing and other agreements, the
Company received 19.9% of SHC's common stock which the Company
valued at $70 million. In November of 1998, the Company entered
into an agreement with GE Medical Systems division of General
Electric Company ("GE") to develop and market the next generation
of solutions in the radiology suite that combines the Company's
leadership in radiology information systems with GE's leadership
in radiology imaging systems and picture archival communication
systems. These alliances create the potential to leverage the
Company's access to customers, emerging markets and technology.
The Company's human resources were augmented significantly
during 1998. The Company recruited and promoted a number of
talented executives to its senior management team last year,
including: Jeff Townsend, Chief of Engineering; Glenn Tobin,
Chief Operating Officer; Marvin Pember, responsible for provider-
based and managed cared Enterprise Business Units; Stan Sword,
Chief People Officer; and Paul Black, promoted to Chief Sales
Officer. The Company also added approximately 550 associates.
The Company's ability to recruit and retain such talent was
recognized in 1998 by Fortune Magazine with its award as "One of
the Top 100 Companies" to work for in the United States. The
quality and service-orientation of our associates was also
validated by external surveys which identified the Company as the
"Best Telephone Support" provider in the industry.
Despite the many positive developments that occurred in
1998, the Company was disappointed with its financial
performance. The Company did not fully anticipate the decrease
in demand for large-scale systems within the health care industry
resulting from the diversion of capital and human resources to
solve Year 2000 compliance issues. It is currently expected that
this decline in demand will likely persist during 1999 as
customers continue to focus on efforts to update their current
systems to become Year 2000 compliant. However, after January 1,
2000, the Company expects that this problem will quickly
dissipate. Sales of enterprise wide systems were negatively
impacted during 1998 because the Company
15
<PAGE>
did not have a large, complex reference site using significant
portions of HNA Millenium applications until January of 1999.
While the Company is quite optimistic about its financial
performance heading into the new millennium, it is taking a
conservative view for 1999. This cautiousness is predicated
primarily on the continued uncertainty that Year 2000 compliance
issues create for the buyers of health care information systems.
Nevertheless, the Company believes that its revenues and earnings
will exceed those of 1998. Earnings from implementation services
are expected to increase as more projects are billed under a
closely-scoped fee-for-service approach. Approximately 43% of
the aggregate backlog of $468,418,000 is expected to be
recognized as revenues during 1999.
Results of Operations
- ---------------------
Year Ended January 2, 1999, Compared to Year Ended January 3, 1998
The Company's revenues increased 35% to $330,902,000 in 1998
from $245,057,000 in 1997. Net earnings increased 36% to
$20,589,000 in 1998 from $15,148,000 in 1997. Excluding
acquisition related charges, net earnings increased 56% to
$23,687,000 in 1998 relative to 1997.
Revenues
- -------- - In 1998, revenues increased due to an increase in
system sales and support of installed systems. System sales
increased 44% to $245,490,000 in 1998 from $170,906,000 in 1997.
This increase in system sales resulted primarily from an increase
in installations under Health Network Architecture (HNA)
contracts. Revenue from HNA contracts increased 23% compared to
1997. The sale of additional hardware and software products to
the installed client base increased 30% in 1998 as compared to
1997.
Total sales to the installed base in 1998, including new systems,
incremental hardware and software, support and maintenance
services, and discrete services, were 69% of total revenues in
1998 compared to 73% in 1997. The lower percentage was primarily
due to the increase in system sales to new clients.
At January 2, 1999, the Company had $314,965,000 in contract
backlog and $153,453,000 in support and maintenance backlog,
compared to $198,274,000 in contract backlog and $132,842,000 in
support and maintenance backlog at the end of 1997.
Support and maintenance revenues increased 12% in 1998 compared
to 20% in 1997. These revenues represented 23% of 1998 total
revenues and 28% of 1997 total revenues. The lower percentage was
primarily due to the increase in system sales.
Other revenues increased 59% to $8,657,000 in 1998 from
$5,438,000 in 1997. This increase was due primarily to services
performed beyond contracted requirements for existing clients.
Cost of Revenues
- ---------------- - The cost of revenues includes the cost of
computer hardware and sublicensed software purchased from
computer and software manufacturers for delivery to clients. It
also includes the cost of hardware maintenance and sublicensed
software support subcontracted to the manufacturers. The cost of
revenues was 27% of total revenues in 1998 and 29% of total
revenues in 1997. Such costs, as a percent of revenues,
typically have varied as the mix of revenue (software, hardware,
services and support) components carrying different margin rates
changes from period to period. The decrease in the cost of
revenue as a percent of total revenues resulted principally from
a decrease in the percent of revenue from computer hardware and
sublicensed software, which carry a higher cost of revenue
percentage.
Sales and Client Service
- ------------------------ - Sales and client service expenses
include salaries of client service personnel, communications
expenses, and unreimbursed travel expenses. Also included are
sales and marketing
16
<PAGE>
salaries, travel expenses, trade show costs,
and advertising costs. These expenses as a percent of total
revenues were 35% in 1998 and 34% in 1997. The increase in total
sales and client service expenses is attributable to the cost of
a larger field sales and services organization and marketing of
new products.
Software Development
- -------------------- - Software development expenses include
salaries, documentation, and other direct expenses incurred in
product development and amortization of software development
costs. Total expenditures for software development, including
both capitalized and noncapitalized portions, for 1998 and 1997
were $74,159,000 and $54,524,000, respectively. These amounts
exclude amortization. Capitalized software costs were
$25,052,000 and $18,373,000 for 1998 and 1997, respectively. The
increase in aggregate expenditures for software development in
1998 is due to development of HNA Millennium products and
development of community care products.
General and Administrative
- -------------------------- - General and administrative expenses
include salaries for corporate, financial, and administrative
staffs, utilities, communications expenses, and professional
fees. These expenses as a percent of total revenues were 8% in
1998 and 9% in 1997.
Write-off of In-Process Research and Development
- ------------------------------------------------ - Write-off of
in-process research and development is a one-time expense
resulting from the acquisition of Multum.
Interest Income (Expense), Net
- ------------------------------ - Net interest expense was
$262,000 in 1998 compared to net interest income of $2,314,000
in 1997. The decrease is due primarily to a decrease in invested
cash.
Income Taxes
- ------------ - The Company's effective tax rate was 38% in 1998
and 1997.
Year Ended January 3, 1998, Compared to Year Ended December 28, 1996
The Company's revenues increased 30% to $245,057,000 in 1997
from $189,107,000 in 1996. Net earnings increased 84% to
$15,148,000 in 1997 from $8,251,000 in 1996. Net earnings from
the Company's foreign operations decreased to $2,389,000 in 1997
from $2,897,000 in 1996.
Revenues
- -------- - In 1997, revenues increased due to an increase in
system sales and support of installed systems. System sales
increased 39% to $170,906,000 in 1997 from $122,836,000 in 1996.
This increase in system sales resulted primarily from an increase
in installations under Health Network Architecture (HNA)
contracts. HNA contracts were 57% of total systems sales in
1997, compared to 43% in 1996. The sale of additional hardware
and software products to the installed client base decreased 8%
in 1997 as compared to 1996.
Total sales to the installed base in 1997, including new systems,
incremental hardware and software, support and maintenance
services, and discrete services, were 73% of total revenues in
1997 compared to 79% in 1996. The lower percentage was primarily
due to the increase in system sales to new clients.
At January 3, 1998, the Company had $198,274,000 in contract
backlog and $132,842,000 in support and maintenance backlog,
compared to $110,330,000 in contract backlog and $107,255,000 in
support and maintenance backlog at the end of 1996.
Support and maintenance revenues increased 20% in 1997 compared
to 16% in 1996. This increase was due primarily to the increase
in the Company's installed and converted client base. These
revenues represented 28% of 1997 total revenues and 30% of 1996
total revenues.
Other revenues decreased 38% to $5,438,000 in 1997 from
$8,841,000 in 1996. This decrease was due primarily to a
decrease in real estate lease revenues from the rental to outside
tenants, as the Company utilizes more office space, and the
reporting of certain services revenue as system sales in 1997.
17
<PAGE>
Cost of Revenues
- ---------------- - 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 the manufacturers. The cost of
revenues was 29% of total revenues in 1997 and 31% of total
revenues in 1996. Such costs, as a percent of revenues,
typically have varied as the mix of revenue (software, hardware,
services and support) components carrying different margin rates
changes from period to period. The decrease in the cost of
revenue as a percent of total revenues resulted principally from
a decrease in the percent of revenue from computer hardware and
sublicensed software, which carry a higher cost of revenue
percentage.
Sales and Client Service
- ------------------------ - Sales and client service expenses
include salaries of client service personnel, communications
expenses, and unreimbursed travel expenses. Also included are
sales and marketing salaries, travel expenses, trade show costs,
and advertising costs. These expenses as a percent of total
revenues were 34% in 1997 and 1996. The increase in total sales
and client service expenses is attributable to the cost of a
larger field sales and services organization and marketing of new
products.
Software Development
- -------------------- - Software development expenses include
salaries, documentation, and other direct expenses incurred in
product development and amortization of software development
costs. Total expenditures for software development, including
both capitalized and noncapitalized portions, for 1997 and 1996
were $54,524,000 and $43,133,000, respectively. These amounts
exclude amortization. Capitalized software costs were
$18,373,000 and $13,240,000 for 1997 and 1996, respectively. The
increase in aggregate expenditures for software development in
1997 is due to development of HNA Millennium products and
development of community care products.
General and Administrative
- -------------------------- - General and administrative expenses
include salaries for corporate, financial, and administrative
staffs, utilities, communications expenses, and professional
fees. These expenses as a percent of total revenues were 9% in
1997 and 10% in 1996.
Interest Income, Net
- -------------------- - Net interest income was $2,314,000 in
1997 compared to $2,301,000 in 1996.
Income Taxes
- ------------ - The Company's effective tax rates were 38% and 36%
for 1997 and 1996, respectively. The lower 1996 tax rate is due
to the utilization of foreign net operating losses.
Liquidity and Capital Resources
- -------------------------------
The Company had total cash and cash equivalents of
$42,658,000 at the end of 1998 and working capital of
$118,681,000, compared to cash and cash equivalents of
$77,543,000 at the end of 1997, and working capital of
$156,808,000. The decrease in working capital resulted primarily
from the Company's investment in software development, the
purchase of capital equipment and the acquisition of Multum. In
November 1998, the Company sold 670,000 shares of common stock to
General Electric Company, which resulted in cash proceeds of
$14,874,000.
The Company generated cash of $5,893,000, $18,692,000, and
$28,262,000 from operations in 1998, 1997, and 1996,
respectively. Cash flow from operations decreased in 1998 and
1997, due primarily to increases in receivables from increased
revenues, and, in 1998 from non-cash consideration received for
the sale of license software.
Revenues provided under support and maintenance agreements
represent recurring cash flows. Support and maintenance revenues
increased 12%, 20%, and 16%, in 1998, 1997, and 1996,
respectively, and the Company expects these revenues to continue
to grow as the base of installed systems grows.
The Company's liquidity is influenced by many factors,
including the amount and timing of the Company's revenues, its
cash collections from its clients as implementation of its
products proceed and
18
<PAGE>
the amounts the Company invests in software development and
capital expenditures. The Company's liquidity has decreased
over the three year period ended January 2, 1999 due primarily
to increased investment in software development and increase
in receivables due to increased sales. The Company expects
that its cash position will decrease during the first half of
1999 as it continues its investment in software development,
but the Company expects to have an increase in its cash position
for the fourth quarter of 1999. The Company believes that its
present cash position, together with cash generated from operations,
will be sufficient to meet anticipated cash requirements during 1999.
The Company has an $18,000,000 line of credit available but may
obtain additional debt capital in order to provide greater
financial flexibility.
The effects of inflations were minimal on the Company's
business.
Factors that may Affect Future Results of Operations, Financial
- ---------------------------------------------------------------
Condition or Business
- ---------------------
Statements made in this report, other reports and proxy
statements filed with the Securities and Exchange Commission,
communications to stockholders, press releases and oral
statements made by representatives of the Company that are not
historical in nature, or that state the Company's or management's
intentions, hopes, beliefs, expectations, or predictions of the
future, are "forward-looking statements" within the meaning of
Section 21E of the Securities and Exchange Act of 1934, as
amended, and involve risks and uncertainties. The words
"should," "will be," "intended," "continue," "believe," "may,"
"expect," "hope," "anticipate," "goal," "forecast" and similar
expressions are intended to identify such forward-looking
statements. It is important to note that any such performance,
and actual results, financial condition or business could differ
materially from those expressed in such forward-looking
statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed
below as well as those discussed elsewhere in reports filed with
the Securities and Exchange Commission. The Company undertakes
no obligation to update or revise forward-looking statements to
reflect changed assumptions, the occurrence of unanticipated
events or changes in future operating results, financial
condition or business over time.
Quarterly Operating Results May Vary
- ------------------------------------ - The Company's quarterly
operating results have varied in the past and may continue to
vary in future periods. Quarterly operating results may vary for
a number of reasons including demand for the Company's products
and services, the Company's long sales cycle, the long
installation and implementation cycle for these larger, more
complex and costlier systems and other factors described in this
section and elsewhere in this report. As a result of healthcare
industry trends and the market for the Company's HNA Millennium
products, a large percentage of the Company's revenues are
generated by the sale and installation of larger, more complex
and costlier systems. The sales process for these systems is
lengthy and involves a significant technical evaluation and
commitment of capital and other resources by the customer. The
sale may be subject to delays due to customers' internal budgets
and procedures for approving large capital expenditures and by
competing needs for other capital expenditures and deploying new
technologies or personnel resources. Delays in the expected sale
or installation of these large contracts may have a significant
impact on the Company's anticipated quarterly revenues and
consequently its earnings, since a significant percentage of the
Company's expenses are relatively fixed.
These larger, more complex and costlier systems are installed and
implemented over time periods ranging from approximately nine
months to three years and involve significant efforts both by the
Company and the client. In addition, implementation of the
Company's Millennium products is a new and evolving process. The
Company recognizes revenue upon the completion of standard
milestone conditions and the amount of revenue recognized in any
quarter depends upon the Company's and the client's ability to
meet these project milestones. Delays in meeting these milestone
conditions or modification of the contract relating to one or
more of these systems could result in a shift of revenue
recognition from one quarter to another and could have a material
adverse effect on results of operations for a particular quarter.
In addition, support payments by clients for the Company's
products do not commence until the product is in use.
19
<PAGE>
The Company's revenues from system sales historically have been
lower in the first quarter of the year and greater in the fourth
quarter of the year.
Stock Price May Be Volatile
- --------------------------- - The trading price of the
Company's common stock may be volatile. The market for the
Company's common stock may experience significant price and
volume fluctuations in response to a number of factors including
actual or anticipated quarterly variations in operating results,
changes in expectations of future financial performance or
changes in estimates of securities analysts, governmental
regulatory action, healthcare reform measures, client
relationship developments and other factors, many of which are
beyond the Company's control.
Furthermore, the stock market in general, and the market for
software, healthcare and high technology companies in particular,
has experienced extreme volatility that often has been unrelated
to the operating performance of particular companies. These
broad market and industry fluctuations may adversely affect the
trading price of the Company's common stock, regardless of actual
operating performance.
Market Risk of Investments
- -------------------------- - The Company accounts for its
investments in equity securities which have readily determinable
fair values as available-for sale. Available-for-sale securities
are reported at fair value with unrealized gains and losses
reported, net of tax, as a separate component of accumulated
other comprehensive income. Investments in other equity
securities are reported at cost. All equity securities are
reviewed by the Company for declines in fair value. If such
declines are considered to be other than temporary, the cost
basis of the individual security is written down to fair value as
a new cost basis, and the amount of the write-down is included in
earnings.
Included in the Company's investments is the ownership of 19.9%
of the common stock of Synetic Healthcare Communications, Inc.
("SHC"). There is no current market for this common stock and it
is not accounted for as available-for-sale. As a result, the
stock was valued at $70,000,000 based on a methodology which
utilized both a comparable company and the expected underlying
discounted future cash flows. The common stock is subject to
certain lock-up provisions. A permanent impairment in the value
of SHC stock would result in a charge to earnings in either the
then current or future periods. There would be no effect on cash
flows because the revenue was earned through contractual rights
granted in exchange for SHC stock. An increase in the value of
the SHC stock would have no effect on reported earnings.
Synetic, Inc., the parent of SHC, has publicly announced that SHC
plans to conduct an initial public offering of its shares. The
Company has agreed to purchase additional SHC shares in that
offering which may maintain its proportionate ownership of SHC.
The Company has not engaged in equity swaps or other hedging
techniques to manage the equity risk inherent in the SHC shares.
The Company is exposed to market risk from changes in marketable
securities (which consist of money market and commercial paper).
At January 2, 1999, marketable securities of the Company were
recorded at a fair value of approximately $43 million, with an
overall average return of approximately 5% and an overall
weighted maturity of less than 90 days. The marketable
securities held by the Company are not subject to price risk as
they are held to maturity.
The Company is not exposed to material future earnings or cash
flow exposures from changes in interest rates on long-term debt
since 100% of its long-term debt is at a fixed rate. To date,
the Company has not entered into any derivative financial
instruments to manage interest rate risk and is currently not
evaluating the future use of any such financial instruments.
The Company conducts business in several foreign jurisdictions.
However, the business transacted is in the local functional
currency and the Company does not currently have any material
exposure to foreign currency transaction gains or losses. All
other business transactions are in U.S. dollars. To date, the
Company has not entered into any derivative financial instrument
to manage foreign currency risk and is currently not evaluating
the future use of any such financial instruments.
20
<PAGE>
Changes in the Healthcare Industry
- ---------------------------------- - The healthcare industry is
highly regulated and is subject to changing political, economic
and regulatory influences. For example, The Balanced Budget Act
of 1997 (Public Law 105-32) contains significant changes to
Medicare and Medicaid and began to have its initial impact in
1998 due to limitations on reimbursement, resulting cost
containment initiatives, and effects on pricing and demand for
capital intensive systems. These factors affect the purchasing
practices and operation of healthcare organizations. Federal and
state legislatures have periodically considered programs to
reform or amend the U.S. healthcare system at both the federal
and state level and to change healthcare financing and
reimbursement systems. These programs may contain proposals to
increase governmental involvement in healthcare, lower
reimbursement rates or otherwise change the environment in which
healthcare industry participants operate. Healthcare industry
participants may respond by reducing their investments or
postponing investment decisions, including investments in the
Company's products and services.
Many healthcare providers are consolidating to create integrated
healthcare delivery systems with greater market power. These
providers may try to use their market power to negotiate price
reductions for the Company's products and services. As the
healthcare industry consolidates, the Company's customer base
could be eroded, competition for customers could become more
intense and the importance of acquiring each customer becomes
greater.
Significant Competition
- ----------------------- - The market for healthcare information
systems is intensely competitive, rapidly evolving and subject to
rapid technological change. The Company believes that the
principal competitive factors in this market include the breadth
and quality of system and product offerings, the stability of the
information systems provider, the features and capabilities of
the information systems, the ongoing support for the system, and
the potential for enhancements and future compatible products.
Certain of the Company's competitors have greater financial,
technical, product development, marketing and other resources
than the Company and some of its competitors offer products that
it does not offer. The Company's principle existing competitors
include Shared Medical Systems Corporation, IDX Systems
Corporation, McKesson HBOC, Inc. and Eclipsys Corporation, each
of which offers a suite of products that compete with many of the
Company's products. There are other competitors that offer a
more limited number of competing products.
In addition, the Company expects that major software information
systems companies, large information technology consulting
service providers and system integrators, Internet-based start-up
companies and others specializing in the healthcare industry may
offer competitive products or services. The pace of change in
the healthcare information systems market is rapid and there are
frequent new product introductions, product enhancements and
evolving industry standards and requirements. As a result, the
Company's success will depend upon its ability to keep pace with
technological change and to introduce, on a timely and cost-
effective basis, new and enhanced products that satisfy changing
customer requirements and achieve market acceptance.
Proprietary Technology May Be Subjected to Infringement Claims or
- -----------------------------------------------------------------
May Be Infringed Upon
- --------------------- - The Company relies upon a combination of
trade secret, copyright and trademark laws, license agreements,
confidentiality procedures, employee nondisclosure agreements and
technical measures to maintain the trade secrecy of its
proprietary information. The Company has not historically filed
patent applications or copyrights covering its software
technology. As a result, the Company may not be able to protect
against misappropriation of its intellectual property.
In addition, the Company could be subject to intellectual
property infringement claims as the number of competitors grows
and the functionality of its products overlaps with competitive
offerings. These claims, even if not meritorious, could be
expensive to defend. If the Company becomes liable to third
parties for infringing their intellectual property rights, it
could be required to pay a substantial damage award and to
develop noninfringing technology, obtain a license or cease
selling the products that contain the infringing intellectual
property.
21
<PAGE>
Government Regulation
- --------------------- - 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. If
other of the Company's products are deemed to be medical devices
by the FDA, the Company could be subject to extensive
requirements governing pre- and post- marketing conditions, such
as device investigation, approval, labeling and manufacturing.
Complying with these FDA regulations would be time consuming,
burdensome and expensive. The Company expects that the FDA is
likely to become more active in regulating computer software that
is used in healthcare.
Following an inspection by the FDA in March of 1998, the Company
received a two-item Form FDA 483 (Notice of Inspectional
Observations) containing observations of non-compliance with the
Federal Food, Drug and Cosmetic Act (the "Act") with respect to
the Company's PathNet HNA Blood Bank Transfusion and Donor
products (the "Blood Bank Products"). The Company subsequently
received a Warning Letter, dated April 29, 1998, as a result of
the same inspection. The Company responded promptly to the FDA
and undertook a number of actions in response to the Form 483 and
Warning Letter, including an audit by a third party of the
Company's Blood Bank Products. A copy of the third party audit
was submitted to the FDA in October of 1998 and, at the request
of the FDA, additional information and clarification was
submitted to the FDA in January of 1999.
There can be no assurance, however, that the Company's actions
taken in response to the Form 483 and Warning Letter will be
deemed adequate by the FDA or that additional actions on behalf
of the Company will not be required. In addition, the Company
remains subject to periodic inspections and there can be no
assurances that the Company will not be required to undertake
additional actions to comply with the Act and any other
applicable regulatory requirements. Any failure by the Company
to comply with the Act and any other applicable regulatory
requirements could have a material adverse effect on the
Company's ability to continue to manufacture and distribute its
products, and in more serious cases, could result in seizure,
recall, injunction and/or civil fines. Any of the foregoing
would have a material adverse effect on the Company's business,
results of operations or financial condition.
Product Related Liabilities
- --------------------------- - Many of the Company's products
provide data for use by healthcare providers in providing care to
patients. Although no such claims have been brought against the
Company to date regarding injuries related to the use of its
products, such claims may be made in the future. Although the
Company maintains product liability insurance coverage in an
amount that it believes is sufficient for its business, there can
be no assurance that such coverage will prove to be adequate or
that such coverage will continue to remain available on
acceptable terms, if at all. A successful claim brought against
the Company which is uninsured or under-insured could materially
harm its business, results of operations or financial condition.
Year 2000
- --------- - The following statements are a "Year 2000 Readiness
Disclosure" within the meaning of the Year 2000 Information and
Readiness Disclosure Act. Computer programs that use two digits
to identify a year may fail or create errors in the year 2000,
leading to system failures or miscalculations causing disruptions
to the operations of the user. The Company has conducted a Year
2000 review of its operations focusing on the Company's products
and their use by its clients, the computers, operating systems
and data bases used in conjunction with its products and the
Company's internal operations.
The Company's software products currently being marketed are Year
2000 compliant. The costs incurred to make the Company's current
versions compliant have occurred in the ordinary course of
software development and enhancement and have not been material.
All of the Company's clients using older versions of its software
products are entitled to upgrade to the compliant versions with
no charge for the compliant version. However, some have elected
not to do so for a variety of reasons. The Company is
22
<PAGE>
working with the clients who wish to upgrade to address Year
2000 issues. These clients have either been upgraded to compliant
versions or are scheduled to be upgraded to compliant versions
of the Company's software by August 1999. The Company is assisting
those clients to upgrade using electronic access from the
Company's facilities without charge. If the client desires on-
site assistance, the Company is assessing its normal charges.
These services are being conducted in the ordinary course of the
Company's business by its employees, and the costs to the Company
are not expected to be material. The Company is also engaged in
many projects to implement its products at client sites. These
projects require efforts both by the Company and its clients.
For some of these clients, these projects constitute their
solution to Year 2000 issues. Substantially all of these
projects are planned to be completed by September 1999. The
Company is working with its clients, or the clients are working
independently, on contingency plans for Year 2000 issues where
there is a reasonable likelihood the project may not be completed
by the end of 1999.
As clients and potential customers focus on efforts to update
their current systems, they may elect to delay capital
investments in information systems in order to focus their
capital budgets on the expenditures necessary to bring their
existing systems into Year 2000 compliance. As a result, the
Company may not achieve expected sales revenues and its business,
financial condition and results of operations could be materially
adversely affected.
The Company believes that its internal third-party software
applications, operating systems and telephone systems are Year
2000 compliant. The Company did have some internally developed
software applications that required upgrading to be Year 2000
compliant. These upgrades were done internally and have been
completed. The Company has also replaced some older computers
and operating systems that were not Year 2000 compliant in the
normal course of infrastructure maintenance.
The suppliers of the computers, operating systems and data bases
necessary to operate the current versions of the Company's
software products have indicated to the Company that those
products either are Year 2000 compliant or they would be by the
end of 1999. The Company has conducted tests of such computers,
operating systems and databases with its products now being
marketed and currently has no reasonable cause to believe that
the Company's products are not Year 2000 compliant when operated
with such computers, operating systems and databases. However,
in operation at clients' sites, the Company's software products
interchange data with many third party systems through interfaces
that may be unique to the client or the third party system. Such
interfaces or data interchanged may contain inaccuracies or such
data may not be in a format that allows the Company's system to
correctly identify the date. There can be no assurance that the
Company will not be subject to claims that result from the
failure of third party systems or their related interfaces to be
Year 2000 compliant. These claims, even if not meritorious,
could be expensive to defend.
Although the Company believes its Year 2000 review and the
actions it has taken and plans to take in response to the review
are appropriate, there can be no assurance that the review
identified all possible issues or that all identified issues will
be satisfactorily resolved. A material failure of the Company's
internal systems to be Year 2000 compliant, a material failure in
suppliers of the computers, operating systems and databases used
in conjunction with the Company's products to be Year 2000
compliant or a material delay in client projects related to Year
2000 issues could have a material adverse effect on the Company's
business, results of operations or financial condition.
System Errors and Warranties
- ---------------------------- - The Company's systems,
particularly the Millennium versions, are very complex. As with
complex systems offered by others, the Company's systems may
contain errors, especially when first introduced. Although the
Company conducts extensive testing, it has discovered software
errors in its products after their introduction. The Company's
systems are intended for use in collecting and displaying
clinical information used in the diagnosis and treatment of
patients. Therefore, users of the Company products have a
greater sensitivity to system errors than the market for software
products generally. The Company's agreements with its clients
typically provide warranties against material errors and other
matters. Failure of a client's system to meet these criteria
could constitute a
23
<PAGE>
material breach under such contracts allowing the client to
cancel the contract, or could require the Company to incur
additional expense in order to make the system meet these criteria.
The Company's contract with its clients generally limit the Company's
liability arising from such claims but such limits may not be
enforceable in certain jurisdictions.
Anti-Takeover Defenses
- ---------------------- - The Company's charter, bylaws,
shareholders' rights plan and certain provisions of Delaware law
contain certain provisions that may have the effect of delaying
or preventing an acquisition of the Company. Such provisions are
intended to encourage any person interested in acquiring the
Company to negotiate with and obtain the approval of the Board of
Directors in connection with any such transaction. These
provisions include (i) a Board of Directors that is staggered
into three classes to serve staggered three-year terms, (ii)
blank check preferred stock, (iii) supermajority voting
provisions, (iv) inability of stockholders to act by written
consent or call a special meeting, (v) limitations on the ability
of stockholders to nominate directors or make proposals at
stockholder meetings, and (vi) triggering the exercisability of
stock purchase rights on a discriminatory basis, which may invoke
extensive economic and voting dilution of a potential acquirer if
its beneficial ownership of the Company's common stock exceeds a
specified threshold. Certain of these provisions may discourage
a future acquisition of the Company not approved by the Board of
Directors in which shareholders might receive a premium value for
their shares.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Information contained under the caption "Factors that may
Affect Future Results of Operations, Financial Condition or
Business -- Market Risk of Investments" set forth under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Item 7 is incorporated herein by
reference.
Item 8. Financial Statements and Supplementary Data
The Financial Statements and Notes required by this Item are
submitted as a separate part of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
24
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The Registrant's Proxy Statement to be used in connection
with the Annual Meeting of Stockholders to be held on May 28,
1999, contains under the caption "Election of Directors" certain
information required by Item 10 of Form 10-K and such information
is incorporated herein by this reference. The information
required by Item 10 of Form 10-K as to executive officers is set
forth in Item 4A of Part I hereof.
The Registrant's Proxy Statement to be used in connection
with the Annual Meeting of Stockholders to be held on May 28,
1999, contains under the caption "Compliance with Section 16(a)
of the Securities Exchange Act of 1934" certain information
required by Item 10 of Form 10-K and such information is
incorporated herein by this reference.
Item 11. Executive Compensation
The Registrant's Proxy Statement to be used in connection
with the Annual Meeting of Stockholders to be held on May 28,
1999, contains under the caption "Executive Compensation" the
information required by Item 11 of Form 10-K and such information
is incorporated herein by this reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The Registrant's Proxy Statement to be used in connection
with the Annual Meeting of Stockholders to be held on May 28,
1999, contains under the caption "Voting Securities and Principal
Holders Thereof" the information required by Item 12 of Form 10-K
and such information is incorporated herein by this reference.
Item 13. Certain Relationships and Related Transactions
The Registrant's Proxy Statement to be used in connection
with the Annual Meeting of Stockholders to be held on May 28,
1999, contains under the caption "Certain Transactions" the
information required by Item 13 of Form 10-K and such information
is incorporated herein by this reference.
25
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) Financial Statements.
(1) Consolidated Financial Statements:
Independent Auditors' Report on Consolidated Financial Statements
Consolidated Balance Sheets -
January 2, 1999 and January 3, 1998
Consolidated Statements of Earnings -
Years Ended January 2, 1999, January 3, 1998 and
December 28, 1996
Consolidated Statements of Changes In Equity
Years Ended January 2, 1999, January 3, 1998 and
December 28, 1996
Consolidated Statements of Cash Flows
Years Ended January 2, 1999, January 3, 1998 and
December 28, 1996
Notes to Consolidated Financial Statements
(2) The following financial statement,
schedule and independent auditors' report
on financial statement schedule of the
Registrant for the three-year period ended
January 2, 1999 are included herein:
Schedule II - Valuation and Qualifying Accounts,
Independent Auditors' Report on Consolidated
Financial Statement Schedule.
All other schedules are omitted, as the required
information is inapplicable or the information is presented in
the consolidated financial statements or related notes.
(3) The exhibits required to be filed by this item are set forth
below:
Number Description
- ------ -----------
3(a) Restated Certificate of Incorporation of the Registrant, (filed
as Exhibit 3(i) to Registrant's Quarterly Report on Form 10-Q
for the year ended June 29, 1996 and hereby incorporated by
reference).
3(b) Bylaws, as amended (filed as Exhibit 3 to the Registrant's
Quarterly Report on Form 10-Q for the six months ended
June 30, 1995, and hereby incorporated by reference).
26
<PAGE>
4(a) Amended and Restated Rights Agreement, dated as of March 12,
1999, between Cerner Corporation and UMB Bank, n.a., as Rights
Agents, which includes the Form of Certificate of Designation,
Preferences and Rights of Series A Preferred Stock of Cerner
Corporation, as Exhibit A, and the Form of Rights Certificate, as
Exhibit B (filed as an Exhibit to Registrant's current report on
Form 8-A/A dated March 31, 1999 and incorporated herein by
reference).
4(b) Specimen stock certificate (filed as Exhibit 4(a) to
Registrant's Registration Statement on Form S-8 (File No.
33-15156) and hereby incorporated herein by reference).
4(c) Note Agreement between Cerner Corporation, Principal Mutual Life
Insurance Company, and Principal National Life Insurance Company
dated July 1, 1994, (filed as Exhibit 10(a) to Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1994, and hereby incorporated by reference.
4(d) Credit Agreement between Cerner Corporation and Mercantile Bank
dated April 1, 1999.
10(a) Incentive Stock Option Plan C of Registrant (filed as Exhibit
10(f) to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993, and hereby incorporated herein by
reference).*
10(b) Indemnification Agreements between the Registrant and Neal L.
Patterson, Clifford W. Illig, Gerald E. Bisbee, Jr. and
Thomas C. Tinstman, (filed as Exhibit 10(i) to Registrant's
Annual report on Form 10-K for the year ended December 31, 1992,
and incorporated herein by reference).*
10(c) Indemnification Agreement between Michael E. Herman and
Registrant (filed as Exhibit 10(i)(a) to Registrant's Quarterly
Report on Form 10-Q for the year ended June 29, 1996 and hereby
incorporated by reference).*
10(d) Indemnification Agreement between John C. Danforth, and
Registrant (filed as Exhibit 10(i)(b) to Registrant's Quarterly
Report on Form 10-Q for the year ended June 29, 1996 and hereby
incorporated by reference).*
10(e) Indemnification Agreement between Thomas A. McDonnell and
Registrant (filed as Exhibit 10(i)(c) to Registrant's Quarterly
Report on Form 10-Q for the year ended June 29, 1996 and hereby
incorporated by reference).*
10(f) Amended Stock Option Plan D of Registrant (filed as Exhibit 10(g)
to Registrant's Annual Report on Form 10-K for the year ended
January 3, 1998, and hereby incorporated by reference).*
10(g) Stock Option Plan E of Registrant (filed as Exhibit 10(h) to
Registrant's Annual Report on Form 10-K for the year ended
January 3, 1998, and hereby incorporated by reference).*
10(h) Agreement for Cerner Corporation Consulting Services with
Gerald E. Bisbee, Ph.D. (filed as Exhibit 10(i) to Registrant's
Annual Report on Form 10-K for the year ended January 3, 1998,
and hereby incorporated by reference).*
10(i) Cerner Performance Plan for 1998.*
10(j) Cerner Performance Plan for 1999.*
10(k) Long-Term Incentive Plan for 1998.*
27
<PAGE>
10(l) Long-Term Incentive Plan for 1999.*
10(m) Promissory Note of Jack A. Newman, Jr.*
10(n) Promissory Note of Robert C. Dieterle.*
10(o) Promissory Note of Glenn P. Tobin.*
10(p) Promissory Note of Marvin G. Pember.*
11 Computation of Registrant's Earnings Per Share.
(Exhibit omitted. Information contained in notes to
consolidated financial statements.)
21 Subsidiaries of Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
* Management contracts or compensatory plans or arrangements required to be
identified by Item 14(a)(3).
(b) Reports on Form 8-K
A report on form 8-K was filed on March 18, 1999.
(c) Exhibits.
The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) Financial Statement Schedules.
The response to this portion of Item 14 is submitted as a separate
section of this report.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CERNER CORPORATION
Dated: April 1, 1999 By:/s/Neal L. Patterson
--------------------
Neal L. Patterson
Chairman of the Board,
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated:
Signature and Title Date
------------------- ----
/s/Neal L. Patterson April 1, 1999
- -----------------------------
Neal L. Patterson, Chairman of the Board,
Chief Executive Officer (Principal Executive Officer) and President
/s/Clifford W. Illig April 1, 1999
- -----------------------------
Clifford W. Illig, Vice Chairman and Director
/s/Marc G. Naughton April 1, 1999
- -----------------------------
Marc G. Naughton, Vice President and
Chief Financial Officer (Principal Financial and Accounting Officer)
/s/Michael E. Herman April 1, 1999
- -----------------------------
Michael E. Herman, Director
/s/Gerald E. Bisbee April 1, 1999
- ------------------------------
Gerald E. Bisbee, Jr., Director
/s/Thomas C. Tinstman April 1, 1999
- -------------------------------
Thomas C. Tinstman, M.D., Senior Vice President and Director
29
<PAGE>
/s/John C. Danforth April 1, 1999
- -------------------------------
John C. Danforth, Director
/s/Thomas A. McDonnell April 1, 1999
- -------------------------------
Thomas A. McDonnell, Director
30
<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 January 2, 1999 and
January 3, 1998, and the related consolidated statements of
earnings, changes in equity, and cash flows for each of the years
in the three-year period ended January 2, 1999. 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 January 2,
1999 and January 3, 1998, and the results of their operations and
their cash flows for each of the years in the three-year period
ended January 2, 1999, in conformity with generally accepted
accounting principles.
KPMG LLP
Kansas City, Missouri
February 3, 1999
Management's Report
- --------------------------------------------------------------------------------
The management of Cerner Corporation is responsible for the
consolidated financial statements and all other information
presented in this report. The financial statements have been
prepared in conformity with generally accepted accounting
principles appropriate to the circumstances, and, therefore,
included in the financial statements are certain amounts based on
management's informed estimates and judgments. Other financial
information in this report is consistent with that in the
consolidated financial statements. The consolidated financial
statements have been audited by Cerner Corporation's independent
certified public accountants and have been reviewed by the audit
committee of the Board of Directors.
31
<PAGE>
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
January 2, 1999 and January 3, 1998
<TABLE>
1998 1997
-------------------------
(Dollars in thousands)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 42,658 77,543
Receivables 167,374 125,516
Inventory 2,651 1,743
Prepaid expenses and other 4,234 3,553
----------- -----------
Total current assets 216,917 208,355
Property and equipment, net 77,292 65,724
Software development costs, net 54,971 40,566
Intangible assets, net 8,884 6,402
Investments, net 71,719 2,534
Other assets 6,702 8,200
----------- -----------
$ 436,485 331,781
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 14,092 11,330
Current installments of long-term debt 5,030 35
Deferred revenue 33,921 8,290
Income taxes 26,057 18,245
Accrued payroll and tax withholdings 16,625 11,610
Other accrued expenses 2,511 2,037
----------- -----------
Total current liabilities 98,236 51,547
Long-term debt, net 25,000 30,026
Deferred income taxes 22,106 16,461
Deferred revenue 20,000 --
Stockholders' Equity:
Common stock, $.01 par par value, 150,000,000 shares authorized,
34,674,164 shares issued in 1998 and
33,816,829 shares in 1997 347 338
Additional paid-in capital 165,239 148,074
Retained earnings 126,862 106,273
Treasury stock, at cost
(1,201,518 shares in 1998 and 1997) (20,796) (20,796)
Accumulated other comprehensive income:
Foreign currency translation adjustment (243) (142)
Unrealized loss on available-for-sale equity security
(net of deferred tax liability of $165) (266) --
----------- -----------
Total stockholders' equity 271,143 233,747
----------- -----------
Commitments (Note 11)
$ 436,485 331,781
=========== ===========
</TABLE>
See notes to consolidated financial statements.
32
<PAGE>
Consolidated Statements of Earnings
- --------------------------------------------------------------------------------
For the years ended January 2, 1999, January 3, 1998, and December 28, 1996
<TABLE>
1998 1997 1996
----------------------------------
(In thousands, except per share data)
<S> <C> <C> <C>
Revenues
System sales $ 245,490 170,906 122,836
Support and maintenance 76,755 68,713 57,430
Other 8,657 5,438 8,841
_________________________________
Total revenues 330,902 245,057 189,107
---------------------------------
Costs and expenses
Cost of revenues 89,544 71,943 58,892
Sales and client service 117,107 83,788 65,005
Software development 59,754 44,086 35,890
General and administrative 25,929 23,070 18,719
Write-off of acquired in-process
research and development 5,038 -- --
--------------------------------
Total costs and expenses 297,372 222,887 178,506
--------------------------------
Operating earnings 33,530 22,170 10,601
Interest income (expense), net (262) 2,314 2,301
--------------------------------
Earnings before income taxes 33,268 24,484 12,902
Income taxes 12,679 9,336 4,651
--------------------------------
Net earnings $ 20,589 15,148 8,251
================================
Basic earnings per share $ .63 .46 .25
================================
Diluted earnings per common share $ .61 .45 .25
================================
</TABLE>
See notes to consolidated financial statements.
33
<PAGE>
Consolidated Statements of Changes In Equity
- --------------------------------------------------------------------------------
For the years ended January 2, 1999, January 3, 1998, and December 28, 1996
<TABLE>
Accumulated
Additional Treasury other
Common Stock paid-in Retained stock comprehensive Comprehensive
Shares Amount capital earnings amount income income
--------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 30, 1995 33,002 $ 330 143,876 82,874 (5,693) (13)
Exercise of options 402 4 805 - - -
Tax benefit from disqualifying
disposition of stock options - - 260 - - -
Foreign currency translation adjustment - - - - - 41 41
Net earnings - - - 8,251 - - 8,251
---------------------------------------------------------------------------
Comprehensive income 8,292
===========
Balance at December 28, 1996 33,404 334 144,941 91,125 (5,693) 28
--------------------------------------------------------------
Exercise of options 311 3 978 - - -
Issuance of common stock grants as
compensation 2 - 48 - - -
Issuance of restricted commom stock 100 1 1,586 - - -
Tax benefit from disqualifying
disposition of stock options - - 521 - - -
Purchase of 688,500 shares of
treasury stock - - - - (15,148) -
Foreign currency translation
adjustment - - - - - (170) (170)
Net earnings - - - 15,148 - - 15,148
-------------------------------------------------------------------------
Comprehensive income 14,978
==========
Balance at January 3,1998 33,817 338 148,074 106,273 (20,796) (142)
------------------------------------------------------------
Exercise of options 185 2 1,248 - - -
Issuance of common stock grants as
compensation 2 - 44 - - -
Issuance of common stock 670 7 14,867 - - -
Non-employee stock option -
compensation expense - - 385 - - -
Tax benefit from disqualifying
disposition of stock options - - 621 - - -
Foreign currency translation
adjustment - - - - - (101) (101)
Unrealized loss on available-for-sale
equity security, net of deferred
tax liability of $165 - - - - - (266) (266)
Net earnings - - - 20,589 - 20,589
--------------------------------------------------------------------------
Comprehensive income 20,222
===========
Balance at January 2, 1999 34,674 $ 347 165,239 126,862 (20,796) (509)
============================================================
</TABLE>
See notes to consolidated financial statements.
34
<PAGE>
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
(In thousands) 1998 1997 1996
-----------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 20,589 15,148 8,251
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 25,411 18,075 15,498
Common stock received as consideration
for sale of license software (70,000) -- --
Write-off of acquired in-process research
and development 5,038 -- --
Issuance of common stock grants as
compensation expense 44 48 --
Non-employee stock option compensation expense 385 -- --
Equity in losses (income) of investee companies 1,601 864 (89)
Provision for deferred income taxes 15,816 8,246 2,894
Tax benefit from disqualifying
dispositions of stock options 621 521 260
Loss on disposal of capital equipment 223 110 99
Changes in assets and liabilities:
Receivables, net (39,481) (27,931) 2,376
Inventory (908) (127) 630
Prepaid expenses and other (3,970) (2,075) (340)
Accounts payable 2,620 1,984 (5,586)
Accrued income taxes (2,334) -- --
Deferred revenue 45,410 479 1,649
Other current liabilities 4,828 3,350 2,620
-------------------------------
Total adjustments (14,696) 3,544 20,011
-------------------------------
Net cash provided by operating activities 5,983 18,962 28,262
-------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of capital equipment (20,846) (14,896) (14,962)
Purchase of land, buildings, and improvements (2,767) (86) (379)
Acquisition of business (6,874) -- --
Investment in investee companies (1,217) (4,500) (1,650)
Proceeds on disposal of capital equipment -- 212 33
Capitalized software development costs (25,052) (18,373) (13,240)
-------------------------------
Net cash used in investing activities (56,756) (37,643) (30,198)
-------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt (45) (116) (130)
Proceeds from sale of common stock 14,874 -- --
Proceeds from exercise of options 1,250 981 809
Purchase of treasury stock -- (15,103) --
-------------------------------
Net cash provided by (used in) financing activities 16,079 (14,238) 679
-------------------------------
Foreign currency translation adjustment (101) (170) 41
-------------------------------
Net decrease in cash and cash equivalents (34,885) (33,359) (1,216)
Cash and cash equivalents at beginning of year 77,543 110,902 112,118
-------------------------------
Cash and cash equivalents at end of year $ 42,658 77,543 110,902
===============================
Supplemental disclosures of cash flow information
Cash paid (received) during the year for:
Interest $ 2,504 2,473 2,517
Income taxes, net of refund (2,112) 1,024 685
Noncash investing and financing activities
Acquisition of equipment through capital leases $ -- 73 --
Issuance of restricted common stock and grants 44 1,635 --
</TABLE>
See notes to consolidated financial statements.
<PAGE>
35
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1 Summary of Significant Accounting Policies
(a) Principles of Consolidation - The consolidated financial
statements include the accounts of Cerner Corporation and its
wholly owned subsidiaries (the Company). All significant
intercompany transactions and balances have been eliminated in
consolidation.
(b) Revenue Recognition - Revenues are derived primarily from
the sale of clinical information systems. The Company also
provides project implementation and consulting services. In
addition, revenue is generated from servicing installed clinical
information systems, which generally includes support of software
and maintenance of hardware. The Company also derives revenue
from the sale of computer hardware.
Clinical information system sales contracts are negotiated
separately and generally include the licensing of the Company's
clinical information system software, project-related services
associated with the installation of the systems, and the sale of
computer hardware. Clinical information system sales contracts
are noncancelable and provide for a right of return only in the
event the system fails to meet the 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 97-2,
"Software Revenue Recognition".
Revenue associated with project implementation and consulting
services is recognized as the services are performed. Revenue
from the licensing of additional software is recognized upon
installation at the client's site. Revenue from the sale of
computer hardware is recognized upon shipment. Revenue from
ongoing software support and equipment maintenance is recognized
as the services are rendered.
(c) Fiscal Year - The Company's fiscal year ends on the Saturday
closest to December 31. Fiscal year 1998, ended January 2, 1999,
consisted of 52 weeks, fiscal year 1997 consisted of 53 weeks,
and fiscal year 1996 consisted of 52 weeks. All references to
years in these notes to consolidated financial statements
represent fiscal years unless otherwise noted.
(d) 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 1998, 1997, and 1996, the Company
capitalized $25,052,000, $18,373,000, and $13,240,000,
respectively, of total software development costs of $74,159,000,
$54,524,000, and $43,133,000, respectively. Amortization
expense of capitalized software development costs in 1998, 1997,
and 1996 was $10,647,000, $7,935,000, and $5,997,000,
respectively, and accumulated amortization was $43,542,000,
$32,895,000, and $24,960,000, respectively.
(e) Cash Equivalents - Cash equivalents consist of short-term
marketable securities with original maturities less than ninety
days.
(f) Investments - The Company accounts for its investments in
equity securities which have readily determinable fair values as
available-for-sale. Available-for-sale securities are reported
at fair value with unrealized gains and losses reported, net of
tax, as a separate component of accumulated other comprehensive
income. Investments in other equity securities are reported at
cost. All equity securities are reviewed by the Company for
declines in fair value. If such declines are considered to be
other than temporary, the cost basis of the individual security
is written down to fair value as a new cost basis, and the amount
of the write-down is included in earnings.
36
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(g) Inventory - Inventory consists primarily of computer
hardware held for resale and is recorded at the lower of cost
(first-in, first-out) or market.
(h) Property and Equipment - Property, equipment, and leasehold
improvements are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over periods
of 5 to 39 years. Amortization of leasehold improvements is
computed using a straight-line method over the lease terms, which
range from periods of two to twelve years.
(i) Earnings per Common Share - Basic earnings per share
(EPS) excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or
other contracts to issue stock were exercised or converted into
common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company. A reconciliation of
the numerators and the denominators of the basic and diluted per-
share computations is as follows:
<TABLE>
(In thousands, except per share data)
1998 1997 1996
-------------------------------------------------------------------------------------------------------
Per- Per- Per-
Earnings Shares Share Earnings Shares Share Earnings Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic Earnings per share
Income available to
common stockholders $ 20,589 32,825 $ .63 15,148 32,881 $ .46 8,251 32,729 $ .25
Effect of dilutive
securities
Stock options -- 842 -- 787 -- 891
Diluted earnings
per share
Income available to
common stockholders ---------------------------------------------------------------------------------------------------
including conversions $ 20,589 33,667 $ .61 15,148 33,668 .45 8,251 33,620 $ .25
===================================================================================================
</TABLE>
Options to purchase 1,652,000, 1,149,000 and 494,000 shares
of common stock at per share prices ranging from $25.00 to
$31.00, $21.50 to $31.00, and $18.50 to $29.63 were
outstanding at the end of 1998, 1997 and 1996, respectively,
but were not included in the computation of diluted earnings
per share because the options' exercise price was greater
than the average market price of the common shares.
(j) Foreign Currency - Assets and liabilities in foreign
currencies are translated into dollars at rates prevailing
at the balance sheet date. Revenues and expenses are
translated at average rates for the year. The net exchange
differences resulting from these translations are reported
in accumulated other comprehensive income. Gains and losses
resulting from foreign currency transactions are included in
the consolidated statements of earnings. The net loss
resulting from foreign currency transactions was $673,000,
$762,000, and $274,000 in 1998, 1997, and 1996,
respectively.
(k) Income Taxes - Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are
expected to be recovered or settled.
(l) Goodwill - Excess of cost over net assets acquired
(goodwill) is being amortized on a straight-line basis over
seven to eight years. Accumulated amortization was
$4,037,000 and $2,733,000 at the end of 1998 and 1997,
respectively. The Company assesses the recoverability of
goodwill based on forecasted undiscounted future operating
cash flows.
37
<PAGE>
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
(m) Comprehensive Income - The Company adopted
statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" at the beginning of 1998.
This statement establishes requirements for reporting and
display of comprehensive income and its components. The
adoption of this statement had no effect on the previously
reported net earnings or stockholders' equity.
(n) Use of Estimates - The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
(o) Reclassifications - Certain 1997 and 1996 amounts have
been reclassified to conform with the 1998 presentations.
2 Acquisition of Business
On March 16, 1998, the Company purchased all of the
outstanding common stock of Multum Information Systems,
Inc., (Multum) for $6.9 million. Multum is a supplier to
the healthcare industry of drug knowledge databases and
intelligent software components designed to improve the
quality and cost-effectiveness of medical care. The Company
plans to incorporate Multum's drug information and expert
dosing component into its Health Network Architecture
Millennium solutions to enable Multum's expert knowledge to
become executable within the process of care delivery.
The acquisition has been accounted for using the purchase
method of accounting with the operating results of Multum
included in the Company's consolidated statement of earnings
since the date of acquisition. Approximately $5,000,000 of
the purchase price was allocated to in-process research and
development that had not reached technological feasibility
and was treated as a one-time charge to earnings reducing
after tax income for 1998 by $3.1 million or $.09 per share
on a diluted basis. This acquisition would not have
materially affected revenues, net earnings, or earnings per
share on a pro forma basis for any period presented.
The acquired in-process research and development related to
Multum's component based, drug information software
development kit (SDK) for use in clinical information
systems. Its components are designed for use in a variety
of configurations and to provide complete control over the
retrieval of drug information from Multum's knowledge
databases. SDK was approximately 80% complete at the time
of the acquisition. When Multum was acquired, it was
projected that SDK would be completed in 12-18 months at an
estimated cost of $1.9 million. The risks associated with
completing SDK are like any other software development
project and include changes in technology and competition.
The SDK project was valued using the income approach with
the following assumptions: material net cash inflows are
expected to commence in 2000; no material changes from
historical pricing, margins or expense levels are
anticipated; and, a 20% risk adjusted discount rate was
applied to estimated net cash flows. SDK was approximately
90% complete at the end of 1998; management expects it to be
completed in 1999.
The allocation of the purchase price to the estimated fair
values of the identified tangible and intangible assets
acquired and liabilities assumed, resulted in goodwill of
$1,581,000. The goodwill is being amortized straight-line
over seven years.
38
<PAGE>
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
3 Receivables
Receivables consist of accounts receivable and contracts
receivable. Accounts receivable represent recorded revenues
that have been billed. Contracts receivable represent
recorded revenues that are billable by the Company at future
dates under the terms of a contract with a client. Billings
and other consideration received on contracts in excess of
related revenues recognized under the percentage-of-
completion method are recorded as deferred revenue. A
summary of receivables is as follows:
<TABLE>
(In thousands) 1998 1997
---------------------
<S> <C> <C>
Accounts receivable $ 72,747 54,908
Contracts receivable 94,627 70,608
---------- ---------
Total receivables $ 167,374 125,516
========== =========
</TABLE>
Substantially all receivables are derived from sales and
related support and maintenance of the Company's clinical
information systems to healthcare providers located
throughout the United States and in certain foreign
countries. Included in receivables at the end of 1998 and
1997 are amounts due from healthcare providers located in
foreign countries of $12,071,000 and $9,950,000,
respectively. Consolidated revenues include foreign sales
of $17,545,000, $16,272,000, and $15,874,000, during 1998,
1997, and 1996, respectively. Consolidated long-lived
assets at the end of 1998 and 1997, include foreign long-
lived assets of $290,000 and $265,000, respectively.
Revenues and long-lived assets from any one foreign country
are not material.
The Company provides an allowance for estimated
uncollectible accounts based upon historical experience and
management's judgment. At the end of 1998 and 1997 the
allowance for estimated uncollectible accounts was
$3,405,000 and $1,490,000, respectively.
4 Property and Equipment
A summary of property, equipment, and leasehold improvements
stated at cost, less accumulated depreciation and
amortization, is as follows:
<TABLE>
(In thousands) 1998 1997
----------------------
<S> <C> <C>
Furniture and fixtures $ 19,153 17,496
Computer and communications equipment 59,280 41,898
Marketing equipment 1,913 1,222
Leasehold improvements 13,543 10,803
Capital lease equipment 713 673
Land, buildings, and improvements 32,437 29,669
---------- -----------
127,039 101,761
Less accumulated depreciation and amortization 49,747 36,037
---------- -----------
Total property and equipment, net $ 77,292 65,724
========== ===========
</TABLE>
39
<PAGE>
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
5 Investments
Investments consist of the following:
<TABLE>
(In thousands) 1998 1997
------------------
<S> <C> <C>
Investments in available-for-sale equity securities $ 503 503
Less unrealized holding loss 431 --
-------- --------
Investment in available-for-sale equity securities, at
at fair value 72 503
Investments in other equity securities, at cost 71,647 2,031
-------- --------
Total investments, net $ 71,719 2,534
======== ========
</TABLE>
Included in investments in other equity securities in 1998
is common stock received as consideration for the sale of
license software. There is no current market for the common
stock. As a result, it was valued at $70,000,000 based on a
methodology which utilized both a comparable company and the
expected underlying discounted future cash flows. The
common stock is subject to certain lock-up provisions.
6 Indebtedness
The Company has a loan agreement with two banks that
provides for a long-term revolving line of credit for
working capital purposes. The long-term revolving line of
credit is unsecured and requires monthly payments of
interest only. Interest is payable at the Company's option
at a rate based on prime (7.75% at January 2, 1999) or LIBOR
(5.094% at January 2, 1999) plus 1.75%. The interest rate
may be reduced by up to .5% if certain net worth ratios are
maintained. At January 2, 1999, 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.
The Company has $30,000,000 of Senior Notes. The Senior
Notes are payable in six equal annual installments beginning
in August 1999. 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 Company also has an obligation under a capital lease
agreement, which is secured by the related equipment, for
$30,000 ($61,000 at January 3, 1998) with interest at 8.5%,
payable in monthly installments through September 1999.
The fair value of the Company's Senior Notes is estimated to
be $31,848,000 based on current rates offered to the Company
for debt of the same remaining maturities.
40
<PAGE>
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
7 Interest Income and Expense
A summary of interest income and expense is as follows:
<TABLE>
(In thousands) 1998 1997 1996
---------------------------
<S> <C> <C> <C>
Interest income $ 2,242 4,755 4,839
Interest expense (2,504) (2,441) (2,538)
-------- -------- --------
Interest income (expense), net $ (262) 2,314 2,301
======== ======== ========
</TABLE>
8 Stock Options and Warrants
At January 2, 1999, the Company had four fixed stock option
plans. Under Stock Option Plan B, the Company could grant
to associates options to purchase up to 5,600,000 shares of
common stock through November 30, 1993. The options are
exercisable at the fair market value on the date of grant
for a period determined by the Board of Directors (not more
than ten years from the date granted). The options contain
restrictions as to transferability and exercisability after
termination of employment.
Under Stock Option Plan C, the Company is authorized to
grant to associates options to purchase up to 95,000 shares
of common stock through May 18, 2003. The options are
exercisable at the fair market value on the date of grant
for a period determined by the Board of Directors (not more
than ten years from the date granted). The options contain
restrictions as to transferability and exercisability after
termination of employment. The Company has committed not to
issue any more stock options under Stock Option Plan C.
Initially under Stock Option Plan D, the Company was
authorized to grant to associates, directors, consultants,
or advisors to the Company options to purchase up to
2,600,000 shares of common stock through January 1, 2000.
An additional 2,000,000 shares were approved by the
Company's shareholders on May 22, 1998, increasing the total
authorized to grant to 4,600,000 shares. The options are
exercisable at a price and during a period determined by the
Stock Option Committee. Options under this plan currently
vest over periods of up to ten years and are exercisable for
periods of up to 25 years.
Under Stock Option Plan E, the Company is authorized to
grant to associates who are not officers subject to the
provisions of Section 16(a) of the Securities and Exchange
Act of 1934, consultants, or advisors to the Company options
to purchase up to 2,000,000 shares of common stock through
January 1, 2005. The options are exercisable at a price and
during a period determined by the Stock Option Committee.
Options under this plan currently vest over periods of up to
ten years and are exercisable for periods of up to 25 years.
The Company has also granted 210,362 other non-qualified
stock options under separate agreements to certain third
parties. These options are exercisable at a price equal to
or greater than the fair market value on the date of grant.
These options vest over periods of up to six years and are
exercisable for periods of up to ten years.
41
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The Company accounts for stock options in accordance with
the provisions of Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees", and
related interpretations. As such, compensation expense is
recorded on the date of grant only if the current market
price of the underlying stock exceeds the exercise price.
On December 31, 1995, the Company adopted Statement of
Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (FAS 123), which permits entities
to recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant.
Alternatively, FAS 123 allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma
net earnings and pro forma earnings per share disclosures
for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in FAS 123
had been applied. The Company has elected to continue to
apply the provisions of APB Opinion No. 25 and provide the
pro forma disclosure provisions of FAS 123.
A combined summary of the status of the Company's four fixed
stock option plans and other stock options at the end of
1998, 1997, and 1996, and changes during these years ended
is presented below:
<TABLE>
1998 1997 1996
----------------------------------------------------------------
Weighted- Weighted- Weighted-
Number average Number average Number average
of exercise of exercise of exercise
Fixed options Shares price Shares price Shares price
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 4,179,258 $17.74 3,196,072 $16.50 2,730,786 $15.95
Granted 1,932,710 24.15 1,592,363 18.22 941,130 15.97
Exercised (185,335) 6.88 (310,531) 3.12 (401,754) 2.02
Forfeited (438,442) 17.57 (298,646) 17.50 (74,090) 12.52
- --------------------------------------------------------------------------------------------
Outstanding at end of year 5,488,191 $20.38 4,179,258 17.24 3,196,072 16.50
========== ========== ==========
Options exercisable at
year-end 1,111,943 876,376 838,143
</TABLE>
The following table summarizes information about fixed and
other stock options outstanding at January 2, 1999.
<TABLE>
Options outstanding Options exercisable
- -------------------------------------------------------------- --------------------------------
Weighted-
Range of Number average Number
exercise outstanding remaining Weighted-average exercisable Weighted-average
prices at 01/02/99 contractual life exercise price at 01/02/99 exercise price
- ------------------------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
$1.25-12.56 374,494 6.3 years $ 5.01 312,793 $ 3.52
12.63-17.56 1,578,226 19.9 14.98 367,862 14.92
18.13-26.63 2,434,960 15.7 22.44 235,411 20.76
27.00-31.00 1,100,511 17.6 28.81 195,877 29.52
------------- ------------
1.25-31.00 5,488,191 16.7 20.38 1,111,943 15.52
============= ============
</TABLE>
42
<PAGE>
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
The per share weighted-average fair value of stock options
granted during 1998, 1997 and 1996 was $14.97, $10.99 and
$7.89, respectively, on the date of grant using the Black
Scholes option-pricing model with the following weighted-
average assumptions:
<TABLE>
1998 1997 1996
---------------------------------
<S> <C> <C> <C>
Expected years until exercise 8 8 8
Risk-free interest rate 5.0% 6.2% 6.3%
Expected stock volatility 58.5% 56.9% 49.2%
Expected dividend yield 0% 0% 0%
</TABLE>
Since the Company applies APB Opinion No. 25 in accounting
for its plans, no compensation cost has been recognized for
its stock options issued to employees. Had the Company
recorded compensation expense based on the fair value at the
grant date for its stock options under FAS 123, the
Company's net earnings and earnings per share on a diluted
basis would have been reduced by approximately $5,929,000 or
$.18 per share in 1998, approximately $3,965,000 or $.12 per
share in 1997 and approximately $3,023,000 or $.09 per share
in 1996.
Pro forma net earnings reflects only options granted since
January 1, 1995. Therefore, the full impact of calculating
compensation expense for stock options under FAS 123 is not
reflected in the pro forma net earnings amounts presented
above, because compensation cost is reflected over the
options' vesting period of ten years for these options.
Compensation expense for options granted prior to January 1,
1995 is not considered.
In November 1998, the Company entered into an agreement with
General Electric Company (GE) to integrate the Company's
Health Network Architecture Millennium RadNet Radiology
Information System with GE Medical Systems' Picture Archive
and Communication Systems technology. In conjunction with
the agreement, the Company sold GE 670,000 shares of common
stock for $14,874,000 and granted warrants for the purchase
of 500,000 shares of common stock at an exercise price equal
to the fair value of the stock at the grant date ($25.49).
The warrants become exercisable provided certain conditions
are met, including achievement of certain levels of revenue.
The warrants expire after seven years or thirty days after
termination of the agreement.
9 Income Taxes
Income tax expense (benefit) for the years ended 1998, 1997,
and 1996, consists of the following:
<TABLE>
(In thousands) 1998 1997 1996
----------------------------
<S> <C> <C> <C>
Current:
Federal $ (1,929) 916 1,403
State (1,061) 80 136
Foreign (147) 94 218
--------- ------- -------
Total current (3,137) 1,090 1,757
--------- ------- -------
Deferred:
Federal 13,634 7,338 2,553
State 1,565 908 341
Foreign 617 -- --
--------- ------- -------
Total deferred 15,816 8,246 2,894
--------- ------- -------
Total income tax expense $ 12,679 9,336 4,651
========= ======= =======
</TABLE>
43
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Temporary differences between the financial statement
carrying amounts and tax bases of assets and liabilities
that give rise to significant portions of deferred income
taxes at the end of 1998 and 1997 relate to the following:
<TABLE>
(In thousands) 1998 1997
-------------------------
<S> <C> <C>
Deferred Tax Assets
Acquisition accrual $ 2,033 --
Accrued expenses 3,223 2,028
Separate return net operating losses 1,577 1,577
Other 1,076 2,190
---------- ---------
Total deferred tax assets 7,909 5,795
---------- ---------
Deferred Tax Liabilities
Software development costs (20,695) (15,205)
Contract and service revenues and costs (32,255) (23,316)
Depreciation and amortization (3,856) (1,577)
Other (2,867) (1,645)
---------- ---------
Total deferred tax liabilities (59,673) (41,743)
---------- ---------
Net deferred tax liability $ (51,764) (35,948)
========== =========
</TABLE>
The effective income tax rates for 1998, 1997, and 1996 were
38%, 38%, and 36%, respectively. These effective rates
differ from the federal statutory rate of 35% as follows:
<TABLE>
(In thousands) 1998 1997 1996
---------------------------
<S> <C> <C> <C>
Tax expense at statutory rates $ 11,644 8,569 4,516
State income tax, net of federal benefit 1,280 632 310
Other, net (245) 135 (175)
--------- ------ --------
Total income tax expense $ 12,679 9,336 4,651
========= ====== =======
</TABLE>
Income taxes payable are reduced by the tax benefit
resulting from disqualifying dispositions of stock acquired
under the Company's stock option plans. The 1998, 1997, and
1996 benefits of $621,000, $521,000, and $260,000,
respectively, are treated as increases to additional paid-in
capital.
44
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
10 Foundations Retirement Plan
The Cerner Corporation Foundations Retirement Plan (the
Plan) is established under Section 401(k) of the Internal
Revenue Code. All full-time associates are eligible to
participate. Participants may elect to make pretax
contributions from 1% to 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 an annual maximum of
$600 per participant. The Company's expense for the plan
amounted to $1,005,000, $761,000, and $560,000 for 1998,
1997, and 1996, respectively.
11 Commitments
The Company is committed under operating leases for office
space through December 2004. Rent expense for office and
warehouse space for the Company's regional and international
offices for 1998, 1997, and 1996 was $1,847,000, $1,759,000,
and $1,580,000, respectively. Aggregate minimum future
payments (in thousands) under these noncancelable leases are
as follows:
<TABLE>
Years
-----------------------------
<C> <C>
1999 $ 2,438
2000 1,437
2001 935
2002 438
2003 238
2004 171
</TABLE>
12 Real Estate Lease Revenue
The Company leases space to unrelated parties in its Kansas
City headquarters complex under noncancelable operating
leases. Included in other revenues is rental income of
$1,795,000, $1,694,000, and $2,383,000 in 1998, 1997, and
1996, respectively. Future minimum lease revenues (in
thousands) under these noncancelable operating leases
expiring through 2002 are as follows:
<TABLE>
Years
-----------------------
<C> <C>
1999 $ 685
2000 303
2001 32
2002 26
</TABLE>
13 Stockholders' Equity
At the end of 1998 and 1997, the Company had 1,000,000
shares of authorized but unissued preferred stock, $.01 par
value.
45
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
14 Quarterly Results (unaudited)
Selected quarterly financial data for 1998 and 1997 is set forth below:
(In thousands,except per share data)
<TABLE>
Earnings
before Basic Diluted
Income Net earnings earnings
Revenue taxes earnings per share per share
-------------------------------------------------------------
<S> <C> <S> <C> <C> <C>
1998 quarterly results:
April 4 $ 73,674 1,106 671 .02 .02
July 4 79,152 8,726 5,369 .16 .16
October 3 82,832 10,185 6,348 .19 .19
January 2 95,244 13,251 8,201 .26 .24
- ------------------------------------------------------------------------------
Total $ 330,902 33,268 20,589 .63 .61
======== ====== ====== ===== =====
1997 quarterly results:
March 29 $ 51,129 3,123 1,936 .06 .06
June 28 63,320 5,478 3,324 .10 .10
September 27 60,777 7,203 4,445 .13 .13
January 3 69,831 8,680 5,443 .17 .16
- ------------------------------------------------------------------------------
Total $ 245,057 24,484 15,148 .46 .45
======== ======= ====== ==== =====
46
<PAGE>
</TABLE>
<TABLE>
Cerner Corporation
Valuation and Qualifying Accounts Schedule II
<CAPTION>
Additions
Balance at Charged to
Beginning Costs and Balance at
Description of Period Expenses Deductions End of Period
- ---------------------------------------------------------------------------
For Year Ended January 3, 1998
<S> <C> <C> <C> <C>
Doubtful Accounts $ 1,121,000 $ 369,000 $ 0 $ 1,490,000
Sales Allowances $ 0 $ 0 $ 0 $ 0
</TABLE>
<TABLE>
Additions
Balance at Charged to
Beginning Costs and Balance at
Description of Period Expenses Deductions End of Period
- ---------------------------------------------------------------------------
For Year Ended January 2, 1999
<S> <C> <C> <C> <C>
Doubtful Accounts $ 1,490,000 $ 1,915,000 $ 0 $ 3,405,000
Sales Allowances $ 0 $ 0 $ 0 $ 0
</TABLE>
47
<PAGE>
Independent Auditors' Report
on Financial Statement Schedule
The Board of Directors
Cerner Corporation:
Under date of February 3, 1999, we reported on the
consolidated balance sheets of Cerner Corporation and
subsidiaries as of January 2, 1999 and January 3, 1998 and
the related consolidated statements of earnings, changes in
equity, and cash flows for each of the years in the three-
year period ended January 2, 1999. These consolidated
financial statements and our report thereon are included in
the Company's annual report on Form 10-K for the year 1998.
In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the
related financial statement schedule as listed under Item
14(a)(2). This financial statement schedule is the
responsibility of the Company's management. Our
responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, this financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG LLP
Kansas City, Missouri
February 3, 1999
- --------------------------------------------------------------------
CERNER CORPORATION
--------
$18,000,000
CREDIT AGREEMENT
Dated as of April 1, 1999
--------
MERCANTILE BANK, as Agent
- ---------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
RECITALS .............................................................1
SECTION 1. DEFINITIONS, ACCOUNTING MATTERS AND GENERAL RULES.........1
1.1. Certain Defined Terms.....................................1
1.2. Accounting Terms; Statements of Variation................13
1.3. General Rules............................................14
SECTION 2. THE COMMITMENTS..........................................14
2.1. Loans....................................................14
2.2. Borrowings...............................................14
2.3. Reductions and Changes of Commitments....................15
2.4. Lending Offices..........................................15
2.5. Several Obligations; Remedies Independent................15
2.6. Notes....................................................15
2.7. Conversion or Continuation of Loans......................15
2.8. Repayment of Loans.......................................15
2.9. Interest.................................................15
2.10. Optional Prepayments.....................................16
2.11. Mandatory Prepayments....................................16
2.12. Payments.................................................16
2.13. Pro Rata Treatment.......................................17
2.14. Minimum Amounts..........................................17
2.15. Certain Notices..........................................17
2.16. Non-Receipt of Funds by the Agent........................18
2.17. Balances; Sharing of Payments............................18
2.18. Computation of Interest..................................19
2.19. Guaranty.................................................19
2.20. Advances After Default...................................19
2.21. Letters of Credit........................................19
2.22. Banks' Option to Adjust Pricing..........................21
SECTION 3. FEES; YIELD PROTECTION...................................22
3.1. Commitment Fees..........................................22
3.2. Additional Costs.........................................22
3.3. Limitation on Types of Loans.............................23
3.4. Illegality...............................................23
3.5. Certain Conversions Pursuant to Sections 3.3 and 3.4.....23
3.6. Compensation.............................................24
SECTION 4. CONDITIONS PRECEDENT.....................................24
4.1. Conditions Precedent to the Loans........................24
4.2. Subsequent Loans and Advances............................25
SECTION 5. REPRESENTATIONS AND WARRANTIES...........................26
5.1. Corporate Existence and Structure........................26
5.2. Financial Condition......................................26
5.3. Litigation...............................................26
5.4. No Breach................................................26
Credit Agreement -- Page ii
<PAGE>
5.5. Corporate Action; Binding Effect.........................26
5.6. Approvals................................................27
5.7. ERISA....................................................27
5.8. Taxes....................................................27
5.9. Investment Company Act...................................27
5.10. Public Utility Holding Company Act.......................27
5.11. Environmental Matters....................................27
5.12. Subsidiaries.............................................28
5.13. Assets of the Borrower...................................28
5.14. Material Contracts.......................................28
5.15. Solvency.................................................29
5.16. Margin Regulations.......................................29
5.17. Copyrights, Patents and Other Rights.....................29
5.18. Disclosure...............................................29
5.19. Labor Matters............................................29
5.20. No Event of Default......................................29
5.21. Use of Proceeds..........................................29
5.22. Authorized Officers......................................30
SECTION 6. COVENANTS................................................30
6.1. Information..............................................30
6.2. Litigation, Etc..........................................32
6.3. Compliance, Inspection, Etc..............................32
6.4. Use of Proceeds..........................................33
6.5. Current Ratio............................................33
6.6. Minimum Tangible Net Worth...............................33
6.7. Funded Debt Ratio........................................33
6.8. Fixed Charge Coverage Ratio..............................33
6.9. [this section intentionally left blank]..................33
6.10. Certain Obligations Respecting Subsidiaries..............33
6.11. Mergers, Acquisitions, Sale of Assets, Etc...............34
6.12. Dividends and Distributions..............................35
6.13. Sale and Lease-Back Transactions.........................35
6.14. Investments and Joint Ventures...........................35
6.15. Liens....................................................36
6.16. Transactions With Affiliates.............................36
6.17. Insurance................................................37
6.18. Maintenance of Properties................................37
6.19. Environmental Laws; Indemnification......................37
6.20. Nature of Business; Limitations on Fundamental Changes...38
SECTION 7. EVENTS OF DEFAULT........................................38
SECTION 8. THE AGENT................................................40
SECTION 9. MISCELLANEOUS............................................42
9.1. Waiver...................................................42
9.2. Notices..................................................43
9.3. Expenses, Indemnification, Etc...........................43
9.4. Amendments, Etc..........................................43
9.5. Successors and Assigns...................................43
Credit Agreement -- Page iii
<PAGE>
9.6. Assignments and Participations...........................43
9.7. Survival.................................................44
9.8. Captions.................................................44
9.9. Counterparts.............................................44
9.10. Survival of Agreements...................................44
9.11. Interest.................................................44
9.12. Integration; Severability................................45
9.13. NO ORAL AGREEMENTS; FINAL WRITTEN AGREEMENT..............45
9.14. Controlling Document.....................................45
9.15. JURISDICTION.............................................45
9.16. GOVERNING LAW............................................46
9.17. WAIVER OF TRIAL BY JURY..................................46
9.18. Confidentiality and Nondisclosure........................46
Credit Agreement -- Page iv
Exhibit A - Commitments
Exhibit B - Form of Revolving Credit Note
Exhibit C - Form of Borrowing Notice
Exhibit D - Form of Borrowing Base and Compliance Certificate
Schedule 1.1 - Existing Liens
Schedule 5.2 - Contingent Liabilities
Schedule 5.3 - Litigation
Schedule 5.8 - Taxes
Schedule 5.11 - Environmental Matters
Schedule 5.12 - Existing Subsidiaries
Schedule 5.14 - Existing Material Contracts
Schedule 6.14 - Existing Investments
Credit Agreement -- Page v
<PAGE>
THIS CREDIT AGREEMENT (as the same may be amended, modified,
supplemented or replaced from time to time, the "Agreement") is
---------
made as of April 1, 1999, by and among CERNER CORPORATION, a
Delaware corporation (the "Borrower"); MERCANTILE BANK, a Kansas
--------
banking corporation, and each other lender, if any, from time to
time identified as having a Commitment on Exhibit A hereto and
who becomes a party hereto (each a "Bank" and, collectively
----
(whether one or more), the "Banks"); MERCANTILE BANK, a Kansas
-----
banking corporation, as the issuing bank of letters of credit (in
such capacity, the "Issuing Bank"); and MERCANTILE BANK, a Kansas
------------
banking corporation, as agent hereunder for the Banks (in such
capacity, together with its successors in such capacity, the
"Agent").
- -------
To induce the Banks to extend credit and financial
accommodations to the Borrower and for other good and valuable
consideration, the receipt and sufficiency of which are
acknowledged, the parties agree as follows:
SECTION 1. DEFINITIONS, ACCOUNTING MATTERS AND GENERAL RULES
- -----------------------------------------------------------------
1.1. Certain Defined Terms. As used herein, the following
-----------------------
terms shall have the following meanings (all terms defined in
this Section 1 or in other provisions of this Agreement in the
singular to have the same meanings when used in the plural and
vice versa):
- ---- -----
"Acquisition" shall mean any transaction, or any series of
-----------
related transactions, consummated after the date of this
Agreement, by which the Borrower or any of its Subsidiaries (in
one transaction or as the most recent transaction in a series of
transactions) (i) acquires any going business or all or
substantially all of the assets of any Person (including, in the
case of a corporation, any division thereof), whether through
purchase of assets, merger or otherwise, (ii) directly or
indirectly acquires control of at least a majority (in number of
votes) of the securities of a corporation which have ordinary
voting power for the election of directors, or (iii) directly or
indirectly acquires control of a majority ownership interest in
any partnership or joint venture.
"Additional Eurodollar Loan Costs" shall mean any costs
----------------------------------
resulting from any Regulatory Change which imposes, modifies or
deems applicable any reserve, special deposit, minimum capital,
capital ratio or similar requirements (other than the Reserve
Requirement utilized in the determination of LIBOR Reserve
Adjusted Rate for any Eurodollar Loan) relating to any extensions
of credit or other assets of, or any deposits with or other
liabilities of, any Bank (including any of the Eurodollar Loans),
or any Commitment of any Bank, and which, in each case, are
attributable to such Bank's making or maintaining any Eurodollar
Loans or its obligation to make any Eurodollar Loans hereunder,
or any reduction in any amount receivable by such Bank hereunder
in respect of any of such Eurodollar Loans or such obligation.
"Affiliate" shall mean, with respect to any Person, any
---------
other Person or group of affiliated Persons directly or
indirectly controlling (including without limitation all
directors and officers of such Person), controlled by or under
direct or indirect common control with such Person. For purposes
of this definition, a Person shall be deemed to control another
Person if such first Person possesses, directly or indirectly,
the power (i) to vote five percent (5%) or more of the securities
having ordinary voting power for the election of directors of
such other Person, or (ii) to direct or cause the direction of
the management or policies of such other Person.
"Applicable Margin" shall mean: from and after the date
------------------
hereof to but excluding June 30, 1999, the Applicable Margin for
Corporate Base Rate Loans shall be 0.75% and the Applicable
Margin for Eurodollar Loans shall be 1.10%. Thereafter, if at
the end of any fiscal quarter (commencing with the quarter ending
on April 3, 1999), the Tangible Net Worth Ratio is within the
respective ranges set forth below, then with respect
Credit Agreement -- Page 1
to Corporate Base Rate Loans and Eurodollar Loans the "Applicable
Margin" at all times during the second succeeding fiscal quarter
shall be the respective percentages set forth opposite such ratios:
<TABLE>
Applicable Margin Applicable Margin
Tangible Net for Corporate for Eurodollar
Worth Ratio Base Rate Loans Loans
-------------- ----------------- --------------
<S> <C> <C>
Greater than 1.25 to 1 0.25% 1.50%
Less than or equal to 1.25
to 1,but greater than .80 to 1 0.50% 1.25%
Less than or equal to .80 to 1 0.75% 1.10%
</TABLE>
provided, however, that during any period that the Borrower has
failed to deliver the financial statements or the Borrowing
Base and Compliance Certificate as required by Section 6.1
hereof, the Applicable Margin for Corporate Base Rate Loans
shall be 0.25% and the Applicable Margin for Eurodollar
Loans shall be 1.50%.
"Borrowing Base" means, at any date, an amount equal to
--------------
the sum of (i) fifty percent (50%) of the lesser of the cost
or market value of all Eligible Inventory, plus (ii) seventy-
five percent (75%) of the aggregate amount then due under
all Eligible Receivables, plus fifty percent (50%) of the
book value of Eligible Equipment. All determinations in
connection with the Borrowing Base shall be made initially
by the Borrower in accordance with its credit and collection
policy and certified to the Agent in the Borrowing Base
Certificate; provided, however, that the Agent shall have
the right to review and adjust, in its judgment, any such
determination by the Borrower to the extent such
determination is not in accordance with this Agreement.
"Borrowing Base Certificate" has the meaning assigned to
----------------------------
such term in Section 6.1 hereof.
"Borrowing Date" shall mean the date of each borrowing under
--------------
Section 2.2 hereof.
"Business Day" shall mean any day on which commercial banks
------------
are not authorized or required to close in Shawnee, Kansas
or Chicago, Illinois; provided, however, that when used in
connection with a Eurodollar Loan, the term "Business Day"
shall also exclude any day on which banks are not open for
dealing in Dollar deposits in the London interbank market.
"Capital Expenditures" shall mean, without duplication,
---------------------
(i) expenditures (whether paid in cash or accrued as a
liability) for fixed assets, tooling, plant and equipment
(including without limitation the incurrence of Capital
Lease Obligations), (ii) any other expenditures (including
without limitation all software research and development
costs) that would be classified as capital expenditures
under GAAP, and (iii) the amount of consideration paid
(other than in equity securities of the Borrower) and/or any
monetary obligation incurred in respect of the purchase
price for any Acquisition.
"Capital Lease Obligations" shall mean, as to any Person,
--------------------------
the obligations of such Person to pay rent or other amounts
under a lease of (or other agreement conveying the right to
use) real and/or personal property which obligations are
required to be classified and accounted for as a capital
lease on a balance sheet of such Person under GAAP and, for
purposes of this Agreement, the amount of such obligations
shall be the capitalized amount thereof, determined in
accordance with GAAP.
Credit Agreement -- Page 2
<PAGE>
"Change in Control" shall be deemed to have occurred if
-----------------
(a) any person or group (within the meaning of Rule 13d-5 of
the SEC as in effect on the date hereof) shall own, directly
or indirectly, beneficially or of record, shares
representing more than 50% of the aggregate ordinary voting
power represented by the issued and outstanding capital
stock of the Borrower; or (b) a change shall occur during
any period in the Board of Directors of the Borrower in
which the individuals who constituted the Board of Directors
of the Borrower at the beginning of such period (together
with any other director whose election by the Board of
Directors of the Borrower or whose nomination for election
by the stockholders of the Borrower was approved by a vote
of at least two-thirds of the directors then in office who
either were directors at the beginning of such period or
whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of
the directors of the Borrower then in office.
"Code" shall mean the Internal Revenue Code of 1986, as
----
amended.
"Collateral" shall mean the properties and assets
----------
described in the Security Documents, and all other
properties and assets which may be pledged or mortgaged
hereafter by any Person to secure the payment and/or
performance of any Obligations.
"Commitments" shall mean the Revolving Credit
-----------
Commitments.
"Computation Date" shall mean the last day of any
-----------------
calendar month.
"Consolidated Net Income" shall mean, for any period,
------------------------
the net income and net losses of the Borrower and its
Subsidiaries on a consolidated basis as defined according to
GAAP.
"Consolidated Net Worth" shall mean, at any date, the
-----------------------
amount shown as "total shareholders' equity" (or any like
caption) on a consolidated balance sheet of the Borrower and
its Subsidiaries in accordance with GAAP.
"Continue," "Continuation" and "Continued" shall refer
-------- ------------ ---------
to the continuation of a Loan of one type as a Loan of the
same type from one Interest Period to the next Interest
Period.
"Convert," "Conversion," and "Converted" shall refer to
------- ---------- ---------
a conversion pursuant to Section 2.7 hereof of Loans of one
type into Loans of the other type.
"Corporate Base Rate" shall mean the rate of interest
--------------------
from time to time announced by Mercantile Bank as its
"corporate base rate," with the understanding that such
"corporate base rate" may be one of the several announced
interest rates and serves as a basis on which effective
rates of interest are from time to time calculated for loans
making reference thereto, and may not be the lowest, best or
most favored of the interest rates offered by Mercantile
Bank.
"Corporate Base Rate Loans" shall mean Loans which, at
-------------------------
the time, pursuant to the terms of this Agreement, bear
interest at rates based on the Corporate Base Rate.
-1-
<PAGE>
"Credit Documents" shall mean, collectively, this
------------------
Agreement, the Notes, the Security Documents, all Letters of
Credit, all Reimbursement Agreements, and all other
documents executed in connection herewith or as security for
the Notes, as any or all of the foregoing may be renewed,
extended, amended, modified, supplemented, replaced, or
rearranged from time to time.
"Current Assets" shall mean, at any date, the current
---------------
assets of the Borrower and its Subsidiaries determined on a
consolidated basis as of such date in accordance with GAAP.
"Current Liabilities" shall mean, at any date, the
--------------------
current liabilities of the Borrower and its Subsidiaries
determined on a consolidated basis as of such date in
accordance with GAAP.
"Current Ratio" shall mean, at any date, the ratio of
--------------
Current Assets to Current Liabilities.
"Default" shall mean an Event of Default or an event
-------
which with notice or lapse of time or both would become an
Event of Default.
"Default Rate" shall mean, in respect of any principal
-------------
of any Loan or any other amount whatsoever payable by the
Borrower under this Agreement or any Note which is not paid
when due (whether at stated maturity, by acceleration or
otherwise), a rate per annum during the period commencing on
and including the due date of such amount to but not
including the date such amount is paid in full equal to
three percent (3%) per annum above the Corporate Base Rate
from time to time.
"Dollars" and "$" shall mean lawful money of the United
------- -
States of America.
"EBITDA" shall mean, for any period, Consolidated Net
------
Income for the period in question plus (a) the sum of (i)
all amounts deducted in arriving at such Consolidated Net
Income in respect to Interest Expense for such period;
federal, state and local income taxes for such period;
depreciation and amortization and other noncash nonoperating
charges for such period; and to the extent not included in
the above, miscellaneous expenses from nonoperating
transactions which do not relate to any extraordinary items
for such period and (ii) extraordinary losses for such
period, minus (b) the sum of (i) all amounts included in
arriving at such Consolidated Net Income in respect of
miscellaneous income from nonoperating transactions and
which do not relate to any extraordinary items for such
period; and (ii) all extraordinary profits for the period,
determined on a consolidated basis for the Borrower and its
Subsidiaries.
"Eligible Equipment" means, at any date, all Equipment
-------------------
of the Borrower and its Subsidiaries except: (i) all
Equipment which in the reasonable opinion of the Agent is
obsolete or unmerchantable, (ii) all Equipment which the
Agent in its sole discretion deems not to be Eligible
Equipment, based on such considerations as the Agent (with
the consent of the Majority Banks) may reasonably deem
appropriate, (iii) all Equipment which is subject to any
Lien or any other claim of any kind or nature whatsoever,
(iv) all Equipment which does not comply in all material
respects with applicable laws, rules and regulations, (v)
all Equipment which is defective, unusable, or otherwise
fails to meet the requirements of the Borrower or such
Subsidiary in any material respect, (vi) all Equipment as to
which any representation or warranty applicable thereto and
made herein or in any of the other Credit Documents is or
becomes untrue in any respect or as to which any covenant
applicable thereto and contained herein or in any of the
other Credit Documents shall not
-2-
<PAGE>
have been complied with in any material respect, (vii) all
Equipment consigned or leased to or from any Person, and (viii)
all Equipment that is or becomes a fixture under the laws of
the jurisdiction where such Equipment is located.
"Eligible Inventory" means, at any date, all Inventory
-------------------
of the Borrower and its Subsidiaries other than Foreign
Subsidiaries except: (i) all Inventory which in the
reasonable opinion of the Agent is obsolete or
unmerchantable, (ii) all Inventory which the Agent (with the
consent of the Majority Banks) in its sole discretion deems
not to be Eligible Inventory, based on such considerations
as the Agent (with the consent of the Majority Banks) may
reasonably deem appropriate, (iii) all Inventory which is
subject to any Lien or any other claim of any kind or nature
whatsoever, (iv) all Inventory which does not comply in all
material respects with all applicable laws, rules and
regulations, (v) all Inventory which is defective, unusable,
or otherwise fails to meet the requirements of the Borrower
or such Subsidiary in any material respect, (vi) all
Inventory as to which any representation or warranty
applicable thereto and made herein or in any of the other
Credit Documents is or becomes untrue in any respect or as
to which any covenant applicable thereto and contained
herein or in any of the other Credit Documents shall not
have been complied with in any material respect, and (vii)
all Inventory consigned or leased to or from any other
Person.
"Eligible Receivables" means, at any date, all
----------------------
Receivables of the Borrower and its Subsidiaries (other than
Foreign Subsidiaries) except:
(i) all Receivables (a) with respect to which an
invoice or bill has not been issued or with
respect to which any amount due under such
Receivable remains unpaid more than 150 days after
the date of the original invoice or bill for such
Receivable, (b) from any obligor as to whom more
than 25% of the aggregate amount due under all
Receivables owing from such obligor remains unpaid
for that same 150 day period, (c) from an obligor
who is insolvent or bankrupt, (d) from an obligor
disapproved by the Agent (with the consent of the
Majority Banks), in its sole discretion, for
reasonable cause, or (e) which should be
classified as delinquent or written off as
uncollectible in the Agent's reasonable credit
judgment;
(ii) any Receivable which (a) is in dispute or is
subject to any Lien or any offset, claim or
defense of any kind or nature whatsoever, or (b)
does not comply in all a material respects with
all applicable laws, rules and regulations, or (c)
was due at any time to a Foreign Subsidiary or is
not payable in Dollars.
(iii) any Receivable (a) due from suppliers of
Inventory to the extent the Borrower or any of its
Subsidiaries is indebted to such suppliers, (b)
which the Borrower or such Subsidiary rescinds,
annuls, or modifies (to the extent the
modification reduces the amount due or otherwise
causes the Receivable to be excepted out pursuant
to this definition), (c) with respect to which the
payment of any amount due thereunder is contingent
upon the fulfillment of any condition whatsoever
(other than for the Borrower's customary
acceptance procedures), or arises from any
repurchase or return arrangement, or (d) which the
Agent (with the consent of the Majority Banks) in
its sole discretion deems not to be an Eligible
Receivable, based on such considerations as the
Agent (with the consent of the Majority Banks) may
reasonably deem appropriate; and
-3-
<PAGE>
(iv) all Receivables as to which any representation or
warranty applicable thereto and made herein or in
any of the Credit Documents is or becomes untrue
in any material respect or as to which any
covenant applicable thereto and contained herein
or in any part of the Credit Documents shall not
have been complied with in any material respect.
"Environmental Laws" shall mean any and all federal,
-------------------
state, local or municipal laws, rules, orders, regulations,
statutes, ordinances, codes, decrees or requirements of any
Governmental Authority regulating, relating to or imposing
liability or standards of conduct concerning any Hazardous
Material or Petroleum Product or environmental protection or
health and safety, as now or may at any time hereafter be in
effect, including without limitation, the Clean Water Act
also known as the Federal Water Pollution Control Act
("FWPCA"), 33 U.S.C. 1251, et seq., the Clean Air Act
("CAA"), 42 U.S.C. 7401 et seq., the Federal
Insecticide, Fungicide and Rodenticide Act ("FIFRA"), 7
U.S.C. 136 et seq., the Surface Mining Control and
Reclamation Act 1200 et seq. ("SMCRA"), 30 U.S.C. 1201
et seq., the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), 42 U.S.C. 9601
et seq., the Superfund Amendments and Reauthorization Act of
1986 ("SARA"), Public Law 99-499, 100 Stat. 1613, the
Emergency Planning and Community Right-to-Know Act
("EPCRA"), 42 U.S.C. 1101 et seq., the Resource
Conservation and Recovery Act ("RCRA"), 42 U.S.C. 6901 et
seq., and the Occupational Safety and Health Act as amended
("OSHA"), 29 U.S.C. 655 and 657, in each case, with any
amendment thereto, and the regulations adopted and
publications promulgated thereunder and all substitutions
thereof.
"ERISA" shall mean the Employee Retirement Income
-----
Security Act of 1974, as amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade
----------------
or business which is a member of the same controlled group
of corporations (within the meaning of Section 414(b) of the
Code) as the Borrower or is under common control (within the
meaning of Section 414(c) of the Code) with the Borrower.
"Equipment" shall mean all machinery, furniture,
---------
computers, office equipment, vehicles and other equipment,
as that term is defined in the Uniform Commercial Code as in
effect from time to time in the State of Missouri.
"Eurodollar Loans" shall mean Loans the interest rates
-----------------
of which are, at the time, determined on the basis of rates
referred to in the definition of "LIBOR" in this
Section 1.1.
"Event of Default" shall have the meaning assigned to
------------------
such term in Section 7 hereof.
"Existing Credit Agreement" shall mean that certain
---------------------------
Credit Agreement dated as of April 18, 1994, by and among
Mercantile Bank (as the successor in interest to Mark Twain
Kansas City Bank), Harris Trust and Savings Bank, Cerner
Corporation, and Cerner Properties, Inc., as amended to
date.
"Fiscal Period" shall mean the period of twelve
---------------
consecutive months ending on a Computation Date.
-4-
"Fixed Charges" shall mean, for any Fiscal Period, the
--------------
sum of (i) all Interest Expense during such period
(provided, however, that in the case of the 11 months ending
immediately following the date of this Agreement, Interest
Expense shall be calculated on the basis of annualized
Interest Expense for the actual number of months that have
ended since the date of this Agreement), (ii) current
maturities of Indebtedness (excluding advances under the
Revolving Credit Loans) as of the last day of such period,
(iii) 20% of the outstanding balance of the Revolving Credit
Loans and the LC Exposure at the end of such Fiscal Period,
but only if the Revolving Credit Termination Date is one
year or more later than the last day of such Fiscal Period,
and (iv) rental expense on operating and other long-term
lease obligations as of the last day of such period,
determined on a consolidated basis for the Borrower and its
Subsidiaries.
"Fixed Charge Coverage Ratio" shall mean, for any
------------------------------
Fiscal Period, the ratio of (i) EBITDA for such Fiscal
Period, minus Capital Expenditures, plus rental expense on
----- ----
operating and other long-term lease obligations as of the
last day of such Period to (ii) Fixed Charges for such
Fiscal Period, determined on a consolidated basis for the
Borrower and its Subsidiaries.
"Foreign Subsidiary" shall mean any Subsidiary that is
------------------
not organized under the laws of any State of the United
States of America or that has any permanent place of
business outside the United States of America, and shall
include Cerner Corporation PTY Limited, a corporation
organized under the laws of Australia, Cerner FSC, Inc., a
corporation organized under the laws of Barbados, Cerner
Limited, a corporation organized under the laws of the
United Kingdom, Cerner Deutschland GmbH, a corporation
organized under the laws of Germany, Cerner Singapore
Limited, a Delaware corporation, Cerner Canada Limited, a
Delaware corporation, and Cerner (Malaysia) SDN BHD, a
corporation organized under the laws of Malaysia.
"Funded Debt" shall mean, as to the Borrower and its
------------
Subsidiaries determined on a consolidated basis, without
duplication, all Indebtedness (including Capital Lease
Obligations and Guaranties of Indebtedness of others),
regardless of maturity.
"Funded Debt Ratio" shall mean, at any date, the ratio
------------------
(expressed as a percentage) of (i) the aggregate outstanding
Funded Debt to (ii) Total Capitalization on such date,
determined on a consolidated basis for the Borrower and its
Subsidiaries.
"GAAP" shall mean generally accepted accounting
----
principles in the United States of America, as in effect
from time to time.
"Governmental Authority" shall mean any nation or
-----------------------
government, any state or other political subdivision
thereof, and any branch, department, or agency thereof, or
any other entity exercising executive, legislative,
judicial, regulatory or administrative functions of or
pertaining to a government.
"Guarantee" shall mean, in respect of any Person, any
---------
obligation, contingent or otherwise, of such Person directly
or indirectly guaranteeing any Indebtedness of another
Person, including without limitation by means of an
agreement to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or to maintain
financial covenants, or to assure the payment of such
Indebtedness by an agreement to make payments in respect of
goods or services regardless of whether delivered, or otherwise,
-5-
provided, that the term "Guarantee" shall not include endorsements
for deposit or collection in the ordinary course of business;
and such term when used as a verb shall have a correlative meaning.
"Hazardous Materials" shall mean any flammable
---------------------
materials, explosives, radioactive materials, hazardous
materials, hazardous wastes, hazardous or toxic substances,
or similar materials defined as such in any applicable
Environmental Law.
"Inactive Subsidiaries" means Cerner Healthwise, Inc.
----------------------
and Cerner Performance Logistics, Inc.
"Indebtedness" shall mean, as to any Person, on a
------------
consolidated basis with such Person's Subsidiaries, without
duplication: (i) all obligations of such Person for
borrowed money or evidenced by bonds, debentures, notes or
similar instruments, (ii) all obligations of such Person for
the deferred purchase price of property or services, except
trade accounts payable and accrued liabilities arising in
the ordinary course of business which are not overdue by
more than 30 days or which are being contested in good faith
by appropriate proceedings, (iii) all Capital Lease
Obligations of such Person, (iv) all Indebtedness of others
secured by a Lien on any properties, assets or revenues of
such Person to the extent of the value of the property
subject to such Lien, (v) all Indebtedness of others
Guaranteed by such Person and (vi) all obligations of such
Person, contingent or otherwise, in respect of any letters
of credit or bankers' acceptances.
"Interest Expense" shall mean, for any period, all cash
----------------
and noncash interest on Indebtedness (including imputed
interest on Capital Lease Obligations) of the Borrower and
its Subsidiaries during such period; provided, however, that
-------- -------
there shall be added to "Interest Expense" any fees or
commissions or net losses amortized during such period under
any Interest Rate Protection Agreement and any fees or
commissions payable in connection with any letters of credit
during such period and there shall be subtracted from
"Interest Expense" any net gains under any Interest Rate
Protection Agreement during such period.
"Interest Period" shall mean, with respect to any
----------------
Eurodollar Loan, each period commencing on the date such
Loan is made, Continued, or Converted, and ending on the
numerically corresponding day in the first, second, third or
sixth calendar month thereafter, as the Borrower may select,
except that each Interest Period which commences on the last
Business Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Business
Day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (a) any Interest Period for
any Loan which would otherwise extend beyond the Termination
Date applicable to such Loan shall end on such Termination
Date; (b) each Interest Period that would otherwise end on a
day which is not a Business Day shall end on the immediately
succeeding Business Day (or, if such next succeeding
Business Day falls in the next succeeding calendar month, on
the immediately preceding Business Day); and (c) the
Borrower shall select the duration of Interest Periods in
such a way so that, notwithstanding clauses (a) and (b)
above, no Interest Period shall have a duration of less than
one month (and, if any Eurodollar Loans would otherwise have
an Interest Period of a shorter duration, they shall be
Corporate Base Rate Loans for the relevant period).
"Interest Rate Protection Agreement" shall mean any
------------------------------------
interest rate swap, cap, collar agreement or similar
agreement or arrangement designed to protect the Borrower or
any of its Subsidiaries against fluctuations in interest
rates.
-6-
<PAGE>
"Inventory" shall mean all goods, merchandise and other
---------
personal property now owned or hereafter acquired by the
Borrower or any of its Subsidiaries and which are (i) held
by the Borrower or any of its Subsidiaries for sale or
lease, (ii) furnished or to be furnished by the Borrower or
any of its Subsidiaries under any contract for service,
(iii) raw materials, (iv) work in progress, and/or (v)
materials used or consumed, or to be used or consumed, in
the business of Borrower or any of its Subsidiaries.
"Investment" by any Person in any other Person shall
----------
mean: (i) the amount paid or committed to be paid, or the
value of property or services contributed or committed to be
contributed, by such first Person for or in connection with
any stock, bonds, notes, debentures, partnership or other
ownership interests or other securities of such other Person
or as a capital contribution to such other Person; and (ii)
the principal amount of any advance, loan or extension of
credit by such first Person to such other Person (other than
any such advance, loan or extension of credit having a
stated term not exceeding 60 days made by such first Person
to its trade customers in the ordinary course of its
business) and (without duplication) any amount committed to
be advanced, loaned or extended by such first Person to such
other Person.
"LC Exposure" shall mean, at any time, the sum of
------------
(i) the aggregate face amount of all Letters of Credit then
outstanding, plus (ii) the aggregate amount of all payments
made by the Issuing Bank under or in connection with any
Letter of Credit for which the Issuing Bank has not been
reimbursed.
"Letters of Credit" shall mean letters of credit issued
-----------------
by the Issuing Bank for the account of the Borrower pursuant
to Section 2.21 hereof.
"LIBOR" shall mean, with respect to any Eurodollar Loan
-----
for any Interest Period therefor, (i) the LIBOR Index Rate
for such Interest Period, if such rate is available, and
(ii) if the LIBOR Index Rate cannot be determined, the
arithmetic mean, as determined by the Agent, of the rates
per annum (rounded upwards, if necessary, to the nearest
1/16 of 1%) quoted by each of the Reference Banks and
notified to the Agent at approximately 11:00 a.m. London
time (or as soon thereafter as practicable) on the date two
Business Days prior to the first day of such Interest Period
for the offering by such Reference Bank to leading banks in
the London interbank market of Dollar deposits having a term
comparable to such Interest Period and in an amount
comparable to the aggregate principal amount of the
Eurodollar Loans to be held by the Agent for such Interest
Period. If any Reference Bank does not timely furnish such
information for determination of any rate, the Agent shall
determine such rate on the basis of information timely
furnished by the remaining Reference Banks.
"LIBOR Index Rate" means for any Interest Period, the
-----------------
rate per annum (rounded upwards, if necessary, to the
nearest 1/16th of 1%) for deposits in Dollars for a period
equal to such Interest Period, as quoted, as of 11:00 a.m.
(London, England time) on the date two Business Days before
the first day of such Interest Period, on the appropriate
Telerate page or by such other financial news service
(electronic or otherwise) as the Agent, acting in a
commercially reasonable manner, may elect to utilize from
time to time.
"LIBOR Reserve Adjusted Rate" shall mean, for any
------------------------------
Eurodollar Loan for any Interest Period therefor, a rate per
annum (rounded upwards, if necessary, to the nearest 1/100
of 1%) determined by the Agent to be equal to the sum of
(a) LIBOR for such Loan for such Interest Period divided by
(b) 1 minus the Reserve Requirements for such Loan for such
Interest Period.
-7-
<PAGE>
"Lien" shall mean any mortgage, lien, pledge, claim,
----
charge, security interest or encumbrance of any kind,
including without limitation the interest of a vendor or
lessor under any conditional sale agreement, capital lease
or other title retention agreement, or any agreement to
create or grant any of the foregoing or prohibiting the
Borrower or any of its Subsidiaries from granting Liens on
their respective assets for the benefit of the Banks.
"Loans" shall mean the Revolving Credit Loans.
-----
"Majority Banks" shall mean, at any time, one or more
---------------
Banks holding at least 66-2/3% of the aggregate principal
amount of Loans or, if no Loans are at the time outstanding,
one or more Banks having at least 66-2/3% of the
Commitments.
"Mandatory Prepayments" shall mean the prepayments of
----------------------
the Loans required by Section 2.11 hereof.
"Multiemployer Plan" shall mean a Plan defined as such
------------------
in Section 3(37) of ERISA to which contributions have been
made by the Borrower or any ERISA Affiliate and which is
covered by Title IV of ERISA.
"Notes" shall mean Revolving Credit Notes.
-----
"Obligations" shall mean, collectively, all
-----------
indebtedness, liabilities and obligations whatsoever of the
Borrower to the Banks whether now existing or hereafter
arising under or in connection with this Agreement and/or
any of the other Credit Documents, including without
limitation, the principal of, and interest on, the Loans,
all future advances thereunder, and all other amounts now or
hereafter owing to the Banks under this Agreement, the
Notes, the Letters of Credit, the Reimbursement Agreements,
the Subsidiary Guaranty, or any of the other Credit
Documents.
"PBGC" shall mean the Pension Benefit Guaranty
----
Corporation or any entity succeeding to any or all of its
functions under ERISA.
"Permitted Liens" shall mean:
---------------
(i) pledges or deposits by the Borrower or any of its
Subsidiaries under worker's compensation laws,
unemployment insurance laws or similar
legislation, or good faith deposits in connection
with bids, tenders, contracts (other than for the
payment of Indebtedness of the Borrower or any of
its Subsidiaries), or leases to which the Borrower
or any of its Subsidiaries are parties, deposits
to secure public or statutory obligations of the
Borrower or any of its Subsidiaries, deposits of
cash or U.S. Government bonds to secure surety or
appeal bonds or payment or performance bonds to
which the Borrower or any of its Subsidiaries are
parties or which are issued for their account
(other than for the payment of Indebtedness of the
Borrower or any of its Subsidiaries), or deposits
for the payment of rent (provided that such
deposits as security for the payment of rent are
required in the ordinary course of business);
-8-
<PAGE>
(ii) Liens imposed by law, such as carrier's,
warehousemen's, materialmen's and mechanics'
Liens; provided, however, that the aggregate
amount of liabilities with respect to such Liens
are otherwise permitted by the terms of this
Agreement, are not yet overdue or in dispute, and
do not exceed $2,500,000 at any one time
outstanding for the Borrower and its Subsidiaries
in the aggregate; provided further that in the
event the liabilities with respect to any such
Liens become past due in accordance with their
terms or are in dispute, and with respect to all
Liens arising out of judgments or awards, the
Borrower or relevant Subsidiary shall currently be
contesting such Liens by prosecuting an appeal or
proceeding for review in good faith and by proper
procedure, such Liens shall be bonded against to
the satisfaction of the Majority Banks, and such
Liens shall not exceed $2,500,000 at any one time
outstanding in the aggregate;
(iii) Liens for taxes not yet subject to penalties
for non-payment, the payment of which is being
contested in good faith by appropriate
proceedings, and Liens for taxes which are not yet
overdue;
(iv) minor survey exceptions, minor encumbrances,
easements or reservations of, or rights of others
for, rights of way, highways and railroad
crossings, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or
zoning or other restrictions as to the use of real
properties or other Liens incidental to the
conduct of the business of the Borrower or any of
its Subsidiaries or to the ownership of their
property which were not incurred in connection
with Indebtedness of the Borrower or any of its
Subsidiaries, and which Liens do not materially
detract from the value of said properties or
materially impair the operation of the business of
the Borrower or any of its Subsidiaries;
(v) Liens created in connection with Capital Lease
Obligations, provided that such Liens do not
encumber any property other than the property
financed by the capital lease under which such
Capital Lease Obligations exist;
(vi) Liens existing on any assets acquired by the
Borrower or any of its Subsidiaries after the date
of this Agreement or created at the time of
acquisition of such assets by the Borrower or any
of its Subsidiaries after the date of this
Agreement to secure purchase money Indebtedness;
provided that any such acquisition or incurrence
of Indebtedness must be permitted by all other
applicable provisions of this Agreement, that the
Lien must not extend to any assets other than
those being acquired, that the purchase money
Indebtedness not exceed 90% of the value of the
asset so acquired, and that the aggregate amount
of purchase money Indebtedness secured by all such
Liens (excluding the aggregate amount of purchase
money Indebtedness incurred pursuant to an
Acquisition that is permitted by the terms of this
Agreement) shall not exceed $5,000,000;
(vii) existing Liens in respect of property,
assets or revenues of the Borrower or any of its
Subsidiaries listed on Schedule 1.1 hereto;
-9-
<PAGE>
(viii) Liens arising by operation of law in favor
of landlords in connection with the leasing of
real property in the ordinary course of business,
to the extent such liens encumber only personal
property located on the leased property and the
obligations secured thereby are limited to
obligations arising under the related lease; and
(ix) extensions, renewals, refinancings or replacements
of any Permitted Liens referred to above, provided
that, with respect to any such Liens described in
subparts (v), (vi) and (vii) immediately above,
the principal amount of the obligation secured
thereby is not increased and that any such
extension, renewal, refinancing or replacement is
limited to the property originally encumbered
thereby.
"Person" shall mean any individual, corporation,
------
partnership, trust, joint venture, unincorporated
association or other enterprise or any Governmental
Authority.
"Petroleum Products" shall mean, collectively,
---------------------
gasoline, diesel fuel, motor oil, waste or used oil, heating
oil, kerosene and any other petroleum products.
"Plan" shall mean an employee benefit plan established
----
or maintained by the Borrower or any ERISA Affiliate and
which is covered by Title IV of ERISA, other than a
Multiemployer Plan.
"Quarterly Date" shall mean the last Business Day of
---------------
each March, June, September and December, the first of which
shall be the first such day after the date of this
Agreement.
"Receivables" means all rights of the Borrower or any
-----------
of its Subsidiaries to receive payment for goods sold,
licensed or leased or for services rendered by the Borrower
or any of its Subsidiaries in the ordinary course of
business which are not evidenced by an instrument or chattel
paper, together with all interest, finance charges or other
amounts payable by an obligor in respect thereof.
"Reference Banks" shall mean three banks that regularly
---------------
quote rates for the offering by such bank to leading banks
in the London interbank market of Dollar deposits, which
shall be selected from time to time by the Agent and
designated as such for purposes of this Agreement.
"Regulation D" shall mean Regulation D of the Board of
------------
Governors of the Federal Reserve System (or any successor
thereto), as the same may be amended or supplemented from
time to time.
"Regulatory Change" shall mean, with respect to any
------------------
Bank, any change after the date of this Agreement in United
States Federal or state law or regulations, or the entry,
adoption, or making after such date of any order,
interpretation, directive, or request of or under any United
States Federal or state law or regulations (whether or not
having the force of law) by any court or governmental or
monetary authority charged with the interpretation or
administration thereof, applying to a class of banks
including such Bank.
-10-
<PAGE>
"Reimbursement Agreement" shall mean any application
------------------------
and/or reimbursement agreement pursuant to which a Letter of
Credit has been issued, as the same may be amended,
modified, supplemented or replaced from time to time.
"Reimbursement Obligations" shall mean, at any time,
--------------------------
the obligations of the Borrower then outstanding, or which
may thereafter arise in respect to all Letters of Credit
then outstanding, to reimburse amounts paid by the Issuing
Bank in respect of any drawings under a Letter of Credit.
"Replacement Applicable Margin" means as follows: if
------------------------------
at the end of any fiscal quarter the Tangible Net Worth
Ratio is within the respective ranges set forth below, then
with respect to Corporate Base Rate Loans and Eurodollar
Loans the "Replacement Applicable Margin" at all times
during the second succeeding fiscal quarter shall be the
respective percentages set forth opposite such ratios:
<TABLE>
Replacement Replacement
Applicable Margin Applicable Margin
Tangible Net for Corporate for Eurodollar
Worth Ratio Base Rate Loans Loans
-------------- ----------------- --------------
<S> <C> <C>
Greater than 1.25 to 1 0.00% 1.75%
Less than or equal to 1.25
to 1, but greater than .80 to 1 0.25% 1.50%
Less than or equal to .80 to 1 0.50% 1.35%
</TABLE>
provided, however, that during any period that the Borrower
has failed to deliver the financial statements or the
Borrowing Base and Compliance Certificate as required by
Section 6.1 hereof, the Replacement Applicable Margin for
Corporate Base Rate Loans shall be 0% and the Replacement
Applicable Margin for Eurodollar Loans shall be 1.75%.
"Requirement of Law" shall mean for any Person any law,
------------------
treaty, regulation, rule, order, judgment or decree, or any
other determination or requirement of any Governmental
Authority or arbitrator applicable to or binding on such
Person or any of its property or to which such Person or any
of its property is subject.
"Reserve Requirement" shall mean, for any Eurodollar
--------------------
Loan for any Interest Period therefor, the average maximum
rate at which reserves (including any marginal, supplemental
or emergency reserves) are required to be maintained during
such Interest Period under Regulation D by any Bank against
"Eurocurrency liabilities" (as such term is used in
Regulation D), which shall be determined without benefit of
or credit for exemptions, prorations or offsets. Without
limiting the effect of the foregoing, the Reserve
Requirement shall reflect any other reserves required to be
maintained by such Bank by reason of any Regulatory Change
against (a) any category of liabilities which includes
deposits by reference to which LIBOR is to be determined as
provided in the definition of "LIBOR" in this Section 1.1 or
(b) any category of extension of credit or other assets
which includes the Eurodollar Loans.
-11-
"Restricted Payments" shall have the meaning set forth
-------------------
in Section 6.12 hereof.
"Revolving Credit Commitment" shall mean, as to each
----------------------------
Bank, the obligation of such Bank to make Revolving Credit
Loans under Section 2.1(a) hereof up to an aggregate
principal amount at any one time outstanding equal to the
amount set forth opposite the name of such Bank on Exhibit A
hereto under the heading "Revolving Credit Commitment" (as
the same may be reduced from time to time pursuant to
Section 2.3 hereof), minus (without duplication) the
principal amount of such Bank's Revolving Credit Loans then
outstanding and the amount, if any, of such Bank's LC
Exposure as of the date on which any determination of such
Bank's Revolving Credit Commitment is being made; provided,
however, that at no time shall any Bank's Revolving Credit
Commitment exceed its pro rata share of the Borrowing Base
then in effect. The original aggregate amount of the
Revolving Credit Commitments is $18,000,000.
"Revolving Credit Loan" shall have the meaning assigned
---------------------
to such term in Section 2.1(a) hereof.
"Revolving Credit Notes" shall mean the promissory
------------------------
notes defined as such in Section 2.6 hereof.
"Revolving Credit Termination Date" shall mean March
----------------------------------
31, 2002; provided, however, that if such date would
otherwise fall on a date which is not a Business Day, the
Revolving Credit Termination Date shall be the next
preceding Business Day.
"SEC" shall mean the Securities and Exchange Commission
---
or any successor thereto.
"Security Documents" shall mean, collectively, the
-------------------
Subsidiary Guaranty, the Reimbursement Agreements and all
other documents executed as security for the Obligations to
the extent set forth therein, as any or all of the foregoing
may be renewed, extended, amended, modified, supplemented or
replaced from time to time.
"Subsidiary" shall mean, with respect to any Person,
----------
any corporation or other entity of which at least a majority
of the outstanding securities or other ownership interests
having by the terms thereof ordinary voting power to elect a
majority of the board of directors or other persons
performing similar functions (irrespective of whether or not
at the time stock of any other class or classes of such
corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time directly
or indirectly owned or controlled by such Person or one or
more of its Subsidiaries or by such Person and one or more
of its Subsidiaries. Notwithstanding the preceding
sentence, Health Network Ventures, Inc. shall not be
considered a "Subsidiary" of the Borrower, for purposes of
this Agreement, unless the Borrower directly or indirectly
owns or controls at least 75% of its outstanding voting
securities.
"Subsidiary Guarantor" shall mean each Subsidiary of
---------------------
the Borrower other than the Foreign Subsidiaries. As of the
date hereof, the Subsidiary Guarantors are Cerner
Properties, Inc., Cerner International, Inc., Multum
Information Services, Inc., Cerner Health Connections, Inc.,
Cerner Health Facts, Inc., Cerner Healthwise, Inc. and
Cerner Performance Logistics, Inc.
-12-
"Subsidiary Guaranty" shall mean the Subsidiary
---------------------
Guaranty, executed by each Subsidiary Guarantor for the
benefit of the Agent, dated as of the date hereof, as the
same may be amended, modified, supplemented or replaced from
time to time.
"Tangible Net Worth" shall mean, at any date,
---------------------
Consolidated Net Worth minus any amount included in the
determination thereof which would be attributable to
goodwill and any other intangible item (other than
intangible items attributable to capitalized software
costs).
"Tangible Net Worth Ratio" shall mean, at any date, the
------------------------
ratio of (i) the total liabilities of the Borrower and its
Subsidiaries determined on a consolidated basis on such
date, to (ii) Tangible Net Worth on such date.
"Termination Date" shall mean the Revolving Credit
-----------------
Termination Date.
"Total Capitalization" shall mean, at any date, the sum
--------------------
of (i) Funded Debt, plus (ii) Tangible Net Worth.
"Wholly-Owned Subsidiary" shall mean, with respect to
------------------------
any Person, any Subsidiary of such Person all of the shares
of capital stock (and all rights and options to purchase
such shares) of which, other than directors' qualifying
shares, are owned, beneficially and of record, by such
Person or another Wholly-Owned Subsidiary of such Person.
Additional definitions may be found in the preamble and
throughout this Agreement.
1.2.Accounting Terms; Statements of Variation.
-----------------------------------------
(a) All accounting terms used herein shall (except as
otherwise expressly provided herein) be interpreted, and all
financial statements and certificates and reports as to
financial matters required to be delivered to the Agent, the
Banks or the Issuing Bank hereunder shall be prepared, in
accordance with GAAP applied on a basis consistent with the
accounting principles used in the preparation of the audited
financial statements of the Borrower and its Subsidiaries on
a consolidated basis referred to in Section 5.2 hereof.
(b) the Borrower shall deliver to the Banks at the same
time as the delivery of any annual or monthly financial
statement under Section 6.1 hereof notice of any material
variation between the application of accounting principles
employed in the preparation of such statement and the
application of accounting principles employed in the
preparation of the immediately preceding annual or monthly
financial statements, as the case may be.
(c) Except as otherwise provided herein, if any changes
in accounting principles from those used in the preparation
of the audited financial statements referred to in
Section 5.2 hereof are hereafter required or permitted by
the rules, regulations, pronouncements and opinions of the
Financial Accounting Standards Board or the American
Institute of Certified Public Accountants (or successors
thereto or agencies with similar functions) and are adopted
by the Borrower with the agreement of its independent
certified public accountants and such changes result in a
change in the method of calculation of any of the financial
covenants, standards or terms in or relating to Section 6
hereof, the parties hereto agree to enter into discussions
with a view to amending such provisions so as to equitably
reflect such changes with the desired result that the
criteria for evaluating the financial condition of the
Borrower on a consolidated basis shall be the same after
such changes as if such changes had not been made, provided
that no change in GAAP that would affect the method of
calculation of any of said financial covenants, standards
-13-
or terms shall be given effect in such calculations until such
provisions are amended, in a manner satisfactory to the
Majority Banks, to so reflect such change in accounting
principles.
(d) the Borrower and its Subsidiaries shall maintain
their respective accounts on the basis of a fiscal year
ending on the Saturday closest to December 31 of each year.
1.3.General Rules. For the purposes of this Agreement,
-------------
the words "herein," "hereof," "hereunder" and words of
similar import refer to this Agreement as a whole and not to
a particular section, paragraph or other subdivision.
SECTION 2. THE COMMITMENTS
- ---------------------------
2.1. Loans.
-----
(a) Each Bank severally agrees, on and subject to the
terms of this Agreement to make loans to the Borrower from
time to time on any Business Day during the period from and
including the date hereof to but excluding the Revolving
Credit Termination Date in an aggregate principal amount at
any one time outstanding up to but not exceeding the lesser
of (i) the amount of such Bank's Revolving Credit Commitment
as then in effect, or (ii) the Bank's pro rata share of the
Borrowing Base then in effect. Subject to the terms and
conditions of this Agreement, during such period the
Borrower may borrow, repay and reborrow the amount of the
Revolving Credit Commitments. Loans made pursuant to this
Section 2.1 are herein called "Revolving Credit Loans."
----------------------
(b) The Loans made on each Borrowing Date may, on and
subject to the terms and conditions of this Agreement, be
Corporate Base Rate Loans or Eurodollar Loans (each being
referred to in this Agreement as a "type" of Loan) as
specified in the relevant notice of borrowing referred to in
Section 2.2(a) hereof; provided that (i) no more than four
Loans constituting Eurodollar Loans may be outstanding from
each Bank at any one time and (ii) subject to clause (i)
above, the Borrower may Convert Loans of one type into Loans
of the other type or Continue Loans of one type as Loans of
the same type, all as hereinafter provided.
2.2.Borrowings.
----------
(a) The Borrower shall give the Agent notice (which
shall promptly notify the Banks by telephone, confirmed
promptly in writing) of each borrowing hereunder as provided
in Section 2.15 hereof.
(b) Not later than 2:00 p.m. Kansas City time on the
date specified for each borrowing hereunder, each Bank shall
make available to the Agent the amount of the Loan to be
made by it on such date, at such account maintained by the
Agent as the Agent shall specify, in immediately available
funds, for the account
-14-
<PAGE>
of the Borrower. The amount so received by the Agent shall,
subject to the terms and conditions of this Agreement,
promptly be made available to the Borrower by depositing the
same, in immediately available funds, in one or more accounts
of the Borrower maintained with Mercantile Bank.
2.3.Reductions and Changes of Commitments.
-------------------------------------
(a) The Borrower shall have the right to terminate in
whole, but not in part, the Revolving Credit Commitments,
upon notice as provided herein.
(b) Commitments once terminated in accordance with
paragraph (a) of this Section 2.3 may not be reinstated,
unless each Bank shall agree to the reinstatement of such
Commitments upon the request of the Borrower; provided,
however, that any Bank may decline any such request for
reinstatement, in its sole discretion.
2.4.Lending Offices. The Loans of each type made by
----------------
each Bank shall be made and maintained at such Bank's
applicable lending office for Loans of such type.
2.5.Several Obligations; Remedies Independent. The
--------------------------------------------
failure of any Bank to make any Loan to be made by it on the
date specified therefor shall not relieve any other Bank of
its obligation to make its Loan on such date, and neither
any Bank nor the Agent shall be responsible for the failure
of any other Bank to make a Loan to be made by such other
Bank.
The amounts payable by the Borrower at any time
hereunder and under the Notes to each Bank shall be a
separate and independent debt and each Bank shall be
entitled to protect and enforce its rights arising out of
this Agreement and its Notes, and it shall not be necessary
for any other Bank or the Agent to consent to, or be joined
as an additional party in, any proceedings for such
purposes; provided, however, that this Section 2.5 shall not
be construed to permit acceleration of any obligation
hereunder, or cancellation by any Bank of its Commitments
hereunder, other than in accordance with Section 7 hereof or
as otherwise expressly permitted by the terms of this
Agreement.
2.6.Notes. The Revolving Credit Loans made by each
-----
Bank under its Revolving Credit Commitment shall be
evidenced by a single promissory note of the Borrower in
substantially the form of Exhibit B hereto. Each Note shall
be dated as of the date hereof, payable to the order of such
Bank in a principal amount equal to the amount of such
Commitment as then in effect and otherwise duly completed.
Each Loan made by each Bank under its Commitments, and all
payments and prepayments made on account of the principal
thereof, shall be recorded by such Bank on its books and
records.
2.7.Conversion or Continuation of Loans. Subject to
-------------------------------------
Section 4 hereof, the Borrower shall have the right to
Convert Loans of one type into Loans of the other type or
Continue Loans of one type as Loans of the same type, at any
time or from time to time, provided that Eurodollar Loans
may be Converted only on the last day of an Interest Period
for such Loans.
-15-
<PAGE>
2.8.Repayment of Loans. The Borrower shall pay to the
------------------
Agent for the account of each Bank the full outstanding
principal amount of such Bank's Revolving Credit Loans made
under its Revolving Credit Commitment (and all accrued
interest thereon in accordance with Section 2.9) on the
Revolving Credit Termination Date, or such earlier date as
may be herein provided.
2.9.Interest.
--------
(a) The Borrower shall pay to the Agent for the account
of each Bank interest on the unpaid principal amount of each
Revolving Credit Loan of such Bank for the period commencing
on and including the date of such Revolving Credit Loan to
but excluding the date such Revolving Credit Loan is paid in
full, at the following rates per annum:
(i) during any period while such Revolving
Credit Loan is a Corporate Base Rate Loan,
the Corporate Base Rate (as in effect from
time to time) minus the Applicable Margin
(as in effect from time to time); and
(ii) during any period while such Revolving
Credit Loan is a Eurodollar Loan, for each
Interest Period relating thereto, the LIBOR
Reserve Adjusted Rate for such Revolving
Credit Loan for such Interest Period plus
the Applicable Margin (as in effect from
time to time).
(b) Notwithstanding the provisions of clause (a) above,
the Borrower shall pay to the Agent for the account of each
Bank interest at the applicable Default Rate on any
principal of any Loan of such Bank, and on any interest or
other amount payable by the Borrower, as applicable,
hereunder or under any Note held by such Bank, which is not
paid in full when due (whether at stated maturity, by
acceleration or otherwise), for the period commencing on and
including the due date thereof until the same is paid in
full.
(c) Accrued interest on each Loan shall be payable (i)
in the case of a Corporate Base Rate Loan, on each
Quarterly Date, and (ii) in the case of a Eurodollar Loan,
on the last day of each Interest Period therefor and, if
such Interest Period is longer than three months, at
three-month intervals following the first day of such
Interest Period; provided that interest payable at the
Default Rate shall be payable from time to time on demand.
(d) Promptly after the determination of any interest
rate provided for herein or any change therein, the Agent
shall notify the Banks and the Borrower thereof.
(e) The "Applicable Margin," as used in this Section
2.9, is subject to being replaced by the Replacement
Applicable Margin, subject to the terms and conditions of
Section 2.22 hereof. This subsection (e) is for
informational purposes only.
2.10. Optional Prepayments. The Borrower shall
---------------------
have the right to prepay the Loans in whole or in part at
any time without premium or penalty, subject to giving the
Agent prior notice in accordance with the provisions of
Section 2.15 hereof, provided that (a) each such partial
prepayment shall be in the aggregate
-16-
<PAGE>
principal amount of not less than $100,000, and (b) any
prepayment of a Eurodollar Loan may be made only on the last
day of the Interest Period therefor. Amounts prepaid in
respect of Revolving Credit Loans under this Section 2.10 may
be reborrowed on and subject to the terms and conditions hereof.
2.11. Mandatory Prepayments. On any date, the
----------------------
Borrower shall prepay the principal of the Revolving Credit
Loans to the extent the then outstanding principal balance
thereof exceeds the Borrowing Base then in effect.
2.12. Payments.
--------
(a) Except to the extent otherwise provided herein, all
payments of principal, interest and other amounts to be made
by the Borrower under this Agreement and the Notes shall be
made in Dollars, in immediately available funds, to the
Agent at such account maintained by the Agent with
Mercantile Bank not later than 1:00 p.m. Kansas City time on
the date on which such payment shall become due (each such
payment made after such time on such due date to be deemed
to have been made on the next succeeding Business Day).
Payment to the Agent shall be payment to the Banks.
(b) The Borrower shall, at the time of making each
payment under this Agreement or any Note, specify to the
Agent the Loans or other amounts payable by the Borrower
hereunder to which such payment is to be applied (and in the
event that it fails to so specify, or if any Default has
occurred and is continuing, the Agent may distribute such
payment to the Banks in such manner as it may determine to
be appropriate, subject to Section 2.13 hereof).
(c) Each payment received by the Agent under this
Agreement or any Note for the account of a Bank shall be
paid by the Agent promptly to such Bank, in immediately
available funds, for the account of such Bank's applicable
lending office for the Loan in respect of which such payment
is made; and the Agent shall promptly notify each Bank of
the Agent's receipt of such payments.
(d) All payments by the Borrower hereunder shall be
made without deduction, set-off or counterclaim.
(e) If the due date of any payment under this Agreement
or any Note would otherwise fall on a day which is not a
Business Day such date shall (unless otherwise expressly
provided herein) be extended to the immediately succeeding
Business Day and interest shall be payable for any principal
so extended for the period of such extension.
2.13. Pro Rata Treatment. Except to the extent
-------------------
otherwise expressly provided herein:
(a) each borrowing hereunder shall be made from the
Banks, each payment of commitment fee shall be
made for the account of the Banks, and each
termination or reduction of the amount of the
Revolving Credit Commitments shall be applied to
such Commitments of the Banks, pro rata according
to the amounts of their respective unused
Commitments;
-17-
<PAGE>
(b) the making, Conversion and Continuation of Loans
of a particular type (except as otherwise provided
in Section 3 hereof) shall be pro rata among the
Banks according to the amounts of their respective
Commitments; and
(c) each payment and prepayment by the Borrower of
principal of or interest on the Loans of a
particular type shall be made to the Agent for the
account of the Banks holding Loans of such type
pro rata in accordance with the respective unpaid
principal amounts thereof.
2.14. Minimum Amounts. Each borrowing, Conversion
---------------
or Continuation of Corporate Base Rate Loans shall be in an
amount of at least $100,000 and each borrowing, Conversion
or Continuation of Eurodollar Loans shall be in an amount of
$1,000,000 or a multiple of $100,000 in excess thereof
(borrowings, Conversions or Continuations of or into Loans
of different types or, in the case of Eurodollar Loans,
having different Interest Periods at the same time hereunder
to be deemed separate borrowings or Conversions for purposes
of the foregoing, one for each type or Interest Period).
Anything in this Agreement to the contrary notwithstanding,
the aggregate principal amount of Eurodollar Loans having
the same Interest Period shall be at least equal to
$1,000,000 and, if any Eurodollar Loans would otherwise be
in a lesser principal amount for any period, such Loans
shall be Corporate Base Rate Loans during such period.
2.15. Certain Notices. The Borrower shall give
----------------
notices to the Agent of all borrowings, terminations of
Commitments, Conversions, Continuations or prepayments of
Loans, and of the duration of Interest periods, such notices
to be substantially in the form of Exhibit C hereto. Each
such notice shall be irrevocable and shall be effective only
if received by the Agent not later than 1:00 p.m. Kansas
City time on the number of Business Days prior to the date
of the relevant borrowing, termination, Conversion,
Continuation or prepayment or the first day of such Interest
Period specified below:
<TABLE>
Notice of Business
Notice Days Prior
------ ------------------
<S> <C>
Termination of Commitments 1
Borrowing or prepayments of, on Conversion into,
Corporate Base Rate Loans 1
Borrowing or prepayment of, Conversion into,
Continuation as, or duration on Interest Period for
Eurodollar Loans 3
</TABLE>
Each such notice of termination shall specify that it
relates to the Revolving Credit Commitments and the aggregate
amount of the relevant Commitments to be terminated or reduced.
Each such notice of borrowing, Conversion, Continuation or
prepayment shall specify the aggregate amount of Loans to be
borrowed, Converted, Continued or prepaid and the amount, the
type of Loans to be borrowed, Converted, Continued or prepaid
(and, in the case of a Conversion, the type of Loans to result
from such Conversion) and the date
-18-
<PAGE>
of borrowing, Conversion, Continuation or prepayment (which
shall be a Business Day). Each such notice of the duration
of an Interest Period shall specify the Loans to which such
Interest Period is to relate. The Agent shall promptly notify
the Banks of the contents of each such notice. In the event
that the Borrower fails to select the type of Loan, or the
duration of any Interest Period, for any Eurodollar Loan
within the time period and otherwise as provided in this Section
2.15, such Loan (if outstanding as a Eurodollar Loan) will be
automatically Converted into a Corporate Base Rate Loan on
the last day of the then current Interest Period for such
Loan or (if outstanding as a Corporate Base Rate Loan) will
remain as, or (if not then outstanding) will be made as, a
Corporate Base Rate Loan.
2.16. Non-Receipt of Funds by the Agent. Unless
----------------------------------
the Agent shall have been notified by a Bank or the Borrower
prior to the date on which it is scheduled to make payment
to the Agent of (in the case of a Bank) the proceeds of a
Loan to be made by it hereunder or (in the case of the
Borrower) a payment to the Agent for the account of one or
more of the Banks hereunder (such payment being herein
called the "Required Payment"), which notice shall be
effective upon receipt by the Agent, that it does not intend
to make the Required Payment to the Agent, the Agent may
assume that the Required Payment has been made and may, in
reliance on such assumption (but shall not be required to),
make the amount thereof available to the intended
recipient(s) on such date and, if such Bank has not, or the
Borrower (as the case may be) has not, in fact made the
Required Payment to the Agent by the close of business on
the date due, the recipient(s) of such payment shall, on
demand, repay to the Agent the amount so made available
together with interest thereon in respect of each day during
the period commencing on and including the date such amount
was so made available by the Agent until the date the Agent
recovers such amount at a rate per annum equal to (i) in the
case of the Borrower, the Corporate Base Rate, and (ii) in
the case of a Bank, the Agents cost of overnight funds, in
each case for each day such amount was made available by the
Agent.
2.17. Balances; Sharing of Payments.
-----------------------------
(a) The Borrower agrees that, in addition to (and
without limitation of) any right of set-off, banker's lien
or counterclaim a Bank may otherwise have, each Bank shall
be entitled, at its option, to set off and apply balances
held by it for the account of the Borrower at any of its
offices or Affiliates, in Dollars or in any other currency,
whether or not matured, against any principal of or interest
on any of such Bank's Loans, or any other amount payable to
such Bank hereunder, which is not paid when due in
accordance with the terms hereof (regardless of whether such
balances are then due to the Borrower), in which case it
shall promptly notify the Borrower and the Agent thereof,
provided that such Bank's failure to give such notice shall
not affect the validity of any such set off.
(b) If any Bank shall obtain payment of any principal
of or interest on any Loan or Reimbursement Obligation
through the exercise of any right of set-off, banker's lien
or counterclaim or similar right or otherwise, and, as a
result of such payment, such Bank shall have received a
greater percentage of the principal or interest then due
hereunder by the Borrower to such Bank than its pro rata
share thereof, it shall promptly purchase from such other
Banks participations in (or, if and to the extent specified
by such Bank, direct interests in) the Loans made by or the
Reimbursement Obligations owing to such other Banks (or in
interest due thereon, as the case may be) in such amounts,
and make such other adjustments from time to time as shall
be equitable, to the end that all the Banks shall share the
benefit of such excess payment (net of any expenses which
may be incurred by such Bank in obtaining or preserving such
excess payment) pro rata in
-19-
<PAGE>
accordance with the unpaid principal and/or interest on the
Loans or Reimbursement Obligation held by each of the Banks.
To such end all the Banks shall make appropriate adjustments
among themselves (by the resale of participations sold or
otherwise) if such payment is rescinded or must otherwise be
restored. The Borrower agrees that any Bank so purchasing a
participation (or direct interest) in the Loans made by other
Banks or the Reimbursement Obligations owing to such Bank (or
in interest due thereon, as the case may be) may exercise any
and all rights of set-off, bankers' lien, counterclaim or
similar rights with respect to such participation as fully
as if such Bank were a direct holder of Loans or Reimbursement
Obligation in the amount of such participation. Nothing in
this Agreement shall require any Bank to exercise any such
right or shall affect the right of any Bank to exercise, and
retain the benefits of exercising, any such right with
respect to any other indebtedness or obligation of the
Borrower. If under any applicable bankruptcy, insolvency or
other similar law, any Bank receives a secured claim in lieu
of a set-off to which this Section 2.17 applies, such Bank
shall, to the extent practicable, exercise its rights in
respect of such secured claim in a manner consistent with
the rights of the Banks entitled under this Section 2.17 to
share in the benefits of any recovery on such secured claim.
2.18. Computation of Interest. Interest on the
-----------------------
principal amount of the Loans from time to time outstanding,
the fees payable under Section 3.1, and any other amount due
hereunder shall be computed on the basis of a year of
360 days and paid for the actual number of days elapsed.
Each payment of interest shall be computed on the basis of
the principal amount outstanding during each day of the term
of each Loan and Reimbursement Obligation and the interest
rate applicable to each such day.
2.19. Guaranty. Payment and/or performance of the
--------
Obligations shall be guaranteed pursuant to the Subsidiary
Guaranty.
2.20. Advances After Default. Notwithstanding
------------------------
anything to the contrary herein, but subject, nevertheless,
to Section 9.4 hereof, the Majority Banks may, but shall
have no obligation of any kind whatsoever to, extend any
credit or make any loan or advance to the Borrower under
this Agreement, the Notes or any of the other Credit
Documents so long as any Default or Event of Default shall
have occurred and be continuing.
2.21. Letters of Credit.
-----------------
(a) From time to time after the date hereof, until the
Revolving Credit Termination Date, the Borrower may apply to
the Issuing Bank for the Issuing Bank to issue and deliver or
to extend the expiry date of one or more letters of credit
for the account of the Borrower ("Letters of Credit"), each
of which (i) is to be for an aggregate, undrawn amount at any
one time outstanding which does not exceed the aggregate amount
of the Revolving Credit Commitments then in effect, (ii) is
to be in a form approved in writing by the Borrower and the
Issuing Bank, (iii) is to be issued pursuant to the Issuing
Bank's then-current standard form of application and
reimbursement agreement, either as a documentary credit or
as a standby letter of credit for such general purposes of
the Borrower as are approved by the Issuing Bank, such approval
not to be unreasonably withheld, (iv) shall, by its terms,
expire not later than the earlier of (A) the first anniversary
of the date of issuance or extension (subject to extension for
additional one-year periods by the Issuing Bank, in its
discretion (and any automatic renewal clause requested in
such Letter of Credit shall require notice of non-renewal
to be given no more than 90 days from the stated expiry date),
and (B) the Revolving Credit
-20-
<PAGE>
Termination Date; and (v) shall require payment by the
Borrower of an issuance fee (A) in the case of standby letters
of credit of a percentage per annum of the maximum face amount
of the Letter of Credit that is equal to the then current
Applicable Margin for Eurodollar Loans minus 0.50% (but in a
minimum amount of $250) (subject, however, to the provisions
on Section 2.22 regarding the replacement of the Applicable
Margin with the Replacement Applicable Margin), payable in
advance, annually for the pro rata benefit of the Banks and
(B) in the case of a documentary credit, such fees as are
provided by the Issuing Bank's then current standard fee
schedule, and (vi) shall conform to all terms and conditions
required by the Issuing Bank as set forth in the applicable
Reimbursement Agreement, including, but not limited to, the
condition that the Letter of Credit shall be governed by the
Uniform Customs and Practice for Documentary Credits (1994
Revision), ICCP Publication No. 500, as amended, or the
International Standby Practices (ISP 98), ICC Publication
No. 590 (January 1, 1999), as applicable.
(b) The Issuing Bank shall be under no obligation to
issue any Letter of Credit for which an application is made
pursuant to Section 2.21(a) above, but in the event that the
Issuing Bank, in its sole discretion, with the consent of
the Banks, in their sole discretion, complies with the
Borrower's request and issues a Letter of Credit, the
Issuing Bank shall give notice thereof to the Agent, which
shall in turn give to each Bank, prompt written or telecopy
advice of the issuance of such Letter of Credit; provided,
however, that the Issuing Bank shall not issue or extend the
expiry of any Letter of Credit if, immediately after giving
effect to such issuance or extension, (i) the Banks'
aggregate LC Exposure plus the aggregate principal amount of
Revolving Credit Loans then outstanding at such time would
exceed the Banks' aggregate Revolving Credit Commitments or
the Borrowing Base then in effect or (ii) a Default or an
Event of Default would exist.
(c By the issuance of a Letter of Credit, and without
any further action on the part of the Issuing Bank or the
Banks in respect thereof, the Issuing Bank hereby grants to
each Bank, and each Bank hereby acquires from the Issuing
Bank, a participation in each such Letter of Credit equal to
such Bank's pro rata percentage, based on the Revolving
Credit Commitments in effect at the time of any issuance of
such Letter of Credit, of the maximum face amount of such
Letter of Credit, effective upon the issuance of such Letter
of Credit and pursuant to any other terms and conditions as
the Issuing Bank and the Banks may hereafter mutually agree
in writing with respect to such participations. In
consideration and in furtherance of the foregoing, each Bank
hereby absolutely and unconditionally agrees to pay to the
Issuing Bank, in accordance with Section 2.21(d) below, such
Bank's pro rata percentage, based on its Revolving Credit
Commitment, of all Reimbursement Obligations; provided,
however, that the Bank shall not be obligated to make any
such payment with respect to any disbursement made under any
Letter of Credit as a result of the gross negligence or
willful misconduct of the Issuing Bank. Each Bank
acknowledges and agrees that its acquisition of
participations pursuant to this paragraph in respect of
Letters of Credit is absolute and unconditional and shall
not be affected by any circumstance whatsoever, including
the occurrence and continuance of any Default or Event of
Default hereunder, and that each such payment shall be made
without any offset, abatement, withholding, or reduction
whatsoever.
(d Promptly after it shall have ascertained that any
draft and any accompanying documents presented under a
Letter of Credit appear to be in conformity with the terms
and conditions of such Letter of Credit, the Issuing Bank
shall give written or telecopy notice to the Borrower, the
Agent, and the Banks of the receipt and amount of such draft
and the date on which payment thereon will be made. If the
Issuing Bank shall not have received from the Borrower the
payment required pursuant to Section 2.21(e) below by 12:00
-21-
<PAGE>
noon, Kansas City time, one Business Day after the date on
which payment of a draft present under any Letter of Credit
has been made, the Issuing Bank shall promptly so notify the
Agent and each Bank, specifying in the notice to each Bank
such Bank's pro rata percentage, based on the Revolving
Credit Commitments on the date of issuance, of such
disbursement. Each Bank shall pay to the Agent, not later
than 2:00 p.m. Kansas City time, on such date, such Bank's
percentage of such disbursement, which the Agent shall
promptly pay to the Issuing Bank. The Issuing Bank shall
promptly remit to each Bank such Bank's percentage of any
amount subsequently received by the Issuing Bank in respect
of any such disbursement.
(e If the Issuing Bank shall pay any draft presented
under a Letter of Credit under circumstances entitling it to
reimbursement under the applicable Reimbursement Agreement,
the Borrower shall promptly pay to the Issuing Bank the
amount of any such draft, and shall make all other payments
required by, and comply with all other terms and conditions
of, the applicable Reimbursement Agreement. With respect to
any such payment which becomes due under the terms of this
Section 2.21(e), the Borrower authorizes the Agent, at its
option and upon the request of the Issuing Bank and the
Majority Banks, to cause such payment to be made when due by
charging such payment as an advance under the Revolving
Credit Loans.
(f Upon the occurrence of an Event of Default, or the
occurrence of any Default described in Sections 7(h), 7(i)
or 7(j), an amount equal to the amount of the then aggregate
LC Exposure shall without demand upon or notice to any
Borrower or any other Person, be deemed (as between the
Issuing Bank and the Borrower) to have been paid by the
Issuing Bank under the then outstanding Letters of Credit
(notwithstanding that such amount may not in fact have been
so paid), and the Borrower shall be immediately obligated to
reimburse the Issuing Bank for the amount deemed to have
been so paid. Any amounts so received by the Issuing Bank
pursuant to the provisions of the foregoing sentence shall
be deposited to a restricted deposit account (the "Assignee
--------
Deposit Account") maintained by the Agent as collateral
- ----------------
security for the repayment of the Obligations. Neither the
Borrower nor any other Person shall have any right to
withdraw funds deposited in the Assignee Deposit Account,
which right shall be vested solely in the Agent, on behalf
of the Banks. The funds deposited in the Assignee Deposit
Account pursuant to this subsection 2.21(f) shall be applied
at any time to the Obligations whether or not then due in
such order of application as the Majority Banks may
determine in their sole and absolute discretion.
2.22. Banks' Option to Adjust Pricing. The
-----------------------------------
Majority Banks shall have the option (the "Pricing
-------
Adjustment Option"), but not the obligation, to (i) replace
- -----------------
the Applicable Margin with the Replacement Applicable Margin
(the "Applicable Margin Adjustment"), and (ii) adjust the
----------------------------
commitment fee described in Section 3.1 from 0.30 % per
annum to 0.25% per annum (the "Commitment Fee Adjustment"),
-------------------------
in each case subject to the following terms and conditions:
(a) the Pricing Adjustment Option may be
exercised only by the Agent, at the
direction of the Majority Banks, giving the
Borrower written notice thereof not more
than 10 Business Days before, and not more
than 10 Business Days after, April 1, 2000;
(b) the Pricing Adjustment Option, if exercised
in accordance with the terms of this
Agreement, shall be deemed effective as of
April 1, 2000, and the following shall
-22-
<PAGE>
be deemed to have occurred as of that date
without further agreement or action on any
Person's part:
(i) all references in Sections 2.9
and 2.21 hereof to the "Applicable
Margin" shall be deemed to refer
instead to the "Replacement
Applicable Margin," and
(ii) the number "0.25%" shall be
substituted for the number "0.30%"
in Section 3.1 hereof; and
(c) the Agent may not elect the Applicable
Margin Adjustment without also electing the
Commitment Fee Adjustment, and vice versa.
SECTION 3. FEES; YIELD PROTECTION
- --------------------------------------
3.1.Commitment Fees. The Borrower shall pay to the
----------------
Agent for the pro rata account of each Bank a commitment fee
at a rate equal to 0.30% per annum (subject, however, to the
provisions of Section 2.22 hereof regarding the adjustment
of such number) on the daily average unused amount of such
Bank's Revolving Credit Commitment, for the period from and
including the date hereof to but excluding the earlier of
the date Revolving Credit Commitments are terminated or the
Revolving Credit Termination Date. Accrued commitment fees
shall be payable on each Quarterly Date and on the dates
referred to in the immediately preceding sentence.
3.2.Additional Costs. The Borrower shall pay to the
-----------------
Agent for the account of each Bank from time to time such
amounts as such Bank may determine to be necessary to
compensate it for any costs which such Bank determines are
attributable to its making or maintaining any Loans or its
obligation to make any Loans or issue or participate in any
Letters of Credit hereunder, or any reduction in any amount
receivable by such Bank hereunder in respect of any of such
Loans or Letters of Credit or such obligation (such
increases in costs and reductions in amounts receivable
being herein called "Additional Costs") resulting from any
Regulatory Change which:
(a changes the basis of taxation of any
amounts payable to such Bank under this
Agreement, the Notes, the Letters of Credit
or any of the other Credit Documents in
respect of any of the Loans (other than
taxes imposed on the overall net income of
the Bank); or
(b imposes, modifies or deems applicable any
reserve, special deposit, minimum capital,
capital ratio or similar requirements
(other than the Reserve Requirement
utilized in the determination of LIBOR
Reserve Adjusted Rate for such Loan)
relating to any extensions of credit or
other assets of, or any deposits with or
other liabilities of, such Bank (including
any of the Loans), or any Commitment of
such Bank; or
-23-
<PAGE>
(c imposes any other condition affecting this
Agreement, the Notes held by such Bank (or
any of such extensions of credit or
liabilities), the Letters of Credit, any of
the other Credit Documents, the Loans, or
the Commitment of such Bank or its lending
office.
Each Bank will notify the Borrower of any event
occurring after the date of this Agreement which will
entitle such Bank to compensation pursuant to this Section
3.2 as promptly as practicable after it obtains knowledge
thereof and determines to request such compensation (which
determination such Bank will endeavor to make with
reasonable promptness). Each Bank will furnish the Borrower
with a certificate setting forth in reasonable detail the
basis and amount of each request by the Bank for
compensation under this Section 3.2.
Without limiting the effect of the provisions of
Section 3.2 hereof, in the event that, by reason of any
Regulatory Change, any Bank becomes subject to restrictions
on the amount of a category of deposits or liabilities which
it may hold which includes deposits by reference to which
the interest rate on Eurodollar Loans is determined as
provided in this Agreement or a category of assets of such
Bank which includes Eurodollar Loans, then, if such Bank so
elects by notice to the Borrower and the Agent, the
obligation of such Bank to make and to Continue, and to
Convert Loans of any other type into, Eurodollar Loans
hereunder shall be suspended until such Regulatory Change
ceases to be in effect (and all Eurodollar Loans then held
by such Bank shall be Converted into Corporate Base Rate
Loans at the end of the Interest Periods applicable thereto,
or immediately if holding any such Eurodollar Loan would be
contrary to any Requirement of Law).
Determinations and allocations by any Bank for
purposes of this Section 3.2 of the effect of any Regulatory
Change on its costs or rate of return of maintaining the
Loans or its obligation to make Loans, or on amounts
receivable by it in respect of the Loans, and of the amounts
required to compensate such Bank under this Section 3.2,
shall be conclusive, provided that such determinations and
allocations are made on a reasonable basis and are set forth
in reasonable detail in the certificates referred to herein.
3.3.Limitation on Types of Loans. Anything herein to
-----------------------------
the contrary notwithstanding, if, on or prior to the
determination of any Eurodollar Rate for any Interest Period
the Agent determines (which determination shall be
conclusive) that quotations of interest rates for the
relevant deposits referred to in the definition of "LIBOR"
in Section 1.1 hereof are not being provided in the relevant
amounts or for the relevant maturities for purposes of
determining rates of interest for Eurodollar Loans as
provided herein, then the Agent shall give the Borrower and
each Bank prompt notice thereof, and so long as such
condition remains in effect, the Banks shall be under no
obligation to make additional Loans of such type, to
Continue Loans of such type or to Convert Loans of any other
type into Loans of such type and the Borrower shall, on the
last day(s) of the then current Interest Period(s) for the
outstanding Loans of such type, either prepay such Loans or
Convert such Loans into another type of Loan.
3.4.Illegality. Notwithstanding any other provision of
----------
this Agreement, in the event that it becomes unlawful for any
Bank to honor its obligation to make or maintain Eurodollar
Loans hereunder, then such Bank shall promptly notify the
Borrower thereof (with a copy to the Agent) and such Bank's
obligation to make or Continue Eurodollar Loans, or Convert
Loans into Eurodollar Loans, shall be suspended until such
time as
-24-
such Bank may again make and maintain Eurodollar Loans (and
such Bank's outstanding Eurodollar Loans shall be Converted
into Corporate Base Rate Loans in accordance with Section
3.5 hereof).
3.5.Certain Conversions Pursuant to Sections 3.3 and 3.4.
----------------------------------------------------
If the Eurodollar Loans of any Bank (such Loans being herein
called "Affected Loans") are to be Converted pursuant to
Section 3.3 or 3.4 hereof, such Bank's Affected Loans
shall be automatically Converted into Corporate Base Rate
Loans on the last day(s) of the then current Interest
Period(s) for the Affected Loans (or, if holding such
Affected Loan would be contrary to any Requirement of Law,
on such earlier date as such Bank may specify to the
Borrower with a copy to the Agent) and, unless and until
such Bank gives notice as provided below that the
circumstances specified in Section 3.3 or 3.4 hereof which
gave rise to such Conversion no longer exist:
(a to the extent that such Bank's Affected
Loans have been so Converted, all payments
and prepayments of principal which would
otherwise be applied to such Bank's
Affected Loans shall be applied instead to
its Corporate Base Rate Loans; and
(b all Loans which would otherwise be made or
Continued by such Bank as Eurodollar Loans
shall be made or Continued instead as
Corporate Base Rate Loans and all Loans of
such Bank which would otherwise be
Converted into Eurodollar Loans shall be
Converted instead into (or shall remain as)
Corporate Base Rate Loans.
If such Bank gives notice to the Borrower (with a copy to
the Agent) that the circumstances specified in Section 3.3
or 3.4 hereof which gave rise to the Conversion or
non-Continuation of such Bank's Affected Loans pursuant to
this Section 3.5 no longer exist (which such Bank agrees to
do promptly upon such circumstances ceasing to exist) at a
time when Eurodollar Loans are outstanding, such Bank's
Corporate Base Rate Loans shall be automatically Converted,
on the first day(s) of the next succeeding Interest
Period(s) for such outstanding Eurodollar Loans, to the
extent necessary so that, after giving effect thereto, all
Loans held by the Banks holding Eurodollar Loans and by such
Bank are held pro rata (as to principal amounts and Interest
Periods) in accordance with their respective Commitments.
3.6.Compensation. The Borrower shall pay to the Agent
------------
for the account of each Bank, upon the request of such Bank
through the Agent, such amount or amounts as shall be
sufficient (in the reasonable opinion of such Bank) to
compensate it for any loss, cost or expense which such Bank
incurs (including, without limitation, any loss, cost or
expense incurred by reason of the liquidation or
re-employment of deposits, but excluding loss of anticipated
profits) and determines is attributable to:
(a any payment, prepayment or Conversion of a
Eurodollar Loan made by such Bank for any
reason (including, without limitation,
pursuant to Section 2.11 hereof or by
reason of the acceleration of the Loans
pursuant to Section 7 hereof) on a date
other than the last day of an Interest
Period for such Loan; or
(b any failure by the Borrower for any reason
(including, without limitation, the failure
of any of the conditions precedent
specified in Section 4 hereof to be
-25-
<PAGE>
satisfied, but excluding the failure of the
Agent or such Bank to make funds available
to the Borrower when required to do so by
the terms of this Agreement) to borrow any
Loan from such Bank on the date for such
borrowing specified in the relevant notice
of borrowing given pursuant to Section 2.15
hereof.
SECTION 4. CONDITIONS PRECEDENT
- ------------------------------------
4.1.Conditions Precedent to the Loans. Notwithstanding
----------------------------------
anything to the contrary in this Agreement, the obligation
of any Bank to make any Loans hereunder on the initial
Borrowing Date is subject to each of the following
conditions precedent:
(a The Agent shall have received the following, each
of which shall be in form and substance
satisfactory to the Agent:
(i the Note(s), duly executed and delivered by
the Borrower;
(ii this Agreement, duly executed and delivered
by the Borrower;
(iii the Subsidiary Guaranty, duly executed and
delivered by each of the Subsidiary
Guarantors;
(iv an initial Borrowing Base Certificate;
(v payment in full of all loans and other
obligations outstanding under the Existing
Credit Agreement and termination of all
Commitments thereunder;
(vi Certified copies of the Certificate of
Incorporation and Bylaws (or equivalent
documents) of the Borrower and each of the
Subsidiary Guarantors and of resolutions of
their respective Boards of Directors
authorizing the making and performance, in
the case of the Borrower, of this
Agreement, the Notes and all other Credit
Documents, and in the case of the
Subsidiary Guarantors, of the Subsidiary
Guaranty, and the transactions contemplated
hereby and thereby;
(vii A certificate of appropriate officers of
the Borrower and each of the Subsidiary
Guarantors in respect of each of its
officers (1) who is authorized to execute
and deliver, as the case may be, this
Agreement, the Notes, the Subsidiary
Guaranty, and all other Credit Documents,
and (2) who will, until replaced by another
officer or officers duly authorized for
that purpose, act as its representative for
the purpose of signing documents and giving
notices and other communications in connection
with, as the case may be, this Agreement, the
Subsidiary Guaranty, and the other Credit
Documents and the transactions contemplated
hereby and thereby (and the Agent and the Banks
may conclusively rely on such certificate
-26-
<PAGE>
until it receives notice in writing from
the Borrower or such Subsidiary Guarantor
to the contrary);
(viii Certificates of all liability insurance
policies required by this Agreement and the
other Credit Documents naming the Agent, in
its capacity as Agent for the Banks, as an
additional insured thereunder;
(ix An opinion of Randy D. Sims, General
Counsel to the Borrower, addressing such
matters and in such form as the Agent may
reasonably require; and
(x Such other documents as the Agent may
reasonably request.
(b No material adverse change in the assets,
prospects, business, operations, financial condition,
liabilities or capitalization of the Borrower shall have
occurred since January 2, 1999.
(c No litigation or similar proceeding shall exist or
be threatened with respect to the making of the Loans or
consummation of the transactions contemplated hereby, and no
Requirement of Law shall have been promulgated or deemed
applicable which is likely to have a material adverse effect
on the assets, liabilities, operations, business, prospects,
financial condition or capitalization of the Borrower, on
the timely payment of the principal of or interest on the
Loans, or the enforceability of this Agreement, the Notes or
any of the other Credit Documents, or the Banks' rights and
remedies hereunder or thereunder.
(d All representations and warranties made by the
Borrower herein or in any of the other Credit Documents, or
in any certificate or statement furnished in connection with
the Loans or otherwise, are true and correct in all material
respects as of the date of each Loan as if made on and as of
such date.
(e No Default or Event of Default shall have occurred
and be continuing as of the date of any Loan or after giving
effect to any Loan.
(f The Loans, the use of the proceeds thereof, the
other transactions contemplated by this Agreement and the
other Credit Documents, and the performance thereof by the
Borrower and/or the Banks shall not violate, contravene, or
conflict with, any Requirement of Law.
4.2. Subsequent Loans and Advances. Each borrowing
------------------------------
hereunder made after the initial Borrowing Date and each
issuance of a Letter of Credit is subject to each condition
precedent set forth in Section 4.1 above. In addition, in
the case of each borrowing hereunder and each issuance of a
Letter of Credit, such borrowing or request for a Letter of
Credit to be issued and the related notice thereof by the
Borrower hereunder shall constitute a certification by the
Borrower, as of the date of such borrowing or request for a
Letter of Credit to be issued, and after giving effect
thereto, that (i) all representations and warranties made by
the Borrower herein (except those regarding Subsidiaries and
Material Contracts made at Sections 5.12 and 5.14 hereof
that are identified as being made "as of the date hereof")
or in any of the other Credit Documents, or in any
certificate or statement furnished in connection with the
Loans or otherwise, are true and correct in
-27-
<PAGE>
all material respects as if made on and of such date, and
(ii) no Default or Event of Default shall have occurred
and be continuing.
SECTION 5. REPRESENTATIONS AND WARRANTIES. The
- ----------------------------------------------------
Borrower represents and warrants, as to itself, to the Agent
and the Banks as follows:
5.1.Corporate Existence and Structure. The Borrower
-----------------------------------
and each of its Subsidiaries is a corporation duly organized
and validly existing in good standing under the laws of the
jurisdiction of its organization; has all requisite
corporate power; has all material governmental licenses,
authorizations, consents and approvals necessary to own its
assets and carry on its business as now being or as proposed
to be conducted; and is qualified to do business in all
jurisdictions in which the nature of the business conducted
by it makes such qualification necessary and where failure
to so qualify would have a material adverse effect on the
assets, prospects, business, operations, financial
condition, liabilities or capitalization of the Borrower or
any such Subsidiary.
5.2.Financial Condition. The audited consolidated
---------------------
balance sheet of the Borrower as at January 2, 1999, and the
related consolidated statements of earnings and changes in
financial position of the Borrower for the fiscal year ended
on said date, with the opinion thereon of January 2, 1999,
heretofore furnished to each of the Banks, fairly present
the consolidated financial condition of the Borrower as at
said date and the consolidated results of its operations for
the period covered thereby, all in accordance with GAAP
applied on a consistent basis. Except as disclosed on
Schedule 5.2 hereto, Borrower did not have on said date any
material contingent liabilities, material liabilities for
taxes, unusual forward or long-term commitments or any
material unrealized or anticipated losses from any
unfavorable commitments, except as referred to or reflected
or provided for in said balance sheet or the notes thereto
as at said date. Since January 2, 1999, there has been no
material adverse change in the assets, prospects, business,
operations, financial condition, liabilities (direct or
contingent) or capitalization of the Borrower from that set
forth in said financial statements as at said date.
5.3.Litigation. Except as disclosed on Schedule 5.3
----------
hereto, there are no legal or arbitration proceedings or any
proceedings by or before any Governmental Authority now
pending, or (to any Borrower's knowledge) threatened,
against the Borrower or any of its Subsidiaries, which, if
adversely determined, would have a material adverse effect
on the business, assets, prospects, operations, financial
condition, liabilities or capitalization of the Borrower and
its Subsidiaries taken as a whole.
5.4.No Breach. None of the execution and delivery of
----------
this Agreement, the Notes, or any of the other Credit
Documents, the consummation of the transactions herein and
therein contemplated, or the performance or compliance with
the terms and provisions hereof or thereof will conflict
with or result in a breach of, or require any consent or
prepayment under:
(i the charter or bylaws of the Borrower, or
(ii any order, writ, injunction or decree of
any court or other Governmental Authority
or any arbitration board applicable to or
binding on the Borrower, or
-28-
<PAGE>
(iii any material agreement or instrument to
which the Borrower is a party or by which
it is bound, or constitute a default under
any such agreement or instrument, or result
in the creation or imposition of any Lien
(other than Permitted Liens) on any of the
properties, assets or revenues of the
Borrower pursuant to the terms of any such
agreement or instrument.
5.5.Corporate Action; Binding Effect. The Borrower has
--------------------------------
all necessary corporate power and authority to make and
perform this Agreement, the Notes, the Reimbursement
Agreements, and each of the other Credit Documents, and the
making and performance by the Borrower of this Agreement,
the Notes, the Reimbursement Agreements, and each of the
other Credit Documents, and the consummation of the
transactions contemplated hereby and thereby, have been duly
authorized by all necessary corporate action on its part.
This Agreement constitutes, each of the Notes when executed
and delivered for value will constitute, and each of the
other Credit Documents executed or to be executed by the
Borrower, constitutes, the legal, valid and binding
obligation of the Borrower, enforceable in accordance with
its terms, except to the extent that enforcement may be
limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally, and by general
principles of equity (regardless of whether enforcement is
sought in a proceeding in equity or at law).
5.6.Approvals. No authorizations, approvals or
---------
consents of, and no filings or registrations with, any
Governmental Authority or any other Person are necessary for
the making or performance by the Borrower of this Agreement,
the Notes, the Reimbursement Agreements, or any of the other
Credit Documents, or the validity or enforceability thereof.
5.7.ERISA. The Borrower and each of its ERISA
-----
Affiliates have fulfilled their respective obligations under
the minimum funding standards of ERISA and the Code with
respect to each Plan and are in compliance in all material
respects with the presently applicable provisions of ERISA
and the Code, and have not incurred any material liability
to the PBGC or any Plan or Multiemployer Plan, other than an
obligation to fund or make contributions to any such Plan in
accordance with its terms and in the ordinary course.
5.8.Taxes. Except as disclosed on Schedule 5.8 hereto,
-----
the Borrower and all of its Subsidiaries have filed all
United States Federal income tax returns and all other
material tax returns which are required to be filed by them
and have paid all taxes shown to be due pursuant to such
returns or pursuant to any assessment received by the
Borrower or such Subsidiary, except those taxes being
contested in good faith by proper proceedings and (except in
the case of Inactive Subsidiaries) for which adequate
reserves are being maintained.
5.9.Investment Company Act. The Borrower is not an
-----------------------
"investment company" or a company "controlled" by
an"investment company" within the meaning of the Investment
Company Act of 1940, as amended.
5.10.Public Utility Holding Company Act. The Borrower is
----------------------------------
not a "holding company" or a "subsidiary company" of a "holding
company" or an "affiliate" of a "holding company" or of a "subsidiary
-29-
<PAGE>
company" of a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
5.11. Environmental Matters.
---------------------
(a The Borrower and each of its Subsidiaries has
obtained all applicable permits, licenses and other
authorizations which are required under all Environmental
Laws, including laws relating to emissions, discharges,
releases or threatened releases of Hazardous Materials into
the environment (including, without limitation, ambient air,
surface water, ground water or land) or otherwise relating
to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of
Hazardous Materials, except to the extent failure to have
any such permit, license or authorization does not have, and
will not have, a material adverse effect on the assets,
prospects, business, operations, financial condition,
liabilities or capitalization of the Borrower or such
Subsidiary. Except as set forth in Schedule 5.11 hereto,
the Borrower and each of its Subsidiaries is in compliance
with all applicable Environmental Laws and with all terms
and conditions of all permits, licenses and authorizations
required to be obtained by it, and is also in compliance
with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations,
schedules and timetables contained in applicable
Environmental Laws or contained in any regulations, code,
plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder,
except to the extent that failure to so comply does not
have, and will not have, a material adverse effect on the
assets, prospects, business, operations, financial
condition, liabilities or capitalization of the Borrower or
such Subsidiary.
(b Except as set forth on Schedule 5.11 hereto, (i)
neither the Borrower nor any of its Subsidiaries has used,
stored, treated, transported, manufactured, refined,
handled, produced or disposed of any Hazardous Materials or
Petroleum Products on, under, at, from, or otherwise
affecting any of their properties or assets, in any manner
which at the time of the action in question materially
violated any applicable Environmental Law governing the use,
storage, treatment, transportation, manufacture, refinement,
handling, production or disposal of such Hazardous Materials
or Petroleum Products, and (ii) to the best of the
Borrower's knowledge, no prior owner of such property or
asset or any past or present tenant, subtenant, or other
occupant or user thereof has used Hazardous Materials or
Petroleum Products on, at, under, from or affecting such
property or asset, in any manner which at the time of the
action in question materially violated any applicable
Environmental Law governing the use, storage, treatment,
transportation, manufacture, refinement, handling,
production or disposal of Hazardous Materials or Petroleum
Products.
(c Except as set forth on Schedule 5.11 hereto,
neither the Borrower nor any of its Subsidiaries has any
obligations or liabilities under any applicable
Environmental Law which could reasonably be expected to have
a material adverse effect on the business, prospects,
assets, financial condition, operations, liabilities or
capitalization of the Borrower and its Subsidiaries taken as
a whole, and neither the Borrower nor any of its
Subsidiaries has received notice of any claims against it,
and no presently outstanding citations or notices have been
issued against or received by it which could reasonably be
expected to have a material adverse effect on the business,
prospects, assets, operations, financial condition,
liabilities or capitalization of the Borrower and its
Subsidiaries taken as a whole which in any case have been or
are imposed by reason of or based on any applicable
Environmental Law.
-30-
<PAGE>
5.12. Subsidiaries. Each of the Subsidiaries
------------
listed on Schedule 5.12 hereto (other than the Foreign
Subsidiaries) is a Wholly-Owned Subsidiary of the Borrower,
and the Borrower owns and has good title to (free and clear
of all Liens), and has the unencumbered right to vote all
the outstanding shares of capital stock of each such
Subsidiary. Except as shown on Schedule 5.12, each of the
Foreign Subsidiaries is a Wholly-Owned Subsidiary of Cerner
International, Inc., which owns and has good title to (free
and clear of all Liens), and has the unencumbered right to
vote all the outstanding shares of capital stock of each
such Foreign Subsidiary. As of the date hereof, the
Borrower has only the Subsidiaries listed on Schedule 5.12
hereto. None of the Inactive Subsidiaries have any material
assets or properties.
5.13. Assets of the Borrower. The Borrower and
-----------------------
each of its Subsidiaries owns all properties and assets it
purports to own, free and clear of all Liens (except
Permitted Liens), except to the extent the Borrower's or any
Subsidiary's failure to own any such properties or assets
would not have a material adverse effect on the business,
prospects, assets, financial condition, operations,
liabilities or capitalization of the Borrower and its
Subsidiaries taken as a whole.
5.14. Material Contracts.
------------------
(a Any agreement or instrument that has or is likely
to have a material effect on the assets, prospects,
business, operations, financial condition, liabilities or
capitalization of the Borrower is referred to in this
Section 5.14 as a "Material Contract." As of the date
-----------------
hereof, all of the Borrower's Material Contracts are listed
on Schedule 5.14 hereto.
(b The Borrower is not in default under any Material
Contract in any manner that could materially and adversely
affect the assets, prospects, business, operations,
financial condition, liabilities or capitalization of the
Borrower, or in any manner that could jeopardize the
Borrower's right to require the performance, observance or
fulfillment of any of the obligations, covenants or
conditions contained in any Material Contract.
5.15. Solvency.
--------
(a The fair saleable value of the assets of the
Borrower (on an unconsolidated basis) exceeds and will,
immediately following the making of the Loans, exceed the
amount that will be required to be paid on or in respect of
the existing debts and other liabilities (including
contingent liabilities) of the Borrower as they mature.
(b Neither the Borrower nor any of its Subsidiaries
has or will have, immediately following the making of each
Loan, unreasonably small capital to carry on its business as
conducted or as proposed to be conducted.
(c Neither the Borrower nor any of its Subsidiaries
intends to, or believes that it will, incur debts beyond its
ability to pay such debts as they mature.
-31-
<PAGE>
5.16. Margin Regulations. Neither the making of
------------------
the Loans hereunder, nor the use of the proceeds thereof,
will violate or be inconsistent with the provisions of
Regulation G, T, U or X of the Board of Governors of the
Federal Reserve System. No part of the proceeds of any Loan
will be used, whether directly or indirectly, and whether
immediately, incidentally or ultimately, to purchase or to
extend credit to others for the purpose of purchasing or
carrying Margin Stock (as defined in said Regulation U).
5.17. Copyrights, Patents and Other Rights. The
-------------------------------------
Borrower and each of its Subsidiaries possesses all patents,
patent rights or patent licenses, trademark rights, trade
names, trade name rights and copyrights and all other
intellectual property rights which are required to conduct
its business as presently conducted, and such rights do not
infringe on or conflict with the rights of any other Person,
except to the extent such infringement or conflict would not
have a material adverse effect on the business, assets,
prospects, operations, financial condition, liabilities or
capitalization of the Borrower and its Subsidiaries taken as
a whole.
5.18. Disclosure. Neither this Agreement, nor any
----------
of the other Credit Documents, nor any certificate or
statement furnished to the Agent or any Bank in connection
herewith or otherwise, at the time it was executed,
delivered and/or furnished, contained any untrue statement
of a material fact, or omitted to state a material fact
which was necessary in order to make the statements
contained herein or therein not materially misleading. At
the date hereof, there is no fact known to the Borrower
which materially and adversely affects, or in the future may
reasonably be expected to materially and adversely affect,
the business, assets, prospects, operations, financial
condition, liabilities or capitalization of the Borrower.
5.19. Labor Matters. For at least the last 5
--------------
years, neither the Borrower nor any of its Subsidiaries has
experienced any strike, labor dispute, slowdown or work
stoppage due to labor disagreement, and to the best of the
Borrower's knowledge, there is no strike, dispute, slowdown
or work stoppage threatened against the Borrower or any of
its Subsidiaries.
5.20. No Event of Default. No Default or Event of
-------------------
Default has occurred and is continuing.
5.21. Use of Proceeds. The proceeds of the Loans
---------------
will be used by the Borrower to prepay the amount due under
the Existing Credit Agreement, for working capital and for
general corporate purposes, including but not limited to
other Acquisitions that are permitted by the terms of this
Agreement. All Loans are and shall be (x) business loans as
provided in Mo. Rev. Stat. 408.035 and also loans to a
corporation, (y) business loans within the meaning of the
Depository Institutions Deregulation and Monetary Control
Act of 1980, as amended, and (z) for business, commercial,
investment or other similar purpose and not primarily for
personal, family, household or agricultural use (as such
terms are used or defined in Regulation Z promulgated by the
Board of Governors of the Federal Reserve System and Title I
and V of the Consumer Credit Protection Act, as amended).
5.22. Authorized Officers. The Borrower hereby
--------------------
designates, appoints, authorizes and directs each of the
officers designated in the certified resolution of the board
of directors of the Borrower delivered to the Agent on the
date hereof (the "Authorized Officer") to act on behalf of
------------------
the Borrower for purposes of giving notice to the Agent of
requests for Loans under Section 2.2 hereof and for
otherwise giving notices under this Agreement or the other
Credit Documents. The Agent and the Banks are entitled to
rely and act on the instructions of the Authorized Officer on
behalf of the Borrower. The Borrower covenants and agrees to
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assume liability for and to protect, indemnify and hold
harmless the Agent and the Banks from any and all
liabilities, obligations, damages, penalties, claims, causes
of action, costs, charges and expenses (including without
limitation, attorneys' fees), which may be incurred by,
imposed or asserted against the Agent or any Bank howsoever
arising or incurred because of, out of or in connection with
the Agent or any Bank dealing with the Authorized Officer on
behalf of the Borrower, other than those liabilities,
obligations, damages, penalties, claims causes of action,
costs, charges and expenses incurred by reason of the gross
negligence or willful misconduct of such Agent or Bank, as
the case may be.
SECTION 6. COVENANTS. Until payment in full of the
- ---------------------------
principal of and interest on the Loans and all other amounts
payable by the Borrower hereunder or under any of the other
Credit Documents and until the expiration of the
Commitments:
6.1.Information. The Borrower shall deliver to the
-----------
Agent, with copies for each of the Banks:
(a as soon as available and in any event within
30 days after the end of each fiscal quarter
(commencing with the first whole or partial
quarter after the date hereof), (i) a
consolidating balance sheet and income statement
for the Borrower for the fiscal quarter and year-
to-date period; (ii) consolidated balance sheet
and income statement for the Borrower reflecting
quarterly and year-to-date performance against
current quarter budget, budget year-to-date (on a
calendar year basis), the prior year quarter and
the prior year-to-date; (iii) consolidated cash
flow statement for the Borrower reflecting current
quarter and year-to-date performance against
current quarter and year-to-date budget and prior
year quarter and prior year-to-date results; and
(iv) a certificate of the chief financial officer
of the Borrower which certificate shall state that
said financial statements fairly present the
consolidated financial condition and results of
operations of the Borrower in accordance with GAAP
consistently applied, as at the end of, and for,
such period (subject to normal year-end audit
adjustments and to the absence of footnote
disclosures);
(b as soon as available, and in any event within 120
days after the end of each fiscal year of the
Borrower consolidated and consolidating income
statements, statements of cash flows and
reconciliation of net worth and the related
consolidated and consolidating balance sheet and
consolidated statement of stockholders' equity for
the Borrower as at the end of such year, and for
the immediately preceding fiscal year, setting
forth in the case of each consolidated statement
and balance sheet in comparative form the
corresponding figures for the preceding fiscal
year, and accompanied by an unqualified opinion
thereon, of independent certified public
accountants satisfactory to the Agent, which
opinion shall state that said consolidated
financial statements fairly present the
consolidated financial condition and results of
operations of the Borrower as at the end of, and
for, such fiscal year, and a certificate of such
accountants stating that, in making the
examination necessary for their opinion, they
obtained no knowledge, except as specifically
stated, of any Default or Event of Default
continuing as of the date of such certificate;
(c promptly upon their becoming available, copies of all
registration statements and annual, periodic or other
regular reports, final proxy statements and such other
similar information
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<PAGE>
as shall be filed by the Borrower with the SEC, any
national securities exchange or (to the extent not
duplicative) any other similar Governmental Authority;
(d promptly upon the mailing thereof to the
shareholders of the Borrower generally, copies of
all notices, financial statements, reports and
proxy statements so mailed;
(e as soon as possible, and in any event within ten
days after the Borrower knows that any "reportable
event" as defined in ERISA or notice of
termination with respect to any Plan or
Multiemployer Plan have occurred or exist, a
statement signed by a senior officer of the
Borrower setting forth details respecting such
event or condition and the action, if any, which
the Borrower or its ERISA Affiliate proposes to
take with respect thereto (and a copy of any
report or notice required to be filed with or
given to PBGC by the Borrower or any of its ERISA
Affiliates with respect to such event or
condition);
(f except as otherwise provided in Section 6.11(d),
not less than 5 Business Days prior to the
formation of any Subsidiary or any Acquisition
that, upon the consummation of that Acquisition,
will result in any Person becoming a Subsidiary of
the Borrower, notice thereof describing such
transaction or event and the expected proceeds to
be received therefrom, in detail satisfactory to
the Majority Banks;
(g not later than February 28 of each year, a
consolidated operating budget for the Borrower,
for the then-current "plan year" of the Borrower
(to be the same as the Borrower's fiscal year)
showing projected revenues, expenses, earnings and
balance sheet by month and in such other detail
reasonably satisfactory to the Majority Banks, and
thereafter from time to time any material
modification to such budgets as soon as available;
(h promptly upon receipt by the Borrower, a copy of
any management letter sent by the Borrower's
independent certified public accountants (which
shall deliver the opinion on the Borrower's
financial statements pursuant to clause (b)
above), and promptly upon completion of any
response report, a copy of such response report;
(i promptly after the Borrower knows that any Default
has occurred, notice of such Default, describing
the same in reasonable detail and describing the
steps being taken to remedy the same;
(j promptly from time to time such other information
regarding (i) the business, affairs, operations or
condition (financial or otherwise) of the
Borrower, (ii) compliance by the Borrower with its
obligations contained herein or in any of the
other Credit Documents, and (iii the transactions
contemplated hereby, in each case in such form and
in such detail as the Majority Banks may
reasonably request;
(k promptly after obtaining knowledge thereof, any
material adverse change in the business,
prospects, assets, financial condition,
liabilities or capitalization of the Borrower; and
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<PAGE>
(l) as soon as available and in any event within 30
days after the end of each fiscal quarter
(commencing with the quarter ending April 3,
1999), a certificate (a "Borrowing Base and
Compliance Certificate") in the form of Exhibit D
hereto, calculating the Borrowing Base as of the
end of the most recently completed fiscal quarter,
and setting forth in reasonable detail the
computations necessary to determine whether the
Borrower is in compliance with the financial
covenants hereof as of the end of such fiscal
quarter.
The Borrower will furnish to the Agent, with copies for each
Bank, at the same time it furnishes financial statements
pursuant to clauses (a) or (b) above, a certificate of the
chief financial officer of the Borrower (i) to the effect
that no Default has occurred and is continuing, (ii) to the
effect that all representations and warranties made by the
Borrower in this Agreement (except those regarding
Subsidiaries and Material Contracts made at Sections 5.12
and 5.14 hereof that are identified as being made "as of the
date hereof") or in any of the other Credit Documents are
true and correct in all material respects as of the date of
such certificate with the same force and effect as if made
on such date, and (iii) containing such other information as
the Agent or any Bank (through the Agent) may from time to
time reasonably request to be included in such certificate.
6.2.Litigation, Etc. The Borrower shall promptly give
---------------
to the Agent, with copies for each of the Banks, notice of:
(a all legal or arbitration proceedings, and of all
proceedings by or before any Governmental
Authority affecting the Borrower or any of its
Subsidiaries which, if adversely determined, might
result in a monetary loss (regardless of whether
any portion of such loss is covered by insurance)
to the Borrower or any such Subsidiary in an
amount in excess of $1,000,000 individually or in
excess of $10,000,000 in the aggregate for all
such proceedings; and
(b (i) the issuance by any Governmental Authority of
any injunction, order or other restraint
prohibiting, or having the effect of prohibiting
or delaying, any action on the part of the
Borrower or any of its Subsidiaries, or (ii) the
institution of any litigation or similar
proceedings seeking any such injunction, order or
other restraint which, in the case of subpart (i)
hereof, would have, and in the case of subpart
(ii) hereof, would reasonably be expected to have
if the outcome were adverse, a material adverse
effect on the business, assets, prospects,
operations, financial condition, liabilities or
capitalization of the Borrower and its
Subsidiaries taken as a whole.
6.3.Compliance, Inspection, Etc. The Borrower shall,
----------------------------
and shall cause each of its Subsidiaries to:
(a comply with all applicable Requirements of Law if
failure to so comply would materially and
adversely affect the assets, prospects, business,
operations, financial condition, liabilities or
capitalization of the Borrower, or any of its
Subsidiaries, or the timely payment of the
principal of or interest on the Loans, or the
enforceability of this Agreement, the Notes or any
of the other Credit Documents or the rights and
remedies of the Agent or the Banks hereunder or
thereunder;
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<PAGE>
(b pay and discharge all taxes, assessments and
governmental charges or levies imposed on it or on
its income or profits or on any of its property
prior to the date on which penalties attach
thereto, except for any such tax, assessment,
charge or levy the payment of which is being
contested in good faith and by proper proceedings
and, if material, against which adequate reserves
are being maintained or which are bonded against
to the satisfaction of the Majority Banks;
(c permit representatives of the Agent and the Banks,
during normal business hours, to examine, copy and
make extracts from its books and records, to
inspect its properties, and to discuss its
business and affairs with its officers, all to the
extent reasonably requested by the Agent or any
Bank, which shall include, but not be limited to,
conducting field audits of the assets of the
Borrower and its Subsidiaries, one of which field
audits each year shall be at the Borrower's
expense; and
(d as soon as possible and in any event within 10
days after the Borrower has received any notice or
other communication from any Governmental
Authority to the effect that the Borrower or any
of its Subsidiaries is not in compliance with any
Environmental Law or any permit, license or
authorization referred to in Section 5.11 hereof
(in accordance with the provisions thereof), a
notice of such circumstance describing the same in
reasonable detail.
6.4.Use of Proceeds. The proceeds of the Loans shall
-----------------
be used solely to prepay the Existing Credit Agreement and
for working capital and general corporate purposes of the
Borrower, including but not limited to Acquisitions
permitted by the terms of this Agreement, and in accordance
with Sections 5.16 and 5.21 hereof.
6.5.Current Ratio. The Borrower shall not permit its
--------------
Current Ratio to be less than 2.00 to 1.00 at any time.
6.6.Minimum Tangible Net Worth. The Borrower shall not
--------------------------
permit its Tangible Net Worth on any date to be less than
the sum of (i) $200,000,000, plus (ii) an amount equal to
50% of its Consolidated Net Income (without reduction for
any deficit in its Consolidated Net Income) for the period
from January 2, 1999 to and including the date of
determination thereof, computed on a cumulative basis for
such entire period.
6.7.Funded Debt Ratio. The Borrower shall not permit
------------------
its Funded Debt Ratio at the end of any fiscal quarter to
exceed 60%.
6.8.Fixed Charge Coverage Ratio. The Borrower shall
-----------------------------
not permit its Fixed Charge Coverage Ratio for any Fiscal
Period to be less than 1.75 to 1.00.
6.9.[this section intentionally left blank]
6.10. Certain Obligations Respecting Subsidiaries.
-------------------------------------------
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<PAGE>
(a) The Borrower will, and will cause each of its
Subsidiaries to, take such action from time to time as shall
be necessary to ensure that all of the Borrower's
Subsidiaries are and remain owned as described in Section
5.12 hereof. Notwithstanding the foregoing, the Borrower
may wind up the corporate affairs of and dissolve any
Inactive Subsidiary, provided that the Borrower gives the
Agent not less than five days prior written notice thereof.
(b) The Borrower will not permit any of its
Subsidiaries to enter into, after the date of this
Agreement, any indenture, agreement, instrument or other
arrangement (each, a "Restrictive Agreement") that (or
----------------------
modify the terms of any Restrictive Agreement which is in
effect on the date of this Agreement if such modification)
would directly or indirectly, prohibit or restrain, or have
the effect of prohibiting or restraining, or would impose
materially adverse conditions upon, the incurrence or
payment of Indebtedness (including the Subsidiary Guaranty),
the granting of Liens, the declaration or payment of
dividends, the making of loans, advances or Investments (or
the repayment of or return on the same) or the sale,
assignment, transfer or other disposition of assets.
Notwithstanding the foregoing, a Subsidiary may enter into,
after the date of this Agreement, one or more Restrictive
Agreements provided that (i) each Restrictive Agreement is
entered into in connection with, and substantially at the
same time as, the Borrower's proposed private placement of
approximately $100 million of debt (as such proposed debt
has been described by the Borrower to the Agent in writing
on before the date hereof), and (ii) no provision in any
Restrictive Agreement prohibits or otherwise restricts the
incurrence or payment of any Indebtedness or other amounts
due or in favor of the Agent or any of the Banks under any
of the Credit Documents, including, without limitation, the
Subsidiary Guaranty.
(c) No later than five (5) Business Days after any
Person becomes a Subsidiary of the Borrower after the date
of this Agreement, the Borrower shall, in each such
instance, forthwith cause such Subsidiary to become a party
to the Subsidiary Guaranty, provided that if any such
--------
Subsidiary is a Foreign Subsidiary such Foreign Subsidiary
need not become a party to the Subsidiary Guaranty. The
Borrower shall, and shall cause such Subsidiary to, furnish
such certificates and other documentation as the Agent may
require, including, without limitation, favorable opinions
of counsel to such Person (which shall cover, among other
things, the legality, validity, binding effect and
enforceability of the documentation necessary to cause such
Subsidiary to become a party to the Subsidiary Guaranty.
6.11. Mergers, Acquisitions, Sale of Assets, Etc.
-------------------------------------------
The Borrower shall not, nor shall it permit any of its
Subsidiaries to, consolidate or merge with any other Person,
or sell, lease, assign, transfer or otherwise dispose of all
or any part of its business or assets to any other Person,
or be a party to any Acquisition of any other Person or all
or substantially all of such Person's assets, other than:
(a) sales of inventory, licensing of intellectual
property and leasing of real estate in the
ordinary course of its business and consistent
with its past practices;
(b) the disposition of obsolete or worn-out fixed
assets, plant, equipment or other property no
longer required by or useful to the Borrower or
any of its Subsidiaries in connection with the
operation of its business;
(c) sales, assignments, transfers or other
dispositions of assets for cash consideration, but
only so long as the aggregate fair market value of
the assets so disposed of does not exceed 5% of
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<PAGE>
the fair market value of the Borrower's total
assets (on a consolidated basis) in the aggregate
as at the end of the preceding fiscal year;
(d) any Acquisition (including, without limitation,
the formation of any Subsidiary in connection with
such Acquisition) so long as, after giving effect
to such Acquisition, no Default or Event of
Default has occurred and is continuing, and
provided that the Borrower has given the Agent and
each Bank:
(i) in the case of an Acquisition in which
the value of the assets, securities or
other interests acquired equals or
exceeds $10,000,000, at least 5 Business
Days prior written notice of such
Acquisition, which notice shall include
a description of the terms of the
Acquisition, the manner in which it will
be financed, summary historical
financial information about the Person
being acquired or the Person from whom
such assets are being acquired, as the
case may be, pro forma financial
calculation demonstrating why the
proposed Acquisition will not result in
any Default under this Agreement, and
(ii)in the case of an Acquisition in which
the value of the assets, securities or
other interests acquired is less than
$10,000,000, all of the information
described in subpart (i) immediately
above, except that the information need
not be given to the Agent until 5
Business Days after the Acquisition has
been consummated, and
(iii) such other information about the
Acquisition or proposed Acquisition, as
the case may be, as the Majority Banks
may reasonably request from time to
time; or
(e) any merger or consolidation, so long as after
giving effect thereto, no Default or Event of
Default has occurred and is continuing and
provided that either (i) the Borrower is the
surviving corporation thereof, or (ii) in the case
of a merger or consolidation involving a Wholly-
Owned Subsidiary and one more other Persons (other
than the Borrower), the Wholly-Owned Subsidiary is
the surviving corporation thereof.
6.12. Dividends and Distributions. The Borrower
---------------------------
shall not, nor shall it permit any of its Subsidiaries to,
make any Investment in any Foreign Subsidiary or declare or
pay, directly or indirectly, any dividend or make any other
distribution (by reduction of capital or otherwise), whether
in cash, property, securities or a combination thereof, with
respect to any shares of its capital stock or directly or
indirectly redeem, purchase, retire or otherwise acquire for
value any shares of any class of its capital stock or set
aside any amount for any such purpose (the foregoing
transactions being collectively called "Restricted
Payments"); provided that (a) the Borrower and its
Subsidiaries may make Investments in its Foreign
Subsidiaries and may declare and pay dividends payable
solely in shares of its common stock, (b) any Subsidiary of
the Borrower may make Restricted Payments to the Borrower,
and (c) so long as immediately after giving effect to any
such proposed action no Default shall have occurred and be
continuing, the Borrower may make Restricted
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<PAGE>
Payments in respect of its common stock either in cash or
securities of the Borrower and the Borrower and its
Subsidiaries may make Investments in the Borrower's Foreign
Subsidiaries if the aggregate amount or fair market value
thereof shall not exceed the sum of (i) $25,000,000, (ii) 50%
of Consolidated Net Income (net of cumulative losses) for the
period (taken as a single accounting period) beginning January
2, 1999, and ending on the last day of the most recent month
for which financial statements shall have been delivered
pursuant to Section 6.01 hereof, and (iii) the proceeds of
any issue of common stock of the Borrower or the conversion
or exchange of any of the Borrower's debt securities into or
for its common stock after the date hereof, net of any
discount, costs and expenses incurred in connection with
such issue, conversion or exchange, that are received by the
Borrower in the form of equity.
6.13. Sale and Lease-Back Transactions. The
-----------------------------------
Borrower shall not, nor shall it permit any of its
Subsidiaries to, enter into any arrangement, directly or
indirectly, with any Person (other than the Borrower or one
of its Subsidiaries except a Foreign Subsidiary) whereby it
shall sell or transfer any property, real or personal,
whether now owned or hereafter acquired, and thereafter rent
or lease such property or other property which it intends to
use for substantially the same purpose or purposes as the
property being sold or transferred (a "Sale and Lease-Back
--------------------
Transaction"); provided that the Borrower or one or more of
- -----------
its Subsidiaries may enter into any Sale and Lease-Back
Transaction if (a) at the time of such Transaction no
Default shall have occurred and be continuing, (b) Such
Transaction is in connection with the issuance of "qualified
small issue bonds" (as defined in Section 144(a) of the
Code) after the date hereof.
6.14. Investments and Joint Ventures. The
-----------------------------------
Borrower shall not, and shall not permit any of its
Subsidiaries to, make or permit to remain outstanding any
Investment in any Person or enter into any joint venture,
except:
(a) Investments in short-term obligations issued or
fully guaranteed by the U.S. Government;
(b) certificates of deposit and other time deposits
with, and any other Investment purchased through
any Bank;
(c) commercial paper rated A-1 or A-2 by Standard &
Poor's Corporation or P-1 or P-2 by Moody's
Investors Service, Inc.;
(d) Investments by the Borrower in its Subsidiaries
(other than a Foreign Subsidiary), and Investments
by a Subsidiary of the Borrower in the Borrower or
another Subsidiary (other than a Foreign
Subsidiary, except to the extent permitted by
Section 6.12 hereof);
(e) existing Investments of the Borrower and its
Subsidiaries listed on Schedule 6.14 hereto;
(f) Investments in other companies for strategic
alliance or investment purposes in an aggregate
amount outstanding at any time not to exceed
$10,000,000;
(g) Investments in foreign government debt in an
aggregate amount outstanding at any time not to
exceed $5,000,000;
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<PAGE>
(h) Investment in municipal bonds rated BBB (or its
equivalent) or higher by a nationally recognized
debt rating agency;
(i) Investments in 49-day dividend instruments rated
BBB (or its equivalent) or higher by a nationally
recognized debt rating agency; and
(j) Investments in Missouri industrial training bonds
rated BBB (or its equivalent) or higher by a
nationally recognized debt rating agency.
6.15. Liens. The Borrower shall not, and shall
-----
not permit any of its Subsidiaries to, create, incur or
permit to exist any Lien on or in respect of its properties,
assets or revenues, now or hereafter acquired, except for
Permitted Liens; provided, however, that nothing in this
-------- -------
Section 6.15 shall prohibit the Borrower or any Subsidiary
from entering into a Restrictive Agreement which prohibits
or restricts the granting of Liens if such Restrictive
Agreement may be entered into without violating Section
6.10(b) hereof. For purposes of the Borrower's right to
enter into a Restrictive Agreement in compliance with this
Section 6.15, the Borrower shall be treated the same as a
Subsidiary under Section 6.10(b) hereof.
6.16. Transactions With Affiliates. The Borrower
----------------------------
shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, (a) make any Investment in an
Affiliate, (b) transfer, sell, lease, assign or otherwise
dispose of any assets to an Affiliate, (c) merge or
consolidate with or purchase or acquire any assets from an
Affiliate, (d) Guarantee or assume any obligations of an
Affiliate, or (e) enter into any other transaction directly
or indirectly with or for the benefit of an Affiliate;
provided that (i) any Affiliate who is an individual may
serve as a director, officer or employee of the Borrower, or
any of its Subsidiaries and receive compensation or
indemnification in connection with his services in such
capacity, (ii) the Borrower or any Subsidiary may enter into
any sale, license, lease or similar transaction with an
Affiliate in the ordinary course of business if the monetary
or business consideration arising therefrom would be not
materially less advantageous to the Borrower or the
Subsidiary as the monetary or business consideration which
it would obtain in a comparable arm's length transaction
with a similarly situated Person not an Affiliate, and (iii)
the prohibitions in subparts (a) and (d) of this Section
6.16 on transactions with Affiliates are modified as
follows: (x) the prohibitions do not apply insofar as such
Investment or Guarantee, as the case may be, exists on the
date hereof, and (y) notwithstanding the prohibitions, the
Borrower may make such Investments and Guarantee such
obligations if the aggregate outstanding amount of such
Investments and such Guaranteed Obligations do not at any
time exceed $10,000,000.
6.17. Insurance. The Borrower shall, and shall
---------
cause each of its Subsidiaries to:
(a) keep its assets which are of an insurable
character insured (to the extent and for time
periods consistent with normal industry practices)
by financially sound and reputable insurers
against loss or damage by fire, explosion, theft
or other hazards which are included under extended
coverage in amounts sufficient to prevent the
Borrower or such Subsidiary from becoming a
co-insurer, and in amounts not less than the
insurable value of the property insured or such
lesser amounts as are consistent with normal
industry practices and the past practices of the
Borrower or such Subsidiary;
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<PAGE>
(b) maintain with financially sound and reputable
insurers, insurance against other hazards and
risks and liability to persons and property to the
extent and in the manner customary for Persons in
similar businesses (other than product or
professional liability insurance); provided
however, that worker's compensation insurance or
similar coverage may be effected through
self-insurance consistent with normal industry
practices and the past practices of the Borrower
or such Subsidiary or with respect to its
operations in any particular state or other
jurisdiction through an insurance fund operated by
such state or jurisdiction; and
(c) cause all such above-described insurance
(excluding worker's compensation insurance) to
(i) provide that 30 days' prior written notice of
suspension, cancellation, termination,
modification, non-renewal or lapse or material
change of coverage shall be given to the Agent,
(ii) to the extent the Agent shall not be liable
for premiums or calls, name the Agent as an
additional insured for the benefit of the Banks.
6.18. Maintenance of Properties. The Borrower
---------------------------
shall, and shall cause each of its Subsidiaries to, keep its
properties which are material to its business in good
repair, working order and condition consistent with industry
practice, ordinary wear and tear excepted, and, from time to
time (i) make all necessary and proper repairs, renewals,
replacements, additions and improvements thereto and
(ii) comply at all times with the provisions of all Material
Contracts and all applicable Requirements of Law, so as to
prevent any loss or forfeiture thereof or thereunder.
6.19. Environmental Laws; Indemnification.
-----------------------------------
(a) The Borrower shall, and shall cause each of its
Subsidiaries to:
(i) promptly notify the Agent of any violation
or non-compliance with, or liability under
any applicable Environmental Law which,
when taken together with all other pending
violations or alone, could reasonably be
expected to have a material adverse effect
on the business, prospects, operations,
assets, financial condition, liabilities or
capitalization of the Borrower or such
Subsidiary and promptly furnish to the
Agent all notices of any nature which the
Borrower or such Subsidiary may receive
from any Governmental Authority or other
Person with respect to any violation, or
potential violation or non-compliance with,
or liability or potential liability under
any applicable Environmental Law which, in
any case or when taken together with all
such other notices, could reasonably be
expected to have a material adverse effect
on the business, prospects, assets,
financial condition, liabilities or
capitalization of the Borrower or such
Subsidiary;
(ii) comply in all material respects with, and
use its reasonable efforts to ensure
compliance in all material respects by all
tenants, subtenants and other occupants and
users with, all applicable Environmental
Laws, and obtain and comply in all material
respects with, and maintain and use its
reasonable efforts to ensure that all
tenants, subtenants and other occupants and
users obtain and comply in all
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<PAGE>
material respects with and maintain, any and
all licenses, approvals, registrations or
permits required by applicable
Environmental Laws; provided, however, that
compliance with such requirements shall not
be required if such compliance is being
contested in good faith by appropriate
proceedings;
(iii) conduct and complete all investigations,
studies, sampling and testing, and all
remedial, removal and other actions
required under all applicable Environmental
Laws and promptly comply in all material
respects with all lawful orders and
directives of all Governmental Authorities;
provided, however, that compliance with
such orders or demands is not required if
such compliance is being contested in good
faith by appropriate proceedings; and
(iv) the Borrower shall defend, indemnify and
hold harmless each of the Agent and the
Banks and each of their employees, agents,
officers, directors and Affiliates (each of
whom is sometimes referred to herein as an
"Indemnified Party"), from and against any
and all claims, demands, penalties, fines,
liabilities, settlements, damages, costs
and expenses of whatever kind or nature,
known or unknown, contingent or otherwise,
arising out of, or in any way related to
the violation of or non-compliance by the
Borrower or its any of its Subsidiaries
with any applicable Environmental Laws, or
any orders, requirements or demands of any
Governmental Authority relating thereto,
including, without limitation, reasonable
attorney's and consultant fees,
investigation and laboratory fees, court
costs and litigation expenses, but
excluding therefrom all claims, demands,
penalties, fines, liabilities, settlements,
damages, costs and expenses arising out of
or resulting from the gross negligence or
willful misconduct of any Indemnified
Party.
(b) The Borrower shall not cause or permit any of its
Subsidiaries' properties or assets to be used to generate,
manufacture, refine, transport, treat, store, handle,
dispose, transfer, produce or process Hazardous Materials or
Petroleum Products, in non-compliance with applicable
Environmental Laws, nor release, discharge, dispose of, or
permit or suffer any release or disposal by any other Person
of, Hazardous Materials or Petroleum Products onto any of
its properties or assets in violation of any applicable
Environmental Law.
6.20. Nature of Business; Limitations on Fundamental Changes.
------------------------------------------------------
(a) The Borrower shall not, and shall not permit
any of its Subsidiaries to, (i) engage in any business other
than that in which it is presently engaged or is directly
related thereto, (ii) carry on its business at any location
or locations other than those presently in existence except
upon 30 days prior notice to the Agent, (iii) change its
name, its identity or its structure, or (iv) liquidate,
wind-up or dissolve itself.
(b) The Borrower shall cause substantially all
the operating assets owned and operations conducted by the
Borrower on the date hereof to continue to be owned and
conducted directly by the Borrower, and not through
Subsidiaries of the Borrower, at all times (except as a
result of assets sales permitted by Section 6.12).
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SECTION 7. EVENTS OF DEFAULT. If one or more of the
- ----------------------------------
following events (herein called "Events of Default") shall
-----------------
occur and be continuing:
(a) the Borrower shall fail to pay or prepay any
principal of any Loan or any Reimbursement
Obligation when due; or
(b) the Borrower shall fail to pay any interest on any
Loan or Reimbursement Obligation or any fee or
other amount payable by it hereunder, under the
Notes or under any of the other Credit Documents
within five (5) days after the date due; or
(c) any representation, warranty or certification made
or deemed made in this Agreement or in any other
Credit Document by the Borrower or any Subsidiary
Guarantor, or in any certificate furnished to the
Agent or any Bank pursuant to the provisions
hereof or thereof, shall prove to have been false
or misleading as of the time made or furnished in
any material respect; or
(d) the Borrower shall fail to keep, observe or
perform (i) any of its obligations under Sections
6.2, 6.3(c), 6.4, 6.5, 6.6, 6.7, 6.8, 6.10, 6.11
or 6.12 of this Agreement; or
(e) the Borrower shall fail to keep, observe or
perform any of its obligations under any other
Section of Section 6 hereof not specifically
listed in subsection (d) above, or any of its
other obligations under this Agreement and such
Default described in this subsection (e) continues
for 30 days (or in the case of Section 6.1, five
days) following notice of such Default from the
Agent; or
(f) the Borrower or any of its Subsidiaries shall
default in the payment when due of any principal
of or interest on any Indebtedness aggregating
$1,000,000 or more, or any other event specified
in any note, agreement, indenture, or other
document evidencing or relating to such
Indebtedness shall occur, if the effect of such
event is to cause, or to give the holder (or any
agent or trustee on behalf of such holder) of such
Indebtedness the right to cause, such Indebtedness
to become due prior to its stated maturity; or
(g) the Borrower or any of its Subsidiaries shall
admit in writing its inability to, or be generally
unable to, pay its debts as such debts become due;
or
(h) the Borrower or any of its Subsidiaries shall
(i) apply for or consent in writing to the
appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its
property, (ii) make a general assignment for the
benefit of its creditors, (iii) commence a
voluntary case under the Bankruptcy Code (as now
or hereafter in effect), (iv) file a petition
seeking to take advantage of any other law
relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or
readjustment of debts, (v) fail to controvert in a
timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an
involuntary case under the Bankruptcy Code (as now
or hereafter in effect), or (vi) take any action
for the purpose of effecting any of the foregoing;
or
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<PAGE>
(i) a proceeding or case shall be commenced, without
the application or consent of the Borrower or any
of its Subsidiaries, in any court of competent
jurisdiction, seeking (i) its liquidation,
reorganization, dissolution or winding-up, or the
composition or readjustment of its debts, (ii) the
appointment of a trustee, receiver, custodian,
liquidator or the like of the Borrower or such
Subsidiary or of all or any substantial part of
its assets, or (iii) similar relief in respect of
the Borrower or such Subsidiary under any law
relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or
adjustment of debts, and such proceeding or case
shall continue undismissed, or an order, judgment
or decree approving or ordering any of the
foregoing shall be entered and continue unstayed
and in effect, for a period of sixty (60) days; or
(j) an order for relief against the Borrower or any of
its Subsidiaries shall be entered in an
involuntary case under the Bankruptcy Code (as now
or hereafter in effect); or
(k) a final judgment or judgments for the payment of
money in excess of $250,000 in the aggregate shall
be rendered by a court or courts against the
Borrower or any of its Subsidiaries and the same
shall not be discharged (or provision shall not be
made for such discharge), or a stay of execution
thereof shall not be procured, within thirty (30)
days from the date of entry thereof and the
Borrower or such Subsidiary shall not, within said
period of thirty (30) days, or such longer period
during which execution of the same shall have been
stayed, appeal therefrom and cause the execution
thereof to be stayed during such appeal; or
(l) an event or condition specified in Section 6.1(e)
hereof shall occur or exist with respect to any
Plan or Multiemployer Plan and, as a result of
such event or condition, together with all other
such events or conditions, the Borrower or any of
its ERISA Affiliates shall incur a liability to a
Plan, a Multiemployer Plan or PBGC (or any
combination of the foregoing), and the same shall
not be discharged within ten (10) days after the
Borrower becomes aware of any such liability; or
(m) unless specifically released by the Agent with the
consent of the Majority Banks, one or more of the
Security Documents shall cease to be in full force
and effect, or shall cease to give the Agent the
rights, powers and privileges purported to be
created thereby and the same shall continue
unremedied for a period of ten (10) days after the
Borrower becomes aware of any such Default; or
(n) a Change of Control occurs; or
(o) any "Event of Default" as defined in any Security
Document shall occur.
THEREUPON: (i) in the case of an Event of Default other than
an Event of Default referred to in clause (h), (i), or (j) of
this Section 7, the Agent shall, upon request of the Majority
Banks, cancel the Commitments and/or declare the principal
amount then outstanding of, and all accrued unpaid interest
on, the Loans and all other amounts payable by the Borrower
under this Agreement and the other Credit Documents to be forthwith
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due and payable, whereupon such amounts shall be immediately
due and payable without presentment, demand, protest, notice
of protest, notice of dishonor, or other notice or formality
of any kind, all of which are hereby expressly waived by the
Borrower; and (ii) in the case of the occurrence of an Event
of Default referred to in clause (h), (i), or (j) of this
Section 7, the Commitments forthwith shall be automatically
canceled and the principal amount then outstanding of, and
all accrued unpaid interest on, the Loans and all other amounts
payable by the Borrower under this Agreement and the other
Credit Documents shall become automatically immediately due
and payable without presentment, demand, protest, notice of
protest, notice of dishonor, or other notice or formality of
any kind, all of which are hereby expressly waived by the
Borrower.
SECTION 8. THE AGENT
- -------------------------
8.1.Appointment, Powers and Immunities. Each Bank
-------------------------------------
hereby irrevocably appoints and authorizes the Agent to act
as its agent hereunder and under the other Credit Documents
with such powers as are specifically delegated to the Agent
by the terms hereof and thereof, together with such other
powers as are reasonably incidental thereto. The Agent
(which term as used in this sentence and in Section 8.5
hereof shall include reference to its Affiliates and its own
and its Affiliates' officers, directors, employees and
agents): (a) shall have no duties or responsibilities
except those expressly set forth in this Agreement or in any
of the Credit Documents, and shall not by reason of this
Agreement be a trustee for any Bank; (b) shall not be
responsible to the Banks for any recitals, statements,
representations or warranties contained in this Agreement or
any of the other documents in any certificate or any of the
other Credit Documents or received by any of them under,
this Agreement or any of the other Documents, or for the
value, validity, effectiveness, genuineness, enforceability
or sufficiency of this Agreement, any Note or any of the
other Credit Documents or for any failure by the Borrower or
any other Person to perform any of its obligations hereunder
or thereunder, or for the satisfaction of any condition
precedent specified in Section 4 hereof; (c) shall not be
required to initiate or conduct any litigation or collection
proceedings hereunder; and (d) shall not be responsible for
any action taken or omitted to be taken by it hereunder or
under any of the other Credit Documents, except for its own
gross negligence or willful misconduct. Without limiting
the generality of the foregoing, the Agent shall be
conclusively entitled to assume that the conditions
precedent set forth in Section 4.1 hereof have been
satisfied unless the Agent has received notice from a Bank
referring to the relevant Section and stating that the
relevant condition has not been satisfied or unless the
certificate furnished by the Borrower pursuant thereto so
indicates. The Agent may employ agents and attorneys-in-
fact and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected
by it in good faith. The Agent may deem and treat the payee
of any Note as the holder thereof for all purposes hereof
unless and until a written notice of the assignment or
transfer thereof shall have been filed with the Agent.
8.2.Reliance by Agent. The Agent shall be entitled to
-----------------
rely on any certification, notice or other communication
(including any thereof by telephone, telex, telegram or cable)
believed by it to be genuine and correct and to have been signed
or sent by or on behalf of the proper Person or Persons, and
on advice and statements of legal counsel, independent
accountants and other experts selected by the Agent. As to
any matters not expressly provided for by this Agreement or
any of the Credit Documents, the Agent shall in all cases be
fully protected in acting, or in refraining from acting,
hereunder or thereunder (as the case may be) in accordance
with instructions signed by the Majority Banks, and such
instructions of the Majority Banks and any action taken or
failure to act pursuant thereto shall be binding on all of the
Banks. If the Agent shall seek the consent or approval of the
Majority Banks to the taking or refraining from taking of any
action hereunder
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<PAGE>
or under any of the Credit Documents, the Agent shall give
notice thereof to each Bank and as soon as practicable notify
each Bank at any time that the Majority Banks have instructed
the Agent to act or refrain from acting hereunder or thereunder
(as the case may be).
8.3.Defaults. The Agent shall not be deemed to have
--------
knowledge of the occurrence of a Default or an Event of
Default (other than the non-payment of principal of or
interest on Loans or of commitment fees) unless the Agent
has received notice from a Bank or the Borrower specifying
such Default or Event of Default and stating that such
notice is a "Notice of Default". In the event that the
Agent receives such a notice of the occurrence of a Default
or Event of Default, the Agent shall give prompt notice
thereof to the Banks (and shall give each Bank prompt notice
of each such nonpayment). The Agent shall take such action
with respect to such Default as shall be directed by the
Majority Banks, provided that, unless and until the Agent
shall have received such directions, the Agent may (but
shall not be obligated to) take such action or refrain from
taking such action with respect to such default as it shall
deem advisable in the best interest of the Banks.
8.4.Rights as a Bank. With respect to its Commitment
------------------
and the Loans made by it, Mercantile Bank (and any successor
acting as Agent), in its capacity as a Bank hereunder, shall
have the same rights and powers hereunder as any other Bank
and may exercise the same as though it were not acting as
the Agent, and the term "Bank" or "Banks" shall, unless the
context otherwise indicates, include the Agent in its
individual capacity. Mercantile Bank, and any successor
acting as Agent and its Affiliates, may, without having to
account therefor to any Bank, accept deposits from, lend
money to and generally engage in any kind of banking, trust
or other business with the Borrower (and any of its
Affiliates) as if it were not acting as the Agent, and
Mercantile Bank and its Affiliates may accept fees and other
consideration from the Borrower and its Affiliates for
services in connection with this Agreement or otherwise
without having to account for the same to the Banks.
8.5.Indemnification. The Banks indemnify the Agent (to
---------------
the extent not reimbursed under Section 9.3 hereof, but
without limiting the obligations of the Borrower under said
Section 9.3), ratably in accordance with the aggregate
principal amount of the Loans made by the Banks (or, if no
Loans are at the time outstanding, ratably in accordance
with their respective Commitments in effect from time to
time), for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind and nature whatsoever
which may be imposed on, incurred by or asserted against the
Agent in any way relating to or arising out of this
Agreement or any of the other Credit Documents or the
transactions contemplated hereby (including, without
limitation, the costs and expenses which the Borrower is
obligated to pay under Section 9.3 hereof but excluding,
unless a Default or Event of Default has occurred and is
continuing, normal administrative costs and expenses
incident to the performance of its agency duties hereunder)
or the enforcement of any of the terms hereof or of any such
other Credit Documents, provided that no Bank shall be
liable for any of the foregoing to the extent they arise
from the gross negligence or willful misconduct of the party
to be indemnified.
8.6.Non-Reliance on Agent and other Banks. Each Bank
--------------------------------------
agrees that it has, independently and without reliance on
the Agent or any other Bank, and based on such documents and
information as it has deemed appropriate, made its own
credit analysis and evaluation of the Borrower and its
Subsidiaries and its own decision to enter into this
Agreement and that it will, independently and without
reliance on the Agent or any other Bank, and based on such
documents and information as it shall deem appropriate at
the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement. The
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<PAGE>
Agent shall not be required to keep itself informed as to the
performance or observance by the Borrower or any other
Person of this Agreement or any other Credit Document or in
respect of the properties or books of the Borrower or any of
its Subsidiaries or any other Person. Except for notices,
reports and other documents and information expressly
required to be furnished to the Banks by the Agent
hereunder, the Agent shall not have any duty or
responsibility to provide any Bank with any credit or other
information concerning the affairs, financial condition or
business of the Borrower (or any of its Subsidiaries or
other Affiliates) which may come into the possession of the
Agent or any of its Affiliates.
8.7.Failure to Act. Except for action expressly
-----------------
required of the Agent hereunder or under any of the Credit
Documents, the Agent shall in all cases be fully justified
in failing or refusing to act hereunder or thereunder (as
the case may be) unless it shall be indemnified to its
satisfaction by the Banks against any and all liability and
expense which may be incurred by it by reason of taking or
continuing to take any such action.
8.8.Resignation or Removal of Agent. Subject to the
--------------------------------
appointment and acceptance of a successor Agent as provided
below, the Agent may resign at any time by giving notice
thereof to the Banks and the Borrower and the Agent may be
removed at any time with or without cause by the Majority
Banks. Upon any such resignation or removal, the Majority
Banks shall have the right to appoint a successor Agent. If
no such successor Agent shall have been so appointed by the
Majority Banks and shall have accepted such appointment
within 30 days after the retiring Agent's giving of notice
of resignation or the Majority Banks' removal of the
retiring Agent, then the retiring Agent may, on behalf of
the Banks, appoint a successor Agent. Upon the acceptance
or any appointment as Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of
the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. After
any retiring Agent's resignation or removal hereunder as
Agent, the provisions of this Section 8.8 shall continue in
effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Agent.
SECTION 9. MISCELLANEOUS
- -----------------------------
9.1.Waiver. No failure on the part of the Agent or any
------
Bank to exercise and no delay in exercising, and no course
of dealing with respect to, any right, power or privilege
under this Agreement or any of the other Credit Documents
shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege under this
Agreement or any of the other Credit Documents preclude any
other or further exercise thereof or the exercise of any
other right, power or privilege. The remedies provided
herein and in the other Credit Documents are cumulative and
not exclusive of any remedies provided at law or in equity.
9.2.Notices. All notices and other communications
-------
provided for herein (including, without limitation, any
waivers or consents under this Agreement) shall be given or
made by telex, telecopy, cable or otherwise in writing (each
communication given by any of such means to be deemed to be
"in writing" for purposes of this Agreement) and telexed,
telecopied, cabled, mailed or delivered to the intended
recipient at the "Address for Notices" specified below its
name on the signature pages hereof, or, as to any party, at
such other address as shall be designated by such party in a
written notice to the other parties hereto. Except as
otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when
transmitted by telex or telecopier, delivered to the cable
office or personally delivered or, in the case of a
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<PAGE>
mailed notice, upon deposit with the United States Postal
Service, certified mail, return receipt requested, with
postage prepaid, in each case given or addressed as aforesaid.
9.3.Expenses, Indemnification, Etc. The Borrower
---------------------------------
agrees (a) to pay or reimburse the Agent and the Banks on
demand for their reasonable out-of-pocket costs and expenses
(including without limitation the reasonable fees and
expenses of counsel to the Banks, and other counsel to the
Agent and the Banks), in connection with (i) the
negotiation, preparation, execution and delivery of this
Agreement and the other Credit Documents and the making of
the Loans hereunder, and (ii) any amendment, modification,
waiver or extension of any of the terms of this Agreement or
any of the other Credit Documents, (b) to pay or reimburse
the Agent and the Banks for all reasonable out-of-pocket
costs and expenses of the Agent and the Banks (including
reasonable counsels' fees and expenses) in connection
with the enforcement of this Agreement and any of the other
Credit Documents, and all transfer, stamp, documentary or
other similar taxes, assessments or charges levied by any
Governmental Authority in respect of this Agreement, any of
the Notes, or any of the other Credit Documents and (c) to
pay filing and recording fees relating to, and taxes, title
insurance premiums and other charges incurred in connection
with, perfecting, maintaining and protecting, the Liens
created or contemplated to be created pursuant to the
Security Documents. The Borrower hereby indemnifies the
Agent and each Bank and their respective directors,
officers, employees, agents and Affiliates (each of which is
sometimes referred to herein as an "Indemnified Party") and
-----------------
agrees to hold each Indemnified Party harmless against, any
and all losses, claims, damages, liabilities or actions or
other proceedings commenced or threatened in respect
thereof, and all reasonable expenses (including but not
limited to expenses that appear on any service charge
schedule maintained from time to time by the Agent or any
Bank) that arise out of or in any way relate to or result
from the making of Loans hereunder or the other transactions
contemplated hereby, including, without limitation, any
investigation or litigation or other proceedings (whether or
not such Indemnified Party is a party to any action or
proceeding out of which any of the foregoing arise), other
than any of the foregoing to the extent incurred by reason
of the gross negligence or willful misconduct of such
Indemnified Party or in any action in which the Borrower is
the prevailing party against such Indemnified Party.
Neither the Agent nor any Bank nor any other Indemnified
Party shall be responsible or liable to the Borrower for any
consequential damages which may be alleged.
9.4.Amendments, Etc. This Agreement, any of the other
---------------
Credit Documents, or any provision hereof or thereof may be
amended only by an instrument in writing signed by the
Borrower, the Agent, and the Majority Banks, and any
provisions of this Agreement may be waived by the Agent and
the Majority Banks; provided that any amendment or waiver
extending the date fixed for the payment of principal or
interest on the Loans or any fee or reimbursement
obligation, reducing the amount of any such payment or any
originating or commitment fee, changing the definition of
"Revolving Credit Termination Date" or "Majority Banks,"
amending this Section 9.4 or Section 2.13, increasing the
amount of any Bank's Commitment or releasing all or
substantially all of the Collateral shall require an
instrument in writing signed by, or the consent of, all of
the Banks.
9.5.Successors and Assigns. This Agreement shall be
------------------------
binding on and inure to the benefit of the parties hereto
and their respective legal representatives, successors and
permitted assigns.
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9.6.Assignments and Participations.
------------------------------
(a) The Borrower may not assign its rights or
obligations hereunder or under any of the other Credit
Documents without the prior written consent of the Majority
Banks. The Banks may assign all or any part of the Loans,
the Reimbursement Obligations, the Notes or any of the other
Credit Documents to another financial institution. Upon
such assignment, the assignee shall succeed to the
obligations, rights and benefits of the Bank to the extent
provided in such assignment, and the Bank shall be released
to the extent of such assignment.
(b) The Borrower expressly recognizes and agrees that
the Banks may sell to other financial institutions
participations in the Loans incurred by the Borrower
pursuant hereto.
(c) The Banks may furnish, from time to time, any
information concerning the Borrower to assignees and
participants (including prospective assignees and
participants).
9.7.Survival. The obligations of the Borrower under
--------
Sections 3.2, 3.6 and 9.3 hereof shall survive the repayment
of the Loans and the termination of the Commitments.
Similarly, the Bank's obligations under Section 9.18 shall
survive the repayment of the Loans and the termination of
the Commitments.
9.8.Captions. Captions and section headings appearing
--------
herein are included solely for convenience of reference and
are not intended to affect the interpretation of any
provision of this Agreement.
9.9.Counterparts. This Agreement may be executed in
------------
any number of counterparts, all of which taken together
shall constitute one and the same instrument and any of the
parties hereto may execute this Agreement by signing any
such counterpart.
9.10. Survival of Agreements. All agreements,
------------------------
covenants, representations and warranties made herein shall
survive the execution and delivery of this Agreement, the
Notes, the other Credit Documents, the making of the Loans,
and any and all renewals, extensions, modifications and
rearrangements thereof.
9.11. Interest. It is the intention of the
--------
parties hereto to comply with applicable usury laws;
accordingly, it is agreed that notwithstanding any
provisions to the contrary in this Agreement, the Notes, the
Reimbursement Agreements or any of the other Credit
Documents, in no event shall any such agreement or
instrument, require the payment or permit the collection of
interest, as defined under applicable usury laws, in excess
of the maximum amount permitted by such laws. If any such
excess of interest is contracted for, charged or received
under this Agreement, the Notes, the Reimbursement
Agreements or any of the other Credit Documents, or if the
maturity of the Loans is accelerated in whole or in part, or
in the event that all or part of the principal of or
interest on the Loans shall be prepaid, so that under any of
such circumstances the amount of interest contracted for,
charged or received under this Agreement, the Notes, the
Reimbursement Agreements or any of the other Credit
Documents, on the amount of principal actually outstanding
from time to time under the Notes shall exceed the maximum
amount of interest permitted by applicable usury laws, then
in any such event (i) the provisions of this Section shall
govern and control, (ii) neither the Borrower nor any other
Person now or hereafter liable under this Agreement or the
Credit Documents for the payment of all or any part of the
Loans shall be obligated to pay the amount of such interest
to the extent that it is in excess of
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the maximum amount of interest permitted to be contracted for
by, charged to or received from the Person obligated thereon
under applicable usury laws, (iii) any such excess which may
have been collected either shall be applied as a credit against
the then unpaid principal amount of such Loans or refunded to
the Person paying the same, at the Borrower's option, and
(iv) the effective rate of interest shall be automatically
reduced to the maximum lawful rate of interest permitted
under applicable usury laws as now or hereafter construed by
the courts having jurisdiction thereof. It is further
agreed that, without limitation of the foregoing, all
calculations of the rate of interest contracted for, charged
or received under this Agreement, the Notes, the
Reimbursement Agreements or any of the other Credit
Documents which are made for the purpose of determining
whether such rate exceeds the maximum lawful rate of
interest shall be made, to the extent permitted by
applicable usury laws, by amortizing, prorating, allocating
and spreading in equal parts during the period of the full
stated term of the Loans, all interest at any time
contracted for, charged or received from the Borrower, or
otherwise by any Bank in connection with the Notes, this
Agreement, the Reimbursement Agreements or any of the other
Credit Documents.
9.12. Integration; Severability. This Agreement,
-------------------------
together with all the other Credit Documents, represents the
entire agreement of the parties thereto, and supersedes all
prior agreements, negotiations and understandings, both
written and oral. There are no contemporaneous oral
agreements or understandings of the parties hereto or to the
other Credit Documents. No course of dealing between the
parties, no course of performance, no usage of trade, and no
parol evidence of any nature shall be used to supplement or
modify any of the terms, provisions, covenants or conditions
of this Agreement or any of the other Credit Documents. If
any provision of this Agreement or any of the other Credit
Documents shall be held illegal or invalid by any court
having jurisdiction, the illegality or invalidity of such
provision shall not affect any of the other provisions of
this Agreement or any of the other Credit Documents. The
illegal or invalid provision shall be modified to the
maximum extent possible to confer on the Agent or the Banks
the rights, powers, remedies or other privileges intended
thereby, and such provision as modified, together with the
remaining provisions of this Agreement or any of the other
Credit Documents, shall be construed and enforced to such
effect as if the illegal or invalid provision or portion
thereof had not been contained herein or in any of the other
Credit Documents, to the maximum extent possible.
9.13. NO ORAL AGREEMENTS; FINAL WRITTEN AGREEMENT.
-------------------------------------------
ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT,
OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING
PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE.
TO PROTECT YOU (THE BORROWER) AND US (THE AGENT, THE ISSUING
BANK AND THE BANKS) FROM MISUNDERSTANDING OR DISAPPOINTMENT,
ANY AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED
IN THIS WRITING, WHICH, TOGETHER WITH ALL OTHER WRITTEN
AGREEMENTS BETWEEN US, IS THE COMPLETE AND EXCLUSIVE
STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY
LATER AGREE IN WRITING TO MODIFY IT.
9.14. Controlling Document. In the event of
---------------------
actual conflict in the terms and provisions of this
Agreement, the Notes or any of the other Credit Documents,
the terms and provisions of this Agreement will control.
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9.15. JURISDICTION. THE BORROWER HEREBY
------------
IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY KANSAS STATE
COURT SITTING IN JOHNSON COUNTY, KANSAS, OR MISSOURI STATE
COURT SITTING IN JACKSON OR CLAY COUNTY, MISSOURI, OR UNITED
STATES FEDERAL COURT SITTING IN KANSAS CITY, KANSAS, OR
KANSAS CITY, MISSOURI OVER ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER
CREDIT DOCUMENTS, AND THE BORROWER HEREBY IRREVOCABLY AGREES
THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY
BE HEARD AND DETERMINED IN SUCH KANSAS OR MISSOURI STATE OR
FEDERAL COURT. AS AN ALTERNATIVE METHOD TO SERVICE, THE
BORROWER ALSO IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND
ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING
OF COPIES OF SUCH PROCESS TO THE BORROWER AT ITS ADDRESS SET
FORTH BENEATH ITS SIGNATURE HERETO. THE BORROWER AGREES
THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL
BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
THE BORROWER FURTHER WAIVES ANY OBJECTION TO VENUE IN KANSAS
OR MISSOURI AND ANY OBJECTION TO ANY ACTION OR PROCEEDING IN
KANSAS OR MISSOURI ON THE BASIS OF FORUM NON CONVENIENS.
NOTHING IN THIS SECTION 9.15 SHALL AFFECT THE RIGHT OF THE
AGENT OR ANY BANK TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR AFFECT THE RIGHT OF THE AGENT OR ANY
BANK TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER
OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTIONS.
9.16. GOVERNING LAW. THIS AGREEMENT AND EACH OF
-------------
THE OTHER CREDIT DOCUMENTS SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF
MISSOURI, WITHOUT GIVING EFFECT TO CHOICE OF LAW OR CONFLICT
OF LAW PRINCIPLES.
9.17. WAIVER OF TRIAL BY JURY. THE BORROWER
---------------------------
WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING, LAWSUIT,
CROSS-CLAIM OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY
RELATING TO THIS AGREEMENT, ANY OTHER CREDIT DOCUMENTS, OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
9.18. Confidentiality and Nondisclosure. In
-------------------------------------
connection with the negotiations for and administration of
this Agreement, the Agent and the Banks have acquired, and
may continue to acquire, information concerning the Borrower
and its Subsidiaries (collectively, the "Protected Parties")
-----------------
which is either non-public, confidential or proprietary in
nature. The Agent and each of the Banks severally agrees to
treat confidentially such information and any other
information that any of the Protected Parties, or their
agents, directors, officers, employees or other
representatives, including attorneys, accountants and
consultants, furnish to it, or which it may obtain from any
of the foregoing persons, including any analyses,
compilations, studies or other documents prepared by the
Agent or any Bank or any of their respective directors,
employees, agents or other representatives, including
attorneys, accountants and consultants (collectively, the
"Representatives"), which contain or otherwise reflect such
---------------
information, whether furnished before or after the date of
this Agreement (collectively, the "Information"). The Agent
-----------
and each of the Banks severally agrees not to use any of the
Information for any purpose other than for the purpose of
evaluating, documenting and administering this
-51-
<PAGE>
Agreement and the other Credit Documents and the transactions
contemplated hereby and thereby, and for enforcing or exercising
any rights or remedies in connection herewith or therewith.
The term Information does not include Information which
(i) becomes generally available to the public other than as
a result of a disclosure by the Agent, any Bank or any of
their respective Representatives, (ii) was available to the
Agent, any Bank or any of their respective Representatives
on a non-confidential basis prior to its disclosure to the
Agent, any Bank or any of their respective Representatives
by the Borrower, any other Protected Party or any of their
respective representatives, (iii) becomes available to the
Agent, any Bank or any of their respective Representatives
on a non-confidential basis from a source other than the
Borrower, any other Protected Party or any of their
respective representatives, provided that such source, to
the actual knowledge of the Agent, such Bank or such
Representative, as the case may be, is not bound by a
confidentiality agreement with the Borrower or any other
Protected Party at the time such Information is received, or
(iv) any Information which any Protected Party or any
representative thereof authorizes the disclosure of, whether
orally, in writing or otherwise, to the extent of such
authorization.
[the remainder of this page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first
above written.
THE BORROWER:
- ------------
CERNER CORPORATION
By: /s/Marc Naughton
--------------------
Name: Marc Naughton
-------------------
Title: VP/CFO
------------------
Address for Notices:
2800 Rock Creek Parkway
North Kansas City, MO 64117
Attention: Chief Financial Officer (with a copy to the Secretary)
Telecopier No: (816) 474-1742
Telephone No: (816) 221-1024
-52-
<PAGE>
THE BANK(S):
- -----------
MERCANTILE BANK
By:/s/Mark Jorgenson
----------------------
Name: Mark Jorgenson
--------------------
Title: SVP
-------------------
Address for Notices:
P.O. Box 419147, Mail Stop 419147
Kansas City, Missouri 64141
Attention: Mark R. Jorgenson
Telecopier No: (913) 261-5548
Telephone No: (913) 261-5539
THE AGENT: THE ISSUING BANK:
- --------- ----------------
MERCANTILE BANK MERCANTILE BANK
By:/s/Mark Jorgenson By:/s/Mark Jorgenson
----------------------- -------------------
Name: Mark Jorgenson Name: Mark Jorgenson
--------------------- -----------------
Title: SVP Title: SVP
--------------------- ----------------
Address for Notices: Address for Notices:
P.O. Box 419147 P.O. Box 419147
Kansas City, Missouri 64141 Kansas City, Missouri 64141
Attention: Mark R. Jorgenson Attention: Mark R. Jorgenson
Telecopier No: (913) 261-5548 Telecopier No: (913) 261-5548
Telephone No: (913) 261-5539 Telephone No: (913) 261-5539
-53-
<PAGE>
EXHIBIT A
COMMITMENTS
-----------
Mercantile Bank $18,000,000
TOTAL $18,000,000
-54-
EXHIBIT B
[Form of Revolving Credit Note]
PROMISSORY NOTE
$________________ April 1, 1999
Kansas City, Missouri
FOR VALUE RECEIVED, CERNER CORPORATION, a Delaware
corporation (the "Borrower"), hereby promises to pay to
__________________(the "Bank"), at__________________________
(or at such other place as may be expressly provided for in
the Credit Agreement referred to below) the principal sum of
______________Dollars ($_________)(or such lesser amount as
shall equal the aggregate unpaid principal amount of the
Revolving Credit Loans made by the Bank to the Borrower under
the Credit Agreement), in lawful money of the United States of
America and in immediately available funds, on the Revolving
Credit Termination Date, and to pay interest on the unpaid
principal amount of each such Revolving Credit Loan, at such
office (or such other place as aforesaid), in like money and
funds, for the period commencing on the date of such
Revolving Credit Loan until such Revolving Credit Loan shall
be paid in full, at the rates per annum and on the dates
provided in the Credit Agreement.
The amount and type of, the rate of interest on, and
the duration of each Interest Period for, each Revolving
Credit Loan made by the Bank to the Borrower under the
Credit Agreement, the date such Revolving Credit Loan is
made or Continued or Converted from a Loan of one type to a
Loan of the other type, and the amount of each payment or
prepayment made on account of the principal thereof, shall
be recorded by the Bank on its books and records, and such
records shall be prima facie evidence of the existence and
----- -----
amounts of the obligations of the Borrower to which such
entries relate; provided that any failure by the Bank to
make any such record shall not affect the obligations of the
Borrower under this Note.
This Note is one of the Revolving Credit Notes referred
to in the Credit Agreement (as the same may be amended,
modified, supplemented or replaced from time to time, the
"Credit Agreement") dated as of April 1, 1999, among the
-----------------
Borrower, the Banks named therein (including the Bank),
Mercantile Bank, as Agent, and Mercantile Bank, as Issuing
Bank, and evidences Revolving Credit Loans made by the Bank
under its Revolving Credit Commitment thereunder.
Capitalized terms used in this Note have the respective
meanings assigned to them in the Credit Agreement.
The Credit Agreement (the terms of which are hereby
incorporated by reference) provides for the acceleration of
the maturity of this Note upon the occurrence of certain
events and for prepayments of Revolving Credit Loans upon
the terms and conditions specified therein.
The Borrower and any and all sureties, guarantors and
endorsers of this Note and all other parties now or
hereafter liable hereon, severally waive grace, demand,
presentment for payment, protest, notice of any kind
(including, but not limited to, notice of dishonor, notice
of protest, notice of intention to accelerate and notice
-55-
<PAGE>
of acceleration) and diligence in collecting and bringing
suit against any party hereto, and agree (a) to all extensions
and partial payments, with or without notice, before or
after maturity, (b) to any substitution, exchange or release
of any security now or hereafter given for this Note, (c) to
the release of any party primarily or secondarily liable
hereon, and (d) that it will not be necessary for the Bank,
in order to enforce payment of this Note, to first institute
or exhaust the Bank's remedies against the Borrower or any
other party liable therefor or against any security for this
Note.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF MISSOURI, WITHOUT
GIVING EFFECT TO CHOICE OF LAW OR CONFLICT OF LAW
PRINCIPLES.
CERNER CORPORATION
By:______________________
Name:____________________
Title:___________________
-56-
<PAGE>
EXHIBIT C
[FORM OF NOTICE OF BORROWING, TERMINATION,
CONVERSIONS, CONTINUATIONS, OR PREPAYMENTS OF LOANS]
NOTICE OF [BORROWING]
---------------------
This Notice of [Borrowing] is submitted pursuant to
Section 2.15 of the Credit Agreement dated as of April 1,
1999 (the "Credit Agreement"), by and among CERNER
-----------------
CORPORATION, a Delaware corporation (the "Borrower");
--------
MERCANTILE BANK, a Kansas banking corporation, and each
other lender, if any, from time to time identified as having
a Commitment on Exhibit A thereto and who becomes a party
thereto (each a "Bank" and, collectively (whether one or
----
more), the "Banks"); MERCANTILE BANK, a Kansas banking
-----
corporation, as the issuing bank of letters of credit (in
such capacity, the "Issuing Bank"), and MERCANTILE BANK, a
------------
Kansas banking corporation, as agent hereunder for the Banks
(in such capacity, together with its successors in such
capacity, the "Agent").
-----
Unless otherwise defined herein, capitalized terms used
in the Credit Agreement are used herein as defined in the
Credit Agreement.
[1. The Borrower hereby requests the Banks to make
available to the Borrower Revolving Credit Loans in the
aggregate amount set forth below, pursuant to the terms and
conditions of the Credit Agreement, as follows:
(a) Aggregate amount of Revolving Credit Loans
requested $_______________
(b) Type of Loans (Corporate Base Rate Loan or
Eurodollar Loan) _______________
(c) Borrowing Date _______________
(d) Interest Period _______________
(e) The Loan proceeds should be deposited in the
following account(s): _______________
(f) (If applicable) Loan proceeds are to be
withdrawn from the above-referenced account(s)
and wire transferred as follows:] _______________
-57-
<PAGE>
2. All representations and warranties made by the
Borrower in the Credit Agreement (except those regarding
Subsidiaries and Material Contracts made at Sections 5.12
and 5.14 thereof that are identified as being made "as of
the date hereof," and which were true as of the date of the
Credit Agreement) or in any of the other Credit Documents,
or in any certificate or statement furnished in connection
with the Loans or otherwise, are true and correct in all
material respects as if made on and as of the date hereof.
3. No Default or Event of Default has occurred and is
continuing.
4. All conditions precedent set forth in Section 4.1
of the Credit Agreement have been satisfied.
This Notice of [Borrowing] is submitted as of ___________
a.m. Kansas City time on __________________, _____.
CERNER CORPORATION
By:___________________________
Name:________________________
Title:_________________________
-58-
<PAGE>
EXHIBIT D
[FORM OF]
BORROWING BASE AND COMPLIANCE CERTIFICATE
CALCULATIONS FOR QUARTER ENDED _________.
THIS CERTIFICATE is furnished pursuant to Section 6.1
of the Credit Agreement dated as of April 1, 1999 (the
"Credit Agreement") by and between CERNER CORPORATION, a
Delaware corporation (the "Borrower"); MERCANTILE BANK, a
Kansas banking corporation, and each other lender, if any,
from time to time identified as having a Commitment on
Exhibit A thereto and who becomes a party thereto (each a
"Bank" and, collectively (whether one or more), the
"Banks"); MERCANTILE BANK, a Kansas banking corporation, as
the issuing bank of letters of credit (in such capacity, the
"Issuing Bank"); and MERCANTILE BANK, a Kansas banking
corporation, as agent hereunder for the Banks (in such
capacity, together with its successors in such capacity, the
"Agent").
The undersigned,_________________________, hereby
certifies that the undersigned is the duly elected [chief
financial officer] of the Borrower and, as such, is duly
authorized to execute and deliver this certificate on behalf
of the Borrower, and that:
1. The Borrowing Base, financial covenant compliance
calculations, and calculations relating to the Applicable
Margin (or the Replacement Applicable Margin, as the case
may be) for the Borrower at the quarter ended as indicated
above, are as follows:
A. BORROWING BASE
--------------
1. Aggregate amount due under all Receivables $____________
2. Less Receivables:
(a) with respect to which an invoice or bill
has not been issued or any amount due
remains unpaid more than 150 days
after invoice date $____________
(b) from any obligor as to whom more
than 25% of the aggregate amount
due under all receivables owing from
such obligor remains unpaid for that
same period $_____________
(c) from an obligor who is insolvent
or bankrupt $_____________
-59-
<PAGE>
(d) due from suppliers of Inventory,
to the extent the Borrower or its
Subsidiaries are indebted thereto $_____________
(e) not included in (a) through (d) above
that are due to Foreign Subsidiaries $_____________
(f) which otherwise do not meet the
definition of "Eligible Receivables" $_____________
(g) sum of lines 2(a) through (f) $____________
3. Line 1 minus line 2 (g) $____________
4. 75% of the Aggregate Amount Due under Eligible
Receivables (75% of line A3 above) $____________
5. 50% of Book Value of Eligible Equipment at_________ $____________
6. 50% of Aggregate Cost or Market Value (whichever
is less) of Eligible Inventory $____________
7. Borrowing Base at __________ (the sum of line A4,
line A5, and line A6 above) $____________
B. CURRENT RATIO
-------------
1. Current Assets ____________
2. Current Liabilities ____________
3. Line B1 divided by line B2 ____________
4. Line B3 cannot be less than: 2.0:1
------------
C. MINIMUM TANGIBLE NET WORTH
--------------------------
1. Total Shareholders' Equity ____________
2. Goodwill and other intangible items ____________
3. Tangible Net Worth (Line C1 less line C2) ____________
4. Cumulative Consolidated Net Income since 1/2/99 ____________
-60-
<PAGE>
5. Line C4 times 50% ____________
6. Line C5 plus $200 million ____________
7. Line C3 less line C6 must be greater than $0
------------
D. FUNDED DEBT RATIO
-----------------
1. Total Indebtedness for borrowed money ____________
2. Total Capitalized Lease Obligations ____________
3. Outstanding letters of credit ____________
4. Outstanding guarantees and other Indebtedness ____________
5. Sum of lines D1 through D4 (Funded Debt) ____________
6. Tangible Net Worth (per C3 above) ____________
7. (Total Capitalization) Sum of line D5 plus D6) ____________
8. Ratio of line D5 to line D7, expressed as a
percentage ____________
9. Line D8 cannot exceed 60%
------------
E. FIXED CHARGE COVERAGE RATIO
---------------------------
1. Consolidated Net Income for the past 12 months ____________
2. Interest Expense for the past 12 months ____________
3. Income taxes (federal, state and local for the past
12 months ____________
4. Depreciation and amortization for the past 12
months ____________
5. Other non-cash, non-operating expenses (which had
the effect of reducing net income) and, to the
extent not included in the above, miscellaneous
expenses from nonoperating transactions which do
not relate to any extraordinary items for such period _____________
6. Extraordinary losses for the past 12 months ____________
7. Sum of lines E1 through lines E6 ____________
8. Miscellaneous income from non-operating non-extraordinary
transactions for the past 12 months ____________
9. Extraordinary profits for the past 12 months ____________
10. Sum of lines E8 and E9 ____________
11. Line E7 minus line E10 (EBITDA) ____________
12. Capital Expenditures for the past 12 months (other
than research and software development costs included
in such Capital Expenditures) ____________
13. Research and software development costs included in
Capital Expenditures for the past 12 months ____________
13A.Rental expense on operating and other long-term
lease obligations as of the end of the 12 month period ____________
14. Sum of line E11 and line E13A minus sum of line E12
and line E13 ____________
15. Principal payments required to be made during the
past twelve months relative to Indebtedness other than
Revolving Credit Loans ____________
-61-
<PAGE>
16. Revolver outstanding as of the end of the 12-month
period:
a. Loans ______________
b. Letters of Credit ______________
c. Total (lines E16a + E16b) ______________
17. 20% of Line E16c ____________
18. Rental expense on operating and other long-term
lease obligations as of the end of the 12 month period ____________
19. Interest expense for the past 12 months (Annualized
post closing interest expense for the 11 months
following closing; and trailing 12 month interest
expense thereafter) ____________
20. Sum of line E15 + line E17 +line E18 + line E19
(Fixed Charges) ____________
21. Ratio of line E14 to line E20 (Fixed Charge
Coverage Ratio) ____________
22. Line E21 shall not be less than 1.75:1
------------
F. Tangible Net Worth Ratio
1. Total liabilities of the Borrower and its subsidiaries at
[last day of most recently completed fiscal quarter] ____________
2. Tangible Net Worth of the Borrower and it Subsidiaries
at ___________________ ____________
3. Ratio of line F1 to line F2. ____________
2. The financial statements described in Section
6.1(a) of the Credit Agreement for the Borrower and its
Subsidiaries as of the month ended __________, which are
attached hereto and are incorporated herein by this
reference, fairly present the consolidated financial
condition and results of operations of the Borrower in
accordance with GAAP consistently applied, as at the end of,
and for, such period (subject to normal year-end audit
adjustments and to the absence of footnote disclosures).
3. A review of the activities of the Borrower and its
Subsidiaries during the period since [the date of the last
Borrowing Base and Compliance Certificate] has been made at
my direction and under my supervision with a view to
determining whether the Borrower and its Subsidiaries have
kept, observed and/or performed all of their respective
obligations under the Credit Agreement and all other Credit
Documents to which any of them are parties, and to the best
of my knowledge after due inquiry and investigation, (i) the
Borrower and each of its Subsidiaries have kept, observed
and/or performed all of their respective obligations under
the Credit Agreement and all other Credit Documents to which
they are parties, (ii) no Default or Event of Default has
occurred and is continuing, and (iii) all representations
and warranties made by the Borrower and its Subsidiaries in
the Credit Agreement and the other Credit Documents to which
they are parties, are true and correct in all material
respects as of__________________ (except those regarding
Subsidiaries and Material Contracts made at Section 5.12 and
5.14 of the Credit Agreement that are identified as being
made "as of the date
-62-
<PAGE>
hereof," in which case such representations and warranties
are true and correct in all material respects as of such
earlier date).
4. The Banks may rely on this certificate.
IN WITNESS WHEREOF, the undersigned has executed this
certificate on behalf of the Borrower on___________,______.
____________________,
the_________________
of Cerner Corporation
SCHEDULE 1.1
EXISTING LIENS
SCHEDULE 5.2
CONTINGENT LIABILITIES
SCHEDULE 5.3
LITIGATION
SCHEDULE 5.8
TAXES
SCHEDULE 5.11
ENVIRONMENTAL MATTERS
SCHEDULE 5.12
EXISTING SUBSIDIARIES
SCHEDULE 5.14
EXISTING MATERIAL CONTRACTS
SCHEDULE 6.14
EXISTING INVESTMENTS
63
<PAGE>
_______________________________
Exhibit 10(i)
Cerner Performance Plans for 1998
CPP Overview
- ------------
Cerner continues to grow at a phenomenal rate. The growth
of our associate population has mirrored the growth of our
client base and diversification of our solution set.
Clearly, our greatest people needs remain in two areas: 1)
consulting professionals who implement our solutions and
tailor them to drive benefits for our clients, and 2)
architects, engineers, and functional experts who build and
support what have proven to be the industry leading
solutions for all facets of health care. Additionally, we
continue to seek talented associates for most areas of our
business as we grow and improve our operations.
In 1998, we responded to very competitive talent markets in
a number of ways. Two key responses affected Cerner
Performance Plans. First, for most non-executive roles, we
shifted from a highly complex variable pay model to a more
competitive base-only compensation model. Coupled with more
robust associate performance feedback and more integrated
knowledge sharing and skills development, we have improved
retention in a number of key associate groups, and
maintained our strong performance/pay link. Second, for
senior executives, we reinforced Cerner Performance Plans by
including plans that reward intermediate-term performance.
The new plans reward delivering on 3-year EPS targets, and
creating shareholder value. We believe these plans will add
a critical link to existing plans which reward attainment of
quarterly and annual performance metrics, and a stock option
program designed to drive performance over the very long-
term (10 year). These changes were fully implemented by
July 1, 1998.
Currently, approximately 25% of all associates participate
in Cerner Performance Plans. Generally, sales associates
participate in marketing incentives that comprise the
majority of their total compensation. Senior consultants
and leaders with P&L responsibility participate in
performance plans that comprise 20 - 25% of their total
compensation. Executives participate in performance plans
that comprise 30 - 50% of their total compensation,
depending on the nature and scope of their responsibility.
CPP Plans
- ---------
The first structure in the design of CPP is the plan. Plans
are defined by role or team, and reflect the key
responsibilities for an associate. Even though every Cerner
associate "wears multiple hats" or plays multiple roles
through the course of a year, most associates participate in
only one plan. Some executives, however, participate in
multiple plans reflecting overlapping "performance terms"
(quarterly, annual, and intermediate-term) to drive balanced
corporate performance. The potential incentive for an
associate is called a Target Bonus Level (TBL).
There are three types of plans:
Annual CPP -- All associates participating in Cerner
Performance Plans participate in an Annual CPP plan.
Several types of metrics may be used to calculate
performance and plan payout.
The most common metric is a rewardable event metric, and is
typically a quarterly, cumulative year-to-date target for
business unit bookings, or operating earnings. We calculate
and make quarterly rewardable events payments to reinforce
consistent performance in support of annual corporate
earnings targets. Year-end payments of rewardable events
are adjusted by a factor which reflects the associate's
performance. This Annual Performance Evaluation factor
(APE) is used to reflect and reward success on not only the
"what" dimension of performance, but also the "how." We
believe this is an important factor because Cerner's long-
term success will be highly correlated to "how" (developing
associate capabilities, sharing knowledge, building
effective teams, supporting other business units, etc.)
results are delivered now. The APE factor can adjust
payments downward by more than 50%, or upward by 30%.
1
<PAGE>
For sales associates, marketing incentives are paid on the
basis of percent of quota, or sales commission. These plans
reward performance within a specified geographical region
and/or product set.
EPS Incentive Plan -- A limited number of senior executives
participate in this plan which is intended to drive
consistent three-year EPS growth. Payments are calculated
annually, based on attainment of EPS targets set over the
previous three years. The design of this plan reinforces
sustained earnings growth over a longer planning horizon
than Annual CPP and rewards profitable investments.
Shareholder Value Plan -- A limited number of senior
executives participate in this plan which is intended to
drive sustained stock price growth. Using stock options to
structure this plan, it is technically not a cash
compensation program. However, it is a key component of
Cerner's performance-based compensation for senior
executives. These options cliff vest in 6 years. Vesting
can be accelerated, however, by attaining a specified stock
price. Each year the "vesting" stock price is increased to
reflect shareholder expectations and business model growth
targets. These stock options, in addition to the core
option grant programs, are designed to create a high degree
of alignment between shareholder and management goals.
CPP Eligibility and Payments
- ----------------------------
CPP plans are administered on quarterly cycles, which are
aligned with the quarters in the financial year.
Eligibility and payments are made on this basis.
Eligibility
Eligibility for a plan is based on the role of the
associate, and executive approval. Participants will be
eligible for participation in the first full plan quarter
following employment (or transfer into a role). If an
associate starts during the first 15 working days of a
quarter, he/she may be approved to participate in the plan
for that quarter; however, sales associates will receive 50%
of the payout for the agreement margings attained that
quarter, and full payout for following quarters.
If an associate's participation in a Cerner Performance Plan
is terminated due to termination of employment or transfer
to a non-CPP role, the associate will be entitled to payment
for any earned but not yet paid amounts. Payments are
earned only for completed quarters; i.e., if participation
is terminated in the middle of a quarter, no incentive will
be paid for that quarter.
If an associate transfers from one CPP-based role to
another, participation in the previous plan will be "closed
out" per normal end-of-quarter processing under the
provisions of the previous plan. Participation in the new
plan will be effective as of the beginning of the following
quarter. Whenever possible, such transfers should be
coordinated to be effective as of the beginning of a quarter
to avoid partial quarter issues.
Payment Cycles
Rewardable event incentives will be calculated and paid
quarterly. Payments will be made by the 15th of the second
month succeeding quarter.
Marketing Incentives will be calculated and paid quarterly,
by the end of the month following quarter-end. Incentives
are earned only upon completion of certain contracting and
payment requirements. As these requirements are met,
marketing incentive payments are made on a monthly basis.
2
<PAGE>
1998 CPP Metrics
<TABLE>
Neal L. Patterson
TBL: $187,500
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
Corporate EPS 100% Q
</TABLE>
<TABLE>
Clifford W. Illig
TBL: $155,000
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
Corporate EPS 100% Q
</TABLE>
<TABLE>
Glenn P. Tobin
TBL: $34,478
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
Corporate EPS 100% Q
</TABLE>
<TABLE>
Jack A. Newman, Jr.
TBL: $182,500
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
NAFTA Bookings 50% Q
Licensed Sales Operating Margin 30% Q
Corporate EPS 20% Q
</TABLE>
<TABLE>
Paul M. Black
TBL: $215,000
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
Area Bookings 50% Q
Licensed Sales Operating Margin 30% Q
Quarterly Corporate EPS 20% Q
</TABLE>
<TABLE>
Robert C. Dieterle
TBL: $162,500
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
Corporate EPS 70% Q
Annual EPS 30% A
</TABLE>
3
<PAGE>
<TABLE>
Alan D. Dietrich
TBL: $186,250
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
NAFTA Bookings 50% Q
Licensed Sales Operating Margin 30% Q
Corporate EPS Growth 20% Q
</TABLE>
<TABLE>
Stephen M. Goodrich
TBL: $81,250
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
Client Services Operating Margin 70% Q
Corporate EPS 30% Q
</TABLE>
<TABLE>
Douglas M. Krebs
TBL: $203,750
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
Area Bookings 50% Q
Licensed Sales Operating Margin 30% Q
Quarterly Corporate EPS 20% Q
</TABLE>
<TABLE>
Marvin G. Pember
TBL: $50,000
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
Corporate EPS 70% Q
Annual EPS 30% Q
</TABLE>
<TABLE>
Marc G. Naughton
TBL: $62,500
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
Corporate EPS 50% Q
Annual EPS 25% A
Days Sales Outstanding 25% Q
</TABLE>
<TABLE>
Stanley M. Sword
TBL: $25,000
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
Corporate EPS 70% Q
Annual EPS 30% A
</TABLE>
4
<PAGE>
<TABLE>
Jeffrey A. Townsend
TBL: $88,250
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
NAFTA Bookings 70% Q
Corporate EPS 30% Q
</TABLE>
Target Bonus Level (TBL) represents the amount payable if
the target is achieved. If the target is exceeded
additional amounts can be paid.
5
<PAGE>
Exhibit 10(j)
Cerner Performance Plans for 1999
CPP Overview
- ------------
Cerner continues to grow at a phenomenal rate. The growth
of our associate population has mirrored the growth of our
client base and diversification of our solution set.
Clearly, our greatest people needs remain in two areas: 1)
consulting professionals who implement our solutions and
tailor them to drive benefits for our clients, and 2)
architects, engineers, and functional experts who build and
support what have proven to be the industry leading
solutions for all facets of health care. Additionally, we
continue to seek talented associates for most areas of our
business as we grow and improve our operations.
In 1999, we responded to very competitive talent markets in
a number of ways. Two key responses affected Cerner
Performance Plans. First, for most non-executive roles, we
shifted from a highly complex variable pay model to a more
competitive base-only compensation model. Coupled with more
robust associate performance feedback and more integrated
knowledge sharing and skills development, we have improved
retention in a number of key associate groups, and
maintained our strong performance/pay link. Second, for
senior executives, we reinforced Cerner Performance Plans by
including plans that reward intermediate-term performance.
The new plans reward delivering on 3-year EPS targets, and
creating shareholder value. We believe these plans will add
a critical link to existing plans which reward attainment of
quarterly and annual performance metrics, and a stock option
program designed to drive performance over the very long-
term (10 year).
Currently, approximately 25% of all associates participate
in Cerner Performance Plans. Generally, sales associates
participate in marketing incentives that comprise the
majority of their total compensation. Senior consultants
and leaders with P&L responsibility participate in
performance plans that comprise 20 - 25% of their total
compensation. Executives participate in performance plans
that comprise 30 - 50% of their total compensation,
depending on the nature and scope of their responsibility.
CPP Plans
- ---------
The first structure in the design of CPP is the plan. Plans
are defined by role or team, and reflect the key
responsibilities for an associate. Even though every Cerner
associate "wears multiple hats" or plays multiple roles
through the course of a year, most associates participate in
only one plan. Some executives, however, participate in
multiple plans reflecting overlapping "performance terms"
(quarterly, annual, and intermediate-term) to drive balanced
corporate performance. The potential incentive for an
associate is called a Target Bonus Level (TBL).
There are three types of plans:
Annual CPP -- All associates participating in Cerner
Performance Plans participate in an Annual CPP plan.
Several types of metrics may be used to calculate
performance and plan payout.
The most common metric is a rewardable event metric, and is
typically a quarterly, cumulative year-to-date target for
business unit bookings, or operating earnings. We calculate
and make quarterly rewardable events payments to reinforce
consistent performance in support of annual corporate
earnings targets. Year-end payments of rewardable events
are adjusted by a factor which reflects the associate's
performance. This Annual Performance Evaluation factor
(APE) is used to reflect and reward success on not only the
"what" dimension of performance, but also the "how." We
believe this is an important factor because Cerner's long-
term success will be highly correlated to "how" (developing
associate capabilities, sharing knowledge, building
effective teams, supporting other business units, etc.)
results are delivered now. The APE factor can adjust
payments downward by more than 50%, or upward by 30%.
1
<PAGE>
For sales associates, marketing incentives are paid on the
basis of percent of quota, or sales commission. These plans
reward performance within a specified geographical region
and/or product set.
EPS Incentive Plan -- A limited number of senior executives
participate in this plan which is intended to drive
consistent three-year EPS growth. Payments are calculated
annually, based on attainment of EPS targets set over the
previous three years. The design of this plan reinforces
sustained earnings growth over a longer planning horizon
than Annual CPP and rewards profitable investments.
Shareholder Value Plan -- A limited number of senior
executives participate in this plan which is intended to
drive sustained stock price growth. Using stock options to
structure this plan, it is technically not a cash
compensation program. However, it is a key component of
Cerner's performance-based compensation for senior
executives. These options cliff vest in 6 years. Vesting
can be accelerated, however, by attaining a specified stock
price. Each year the "vesting" stock price is increased to
reflect shareholder expectations and business model growth
targets. These stock options, in addition to the core
option grant programs, are designed to create a high degree
of alignment between shareholder and management goals.
CPP Eligibility and Payments
- ----------------------------
CPP plans are administered on quarterly cycles, which are
aligned with the quarters in the financial year.
Eligibility and payments are made on this basis.
Eligibility
Eligibility for a plan is based on the role of the
associate, and executive approval. Participants will be
eligible for participation in the first full plan quarter
following employment (or transfer into a role). If an
associate starts during the first 15 working days of a
quarter, he/she may be approved to participate in the plan
for that quarter; however, sales associates will receive 50%
of the payout for the agreement margings attained that
quarter, and full payout for following quarters.
If an associate's participation in a Cerner Performance Plan
is terminated due to termination of employment or transfer
to a non-CPP role, the associate will be entitled to payment
for any earned but not yet paid amounts. Payments are
earned only for completed quarters; i.e., if participation
is terminated in the middle of a quarter, no incentive will
be paid for that quarter.
If an associate transfers from one CPP-based role to
another, participation in the previous plan will be "closed
out" per normal end-of-quarter processing under the
provisions of the previous plan. Participation in the new
plan will be effective as of the beginning of the following
quarter. Whenever possible, such transfers should be
coordinated to be effective as of the beginning of a quarter
to avoid partial quarter issues.
Payment Cycles
- --------------
Rewardable event incentives will be calculated and paid
quarterly. Payments will be made by the 15th of the second
month succeeding quarter.
Marketing Incentives will be calculated and paid quarterly,
by the end of the month following quarter-end. Incentives
are earned only upon completion of certain contracting and
payment requirements. As these requirements are met,
marketing incentive payments are made on a monthly basis.
2
<PAGE>
1999 CPP Metrics
<TABLE>
Neal L. Patterson
TBL: $175,000
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
Corporate EPS 100% Q
</TABLE>
<TABLE>
Clifford W. Illig
TBL: $35,000
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
Corporate EPS 100% Q
</TABLE>
<TABLE>
Glenn P. Tobin
TBL: $50,000
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
Corporate EPS 100% Q
</TABLE>
<TABLE>
Jack A. Newman, Jr.
TBL: $235,000
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
Alignment Bookings 50% Q
Licensed Sales Operating Margin 20% Q
Corporate EPS 30% Q
</TABLE>
<TABLE>
Thomas C. Tinstman, M.D.
TBL: $75,000
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
Corporate EPS 100% Q
</TABLE>
<TABLE>
Paul M. Black
TBL: $223,750
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
NAFTA Bookings 40% Q
Region Bookings 20% Q
Licensed Sales Operating Margin 20% Q
Corporate EPS 20% Q
</TABLE>
3
<PAGE>
<TABLE>
Robert C. Dieterle
TBL: $178,750
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
Goals 40% Q
Corporate EPS 20% Q
Health Service/Health Venture Operarting Earnings 20% Q
Health Service/Health Venture Operarting Earnings 20% Q
</TABLE>
<TABLE>
Alan D. Dietrich
TBL: $190,000
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
Alignment Bookings 40% Q
NAFTA/Intl Bookings 30% Q
Corporate EPS 30% Q
</TABLE>
<TABLE>
Stephen M. Goodrich
TBL: $82,500
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
Client Services Operating Margin 45% Q
Classic Migrations 35% Q
Corporate EPS 20% Q
</TABLE>
<TABLE>
Douglas M. Krebs
TBL: $208,750
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
NAFTA/Intl Bookings 30% Q
Region Bookings 30% Q
Licensed Sales Operating Margin 20% Q
Corporate EPS 20% Q
</TABLE>
<TABLE>
Marvin G. Pember
TBL: $100,000
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
Corporate EPS 40% Q
Managerial Enterprise Bookings 30% Q
Provider Enterprise Operating Earnings 30% Q
</TABLE>
4
<PAGE>
<TABLE>
Marc G. Naughton
TBL: $50,000
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
Corporate EPS 75% Q
Days Sales Outstanding 25% Q
</TABLE>
<TABLE>
Stanley M. Sword
TBL: $100,000
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
Corporate EPS 70% Q
Annual EPS 30% A
</TABLE>
<TABLE>
Jeffrey A. Townsend
TBL: $97,750
<CAPTION>
Rewardable Event Weighting Cycle
- ---------------- --------- -----
<S> <C> <C>
Corporate EPS 45% Q
Millenium Operating Earnings 30% Q
Conversions 25% Q
</TABLE>
Target Bonus Level (TBL) represents the amount payable if
the target is achieved. If the target is exceeded
additional amounts can be paid.
5
<PAGE>
Exhibit 10(k)
Cerner Corporation
Long Term Incentive Plan for 1998
(As adopted by the Board of Directors on May 22, 1998)
I. Plan Concept.
1. Reward long term, consistent earnings growth.
2. Cerner is valued primarily on its forward earnings
multiplied by the earnings growth rate. This incentive
rewards those valuation elements.
II. Plan Targets and Participant Payments.
1. Three year earnings per share targets are determined by
the Compensation Committee of the Board of Directors
computed based on desired earnings growth rates.
2. Each year the Compensation Committee of the Board of
Directors shall approve the participation of each officer of
Cerner and the amount of such participant's potential
payments. Any participant who is not a Cerner associate at
the end of the fiscal year is not entitled to any payment
under this Plan.
3. Each year a set of seven EPS targets for each of the
next three years are established by the Compensation
Committee of the Board of Directors. For example:
- In 1998, EPS targets are established for 1998, 1999, and 2000
- In 1999, EPS targets are established for 1999, 2000, and 2001
- In 2000, EPS targets are established for 2000, 2001, and 2002
<TABLE>
Target Payout 75% 100% 110% 120% 130% 140% 150%
- -----------------------------------------------------------------
<S> <C>
1998 EPS $
1999 EPS $
2000 EPS $
</TABLE>
4. By year 2000, there will be three separate sets of EPS
targets established for year 2000. One-third of the
incentive will be tied to the targets created in 1998, 1999
and 2000, respectively. This allows the Plan to take into
consideration any significant changes in projected earnings
without resetting all the targets.
5. In 1998, only one Long Term 1998 EPS target will exist.
Therefore, the incentive will be paid 100% based on that
metric. In 1999, only two Long Term 1999 EPS targets will
1
<PAG>E
exist (those created in 1998 and 1999). Therefore, the
incentive will be paid based 50% on the first target and 50%
on the second target. In 2000, all three Long Term 2000 EPS
targets will exist and the incentive will then be paid based
one-third on each of the three targets.
III. Plan Payments.
1. Amounts earned under the Plan would be paid in cash up
to 100% target payout level paid annually after close of
year (February 15th).
2. Amounts earned under the Plan in excess of the 100%
target payout level would be paid one half in cash and one
half in restricted Cerner common stock (valued at the
average market value for the last thirty trading days of the
fiscal year).
3. Restricted stock could not be sold for two years from
the date issued and would require the associate to be
employed by Cerner at the end of such two years for the
restriction to be removed. If the associate is not employed
by Cerner (other than by reason of death or disability as
determined by the Board of Directors of Cerner) at the end
of the two year period the stock is returned to Cerner.
4. Stock restriction ensures that current earnings are not
maximized at the expense of future earnings.
IV. Plan Amendment and Termination.
1. The Plan may be terminated by the Compensation
Committee of the Board of Directors as of the end of any
fiscal year of Cerner either by announcing its termination
or by not establishing any new compensation levels for that
fiscal year.
2. The Plan may be amended by the Compensation Committee
of the Board of Directors at any time, but may not be
amended so as to affect any EPS targets already determined
or to reduce the amount of any participants potential
payment already determined.
2
<PAGE>
<TABLE>
1998 Long Term Incentive Plan Participants and Payments (at 100%)
<CAPTION>
Name Role Amount
- ---- ---- ------
<S> <C> <C>
Neal Patterson CEO $210,000
Cliff Illig Vice-Chairman 105,000
Jeff Reene EVP-Consulting 56,000
Glenn Tobin COO 50,000
Marc Naughton VP-CFO 50,000
Jeff Townsend VP-Engineering 42,000
Steve Goodrich VP-Client Services 35,000
</TABLE>
3
Exhibit 10(l)
Cerner Corporation
Long Term Incentive Plan for 1999
(As adopted by the Board of Directors on May 22, 1998)
I. Plan Concept.
1. Reward long term, consistent earnings growth.
2. Cerner is valued primarily on its forward earnings
multiplied by the earnings growth rate. This incentive
rewards those valuation elements.
II. Plan Targets and Participant Payments.
1. Three year earnings per share targets are determined by
the Compensation Committee of the Board of Directors
computed based on desired earnings growth rates.
2. Each year the Compensation Committee of the Board of
Directors shall approve the participation of each officer of
Cerner and the amount of such participant's potential
payments. Any participant who is not a Cerner associate at
the end of the fiscal year is not entitled to any payment
under this Plan.
3. Each year a set of seven EPS targets for each of the
next three years are established by the Compensation
Committee of the Board of Directors. For example:
- In 1998, EPS targets are established for 1998, 1999, and 2000
- In 1999, EPS targets are established for 1999, 2000, and 2001
- In 2000, EPS targets are established for 2000, 2001, and 2002
<TABLE>
Target Payout 75% 100% 110% 120% 130% 140% 150%
- ------------------------------------------------------------------
<S> <C>
1998 EPS $
1999 EPS $
2000 EPS $
</TABLE>
4. By year 2000, there will be three separate sets of EPS
targets established for year 2000. One-third of the
incentive will be tied to the targets created in 1998, 1999
and 2000, respectively. This allows the Plan to take into
consideration any significant changes in projected earnings
without resetting all the targets.
5. In 1999, only one Long Term 1999 EPS target will exist.
Therefore, the incentive will be paid 100% based on that
metric. In 1999, only two Long Term 1999 EPS targets will
1
<PAGE>
exist (those created in 1998 and 1999). Therefore, the
incentive will be paid based 50% on the first target and 50%
on the second target. In 2000, all three Long Term 2000 EPS
targets will exist and the incentive will then be paid based
one-third on each of the three targets.
III. Plan Payments.
1. Amounts earned under the Plan would be paid in cash up
to 100% target payout level paid annually after close of
year (February 15th).
2. Amounts earned under the Plan in excess of the 100%
target payout level would be paid one half in cash and one
half in restricted Cerner common stock (valued at the
average market value for the last thirty trading days of the
fiscal year).
3. Restricted stock could not be sold for two years from
the date issued and would require the associate to be
employed by Cerner at the end of such two years for the
restriction to be removed. If the associate is not employed
by Cerner (other than by reason of death or disability as
determined by the Board of Directors of Cerner) at the end
of the two year period the stock is returned to Cerner.
4. Stock restriction ensures that current earnings are not
maximized at the expense of future earnings.
IV. Plan Amendment and Termination.
1. The Plan may be terminated by the Compensation
Committee of the Board of Directors as of the end of any
fiscal year of Cerner either by announcing its termination
or by not establishing any new compensation levels for that
fiscal year.
2. The Plan may be amended by the Compensation Committee
of the Board of Directors at any time, but may not be
amended so as to affect any EPS targets already determined
or to reduce the amount of any participants potential
payment already determined.
2
<PAGE>
<TABLE>
1999 Long Term Incentive Plan Participants and Payments (at 100%)
<CAPTION>
Name Role Amount
- ---- ---- ------
<S> <C> <C>
Neal Patterson CEO $210,000
Glenn Tobin COO 75,000
Marc Naughton VP-CFO 50,000
Jeff Townsend VP-Engineering 50,000
Steve Goodrich VP-Client Services 45,000
</TABLE>
3
<PAGE>
Exhibit 10(m)
PROMISSORY NOTE
March 12, 1996 $100,000.00
For value received, the undersigned promises to pay to the
order of Cerner Corporation, a Delaware corporation
("Cerner") the sum of One Hundred Thousand Dollars
($100,000.00), payable in five equal annual installments,
each in the amount of Twenty Thousand Dollars ($20,000.00),
the first installment payable on December 30, 2000 and each
succeeding installment due on the following four
anniversaries thereof. No interest shall be payable with
respect to this Promissory Note.
Payment of this Promissory Note shall be made at the
office of Cerner at 2800 Rockcreek Parkway, Kansas City,
Missouri, or at such other place within the State of
Missouri as Cerner may designate in writing to the
undersigned, in United States Dollars.
In the event that the undersigned shall fail to make any
payment hereunder when due, Cerner may, without notice to
the undersigned, declare this Promissory Note in default and
the entire unpaid amount of this Promissory Note shall be
immediately due and payable in full; provided, however, that
this Promissory Note shall be nonrecourse to the undersigned
and the undersigned shall not be personally liable to pay to
Cerner any amounts due to Cerner hereunder, but Cerner shall
look solely to the collateral held by Cerner as security for
this Promissory Note.
The undersigned hereby pledges and grants to Cerner a
security interest in _______ shares of Common Stock of
Cerner represented by certificate no. ________, and any
additional shares of Cerner Common Stock or other securities
or property that the undersigned shall be entitled to
receive as a result of being the owner of any of such Cerner
Common Stock or other securities or property, as security
for all of the obligations of the undersigned under this
Promissory Note or deliver to Cerner any such additional
Cerner Common Stock or other securities or property, as
security for all of the obligations of the undersigned under
this Promissory Note or otherwise to Cerner. The
undersigned has delivered to Cerner such certificate no.
________ and agrees to deliver to Cerner any such additional
Cerner Common Stock or other securities or property, all to
be held by Cerner as provided for hereunder. In the event
that this Promissory Note shall become payable in full as
set forth in the immediately preceding paragraph or the
undersigned shall be default in payment of any of such other
obligations of the undersigned to Cerner. Cerner shall have
all of the rights and remedies of a secured party under the
Uniform Commercial Code as in effect in the State of
Missouri, including the right to sell any of the collateral
held by Cerner hereunder and apply the proceeds thereof
first to the costs and expenses incurred by Cerner in
exercising its rights hereunder and then to the amount
secured by the collateral. Any surplus shall continue to be
held by Cerner hereunder if there remain outstanding any
obligations of the undersigned to Cerner secured by such
collateral.
The undersigned waives any and all notices, demands or
other indulgences or rights granted by law in connection
with the collection hereof by Cerner.
In witness whereof, the undersigned has executed this
Promissory Note as of the day and year first above written.
/s/Jack A. Newman, Jr.
--------------------------
Jack A. Newman, Jr.
Exhibit 10(n)
PROMISSORY NOTE
$135,000 March 30, 1998
For value received, the undersigned promises to pay to
the order of Cerner Corporation, a Delaware corporation,
("Cerner") the sum of One Hundred Thirty-Five Thousand
Dollars ($135,000) at Cerner offices at 2800 Rockcreek
Parkway, Kansas City, Missouri 64117, in annual installments
of Fifteen Thousand Dollars ($15,000), the first installment
to be due on August 4, 1998 and the subsequent eight (8)
installments each to be due on the first eight (8)
consecutive anniversaries of August 4, 1998.
Notwithstanding the foregoing, in the event the
undersigned's employment with Cerner is terminated, for any
reason, this Promissory Note shall become immediately due
and payable in full, without notice by Cerner to the
undersigned, upon the earlier to occur of (1) the
undersigned's sale of the real property covered by the
mortgage referred to below, (2) settlement of any payments
due to the undersigned from Cerner under CPP or any other
bonus plans of Cerner or (3) receipt by the undersigned
after the termination date of an aggregate of Seventy Five
Thousand Dollars ($75,000) or more from the sale by the
undersigned of any Cerner stock received by the undersigned
upon exercise of any stock options granted to the
undersigned by Cerner.
In the event of the failure of the undersigned to pay
any installment when due or if there is a breach of any of
the terms and conditions of the Mortgage dated the date
hereof made by the undersigned and his spouse in favor of
Cerner, Cerner may accelerate all unpaid installments hereof
and all other amounts payable hereunder by written notice
delivered to the undersigned in writing addressed at 2800
Rockcreek Parkway, Kansas City, Missouri 64117, whereupon
the entire unpaid amount hereof shall be immediately due and
payable in full.
Any installment hereof not paid when due shall
thereafter bear interest at the lesser of the highest amount
permitted by applicable law or the prime or base rate of
interest announced from time to time by CitiBank, N. A., New
York, New York.
<PAGE>
The undersigned hereby grants to Cerner a security
interest in all outstanding CPP or other bonus payments due
to the undersigned from Cerner at any time and any shares of
Cerner Common Stock acquired by the undersigned as a result
of exercising any stock options granted to the undersigned
by Cerner as security for all amounts due to Cerner
hereunder. This Promissory Note is also secured by and
subject to the benefits of the second mortgage dated March
30, 1998, made by the undersigned and his spouse in favor of
Cerner.
The undersigned hereby waives all demands, protests,
notices, indulgences and other benefits provided by law to
the undersigned in connection with the collection hereof by
Cerner and agrees to pay all costs of collection hereof by
Cerner, including reasonable attorney's fees and expenses.
In witness whereof the undersigned have executed this
Promissory Note as of the date hereof.
/s/Robert C. Dieterle
-------------------------
Robert C. Dieterle
Exhibit 10(o)
PROMISSORY NOTE
and SECURITY AGREEMENT
April 30, 1998 $100,000.00
For value received, the undersigned promises to pay to the
order of Cerner Corporation, a Delaware corporation ("Cerner")
the sum of One Hundred Thousand Dollars ($100,000.00), payable on
April 30, 2003, together with interest at the rate of three
percent (3%) per annum. Interest shall be computed on the basis
of a 360-day year. Payment of this Promissory Note shall be made
at the office of Cerner at 2800 Rockcreek Parkway, Kansas City,
Missouri, 64117, or at such other place within the State of
Missouri as Cerner may designate in writing to the undersigned,
in United States dollars.
Notwithstanding the foregoing, if the undersigned's employment
with Cerner is terminated for any reason, whether by Cerner or by
the undersigned, this Promissory Note shall become immediately
due and payable in full, without notice by Cerner to the
undersigned.
Any amount hereunder not paid when due shall thereafter bear
interest at the lesser of the highest amount permitted by
applicable law or the prime or base rate of interest announced
from time to time by CitiBank, N.A., New York, New York.
The undersigned hereby grants to Cerner a security interest in
(i) all outstanding Cerner Performance Plan ("CPP") or other
bonus payments due to the undersigned from Cerner at any time,
(ii) all stock options granted to the undersigned by Cerner,
whether vested or not vested, and (iii) any shares of Cerner
Common Stock acquired by the undersigned as a result of
exercising any stock options granted to the undersigned by Cerner
as security for all amounts due to Cerner hereunder. The
undersigned will deliver to Cerner any such certificates
representing Cerner Common Stock to be held by Cerner. The
undersigned shall assist Cerner in taking whatever steps Cerner
deems advisable in perfecting its security interest in the
foregoing collateral, including but not limited to signing
financing statements, stock powers and control agreements. In
the event that this Promissory Note shall become payable in full
as set forth above, Cerner shall have all of the rights and
remedies of a secured party under the Uniform Commercial Code as
in effect in the State of Missouri, including the right to sell
any of the collateral held by Cerner hereunder and apply the
proceeds thereof first to the costs and expenses, including
reasonable attorney's fees and expenses, incurred by Cerner in
exercising its rights hereunder and then to the amount secured by
the collateral. In addition to the foregoing, if the amount of
this Promissory Note is not paid when due, to the extent
permitted by law, Cerner may set off any moneys due from Cerner
to the undersigned, including without limitation, salary, CPP and
any other compensation, if any, against any of the undersigned's
obligations hereunder, whether or not the same is due and in any
order of priority.
The undersigned waives any and all notices, demands, protests
or other indulgences or rights granted by law in connection with
the collection hereof by Cerner.
In witness whereof, the undersigned has executed this
Promissory Note and Security Agreement as of the day and year
first above written.
/s/Glenn Tobin
-------------------------
Glenn Tobin, Ph.D.
Address: 610 W. 56th St.
-----------------
Kansas City, MO 64113
-----------------
Signatory as to the grant of the security interest only:
/s/Nancy Beer Tobin
-------------------------
Name:Nancy Beer Tobin
-------------------------
Exhibit 10(p)
PROMISSORY NOTE
and SECURITY AGREEMENT
June 22, 1998 $200,000.00
For value received, the undersigned promises to pay to the
order of Cerner Corporation, a Delaware corporation ("Cerner")
the sum of Two Hundred Thousand Dollars ($200,000.00), payable as
follows:
<TABLE>
Date Principal Repayment
---- -------------------
<S> <C>
July 1, 1999 $0
July 1, 2000 $10,000
July 1, 2001 $20,000
July 1, 2002 $20,000
July 1, 2003 $40,000
July 1, 2004 $40,000
July 1, 2005 $70,000
</TABLE>
This Promissory Note will not bear interest for the first five
(5) years and eight (8) days. Beginning on July 1, 2003,
interest will accrue on the unpaid principal balance hereof at
the rate of three percent (3%) per annum. Interest shall be
computed on the basis of a 360-day year. Payment of this
Promissory Note shall be made at the office of Cerner at 2800
Rockcreek Parkway, Kansas City, Missouri, 64117, or at such other
place within the State of Missouri as Cerner may designate in
writing to the undersigned, in United States dollars.
Notwithstanding the foregoing, and without notice by Cerner to
the undersigned, the entire unpaid principal amount of this
Promissory Note (plus accrued interest, if any) shall become
immediately due and payable in full upon (i) the voluntary
termination of the undersigned's employment with Cerner or (ii)
Cerner's termination of the undersigned's employment due to the
undersigned's dishonesty, illegal conduct, breach of Cerner's
policy or breach of the undersigned's Cerner Associate Employment
Agreement, dated April 15, 1998. In the event of the
undersigned's involuntary termination of employment with Cerner
(other than for the undersigned's dishonesty, illegal conduct,
breach of Cerner's policy or breach of the undersigned's Cerner
Associate Employment Agreement, dated April 15,1998), the entire
remaining principal amount of this Promissory Note (plus accrued
interest, if any) will be due and payable one (1) year following
such involuntary termination, without notice by Cerner to the
undersigned.
Any amount hereunder not paid when due shall thereafter bear
interest at the lesser of the highest amount permitted by
applicable law or the prime or base rate of interest announced
from time to time by CitiBank, N.A., New York, New York.
The undersigned hereby grants to Cerner a security interest in
(i) all outstanding Cerner Performance Plan ("CPP") or other
bonus payments due to the undersigned from Cerner at any time,
(ii) all stock options granted to the undersigned by Cerner,
whether vested or not vested, and (iii) any shares of Cerner
Common Stock acquired by the undersigned as a result of
exercising any stock options granted to the undersigned by Cerner
as security for all amounts due to Cerner hereunder. The
undersigned will deliver to Cerner any such certificates
representing Cerner Common Stock to be held by Cerner. The
undersigned shall assist Cerner in taking whatever steps Cerner
deems advisable in perfecting its security interest in the
foregoing collateral, including but not limited to signing
financing statements, stock powers and control agreements. In
the event that this Promissory Note shall become payable in full
as set forth above, Cerner shall have all of the rights and
remedies of a secured party under the Uniform Commercial Code as
in effect in the State of Missouri, including the right to sell
any of the collateral held by Cerner hereunder and apply the
proceeds thereof first to the costs and expenses, including
reasonable attorney's fees and expenses, incurred by Cerner in
exercising its rights hereunder and then to the amount secured by
the collateral. In addition to the foregoing, if the amount of
this Promissory Note is not paid when due, to the extent
permitted by law, Cerner may set off any moneys due from Cerner
to the undersigned, including without limitation, salary, CPP and
any other compensation, if any, against any of the undersigned's
obligations hereunder, whether or not the same is due and in any
order of priority.
This Promissory Note is also secured by and subject to the
benefits of the mortgage, dated June 22, 1998, made by the
undersigned and his spouse in favor of Cerner with respect to the
property commonly known as 648 East 45th, Kansas City, Missouri
64110.
The undersigned waives any and all notices, demands,
protests or other indulgences or rights granted by law in
connection with the collection hereof by Cerner.
In witness whereof, the undersigned has executed this
Promissory Note and Security Agreement as of the day and year
first above written.
/s/Marvin G. Pember
------------------------
Marvin G. Pember
Address: 648 East 45th
Kansas City, Missouri 64110
Signatory as to the grant of the security interest only:
/s/Beverly K. Pember
------------------------
Beverly A. Pember
State of Kansas )
---------)
County of Johnson)
--------
On this 20th day of June in the year 1998, before me, the
undersigned notary public, personally appeared Marvin G. Pember
and Beverly A. Pember, known to me to be the persons whose names
are subscribed to the within instrument, and acknowledged that
each executed the same as their free act and deed.
In witness thereof, I hereunto set my hand and official seal.
Susan K. Parker
-------------------------
Notary Public
SUSAN K. PARKER
NOTARY PUBLIC
STATE OF KANSAS
My App. Exp. 11.30.98
----------
<TABLE>
Exhibit 21
SUBSIDIARIES OF REGISTRANT
<CAPTION>
Name State of Incorporation
---- ----------------------
<S> <C>
Cerner Corporation Pty Limited New South Wales (Australia)
Cerner Deutschland GmbH Germany
Cerner FSC, Inc. Barbados
Cerner Health Connections, Inc. Delaware
Cerner Health Facts, Inc. Delaware
Cerner HealthWise, Inc. Delaware
Cerner International, Inc. Delaware
Cerner Limited United Kingdom
Cerner Performance Logistics, Inc. Delaware
Cerner Properties, Inc. Delaware
Cerner Singapore Limited Delaware
Cerner (Malaysia) Sdn Bnd Malaysia
Cerner Canada Limited Delaware
Multum Information Services, Inc. Delaware
</TABLE>
Exhibit 23
Independent Auditors' Consent
The Board of Directors
Cerner Corporation:
We consent to incorporation by reference in the Registration
Statements (No. 33-56868, No. 33-55082, No. 33-41580, No. 33-
39777, No. 33-39776, No. 33-20155, and No. 33-15156) on Form
S-8 and Registration Statement No. 33-72756 on Form S-3 of
Cerner Corporation of our reports, dated February 3, 1999,
relating to the consolidated balance sheets of Cerner
Corporation as of January 2, 1999 and January 3, 1998 and the
related consolidated statements of earnings, changes in
equity, and cash flows and related schedule for each of the
years in the three-year period ended January 2, 1999, which
reports are incorporated herein by reference or are included
herein.
KPMG LLP
Kansas City, Missouri
April 2, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> JAN-02-1999
<CASH> 42,658,000
<SECURITIES> 0
<RECEIVABLES> 170,779,000
<ALLOWANCES> 3,405,000
<INVENTORY> 2,651,000
<CURRENT-ASSETS> 216,917,000
<PP&E> 127,039,000
<DEPRECIATION> 49,747,000
<TOTAL-ASSETS> 436,485,000
<CURRENT-LIABILITIES> 98,236,000
<BONDS> 0
0
0
<COMMON> 347,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 436,485,000
<SALES> 330,902,000
<TOTAL-REVENUES> 330,902,000
<CGS> 89,544,000
<TOTAL-COSTS> 207,828,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 262,000
<INCOME-PRETAX> 33,268,000
<INCOME-TAX> 12,679,000
<INCOME-CONTINUING> 20,589,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,589,000
<EPS-PRIMARY> .63
<EPS-DILUTED> .61
</TABLE>
