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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. __)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS
PERMITTED BY RULE 14A-6(E) (2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or
(S) 240.14a-12
CITATION Computer Systems, Inc.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11.
(1) Title of each class of securities to which
transaction applies:
___________________________________________________________________
(2) Aggregate number of securities to which
transaction applies:
___________________________________________________________________
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
___________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
___________________________________________________________________
(5) Total fee paid:
___________________________________________________________________
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided
by Exchange Act Rule 0-11(a)(2) and identify the filing
for which the offsetting fee was paid previously.
Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its
filing.
(1) Amount Previously Paid:
___________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
___________________________________________________________________
(3) Filing Party:
___________________________________________________________________
(4) Date Filed:
___________________________________________________________________
Notes:
<PAGE>
[Logo of Cerner] [Logo of CITATION Computer Systems, Inc.]
PROSPECTUS OF PROXY STATEMENT OF
CERNER CORPORATION CITATION COMPUTER SYSTEMS, INC.
MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT
To the Shareholders of CITATION Computer Systems, Inc.
The boards of directors of Cerner Corporation and CITATION
Computer Systems, Inc. have approved a merger agreement that would
result in Cerner's acquiring CITATION. The merger offers CITATION
shareholders the opportunity to become shareholders of Cerner, a
larger organization. CITATION believes the combination of these two
companies will result in an opportunity to create substantially more
shareholder value than could be achieved by CITATION individually.
If CITATION completes the merger, CITATION shareholders will
receive $5.10 in cash per share with respect to ten percent of their
shares and 0.1695 shares of Cerner common stock per share with
respect to ninety percent of their shares. For example, in the
merger, a person who holds 100 shares of CITATION common stock will
receive $51.00 in cash (10 shares multiplied by $5.10), 15 shares of
Cerner common stock (90 shares multiplied by 0.1695) and an amount of
cash in lieu of the remaining 0.255 shares equal to the value of such
fractional share.
CITATION cannot complete the merger unless the shareholders of
CITATION approve it. CITATION will hold a meeting of its
shareholders to vote on the merger. Your vote is very important.
Whether or not you plan to attend the shareholder meeting, please
vote by completing and mailing the enclosed proxy card to us. If you
sign, date and mail your proxy card without indicating how you want
to vote, your proxy will be counted as a vote in favor of the merger.
Not returning your proxy card or not instructing your broker how to
vote shares held for you in "street name" will have the same effect
as voting those shares against the merger.
The date, time and place of the meeting is:
August 17, 2000, 10:00 a.m. local time
11 South Meramec
Clayton, Missouri
This document provides you with detailed information about the
proposed merger. CITATION encourages you to read this entire
document carefully.
[/s/ Neal L. Patterson] [/s/ J. Robert Copper]
Neal L. Patterson J. Robert Copper
Chairman of the Board and Chairman of the Board and
Chief Executive Officer Chief Executive Officer
Cerner Corporation CITATION Computer Systems, Inc.
Cerner's common stock is quoted on the Nasdaq National Market
under the symbol "CERN."
For a discussion of certain risk factors which you should consider
in evaluating the merger, see "Risk Factors" beginning on page 13.
_____________________________________________________________________
Neither the Securities and Exchange Commission nor any state
securities regulators has approved or disapproved of the Cerner
common stock to be issued in the merger or determined whether this
document is truthful or complete. Any representation to the contrary
is a criminal offense.
_____________________________________________________________________
This proxy statement/prospectus is dated July 6, 2000, and is being
first mailed to shareholders on or about July 12, 2000.
<PAGE>
[CITATION Logo]
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on August 17, 2000
_________________
To the shareholders of CITATION Computer Systems, Inc.:
A special meeting of shareholders of CITATION Computer Systems,
Inc., a Missouri corporation, will be held at 11 South Meramec,
Clayton, Missouri on August 17, 2000,
commencing at 10:00 a.m., local time, to consider and act upon:
1. A proposal to adopt the Agreement and Plan of Merger, by and
among Cerner Corporation, Cerner Performance Logistics, Inc.,
and CITATION, dated as of May 15, 2000, which is described in
this proxy statement/prospectus, and the transactions
contemplated thereby. Under the merger agreement:
CITATION will merge with and into Cerner Performance
Logistics, Inc., a wholly owned subsidiary of Cerner
Corporation; and
ninety percent of the shares of CITATION common stock held by
each shareholder will each be converted into 0.1695 shares of
Cerner common stock and ten percent of the shares of CITATION
common stock held by each shareholder will each be converted
into the right to receive $5.10 in cash.
2. Such other business as may properly come before the meeting.
These proposals and other related matters are more fully
described in the accompanying proxy statement/prospectus. A copy of
the merger agreement is attached to the proxy statement/prospectus as
Appendix A.
Only holders of record of common stock of CITATION at the close
of business on July 6, 2000 are entitled to notice of and to
vote at the meeting.
The board of directors of CITATION has approved the merger
agreement, declared its advisability and recommends that you vote FOR
adoption of the merger agreement and the transactions contemplated
thereby.
Your vote is important. Please date, sign and return the
accompanying proxy card promptly in the enclosed envelope, whether or
not you intend to be present at the meeting. Sending in your proxy
now will not interfere with your right to attend the meeting or to
vote your shares personally at the meeting if you wish to do so. If
your shares are held in "street name" by your broker or other
nominee, only that holder can vote your shares. You should follow
the directions provided by them regarding how to instruct them to
vote your shares.
You may revoke your proxy with respect to any proposal at any
time prior to the completion of the voting on such proposal at the
meeting, by following the procedures set forth in the accompanying
proxy statement/prospectus.
By Order of the Board of Directors
/s/ Richard D. Neece
----------------------------------
Richard D. Neece
Secretary
Chesterfield, Missouri
July 6, 2000
<PAGE>
TABLE OF CONTENTS
Page
----
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SHAREHOLDER
MEETING......................................................... 1
SUMMARY........................................................... 3
SUMMARY FINANCIAL INFORMATION..................................... 7
Cerner Summary Historical Consolidated Financial Information.... 7
CITATION Summary Historical Consolidated Financial Information.. 9
COMPARATIVE PER SHARE DATA........................................10
COMPARATIVE MARKET PRICE AND DIVIDEND INFORMATION.................11
RISK FACTORS......................................................13
RECENT DEVELOPMENTS...............................................17
CITATION SPECIAL MEETING..........................................17
Date, Time and Place............................................17
Matters to be Considered........................................17
Record Date; Stock Entitled to Vote; Quorum.....................17
Vote Required...................................................18
Security Ownership of Management................................18
Voting of Proxies...............................................18
THE MERGER........................................................19
General.........................................................19
Exchange of CITATION Shares.....................................20
Stock Options...................................................20
Exchange of Stock Certificates..................................20
Background of the Merger........................................20
Cerner's Reasons for the Merger.................................23
Recommendation of the CITATION Board and Reasons for the Merger.24
Opinion of CITATION's Financial Advisor.........................25
Federal Securities Laws Consequences and Restrictions on Resales
by Affiliates................................................31
Shareholders Agreement..........................................31
Fees and Expenses of the Merger.................................32
Accounting Treatment............................................32
Federal Income Tax Consequences.................................32
Interests of Certain Persons in the Merger......................33
Dissenters' Rights..............................................35
Conditions to the Merger........................................36
Regulatory Approval.............................................37
Conduct of Business Pending the Merger..........................37
No Solicitation.................................................38
Waiver and Amendment............................................39
Termination of the Merger Agreement.............................39
Nasdaq National Market Listing..................................40
Effective Time..................................................40
INFORMATION REGARDING CITATION....................................41
CITATION'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................45
COMPARATIVE RIGHTS OF SHAREHOLDERS................................51
EXPERTS...........................................................55
LEGAL MATTERS.....................................................55
FUTURE SHAREHOLDER PROPOSALS......................................55
WHERE YOU CAN FIND MORE INFORMATION...............................56
INDEX TO FINANCIAL STATEMENTS OF CITATION Computer Systems, Inc..F-1
APPENDIX A--Agreement and Plan of Merger
APPENDIX B--Opinion of CITATION Financial Advisor
APPENDIX C--Shareholder Agreement
APPENDIX D--Section 351.455, R.S.Mo. Concerning Dissenters'Rights
<PAGE> -i-
QUESTIONS AND ANSWERS
ABOUT THE MERGER AND THE SHAREHOLDER MEETING
Q: Why are the two companies proposing to merge?
A: We believe the proposed merger is in the best interests of both of
the companies and their respective shareholders. The board of
directors of Cerner believes that the merger will result in an
addition to Cerner's significant laboratory client base that
primarily consists of larger hospitals, health systems and
independent laboratories. The board of directors of CITATION
believes the merger provides significant value to CITATION
shareholders and enables them to participate in the opportunities
for growth offered by Cerner.
You should review the reasons for the merger described in greater
detail at pages 23 through 25.
Q: When and where is the special meeting?
A: The CITATION special meeting is scheduled to take place on
August 17, 2000, at 10:00 a.m. local time, at 11 South Meramec,
Clayton, Missouri.
Q: When do you expect the merger to be completed?
A: We expect to complete the merger promptly after receiving
shareholder approval at the special meeting.
Q: What do I need to do now?
A: You should carefully read and consider the information contained
in this document. Then, please fill out, sign and mail your proxy
card in the enclosed return envelope as soon as possible so that
your shares may be represented at the special meeting. If the
card does not specify a choice it will be voted "FOR" the merger
and the transactions contemplated thereby.
Q: What if I don't vote or I abstain from voting?
A: If you do not vote or you abstain from voting, the effect will be
a vote against the merger and the transactions contemplated
thereby.
Q: If my shares are held by my broker in "street name," will my
broker vote my shares for me?
A: Your broker will vote your shares only if you provide instructions
on how to vote. You should follow the directions provided by your
broker to vote your shares. If you do not provide your broker
with instructions on how to vote your shares held in "street
name," your broker will not be permitted to vote your shares,
which will have the effect of a "NO" vote on the merger and the
transactions contemplated thereby.
Q: May I change my vote after I have mailed my signed proxy card?
A: Yes. You may change your vote at any time before your proxy is
voted at the special meeting. You can do this in one of three
ways. First, you can send a written notice stating that you would
like to revoke your proxy. Second, you can complete and submit a
new proxy card. If you choose either of these two methods, you
must submit your notice of revocation or your new proxy card to
CITATION Computer Systems, Inc., at 424 South Woods Mill Road,
Suite 200, Chesterfield, Missouri 63017, Attention: Richard D.
Neece, Secretary, prior to the Special Meeting to be held on August
17, 2000. Third, you can attend the special meeting and vote in
person. Simply attending the meeting, however, will not revoke your
proxy; you must request a ballot and vote the ballot at the meeting.
If you have instructed a broker to vote your shares, you must
follow directions received from your broker to change your vote.
Q: Should I send in my stock certificate now?
A: No. After the merger is completed, you will receive written
instructions for exchanging your stock certificates for
certificates of Cerner common stock and the cash consideration.
Q: Who can I call with questions about the special meeting or the
merger?
A: You can contact Richard D. Neece, President, of CITATION, at (314)
579-7900.
<PAGE> -1-
This document incorporates important business and financial
information about Cerner and CITATION from documents filed with the
SEC that have not been included in or delivered with this document.
You may read and copy these documents at the SEC's public reference
facilities. Please call the SEC at 1-800-SEC-0330 for information
about these facilities. This information is also available at the
Internet site the SEC maintains at http:\\www.sec.gov. Reports and
other information relating to Cerner and CITATION are also available
at the offices of the Nasdaq National Market. See "Where You Can
Find More Information" on page 59.
Cerner will provide you with copies of the documents relating to
Cerner, without charge, upon written or oral request to:
Cerner Corporation
2800 Rockcreek Parkway
Kansas City, Missouri 64117
(816) 221-1024
Attention: Randy D. Sims
CITATION will provide you with copies of the documents relating
to CITATION, without charge, upon written or oral request to:
CITATION Computer Systems, Inc.
424 South Woods Mill Road, Suite 200
Chesterfield, Missouri 63017
(314) 579-7900
Attention: Maureen Gallagher
In order to receive timely delivery of the documents in advance
of the special meeting of shareholders, you should make your request
no later than August 7, 2000.
<PAGE> -2-
____________________________________________________________________
SUMMARY
This Summary, together with the preceding Question and Answer
section, highlights selected information from this proxy
statement/prospectus and may not contain all the information that is
important to you. To better understand the merger and related
transactions and for a more complete description of the legal terms
of the merger and related transactions, you should carefully read
this entire document and the documents to which we have referred you.
See "Where You Can Find More Information" on page 56.
The Companies
Cerner Corporation
2800 Rockcreek Parkway
Kansas City, Missouri 64117
(816) 221-1024
Cerner, a Delaware corporation incorporated in 1980, is a leading
supplier of clinical and management information and knowledge systems
to healthcare organizations worldwide. Cerner's mission is to
connect the appropriate persons, knowledge and resources at the
appropriate time and location to achieve the optimal health outcome.
CITATION Computer Systems, Inc.
424 South Woods Mill Road
Suite 200
Chesterfield, Missouri 63017
(314) 579-7900
CITATION designs, develops, markets and supports patient-centered
clinical information systems for hospitals, clinics, physicians'
groups and emerging Integrated Delivery Networks. CITATION offers a
comprehensive suite of clinical products using open client/server
architecture that meets a broad range of the information systems
needs of the healthcare industry. These products integrate patient
care processes within the enterprise.
The Merger
We have attached a copy of the Agreement and Plan of Merger to
this document as Appendix A. We encourage you to read this merger
agreement as it is the legal document that governs the merger.
Our Reasons for the Merger (see pages 23 through 25)
We are proposing to merge because we believe that:
by combining the companies we can create a stronger company that
will provide benefits to both our shareholders and customers; and
the merger will strengthen the combined company's position as a
competitor in the healthcare information management industry, which
is rapidly changing and growing more competitive.
CITATION's Board of Directors Unanimously Recommends that CITATION's
Shareholders Approve the Merger and Related Transactions (see pages
24 through 25)
The CITATION board of directors believes that the merger and the
transactions contemplated thereby are fair to you and in your best
interests and unanimously recommends that you vote "FOR" the proposal
to approve and adopt the merger agreement and the transactions
contemplated thereby.
What CITATION's Shareholders Will Receive (see page 19)
If we complete the merger, you will receive for ninety percent of
your shares of CITATION common stock 0.1695 shares of Cerner common
stock for each such share. You will receive for ten percent of your
shares of CITATION common stock $5.10 in cash per share. Cerner will
not issue any fractional shares in the merger. Instead, you will
receive cash for any fractional share of Cerner common stock owed to
you. The amount of cash you will receive for any such fractional
shares will be calculated based on an average of Cerner's stock
closing sales price for the twenty trading days preceding the third
trading day before the effective time of the merger. For example:
If you currently own 100 shares of CITATION common stock and
the average of the closing sale prices of Cerner common stock
during such twenty-day period is $25.00, then after the
merger, you will receive a check in the amount of $57.38,
which represents $51.00 (ten shares multiplied by $5.10) plus
$6.38 (0.255 fractional share amount multiplied by $25.00) and
fifteen shares of Cerner common stock (ninety shares
multiplied by 0.1695).
-3-
______________________________________________________________________
<PAGE>
_______________________________________________________________________
Following the merger, you will be entitled to exchange your shares
of CITATION common stock for shares of Cerner common stock and the
cash consideration by sending your CITATION common stock shares
certificate and the form that we will send to you to the exchange
agent, UMB Bank, n.a., which will then exchange them for shares of
Cerner common stock and the cash consideration. For more information
on how this exchange procedure works, see "The Merger - Exchange of
Stock Certificates" on page 20.
Because the number of shares of Cerner common stock that you will
receive in the merger is fixed, the value of the shares of Cerner
common stock that you will receive in the merger will change if the
price of Cerner common stock changes. We encourage you to check for
a recent quote of Cerner common stock.
Federal Income Tax Consequences (see pages 32 through 33)
We expect that you generally will not recognize any gain or loss
for U.S. federal income tax purposes as a result of your exchange of
shares of CITATION common stock for shares of Cerner common stock.
You may, however, have to recognize income or gain in connection with
the cash received in exchange for your shares of CITATION common
stock. This tax treatment may not apply to all CITATION
shareholders. Determining the actual tax consequences of the merger
to you can be complicated. You should consult your own tax advisor
for a full understanding of the merger's tax consequences that are
particular to you. We will not be obligated to complete the merger
unless we receive legal opinions, dated the closing date, that the
merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code. In that case, the U.S. federal income tax treatment of
the merger will be as we have described it above. This opinion,
however, will not bind the Internal Revenue Service, which could take
a different view.
Dissenters' Rights (see pages 35 through 36)
You have the right under Missouri law to dissent and obtain
payment in cash of the fair value of your CITATION common stock as of
the day prior to the CITATION shareholders meeting. To exercise
dissenter's rights, you must:
deliver a written objection to CITATION prior to or at the
shareholders' meeting;
not vote in favor of the merger agreement; and
deliver to the combined company within twenty days after the
merger a written demand for payment of the fair value of your
CITATION common stock.
Opinion of CITATION's Financial Advisor (see pages 25 through 31)
In deciding to approve the merger, the CITATION board considered
the opinion from its financial advisor, A.G. Edwards & Sons, Inc., as
to the fairness, from a financial point of view, of the shares of
Cerner common stock and cash to be exchanged for the CITATION common
stock. A copy of this opinion is attached as Appendix B to this
proxy statement/prospectus.
Conditions to the Merger (see pages 36 through 37)
The completion of the merger depends upon the satisfaction of a
number of conditions, including the following:
approval by CITATION's shareholders;
the continued accuracy of each company's representations and
warranties and compliance by each company with its agreements
contained in the merger agreement;
receipt of a legal opinion from Cerner's and CITATION's respective
counsel as to the tax consequences of the merger;
receipt of any required regulatory approvals;
there being no legal action or court order that prohibits the
merger; and
there having not been a material adverse change in the financial
condition or assets of either Cerner or CITATION.
Termination of the Merger Agreement (see pages 39 through 40)
We can agree to terminate the merger agreement without completing
the merger even if CITATION's shareholders have approved it. Also,
either of us can terminate the merger agreement on our own without
completing the merger under various circumstances, including:
if the merger has not been consummated by December 30, 2000;
if there is any law that makes consummation of the merger illegal
or otherwise prohibited;
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_______________________________________________________________________
<PAGE>
_______________________________________________________________________
if the CITATION shareholders do not approve the merger on or
before December 30, 2000; or
if the other company has materially breached its representations,
warranties or obligations under the merger agreement.
In addition, Cerner may decide not to complete the merger if (a)
CITATION's board of directors changes, in a manner adverse to Cerner,
its recommendation that CITATION's shareholders approve the merger,
(b) CITATION has entered into an agreement to be acquired by another
party or if the CITATION board or committee of the board approves
such a transaction to be acquired, or (c) a tender offer or exchange
offer for the common stock of CITATION has been commenced and
CITATION has not sent to its shareholders, within ten business days
after the commencement of such tender or exchange offer, a statement
that CITATION recommends rejection of such tender or exchange offer.
Similarly, CITATION may decide not to complete the merger if it
receives an acquisition proposal from another party that the CITATION
board believes is superior to the merger.
Termination Fees and Expenses (see page 40)
CITATION is required to pay Cerner a termination fee of
$600,000 if:
CITATION terminates the merger agreement or modifies or withdraws
its recommendation of the merger and merger agreement because it
received an acquisition proposal from another party that the
CITATION board believes is superior to the merger; or
Either party terminates the merger agreement because the CITATION
shareholders did not approve the merger agreement on or before
December 30, 2000, and the closing price of Cerner common stock is
greater than $24.00 per share on at least ten of the twenty days
prior to the date of the CITATION shareholder meeting.
Stock Options (see page 20)
Upon completion of the merger, each option to acquire CITATION
common stock that is outstanding and unexercised immediately before
completing the merger will become an option to purchase Cerner common
stock. The number of shares of Cerner common stock subject to such
stock options, as well as the exercise price of those stock options,
will be adjusted to account for the exchange ratio in the merger.
Additionally, certain stock options held by CITATION directors
contain provisions that cause the options to become fully vested upon
a change in control. Therefore, those options will vest as a result
of the merger. The options will continue to be governed by the terms
of the CITATION stock option plans and the agreements under which
such options were granted.
We May Amend the Terms of the Merger and Waive Rights Under the
Merger Agreement (see page 39)
We may jointly amend the terms of the merger agreement, and either
party may waive its right to require the other party to adhere to any
of those terms, to the extent legally permissible. However, after
the CITATION shareholders approve the merger agreement, they must
approve any amendment or waiver that would require such approval
under any applicable law.
CITATION Officers and Directors Have Some Interests in the Merger
That Are Different From or in Addition to Their Interests as
Shareholders (see pages 33 through 35)
CITATION directors and officers have interests in the merger in
addition to their interest as shareholders of CITATION. These
interests exist because of employment and/or other agreements that
CITATION officers have entered into with CITATION or Cerner and
rights that CITATION officers and directors have under certain
benefit and compensation plans maintained by CITATION.
Following the merger, the combined company will indemnify, and
provide directors and officers insurance for, the officers and
directors of CITATION for events occurring before the merger,
including events that are related to the merger. Also, upon
completion of the merger, Mr. J. Robert Copper and Mr. Richard D.
Neece will become employees of Cerner under the terms of employment
agreements.
The CITATION board of directors knew about these additional
interests, and considered them, when it approved the merger
agreement.
Comparative Market Price Information (see pages 11 through 12)
The shares of Cerner and CITATION common stock trade on the Nasdaq
National Market under the symbols "CERN" and "CITA," respectively.
-5-
_______________________________________________________________________
<PAGE>
_______________________________________________________________________
The following table lists the closing prices of Cerner common stock
and CITATION common stock, and the equivalent per share value of a
share of CITATION common stock, on May 15, 2000, the last trading day
before we announced the merger, and on July 6, 2000. The
"equivalent per share value of CITATION common stock" at the
specified dates represents the closing price of a share of Cerner
common stock on that date multiplied by the exchange ratio of 0.1695.
<TABLE>
____________________________________________________________
| | | | Equivalent Per |
| | Cerner | CITATION | Share Value of |
| | Common | Common | CITATION |
| | Stock | Stock | Common Stock |
|_______________|__________|_____________|___________________|
|<S> | <C> | <C> | <C> |
|May 15, 2000 | $25.13 | $3.00 | $4.26 |
|_______________|__________|_____________|___________________|
|July 6, 2000 | $28.13 | $4.31 | $4.77 |
|_______________|__________|_____________|___________________|
</TABLE>
The market price of Cerner common stock will change prior to the
merger, while the exchange ratio is fixed. As a result, the value of
the Cerner stock that you will receive may fluctuate before and after
the merger. You should obtain current stock price quotations for
Cerner common stock and CITATION common stock. You can get these
quotations from a newspaper, on the Internet or by calling your broker.
Forward-Looking Statements May Prove Inaccurate (see "Risk Factors,"
beginning on page 13)
This proxy statement/prospectus, including information included or
incorporated by reference in this document, contains certain forward-
looking statements with respect to the financial condition, results
of operations, plans, objectives, future performance and business of
each of Cerner and CITATION. Also, any statements preceded by,
followed by or that include the words "believes," "expect, "
"anticipates," "estimates" or similar expressions, are forward-
looking statements. These forward-looking statements involve certain
risks and uncertainties. The actual results may differ materially
from those contemplated by the forward-looking statements due to
various factors.
-6-
_____________________________________________________________________
<PAGE>
_____________________________________________________________________
SUMMARY FINANCIAL INFORMATION
We are providing the following financial information to aid you
in your analysis of the financial aspects of the merger. This
information is only a summary and you should read it in conjunction
with the historical financial statements of Cerner and CITATION and
the related notes and "CITATION's Management's Discussion and
Analysis of Financial Condition and Results of Operations". These
items for CITATION are contained under the caption "CITATION's
Management's Discussion and Analysis of Financial Condition and
Results of Operations" beginning on page 45 and in the CITATION
consolidated financial statements beginning on page F-2. These items
for Cerner are contained in its annual, quarterly and other reports
that Cerner has filed with the Securities and Exchange Commission
that are incorporated herein by reference. See "Where You Can Find
More Information" on page 56.
Cerner Summary Historical Consolidated Financial Information
The historical consolidated financial information for Cerner
reflects the following items which you should consider in making
period-to-period comparisons. We derived the information below from
the audited consolidated financial statements of Cerner for its
fiscal years 1999, 1998, 1997, 1996 and 1995, and from the unaudited
consolidated financial statements for the three months ended April 1,
2000 and April 3, 1999. The unaudited information contains all
adjustments, consisting of normal recurring accruals that Cerner
considers necessary for a fair presentation of its financial position
and results of operations as of such dates and for these periods. The
results for the three months ended April 1, 2000 are not necessarily
indicative of the results to be expected for the full year ending
December 31, 2000.
<TABLE>
Three Months
Ended, Fiscal Year Ended
--------------- ------------------------------------------------------------
April 1, April 3, January 1, January 2, January 3, December 28, December 30,
2000 (1) 1999 2000 (2)(3) 1999 (4) 1998 1996 1995
-------- ---- ----------- -------- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Earnings Data:
Revenues................ $87,107 $86,743 $340,197 $330,902 $245,057 $189,107 $186,901
Operating earnings...... 4,935 4,874 3,698 33,530 22,170 10,601 37,265
Earnings before income taxes and
extraordinary item..... 3,986 4,543 302 33,268 24,484 12,902 37,220
Extraordinary item-early
extinguishment of debt. - - (1,395) - - - -
Net earnings(loss)...... 2,392 2,817 (1,211) 20,589 15,148 8,251 22,521
Earnings per share before
extraordinary item:
Basic................. $.07 $.08 $.01 $.63 $.46 $.25 $.75
Diluted............... .07 .08 .01 .61 .45 .25 .72
Earnings (loss) per share:
Basic................. .07 .08 (.04) .63 .46 .25 .75
Diluted............... .07 .08 (.04) .61 .45 .25 .72
Weighted average shares
outstanding:
Basic................. 33,778 33,559 33,623 32,825 32,881 32,729 29,845
Diluted............... 34,697 33,923 33,916 33,667 33,668 33,620 31,448
</TABLE>
<TABLE>
April 1, April 3, January 1, January 2, January 3, December 28, December 30,
2000 1999 2000 1999 1998 1996 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital......... $170,246 $120,745 $170,053 $118,681 $156,808 $171,204 $174,064
Total assets............ 727,856 428,764 660,891 436,485 331,781 314,753 303,945
Long-term debt, net..... 100,000 25,000 100,000 25,000 30,026 30,000 30,104
Stockholders' equity.... 419,335 274,428 378,937 271,143 233,747 230,735 221,374
</TABLE>
-7-
_______________________________________________________________________________
<PAGE>
_______________________________________________________________________________
_______________________________________
(1) See "Recent Developments" on page 17.
(2) Includes a non-recurring charge of $5.8 million, net of $3.6
million tax benefit, related to the cost in excess of revenues
of completing fixed fee implementation contracts. The tax-
effected impact of non-recurring charges on diluted earnings per
share was ($.17) for 1999.
(3) Includes a non-recurring charge of $.9 million, net of $.5
million tax benefit, related to the accrual of branch
restructuring costs. The tax-effected impact of non-recurring
charges on diluted earnings per share was ($.03) for 1999.
(4) Includes a non-recurring, acquisition-related charge of $3.1
million, net of $1.9 million tax benefit. The tax-effected
impact of non-recurring charges on diluted earnings per share
was ($.09) for 1998.
-8-
_____________________________________________________________________
<PAGE>
_____________________________________________________________________
CITATION Summary Historical Consolidated Financial Information
The historical consolidated financial information for CITATION
reflects the following items which you should consider in making
period-to-period comparisons. We derived the information below from
the audited consolidated financial statements of CITATION for its
fiscal years 2000, 1999, 1998, 1997 and 1996.
<TABLE>
Fiscal Year Ended March 31,
-----------------------------------------------------
2000(1) 1999(1) 1998(1) 1997(2)(3) 1996(4)
------- ------- ------- ---------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Earnings Data:
Revenues........................................ $14,996 $16,128 $16,640 $22,005 $25,051
Gross profit.................................... 7,702 8,084 8,340 11,355 13,981
Research and development expenses............... 2,500 2,369 3,199 3,268 1,672
Selling and administrative expenses............. 4,829 5,207 6,686 8,515 8,711
Restructuring costs and other
non-recurring charges......................... - - 832 4,299 -
Office consolidation and relocation
expenses....................................... - - - - 1,380
Loss on sale of financial system business....... - 663 - - -
Operating income (loss)......................... 373 (155) (2,377) (4,727) 2,218
Other income(expense)-net....................... (58) (514) (290) (553) 95
Income (loss) before taxes...................... 315 (669) (2,667) (5,280) 2,313
Net income(loss)................................ 189 (415) (1,653) (3,274) 1,412
Earnings (loss) per share - basic and diluted... $ .05 $ (.11) $ (.43) $ (.87) $ .38
Weighted average shares outstanding
Basic.................................. 3,858 3,823 3,807 3,773 3,727
Diluted................................ 3,889 3,823 3,807 3,773 3,751
</TABLE>
<TABLE>
March 31,
--------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital.................. $ 4,115 $ 3,796 $ 2,940 $ 5,152 $ 7,908
Total assets..................... 12,071 13,878 14,312 17,338 21,257
Long-term debt................... 622 1,491 1,379 2,401 450
Shareholders' equity............. 8,083 7,818 8,147 9,809 12,614
</TABLE>
__________________________________________
(1) See notes 2, 3, and 5 to the Consolidated Financial Statements
for information on fiscal year 2000, 1999 and 1998 charges.
(2) During fiscal 1997, CITATION sold its United Kingdom operation
and recorded a pretax charge of $4.3 million.
(3) During fiscal 1997, CITATION recorded a pretax charge of $.5
million for costs related to a proposed secondary offering
of shares of common stock, which was not completed.
(4) During fiscal 1996, CITATION consolidated its operations into
its St. Louis, Missouri headquarters and recorded a pretax
charge of $1.4 million for related costs.
-9-
______________________________________________________________________
<PAGE>
______________________________________________________________________
COMPARATIVE PER SHARE DATA
This table should be read in conjunction with the historical
consolidated financial statements and notes thereto for Cerner and
the historical consolidated financial statements for CITATION
incorporated by reference and contained herein. Pro forma combined
and equivalent pro forma per share data reflect the combined
results of Cerner and CITATION presented as though they were one
company for all periods shown. The acquisition of CITATION will be
accounted for as a purchase. The purchase price of $17 million
using Cerner's stock price as of June 2, 2000, has been allocated to
the assets and liabilities based on their estimated fair values
with the resulting amount of goodwill of $9 million. Such
allocations are preliminary and are subject to final determination.
Cerner anticipates that a portion of the purchase price will be
allocated to in process research and development, but is unable
to reliably estimate the amount at this time, such amount, if
any, will be charged to earnings of the then current period. The
goodwill is to be amortized over a period of seven years. Such
allocations are preliminary and are subject to final determination.
All amounts are unaudited.
<TABLE>
Three Months Ended Year Ended
April 1, 2000 January 1, 2000
------------- ---------------
<S> <C> <C>
Book value per common share (at period end)....... $12.41 $11.23
Basic earnings (loss) per share................... .07 (.04)
Diluted earnings (loss) per share................. .07 (.04)
Cash dividends declared per share................. - -
</TABLE>
<TABLE>
Three Months Ended Year Ended
CITATION-Historical March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Book value per common share(at period end)....... $2.08 $2.12
Basic earnings (loss) per share.................. (.03) (.09)
Diluted earnings (loss) per share................ (.03) (.09)
Cash dividends declared per share................ - -
</TABLE>
<TABLE>
Three Months Ended Year Ended
April 1, 2000 January 1, 2000
------------- ---------------
<S> <C> <C>
Cerner-Pro Forma
Book value per common share (at period end)....... $12.61 $11.47
Basic earnings (loss) per share................... .06 (.08)
Diluted earnings (loss) per share................. .06 (.08)
Cash dividends declared per share................. - -
</TABLE>
<TABLE>
Three Months Ended Year Ended
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
CITATION-Equivalent Pro Forma
Book value per common share(at period end)....... $2.14 $1.94
Basic earnings (loss) per share.................. .01 (.01)
Diluted earnings (loss) per share................ .01 (.01)
Cash dividends declared per share................ - -
</TABLE>
The CITATION equivalent pro forma per share amounts were
calculated by multiplying the Cerner pro forma per share amounts by
the exchange ratio of 0.1695. The equivalent pro forma amounts take
into consideration only those shares of Citation (90%) that will be
exchanged for Cerner stock. For the 10% of shares exchanged for cash,
Citation shareholders will receive 0.51 per share.
-10-
_____________________________________________________________________
<PAGE>
_____________________________________________________________________
COMPARATIVE MARKET PRICE AND DIVIDEND INFORMATION
The shares of Cerner common stock are listed for trading under
the symbol "CERN" on the Nasdaq National Market. The following table
sets forth the quarterly high and low sales prices of Cerner common
stock as reported on the Nasdaq National Market based on published
financial sources. During the periods covered by the following
table, Cerner has paid no cash dividends to holders of Cerner common
stock.
<TABLE>
Cerner Common Stock
----------------------
High Low
-------- --------
Fiscal Year Ended January 2, 1999
<S> <C> <C>
First Quarter........................... $24 9/16 $19 1/16
Second Quarter.......................... 29 15/16 20 7/8
Third Quarter........................... 31 7/16 22
Fourth Quarter.......................... 27 1/16 20 1/2
</TABLE>
<TABLE>
Fiscal Year Ended January 1, 2000
<S> <C> <C>
First Quarter........................... $27 1/4 $12 7/8
Second Quarter.......................... 23 1/2 12 1/2
Third Quarter........................... 19 15/16 14 1/4
Fourth Quarter.......................... 20 3/4 12 15/16
</TABLE>
<TABLE>
Fiscal Year Ending December 31, 2000
<S> <C> <C>
First Quarter........................... $40 7/8 $17 7/8
Second Quarter.......................... 32 1/8 19 3/4
Third Quarter (through July 6, 2000).... 28 5/16 26 5/16
</TABLE>
On May 15, 2000, the last full trading day prior to the public
announcement of the merger, the reported closing price of Cerner
common stock on the Nasdaq National Market was $25.13 per share. On
July 6, 2000 (the latest practicable date prior to the printing
of this proxy statement/prospectus), the reported closing price was
$28.13.
-11-
_____________________________________________________________________
<PAGE>
_____________________________________________________________________
The shares of CITATION common stock are listed for trading under
the symbol "CITA" on the Nasdaq National Market. The following table
sets forth the quarterly high and low sales prices of CITATION common
stock as reported on the Nasdaq National Market based on published
financial sources. During the periods covered by the following
table, CITATION has paid no cash dividends to holders of CITATION
common stock.
<TABLE>
CITATION Common Stock
-----------------------
High Low
---------- ---------
Fiscal Year Ended March 31, 1999
<S> <C> <C>
First Quarter....................... $9 $4
Second Quarter...................... 5 2 1/2
Third Quarter....................... 3 1
Fourth Quarter...................... 4 1 1/2
</TABLE>
<TABLE>
Fiscal Year Ended March 31, 2000
<S> <C> <C>
First Quarter....................... $3 $1 1/4
Second Quarter...................... 3 1/2 1 1/2
Third Quarter....................... 3 1 1/8
Fourth Quarter...................... 5 5/8 1 25/32
</TABLE>
Fiscal Year Ending March 31, 2001
First Quarter....................... $4 3/4 $1 9/16
Second Quarter (through July 6, 2000) 4 7/16 4 1/8
On May 15, 2000, the last full trading day prior to the public
announcement of the merger, the reported closing price of CITATION
common stock on the Nasdaq National Market was $3.00 per share. On
July 6, 2000 (the latest practicable date prior to the printing
of this proxy statement/prospectus), the reported closing price was
$4.31.
-12-
_____________________________________________________________________
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors
concerning Cerner in determining whether to vote to approve the
merger and the transactions contemplated thereby. This proxy
statement/prospectus contains forward-looking statements that involve
risk and uncertainties. You can identify these forward-looking
statements because they may include terms such as "believes,"
"anticipates," "intends," "expects," or similar expressions and may
include discussions of future strategy. We caution you not to rely
unduly on any forward-looking statements in this proxy
statement/prospectus. Cerner's actual results could differ materially
from the forward-looking statements. The risk factors described
below could cause or contribute to these differences and apply to all
forward-looking statements wherever they appear in this proxy
statement/prospectus. However, there could be other factors not
listed below that may affect Cerner. We may not update these risk
factors or publicly announce revisions to forward-looking statements
contained in this proxy statement/prospectus.
Fixed exchange ratio may adversely affect the value of your
shares. If the merger is completed, you will receive a number of
shares of Cerner common stock based on a fixed exchange ratio of
0.1695 shares of Cerner common stock for 0.9 of each share of
CITATION common stock. Because the market value of the Cerner common
stock may fluctuate, the value of the consideration you receive
for your CITATION shares may also fluctuate. The market value of
Cerner common stock could fluctuate depending upon any number of
reasons, including those specific to Cerner and those that influence
the trading prices of equity securities generally.
Quarterly operating results may vary. Cerner'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 Cerner's products and services, Cerner's
long sales cycle, the long installation and implementation cycle for
these large, complex and costly systems and other factors
described herein. As a result of healthcare industry trends and the
market for Cerner's HNA Millennium products, a large percentage of
Cerner's revenues are generated by the sale and installation of
large, complex and costly 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 Cerner's anticipated quarterly revenues and
consequently its earnings, since a significant percentage of Cerner's
expenses are relatively fixed.
These large, complex and costly systems are installed
and implemented over time periods ranging from approximately six
months to three years and involve significant efforts both by Cerner
and the client. In addition, implementation of Cerner's HNA
Millennium products is a new and evolving process. Cerner recognizes
license revenue upon the completion of standard milestone conditions
and the amount of revenue recognized in any quarter depends upon
Cerner's and the clients' 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
Cerner's products do not commence until the product is in use.
Cerner'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.
Cerner's stock price may be volatile. The trading price of
Cerner's common stock may be volatile. The market for Cerner'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, changes in estimates of securities
analysts, governmental regulatory action, healthcare reform measures,
client relationship developments and other factors, many of which are
beyond Cerner'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
Cerner's common stock, regardless of actual operating performance.
Market risk may affect Cerner's investment holdings and
results of operations. Cerner 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
<PAGE> -13-
accumulated other comprehensive income. I nvestments in the common
stock of certain affiliates over which Cerner exerts significant
influence are accounted for by the equity method. Investments in
other equity securities are reported at cost. All equity securities
are reviewed by Cerner periodically 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 charged against
earnings.
Included in Cerner's investments is the ownership of 13,149,259
shares (18.7% of the outstanding shares) of common stock, of
CareInsite, Inc. ("CareInsite"), formerly known as Synetic Healthcare
Communications, Inc., which had a cost basis of $81,804,000 and a
carrying value of $307,364,000 at April 1, 2000. 12,437,500 of these
shares were received in 1998 as consideration for the sale of license
software, and an additional 711,759 shares were purchased in 1999.
The value assigned to the shares acquired in 1998 was $70,000,000 and
was based on a methodology which utilized both a comparable company
and the expected underlying discounted future cash flows. On June
16, 1999, CareInsite underwent an initial public offering of common
stock. The common stock of CareInsite is traded in the public market
and listed on the Nasdaq National Market. The stock of CareInsite
held by Cerner is not registered and is subject to certain lock-up
provisions. A permanent impairment in the value of CareInsite common
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 CareInsite stock. An increase in the value of the CareInsite
stock would have no effect on reported earnings. Cerner has not
engaged in equity swaps or other hedging techniques to manage the
equity risk inherent in the CareInsite shares.
Under Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities"
(SFAS No. 115), Cerner is required to mark to market those shares
which are classified as available-for-sale. As of July 1, 2000,
Cerner has marked to market all 13,149,259 shares of CareInsite
common stock, with a market value of $235,043,000, that are
considered available-for-sale under SFAS No.115.
If Cerner realizes certain performance metrics related to
specified levels of physician usage, CareInsite will issue to Cerner
2,503,125 additional shares of common stock at a price of $.01
per share ("Performance Shares"). The measurement date is February 15,
2001. No amounts have been recognized in the consolidated
financial statements for the Performance Shares due to the
uncertainty of the future events.
Cerner was also granted, by CareInsite, 1,008,445 common stock
warrants with an exercise price of $4.00 per share ("THINC
Warrants"). The THINC Warrants were exercisable only in the event
that The Health Information Network Connections, LLC ("THINC")
exercised warrants granted to it by CareInsite at $4.00 per share.
THINC was allowed to exercise its warrants 180 days after the initial
public offering of CareInsite. On January 29, 2000 CareInsite
completed an acquisition of THINC. As part of that agreement,
806,756 of the 1,008,445 THINC Warrants became immediately
exercisable, with the remaining amount forfeited. The THINC Warrants
expire in three years.
On February 13, 2000 CareInsite entered into an agreement to
merge with Healtheon/Web MD Corporation ("Web MD Merger Agreement").
As part of the Web MD Merger Agreement, Cerner will receive 1.3
shares of Healtheon/Web MD Corporation in exchange for each common
share of CareInsite held by Cerner. In addition the Performance
Shares will be adjusted at a rate of 1.3 shares of Healtheon/Web MD
Corporation for each share of CareInsite. All physician users of
systems of Healtheon/Web MD Corporation or its affiliates shall be
included for purposes of determining the specified levels of
physician usage. The THINC Warrants will also be adjusted at a rate
of 1.3 shares of Healtheon/Web MD Corporation for each share of
CareInsite. The proposed merger of CareInsite and Healtheon/Web MD
Corporation ("Web MD Merger") is subject to shareholder and
regulatory approval. There is no guarantee the Web MD Merger will
close.
Cerner has agreed under terms of the Web MD Merger Agreement to
certain lock-up provisions, which differ from the terms of its lock-
up provisions with CareInsite. The Web MD Merger is expected to
close in the second or third quarter of 2000. If the Web MD Merger
closes Cerner will record the Healtheon/Web MD Corporation shares
received at their then fair value and recognize a gain on the
disposition of the CareInsite shares. Based on proposed lock-up
provisions, 50% of the Healtheon/Web MD Corporation shares would
thereafter be considered available-for-sale and would be marked to
market at each balance sheet date. The remainder would be carried at
cost until the third quarter of 2000, at which time these remaining
shares would be considered available-for-sale.
Cerner also is exposed to market risk from changes in the value
of marketable securities (which consist of money market and
commercial paper). At April 1, 2000, marketable securities of Cerner
were recorded at cost, which approximates fair value of approximately
$94 million, with an overall average return of approximately 5% and
an overall
<PAGE> -14-
weighted maturity of less than 90 days. The marketable securities
held by Cerner are not subject to price risk as a result of the
short-term nature of the investments.
Cerner 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, Cerner has not
entered into any derivative financial instruments to manage interest
rate risk.
Cerner conducts business in several foreign jurisdictions.
However, the business transacted is in the local functional currency
and Cerner 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, Cerner 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.
Changes in the healthcare industry may adversely affect Cerner.
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 Cerner'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 Cerner's products and services. As the healthcare
industry consolidates, Cerner's customer base could be eroded,
competition for customers could become more intense and the
importance of acquiring each customer becomes greater.
Significant competition may adversely affect Cerner. The market
for healthcare information systems is intensely competitive, rapidly
evolving and subject to rapid technological change. Cerner 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 Cerner's competitors have greater financial,
technical, product development, marketing and other resources than
Cerner and some of its competitors offer products that it does not
offer. Cerner's principal 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 Cerner's products. There are
other competitors that offer a more limited number of competing
products.
In addition, Cerner 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, Cerner'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. Cerner 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. Cerner has not historically filed patent applications
or copyrights covering its software technology. As a result, Cerner
may not be able to protect against misappropriation of its
intellectual property.
In addition, Cerner 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 Cerner becomes liable to third parties for infringing their
intellectual property rights, it
<PAGE> -15-
could be required to pay a substantial damage award and to develop
noninfringing technology, obtain a license or cease selling the
products that contain the infringing intellectual property.
Government regulation could increase the cost of Cerner's
products. The United States Food and Drug Administration (the "FDA")
has declared that software products intended for the maintenance of
data used in making decisions regarding the suitability of blood
donors and the release of blood or blood components for transfusion
are medical devices under the Federal Food, Drug and Cosmetic Act
("Act") and amendments to the Act. As a consequence, Cerner is
subject to extensive regulation by the FDA with regard to its blood
bank software. If other Cerner products are deemed to be actively
regulated medical devices by the FDA, Cerner could be subject to
extensive requirements governing pre- and post-marketing requirements
including premarket notification clearance prior to marketing.
Complying with these FDA regulations would be time consuming and
expensive. It is possible that the FDA may become more active in
regulating computer software that is used in healthcare.
Following an inspection by the FDA in March of 1998, Cerner
received a Form FDA 483 (Notice of Inspectional Observations)
alleging non-compliance with certain aspects of FDA's Quality System
Regulation with respect to Cerner's PathNet HNAC Blood Bank
Transfusion and Donor products (the "Blood Bank Products"). Cerner
subsequently received a Warning Letter, dated April 29, 1998, as a
result of the same inspection. Cerner 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 Cerner's Blood
Bank Products and improvements to Cerner's Quality System. A copy of
the third party audit was submitted to the FDA in October of 1998
and, at the request of the FDA, additional information and
clarification was submitted to the FDA in January of 1999.
There can be no assurance, however, that Cerner'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 Cerner
will not be required. In addition, Cerner remains subject to
periodic FDA inspections and there can be no assurances that Cerner
will not be required to undertake additional actions to comply with
the Act and any other applicable regulatory requirements. Any
failure by Cerner to comply with the Act and any other applicable
regulatory requirements could have a material adverse effect on
Cerner's ability to continue to manufacture and distribute its
products. FDA has many enforcement tools including recalls,
seizures, injunctions, civil fines and/or criminal prosecutions. Any
of the foregoing would have a material adverse effect on Cerner's
business, results of operations or financial condition.
Product related liabilities could affect the financial condition
of Cerner. Many of Cerner's products provide data for use by
healthcare providers in providing care to patients. Although no such
claims have been brought against Cerner to date regarding injuries
related to the use of its products, such claims may be made in the
future. Although Cerner 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
Cerner which is uninsured or under-insured could materially harm its
business, results of operations or financial condition.
System errors and warranties could cause Cerner to incur
additional expense under certain contracts. Cerner's systems,
particularly the HNA Millennium versions, are very complex. As with
complex systems offered by others, Cerner's systems may contain
errors, especially when first introduced. Although Cerner conducts
extensive testing, it has discovered software errors in its products
after their introduction. Cerner's systems are intended for use in
collecting and displaying clinical information used in the diagnosis
and treatment of patients. Therefore, users of Cerner products have
a greater sensitivity to system errors than the market for software
products generally. Cerner's agreements with its clients typically
provide warranties against material errors and other matters.
Failure of a client's system to meet these criteria could constitute
a material breach under such contracts allowing the client to cancel
the contract, or could require Cerner to incur additional expense in
order to make the system meet these criteria. Cerner's contracts
with its clients generally limit Cerner's liability arising from such
claims but such limits may not be enforceable in certain
jurisdictions.
Anti-takeover defenses may delay or prevent the acquisition of
Cerner. Cerner'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
Cerner. Such provisions are intended to encourage any person
interested in acquiring Cerner to negotiate with and obtain the
approval of the Cerner board 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
<PAGE> -16-
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 Cerner's common stock exceeds a specified threshold.
Certain of these provisions may discourage a future acquisition of
Cerner not approved by the Cerner board in which Cerner
shareholders might receive a premium value for their shares.
The Year 2000 transition may impact the operations of Cerner.
As of the date of this proxy statement/prospectus, Cerner has not
seen any adverse impact as a result of the Year 2000 transition on
any of its systems or those of its clients or suppliers.
Nonetheless, Cerner will continue to monitor the effect of the
Year 2000 transition, and there can be no absolute assurance that
Year 2000 issues will not materialize in the future and have a
material adverse effect on Cerner, its products or its operations.
RECENT DEVELOPMENTS
As of April 1, 2000 Cerner owned 50% of Health Network Ventures,
Inc.("HNV"), a joint venture investment which is accounted for under
the equity method.
In April 2000 Cerner purchased the remaining 50% of the
outstanding common stock of HNV for $8 million. The acquisition
was accounted for using the purchase method. Subsequent to the
acquisition, Cerner has determined that it will shut down the
portion of the business focused on individual physician practice
connectivity and transaction processing given that it is Cerner's
strategy to use CareInsite to process transactions. As a result of
this decision, Cerner will record a non-recurring charge in the
second quarter of 2000 in the amount of $7 million related to
an impairment of goodwill associated with the HNV purchase.
Cerner also purchased the assets of Mitch Cooper and Associates
for $2 million in April 2000. Mitch Cooper & Associates is a
supply chain re-engineering consulting practice. The acquisition was
accounted for using the purchase method of accounting. The allocation
of the purchase price to the estimated fair values of identified
tangible and intangible assets acquired and liabilities assumed
resulted in goodwill of $2 million. The goodwill is being amortized
over five years.
CITATION SPECIAL MEETING
Date, Time and Place
This proxy statement/prospectus is first being mailed by
CITATION to its shareholders on or about July 12, 2000, and is
accompanied by a form of proxy solicited by the board of directors of
CITATION for use at the CITATION special meeting, to be held on
August 17, 2000 at 10:00 a.m., local time, at 11 South Meramac,
Clayton, Missouri, and at any adjournments or postponements of that
meeting.
Matters to Be Considered
At the CITATION special meeting, you will be asked to approve
and adopt the merger agreement and the transactions contemplated by
that agreement, including the merger, and to act on any other matters
that may be properly submitted to a vote at the CITATION special
meeting. You may also be asked to vote on a proposal to adjourn or
postpone the CITATION special meeting. CITATION could use any
adjournment or postponement of the special meeting for the purpose,
among others, of allowing additional time for soliciting additional
votes to approve and adopt the merger agreement.
Record Date; Stock Entitled to Vote; Quorum
The CITATION board of directors has established the close of
business on July 6 , 2000 as the date to determine those
record holders of CITATION common stock entitled to notice of and to
vote at the CITATION special meeting. On that date, there were
3,881,230 shares of CITATION common stock outstanding held by
approximately 159 holders of record. A majority of the shares of
CITATION issued and outstanding and entitled to vote on the
record date must be represented in person or by proxy at CITATION's
special meeting in order for a quorum to be present for purposes of
transacting business at the meeting. In the event that a quorum is
not present at the meeting, it is expected that the meeting will
be adjourned or postponed to solicit additional proxies. Holders
of record of CITATION common stock on the record date are each
entitled to one vote per share on each matter to be considered at
CITATION's special meeting.
<PAGE> -17-
Vote Required
The approval of the merger agreement and the transactions
contemplated thereby requires the affirmative vote of the holders of
at least two-thirds of the outstanding shares of CITATION common
stock entitled to vote at the CITATION special meeting. Abstentions
and broker non-votes will have the same effect as votes against the
merger agreement. Accordingly, the CITATION board of directors urges
CITATION's shareholders to complete, date and sign the accompanying
proxy and return it promptly in the enclosed, postage-paid envelope.
Shareholders of Cerner are not required to approve the merger and the
transactions contemplated thereby.
Security Ownership of Management
As of the CITATION record date, directors and executive officers
of CITATION owned or controlled approximately 1,133,290 shares of
CITATION common stock, entitling them to exercise approximately 29.3%
of the voting power of the CITATION common stock entitled to vote at
the CITATION special meeting. Each of the directors and certain
executive officers of CITATION have entered into a shareholders
agreement with Cerner pursuant to which such shareholders agreed to
vote all of their shares in favor of the merger and grant an option
to Cerner to purchase all their shares under certain circumstances.
Voting of Proxies
Submitting Proxies. CITATION shareholders may vote their shares
in person by attending the special meeting or by proxy by completing
the enclosed proxy card, including signature and date, and mailing it
to us in the enclosed postage-paid envelope. IF A CITATION
SHAREHOLDER SIGNS AND RETURNS A WRITTEN PROXY CARD WITHOUT
INSTRUCTIONS, THE SHARES REPRESENTED BY THE PROXY WILL BE COUNTED AS
A VOTE FOR THE MERGER AND THE TRANSACTIONS CONTEMPLATED THEREBY.
---
For CITATION shareholders whose shares are held in "street name"
(i.e., in the name of a broker, bank or other record holder), not
returning a proxy card or directing the record holder of their shares
as to how to vote their shares will have the same effect as voting
those shares against the merger.
Revoking Proxies. CITATION shareholders of record may revoke
their proxies at any time before their proxies are voted at the
special meeting. Proxies may be revoked by (1) submitting a written
revocation to the Corporate Secretary of CITATION, (2) duly executing
another valid proxy bearing a later date or (3) attending the
CITATION special meeting and voting in person. A shareholder's
attendance at the CITATION special meeting will not by itself revoke
a proxy, the shareholder must obtain a ballot and vote at the special
meeting. CITATION shareholders of record should address any change
or revocation to:
CITATION Computer Systems, Inc.
424 South Woods Mill Road, Suite 200
Chesterfield, Missouri 63017
Attention: Richard D. Neece, Secretary
General Information. Abstentions may be specified on the
proposal. Shares of CITATION common stock represented at the special
meeting for which proxies have been received, but with respect to
which shareholders have abstained on any matter, will be treated as
present at the special meeting for purposes of determining the
presence or absence of a quorum for the transaction of all business.
An abstention or a broker non-vote will have the same effect as a
vote against the merger and the transactions contemplated thereby.
CITATION is not aware of any matters expected to be presented
for consideration at the special meeting other than the merger
agreement and the transactions contemplated thereby. If any other
matters are properly presented, the persons named as proxies will
vote in accordance with their best judgment with respect to such
matters, unless authorization to use that discretion is withheld.
However, no proxy having instructions to vote against the
adoption of the merger agreement and the transactions contemplated
thereby will be voted in favor of a motion to adjourn or postpone the
meeting to another time or place.
CITATION will bear the cost of the solicitation of proxies. In
addition to solicitation by mail, the directors, officers and
employees of CITATION, who will receive no compensation for their
services other than their regular salaries,
<PAGE> -18-
may also solicit proxies from shareholders by telephone, telecopy,
telegram or in person. In addition, CITATION may engage brokerage
houses and other custodians, nominees and fiduciaries to forward
copies of these proxy materials to those persons for whom they hold
shares, and in that event, incur additional costs.
SHAREHOLDERS WHO SUBMIT PROXY CARDS SHOULD NOT SEND IN ANY STOCK
CERTIFICATES WITH THEIR PROXY CARDS. A letter of transmittal with
instructions for the surrender of certificates representing shares of
CITATION common stock will be mailed by Cerner's transfer agent to
former CITATION shareholders shortly after the merger is completed.
THE MERGER
The following description of the material information pertaining
to the merger, including the material terms and provisions of the
merger agreement and the related shareholders agreement, is qualified
in its entirety by reference to the more detailed Appendices to this
proxy statement/prospectus, including the merger agreement in
Appendix A and the shareholders agreement in Appendix C. We urge you
to read the Appendices in their entirety.
General
CITATION is furnishing this document to its shareholders in
connection with the solicitation of proxies by its board of directors
for use at its special meeting of its shareholders.
At the CITATION shareholders' meeting, holders of CITATION
common stock will be asked to vote on the approval and adoption of
the merger agreement and the transactions contemplated thereby. The
number of shares needed to approve this proposal is at least two-
thirds of the shares outstanding on July 6, 2000. Pursuant
to the shareholders agreement, holders of approximately 29.3% of the
outstanding shares of CITATION common stock have agreed to vote their
shares in favor of the merger agreement and the transactions
contemplated thereby. The merger will not be completed unless
the merger agreement and the transactions contemplated thereby
are approved and adopted by the CITATION shareholders.
The Cerner board of directors and the CITATION board of
directors each have unanimously approved the merger agreement, which
provides for the merger of CITATION with and into Cerner Performance
Logistics, Inc., a wholly-owned subsidiary of Cerner. Cerner
Performance Logistics, Inc. will be the surviving corporation in the
merger, and its certificate of incorporation and bylaws will be the
certificate of incorporation and bylaws of the combined company.
Upon consummation of the merger, the shareholders of CITATION will
become shareholders of Cerner and the separate corporate existence of
CITATION will terminate. Each outstanding share of Cerner common
stock will remain outstanding and unchanged as a result of the
merger. The name of the surviving company will be Cerner Citation,
Inc., which will be a wholly-owned subsidiary of Cerner.
Exchange of CITATION Shares
If you are a record holder of CITATION common stock immediately
prior to the effective time of the merger and the merger proposal is
approved, ninety percent of your CITATION shares will each be
converted into 0.1695 shares of Cerner common stock and ten percent
of your CITATION shares will each be converted into the right to
receive $5.10 cash.
Because the exchange ratio is fixed and because the market price
of Cerner common stock may fluctuate prior to the effective time of
the merger, the value of the shares of Cerner common stock that
holders of CITATION common stock will receive in the merger may
increase or decrease prior to and following the merger.
No fractional shares of Cerner common stock will be issued to
any holder of CITATION common stock upon completion of the merger.
For each fractional share that would otherwise be issued, Cerner will
pay in cash an amount equal to the fraction multiplied by the average
of the closing sale prices of Cerner common stock as reported on the
Nasdaq National Market for the twenty consecutive trading days
immediately preceding the third trading day prior to the closing date
of the merger. No interest will be paid or accrued on cash payable
to holders in lieu of fractional shares.
For a description of the differences between the rights of the
holders of CITATION common stock and the holders of Cerner common
stock, see "Comparative Rights of Shareholders" on page 51.
<PAGE> -19-
Stock Options
Each outstanding option to acquire CITATION common stock granted
under any CITATION stock option or incentive plans will be converted
automatically at the effective time of the merger into an option to
purchase Cerner common stock and will continue to be governed by the
terms of the CITATION stock plan and related grant agreements under
which it was granted, except that:
the number of shares of Cerner common stock subject to the
new Cerner stock option will be equal to the product of the
number of shares of CITATION common stock subject to the
CITATION stock option and the exchange ratio (0.1695),
rounded to the nearest whole share, and
the exercise price per share of Cerner common stock subject
to the new Cerner stock option will be equal to the
exercise price per share of CITATION common stock under the
CITATION stock option divided by the exchange ratio
(0.1695), rounded to the nearest one-hundredth of a cent.
In any event, stock options that are incentive stock options
under the Internal Revenue Code of 1986, as amended, will be adjusted
in the manner prescribed by the Internal Revenue Code.
Exchange of Stock Certificates
At or prior to the completion of the merger, Cerner will deposit
with UMB Bank, n.a. certificates representing the shares of Cerner
common stock to be issued in connection with the merger, the cash in
lieu of any fractional shares to be issued in the merger and cash in
an amount equal to the cash portion of the merger consideration in
exchange for outstanding shares of CITATION common stock. UMB Bank,
n.a. will act as the exchange agent for the benefit of the holders of
certificates of CITATION common stock.
Promptly after the completion of the merger, a form of
transmittal letter will be mailed by UMB Bank, n.a. to each CITATION
shareholder. This transmittal letter will contain instructions for
the surrender of certificates representing CITATION common stock in
exchange for shares of Cerner common stock, cash consideration and
any cash in lieu of fractional shares.
You should not
--- return your CITATION common stock certificates
with the enclosed proxy card, and you should not
--- forward them to the
exchange agent until you receive a letter of transmittal after
completion of the merger.
Until you surrender your CITATION stock certificates for
exchange after completion of the merger, you will accrue but will not
be paid any dividends or other distributions declared after the
effective time of the merger with respect to Cerner common stock into
which your shares have been converted. When you surrender your
certificates, Cerner will pay any unpaid dividends or other
distributions, without interest. After the effective time of the
merger, there will be no transfers on the stock transfer books of
CITATION of any shares of CITATION common stock. If certificates
representing shares of CITATION common stock are presented for
transfer after the completion of the merger, they will be cancelled
and exchanged for a certificate representing the applicable number of
shares of Cerner common stock, the cash consideration and any cash in
lieu of fractional shares.
If a certificate of CITATION common stock has been lost, stolen
or destroyed, the exchange agent will issue the consideration
properly payable under the merger agreement upon receipt of
appropriate evidence as to that loss, theft or destruction,
appropriate evidence as to the ownership of that certificate by
the claimant, and appropriate and customary indemnification
and/or a bond.
Background of the Merger
CITATION's board regularly has considered various alternatives
for increasing shareholder value. For example, in January 1998,
CITATION received an unsolicited expression of interest to pursue a
business combination from a third party. In response to this
development, the CITATION board engaged an investment banking firm to
evaluate the offer and explore strategic alternatives. Pursuant to
the advice of the investment banking firm, from March 1998 through
June 1998 CITATION informally inquired whether selected strategic and
financial parties would possibly have an interest in acquiring
CITATION.
<PAGE> -20-
In June 1998, CITATION sold its financial systems business and
customer base to Sterling Systems of Downey, Idaho, in order to focus
on its laboratory and clinical systems. The sale was the result of
the strategic review undertaken by the investment banking firm.
In June 1998, in furtherance of the results of the strategic
review, CITATION announced that it was in discussions with MEDASYS
Medical Systems about a possible business combination. MEDASYS was a
leading provider of medical imaging systems in Europe with
approximately 400 customers in the United States. In September 1998,
CITATION entered into an agreement and plan of reorganization with
MEDASYS. In December 1998, the parties terminated the agreement due
to market conditions and worse than expected operating results of
MEDASYS.
CITATION's business consists of providing laboratory and related
clinical healthcare information systems primarily to smaller
hospitals and clinics. In June 1998, CITATION introduced a Windows
NT based system which operated in a client/server environment and
required substantial investments in programming. Although CITATION's
Windows NT system has been well received, its board determined that
existing market saturation and the consolidation taking place in its
industry created inherent limitations on CITATION's ability to grow
internally. Similarly, CITATION's board believes that the relatively
small size of CITATION makes growth by acquisition very difficult.
As CITATION was executing its business strategies, its
management and board of directors came to realize that continued
growth would require significant amounts of additional capital.
CITATION's board further realized that accessing the additional
capital required would be relatively expensive because of the lack of
stock market interest in small-capitalization companies such as
CITATION. As a result of this, from August 1999 through January
2000, CITATION explored with various third parties the possibility of
business combinations or alliances. These efforts generated an
interest by a party interested in a potential business combination.
At a special board meeting on March 8, 2000, senior management
briefed the CITATION board on the interest of a privately held third
party from outside the United States in acquiring CITATION. That
party initially expressed interest in purchasing the ownership of
CITATION's principal shareholders at a premium to the market price.
The CITATION board then directed CITATION's chairman and president to
pursue discussions with the third party based upon an offer to all
shareholders, which they did.
During the period that the discussions with the third party
were ongoing an investment banker with whom CITATION had consulted
contacted Cerner and other potential acquirors. Of the persons
contacted, only Cerner expressed an interest in pursuing a
transaction. On March 22, 2000, the investment banker introduced
CITATION to Cerner. On March 23, 2000, Cerner's president,
laboratory enterprise managing director, vice president of
finance and business development manager met with CITATION's chairman
and president and agreed to proceed with discussions regarding
Cerner's acquiring CITATION.
Thereupon, CITATION entered into preliminary discussions with
Cerner and continued discussions with the other party which had
expressed interest in acquiring an ownership interest in CITATION.
On March 27, 2000, Cerner's president, laboratory enterprise
managing director, vice president of finance and business development
manager came to St. Louis to review CITATION's products and product
strategy.
On March 29, 2000, Cerner presented management with a written
proposal to acquire CITATION at a per share price of $4.00 if paid in
Cerner stock or $4.50 if paid in cash.
During this period, CITATION's chairman and president held
various meetings and telephone conversations with representatives of
Cerner, as well as representatives of the other interested party
which eventually suggested that such other party was prepared to
acquire the entire ownership interest of CITATION. Such third party
made informal indications of the per share price such party would be
willing to pay, which prices were approximately comparable to the
prices discussed by Cerner. Such third party made no formal offers or
binding commitments and indicated that a transaction would involve
all cash, but also indicated a need to obtain necessary financing to
consummate the transaction. During the negotiations, CITATION's
management came to the conclusion that the other party's apparent
resources made the likelihood of a transaction with it highly
uncertain, leading management, in light of the unsuccessful
transaction attempted in 1998 and its adverse effect on CITATION, to
the conclusion that the Cerner proposal represented a superior
transaction.
On March 31, 2000, the CITATION board held another special
meeting for the purpose of being updated as to the current status of
the discussions with Cerner and the other party regarding possible
business combinations. Management
<PAGE> -21-
reviewed for the board the results of recent discussions and
indicated that while discussions with the other party would continue,
in its opinion there was not significant progress being made toward
a transaction with that party that the board would consider
acceptable. Management then reviewed the status of discussions with
Cerner, including the written proposal received from Cerner on March
29, 2000. Management also reviewed its internal valuation models
using several sets of assumptions to establish a basis for analyzing
various approaches to valuation for purposes of a business
combination transaction. Each director was presented with a packet of
financial and business information relating to Cerner. Management
indicated to the board that discussions thus far were very promising
and asked the board for input as to how to negotiate certain
financial terms, with a view to developing a proposed definitive
agreement to be submitted to the board for approval at a later time.
The board authorized management to:(1) solicitproposals from selected
qualified investment bankers relating to the issuance of a fairness
opinion on the terms of a possible business combination; and (2)
proceed to negotiate the terms and conditions of a business
combination with Cerner in accordance with guidelines specified by
the board.
On April 5, 2000, Cerner conducted a technical due diligence
review at the offices of CITATION.
On April 7, 2000, CITATION's chairman and president met with
Cerner's president, laboratory enterprise managing director and vice
president of finance at Cerner's offices to negotiate the merger
terms and to discuss strategies post-merger.
On April 13, 2000, Cerner presented CITATION management with a
revised offer to acquire CITATION for consideration consisting of
$5.25 per share for ten percent of the outstanding shares of CITATION
common stock, and 0.164 shares of Cerner common stock per share for
ninety percent of the outstanding shares of CITATION common stock.
On April 14, 2000, CITATION's board held another special meeting
for the purpose of considering the recent developments with respect
to the interest expressed by Cerner. Management reported on the
discussions and its recommendation regarding the process for
determining whether a transaction could be negotiated which the board
would recommend to shareholders for approval. Management also
reported that it had engaged A.G. Edwards & Sons, Inc. to act as
financial advisor for the purpose of giving their opinion as to the
fairness of the potential transaction.
On April 27, 2000, the president of CITATION and the vice
president of finance of Cerner negotiated the final pricing for the
transaction, which consisted of $5.10 per share for ten percent of
the outstanding shares of CITATION common stock and 0.1695 shares of
Cerner common stock per share for ninety percent of the outstanding
shares of CITATION common stock.
On May 1 and 2, 2000, Cerner representatives conducted legal,
financial and operational due diligence at CITATION's offices.
On May 8, 2000, counsel for Cerner circulated a preliminary
draft of a merger agreement. CITATION objected to various aspects of
the proposed agreement and requested several additional provisions,
including provisions relating to termination if CITATION's board
received a superior proposal that its counsel and financial advisor
concluded was required to be pursued under the directors' fiduciary
duties.
The negotiations continued during the week of May 8, 2000. In
addition, the parties negotiated an arrangement pursuant to which
CITATION could terminate the merger agreement and pursue a superior
proposal for a business combination with a party other than
Cerner under specified circumstances, upon the payment of a $600,000
termination fee. As part of the negotiated resolution and at
Cerner's request, CITATION's directors and executive officers agreed
to enter into a shareholders agreement, pursuant to which CITATION's
directors and executive officers would agree, among other things, to
vote the shares of CITATION's common stock beneficially owned by them
in favor of the proposed merger and the transactions contemplated
thereby and to grant an option to Cerner to sell their shares to
Cerner for a purchase price equal to the proposed merger
consideration.
On May 8, 2000, A.G. Edwards & Sons, Inc. met with Cerner's
chief operating officer, chief financial officer and vice president
of finance in connection with due diligence relating to their
fairness opinion.
On May 11, 2000, CITATION reviewed Cerner's publicly filed
financial statements.
<PAGE> -22-
On May 12, 2000, CITATION's counsel traveled to Cerner's offices
in Kansas City, Missouri to undertake due diligence of Cerner. The
due diligence review included on-site review of documents and
financial information regarding Cerner.
On May 12, 2000, CITATION's board held a special meeting to
consider the agreement and plan of merger and the transactions
contemplated thereby, which had been negotiated by the parties'
representatives. CITATION's management reviewed the development of
the transaction since the preceding board meeting on April 14, 2000.
A.G. Edwards representatives presented a financial analysis of the
consideration to be received by CITATION's shareholders in the
merger. A.G. Edwards orally advised CITATION's board that it was A.G.
Edwards' opinion that the merger consideration payable in the merger
was fair, from a financial point of view, to CITATION's shareholders
and that A.G. Edwards' written opinion to that effect would be
included in the proxy materials issued in connection with a
shareholder meeting held to vote on the merger. CITATION's counsel
reviewed the terms of the transaction documents, as well as the
interests of individual directors in the transaction. Mr. Neece and
Mr. Copper discussed with the directors the terms of their respective
employment and consulting arrangements. Thereafter, the board
discussed the advisability of the proposed merger, the merger
agreement and the transactions contemplated thereby. At the
conclusion of the discussion, CITATION's board voted unanimously to
approve the merger, the merger agreement and the transactions
contemplated thereby and to recommend that CITATION's shareholders
vote for approval and adoption of the merger, the merger agreement
and the transactions contemplated thereby. In addition, the board
amended CITATION's 1999 Directors Stock Option Plan to remove the
shareholder approval requirement for options granted under the plan,
and to provide that all options will continue to be exercisable
during their stated terms, notwithstanding that the optionees would
cease being directors after the merger. The shareholder approval
requirement had been included pursuant to the rules of the Nasdaq
National Market and was to be solicited at the 2000 annual meeting of
shareholders. In view of the proposed merger, the Nasdaq requirement
will no longer be applicable.
On May 10, 2000, the boards of directors of Cerner and Cerner
Performance Logistics, Inc., and Cerner, acting as the sole
shareholder of Cerner Performance Logistics, Inc., each approved the
merger.
Cerner representatives then were advised of CITATION's board's
approval and the merger agreement and the shareholders agreement were
executed by the parties after the close of trading on the Nasdaq
National Market on May 15th. Shortly thereafter Cerner and CITATION
separately announced the proposed merger.
Cerner's Reasons for the Merger
Cerner's board of directors has unanimously determined that the
merger is advisable and in the best interests of Cerner and its
shareholders and has approved and adopted the merger, the merger
agreement and the transactions contemplated thereby. In reaching the
determination that the merger is advisable and in the best interests
of Cerner and its shareholders, the Cerner board considered a number
of factors, which included (but did not consist exclusively of) the
following:
The acquisition of CITATION is complementary to
Cerner's existing laboratory client base that primarily consists
of larger hospitals, health systems and independent laboratories
and will allow Cerner to broaden its market presence in the lab
industry, furthering Cerner's mission to improve healthcare
efficiencies, patient safety and appropriate clinical decision-
making;
CITATION clients will be provided an opportunity to
expand their automation of clinical processes throughout the
entire healthcare organization through Cerner's HNA Millennium
suite of products and through Cerner's application service
provider business. This represents additional market
opportunities for Cerner;
Cerner should be able to reduce operating costs of the
CITATION business by reducing CITATION's cost structure, for
example eliminating CITATION's cost of being a stand-alone
public company (e.g. costs of complying with the periodic
reporting requirements of the Securities and Exchange
Commission, auditing costs and duplicative administrative
resources); and
Cerner's existing knowledge of the laboratory business
should allow Cerner to absorb CITATION in an efficient manner.
The foregoing discussion of the information and factors
discussed by the Cerner board is not meant to be exhaustive but
includes all material factors considered by the Cerner board. The
Cerner board did not find it practical to
<PAGE> -23-
quantify, rank or otherwise attach any relative weight to the various
factors. In addition, the Cerner board did not reach any specific
conclusion with respect to each of the factors considered, or any
aspect of any particular factor, but conducted an overall analysis
of these factors, including discussions with Cerner's management
and legal and financial advisors. As a result of its consideration
of the foregoing, the Cerner board determined that the merger, the
merger agreement and the transactions contemplated thereby are
advisable and fair to and in the best interests of Cerner and its
shareholders and approved and adopted the merger, the merger
agreement and the transactions contemplated thereby.
Recommendation of the CITATION Board and Reasons for the Merger
CITATION's board of directors has unanimously determined that
the merger is advisable and fair to and in the best interests of
CITATION and its shareholders and has approved and adopted the
merger, the merger agreement and the transactions contemplated
thereby. Accordingly, the CITATION board unanimously recommends that
shareholders vote "FOR" approval and adoption of the merger, the
merger agreement and the transactions contemplated thereby.
In reaching its determination that the merger is advisable and
fair to and in the best interests of CITATION and its shareholders,
the CITATION board considered a number of factors, which included
(but did not consist exclusively of) the following:
You will receive for ninety percent of your shares of CITATION
common stock 0.1695 shares of Cerner common stock for each such share
and $5.10 cash per share for ten percent of your shares of CITATION
common stock. As reported by Nasdaq on May 15, 2000, prior to the
announcement of the proposed merger, the last sale price for Cerner
common stock was $25.125. The merger consideration represents, as of
that date, a total per share price of approximately $4.54 per share
for CITATION's stock, a substantial premium over the last sales price
of $3.00 reported by Nasdaq on that same date;
The CITATION board's knowledge of CITATION's business,
operations, properties, assets, financial condition and operating
results. Specifically, in order to achieve significant future growth
in CITATION's business and operations, CITATION would need
significant amounts of additional capital, which the CITATION board
believes could be financed on more favorable terms by Cerner than by
CITATION as an independent business. In this regard, the CITATION
board considered the likelihood that continuation of the limited
public float and the relatively small size of CITATION's business
would result in greater cost of capital to finance CITATION's growth
than would be the case as part of a much larger organization;
CITATION's operating results will continue to be subject to
risks of conditions or events outside CITATION's control, such as
rapid changes in the healthcare industry, lower reimbursement
policies, increasing government regulation, increasing pressure to
reduce costs from managed care operations and increasing
consolidation in CITATION's industry. These uncertainties ultimately
could have a material adverse effect upon CITATION's results of
operations or financial condition and could negatively affect
CITATION's future stock price;
The proposed merger will not disrupt CITATION's business;
The attractiveness of a transaction involving primarily stock
offer consideration from Cerner relative to perceived opportunities and
the feasibility of other possible strategic alternatives to enhance long-
term shareholder value, including risks and uncertainties attendant
to possible future acquisitions;
That you will receive primarily Cerner stock pursuant to the
merger agreement and the opportunity to participate in any growth in
the business of the combined company;
The payment of the cash portion of the merger consideration will
be funded by Cerner out of funds on hand or financing which is
readily available to it and, accordingly, the transaction is not
subject to a financing contingency;
The lack of competitive responses to inquiries made by or on
behalf of CITATION to other healthcare information systems providers
as to whether such parties would be interested in a business
combination;
<PAGE> -24-
The oral opinion of A.G. Edwards to the effect that, based upon
and subject to certain assumptions, matters considered and
limitations, the consideration to be received by you pursuant to the
merger agreement is fair, from a financial point of view, to you; and
The CITATION board's view that the terms of the merger agreement
as reviewed by the CITATION board with its legal and financial
advisors, are advisable and fair to and in the best interests of you
and CITATION with the flexibility, under certain circumstances, to
accept a proposal from a third party for a business combination with
CITATION which the CITATION board determines to be superior to the
merger agreement.
The CITATION board also considered the following negative
factors concerning the merger:
The fact that you will receive primarily Cerner stock
pursuant to the merger agreement will subject your investment to
the risk of any decline in the business in the combined company;
and
The risk that the merger would not be completed in
accordance with its terms or at all, and the disruption of
CITATION's business if the merger is abandoned.
The board also recognized that members of CITATION's board and
executive officers have interests in the merger that are different
from CITATION's other shareholders. See "- Interests of Certain
Persons in the Merger."
The foregoing discussion of the information and factors
discussed by the CITATION board is not meant to be exhaustive but
includes all material factors considered by the board. In view of
the complexity and wide variety of information and factors
considered, both positive and negative, the CITATION board did not
find it practical to quantify, rank or otherwise attach any relative
weight to the various factors. In addition, the CITATION board did
not reach any specific conclusion with respect to each of the factors
considered, or any aspect of any particular factor, but conducted an
overall analysis of these factors, including thorough discussions
with CITATION's management and legal and financial advisors. As a
result of its consideration of the foregoing, the CITATION board
determined that the merger, the merger agreement and the transactions
contemplated thereby are advisable and fair to and in the best
interests of CITATION and its shareholders and approved and adopted
the merger, the merger agreement and the transactions contemplated
thereby.
Opinion of CITATION's Financial Advisor
A.G. Edwards has provided to the CITATION board of directors a
fairness opinion in connection with the proposed transaction to be
effected pursuant to the merger agreement. A.G. Edwards was selected
by the CITATION board to provide a fairness opinion based on A.G.
Edwards' qualifications, expertise and reputation. At the meeting of
the CITATION board on May 12, 2000, A.G. Edwards delivered its oral
opinion. On May 15, 2000, A.G. Edwards delivered its written opinion
to the board (such written opinion dated May 15, 2000, the "A.G.
Edwards opinion") that, as of that date, based upon and subject to
the various considerations set forth in the opinion, the
consideration to be received in aggregate by the shareholders of
CITATION pursuant to the merger agreement was fair, from a
financial point of view, to the CITATION shareholders.
The full text of the A.G. Edwards opinion, which sets forth,
among other things, assumptions made, procedures followed, matters
considered and limitations of the scope of the review undertaken by
A.G. Edwards in rendering such opinion, is attached as Appendix B to
this proxy statement/prospectus and is incorporated herein by
reference. The A.G. Edwards opinion was directed to the CITATION
board and addresses only the fairness of the consideration from a
financial point of view as of the date of the A.G. Edwards opinion,
and does not constitute a recommendation to any shareholder of
CITATION as to how to vote. The summary of the A.G. Edwards opinion
set forth in this proxy statement/prospectus is qualified in its
entirety by reference to the full text of such opinion.
In arriving at the A.G. Edwards opinion, A.G. Edwards, among
other things:
reviewed the Agreement and Plan of Merger dated as of May 15,
2000 and related documents;
reviewed certain historical financial statements and financial
projections for CITATION and Cerner;
discussed with CITATION's management the nature of the
negotiations of the terms of the transaction;
<PAGE> -25-
compared the relative value of the consideration to be received
by CITATION's shareholders to the historical public market value
relationship between CITATION and Cerner stock;
held discussions with management of CITATION and Cerner
regarding the past and current business operations, financial
condition and future prospects of CITATION and Cerner, including
information relating to the strategic, financial and operational
benefits anticipated from the transaction;
reviewed the industries in which CITATION and Cerner operate;
reviewed CITATION's and Cerner's relative contributions to the
historical and projected combined revenue, EBITDA, EBIT, net income
and book value;
reviewed the pro forma financial impact to CITATION's
shareholders of the transaction giving effect to certain operating
cost-savings as estimated by the management of CITATION and Cerner;
compared certain financial information for CITATION and Cerner,
including the valuation in the transaction, with similar information
and stock market information for certain other companies, the
securities of which are publicly traded;
compared certain financial information for CITATION, including
the valuation in the transaction, with similar information for
certain recent selected business combinations in the healthcare
information technology ("IT") sector;
compared the premium above current market value that the
consideration represents to that of other premiums received in other
selected transactions which A.G. Edwards deemed similar; and
completed such other studies and analyses that were considered
appropriate.
A.G. Edwards did not assume any responsibility for independent
verification of any of the foregoing information and relied upon its
being complete and accurate in all material respects. A.G. Edwards
assumed that the financial projections and estimates of the financial
strategic and operational benefits anticipated from the proposed
transactions were reasonably prepared on the basis reflecting the
best then currently available estimates and judgments of CITATION's
and Cerner's managements as to the expected future financial
performance of CITATION and Cerner, in each case, on a stand-alone
basis and after giving effect to the proposed transactions. A.G.
Edwards has not independently verified such information or
assumptions nor does it express any opinion with respect thereto.
A.G. Edwards did not perform an audit or make any independent
valuation or appraisal of the assets or liabilities, contingent or
otherwise, of CITATION or Cerner, nor was A.G. Edwards furnished with
any such appraisals. In addition, CITATION and Cerner informed A.G.
Edwards, and A.G. Edwards assumed, that the proposed transaction
will be accounted for as a purchase business combination in
accordance with GAAP and will be consummated in accordance with the
terms set forth in the merger agreement without any waiver of any
material terms or conditions.
In arriving at its opinion, A.G. Edwards was not authorized to
solicit, and did not solicit interest from any third party with
respect to an acquisition, business combination or other
extraordinary transaction involving CITATION. A.G. Edwards did not
participate directly in the negotiations or discussions with Cerner.
The following is a summary of the material financial analyses
performed by A.G. Edwards in arriving at the A.G. Edwards opinion,
which were discussed with the CITATION board of directors at its
meeting on May 12, 2000.
Implied Relative Value Analysis
A.G. Edwards reviewed the historical stock price performance of
CITATION relative to the historical stock price performance of Cerner
and compared these to the relative values implied by the transaction
at a range of Cerner stock prices. Based on stock prices as of May
8, 2000 (CITATION - $2.88 and Cerner - $21.88), A.G. Edwards observed
that the relative value ratio implied by the transaction was 5.7x.
This compared favorably to the actual 7.6x relationship of the stocks
as of the same date and variety of averages over a range of periods
dating back to January 1, 1 997. The range of selected hypothetical
Cerner share prices and the relative value ratio implied by the
transaction were as follows:
<PAGE> -26-
<TABLE>
Hypothetical Implied Value Ratio
Cerner Share Price (CITATION to Cerner)
------------------ --------------------
<S> <C>
$24.88 5.1x
$21.88 5.7x
$17.88 6.5x
</TABLE>
<TABLE>
Historical Value Relationship
-----------------------------
<S> <C>
Average since January 1997 6.5x
Average since July 1998 9.3x
Average since January 1999 8.9x
</TABLE>
Relative Contribution Analysis
A.G. Edwards reviewed the relative ownership of the holders of
CITATION stock on a pro forma basis and found that CITATION
shareholders would own approximately two percent of the outstanding
shares of Cerner following the transaction. At the end of 1998,
Cerner licensed certain technology to CareInsite, an e-commerce
healthcare company, in exchange for an approximately 19% equity
stake. See "Risk Factors - Market risk may affect Cerner's investment
holdings and results of operations." On February 13, 2000, CareInsite
agreed to a merger with Healtheon/WebMD that calls for each share of
CareInsite to be exchanged for 1.3 shares of Healtheon/Web MD. In
order to analyze the impact of Cerner's interest in CareInsite and
its pending merger with Healtheon/WebMD on the pro forma ownership,
A.G. Edwards assumed that Cerner sold the CareInsite stake at market
value and applied the after-tax proceeds to a share repurchase at
Cerner's stock price as of May 8, 2000. Under this scenario, the
CITATION shareholders could own approximately four percent of the
outstanding shares of Cerner.
A.G. Edwards compared the above projected and pro forma
ownership percentage of CITATION shareholders to CITATION's
contribution to the combined company's performance on a historical
and projected basis for several different financial measures. The
following table sets forth the material results of this analysis
expressed as CITATION's percentage of the combined company expressed
on a calendar year basis.
<TABLE>
Net Book
Net Sales EBITDA EBIT Income Value
--------- ------ ---- ------ -----
<S> <C> <C> <C> <C> <C>
1999 4.8% 4.8% 4.2% 4.6%
LTM 4.2% 4.3% 2.6% 3.1% 1.2%
2000P 3.7% 1.9% (0.1%) (0.2%)
2001P 4.0% 2.3% 1.4% 1.3%
</TABLE>
A.G. Edwards noted that the pro forma ownership stake of the
CITATION shareholders was inline with its projected contribution for
2000P and 2001P EBITDA and EBIT and net income for 2001P. The pro
forma ownership stake for CITATION shareholders was above these
measures as well as the company's contribution in terms of the last
12 months ("LTM") book value and 2000P EBIT and net income.
Analysis of Selected Precedent Transactions
A.G. Edwards compared publicly available financial statistics
regarding eleven completed transactions since June 1997 involving the
acquisition of small non-Internet Hospital-focused IT companies to
the implied value of the transaction at Cerner share prices ranging
from $14.88 to $27.88. In addition, A.G. Edwards analyzed a broader
universe of forty-six healthcare IT transactions announced since
August 1996. Transaction multiples used included the implied
aggregate transaction value (the value paid for the relevant target
company's equity on a fully diluted basis plus total debt less cash
and cash equivalents) as a multiple of LTM sales, LTM EBITDA and LTM
EBIT and the implied equity value as a multiple of LTM earnings and
book value. The results of this comparison were as follows:
<PAGE> -27-
<TABLE>
Comparable Precedent Transactions
Implied Multiples Selected Small Total Healthcare
At Cerner Share Prices Non-Internet IT-Since Total Healthcare IT-
$17.88 $21.88 $24.88 Hospital Focused December 1998 Since August 1996
------ ------ ------ ---------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Transactions 11 15 46
LTM Sales .9x 1.1x 1.2x 1.2x 2.1x 2.7x
(.3x-4.1x) (0.3x-7.1x) (.3x-83.0x)
LTM EBITDA 6.8x 8.0x 8.9x 15.7x 17.2x 19.1x
(3.0x-44.9x) (10.8x-33.1x) (3.0x-441.8x)
LTM EBIT 34.1x 40.2x 44.8x 27.7x 32.7x 28.6x
(3.5x-30.3x) (11.3x-53.2x) (3.5x-53.2x)
LTM Net Income 63.1x 75.0x 84.0x 25.4x 62.7x 42.3x
(9.7x-37.3x) (37.3x-64.8x) (3.8x-74.5x)
Book Value 1.6x 1.9x 2.1x 17.8x 9.8x 9.7x
(1.5x-40.5x) (1.5x-38.6x) (1.5x-40.5x)
</TABLE>
A.G. Edwards noted the LTM sales multiples implied by the
transaction value as of May 8, 2000 were in line with the sales
multiples for the similar precedent transactions classified as Small
Non-Internet Hospital Focused transactions. The other financial
measures implied by the transaction were either in the range or above
the median for this selected group also. In addition, A.G. Edwards
noted that the sales and EBITDA multiples for transactions in the
larger group of all Healthcare IT companies have declined since
December 1998 relative to multiples received over the full period
since August 1996.
Discounted Cash Flow Analysis
A.G. Edwards performed an analysis of the present value of
CITATION's future tax-adjusted operating cash flows as projected by
management, on a stand-alone basis, using discount rates ranging from
15.0% to 25.0% and terminal sales multiples ranging from 0.75x to
1.5x. Based on this analysis, A.G. Edwards calculated a range of per
share prices for CITATION between $2.90 and $5.71 compared to the
implied share price of $3.85 derived from the transaction value as of
May 8, 2000.
Pro Forma Financial Analysis
A.G Edwards reviewed the projected 2000 and 2001 EPS
accretion/dilution to the CITATION shareholders as a result of the
transaction. The results were adjusted to reflect the same per share
basis for comparison purposes. The results of this analysis were as
follows:
<TABLE>
CITATION CITATION
Projected - Stand-Alone Projected - Pro forma* % of Accretion
----------------------- --------------------- --------------
<S> <C> <C> <C>
2000 EPS ($0.01) $0.09 NMF
2001 EPS $0.12 $0.17 36.1%
</TABLE>
* Based on management projections and assumes no synergies.
Goodwill amortization over 5 years.
Premiums Paid Analysis
A.G. Edwards reviewed a range of hypothetical premiums paid
above public market in the transaction to several types of
transaction premiums over the past three years according to
Mergerstat, a nationally recognized source of mergers and
acquisitions information. Based on a range of Cerner stock prices
from $17.88 to $24.88, the implied premiums range from 12.6% to 49.7%
over the $2.88 market price for CITATION stock as of May 8, 2000.
This range of premiums is in line with the average of 30.7% for 1,722
deals between 1997 and 1999 where the premiums and price were
disclosed, the average of 37.4% for 193 deals between 1997 and 1999
where the purchase price was below $25,000,000 and the average of
36.7% for 621 deals between 1997 and 1999 where the stock price was
below $10.00 per share five days prior to
<PAGE> -28-
announcement. The range, however, was slightly below the average
premium of 49.9% for 184 deals between 1997 and 1999 involving
Computer, Software, Supplies and Service companies.
Public Company Trading Analysis
A.G. Edwards compared certain financial information of CITATION
and Cerner with that of the following CITATION comparable companies
and Cerner comparable companies, respectively. Based on lines of
business and financial profile, the comparable companies were deemed
to be reasonably similar to CITATION and Cerner by A.G. Edwards. The
comparable companies consist of two groups of healthcare IT
companies:
The CITATION comparable companies consisted of the following
small to medium sized healthcare IT companies:
Apache Medical Systems
Creative Computer Applications, Inc.
Dynamic Healthcare Technologies, Inc.
Health Management Systems
InfoCure Corporation
Mediware Information Systems
Quadramed Corporation
Quality Systems
SpaceLab Medical, Inc.
Sunquest Info Systems
The Cerner comparable companies consisted of the following
medium to large healthcare IT companies:
IDX Systems Corporation
InfoCure Corporation
National Data Corporation
QuadramedCorporation
SpaceLab Medical, Inc.
Sunquest Info Systems
In addition to the primary comparable companies listed above for
Cerner, A.G. Edwards also reviewed the multiples and public market
performance for Eclipsys Corporation, IMS Health, Inc. and Shared
Medical Systems Corporation, which were pending acquisition targets
as of the date of the A.G. Edwards opinion. On May 25, 2000, Eclipsys
Corporation terminated its planned merger with Neoforma and entered
into a strategic marketing and distribution agreement with Neoforma.
On May 17, 2000, IMS Health restructured its pending merger with
TriZetto such that the two companies will remain separate,
independently traded companies and TriZetto will purchase IMS
Health's Erisco Managed Care Technologies for 10.6 million shares of
TriZetto stock.
The financial information reviewed by A.G. Edwards included,
among other things, each company's stock price as a multiple of the
LTM and First Call Corporation or I/B/E/S estimates for LTM, current
fiscal and next fiscal year EPS and each company's total market
capitalization (market value of common equity plus total debt less
cash and cash equivalents) as a multiple of LTM sales, EBITDA and
EBIT. A.G. Edwards reviewed the multiples for CITATION for the
fiscal year ended March 31, 2000 and the projected fiscal year ended
March 31, 2001 based on the public market price for CITATION as of
May 8, 2000 and at various transaction valuations implied by Cerner
stock prices ranging from $14.88 to $27.88. A.G. Edwards reviewed
the multiples for Cerner at the public market price for Cerner as of
May 8, 2000 using both the consensus earnings estimates published by
securities analysts and Cerner's internal budgeted numbers for
earnings and the LTM results for all other financial measures. In
addition to using Cerner's actual public market value for multiples,
A.G. Edwards adjusted the actual public market value of Cerner's
stake in CareInsite by deducting the after-tax value of the stake and
applying a range of liquidity discounts from 0% to 30%. The
following table sets forth the most substantive results of this
analysis.
<PAGE> -29-
<TABLE>
Implied Multiples Public Market as
at Cerner Share Price of May 8, 2000 Median
--------------------- -------------- ------
Small Med. to
to Med. Large
Health Acq.
$17.88 $21.88 $24.88 CITATION Cerner(a) Healthcare(b) Healthcare(c) Targets(d)
------ ------ ------ -------- --------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LTM Sales .9x 1.1x 1.2x .8x 1.2x 0.8x 1.1x 1.7x
(.3x-1.5x) (.6x-1.4x)
LTM EBITDA 6.8x 8.0x 8.9x 6.1x 8.8x 6.5x 5.8x 11.0x
(2.7x-10.5x) (3.3x-8.8x)
LTM EBIT 34.1x 40.2x 44.8x 30.4x 28.3x 9.7x 8.5x 14.7x
(4.2x-16.2x) (4.4x-16.2x)
LTM Net 15.6x 13.4x 23.5x
Income 63.1x 75.0x 84.0x 54.9x 68.7x (8.1x-28.7x) (8.1x-28.7x)
Next Fiscal
Year Net 11.5x 13.5x
Income 144.9x 172.2x 192.6x 143.8x 20.5x (8.7x-29.8x) (9.0x-29.8x) 17.5x
</TABLE>
(a) Excludes the after-tax market value of Cerner's interest
in CareInsite as of May 8, 2000 without a discount for
liquidity. Cerner's interest in CareInsite includes all
performance shares and warrants.
(b) Small to Medium Healthcare IT consists of AMSI, CAP,
DHTI, HMSY, INCX, MEDW, QMDC, QSII, SLMD and SUNQ.
(c) Medium to Large Healthcare IT consists of IDXC, INCX,
NDC, QMDC, SLMD and SUNQ.
(d) Acquisition Targets consists of ECLP, RX and SMS.
A.G. Edwards observed that the CITATION multiples implied by the
transaction value as of the date of the opinion (May 8, 2000) were
above the median multiples for the comparable group of Small to
Medium Healthcare IT companies. At the low end of the hypothetical
Cerner price range ($14.88), the transaction multiples for LTM sales,
LTM EBIT, LTM Net Income and Next Fiscal Year Net Income were also
equal to or above the multiples for the comparable companies. In
addition, A.G. Edwards noted that Cerner's multiple of LTM sales
(excluding the CareInsite stake), which A.G. Edwards determined to be
a significant measure, was consistent with the median of the
comparable companies in the Medium to Large Healthcare IT group, as
would be expected, and below the median for the acquisition targets.
Other Considerations
In addition to a review of the quantitative aspects of the
transaction and the financial performance of CITATION and Cerner,
A.G. Edwards noted several qualitative aspects about the transaction
and the relative positions of the companies. In particular, A.G.
Edwards noted that CITATION had been unsuccessful in attracting a
successful buyer through a prior sales process and the company's
stock price had been negatively impacted by a lack of research
coverage, a small market capitalization and a limited public float.
Conversely, A.G Edwards recognized that Cerner maintained a
considerably larger market capitalization and was widely followed by
research analysts. Cerner's growth prospects appear to be strong due
to positive initial market acceptance for its HNA Millenniumr
product. In addition, Cerner's stock price has been positively
impacted by its investment in CareInsite and the fact that it will
become a major shareholder in Healtheon/WebMD as a result of a
pending merger between that company and CareInsite.
The foregoing summary does not purport to be a complete
description of all the analyses performed by A.G. Edwards in arriving
at its opinion. The preparation of a fairness opinion is a complex
process and is not susceptible to partial analysis or summary
description. In rendering the A.G. Edwards opinion, A.G. Edwards
applied its judgment to a variety of complex analyses and
assumptions, considered the results of all of its analyses as a whole
and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, selecting any portion of its
analyses, without considering all analyses, would create an
incomplete view of the process underlying the A.G. Edwards opinion.
In performing its analyses, A.G. Edwards made numerous assumptions
with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of
CITATION or Cerner. The assumptions made and judgments applied by
A.G. Edwards in rendering its opinion are not readily susceptible to
description beyond that set forth in the written text of the
A.G. Edwards opinion itself. No company, transaction or business
used in such analyses as a comparison is identical to CITATION or
Cerner or the proposed transactions, nor is an
<PAGE> -30-
evaluation of the results of such analyses entirely mathematical;
rather, such analyses involve complex considerations and judgments
concerning financial and operating characteristics and other factors
that could affect the acquisition, public trading or other values
of the companies, business segments or transactions being analyzed.
Any estimates contained herein are not necessarily indicative of
future results or actual values, which may be significantly more or
less favorable than those suggested by such estimates. A.G. Edwards
does not assume responsibility if future results are different from
those projected. The analyses performed were prepared solely as part
of A.G. Edwards' analysis of the fairness of the merger
consideration, from a financial point of view, to the holders of
CITATION shares and were conducted in connection with the delivery of
A.G. Edwards' opinion.The analyses do not purport to be appraisals or
to reflect the prices at which CITATION or Cerner might actually be
sold.
A.G. Edwards, as part of its investment banking business, is
regularly engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for
estate, corporate and other purposes. A.G. Edwards is not aware of
any present or contemplated relationship between A.G. Edwards,
CITATION, CITATION's directors and officers or its shareholders, or
Cerner, Cerner's directors and officers or its shareholders, which in
its opinion would affect its ability to render a fair and independent
opinion in this matter.
For its services in connection with the proposed transactions,
A.G. Edwards will receive from CITATION a fee of $150,000 of which
$75,000 was payable upon the delivery of A.G. Edwards' opinion with
the remaining $75,000 payable upon the closing of the merger.
CITATION has agreed to reimburse A.G. Edwards for its reasonable
out-of-pocket expenses and to indemnify A.G. Edwards and its
affiliates, their respective directors, officers, agents and
employees and each person, if any, controlling A.G. Edwards or any of
its affiliates against certain liabilities and expenses, including
certain liabilities under the federal securities laws, related to
A.G. Edwards' engagement.
Federal Securities Laws Consequences and Restrictions on Resales by
Affiliates
Shares of Cerner common stock to be issued to CITATION
shareholders in the merger have been registered under the Securities
Act of 1933, as amended, and may be traded freely and without
restriction by those shareholders not deemed to be affiliates (as
that term is defined under the Securities Act) of CITATION. Any
subsequent transfer of shares, however, by any person who is an
affiliate of CITATION at the time the merger is submitted for a vote
of the CITATION shareholders will, under existing law, require
either:
the further registration under the Securities Act of the
Cerner common stock to be transferred,
compliance with Rule 145 promulgated under the Securities
Act, which permits limited sales under certain
circumstances, or
the availability of another exemption from registration.
An "affiliate" of CITATION is a person who directly, or
indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, CITATION. These
restrictions are expected to apply to the directors and executive
officers of CITATION and the holders of ten percent or more of the
outstanding CITATION common stock. The same restrictions apply to
the spouses and certain relatives of those persons and any trusts,
estates, corporations or other entities in which those persons have a
ten percent or greater beneficial or equity interest. Cerner will
give stop transfer instructions to the transfer agent with respect to
the shares of Cerner common stock to be received by persons subject
to these restrictions, and the certificates for their shares will be
appropriately legended.
CITATION has agreed in the merger agreement to use its
reasonable best efforts to cause each person who is an affiliate of
CITATION, for purposes of Rule 145 under the Securities Act, to
deliver to Cerner a written agreement intended to ensure compliance
with the Securities Act.
Shareholders Agreement
Contemporaneously with the execution of the merger agreement,
six executive officers and directors of CITATION entered into a
shareholders agreement with Cerner. The shareholders agreement
requires such shareholders to vote all shares of CITATION held by
them in favor of the approval of the merger agreement and the
transactions contemplated thereby. In addition, such shareholders
granted to Cerner an irrevocable proxy to vote their shares to
approve the merger agreement and the transactions contemplated
thereby and an option to purchase, under certain circumstances, all
<PAGE -31-
or a portion of their CITATION shares. There are a total of
1,133,290 shares of CITATION common stock held by such executive
officers and directors that are subject to the shareholders
agreement, which constitutes approximately 29.3% of the outstanding
shares of CITATION common stock.
Fees and Expenses of the Merger
Each party is responsible for its own expenses in connection
with the merger.
Accounting Treatment
The merger will be accounted for as a "purchase," as such term
is used under GAAP, for accounting and financial reporting purposes.
CITATION will be treated as the acquired corporation for such
purposes. CITATION's assets, liabilities and other items will be
adjusted to their estimated fair value on the closing date of the
merger and will be recorded in Cerner's consolidated financial
statements. The difference between the estimated fair value of the
assets, liabilities and other items (adjusted as discussed above) and
the purchase price, if any, will be recorded as an intangible asset
and amortized against the consolidated earnings of Cerner over a
period following completion of the merger. Cerner's consolidated
financial statements will include the operations of the surviving
company, Cerner Citation, Inc., after the effective time of the
merger.
Federal Income Tax Consequences
The following is a discussion of the material federal
income tax consequences of the merger to the holders of CITATION
common stock. The discussion is based on the Internal Revenue Code
(the "Code"), Treasury regulations, rulings of the Internal Revenue
Service (the "IRS") and court decisions as of the date of
this proxy statement/prospectus. Those authorities may change,
possibly retroactively, which could alter the tax consequences
described below.
This discussion assumes that the CITATION common stock is
held as a capital asset. In addition, this discussion does not
address all of the tax consequences that may be relevant to you in
light of your particular circumstances or to CITATION shareholders
subject to special rules, such as foreign persons, financial
institutions, tax-exempt organizations, dealers in securities or
foreign currencies, insurance companies or mutual funds. In
addition, this discussion does not discuss the consequences to
shareholders who are subject to the alternative minimum tax
provisions, acquired their shares in stock option or stock purchase
plans or in other compensatory transactions, hold their shares as part
of a hedging, straddle, conversion or other risk reduction transaction
or hold the CITATION common stock as "qualified small business stock."
It is a condition to the obligation of Cerner and CITATION
to complete the merger that the parties receive the opinions of their
respective counsel, dated as of the completion of the merger, that
the merger will be treated as a reorganization within the meaning of
section 368(a) of the Code. The opinions will be based upon the facts
existing at the completion of the merger. In rendering their opinions,
the counsel will require and rely upon representations contained
in certificates of officers of CITATION, Cerner and others. The tax
opinions will not bind the IRS nor stop the IRS from taking a contrary
position.
Based on the merger being treated as a reorganization
for federal income tax purposes, the merger will have the following
U.S. federal income tax consequences:
an exchanging CITATION shareholder will recognize
income or gain on the exchange of his or her CITATION stock
in the merger in an amount equal to the lesser of the
amount of cash received or the gain realized on such
exchange. Any gain realized on any exchange will equal the
excess of the fair market value of the Cerner common stock
and cash received in the exchange over the tax basis of such
exchanged CITATION common stock. Any gain recognized on the
exchange by the exchanging CITATION shareholder likely will
be treated as capital gain. However, any gain recognized
will be treated as ordinary dividend income if, under
principles similar to the federal income tax stock
redemption provisions, the exchange by the CITATION
shareholder would not qualify as a "sale or exchange." The
dividend characterization is not likely unless the
exchanging CITATION shareholder actually or constructively
owns an interest in Cerner. Any capital gain recognized will
be long-term capital gain if the exchanging CITATION
shareholder held the exchanged stock for more than 12 months.
An exchanging CITATION shareholder may not recognize any loss
in the merger.
<PAGE> -32-
the aggregate tax basis of the shares of Cerner common
stock received by CITATION shareholders will equal the
aggregate tax basis of the shares of CITATION common stock
surrendered in exchange for such Cerner common stock (not
including any basis attributable to fractional shares),
reduced by the amount of any cash received in the exchange
and increased by any income or gain recognized on the
exchange.
the holding period of a share of Cerner common stock
received in the merger will include the holder's holding
period in the CITATION common stock surrendered in the
exchange for the Cerner common stock;
a CITATION shareholder receiving cash for a fractional
share will recognize gain or loss in an amount equal to the
difference between the cash received for the fractional
share and the basis allocable to such portion of the
CITATION common stock attributable to the fractional share
and such gain or loss likely will be capital gain or loss.
a dissenting CITATION shareholder generally will
recognize capital gain or loss measured by the difference
between the amount of cash received and the tax basis of
such shares of CITATION common stock. Such capital gain or
loss will be long-term capital gain or loss if the
dissenting CITATION shareholder held the shares of CITATION
for more than 12 months. However, the cash received may be
treated as ordinary dividend income if the dissenting
shareholder's cash receipt is not treated as a sale or
exchange under the federal income tax stock redemption
rules. The dividend characterization is not likely unless
the CITATION shareholder actually and constructively owns a
significant interest in Cerner.
neither Cerner nor CITATION will recognize any gain or
loss as a result of the merger.
If the IRS successfully challenges the merger's status as
a reorganization, CITATION's shareholders will have to recognize
taxable gain or loss on the difference between the (1) sum of the
fair market value of the Cerner common stock and the cash received
in exchange for the CITATION common stock and (2) the tax basis of
the CITATION common stock exchanged. This gain or loss generally will
be treated as capital gain or loss. In that event, a shareholder's
basis in the Cerner common stock received would equal its fair market
value, and the shareholder would begin a new holding period.
CITATION shareholders, other than certain exempt
recipients, may be subject to backup withholding at a rate of 31%
with respect to cash received pursuant to the merger, unless the
CITATION shareholder either (1) furnishes a correct taxpayer
identification number and certifies that he or she is not subject
to backup withholding by completing the substitute Form W-9 that will
be included as part of the transmittal letter or (2) otherwise
proves that the shareholder is exempt from backup withholding
CITATION shareholders will also be required to file
certain information with their federal income tax returns and
to retain certain records with regard to the merger.
Tax matters are very complicated, and the tax consequences
of the merger to each CITATION shareholder will depend on the facts
of each shareholder's situation. CITATION shareholders are
encouraged to consult their own tax advisors regarding the specific
tax consequences of the merger, including the applicability and
effect of any federal, state, local and foreign income and other tax
laws.
Interests of Certain Persons in the Merger
When you consider CITATION's board of directors' recommendation
to vote for the merger, the merger agreement and the transactions
contemplated thereby, you should be aware of interests which some of
the CITATION's directors and executive officers have in the merger
that are different from your interests as CITATION shareholders.
CITATION's board was aware of these and other interests and
specifically considered them before approving and adopting the
merger, the merger agreement and the transactions contemplated
thereby.
Treatment of Stock Options. Under the terms of the merger
agreement, each holder of outstanding options, whether or not such
options are exercisable, will be converted into the right to receive
that number of shares of Cerner common stock determined by
multiplying the number of shares of CITATION common stock subject to
such option or right by the exchange ratio of 0.1695. A corresponding
adjustment in the exercise price would also be effected. CITATION's
directors and executive officers will receive this option treatment
for all of their options. In addition, unvested options to acquire
up to 60,000 shares of CITATION common stock outstanding under the
CITATION 1999 Director Stock Option
<PAGE> -33-
Plan, as amended, will, pursuant to their terms, become exercisable
upon completion of the merger. All other outstanding stock options
shall continue to vest in accordance with their terms.
The following table sets forth information as to the options
outstanding as of the date of this proxy statement/prospectus.
<TABLE>
Number of Options that
Vest Upon Completion
Name Number of Options Held of the Merger
---- ---------------------- -------------
<S> <C> <C>
J. Robert Copper 205,000 -
Richard D. Neece 135,000 -
Fred L. Brown 22,000 20,000
Larry D. Marcus 15,000 10,000
James F. O'Donnell 12,000 10,000
David T. Pieroni 22,000 20,000
</TABLE>
Director and Officer Indemnification and Insurance. The merger
agreement provides that Cerner and the surviving corporation will
indemnify and hold harmless each of CITATION's present directors and
officers, determined as of the effective time of the merger, against
any costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages or liabilities incurred in
connection with any claim, action, suit, proceeding or investigation
whether civil, criminal, administrative or investigative, arising out
of or pertaining to matters existing or occurring at or prior to the
effective time, whether asserted or claimed prior to, at or after the
effective time of the merger, to the fullest extent that would have
been permitted under Missouri law and CITATION's articles of
incorporation or bylaws in effect on the date of the merger agreement
(and Cerner and the surviving corporation shall also advance expenses
as incurred to the fullest extent permitted under applicable law and
CITATION's articles of incorporation and bylaws, provided that the
person to whom expenses are advanced provides an undertaking to repay
such advances if it is ultimately determined that such person is not
entitled to indemnification). Cerner and the surviving corporation
shall not have any obligation to indemnify CITATION's officers or
directors for any acts related to or arising out of the merger, the
merger agreement or the transactions contemplated thereby if and to
the extent such person's conduct was finally adjudged to have been
knowingly fraudulent, deliberately dishonest or willful misconduct.
In addition, the merger agreement provides that Cerner or the
surviving corporation, to the extent available, will maintain in
effect, for a period of five years after the merger, directors' and
officers' liability insurance for the benefit of CITATION's directors
and officers who are currently covered under CITATION's directors'
and officers' liability insurance on terms not materially less
favorable than the existing insurance coverage; provided, however,
Cerner or the surviving corporation is not obligated to pay an annual
premium in excess of 150% of the last annual premium paid by CITATION
prior to the date of the merger agreement
Copper Employment Agreement. J. Robert Copper has entered into
an employment agreement with Cerner, effective as of closing,
pursuant to which he will serve as Senior Advisor, Laboratory
Systems. The term of the agreement is 20 months from the date of the
merger, and Mr. Copper is obligated to serve on average two to three
days a month in a consultative capacity to Cerner's laboratory
leadership team. As consideration, Mr. Copper will receive a monthly
salary of $10,000, reimbursement of travel expenses and health
insurance and benefits. In addition, Mr. Copper has agreed to
terminate his current change of control agreement, pursuant to which
he would have been eligible to receive an amount equal to his annual
salary as severance if an involuntary change in his employment
occurred within 12 months after a CITATION change of control.
Neece Employment Agreement. Richard D. Neece has entered into
an employment agreement with Cerner, effective as of closing,
pursuant to which he will serve as Vice President and Laboratory
Operating Officer. As consideration, Mr. Neece will initially
receive an annual salary of $150,000, an annual performance bonus of
up to $75,000, options to purchase 1,900 shares of Cerner common
stock at the price of Cerner stock at the time of grant and other
benefits available to full-time employees of Cerner. In addition,
Mr. Neece has agreed to terminate his current change of control
<PAGE> -34-
agreement, pursuant to which he would have been eligible to receive
an amount equal to his annual salary as severance if an involuntary
change in his employment occurred within 12 months after a CITATION
change of control.
Dissenters' Rights
CITATION shareholders who follow the procedure set forth in
Section 455 of The General and Business Corporation Law of Missouri
will be entitled to receive payment in cash for their shares. The
following summary of Section 455 is not intended to be a complete
statement of the law and is qualified in its entirety by reference
thereto, the full text of which is set forth as Appendix D hereto.
CITATION shareholders receiving cash upon exercise of dissenters'
rights may recognize gain for federal income tax purposes. See
"-Federal Income Tax Consequences" on page 32.
A CITATION shareholder may assert dissenters' rights only by
complying with all of the following requirements:
a. The shareholder must deliver to CITATION prior to or at the
special meeting a written objection to the merger
agreement. Such objection should be delivered or mailed in
time to arrive before the special meeting to CITATION
Computer Systems, Inc, 424 South Woods Mill Road, Suite
200, Chesterfield, Missouri 63017, Attention: Corporate
Secretary. Such a written objection must be made in
addition to, and separate from, any proxy or other vote
against adoption of the merger agreement. Neither a vote
against, a failure to vote for, or an abstention from
voting will satisfy the requirement that a written
objection be delivered to CITATION before the vote is
taken. Unless a shareholder files the written objection as
provided above, he or she will not have any dissenters'
rights of appraisal.
b. The shareholder must not vote in favor of adoption of the
merger agreement; and
c. The shareholder must deliver to the combined company within
twenty days after the effective time of the merger a
written demand for payment of the fair value of his or her
shares of CITATION common stock as of the day prior to the
date of the CITATION shareholders meeting. That demand
must include a statement of the number of shares of
CITATION common stock owned. The demand must be mailed or
delivered to the combined company at Cerner Corporation,
2800 Rockcreek Parkway, Kansas City, Missouri 64117,
Attention: Corporate Secretary. Any shareholder who fails
to make a written demand for payment within the twenty-day
period after the effective time will be conclusively
presumed to have consented to the merger agreement and will
be bound by the terms thereof. Neither a vote against the
merger agreement nor the written objection referred to in
(a) satisfies the written demand requirement referred to in
this clause (c).
A beneficial owner of shares of CITATION common stock who is not
the record owner may not assert dissenters' rights. If the shares of
CITATION common stock are owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, or by a nominee or are
held in "street name" by a brokerage firm or bank, the written demand
asserting dissenters' rights must be executed by the fiduciary,
nominee, broker or bank. If the shares of CITATION common stock are
owned of record by more than one person, as in a joint tenancy or
tenancy in common, the demand must be executed by all joint owners.
An authorized agent, including an agent for two or more joint owners,
may execute the demand for a shareholder of record; however, the
agent must identify the record owner and expressly disclose the fact
that, in executing the demand, he is acting as agent for the record
owner.
If within thirty days of the effective time of the merger, the
value of a dissenting shareholder's shares of CITATION common stock
is agreed upon between the shareholder and the combined company, the
combined company will make payment to the shareholder within ninety
days after the effective time, upon the shareholder's surrender of
his or her certificates. Upon payment of the agreed value, the
dissenting shareholder will cease to have any interest in such shares
or in the combined company.
If the dissenting shareholder and the combined company do not
agree on the fair value of the shares within thirty days after the
effective time of the merger, the dissenting shareholder may, within
sixty days after the expiration of the thirty days, file a petition
in any court of competent jurisdiction within Clay County, Missouri
asking for a finding and a determination of the fair value of the
shares. The dissenting shareholder is entitled to judgment against
the combined company for the amount of such fair value as of the day
prior to the date on which such vote was taken adopting the merger
agreement, together with interest thereon to the date of judgment.
The judgment is payable only upon and simultaneously with the
surrender to the combined company of the CITATION certificates
representing said shares. Upon payment of the judgment, the
dissenting shareholder shall cease to have any interest in such
shares or in the combined company. Unless the dissenting shareholder
will file such petition within the time herein limited, such
shareholder and all persons claiming
<PAGE> -35-
under such shareholder will be conclusively presumed to have adopted
and ratified the merger agreement, and will be bound by the terms
thereof.
The right of a dissenting shareholder to be paid the fair value
for his or her shares will cease if the shareholder fails to comply
with the procedures of Section 455 or if the merger agreement is
terminated for any reason.
CITATION shareholders considering demanding the purchase of
their shares at fair market value should keep in mind that the fair
value of their shares determined under Section 455 could be more, the
same, or less than the merger consideration to which they are
entitled pursuant to the merger if they do not demand the purchase of
their shares at fair value.
The summary set forth above does not purport to be a complete
statement of the provisions of Section 455 relating to the rights of
dissenting CITATION shareholders and is qualified in its entirety by
reference to Section 455, which is included as Appendix D to this
proxy statement/prospectus. CITATION shareholders intending to
demand the purchase of their shares at fair value are urged to review
carefully the provisions set forth in Appendix D and to consult with
legal counsel so as to be in strict compliance therewith.
Conditions to the Merger
Completion of the merger is subject to various conditions.
While it is anticipated that all such conditions will be satisfied,
there can be no assurance as to whether or when all of such
conditions will be satisfied or, where permissible, waived. The
respective obligations of Cerner and CITATION to complete the merger
are subject to certain conditions set forth in the merger agreement,
including the following:
Approval of the merger agreement by the holders of at least
two-thirds of all the outstanding shares of CITATION common
stock;
The effectiveness of the registration statement for the
shares of Cerner common stock to be issued in the merger;
The receipt of all state securities or blue sky
authorizations necessary to complete the merger;
The approval by the Nasdaq National Market of the listing of
the shares of Cerner common stock to be issued in the merger,
subject to official notice of issuance;
The receipt of all required regulatory approvals and
expiration of all related statutory waiting periods;
The absence of any order, decree or injunction of a court or
agency of competent jurisdiction which prohibits the
completion of the merger;
The absence of any statute, rule or regulation which
prohibits, restricts or makes illegal completion of the
merger;
The accuracy of the other party's representations and
warranties contained in the merger agreement as of the date
specified therein, except, in the case of most of such
representations and warranties, where a failure to be so
accurate would not be reasonably likely to have a material
adverse affect on the party making such representations and
warranties, and the performance by the other party of its
obligations contained in the merger agreement in all material
respects;
The receipt by each party of an opinion of its counsel
substantially to the effect that the merger will be treated
for federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code;
The execution and delivery of employment agreements by and
between each J. Robert Copper and Richard D. Neece and
Cerner;
<PAGE> -36-
The receipt by each party of an opinion of the others counsel
as to certain corporate matters regarding Cerner and
CITATION;
The absence of any material adverse change in the financial
condition, results of operations or cash flows or assets,
liabilities, business or prospects of Cerner or CITATION
since March 31, 2000; and
The receipt by Cerner of affiliate agreements from each
affiliate of CITATION.
Regulatory Approval
Pursuant to the Hart-Scott-Rodino Act, the merger may not be
completed until after Cerner and CITATION have given certain
information and materials to the Federal Trade Commission and a
required waiting period has expired or has been terminated. Cerner
and CITATION submitted notification and report forms on May 19, 2000.
Early termination was granted May 31, 2000.
Conduct of Business Pending the Merger
Until either the merger is completed or the merger agreement is
terminated, CITATION has agreed to carry on its business in the
ordinary course in substantially the same manner as it conducted
prior to the execution of the merger agreement. CITATION has agreed
to certain limitations on its ability to engage in material
transactions. Among those limitations, CITATION, subject to certain
exceptions, will not, without the prior consent of Cerner:
Amend its articles of incorporation or bylaws;
Split, combine or reclassify any shares of capital stock of
CITATION or declare, set aside or pay any dividend;
(1) Issue, deliver or sell, or authorize the issuance,
delivery or sale of, any shares of CITATION capital stock of
any class or any securities convertible into or exercisable
for, or any rights, warrants or options to acquire any such
capital stock or any such convertible securities, other than
certain shares issuable pursuant to the CITATION employee
plans, or (2) amend in any respect any term of any
outstanding security of CITATION;
Other than in the ordinary course of business or as
contemplated by the capital expenditure budgets for CITATION,
incur any capital expenditures or obligations or liabilities
in excess of $75,000;
Except in the ordinary course of business, acquire in one
transaction or a series of related transactions (1) any
assets having a fair market value in excess of $75,000, or
(2) all or substantially all of the equity interests of any
person or any business or division of any person having a
fair market value in excess of $75,000;
Sell, lease, license, perform services, encumber or otherwise
dispose of any assets, other than (1) sales or licenses of
finished goods or the performance of services in the ordinary
course of business consistent with past practice, (2)
equipment and property no longer used in the operation of
CITATION's business, and (3) assets related to discontinued
operations of CITATION;
(1) incur any indebtedness for borrowed money or guarantee
any such indebtedness, (2) issue or sell any debt securities
or warrants or rights to acquire any debt securities of
CITATION, (3) make any loans, advances or capital
contributions to or investments in, any other person, or (4)
guarantee any debt securities or indebtedness of others in
any case in an amount in excess of $50,000, except, in each
case, in the ordinary course of business consistent with past
practice;
(1) enter into any agreement or arrangement that limits or
otherwise restricts CITATION or any of its affiliates or any
successor thereto or that would, after the effective time of
the merger, limit or restrict CITATION or the combined
company, or any of their respective affiliates, from engaging
or competing in any line of business or in any location, or
(2) enter into, amend, modify or terminate any material
contract, agreement or arrangement of CITATION or otherwise
waive, release or assign any material rights, claims or
benefits of CITATION thereunder; provided, however, CITATION
may enter into material contracts with customers, suppliers
or distributors, so long as such contracts are entered into
in the ordinary course and consistent with CITATION's prior
practice;
<PAGE> -37-
(1) except as required by law or a pre-existing written
agreement, or as consistent with past practice and routine
raises on anniversary dates, increase the amount of
compensation of any director or executive officer or make any
increase in or commitment to increase any employee benefits,
(2) except as required by law, a preexisting written
agreement or a CITATION severance policy existing as of
May 15, 2000, grant any severance or termination pay to any
director, officer or employee of CITATION or, (3) adopt any
additional employee benefit plan or, except in the ordinary
course of business consistent with past practice and
containing only normal and customary terms, make any
contribution to any such existing plan or (4) except as may
be required by law or a preexisting written agreement or
employee benefit plan, or as contemplated by the merger
agreement, enter into, amend in any respect, or accelerate
the vesting under any CITATION employee plan, employment
agreement, option, license agreement or retirement
agreements, or (5) hire any employee with an annual base
salary in excess of $75,000;
change (1) CITATION's methods of accounting in effect at
March 31, 2000 except as required by changes in GAAP, as
concurred with by its independent public accountants, or (2)
CITATION's fiscal year;
(1) settle, propose to settle or commence, any litigation,
investigation, arbitration, proceeding or other claim that is
material to the business of CITATION, other than the payment,
discharge or satisfaction, in the ordinary course of business
consistent with past practice of liabilities (a) recognized
or disclosed in the CITATION financial statements (or the
notes thereto) or (b) incurred since March 31, 2000 in the
ordinary course of business consistent with past practice, or
(2) make any material tax election or enter into any
settlement or compromise of any tax liability other than in
the ordinary course of business consistent with past
practices and containing only normal and customary terms;
enter into any new material line of business; or
except to the extent required to comply with its obligations
under the merger agreement or required by law, CITATION shall
not amend or propose to so amend its articles of
incorporation, bylaws or other governing documents.
No Solicitation
CITATION has agreed that it will not nor shall it authorize its
officers, directors, employees, investment bankers, attorneys,
accountants, agents or other advisors or representatives to (a)
solicit, initiate or knowingly facilitate or encourage the submission
of any "acquisition proposal for CITATION," (b) participate in any
discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action knowingly to
facilitate any inquiries or the making of any acquisition proposal
for CITATION, (c) grant any waiver or release under any standstill or
similar agreement with respect to any class of CITATION capital stock
or (d) enter into any agreement with respect to any acquisition
proposal for CITATION. "Acquisition proposal for CITATION" means any
offer or proposal for a merger, consolidation, share exchange,
business combination, reorganization, recapitalization, issuance of
securities, liquidation, dissolution, tender offer or exchange offer
or other similar transaction or series of transactions involving, or
any purchase of ten percent or more of the assets, or directly or
indirectly acquires beneficial ownership of securities representing,
or exchangeable for or convertible into, more than ten percent of the
outstanding securities of any class of voting securities of CITATION
or in which CITATION issues securities representing ten percent of
the outstanding securities of any class of voting securities of
CITATION, other than the transaction contemplated by the merger
agreement.
However, under the merger agreement, CITATION is permitted to
furnish information to, and enter into negotiations with, a third
party making a takeover proposal if:
CITATION receives from such third party an unsolicited
"superior proposal" of the type described below prior to
the approval of the merger agreement by CITATION
shareholders;
The CITATION board of directors concludes in good faith,
after receiving advice from outside counsel and independent
financial advisor, that CITATION must do so in order to
comply with its fiduciary duties under applicable law; and
Prior to doing so, CITATION enters into reasonably
customary confidentiality and standstill agreements with
such third party.
<PAGE> -38-
CITATION is required to notify Cerner immediately if any such
negotiations are sought to be initiated or continued in respect of
any such takeover proposal, together with all of the relevant details
of the negotiations. CITATION also may communicate information about
any takeover proposal to its shareholders if its board of directors
determines, based on advice of outside counsel and financial advisor,
that such communication is required under applicable law.
"Superior proposal" means any bona fide written takeover
proposal for all outstanding shares of CITATION common stock or all
or substantially all of the assets of CITATION on terms which the
board of directors of CITATION determines in its good faith judgment
(based on a written opinion of CITATION's financial advisor) to be
materially more favorable to CITATION and its shareholders than the
merger (taking into account any changes to the financial and other
contractual terms of the merger agreement proposed by Cerner in
response to such proposal, the person making the proposal, any legal
or regulatory considerations and all other relevant financial
and strategic considerations, including the timing of the
consummation of such transactions) and for which financing, to the
extent required, is then committed or which, in the good faith
judgment of the board of directors of CITATION, is reasonably
capable of being obtained by such third party.
Waiver and Amendment
Prior to or at the effective time of the merger, any provision
of the merger agreement, including, without limitation, the
conditions to consummation of the merger, may be (a) waived, to the
extent permitted under law, in writing by the party which is entitled
to the benefits thereof; or (b) amended at any time by written
agreement of the parties, whether before or after approval of the
merger agreement by the shareholders of CITATION. However, no such
amendment or modification may be made after the CITATION shareholder
approval without the further approval of such shareholders if
required under any applicable law, rule or regulation.
Termination of the Merger Agreement
The merger agreement and the merger may be terminated at any
time prior to the completion of the merger:
By mutual written consent of Cerner and CITATION;
By Cerner or CITATION, if the merger has not been
consummated by December 30, 2000, provided that the
right to terminate shall not be available to any party
whose breach of any provision of the merger agreement
has resulted in the failure of the merger to occur on
or before such date;
By Cerner or CITATION, if there shall be any law that
makes consummation of the merger illegal or otherwise
prohibited or any judgment, injunction, order or
decree of any governmental entity having competent
jurisdiction enjoining Cerner, CITATION or Cerner
Performance Logistics, Inc. from consummating the
merger is entered and such judgment, injunction, or
order shall have become final and nonappealable;
By Cerner or CITATION, if the CITATION shareholders do
not approve the merger agreement on or before December
30, 2000;
By Cerner or CITATION, if there has been a material
breach of any of the representations, warranties,
covenants or agreements of the other party in the
merger agreement which shall constitute a failure of a
condition to the completion of the merger which
condition shall be incapable of being satisfied before
December 30, 2000;
By Cerner, if there shall have occurred an adverse
change in the CITATION board of directors'
recommendation that its shareholders approve the
merger;
By Cerner, if there shall have occurred a willful and
material breach by CITATION or any of its officers,
directors, employees, advisors or agents of CITATION's
covenant not to solicit, participate in or negotiate
an acquisition proposal;
By Cerner, if CITATION fails to include the
recommendation of its board in favor of the adoption
and approval of the merger agreement and the approval
of the merger in this proxy statement/prospectus;
<PAGE> -39-
By Cerner, if the board of directors of CITATION shall
have approved, endorsed or recommended any competing
or alternative acquisition proposal of CITATION;
By Cerner, if a tender offer or exchange offer
relating to the securities of CITATION shall have been
commenced and CITATION shall not have sent to its
shareholders, within ten business days after the
commencement of such tender or exchange offer, a
statement disclosing that CITATION recommends
rejection of such tender or exchange offer;
By CITATION, if it receives a bona fide superior
proposal as discussed above under "-No Solicitation"
on page 38; or
Automatically, if the merger is enjoined by a court of
competent jurisdiction for a period extending beyond
ninety days.
Effect of Termination
If the merger agreement is terminated, it will thereafter become
void and there will be no liability on the part of Cerner or CITATION
or their respective officers or directors, except that:
Any such termination will be without prejudice to the
rights of any party arising out of the willful breach by
the other party of any provision of the merger agreement;
Certain provisions of the merger agreement, including those
relating to confidential treatment of information will
survive the termination; and
Cerner and CITATION each will bear its own expenses in
connection with the merger agreement and the transactions
contemplated thereby, except as otherwise provided therein.
CITATION has agreed to pay to Cerner upon demand a termination
fee of $600,000 (a) if the merger agreement is terminated because the
CITATION shareholders do not approve the merger agreement on or
before December 30, 2000, and the closing price per share of Cerner
common stock, as reported by the Nasdaq National Market, is greater
than $24.00 on at least ten of the last twenty trading days
immediately preceding the date for the CITATION shareholder meeting,
or (b) if CITATION elects to accept an alternative acquisition
proposal or to withdraw or modify its recommendation of the merger as
a result of an alternative acquisition proposal.
Nasdaq National Market Listing
The Cerner common stock is traded on the Nasdaq National Market.
Cerner has agreed to use its reasonable best efforts to cause the
shares of Cerner common stock to be issued in the merger to be listed
on the Nasdaq National Market. It is a condition to completion of
the merger that those shares be listed on the Nasdaq National Market,
subject to official notice of issuance.
Effective Time
It is presently anticipated that the effective time of the
merger will occur sometime during the third quarter of 2000.
However, completion of the merger could be delayed if there is a
delay in satisfying any conditions to the merger. There can be no
assurances as to whether, or when, Cerner and CITATION will complete
the merger. If the merger is not completed on or before December 30,
2000, either Cerner or CITATION may terminate the merger agreement,
unless the failure to complete the merger by that date is due to the
failure of the party seeking to terminate the merger agreement to
perform its covenants under the merger agreement.
<PAGE> -40-
INFORMATION REGARDING CITATION
Business
CITATION designs, develops, markets and supports patient-
centered clinical information systems for hospitals, clinics,
physicians' groups and emerging Integrated Delivery Networks
("IDNs"). CITATION offers a comprehensive suite of clinical products
using open client/server architecture that meets a broad range of the
information systems needs of the healthcare industry. These products
integrate patient care processes within the enterprise. CITATION's
systems are modular, scaleable and allow clients to leverage their
investments in existing systems. Individual components of CITATION's
systems can function independently, giving clients the ability to
build their system over time and to integrate existing software which
is meeting their current needs. CITATION's systems are installed in
approximately 300 institutions ranging in size from under 100 beds
to over 1,000 beds. CITATION markets its products directly in the
United States and Canada, as well as through distribution partners
in Europe, India, Latin America and the Far East.
The Company
CITATION was organized in 1979 as a Missouri corporation.
CITATION's principal executive office is located at 424 South Woods
Mill Road, Suite 200, Chesterfield, Missouri 63017 (a suburb of St.
Louis) and its telephone number is (314) 579-7900.
In June 1998, CITATION sold its suite of financial software
products to allow it to focus on its clinical applications. The
following description of the business excludes these products.
Industry Background
The U.S. healthcare industry is undergoing rapid change.
Historically, reimbursement for healthcare services has been based on
a fee-for-service model of payment. With increasing pressure to
reduce costs, managed care organizations and other payors are
shifting the economic risk for the delivery of care to providers
through alternative reimbursement models, including capitation and
fixed fees. As a result, healthcare providers such as hospitals,
multi-specialty physician groups, laboratories, pharmacies, home
health services and nursing homes are integrating horizontally and
vertically to create IDNs. IDNs are designed to serve all of the
healthcare needs of regional populations while achieving economies of
scale.
In order to lower healthcare delivery costs while maintaining or
improving the quality of patient care, providers need access to
detailed clinical information to: (a) manage the patient care
process throughout the IDN; (b) automate patient care documentation;
(c) compare care provider performance and clinical and cost outcomes
both within the organization and to established norms; (d) monitor
performance under managed care contracts; (e) monitor practice
patterns of care providers; (f) measure the effectiveness of new
technologies and therapeutics; and (g) support intra- and inter-
facility communication. A comprehensive clinical healthcare
information system must be able to assist both clinicians and
administrators in managing patient information throughout the
continuum of care.
Certain information-intensive departments of healthcare
organizations, such as laboratories, were early adopters of
information systems in order to manage workflow and clinical data.
However, as multiple legacy systems have become increasingly
prominent on an enterprise-wide basis, the integration of these
systems across the enterprise has become more difficult given the
different architectures, platforms and operating systems of these
information systems.
Integration and accessibility to patient information are
increasingly necessary for healthcare providers to operate
efficiently and improve the quality of patient care. As the need
for readily accessible information throughout the healthcare
enterprise continues to grow, hospitals, providers and payors of all
sizes are faced with the challenge of implementing healthcare
information systems that are scalable, capable of working with
existing information systems and flexible to adapt to changes in the
healthcare marketplace. Also, such systems must be patient-centered,
integrating all aspects of managing the healthcare process.
The CITATION Solution
CITATION designs, develops, markets and supports products that
address the healthcare industry's need for patient-centered, fully
integrated clinical information systems. CITATION's principal
products are designed using a
<PAGE> -41-
modular, client/server approach, offering clients the ability to
build their systems over time and to allow existing legacy
applications to interoperate with CITATION's products.
Business Strategy
CITATION's goal is to leverage its experience of more than 20
years with client/server application solutions to become a leading
provider of clinical healthcare information systems. CITATION's
strategy for achieving this goal includes the following elements:
Leverage Existing Client Base. With an installed base of
approximately 300 facilities, CITATION believes it has the potential
to cross-sell additional products to its existing clients because
many of those clients have not purchased all of CITATION's products.
CITATION's products are modular in design and can be added over time
as each client's needs expand and evolve.
Expand Product Portfolio. CITATION plans to expand its product
line to meet the evolving needs of its clients. CITATION continually
evaluates its offerings to determine what additional products or
enhancements are required by the healthcare information systems
marketplace and CITATION develops and enhances products internally to
meet clients' needs. If CITATION can purchase or license proven
products at reasonable cost on its chosen technology base it will do
so in order to avoid the time and expense involved in developing
products.
Expand Presence in the Asia Pacific and Latin America Markets.
CITATION believes that a significant opportunity exists to expand the
sales of its products in these international markets. Healthcare
providers in a number of countries have not yet invested in
sophisticated information systems, and increasingly they are seeking
to purchase state-of-the art products, particularly clinical
information systems. CITATION believes that its open, client/server
architecture and modular, scalable systems provide a cost-effective
solution to these markets. CITATION has entered several
international markets through a combination of direct sales and
distribution arrangements.
Seek Opportunities with National Accounts. CITATION will
continue to work with the current National Hospital Accounts to
introduce C-RIS and C-COM for small facilities. CITATION will also
target new groups for its complete line of products.
Products
CITATION has developed a comprehensive suite of clinical
products to manage information in the healthcare enterprise. A
client can purchase a comprehensive system or can buy modules
separately to match a user's individual needs. CITATION's systems
address the information needs of care providers and hospital
administrators by enabling joint access to clinical and cost
information, thereby facilitating cost-containment, effective
decision making and delivery of high quality care.
CITATION's clinical suite of products currently consists of four
primary components, each of which can operate independently or as
part of a fully integrated system.
C-COM captures and tracks comprehensive patient clinical
information and routes that information among departments or
systems in the healthcare organization, enabling providers to
evaluate quality of care, productivity and cost-effectiveness of
services. C-COM accepts orders from and displays the resulting
information at any networked PC location where patient care is
being delivered, such as a nursing station or even the bedside.
C-COM also is Internet-enabled and supports hand-held, wireless
technology. C-COM is available for Windows and Windows NT
client and server.
C-LAB provides comprehensive laboratory automation
solutions for clinics, single and multiple site hospitals and
clinical and research laboratories. C-LAB automates order entry
and dissemination of results and interfaces with care providers'
systems. C-LAB sub-modules consist of General Lab,
Microbiology, Anatomical Pathology and Blood Bank. The Blood
Bank submodule is licensed by CITATION for use and
implementation in C-LAB. C-LAB is available in DOS, Windows
and Windows NT.
C-RIS is a radiology management system providing patient
tracking, transcription, radiology reporting, auto-fax
capabilities, statistical reporting, film management and
mammography management. C-RIS is available in Windows NT.
<PAGE> -42-
NuCaMS is an order entry and patient care management
system, which is designed to increase the productivity of nurses
and other clinicians and to assist in the creation, and
management of care plans and clinical pathways. NuCaMS
documents variances against established care plans and clinical
pathways, enabling care providers to focus on both improving the
quality of care and controlling costs. This system enables the
healthcare enterprise to allocate resources and schedule
procedures and tests automatically. NuCaMS is available in DOS.
Services
Client service is an important component of CITATION's
operations. At June 30, 2000, CITATION employed 30 persons in
client services. The client services team generally provides
implementation, application and support, education and consulting
services to CITATION's clients and primarily employs medical
technologists and other healthcare professionals in supporting and
implementing healthcare information systems. Instrument interface,
network consulting, operating system and hardware support are
provided by experts in each area. Additional client services are
provided through computer-based training or formal instructor-led,
CITATION-sponsored ongoing educational courses and seminars.
In addition, CITATION provides comprehensive training for
clients at its headquarters near St. Louis. Before CITATION's
product becomes operational, training is also provided at the
client's location. CITATION provides additional training at the
client's request for a fee. CITATION offers a maintenance program
covering hardware replacement, software upgrades, and telephone
consulting service. Depending on the type of system, CITATION offers
service contracts for periods of one to five years. Customer support
is available 24 hours a day.
CITATION also offers its services to design and configure the
architecture of a provider's systems, including networking, systems
integration and data conversion. Further, CITATION provides advice
on data analysis to assist care providers in evaluating their
operations.
Product Development
CITATION is dedicated to providing state-of-the-art integrated
clinical systems for healthcare. The cornerstone of CITATION's system
is its long-standing commitment to client/server technology.
CITATION's multi-tiered products are modular in nature, using an open
architecture that is integratable with third party systems as well as
other CITATION systems.
CITATION's current product development efforts use object-
oriented programming methodologies. This allows CITATION to develop
applications based on reusable libraries of code that CITATION
believes results in more cost-effective and rapid product development
cycles. CITATION is a Microsoftr Solutions Provider and extensively
employs Microsoftr toolsets and standards in its product development
efforts. CITATION believes use of these standards and tools
facilitates interfacing with other systems and products. CITATION
also supports other industry standards such as HL/7, ASTM and the
Novell Netware Network Operating System.
CITATION plans to expand its clinical product line to meet the
evolving needs of its clients. CITATION continually evaluates its
offerings to determine what additional products or enhancements are
required by the healthcare information systems marketplace. CITATION
develops and enhances products internally to meet clients' needs, but
if CITATION can purchase or license proven products at reasonable
costs it will do so in order to avoid the resource time and expense
involved in developing products. CITATION actively seeks out for
acquisition and licensing other companies and products that fit into
CITATION's overall product and technology plan. There is significant
competition for suitable acquisition candidates and there can be no
assurance that CITATION will be able to successfully acquire or
license additional products.
During the fiscal years ended March 31, 2000 and 1999, CITATION
invested $3.4 million and $3.2 million, respectively, in research and
development. At June 30, 2000, CITATION employed 32 persons in
research and development. CITATION expects to continue to make
significant investments in research and development, however, there
can be no assurance that CITATION's financial and technological
resources will permit it to develop or market new products
successfully or respond effectively to technological changes.
<PAGE> -43-
Sales and Marketing
CITATION markets its products in the United States and Canada
through a direct sales force under the direction of CITATION's
Executive Vice President of Sales and Marketing. At June 30, 2000,
CITATION's sales force consisted of seven employees. In addition to
CITATION's sales force employees, CITATION has a four-person
marketing team that promotes CITATION's products, participates in
trade shows and demonstrates CITATION's products. In addition,
members of CITATION's development and client services departments
provide pre-sales support for CITATION's direct sales force in making
presentations to and preparing comprehensive proposals for potential
customers.
CITATION markets its products internationally through
distribution alliances in the Far East and Latin America. CITATION
has a strategic relationship with Medical Communications Pte. Ltd.,
formerly Microstate Separations Pte. Ltd. ("Microstate"), a
healthcare information systems integrator based in Singapore.
Microstate has purchased CITATION's systems for the Indonesian,
Malaysian, Hong Kong and Singapore markets. In Latin America,
CITATION has a strategic arrangement with Laboratories Para
Laboratorios.
Regulation
CITATION is subject to the general requirements of the Food and
Drug Administration's regulations for Class I Medical Devices because
it produces a suite of clinical software products. CITATION complies
with these regulations and follows Medical Device Reporting
guidelines as well.
Additional legislation governing the dissemination of medical
record information has been proposed. CITATION is unable to
determine at this time the effect, if any, that these requirements
may have on its business.
In addition, the healthcare industry is subject to changing
political, economic and regulatory influences that may affect the
procurement practices and operations of healthcare providers. Many
lawmakers have announced that they intend to propose programs to
reform the U.S. healthcare system. These programs may contain
proposals to increase governmental involvement in healthcare, lower
reimbursement rates and otherwise change the regulatory environment
in which CITATION's clients operate. Healthcare providers may react
to these proposals and the uncertainty surrounding such proposals by
curtailing or deferring investments, including those for CITATION's
healthcare information systems. Even if healthcare providers do not
curtail or defer investments, they may institute cost-containment
measures in anticipation of regulatory reform or for other reasons.
These measures may result in greater selectivity in the allocation of
capital funds, which could have a material adverse effect on
CITATION's ability to sell its healthcare information systems and
services. CITATION cannot predict with any certainty what impact, if
any, such legislative or market-driven reforms might have on its
business and results of operations. There can be no assurance that
such proposed changes, if adopted, would not have a material adverse
effect on CITATION's business and results of operations.
Employees
At June 30, 2000, CITATION employed 93 persons. Of these
employees, 32 were involved in product development, 30 in client
services, 10 in sales and marketing and 21 in general administration,
clerical and finance. CITATION's employees are not represented by a
labor union and CITATION's management believes that its relationships
with its employees are good.
Backlog
CITATION sells its products on a purchase order basis, with
shipments of "turnkey" systems made shortly after receipt of executed
purchase orders. As a result, the level of backlog at any particular
time is not necessarily an indication of future results.
Properties
CITATION's principal facilities consisting of approximately
32,000 square feet are located in Chesterfield, Missouri, a suburb of
St. Louis. The lease expires in May 2004.
<PAGE> -44-
Legal Proceedings
From time to time, CITATION is subject to litigation and claims
in the ordinary course of business. CITATION currently is not a party
to any pending legal proceedings, other than ordinary routine
litigation incidental to its business.
CITATION'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
CITATION designs, develops, markets and supports clinical
information systems for hospitals, clinics, physicians' groups and
emerging Integrated Delivery Networks ("IDNs"). CITATION offers a
comprehensive suite of products designed using open client/server
architecture that meets a broad range of the information systems
needs of the healthcare industry. These products integrate patient
care processes within the enterprise and throughout the IDN.
CITATION's systems are modular, scaleable and allow clients to
leverage their investments in existing systems. Individual
components of CITATION's systems can function independently, giving
clients the ability to build their system over time and to integrate
existing software. CITATION's clinical systems are installed in
approximately 300 institutions ranging in size from less than 100
beds to more than 1,000 beds. CITATION markets its products directly
in the United States and Canada, as well as through distribution
partners in the Asia Pacific area and Latin America.
In May 2000, CITATION announced that it had entered a definitive
agreement for a business combination with Cerner. Under terms of the
agreement, CITATION shareholders will receive 0.1695 shares of Cerner
stock for 90% of CITATION stock and $5.10 in cash for 10% of
CITATION stock, resulting in the issuance of 598,000 shares of Cerner
stock for 90% of CITATION and payment of approximately $2 million for
the remaining 10% of the Company. The transaction, which as to the
stock portion will be tax-free to CITATION shareholders and which
will be accounted for as a purchase by Cerner, is expected to close
in the third quarter this calendar year pending CITATION shareholder
approval and regulatory approval.
CITATION generates revenues from the sale of information systems
and services. System sales consist of software licenses, related
hardware, installation and training, and the sale of third-party
software. Hardware revenues are generated from sales of third-party
manufactured hardware typically sold in conjunction with CITATION's
software. Service revenue includes maintenance and support services.
Revenue from systems sales is recognized upon shipment to the
client. Revenue related to the installation is recognized as the
work is performed. Service revenue is recognized ratably over the
term of the contract period.
Cost of products and services sold includes cost of system sales
and cost of service revenue. Cost of system sales includes cost of
hardware sold, installation and training expenses and software
amortization costs. Cost of service revenue includes all client
service expenses plus an allocation of certain other overhead
expenses.
Research and development expenses include salaries and expenses
related to development and documentation of software systems and are
reduced by capitalized software development costs. Software
development costs are expensed until such time as technological
feasibility is established and are capitalized in compliance with
Statement of Financial Accounting Standards No. 86.
Sales and marketing expenses include salaries, commissions,
advertising, trade show costs and user group costs related to the
sale and marketing of CITATION's systems. General and administrative
expenses include salaries and expenses for corporate administration,
finance, legal, and human resources, as well as profit-sharing,
bonuses and insurance.
Other Non-recurring Charges, Including Sale of the Financial Software
Line of Business.
In June 1998, CITATION sold the financial software line of
business, including its accounts receivable, patient billing, general
ledger, accounts payable, fixed assets, inventory control, medical
records abstracting and registration software modules to Sterling
Systems based in Downey, Idaho. This line of business accounted for
approximately $1.8 million of revenue and contributed a pretax loss
of $0.2 million in fiscal 1998. Revenues from this line of business
in fiscal 1999 were $0.3 million through the date of its sale. The
transaction resulted in an aggregate pretax loss of $0.7 million and
<PAGE> -45-
an after tax loss of approximately $0.4 million, or $0.11 per share.
The loss included the write-off of approximately $0.5 million of
capitalized software development costs associated with this software
and an additional charge of $0.6 million based on management's
estimates of the collectibility of certain accounts receivable
related to its former financial software line of business.
Approximately $0.4 million of the sales price for this line of
business is reflected in other accounts receivable on the March 31,
2000 Consolidated Balance Sheet; payment thereof is expected in
fiscal year 2001.
Also in June 1998, CITATION announced it was in discussions
about a possible business combination with MEDASYS Digital Systems,
S.A., a French Company with U.S. offices in Miami and Chicago. On
December 9, 1998, CITATION and MEDASYS Digital Systems, S.A. agreed
to terminate a previously announced Agreement and Plan of
Reorganization to combine the two companies. The companies entered
into a joint marketing agreement with respect to clinical information
systems in the fourth quarter of fiscal 1999. During the fourth
quarter of fiscal 1999, CITATION recorded a non-operating charge of
$0.5 million relative to costs associated with the efforts to achieve
a business combination with MEDASYS.
In the fourth quarter of fiscal 1998 CITATION recorded non-
recurring pretax charges of approximately $1.0 million related to
customer matters regarding discontinued products ($0.8 million) and
for non-operating costs related to the strategic review of
alternatives following an unsolicited expression of interest in the
Company ($0.2 million). See Note 5 of the Notes to Consolidated
Financial Statements beginning on page F-12.
Fourth Quarter Fiscal 2000 Results
CITATION reported a net loss for the fourth quarter of fiscal
2000 of $0.1 million, or $0.03 per share. The results from the
fourth quarter were negatively impacted by reduced spending by
potential customers due to their recent large information systems
expenditures related to the Y2K upgrades. Revenues and gross profit
for the fourth quarter were $2.6 million and $1.5 million,
respectively.
Results of Operations
The following table sets forth, for the period indicated,
certain items from the Company's Consolidated Statement of Operations
expressed as a percentage of total revenues.
<TABLE>
Year Ended March 31,
-----------------------
2000 1999 1998
---- ---- ----
Revenues:
<S> <C> <C> <C>
System sales.................................................................. 55.9% 53.8% 49.4%
Service revenue............................................................... 44.1 46.2 50.6
----- ----- -----
Total revenues................................................................ 100.0 100.0 100.0
Cost of products and services sold............................................
Cost of system sales.......................................................... 37.9 37.9 37.6
Cost of service revenue....................................................... 10.7 12.0 12.3
----- ----- -----
Total cost of products and services sold...................................... 48.6 49.9 49.9
Gross profit.................................................................. 51.4 50.1 50.1
Research and development...................................................... 16.7 14.7 19.2
Selling and administrative.................................................... 32.2 32.3 40.2
Loss on sale of financial systems business and other non-recurring charges.... -- 4.1 5.0
----- ----- -----
Total operating expense....................................................... 48.9 51.1 64.4
----- ----- -----
Operating income (loss)....................................................... 2.5 (1.0) (14.3)
Other income (expense)........................................................
Interest income............................................................... 0.2 0.4 0.5
Interest expense.............................................................. (0.7) (0.8) (1.0)
Other, net.................................................................... 0.1 (2.8) (1.2)
----- ----- -----
Income (loss) before taxes.................................................... 2.1 (4.2) (16.0)
Provision (benefit) for income taxes.......................................... 0.8 (1.6) (6.1)
----- ----- -----
Net income (loss)............................................................. 1.3% (2.6)% (9.9)%
===== ===== =====
</TABLE>
<PAGE> -46-
Comparison of Fiscal Year Ended March 31, 2000 to Fiscal Year Ended
March 31, 1999.
Revenue
Total revenues decreased 7.5% to $15.0 million in fiscal 2000
from $16.1 million in fiscal 1999, which reflected a 3.2% decrease in
system sales and a 12.9% decrease in service revenue. Fiscal 1999
included $0.3 million of revenues from the financial software line of
business, which was sold in June 1998.
Clinical system sales remained at $8.4 million in both fiscal
2000 and 1999. This reflected the caution shown by potential
customers in the aftermath of the Y2K upgrades. Clinical system
sales represented 55.9% and 51.9% of total revenues in fiscal years
2000 and 1999, respectively.
Service revenue decreased to $6.6 million in fiscal 2000 from
$7.5 million in fiscal 1999. The 11.4% decrease primarily reflected
the lack of growth in new system sales and the reduction in renewals
of service contracts from existing customers. Service revenue
represented 44.1% and 46.2% of total revenues in fiscal years 2000
and 1999, respectively.
Cost of Products and Services Sold and Gross Profit
For fiscal 2000 and 1999, total cost of products and services
sold were $7.3 million and $8.0 million, respectively, representing a
9.3% decrease in fiscal 2000. The total cost of products and
services sold as a percentage of total revenues was 48.6% in fiscal
2000 and 49.9% in fiscal 1999. The cost of system sales as a
percentage of system sales revenue decreased to 67.7% in fiscal 2000
from 70.5% in fiscal 1999 due to the decreased percentage of lower
margin hardware sales. The cost of service revenue as a percentage
of service revenue decreased to 24.4% in fiscal 2000 from 25.9% in
fiscal 1999 due primarily to a decrease in related costs. Software
amortization costs of $1.2 million in fiscal 2000 and $1.7 million in
fiscal 1999 represented 16.2% and 20.5%, respectively, of total costs
of products and services sold for fiscal years 2000 and 1999.
Due to the foregoing factors, gross profit, as a percentage of
total revenues, was 51.4% and 50.1% in fiscal years 2000 and 1999,
respectively.
Research and Development Expenses
<TABLE>
Fiscal Year Ended March 31,
(In thousands)
Software Development Expense 2000 1999
---------------------------- ---- ----
<S> <C> <C>
Research and development spending.................................... $ 3,350 $ 3,177
Less - software development capitalized.............................. 851 808
------- -------
Total research and development expense............................... 2,499 2,369
Amortization of software development costs........................... 1,184 1,650
------- -------
Total software development expenses.................................. $ 3,683 $ 4,019
======= =======
Capitalized Software Development Cost, Net 2000 1999
------------------------------------------ ---- ----
Beginning of period.................................................. $ 1,775 $ 2,880
Research and development capitalized per above....................... 851 808
Software acquired (C-RIS)*........................................... - 250
------- -------
2,626 3,938
Write-off - Financial products capitalized software development costs** - (539)
Amortization of software development costs........................... (1,184) (1,650)
Other adjustments.................................................... 13 26
------- -------
End of period........................................................ $ 1,455 $ 1,775
======= =======
</TABLE>
* Software acquired related to the purchase of the radiology
system. See Note 4 of the Consolidated Financial Statements for
further information.
** See Note 2 of the Consolidated Financial Statements for further
information.
<PAGE> -47-
Selling and Administrative Expenses
Selling and administrative expenses as a percentage of total
revenues decreased to 32.2% in fiscal 2000 from 32.3% in fiscal 1999.
Total selling and administrative expenses decreased $0.4 million to
$4.8 million. This decrease was primarily due to lower selling and
marketing costs and lower administrative costs to support operations.
Other Operating Expenses
See previous discussion of other non-recurring charges,
including sale of the financial software line of business, under
caption "- Other non-recurring charges, including sale of the
financial software line of business."
Operating Income (Loss)
CITATION recorded operating income of $0.4 million in fiscal
2000 compared to $0.5 million in fiscal 1999, excluding the $0.7
million loss on the sale of financial systems line of business. The
change primarily reflected the factors described above. Including
the above non-recurring charges, the operating loss was $0.2 million
in fiscal 1999.
-49-
<PAGE>
Income Taxes
The Company's effective income tax rate was 40.0% in fiscal 2000
and the effective income tax benefit rate was 38.0% in fiscal 1999.
Net Income (Loss) and Income (Loss) Per Share
Net income increased to $0.2 million in fiscal 2000 from a loss
of $0.4 million in fiscal 1999 as a result of the factors noted
above. Basic and diluted income per share increased to $0.05 in
fiscal 2000 from a loss per share of $0.11 in fiscal 1999.
Comparison of Fiscal Year Ended March 31, 1999 to Fiscal Year Ended
March 31, 1998.
Revenue
Total revenues decreased 3.1% to $16.1 million in fiscal 1999
from $16.6 million in fiscal 1998 which reflects a 5.5% increase in
system sales and an 11.5% decrease in service revenue. Results for
fiscal 1999 and 1998 included $0.3 million and $1.8 million,
respectively, of revenues from the financial software line of
business, which was sold in June 1998.
Clinical system sales increased to $8.4 million in fiscal 1999
from $6.4 million in fiscal 1998. The 31.3% increase in clinical
system sales was primarily attributable to the increase in systems
orders of the Company's new NT products and the increase in hardware
sales in anticipation of Y2K upgrades. Clinical system sales
represented 51.9% and 38.5% of total revenues in fiscal years 1999
and 1998, respectively.
Service revenue decreased to $7.5 million in fiscal 1999 from
$8.4 million in fiscal 1998. The 11.5% decrease was primarily due to
the sale of the financial software line of business in June 1998.
Service revenue represented 46.2% and 50.6% of total revenues in
fiscal years 1999 and 1998, respectively.
Cost of Products and Services Sold and Gross Profit
For fiscal 1999 and 1998, total cost of products and services
sold were $8.0 million and $8.3 million, respectively, representing a
3.1% decrease in fiscal 1999. The total cost of products and
services sold as a percentage of total revenues was 49.9% in both
fiscal 1999 and 1998. The cost of system sales as a percentage of
system sales revenue decreased to 70.5% in fiscal 1999 from 76.1% in
fiscal 1998 due to the increase in higher margin software and
services revenue in fiscal 1999. The cost of service revenue as a
percentage of service revenue increased to 25.9% in fiscal 1999 from
24.3% in fiscal 1998. Software amortization costs of $1.7 million in
fiscal 1999 and $2.1 million in fiscal 1998 represented 20.5% and
25.1%, respectively, of total costs of products and services sold for
fiscal years 1999 and 1998.
Gross profit as a percentage of total revenues was 50.1% in
fiscal years 1999 and 1998.
<PAGE> -48-
Research and Development Expenses
<TABLE>
Fiscal Year Ended March 31,
(In thousands)
Software Development Expense 1999 1998
---------------------------- ------- -------
<S> <C> <C>
Research and development spending.................................... $ 3,177 $ 4,288
Less - software development capitalized.............................. 808 1,089
------- -------
Total research and development expense............................... 2,369 3,199
Amortization of software development costs........................... 1,650 2,085
------- -------
Total software development expenses.................................. $ 4,019 $ 5,284
======= =======
Capitalized Software Development Cost, Net 1999 1998
------------------------------------------ ------- -------
Beginning of period.................................................. $ 2,880 $ 3,876
Research and development capitalized per above....................... 808 1,089
Software acquired (C-RIS)*........................................... 250 -
------- -------
3,938 4,965
Write-off - Financial products capitalized software development costs** (539) -
Amortization of software development costs........................... (1,650) (2,085)
Other adjustments.................................................... 26 -
------- -------
End of period........................................................ $ 1,775 $ 2,880
======= =======
</TABLE>
* Software acquired related to the purchase of the radiology
system. See Note 4 of the Consolidated Financial Statements for
further information.
** See Note 2 of the Consolidated Financial Statements for further
information.
The decrease in research and development spending in fiscal 1999
compared to fiscal 1998 was the result of the completion of the
development of several Windows NT-based products during fiscal 1998.
Selling and Administrative Expenses
Selling and administrative expenses as a percentage of total
revenues decreased to 32.3% in fiscal 1999 from 40.2% in fiscal 1998.
Total selling and administrative expenses decreased $1.5 million to
$5.2 million. This decrease was primarily due to lower personnel
costs and lower administrative costs to support operations.
Other Operating Expenses
See previous discussion of other non-recurring charges,
including sale of the financial software line of business, under
caption "- Other non-recurring charges, including sale of financial
software line of business."
Operating Loss
CITATION recorded operating income of $0.5 million in fiscal
1999, excluding the $0.7 million loss on the sale of financial
systems line of business. The operating loss for fiscal 1998 was
$1.6 million, excluding the $0.8 non-recurring costs. The change
primarily reflects the factors described above. Including the above
non-recurring charges, the operating loss was $0.2 million in fiscal
1999 compared to an operating loss of $2.4 million in fiscal 1998.
Income Taxes
CITATION's effective income tax benefit rate was 38.0% in both
fiscal 1999 and fiscal 1998.
Net Loss and Loss Per Share
Net loss decreased $1.3 million to $0.4 million in fiscal 1999
from $1.7 million in fiscal 1998 as a result of the factors noted
above. Basic and diluted loss per share decreased to $0.11 in fiscal
1999 from $0.43 in fiscal 1998.
<PAGE> -49-
Liquidity and Capital Resources
CITATION's primary sources of liquidity are cash flows from
operations and borrowing under its line of credit with a bank. At
March 31, 2000, CITATION had cash and cash equivalents of $0.3
million compared to $0.2 million at March 31, 1999.
Cash generated by operations was $2.1 million, $1.1 million and
$2.6 million in fiscal years 2000, 1999, and 1998, respectively. Net
income (loss) plus depreciation, amortization and other non-cash
charges was $2.2 million, $2.3 million and $1.3 million in fiscal
years 2000, 1999 and 1998, respectively. Changes in operating assets
and liabilities (used) generated cash of ($0.1) million, ($1.2)
million and $1.3 million in fiscal years 2000, 1999 and 1998,
respectively. For the year ended March 31, 2000, CITATION used $1.1
million in investing activities (including $0.9 million for
capitalized software development and $0.2 million for capital
expenditures). Cash used by financing activities was $0.9 million,
which included $0.2 million of principal payments and $0.7 million
repayments on the line of credit.
Cash decreased $0.2 million in fiscal 1999. The decrease was
primarily due to $1.5 million used in investing activities (for
capitalized software, capital expenditures and purchase of the C-RIS
system) offset by cash provided by financing activities
(approximately $0.1 million of net proceeds from bank borrowings) and
operating activities.
Cash decreased $0.1 million in fiscal 1998. The decrease was
primarily due to $1.5 million used in investing activities (for
capital expenditures and software development costs) and $1.1 million
of principal payments on long-term debt offset substantially by cash
provided by operations.
At March 31, 2000, CITATION had a line of credit agreement with
a bank. The line of credit allows CITATION to borrow up to $4.0
million through June 1, 2001 with interest at the bank's prime rate
(9.0% at March 31, 2000). The line of credit and term notes
(approximately $0.8 million outstanding at March 31, 2000) are
secured by CITATION's accounts receivable, inventory and general
intangible assets. The respective agreements require that certain
minimum net worth and leverage ratio requirements be maintained by
CITATION. CITATION was in compliance with these requirements or has
obtained waivers as of March 31, 2000. There were borrowings of $0.5
million outstanding under the line of credit agreement as of March
31, 2000 ($3.5 million of additional borrowings were available),
which have been classified as long-term in the March 31, 2000
Consolidated Balance Sheet.
CITATION has provided extended payment terms for software sold
to its distributor in Singapore. Collection of the receivable is
ultimately dependent on the distributor's cash flows. CITATION
believes that this receivable, which is classified as long-term, is
fully collectible.
CITATION's current commitments consist primarily of operating
lease obligations aggregating $2.2 million over the next five years.
The operating leases consist primarily of CITATION's office lease in
St. Louis, Missouri, which expires in May 2004.
CITATION believes that its cash and cash equivalents, together
with its current borrowing facilities and cash generated from
operations, will be sufficient to fund its anticipated cash
requirements for at least the next 12 months. CITATION's ability to
meet its cash requirements on a long-term basis will depend on
profitable operations and consistent and timely collections of its
accounts receivable.
Inflation and Changing Prices
CITATION believes inflation has not had a material effect on
CITATION's operations or its financial condition.
New Accounting Standards
During fiscal 1998, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position 97-2, "Software
Revenue Recognition" ("SOP 97-2"). SOP 97-2 is effective for
transactions entered into in fiscal years beginning after December
15, 1997. SOP 97-2 provides guidance on applying generally accepted
accounting principles in recognizing revenue on software transactions
and supersedes SOP 91-1, "Software Revenue Recognition." SOP 97-2
did not materially impact the financial position or results of
operations of CITATION.
<PAGE> -50-
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133"). FAS 133 established accounting and
reporting standards for derivative instruments and for hedging
activities and requires recognition of all derivatives on the balance
sheet measured at fair value. FAS 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. CITATION
is continuing to evaluate the provisions of FAS 133 to determine its
impact on CITATION's financial position and results of operations,
although CITATION does not generally enter into transactions
involving derivative instruments.
In December 1999, the Securities Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101 ("SAB 101"). SAB 101 is
effective for transactions entered into in fiscal years beginning
after March 15, 2000. SAB 101 provides a summary of the general
application of generally accepted accounting principles to revenue
recognition in the financial statements along with interpretations of
applying generally accepted accounting principles to selected revenue
recognition issues. CITATION is currently evaluating the provisions
of SAB 101 to determine any impact on financial position and results
of operations.
Year 2000 Issue
To date, CITATION is not aware of any significant problems
regarding Year 2000 issues. However, there is no assurance that, in
the future, problems will not develop in CITATION's systems or
products.
Prior to December 31, 1999, CITATION identified, corrected,
reprogrammed, and tested both its systems used internally as well as
the products it sells for Year 2000 compliance. As part of
CITATION's Year 2000 compliance program CITATION has: (i) identified
all critical software sold and used by CITATION that requires
modification for the Year 2000; (ii) received written or oral
confirmation from its telecommunications vendors that the equipment
supplied by such vendors is or will be Year 2000 compliant; (iii)
instituted a formal communication process to keep senior management
apprised of significant Year 2000 issues; and (iv) completed
necessary Year 2000 modifications.
CITATION does not expect that any future Year 2000 related costs
will have a material adverse effect on CITATION's financial position,
results of operations or cash flow and that additional costs to be
incurred by CITATION with respect to Year 2000 issues will be funded
from operating cash flows and/or CITATION's line of credit. However,
if all Year 2000 issues were not properly identified, or assessment,
remediation and testing were not effected timely with respect to Year
2000 problems that are identified, there can be no assurance that the
Year 2000 issue will not materially adversely impact CITATION's
results of operations or adversely affect CITATION's relationships
with customers, vendors or others. Additionally, there can be no
assurance that the Year 2000 issues of other entities will not have a
material adverse impact on CITATION's systems, financial position,
cash flows or results of operations.
Market Risk
In the ordinary course of business, CITATION is exposed to
interest rate risks for borrowings under its bank line of credit.
CITATION currently has elected not to hedge its risks relating to
this floating rate debt. CITATION does not enter into derivative
financial instruments for trading purposes.
COMPARATIVE RIGHTS OF SHAREHOLDERS
The rights of CITATION shareholders are currently governed by
The General and Business Corporation Law of Missouri and CITATION's
articles of incorporation and bylaws. As a result of the merger, the
shareholders of CITATION will become shareholders of Cerner, whose
rights are governed by the Delaware General Corporation Law and
Cerner's certificate of incorporation and bylaws. The following
discussion is intended only to highlight certain differences between
the rights of corporate shareholders under Missouri law and Delaware
law generally and specifically with respect to the shareholders of
CITATION and Cerner. The discussion is not intended as a complete
statement of all such differences, and CITATION shareholders are
referred to those laws and governing documents for a definitive
treatment of the subject matter.
Certain Differences Between Missouri and Delaware Corporation
Statutes
Shareholder Approval of Certain Corporate Transactions. The
Delaware law requires that a merger, consolidation, disposition of
all or substantially all the assets or voluntary dissolution of a
corporation be approved by the affirmative vote of holders of a
majority of the outstanding shares entitled to vote thereon (except
as indicated below). The
<PAGE> -51-
Missouri law requires that such transactions be approved by the
affirmative vote of holders of at least two-thirds of the outstanding
shares entitled to vote thereon. Both the Delaware law and the
Missouri law require that mergers be approved by the board of
directors, but only the Delaware law requires board of director
approval of dispositions of all or substantially all of the
corporation's assets. Under the Delaware law, shareholder approval
is not required for mergers in which:
the certificate of incorporation of the surviving
corporation is not amended,
shares of the surviving corporation outstanding before the
merger are unchanged, and
new shares to be issued in the merger do not exceed twenty
percent of the shares outstanding before the merger.
Amendment of Charter. Under the Missouri law, proposed
amendments to the articles of incorporation may be submitted directly
to the shareholders for approval without the prior approval of the
board of directors. Amendments to the articles of incorporation must
be approved by the affirmative vote of holders of a majority of the
outstanding shares entitled to vote thereon.
The Delaware law requires that an amendment to a Delaware
corporation's certificate of incorporation first be adopted by the
board of directors before the amendment is submitted to the
shareholders for approval by the affirmative vote of holders of a
majority of the outstanding shares entitled to vote thereon.
Dissenters' Appraisal Rights. The Missouri law grants appraisal
rights to dissenting shareholders in connection with mergers,
consolidations and dispositions of all or substantially all of the
assets of the corporation. The Delaware law grants appraisal rights
only in connection with mergers and consolidations, and grants no
appraisal rights with respect to mergers in which:
dissenting shares are
(a) listed on a national securities exchange or designated
as a national market system security on an interdealer
quotation system by the National Association of
Securities Dealers, Inc., or
(b) held of record by more than 2,000 shareholders, or
the corporation is the surviving corporation in the merger
and no vote of its shareholders is required under the
Delaware law, with certain exceptions.
Anti-takeover Statutes. The Missouri law contains a control
share acquisition statute and a business combination "moratorium"
statute. Both statutes apply only to Missouri corporations that meet
certain tests with respect to their presence in Missouri. The
Delaware law contains a business combination "moratorium" statute
that generally prohibits a Delaware corporation from engaging in
mergers or other business combinations with any person who is an
"interested shareholder" for a period of three years after the person
becomes an "interested shareholder," unless certain conditions are
satisfied.
Other Constituency Statute. The Missouri law expressly
authorizes directors to consider "non-monetary factors" when
analyzing takeover bids. The board of directors is authorized to
consider a number of factors in exercising its business judgment
concerning an acquisition proposal, including without limitation the
following:
the adequacy of the consideration offered in relation to
the board's estimate of the current value of the
corporation in a freely-negotiated sale, the liquidation
value of the corporation, and the future value of the
corporation over a period of years as an independent
entity, discounted to current value;
existing political, economic and other factors bearing on
security prices;
whether the acquisition proposal might violate federal,
state or local laws;
social, legal and economic effects on employees, suppliers,
customers and others having similar relationships with the
corporation, and on the communities in which the
corporation conducts its business;
<PAGE> 52
the financial condition and earnings prospects of the
bidder; and
the competence, experience and integrity of the bidder.
The Delaware law does not contain a similar provision.
Shareholder Action by Written Consent. The Delaware law permits
shareholders to act without a meeting, without prior notice and
without a vote, if consents in writing setting forth the action so
taken are signed by the holders of outstanding stock having the
minimum number of votes that would be necessary to authorize such
action at a meeting at which all shares entitled to vote with respect
to the subject matter thereof were present and voted. The Missouri
law permits such action without a meeting only if written consents
setting forth the action so taken are signed by all of the
shareholders entitled to vote on the matter. Neither Cerner nor
CITATION shareholders may act by written consent.
Amendment of Bylaws. Under the Missouri law, the power to make,
alter, amend or repeal the bylaws of the corporation is vested in the
shareholders, unless and to the extent that such power is vested in
the board of directors by the articles of incorporation. Under the
Delaware law, the shareholders have the power to adopt, amend or
repeal bylaws, provided that the corporation may in its certificate
of incorporation confer such authority on the directors as well.
Under the Delaware law, the fact that such power has been conferred
on the directors does not limit the power of the shareholders to
adopt, amend or repeal bylaws.
Inspection of Books and Records. The Missouri law grants
shareholders the right to inspect the shareholders' list and books of
the corporation under such regulations as may be prescribed by the
corporation's bylaws. The Delaware law allows any stockowner to
inspect the stockowners' list and books of the corporation for a
purpose reasonably related to such person's interest as a
shareholder.
Payment of Dividends. Under the Missouri law, the board of
directors of a corporation may declare and the corporation may pay
dividends so long as the net assets of the corporation are not less
than its stated capital and the payment of the dividend would not
reduce the net assets of the corporation below its stated capital.
Under the Delaware law, a corporation generally may pay dividends out
of the corporation's surplus or, if the corporation has no available
surplus, out of net profits for the fiscal year in which the dividend
is declared or the preceding fiscal year.
Certain Differences Between CITATION's and Cerner's Charter and
Bylaws
Removal of Directors. Under the Cerner certificate of
incorporation and bylaws, any director or the entire board of
directors of Cerner may be removed from office only for cause and
only by the affirmative vote of the holders of at least eighty
percent of the then outstanding shares entitled to vote.
Under the CITATION articles of incorporation and bylaws, any
director may be removed by the shareholders only for cause and then
only by the affirmative vote of holders of at least two-thirds of the
issued and outstanding shares of CITATION stock entitled to vote for
directors cast at a meeting of shareholders called for that purpose.
Amendments to Charter. Cerner's certificate of incorporation
requires the affirmative vote of the holders of at least eighty
percent of the then outstanding shares entitled to vote, voting
together as a single class, to amend or repeal the provisions of
Cerner's certificate of incorporation regarding: (1) the number of
shares that Cerner is authorized to issue (unless such amendment is
approved by a majority of the disinterested directors, as defined in
the certificate of incorporation); (2) the number of directors and
the classification of the Cerner board, and the filling of vacancies
on the Cerner board, the removal of directors and the process for
nominating a candidate for the Cerner board; (3) the amendment of
Cerner's bylaws; (4) the required vote to approve any business
combination; (5) the amendment of Cerner's certificate of
incorporation; and (6) the prohibition of shareholder action by
written consent or the calling of special meetings of shareholders.
<PAGE> -53-
CITATION's articles of incorporation require the affirmative
vote of the holders of at least two-thirds of the then outstanding
shares entitled to vote to amend or repeal the provisions of
CITATION's articles of incorporation regarding (1) the prohibition of
cumulative voting; (2) the number of directors, the classification of
the CITATION board, the filling of vacancies on the CITATION board,
the removal of directors and the process for nominating a candidate
for the CITATION board; (3) the amendment of CITATION's articles of
incorporation; (4) the amendment of CITATION's bylaws; (5) the
advance notice requirements for nominations of candidates to the
CITATION board of directors; (6) the prohibition of shareholder
action by written consent; (7) the election by CITATION to be subject
to the business combination statute under Missouri law; and (8) the
election of CITATION to opt out of the control share acquisition
statute under Missouri law.
Amendments to Bylaws. The Cerner certificate of incorporation
provides that the Cerner board of directors is empowered to make,
adopt, alter, amend or repeal the bylaws and the shareholders may
make, adopt, alter, amend or repeal the bylaws upon the affirmative
vote of the holders of at least eighty percent of the shares entitled
to vote, voting together as a single class.
The CITATION articles of incorporation provide that the CITATION
board has the power to make, and from time to time repeal, amend and
alter the bylaws, provided, that the shareholders may repeal, amend,
and alter the bylaws upon the affirmative vote of holders of at least
two-thirds of the shares entitled to vote for the election of
directors at any annual or special meeting of shareholders.
Special Meetings of Shareholders. Special meetings of Cerner's
shareholders may be called only by the chairman of the Cerner board
of directors, the president of Cerner or the board of directors
pursuant to a resolution approved by a majority of the entire board
of directors.
Pursuant to CITATION's bylaws, a special meeting of the
shareholders may be called by the chairman of the board, the
president or by the board of directors.
Notice of Shareholder Proposals and Director Nominations.
Cerner's bylaws permit shareholders entitled to vote to nominate
candidates for election to Cerner's board of directors and introduce
other business that is a proper matter for shareholder action in
connection with any annual or special meeting of shareholders with
respect to the nomination of a director and in connection with any
annual meeting of shareholders with respect to any other proposed
matter. In either case, the shareholder must provide timely notice
to the secretary of Cerner and the notice must contain specific
information as further delineated in Cerner's bylaws. To be timely,
notice must be delivered to and received by Cerner not less than 120
days prior to the date of the meeting at which directors are to be
elected or the proposed business is to be conducted or, with respect
to an election to be held at a special meeting of shareholders, such
notice must be delivered not later than the close of business on the
seventh day following the day on which notice of such meeting is
first given to shareholders.
Under the CITATION bylaws, a shareholder may nominate a director
for election to CITATION's board of directors if the shareholder
delivers timely notice in writing to the secretary of CITATION. To
be timely, notice must be delivered not less than 120 days nor more
than 180 days prior to the anniversary of the previous year's annual
meeting of shareholders. In addition, the notice must contain
specific information as further delineated in CITATION's bylaws.
CITATION's bylaws also permit shareholders to present proposals at
the annual meeting of shareholders if such proposal is submitted to
the company in the form and in accordance with the time requirements
of Rule 14a-8 promulgated under the Securities Exchange Act of 1934,
as amended. Generally, Rule 14a-8 requires a shareholder to submit a
proposal to the company not less than 120 calendar days before the
date of the company's proxy statement released to shareholders in
connection with the previous year's annual meeting.
Personal Liability of Directors. The Cerner certificate of
incorporation limits the personal liability of directors of Cerner
for monetary damages resulting from a breach of fiduciary duty as a
director to the fullest extent permitted under Delaware law. The
CITATION articles of incorporation requires CITATION to indemnify
each of the directors to the full extent permitted by laws of
Missouri but does not contain any express limitation on personal
liability.
Business Combination Restrictions. Cerner has opted out of the
interested stockholder provisions of Delaware law which prohibit a
corporation from engaging in any business combination with an
interested stockholder (defined as a fifteen percent stockholder) for
a period of three years after the date that stockholder became an
interested stockholder unless certain conditions are met. Under the
Cerner certificate of incorporation, any business combination with an
interested stockholder (as defined in the Cerner certificate of
incorporation) or an affiliate thereof, must be approved by
<PAGE> -54-
an affirmative vote of the holders of at least eighty percent of the
total outstanding shares of voting stock, treated as one class,
except that such business combination shall require only the
affirmative vote as is required by law if the business combination
has been approved by a majority of the disinterested directors of
Cerner. Missouri law contains a similar provision to that of
Delaware to which CITATION has expressly chosen to be subject.
Shareholder Rights Plan. CITATION does not have a shareholder
rights plan. Cerner does maintain a shareholder rights plan which is
designed to (a) protect shareholders from attempts to acquire control
of Cerner without the approval of Cerner's board and (b) prevent
abusive tactics from potential acquirors that do not treat all
shareholders fairly. The rights issued under the plan are not
currently exercisable or transferable, and no separate certificates
evidencing such rights will be distributed, unless certain events
occur. The Cerner rights agreement was not intended to prevent a
takeover of Cerner. However, it may cause substantial dilution to
certain persons or groups that beneficially acquire ten percent or
more of Cerner common stock unless the rights issuable under the plan
are first redeemed by the Cerner board of directors. Accordingly, the
rights agreement may result in Cerner being less attractive to a
potential acquiror and, in the event that the existence of the rights
issuable under the plan did deter certain potential acquirors, the
plan could result in holders of Cerner common stock receiving less in
the event of a takeover.
EXPERTS
The financial statements and the related financial statement
schedule included in the Cerner Annual Report on Form 10-K for the
fiscal year ended January 1, 2000, that are incorporated herein by
reference, have been audited by KPMG LLP, independent public
accountants, as stated in their reports included in the Form 10-K,
and have been incorporated by reference herein in reliance upon such
reports given upon the authority of that firm as experts in
accounting and auditing.
The audited financial statements of CITATION as of March 31,
2000 and 1999 and for each of the three years in the period ended
March 31, 2000, included in this proxy statement/prospectus and
registration statement of which this proxy statement/prospectus is a
part have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given upon the
authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the Cerner common stock to be issued in
connection with the merger will be passed upon for Cerner by Stinson,
Mag & Fizzell, P.C. In addition, certain federal income tax matters
relating to the merger will be passed upon for Cerner by Stinson, Mag
& Fizzell, P.C., and for CITATION by Thompson Coburn LLP.
FUTURE SHAREHOLDER PROPOSALS
CITATION will hold its 2000 annual meeting of shareholders only
if the merger is not consummated. In the event that the annual
meeting is held, CITATION shareholders may submit proposals to be
considered for shareholder action at CITATION's 2000 annual meeting
of shareholders if they do so in accordance with applicable
regulations of the SEC and applicable provisions of CITATION's by-
laws. Any proposals should have been received by the Secretary of
CITATION by March 1, 2000 in order to be considered for inclusion in
CITATION's 2000 annual meeting proxy materials. Any proposals
intended to be presented at the 2000 annual meeting of shareholders
but not submitted to CITATION for inclusion in CITATION's 2000 annual
meeting proxy materials should have been received by the Secretary of
CITATION by May 16, 2000.
<PAGE> -55-
WHERE YOU CAN FIND MORE INFORMATION
Cerner has filed with the SEC a registration statement on Form S-
4 with respect to the Cerner common stock to be issued to holders of
CITATION common stock in connection with the merger. This document
is part of the registration statement and constitutes a prospectus of
Cerner in addition to being a proxy statement of CITATION for its
special meeting of shareholders. This document does not contain all
of the information contained in the registration statement or the
exhibits to the registration statement as allowed by the rules and
regulations of the SEC. Copies of the registration statement
including exhibits, may be inspected, without charge, at the offices
of the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies may be obtained from the SEC at
prescribed rates.
In addition, Cerner and CITATION file annual, quarterly and
special reports, proxy statements and other information with the SEC
in accordance with the informational requirements of the Securities
and Exchange Act of 1934. You may read and copy any reports,
statements or other information Cerner or CITATION file at the
following locations of the SEC:
Public Reference Room Regional Office Regional Office
450 Fifth Street N.W. 500 West Madison 7 World Trade Center
Room 1024 Street Suite 1300
Washington, D.C. Suite 1400 New York, New York
20549 Chicago, Illinois 10048
60661
Copies of these materials may also be obtained from the SEC at
prescribed rates by writing to the Public Reference Section of the
SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the public reference rooms. The SEC also maintains an
Internet world wide web site that contains reports, proxy statements
and other information regarding issuers like Cerner and CITATION who
file electronically with the SEC at http\\www.sec.gov.
You can also inspect reports, proxy statements and other
information of Cerner and CITATION at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
The SEC permits Cerner and CITATION to incorporate by reference
information that is not contained in this document. This means that
Cerner and CITATION can disclose important information to you by
referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this
document, except for any information superseded by information in
this document. This document incorporates by reference the documents
listed below that Cerner and CITATION have previously filed with the
SEC. They contain important information about our companies and
their financial condition.
<TABLE>
Cerner SEC Filings Period
------------------ ------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1999, as
filed on March 29, 2000
Quarterly Report on Form 10-Q Quarter ended March 31, 2000, as
filed on May 15, 2000 and amended
on May 16, 2000
</TABLE>
<TABLE>
CITATION SEC Filings Period
-------------------- ------
<S> <C>
Annual Report on Form 10-KSB Year ended March 31, 2000, as filed
on June 2, 2000
</TABLE>
All documents and reports filed by Cerner with the SEC between
the date of this proxy statement/prospectus and the date of the
special meeting of CITATION shareholders are incorporated by
reference into this document. These documents include periodic
reports, such as annual reports on Form 10-K, quarterly reports on
Form 10-Q and current reports on Form 8-K, as well as proxy
statements.
Cerner has supplied all information contained or incorporated in
this document relating to Cerner. CITATION has supplied all such
information relating to CITATION.
You can obtain any of the documents incorporated by reference in
this document through Cerner or from the SEC through the SEC's
Internet world wide web site at the address described above.
Documents incorporated by reference are available from the companies
without charge, excluding any exhibits to those documents, unless the
exhibit is specifically incorporated by reference as an exhibit in
this proxy statement/prospectus. You can obtain documents
incorporated by
<PAGE> -56-
reference in this proxy statement/prospectus by requesting them
in writing or by telephone from the appropriate company at the
following addresses:
Cerner Corporation, Inc.
2800 Rockcreek Parkway
Kansas City, Missouri 64117
Telephone Number: (816) 221-1024
Attention: Randy D. Sims
CITATION Computer Systems, Inc.
424 South Woods Mill Road, Suite 200
Chesterfield, Missouri 63017
(314) 579-7900
Attention: Maureen Gallagher
If you would like to request documents from us, please do so by
August 7, 2000 in order to receive them before the CITATION
shareholder meeting. Documents will be sent first class mail within
one day upon receipt of a request.
We have not authorized anyone to give any information or make
any representation about the merger of our companies that is
different from, or in addition to, that information contained in this
proxy statement/prospectus or in any of the materials that Cerner
and/or CITATION have incorporated by reference into this proxy
statement/prospectus. Therefore, if anyone does give you information
of this sort, you should not rely on it. If you are in a
jurisdiction where offers to exchange or sell, or solicitations of
offers to exchange or purchase, the securities offered by this
document or the solicitation of proxies is unlawful, or if you are a
person to whom it is unlawful to direct these types of activities,
then the offer presented in this document does not extend to you.
This document is dated July 6, 2000. You should not
assume that the information contained in this document is accurate as
of any date other than such date, and neither the mailing of this
document to shareholders of CITATION nor the issuance of Cerner
common stock in the merger shall create any implication to the
contrary.
<PAGE> -57-
INDEX TO FINANCIAL STATEMENTS OF
CITATION COMPUTER SYSTEMS, INC.
<TABLE>
Page
<S> <C>
Report of Independent Accountants................... F-2
Consolidated Balance Sheet.......................... F-3
Consolidated Statement of Operations................ F-5
Consolidated Statement of Shareholders' Equity...... F-6
Consolidated Statement of Cash Flows................ F-7
Notes to Consolidated Financial Statements.......... F-9
</TABLE>
<PAGE> F-1
Report of Independent Accountants
To the Shareholders and Board of Directors of CITATION Computer
Systems, Inc.
In our opinion, the accompanying consolidated balance sheet and
the related consolidated statements of operations, of shareholders'
equity and of cash flows present fairly, in all material respects,
the consolidated financial position of CITATION Computer Systems,
Inc. and its subsidiaries at March 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years
in the period ended March 31, 2000, in conformity with accounting
principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements
based on our audits. CITATION conducted our audits of these
statements in accordance with auditing standards generally accepted
in the United States, which require that CITATION 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, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
St. Louis, Missouri
May 10, 2000
<PAGE> F-2
CITATION Computer Systems, Inc.
Consolidated Balance Sheet
(Thousands, except share amounts)
<TABLE>
March 31,
2000 1999
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................. $ 295 $ 204
Accounts receivable:
Trade, net of allowance for doubtful accounts of $186 and
$212, respectively..................................... 5,900 6,857
Other (Note 2)........................................... 456 445
Inventories (Note 8)....................................... 327 348
Prepaid expenses and other current assets.................. 423 369
Deferred tax assets (Note 10).............................. 80 142
-------- --------
Total current assets..................................... 7,481 8,365
-------- --------
Software development costs, net of accumulated amortization of
$13,551 and $12,367 respectively (Note 1)................. 1,455 1,775
-------- --------
Property and equipment:
Furniture and fixtures..................................... 843 843
Hardware and shop equipment................................ 3,322 3,091
Leasehold improvements..................................... 120 120
Vehicles................................................... 37 37
-------- --------
4,322 4,091
Less - accumulated depreciation and amortization........... (3,801) (3,392)
-------- --------
Net property and equipment............................... 521 699
-------- --------
Long-term deferred tax assets (Note 10)....................... 910 1,104
Other assets (Note 6)......................................... 1,704 1,935
-------- --------
2,614 3,039
-------- --------
Total assets.................................................. $ 12,071 $ 13,878
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> F-3
CITATION Computer Systems, Inc.
Consolidated Balance Sheet - continued
(Thousands, except share amounts)
<TABLE>
March 31,
2000 1999
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Current portion of long-term debt (Note 9)........................... $ 197 $ 239
Accounts payable..................................................... 271 1,223
Customer deposits.................................................... 149 236
Accrued commissions.................................................. 66 139
Other accrued liabilities............................................ 181 211
Deferred service revenue............................................. 2,502 2,521
-------- --------
Total current liabilities.......................................... 3,366 4,569
Long-term debt (Note 9)................................................... 622 1,491
-------- --------
3,988 6,060
-------- --------
Commitments and contingencies (Notes 7, 13 and 14).......................
Shareholders' Equity (Notes 1 and 11):...................................
Preferred stock; par value $.01 per share; 5,000,000 shares
authorized; no shares issued and outstanding.........................
Common stock; par value $.10 per share; 10,000,000 shares
authorized; 3,876,655 and 3,838,344 shares issued and outstanding,
respectively......................................................... 388 384
Paid-in capital........................................................ 6,668 6,596
Retained earnings...................................................... 1,027 838
-------- --------
8,083 7,818
-------- --------
Total liabilities and shareholders' equity............................... $ 12,071 $ 13,878
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> F-4
CITATION Computer Systems, Inc.
Consolidated Statement of Operations
(Thousands, except per share amounts)
<TABLE>
Year Ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Net system sales and service revenue:
System sales $ 8,387 $ 8,669 $ 8,214
Service revenue 6,609 7,459 8,426
------- ------- --------
14,996 16,128 16,640
------- ------- --------
Cost of products and services sold
System sales 5,679 6,110 6,252
Service revenue 1,615 1,934 2,048
------- ------- --------
7,294 8,044 8,300
------- ------- --------
Gross profit 7,702 8,084 8,340
Research and development expense 2,500 2,369 3,199
Selling and administrative expenses 4,829 5,207 6,686
Loss on sale of financial systems business and other
non-recurring charges(Notes 2 and 5) - 663 832
------- ------- --------
Operating income (loss) 373 (155) (2,377)
------- ------- --------
Other income (expense)
Interest income 29 65 78
Interest expense (102) (126) (168)
MEDASYS merger-related expenses (Note 3) - (495) -
Other non-operating expenses (Note 5) - - (158)
Other, net 15 42 (42)
------- ------- --------
(58) (514) (290)
------- ------- --------
Income (loss) before income taxes 315 (669) (2,667)
Provision (benefit) for income taxes (Note 10) 126 (254) (1,014)
------- ------- --------
Net income (loss) $ 189 $ (415) $ (1,653)
======= ======= ========
Earnings per common and common equivalent share (Note 10):
Basic and diluted
income (loss) per share $ 0.05 $ (0.11) $ (0.43)
======= ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> F-5
CITATION Computer Systems, Inc.
Consolidated Statement of Shareholders' Equity
(Thousands)
<TABLE>
Equity
Adjustment
Common Stock From Foreign
Par Paid-In Retained Currency
Value Capital Earnings Translation Total
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1997 $ 380 $ 6,449 $ 2,906 $ 74 $ 9,809
Sale of common stock
pursuant to exercise of
stock options and warrants - 2 - - 2
Issuance of common stock
to Directors (Note 1) - 12 - - 12
Issuance of common stock
for 401K company-matching
contributions 1 50 - - 51
Foreign currency translation
adjustment - - - (74) (74)
Net loss - - (1,653) - (1,653)
----- ------- -------- ------ -------
Balance, March 31, 1998 381 6,513 1,253 - 8,147
Issuance of common stock
to Directors (Note 1) 2 46 - - 48
Issuance of common stock
for 401K company-matching
contributions 1 37 - - 38
Net loss - - (415) - (415)
----- ------- -------- ------ -------
Balance, March 31, 1999 384 6,596 838 - 7,818
Issuance of common stock
to Directors (Note 1) 2 34 - - 36
Issuance of common stock for
401K company-matching
contributions 2 38 - - 40
Net income - - 189 - 189
----- ------- -------- ------ -------
Balance March 31, 2000 $ 388 $ 6,668 $ 1,027 $ - $ 8,083
===== ======= ======== ====== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> F-6
CITATION Computer Systems, Inc.
Consolidated Statement of Cash Flows
(Thousands)
<TABLE>
Year Ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 189 $ (415) $ (1,653)
Adjustments to reconcile net income(loss)to net cash
Provided by operating activities:
Depreciation and amortization of property and equipment 410 590 657
Amortization of software development costs 1,184 1,650 2,085
Amortization of other assets 103 180 181
Deferred income taxes 256 (254) (1,014)
Non-cash write off of financial products software and
other non-recurring charges - 539 943
Non-cash 401K matching contribution 40 38 51
Non-cash issuance of common stock to Directors 36 48 12
Changes in current assets and liabilities:
Decrease (increase)in accounts receivable, net 946 (838) 64
Decrease (increase) in inventories 21 88 (19)
Decrease (increase) in prepaid expenses and other assets (54) (370) 1,331
Decrease in accounts payable (952) (200) (238)
Increase (decrease) in customer deposits (87) (177) 78
Increase (decrease) in other accrued liabilities (103) 16 (6)
Increase (decrease) in deferred service revenues (19) 143 92
Other 128 88 -
------- ------- -------
Net cash provided by operating activities $ 2,098 $ 1,126 $ 2,564
------- ------- -------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> F-7
CITATION Computer Systems, Inc.
Consolidated Statement of Cash Flows - continued
(Thousands)
<TABLE>
Year ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Cash flows from investing activities:
Capital expenditures $ (232) $ (371) $ (345)
Software development costs (864) (834) (1,089)
Purchase of C-RIS system - (250) -
------- ------- --------
Net cash used in investing activities (1,096) (1,455) (1,434)
------- ------- --------
Cash flows from financing activities:
Principal payments on long-term debt (911) (421) (1,149)
Proceeds from long-term debt - 534 -
Proceeds from sale of common stock pursuant
to exercise of stock options and warrants - - 2
------- ------- --------
Net cash provided (used) by financing activities (911) 113 (1,147)
------- ------- --------
Effect of exchange rate changes on cash - - (74)
------- ------- --------
Net increase (decrease) in cash and cash equivalents 91 (216) (91)
Cash and cash equivalents, beginning of year 204 420 511
------- ------- --------
Cash and cash equivalents, end of year $ 295 $ 204 $ 420
======= ======= ========
</TABLE>
For the years ended March 31, 2000, 1999, and 1998 the Company paid
interest of $102, $126, and $168, respectively, and received refunds
of income taxes of $0, $59, and $646, respectively.
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> F-8
CITATION Computer Systems, Inc.
Notes to Consolidated Financial Statements
(Thousands unless otherwise indicated, except shares and per share
amounts)
1. Summary of Significant Accounting Policies
The policies utilized by CITATION Computer Systems, Inc. ("Company")
in the preparation of the consolidated financial statements conform
to United States generally accepted accounting principles, and
require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual amounts could differ
from these estimates.
The significant accounting policies followed by the Company are
described below:
Operations
CITATION designs, develops, markets and supports clinical information
systems for hospitals, clinics, physicians' groups and emerging
Integrated Delivery Networks ("IDN's"). The Company offers a
comprehensive suite of products designed using open client/server
architecture that meets a broad range of the information systems
needs of the healthcare industry.
Inventories
Inventories are valued at the lower of cost, determined on the first
in, first out basis, or market.
Property and Equipment
Property and equipment is recorded at cost. Major renewals and
betterments are capitalized while maintenance and repairs are
expensed currently. When property is sold or otherwise disposed of,
the related cost and accumulated depreciation are removed from the
respective accounts, and any gain or loss on disposition is credited
or charged to income.
The Company provides for depreciation of property and equipment by
charging against earnings amounts sufficient to amortize the cost of
the properties over the estimated useful lives generally using
straight line methods. The estimated useful life of the assets are
as follows:
Vehicles, furniture, fixtures and equipment .. 3 to 10 years
Leasehold improvements ... Remaining life of the lease
Revenue Recognition
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.
Revenue from the sale of computer systems is recognized upon shipment
to the customer. Revenue related to the installation of computer
systems is recognized as the work is performed. Costs and expenses
related to installation of the computer equipment and software
system, training customer personnel, and provision for warranties
offered are recorded as cost of sales when the related revenue is
recognized.
Revenue from the sale of additional hardware and additional software
is recognized upon shipment. Costs and expenses associated with the
sale of additional hardware and software are recorded when the
related revenue is recognized. Revenue related to sales of product
warranties and maintenance service contracts is recognized ratably
over the term of the contract period. Sales returns are treated as
reductions to net system sales and service revenues.
Cost of Sales
For purposes of estimating the cost of sales related to service
revenue, the Company includes all of its customer service expenses
plus an allocation of certain other overhead expenses based upon
estimates made by management.
<PAGE> F-9
Software Development Costs
Certain costs incurred in developing software products are
capitalized and amortized on a product-by-product basis using the
greater of the ratio that current gross revenues for a product bear
to the current and anticipated future gross revenues for that product
or the straight-line method over the estimated three to five-year
economic life of the products. The costs consist of salaries,
computer expenses and other overhead costs directly related to the
development and/or major enhancement of software products. Such
costs are capitalized, to the extent they are recoverable through
future sales, from the time the product's technological feasibility
is established up to its general release to customers. Costs
incurred before or after this period are expensed as incurred.
Impairment of Assets
The Company reviews long-lived assets to assess recoverability from
future operations using expected undiscounted future cash flows
whenever events and circumstances indicate that the carrying values
may not be recoverable. Impairment losses are recognized in
operating results when expected undiscounted future cash flows are
less than the carrying value of the asset.
Research and Development Costs
Research and development costs are charged to expense as incurred.
Income Taxes
The Company utilizes the liability method of accounting for income
taxes. Under the liability method, deferred income taxes are
determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to reverse.
Such temporary differences result primarily from using different
methods to accrue certain expenses and to calculate capitalization of
software development costs for financial and tax reporting purposes.
Deferred tax (benefit) expense represents the change in the deferred
tax asset or liability for the reporting period.
Earnings (Loss) Per Common and Common Equivalent Share
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("FAS 128"), which requires public entities to present both
basic and diluted earnings per share amounts on the face of their
financial statements, replacing the former calculations of primary
and fully diluted earnings per share. Basic earnings per share is
based on the weighted average number of outstanding common shares
during the period but does not consider dilution for potentially
dilutive securities. Diluted earnings per share reflect potential
dilutive common shares subject to stock options. The dilutive
potential common share arising from the effect of outstanding stock
options are computed using the treasury stock method, if dilutive.
The Company adopted FAS 128 effective with the beginning of its
fiscal 1998 third quarter, and retroactively restated all prior
years' earnings per share information.
Reconciliation of the number of shares used in computing basic and
dilutive earnings (loss) per common and common equivalent share is as
follows:
<TABLE>
Year ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Basic 3,858,303 3,823,361 3,806,536
Effect of dilutive
securities-stock options 30,997 - -
--------- --------- ---------
Diluted 3,889,300 3,823,361 3,806,536
========= ========= =========
</TABLE>
Fair Value of Financial Instruments
For purposes of financial reporting, the Company has determined that
the fair value of financial instruments approximate book value at
March 31, 2000, based on terms currently available to the Company in
financial markets.
<PAGE> F-10
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments, such
as money-market accounts with an original maturity of 3 months or
less.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated.
Directors' Fees
During the year ended March 31, 1995, the Company adopted the
Directors Common Share Plan (Directors' Plan) whereby certain non-
employee members of the Board of Directors (Directors) may receive
all or a portion of the Directors' fees in the form of Company common
stock in lieu of cash. During the years ended March 31, 2000, 1999,
and 1998, 18,000, 15,672, and 1,600 shares of common stock valued at
approximately $36, $48, and $12, respectively, were issued to such
Directors under the Directors Plan.
Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("FAS 130"), establishes standards for the
reporting and presentation of comprehensive income and its components
in a complete set of general-purpose financial statements.
Comprehensive income represents net income (loss) plus certain items
that are charged directly to shareholders' equity. The Company
adopted FAS 130 for the year ended March 31, 1999. Given the sale of
the Company's foreign operations in fiscal 1997, the Company has no
other comprehensive income items and the adoption of FAS 130 had no
effect on the accompanying financial statement presentation.
New Accounting Standards
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133"). FAS 133 established accounting and
reporting standards for derivative instruments and for hedging
activities and requires recognition of all derivatives on the balance
sheet measured at fair value. FAS 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The
Company is continuing to evaluate the provisions of FAS 133 to
determine its impact on the Company's financial position and results
of operations, although the Company does not generally enter into
transactions involving derivative instruments.
In December 1999, the Securities Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"). SAB 101 is effective
for transactions entered into in fiscal years beginning after
March 15, 2000. SAB 101 provides a summary of the general
application of generally accepted accounting principles to revenue
recognition in the financial statements along with interpretations of
applying generally accepted accounting principles to selected revenue
recognition issues. The Company is currently evaluating the
provisions of SAB 101 to determine any impact on financial position
and results of operations.
2. Sale of Financial Software Line Of Business
In June 1998, the Company sold the financial software line of
business, including its accounts receivable, patient billing, general
ledger, accounts payable, fixed assets, inventory control, medical
records abstracting and registration software modules to Sterling
Systems based in Downey, Idaho. This line of business accounted for
approximately $1.8 million of revenue and contributed a pretax loss
of $0.2 million in fiscal 1998. Revenues from this line of business
in fiscal 1999 were $0.3 million through the date of its sale. The
transaction resulted in an aggregate pretax loss of $0.7 million and
an after tax loss of approximately $0.4 million, or $0.11 per share.
The loss included the write-off of approximately $0.5 million of
capitalized software development costs associated with this software
and an additional charge of $0.6 million based on management's
estimates of the collectibility of certain accounts receivable
related to its former financial software line of business, which were
retained by the Company. Approximately $0.4 million of the sales
price for this line of business is reflected in other accounts
receivable on the March 31, 2000 Consolidated Balance Sheet; payment
thereof is expected in fiscal year 2001.
<PAGE> F-11
3. Termination of Possible Business Combination
On September 15, 1998, the Company, MEDASYS Digital Systems, S.A.,
certain shareholders of the Company and certain shareholders of
MEDASYS entered into an Agreement and Plan of Reorganization (the
"Reorganization Agreement"). On December 9, 1998, the Reorganization
Agreement was terminated by the parties. However, the companies
continued to explore other strategic opportunities and entered a
joint marketing agreement related to clinical information systems in
the fourth quarter of fiscal 1999. During the fourth quarter of
fiscal 1999, a non-operating charge of $495 was recorded related to
costs (primarily legal, accounting and investment advisory in nature)
associated with the MEDASYS business combination discussions.
4. Acquired C-RIS Radiology Information System Software
During the fourth quarter of fiscal 1999, the Company agreed to
purchase its C-RIS radiology information system software from Irish
Medical Systems ("IMS") for $250. The Company previously held the
exclusive North American distribution rights for C-RIS, which was
developed by IMS under CITATION's specifications and first introduced
to the market in 1997. The Company financed this purchase with
proceeds from bank debt.
5. Other Non-recurring Charges
During the fourth quarter of fiscal 1998, the Company recorded non-
recurring, pretax charges of $832 for costs primarily related to
customer matters regarding discontinued products and $158 for
non-operating costs related to the strategic review of alternatives
following an unsolicited expression of interest in the Company. Cash
payments during fiscal 1998 with respect to such charges were
approximately $60. Remaining additional payments totaling
approximately $62 were paid in fiscal 1999.
6. Long-term Accounts Receivable
The Company has provided extended payment terms for software sold to
its distributor in Singapore. Collection of the receivable is
ultimately dependent on the distributor's cash flows. The Company
believes that this receivable, which approximated $1.4 million and
$1.6 million at March 31, 2000 and March 31, 1999 respectively, and
is classified as long-term, is fully collectible.
7. Concentration of Credit Risk
The Company generates revenue primarily through sales to the
healthcare industry located throughout the United States. Due to
this concentration, substantially all receivables at March 31, 2000
and 1999 are from healthcare institutions in the United States, and a
healthcare information systems integrator based in Singapore, which
may be similarly affected by changes in economic, regulatory or other
conditions.
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company maintains
reserves for potential credit losses and historically such losses
have been within management's expectations.
8. Inventories
Inventories consist of the following:
<TABLE>
March 31,
2000 1999
<S> <C> <C>
Hardware and third party software $ 129 $ 143
Field service equipment 198 205
----- -----
$ 327 $ 348
===== =====
</TABLE>
<PAGE> F-12
9. Long-term Debt
Long-term debt consists of the following:
<TABLE>
March 31,
2000 1999
<S> <C> <C>
Bank notes payable due in monthly payments of principal and interest
through March, 2002; interest payable at 8% to 8.5% $ 319 $ 563
Borrowings under bank line of credit, interest payable at prime
(9.0% at March 31, 2000) 500 1,167
------ ------
Total debt 819 1,730
Less - current portion 197 239
------ ------
Total long-term debt $ 622 $1,491
====== ======
</TABLE>
The line of credit with a bank allows the Company to borrow up to
$4,000 through June 1, 2001. At March 31, 2000, $3,500 was available
under the line of credit.
The line of credit and the notes payable to banks are secured by the
Company's accounts receivable, inventory, equipment, and general
intangible assets. The respective agreements require that certain
minimum net worth and leverage ratio requirements be maintained by
the Company. The Company was in compliance with these requirements
or has obtained waivers at March 31, 2000.
The aggregate maturities of long-term debt are as follows:
<TABLE>
Year Ended
March 31,
<S> <C>
2001 197
2002 622
----
$819
====
</TABLE>
10. Income Taxes
The components of the provision (benefit) for income taxes are as
follows:
<TABLE>
Year ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Current:
Federal $ - $ - $ -
State - - -
------ ------ -------
- - -
------ ------ -------
Deferred:
Federal 94 (217) (857)
State 32 (37) (157)
------ ------ -------
126 (254) (1,014)
------ ------ -------
$ 126 $(254) $(1,014)
====== ====== =======
</TABLE>
The provision (benefit) for income taxes differs from the amount
computed using the statutory federal income tax rate (34%) as
follows:
<TABLE>
Year ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Income tax provision (benefit)
at the statutory rate $ 107 $ (227) $ (907)
Increases:
State income taxes, net 21 (24) (103)
Other, net (2) (3) (4)
----- ------- --------
$ 126 $ (254) $(1,014)
===== ======= ========
</TABLE>
<PAGE> F-13
Deferred tax assets and liabilities at March 31, 2000 and 1999, are
comprised of the following temporary differences:
<TABLE>
March 31,
2000 1999
<S> <C> <C>
Current deferred tax assets (liabilities):
Accrued liabilities $ 46 $ 71
Allowance for doubtful accounts 74 85
Other, net (40) (14)
----- ----
Net current deferred tax asset $ 80 $142
===== ====
</TABLE>
<TABLE>
March 31,
2000 1999
<S> <C> <C>
Long-term deferred tax assets (liabilities):
Capitalized software development costs $ (259) $ (387)
Depreciation 41 85
State taxes (42) (53)
Tax credit carry forward 90 90
Net operating loss carry forward 1,080 1,369
------- -------
Net long-term deferred tax asset $ 910 $ 1,104
======= =======
</TABLE>
At March 31, 2000, the Company had Federal net operating loss
carryforwards of approximately $2,735, which expire between 2012 and
2013. Company management has determined that based on expected
future operating plans and tax planning strategies available to the
Company, the net operating loss carryforwards at March 31, 2000 will
be utilized to offset future taxes. Therefore, no valuation
allowance related to the net operating loss carryforwards has been
recorded at March 31, 2000.
11. Stock Options and Warrants
The Company has an Employee Incentive Stock Option Plan which
provides for the issuance of up to 348,347 stock options to executive
officers or other key employees of the Company.
The Company's incentive stock option plan allows participation, with
certain restrictions, by all full-time employees with at least one
year of service. Options granted allow employees to purchase shares
of the Company's common stock at prices not less than the fair market
value of the stock at the date of the grant. Options which have been
granted under the plan are exercisable during the employment of the
grantee at specified time intervals. Outstanding options expire
between 2004 and 2009.
In addition, the Company in August 1999 approved a Directors Stock
Option Plan as amended, which provides for the issuance of up to
400,000 stock options to members of the Company's Board of Directors.
Stock options to purchase up to 60,000 shares have been granted to
directors.
<PAGE> F-14
Stock option transactions (number of shares) are summarized below:
<TABLE>
Year Ended March 31,
2000 1999 1998
<S> <C> <C> <C>
Shares under option,
beginning of period 330,333 346,333 300,333
Stock options granted at an exercise price
of $1.00 - 9,000 -
Stock options granted at an exercise price
of $3.0625 - 1,000 -
Stock options granted at an exercise price
of $1.875 25,000 - -
Stock options granted at an exercise price
of $7.00 - - 7,000
Stock options forfeited (3,500) (15,000) (1,500)
Non-qualified stock options granted at
an exercise price of $1.625 100,000 - -
Non-qualified stock options granted at
an exercise price of $1.938 60,000 - -
Non-qualified stock options granted at
an exercise price of $7.24 to $9.125 - - 41,000
Non-qualified stock options forfeited (31,333) (11,000) -
Stock options exercised at $4.50 - - (500)
-------- -------- -------
Shares under option, end of period 480,500 330,333 346,333
======== ======== =======
</TABLE>
The following table summarizes information for options currently
outstanding at March 31, 2000:
<TABLE>
Weighted Average
Exercise Number Remaining
Price Outstanding Contractual Life
----- ----------- ----------------
<S> <C> <C>
$1.00 - $3.0625 195,000 10 years
4.50 - 5.00 168,500 5
6.13 - 7.00 25,000 7
8.88 - 9.13 12,000 8
14.25 80,000 6
-------
480,500
=======
</TABLE>
The Company accounts for employee stock options in accordance with
Accounting Principles Board Opinion No. 25 "Accounting for Stock
Issued to Employees" (APB 25). Under APB 25, the "intrinsic value
based method" specifies that no compensation expense is recognized if
employee stock options are granted with an exercise price equal to or
higher than the market value of the stock price on the date of the
grant.
At March 31, 2000, options to purchase 381,898 shares were
exercisable. During the years ended March 31, 2001 and 2002, options
to purchase an additional 41,936 and 28,335 shares, respectively,
will become exercisable. Options to purchase 220,681 shares were
available for grant under the 1992 Employee Incentive Stock Option
Plan at March 31, 2000.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" ("FAS 123"). FAS 123 prescribes the
recognition of compensation expense based on the fair value of
options or stock awards determined on the date of the grant.
However, FAS 123 allows companies to continue to apply the "intrinsic
value based method" set forth in APB 25 for employee stock option
grants. Had compensation costs for the Company's employee stock
option plan been determined based on the fair value of the options on
the grant dates consistent with the methodology prescribed by FAS
123, the Company's net income (loss) and net income (loss) per share
would have decreased (increased) as shown below. In accordance with
the adoption methodology prescribed by FAS 123, the pro forma results
shown below reflect only the impact of employee stock options
<PAGE> F-15
granted during the years ended March 31, 2000 and 1999. Because
future employee stock options may be granted, the pro forma impact
for fiscal 2000 and fiscal 1999 is not necessarily indicative of the
impact in future years.
<TABLE>
2000 1999
<S> <C> <C>
Net income (loss)
As reported $ 189 $ (415)
Pro forma 56 (426)
Income (loss) per share
As reported $0.05 $(0.11)
Pro forma 0.01 (0.11)
</TABLE>
The fair value of the options granted is estimated on the date of
grant using the Black-Scholes multiple option-pricing model with the
following weighted average assumptions:
<TABLE>
2000 1999
<S> <C> <C>
Risk-free interest rate 5.8% - 6.0% 4.4% - 5.3%
Expected volatility 80% 77%
Estimated lives of options (in years) 5.0 5.0
Expected dividend yield 0% 0%
</TABLE>
The weighted average fair value of options granted during the fiscal
years ended March 31, 2000 and 1999 was $1.20 and $1.89,
respectively.
12. Profit and Savings Incentive Plans
CITATION maintains a Retirement Savings Plan for the benefit of
substantially all CITATION employees. Employee contributions may
range from one percent to fifteen percent of compensation, subject to
limits prescribed by the Internal Revenue Code. CITATION matches a
discretionary percentage of an employee's contribution, up to six
percent of the employee's compensation.
For the plan year ended December 31, 1999 and 1998, the matching
contribution was twenty-five percent of employee contributions, and
was paid in the form of Company stock. It is the Company's current
intention to continue to make the matching contribution in the form
of Company stock. Employees are immediately one hundred percent
vested as to employee contributions and are vested as to employer
contributions at the rate of twenty percent per year, beginning in
the second year of service.
For the years ended March 31, 2000, 1999, and 1998, the Company
recorded expense of approximately $37, $38, and $51, respectively,
relating to this plan.
13. Leases
The Company leases its office and warehouse facilities and certain
office equipment. The lease terms are generally for two to five
years. Rental expense under operating leases for the years ended
March 31, 2000, 1999, and 1998, was approximately $555, $549, and
$551, respectively.
Future minimum lease payments under non-cancelable operating leases
are as follows:
<TABLE>
Year Ended March 31,
<S> <C>
2001 $ 517
2002 516
2003 516
2004 516
2005 159
Thereafter 7
-------
$ 2,231
=======
</TABLE>
14. Commitments and Contingencies
The Company from time to time is a party to certain lawsuits in the
ordinary course of business. Management does not expect the outcome
of any litigation to have a material adverse effect on the Company's
financial position, results of operations, or cash flows.
<PAGE> F-16
15. Quarterly Financial Data (Unaudited)
<TABLE> Basic and diluted
earnings (loss)
Net sales Gross profit Net income (loss) per share2
2000 1999 2000 1999 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st quarter $ 4,328 $ 3,414 $2,128 $1,701 $144 $ (130)1 $ .04 $(.03)1
2nd quarter 4,322 4,106 1,995 2,290 101 172 .03 .05
3rd quarter 3,709 3,976 2,090 2,145 66 194 .02 .05
4th quarter 2,637 4,632 1,489 1,948 (122) (651)1 (.03) (.17)1
------- ------- ------ ------ ----- ------
Total $14,996 $16,128 $7,702 $8,084 $189 $(415)
======= ======= ====== ====== ===== ======
</TABLE>
(1) See Notes 2 and 3 regarding the sale of the financial products
and termination of proposed business combination in the first
and fourth quarters of fiscal 1999.
(2) The annual earnings per share amount does not agree to the sum
of the quarters as a result of changes in the market prices of
the Company's common stock and the application of the treasury
stock method.
16. Subsequent Event
In May 2000, the Company announced that it had entered a definitive
agreement for a business combination with Cerner Corporation
("Cerner"). Under terms of the agreement, CITATION shareholders will
receive 0.153 shares of Cerner stock and $0.51 in cash for each share
of CITATION, resulting in the issuance of 598,000 shares of Cerner
stock for ninety percent of CITATION and payment of approximately $2
million for the remaining ten percent of the Company. The
transaction, which as to the stock portion will be tax-free to
CITATION shareholders and which will be accounted for as a purchase
by Cerner, is expected to close in the third quarter this calendar
year pending CITATION shareholder approval and regulatory approval.
<PAGE> F-17
APPENDIX A
AGREEMENT AND PLAN OF MERGER
dated as of
May 15, 2000
among
CERNER CORPORATION,
CERNER PERFORMANCE LOGISTICS, INC.
and
CITATION COMPUTER SYSTEMS, INC.
<PAGE>
ARTICLE I DEFINITIONS..................................................A-1
ARTICLE II THE MERGER..................................................A-2
Section 2.1........................................................A-2
Section 2.2.Dissenting Shares......................................A-5
Section 2.3.Surrender of Certificates..............................A-6
Section 2.4.Affiliates.............................................A-7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF CERNER...................A-8
Section 3.1.Corporate Existence and Power..........................A-8
Section 3.2.Corporate Authorization................................A-8
Section 3.3.Governmental Authorization.............................A-8
Section 3.4.Non-Contravention......................................A-8
Section 3.5.Cerner SEC Documents...................................A-9
Section 3.6.Information to be Supplied.............................A-9
Section 3.7.Absence of Certain Changes............................A-10
Section 3.8.Litigation............................................A-10
Section 3.9.Finders' Fees.........................................A-10
Section 3.10.Capitalization.......................................A-10
Section 3.11.Financial Statements; No Material Undisclosed
Liabilities..................................................A-11
Section 3.12.Taxes................................................A-11
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF CITATION.................A-12
Section 4.1.Corporate Existence and Power.........................A-12
Section 4.2.Corporate Authorization...............................A-12
Section 4.3.Governmental Authorization............................A-12
Section 4.4.Non-Contravention.....................................A-12
Section 4.5.Capitalization........................................A-13
Section 4.6.Subsidiaries..........................................A-14
Section 4.7.Financial Statements; No Material Undisclosed
Liabilities..................................................A-14
Section 4.8.CITATION SEC Documents................................A-14
Section 4.9.Information to be Supplied............................A-15
Section 4.10.Absence of Certain Changes...........................A-15
Section 4.11.Litigation...........................................A-16
Section 4.12.Taxes................................................A-16
Section 4.13.Employee Benefits....................................A-17
Section 4.14.Compliance with Laws; Licenses, Permits and
Registrations................................................A-18
Section 4.15.Title to Properties..................................A-19
Section 4.16.Intellectual Property................................A-19
Section 4.17.Environmental Matters................................A-20
Section 4.18.Finders' Fees; Opinions of Financial Advisor.........A-20
Section 4.19.Required Vote and Waiver; Board Approval.............A-21
Section 4.20.State Takeover Statutes..............................A-21
Section 4.21.Tax Treatment........................................A-21
Section 4.22.Certain Agreements...................................A-21
Section 4.23.Employment Agreements................................A-22
Section 4.24.Transactions With Directors, Officers and Affiliates.A-22
Section 4.25.Material Contracts...................................A-22
Section 4.26.Certain Business Practices...........................A-23
Section 4.27.Insurance............................................A-23
<PAGE> A-i
Table of Contents
-----------------
(continued)
ARTICLE V REPRESENTATIONS AND WARRANTIES OF MERGER SUB................A-24
Section 5.1.Organization..........................................A-24
Section 5.2.Corporate Authorization...............................A-24
Section 5.3.Non-Contravention.....................................A-24
Section 5.4.No Business Activities................................A-24
Section 5.5.Taxes.................................................A-24
ARTICLE VI COVENANTS OF CITATION......................................A-24
Section 6.1.CITATION Interim Operations...........................A-24
Section 6.2.Acquisition Proposals; Board Recommendation...........A-27
Section 6.3.Employment Agreements.................................A-29
Section 6.4.Shareholder Agreement.................................A-29
ARTICLE VII COVENANTS OF CITATION AND CERNER..........................A-29
Section 7.1.Reasonable Best Efforts...............................A-29
Section 7.2.Certain Filings; Cooperation in Receipt of Consents;
Listing......................................................A-29
Section 7.3.Public Announcements..................................A-31
Section 7.4.Access to Information; Notification of Certain
Matters......................................................A-31
Section 7.5.Further Assurances....................................A-32
Section 7.6.Tax Treatment.........................................A-32
Section 7.7.Affiliates............................................A-33
Section 7.8.Benefit Matters.......................................A-33
Section 7.9.Antitrust Matters.....................................A-33
Section 7.10.Exemption From Liability Under Section 16(b).........A-33
Section 7.11.Indemnification and Insurance........................A-34
ARTICLE VIII CONDITIONS TO THE MERGER.................................A-35
Section 8.1.Conditions to the Obligations of Each Party...........A-35
Section 8.2.Conditions to the Obligations of Cerner and Merger
Sub..........................................................A-36
Section 8.3.Conditions to the Obligations of CITATION.............A-37
ARTICLE IX TERMINATION................................................A-38
Section 9.1.Termination...........................................A-38
Section 9.2.Effect of Termination.................................A-39
Section 9.3.Termination Fees; Other Fees..........................A-40
ARTICLE X MISCELLANEOUS...............................................A-40
Section 10.1.Notices..............................................A-40
Section 10.2.Amendments; No Waivers...............................A-41
Section 10.3.Assignment...........................................A-41
Section 10.4.Governing Law........................................A-42
Section 10.5.Counterparts; Effectiveness..........................A-42
Section 10.6.No Third Party Beneficiaries.........................A-42
Section 10.7.Interpretation.......................................A-42
Section 10.8.Enforcement..........................................A-42
Section 10.9.Entire Agreement.....................................A-42
Section 10.10. Severability.......................................A-42
<PAGE> A-ii
APPENDICES
Appendix I - Definitions
EXHIBITS
Exhibit A - Certificate of Merger
Exhibit B - Articles of Merger
Exhibit C - Representation Letter from Cerner
Exhibit D - Representation Letter from CITATION
Exhibit E - Affiliate Agreement
Exhibit F - List of Employees
Exhibit G - Form of Employment Agreement
Exhibit H - Form of Legal Opinion - CITATION
Exhibit I - Form of Legal Opinion - Cerner
Exhibit J - Confidentiality Agreement
<PAGE> A-iii
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of May 15, 2000 (the
"Agreement"), by and among Cerner Corporation, a Delaware
corporation ("Cerner"), Cerner Performance Logistics, Inc., a
Delaware corporation and a wholly-owned subsidiary of Cerner
("Merger Sub"), and CITATION Computer Systems, Inc., a Missouri
corporation ("CITATION").
RECITALS:
WHEREAS, the respective Boards of Directors of Cerner,
CITATION and Merger Sub have determined that the merger of
CITATION with and into Merger Sub (the "Merger"), upon the terms
and subject to the conditions set forth in this Agreement, would
be fair and in the best interests of their respective
stockholders, and such Boards of Directors have approved such
Merger, pursuant to which each issued and outstanding share of
common stock, par value $.10 per share ("Common Stock"), of
CITATION (the "Shares") (other than (a) Shares owned, directly or
indirectly, by Cerner or any Subsidiary of Cerner and
(b) dissenting shares) will be converted into the right to
receive cash and shares of Cerner Common Stock as provided
herein; and
WHEREAS, the Merger and this Agreement require the
affirmative vote, in accordance with applicable law and the
Articles of Incorporation and By-laws of CITATION, of holders of
at least two-thirds of the outstanding Shares entitled to vote
thereon for the approval thereof (the "CITATION Shareholder
Approval"); and
WHEREAS, Cerner is unwilling to enter into this Agreement
unless, contemporaneously with the execution and delivery of this
Agreement, certain directors and executive officers of CITATION
who are shareholders of CITATION enter into an agreement (the
"Shareholder Agreement") granting to Cerner irrevocable proxies
to vote all Shares beneficially owned by such shareholders "For"
the merger in connection with the CITATION Shareholder Approval
and an option to purchase all Shares beneficially owned by such
shareholders under certain circumstances; and
WHEREAS, Cerner, CITATION and Merger Sub desire to make
certain representations, warranties, covenants and agreements in
connection with the Merger and also to prescribe various
conditions to the Merger.
NOW, THEREFORE, in consideration of the representations,
warranties, covenants and agreements contained in this Agreement,
the parties agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the capitalized terms used
in this Agreement shall have the meanings specified or referred
to in Appendix I hereto which is incorporated herein by
reference.
<PAGE>
ARTICLE II
THE MERGER
Section 2.1.
(a) The Merger.
---------- Upon the terms and subject to the conditions of
this Agreement and in accordance with the General Corporation Law
of the State of Delaware (the "Delaware Law") and The General and
Business Corporation Law of Missouri (the "Missouri Law"), at the
Effective Time CITATION shall be merged with and into Merger Sub.
As a result of the Merger, the separate corporate existence of
CITATION shall cease and Merger Sub shall continue as the
surviving corporation of the Merger (the "Surviving
Corporation").
<PAGE> A-1
(b) Effective Time.
-------------- As soon as practicable after the Closing of
the Merger, (i) the Certificate of Merger for the Merger
("Certificate of Merger"), in substantially the form attached
hereto as Exhibit A, prepared and executed in accordance with the
relevant provisions of the Delaware Law, shall be filed with the
Secretary of State of Delaware and (ii) the Articles of Merger
for the Merger ("Articles of Merger") in substantially the form
attached hereto as Exhibit B, prepared and executed in accordance
with the relevant provisions of the Missouri Law shall be filed
with the Secretary of State of Missouri. The parties hereto
agree to take all such further actions as may be required by law
to make the Merger effective. The Merger shall become effective
in accordance with the terms of this Agreement, the Certificate
of Merger and the Articles of Merger at the time and date
contemplated therein (such time and date being referred to herein
as the "Effective Time").
(c) The Closing.
----------- The Closing of the Merger and transactions
contemplated by this Agreement will take place at 10:00 a.m. on a
date mutually agreed upon by the parties hereto, which shall be
no later than the third Business Day following the date on which
all of the conditions to the obligations of the parties hereunder
set forth in Article VIII hereof have been satisfied or waived.
The Closing shall take place at the offices of Stinson, Mag &
Fizzell, P.C., at 1201 Walnut Street, Suite 2800, Kansas City,
Missouri, or such other place as may be mutually agreed upon by
the parties hereto.
(d) Effects of the Merger.
--------------------- At and after the Effective Time, the
Merger will have the effects set forth in the Delaware Law and
the Missouri Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the
property, rights, privileges, powers and franchises of Merger Sub
and CITATION shall be vested in the Surviving Corporation, and
all debts, liabilities and duties of Merger Sub and CITATION
shall become the debts, liabilities and duties of the Surviving
Corporation. In addition, the Merger shall have the following
effects:
(i) Certificate of Incorporation.
---------------------------- The Certificate of
Incorporation of Merger Sub as in effect immediately prior to the
Effective Time shall be the Certificate of Incorporation of the
Surviving Corporation; provided that Article First thereof shall
be amended, effective as of the Effective Time, to read in its
entirety as follows: The name of the corporation is "Cerner
CITATION, Inc."
(ii) Bylaws.
------ The Bylaws of Merger Sub as in effect immediately
prior to the Effective Time shall be the Bylaws of the Surviving
Corporation.
(iii) Board of Directors.
------------------ The directors of Merger Sub at the
Effective Time shall be the initial directors of the Surviving
Corporation, until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified,
as the case may be.
(iv) Officers.
-------- The officers of Merger Sub at the Effective Time
shall be the initial officers of the Surviving Corporation, until
the earlier of their resignation or removal or until their
respective successors are duly elected or appointed and
qualified, as the case may be.
(e) Effect on Capital Stock.
----------------------- At the Effective Time, by virtue
of the Merger and without any action on the part of the parties
hereto or their respective stockholders:
(i) Common Stock.
------------ With respect to each holder of record of
Common Stock outstanding immediately prior to the Effective Time
(except for persons who object to the Merger and comply with all
provisions of Section 351.455 of the Missouri Law concerning the
right of such holders to dissent from the Merger and demand fair
value for their shares), (A) 90% of the shares of CITATION Common
Stock held by such holder shall be converted into that number of
shares of Cerner Common Stock determined by multiplying the
number of such shares of CITATION Common Stock times the Exchange
Ratio (together with any cash in lieu of fractional shares of
Cerner Common Stock to be paid pursuant to Section 2.1(e)(iv)),
and (B) 10% of the shares of CITATION Common Stock held by such
holder shall be converted into the right to receive $5.10 in cash
per share of CITATION Common Stock (collectively, the "Merger
Consideration").
<PAGE> A-2
(ii) CITATION Stock held by Cerner, Merger Sub and CITATION.
------------------------------------------------------
Each share of Common Stock held by CITATION as treasury stock or
owned by Cerner, Merger Sub or any Cerner or CITATION
Subsidiaries immediately prior to the Effective Time shall be
cancelled without payment of any consideration therefor and shall
cease to exist.
(iii) Merger Sub Common Stock.
----------------------- Each share of common stock of
Merger Sub outstanding and each share held in treasury
immediately prior to the Effective Time shall remain outstanding
and be unaffected by the Merger.
(iv) Fractional Shares.
----------------- No fraction of a share of Cerner Common
Stock shall be issued in connection with the conversion of Common
Stock in the Merger and the distribution of Cerner Common Stock
in respect thereof, but in lieu of such fraction, the Exchange
Agent shall make a cash payment (without interest and subject to
the payment of any applicable withholding Taxes) equal to the
same fraction of the market value of a full share of Cerner
Common Stock, computed on the basis of the Average Cerner Stock
Price determined as of the Closing Date.
(f) Stock Options and Other Stock Compensation.
------------------------------------------
(i) On or prior to the Effective Time, CITATION will take all
action necessary such that each stock option or other stock
related right or other form of stock related incentive or
deferred compensation that was granted pursuant to the CITATION
Employee Plans (other than CITATION's 401(k) Plan, which will
receive the consideration set forth in Section 2.1(e)(i)) (as
defined in Section 4.13(a)) prior to the Effective Time and which
remains outstanding immediately prior to the Effective Time
(collectively, the "Stock Rights") shall cease to represent a
right with respect to shares of Common Stock and shall be
converted, at the Effective Time, into a right, on the same terms
and conditions as were applicable under such Stock Right (but
taking into account any changes thereto (except that there shall
be no acceleration in the vesting or exercisability of such
option, right or incentive compensation by reason of this
Agreement, the Merger or the other matters contemplated by this
Agreement other than existing agreements which by their terms
provide for acceleration, which agreements are set forth on
Schedule 2.1(f) indicating the optionees thereof), provided for
in the CITATION Employee Plans or in the terms of such right by
reason of this Agreement or the transactions contemplated
hereby), with respect to that number of shares of Cerner Common
Stock determined by multiplying the number of shares of Common
Stock subject to such Stock Right, times the Exchange Ratio,
rounded, if necessary, to the nearest whole share of Cerner
Common Stock, at (in the case of a stock option or stock
appreciation right) a price per share (rounded to the nearest one-
hundredth of a cent) determined by dividing the per-share
exercise price specified in such stock option or stock
appreciation right, as applicable, by the Exchange Ratio;
provided, however, that in the case of any stock option to which
Section 421 of the Code applies by reason of its qualification
under Section 422 of the Code, the option price, the number of
shares subject to such option and the terms and conditions of
exercise of such option shall be determined in a manner
consistent with the requirements of Section 424(a) of the Code.
(ii) As soon as practicable after the Effective Time, the
Surviving Corporation shall deliver to the holders of Stock
Rights appropriate notices setting forth such holders' rights
pursuant to the CITATION Employee Plans (except that there shall
be no acceleration in the vesting or exercisability of such
option, right or incentive compensation by reason of this
Agreement, the Merger or the other matters contemplated by this
Agreement, other than pursuant to those agreements set forth on
Schedule 2.1(f)) and the agreements evidencing the grants of such
Stock Rights shall continue in effect on the same terms and
conditions (subject to the adjustments required by this Section
2.1(f)(ii) after giving effect to the Merger and the terms of the
CITATION Employee Plans (except that there shall be no
acceleration in the vesting or exercisability of such option,
right or incentive compensation by reason of this Agreement, the
Merger or the other matters contemplated by this Agreement other
than existing agreements which by their terms provide for
acceleration)). To the extent permitted by law, Cerner and the
Surviving Corporation shall comply with the terms of the CITATION
Employee Plans and shall take such reasonable
<PAGE> A-3
steps as are necessary or required by, and subject to the
provisions of, such CITATION Employee Plans, to have the stock
options which qualified as incentive stock options prior to the
Effective Time continue to qualify as incentive stock options of
Cerner after the Effective Time.
(iii) Cerner shall take all corporate action necessary to
reserve for issuance a sufficient number of shares of Cerner
Common Stock for delivery upon exercise of Stock Rights in
accordance with this Section 2.1(f). Promptly after the
Effective Time, Cerner shall file a registration statement(s) on
Form S-8 with respect to the shares of Cerner Common Stock
subject to such stock options or other stock related rights or
other forms of stock related incentive or deferred compensation,
and shall use commercially reasonable efforts to maintain the
effectiveness of such registration statement or registration
statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such stock options
or other stock related rights or other forms of stock related
incentive or deferred compensation remain outstanding. With
respect to those individuals who subsequent to the Merger will be
subject to the reporting requirements under Section 16(a) of the
Exchange Act, where applicable, Cerner shall administer the
CITATION Employee Plans in a manner consistent with the
exemptions provided by Rule 16b-3 promulgated under the Exchange
Act.
(g) Certain Adjustments.
------------------- If, between the date of this Agreement
and the Effective Time, the outstanding Common Stock or Cerner
Common Stock shall have been changed into a different number of
shares or different class by reason of any reclassification,
recapitalization, stock split, reverse stock split, combination
or exchange of shares, or a stock dividend or dividend payable in
any other securities shall be declared with a record date within
such period, or any similar event shall have occurred, the Merger
Consideration and Exchange Ratio shall each be appropriately
adjusted to provide to the holders of Common Stock or
participants in the CITATION Employee Plans the same economic
effect as contemplated by this Agreement prior to such event.
Section 2.2. Dissenting Shares.
----------------- Notwithstanding Section
2.1(e), shares of Common Stock outstanding immediately prior to
the Effective Time and held by a holder who has not voted in
favor of the Merger or consented thereto in writing and who has
properly demanded appraisal for such shares of Common Stock in
accordance with Section 351.455 of the Missouri Law shall not be
converted into the Merger Consideration and such holder shall be
entitled only to such rights to appraisal and payment under the
Missouri Law, unless such holder fails to perfect or withdraws or
otherwise loses his right to appraisal. If after the Effective
Time such holder fails to perfect or withdraws or loses his right
to appraisal, such shares of Common Stock shall be treated as if
they had been converted as of the Effective Time into the Merger
Consideration. CITATION shall give the Surviving Corporation
prompt notice of any demands received by CITATION for appraisal
of shares of Common Stock, and the Surviving Corporation shall
have the right to participate in all negotiations and proceedings
with respect to such demands. CITATION shall not, except with the
prior written consent of the Surviving Corporation, make any payment
with respect to, or settle or offer to settle, any such demands.
Section 2.3. Surrender of Certificates.
-------------------------
(a) Cerner, CITATION and Merger Sub hereby appoint the Exchange
Agent to act as the exchange agent in connection with the Merger.
Except as otherwise provided in this Article II, from and after
the Effective Time, each holder of a certificate that immediately
prior to the Effective Time represented outstanding shares of
Common Stock (collectively, the "Certificates") shall be entitled
to receive in exchange therefor, upon surrender thereof to the
Exchange Agent, (i) a certificate or certificates representing
the number of whole shares of Cerner Common Stock into which such
holder's shares were converted in the Merger pursuant to Section
2.1(e)(i)(A) and (ii) cash in an amount equal to the cash
consideration to which such holder is entitled to receive
pursuant to Section 2.1(e)(i)(B). Prior to the Effective Time,
the Surviving Corporation will deliver to the Exchange Agent, in
trust for the benefit of the holders of Common Stock and Cerner
Common Stock, (i) certificates representing all of the shares of
Cerner Common Stock to be issued in connection with the Merger
pursuant to Section 2.1(e)(i)(A), (ii) cash in an amount
sufficient for payment in lieu of fractional shares necessary to
make the exchanges contemplated by this Article II on a timely
basis, and (iii) cash in an amount equal to the cash portion of
the Merger Consideration pursuant to Section 2.1(e)(i)(B) (such
shares of Cerner Common Stock and cash
<PAGE> A-4
together with any dividends or distributions with respect thereto,
being hereinafter referred to as the "Exchange Fund").
(b) Promptly after the Effective Time, the Exchange Agent shall
mail to each record holder of Common Stock as of the Effective
Time, a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to Certificates
shall pass, only upon proper delivery of the Certificates to the
Exchange Agent) and instructions for use in effecting the
surrender of Certificates in exchange for the Merger
Consideration. Upon surrender to the Exchange Agent of a
Certificate, together with such letter of transmittal duly
executed, and any other required documents, the holder of such
Certificate shall be entitled to receive in exchange therefor,
certificates representing shares of Cerner Common Stock as set
forth in this Article II and the cash portion of the Merger
Consideration, and such Certificate shall forthwith be canceled.
No holder of a Certificate or Certificates shall be entitled to
receive any dividend or other distribution from Cerner until the
surrender of such holder's Certificate for a certificate or
certificates representing shares of Cerner Common Stock. Upon
such surrender, there shall be paid to the holder the amount of
any dividends or other distributions (without interest) that
theretofore became payable with record dates after the Effective
Time, but that were not paid by reason of the foregoing, with
respect to the number of whole shares of Cerner Common Stock
represented by the certificates issued upon surrender, which
amount shall be delivered to the Exchange Agent by Cerner from
time to time as such dividends or other distributions are
declared. If delivery of certificates representing shares of
Cerner Common Stock is to be made to a person other than the
person in whose name the Certificate surrendered is registered or
if any certificate for shares of Cerner Common Stock as the case
may be, is to be issued in a name other than that in which the
Certificate surrendered therefor is registered, it shall be a
condition of such delivery or issuance that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form
for transfer and that the person requesting such delivery or issuance
shall pay any transfer or other Taxes required by reason of such
delivery or issuance to a person other than the registered holder of
the Certificate surrendered or establish to the satisfaction of Cerner
that such Tax has been paid or is not applicable. Until surrendered in
accordance with the provisions of this Section 2.3, each Certificate
shall represent for all purposes only the right to receive shares of
Cerner Common Stock (and cash in lieu of fractional shares) and the
cash portion of the Merger Consideration as provided in this Article II
without any interest thereon.
(c) After the Effective Time, there shall be no transfers on the
stock transfer books of the Surviving Corporation of the shares
of Common Stock that were outstanding prior to the Effective
Time. If, after the Effective Time, Certificates are presented
to the Surviving Corporation for transfer, they shall be canceled
and exchanged for shares of Cerner Common Stock (and cash in lieu
of fractional shares) as provided in this Article II, in
accordance with the procedures set forth in this Section 2.3.
(d) Any portion of the Exchange Fund made available to the
Exchange Agent which remains undistributed to the former
shareholders of CITATION for one year after the Effective Time
shall be delivered to the Surviving Corporation, upon demand, and
any shareholders of CITATION who have not theretofore complied
with this Article II shall thereafter look only to the Surviving
Corporation for payment of their claim for Merger Consideration
and any dividends or distributions with respect to Cerner Common
Stock.
(e) None of CITATION, Cerner, or the Surviving Corporation shall
be liable to any holder of shares of Common Stock for the Merger
Consideration (or dividends or distributions with respect
thereto) delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. Any
amounts remaining unclaimed by holders of any such shares two
years after the Effective Time (or such earlier date immediately
prior to such time as such amounts would otherwise escheat to or
become property of any Governmental Entity) shall, to the extent
permitted by applicable law, become the property of the Surviving
Corporation free and clear of any claims or interest of any such
holders or their successors, assigns or personal representatives
previously entitled thereto.
Section 2.4. Affiliates.
---------- Notwithstanding anything to the
contrary herein, to the full extent permitted by law, no
certificates representing shares of Cerner Common Stock or cash
shall be delivered to a Person who may
<PAGE> A-5
be deemed an "affiliate" of CITATION in accordance with Section 7.7
hereof, until such Person has executed and delivered an Affiliate
Agreement pursuant to Section 7.7.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CERNER
Except as disclosed in the Cerner Disclosure Schedule
delivered to CITATION separately prior to, or contemporaneously
with, the date hereof (each section or subsection of which
qualifies the correspondingly numbered representation, warranty
or covenant to the extent specified therein), Cerner represents
and warrants to CITATION that:
Section 3.1. Corporate Existence and Power.
----------------------------- Cerner is a
corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware, and has all
corporate powers required to carry on its business as now
conducted. Cerner is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where
the character of the property owned or leased by it or the nature
of its activities makes such qualification necessary, except
where the failure to be so qualified, individually or in the
aggregate, would not be reasonably likely to have a Cerner
Material Adverse Effect.
Section 3.2. Corporate Authorization.
----------------------- The execution, delivery
and performance by Cerner of this Agreement and the consummation
by Cerner of the transactions contemplated hereby are within
Cerner's corporate powers and have been duly authorized by all
necessary corporate action. Assuming that this Agreement
constitutes the valid and binding obligation of CITATION, this
Agreement constitutes a valid and binding agreement of Cerner,
enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws, now or hereafter in
effect, relating to or affecting creditors' rights and remedies
generally and to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in
equity or at law).
Section 3.3. Governmental Authorization.
-------------------------- The execution,
delivery and performance by Cerner of this Agreement and the
consummation by Cerner of the transactions contemplated hereby
require no action by or in respect of, or filing with, any
Governmental Entity other than (a) the filing of (i) Articles of
Merger in accordance with the Missouri Law, (ii) a Certificate of
Merger in accordance with the Delaware Law, and (iii) appropriate
documents with the relevant authorities of other states or
jurisdictions in which Cerner or any Cerner Subsidiary is
qualified to do business; (b) compliance with any applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 (the "HSR Act") by Cerner and CITATION; (c) compliance
with any applicable requirements of the Securities Act and the
Exchange Act; (d) such as may be required under any applicable
state securities or blue sky laws; and (e) such other consents,
approvals, actions, orders, authorizations, registrations,
declarations and filings that, if not obtained or made, would
not, individually or in the aggregate, (x) be reasonably likely
to have a Cerner Material Adverse Effect or (assuming for this
purpose that the Effective Time had occurred) a Surviving
Corporation Material Adverse Effect, or (y) prevent or materially
impair the ability of Cerner to consummate the transactions
contemplated by this Agreement.
Section 3.4. Non-Contravention.
----------------- The execution, delivery and
performance by Cerner of this Agreement and the consummation by
Cerner of the transactions contemplated hereby do not and will
not (a) contravene or conflict with Cerner's Certificate of
Incorporation or Bylaws, (b) assuming compliance with the matters
referred to in Section 3.3, contravene or conflict with or constitute
a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to Cerner or
any Cerner Subsidiary, (c) constitute a default under or give rise
to a right of termination, cancellation or acceleration of any right
or obligation of Cerner or any Cerner Subsidiary or to a loss of any
benefit or status to which Cerner or any Cerner Subsidiary is entitled
under any provision of any agreement, contract or other instrument
binding upon Cerner or any Cerner Subsidiary or any license, franchise,
permit or other similar authorization held by Cerner or any Cerner
Subsidiary, or (d) result in the creation or imposition of any Lien on
any asset of Cerner or any Cerner Subsidiary other than, in the case of
each of clauses (b), (c) and (d), any such items that would not,
individually or in the aggregate (x) be reasonably likely to have
a Cerner Material Adverse Effect or (y) prevent or materially
impair the ability of Cerner to consummate the transactions
contemplated by this Agreement.
<PAGE> A-6
Section 3.5. Cerner SEC Documents.
--------------------
(a) Cerner has filed all reports, filings, registration
statements and other documents required to be filed by it with
the SEC since January 1, 1995. No Cerner Subsidiary is required
to file any form, report, registration statement or prospectus or
other document with the SEC.
(b) As of its filing date, each Cerner SEC Document complied as
to form in all material respects with the applicable requirements
of the Securities Act and/or the Exchange Act, as the case may
be.
(c) No Cerner SEC Document filed pursuant to the Exchange Act
contained, as of its filing date, any untrue statement of a
material fact or omitted to state any material fact necessary in
order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. No
Cerner SEC Document, as amended or supplemented, if applicable,
filed pursuant to the Securities Act contained, as of the date
such document or amendment became effective, any untrue statement
of a material fact or omitted to state any material fact required
to be stated therein or necessary to make the statements therein
not misleading.
(d) Cerner and the Cerner Subsidiaries keep proper accounting
records in which all material assets and liabilities, and all
material transactions, of Cerner and the Cerner Subsidiaries are
recorded in conformity with United States generally accepted
accounting principles ("GAAP") applied on a consistent basis. No
part of Cerner's or any Cerner Subsidiary's accounting system or
records, or access thereto, is under the control of a Person who
is not an employee of Cerner or such Subsidiary.
Section 3.6. Information to be Supplied.
--------------------------
(a) The information to be supplied by Cerner expressly for
inclusion or incorporation by reference in the Joint Proxy
Statement/Prospectus will (i) in the case of the Registration
Statement, at the time it becomes effective, not contain any
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein not misleading and (ii) in the case of the
remainder of the Joint Proxy Statement/Prospectus, at the time of the
mailing thereof, and at the time of the Special Meeting, not contain
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are
made, not misleading. The Joint Proxy Statement/Prospectus will comply
(with respect to information relating to Cerner) as to form in all material
respects with the provisions of the Securities Act and the Exchange Act.
(b) Notwithstanding the foregoing, Cerner makes no
representation or warranty with respect to any statements made or
incorporated by reference in the Joint Proxy Statement/Prospectus
based on and in accordance with information supplied by CITATION.
Section 3.7. Absence of Certain Changes.
-------------------------- Since January 1,
2000, except as otherwise expressly contemplated by this
Agreement, Cerner and the Cerner Subsidiaries have conducted
their business in the ordinary course consistent with past
practice and there has not been (a) any damage, destruction or
other casualty loss (whether or not covered by insurance)
affecting the business or assets of Cerner or any Cerner
Subsidiary that, individually or in the aggregate, has had or
would be reasonably likely to have a Cerner Material Adverse
Effect, (b) any action, event, occurrence, development or state
of circumstances or facts that, individually or in the aggregate,
has had or would be reasonably likely to have a Cerner Material
Adverse Effect or (c) any incurrence, assumption or guarantee by
Cerner of any material indebtedness for borrowed money other than
in the ordinary course and in amounts and on terms consistent
with past practices.
Section 3.8. Litigation.
---------- Section 3.8 of the Cerner Disclosure
Schedule contains a list and description of each action, suit,
investigation, arbitration or proceeding pending against, or to
the Knowledge of Cerner threatened against, Cerner or any Cerner
Subsidiary or any of their respective assets or properties before
any arbitrator or Governmental Entity. None of such actions,
suits, investigations, arbitrations or proceedings,
<PAGE> A-7
individually or in the aggregate, is reasonably likely to have,
a Cerner Material Adverse Effect. There are no outstanding judgments,
decrees, injunctions, awards or orders against Cerner that are
reasonably likely to have, individually or in the aggregate, a
Cerner Material Adverse Effect.
Section 3.9. Finders' Fees.
------------- There is no investment banker,
broker, finder or other intermediary that has been retained by,
or is authorized to act on behalf of, Cerner or any Cerner
Subsidiary who might be entitled to any fee or commission from
CITATION or any of its Affiliates upon consummation of the
transactions contemplated by this Agreement.
Section 3.10. Capitalization.
-------------- The authorized capital stock of
Cerner consists of 150,000,000 shares of Cerner Common Stock and
1,000,000 shares of preferred stock. At the close of business on
April 1, 2000, (i) 33,802,391 shares of Cerner Common Stock were
issued and outstanding, (ii) stock options and warrants to
purchase an aggregate 14,031,988 shares of Cerner Common
Stock were issued and outstanding (of which options and warrants
to purchase an aggregate of 5,421,303 shares of Cerner
Common Stock were exercisable), (iii) no shares of Cerner Common
Stock were held in its treasury, except as disclosed in the
Cerner Financial Statements, (iv) no shares of preferred stock of Cerner
were issued and outstanding, and (v) no stock options and warrants to
purchase preferred stock of Cerner were issued and outstanding, other
than the rights issued in connection with the Amended and Restated
Rights Agreement, dated March 12, 1999, by and between Cerner and
Exchange Agent. All outstanding shares of capital stock of Cerner have
been duly authorized and validly issued and are fully paid and
nonassessable.
Section 3.11. Financial Statements; No Material Undisclosed
---------------------------------------------
Liabilities.
-----------
(a) The audited consolidated balance sheets of Cerner as of
January 3, 1998, January 2, 1999 and January 1, 2000, together
with the related audited consolidated statements of operations,
stockholders' equity and cash flows for the fiscal years then
ended and the notes thereto (the "Cerner Financial Statements")
fairly present in all material respects, in conformity with GAAP
consistently applied (except as may be indicated in the notes
thereto), the financial position of Cerner as of the dates
thereof and its results of operations, stockholders' equity and
consolidated cash flows for the periods then ended.
(b) There are no liabilities of Cerner of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable
or otherwise, in each case, that are required by GAAP to be set
forth on a balance sheet of Cerner, other than:
(i) liabilities or obligations disclosed or provided for in the
Cerner Balance Sheet or disclosed in the notes thereto;
(ii) liabilities or obligations under this Agreement or incurred
in connection with the transactions contemplated hereby; and
(iii) other liabilities or obligations that individually or
in the aggregate, would not be reasonably likely to have a Cerner
Material Adverse Effect.
Section 3.12. Taxes.
-----
(a) All Tax returns, statements, reports and forms
(collectively, the "Cerner Returns") required to be filed with
any taxing authority by, or with respect to, Cerner and the
Cerner Subsidiaries have been filed in substantial compliance
with all applicable laws.
(b) Cerner has timely paid all Taxes shown as due and payable on
the Cerner Returns that have been so filed, and all other Taxes
not subject to reporting obligations, and as of the time of
filing, the Cerner Returns correctly reflected the facts
regarding the income, business, assets, operations, activities
and the status of Cerner and the Cerner Subsidiaries (other than
Taxes that are being contested in good faith and for which
adequate reserves are reflected on the Cerner Balance Sheet).
<PAGE> A-8
(c) Cerner has made provision for all Taxes payable by them for
which no Cerner Return has yet been filed.
(d) The charges, accruals and reserves for Taxes with respect to
Cerner reflected on the Cerner Balance Sheet are materially
adequate under GAAP to cover the Tax liabilities accruing through
the date thereof.
(e) There is no action, suit, proceeding, audit or claim now
proposed or pending against or with respect to Cerner in respect
of any Tax that is reasonably likely to have a Cerner Material
Adverse Effect.
(f) Cerner has not been a member of an affiliated, consolidated,
combined or unitary group other than one of which Cerner was the
common parent.
(g) Cerner does not hold any asset subject to a consent under
Section 341(f) of the Code.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CITATION
Except as disclosed in the CITATION Disclosure Schedule
delivered to Cerner separately prior to, or contemporaneously
with, the date hereof (each section or subsection of which
qualifies the correspondingly numbered representation, warranty
or covenant to the extent specified therein), CITATION represents
and warrants to Cerner that:
Section 4.1. Corporate Existence and Power.
----------------------------- CITATION is a
corporation duly incorporated, validly existing and in good
standing under the laws of the State of Missouri, and has all
corporate powers required to carry on its business as now
conducted. CITATION is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction
where the character of the property owned or leased by it or the
nature of its activities makes such qualification necessary,
except where the failure to be so qualified, individually or in
the aggregate, would not be reasonably likely to have a CITATION
Material Adverse Effect. CITATION has heretofore made available
to Cerner true and complete copies of CITATION's Articles of
Incorporation and Bylaws as currently in effect.
Section 4.2. Corporate Authorization.
----------------------- The execution, delivery
and performance by CITATION of this Agreement and the
consummation by CITATION of the transactions contemplated hereby
are within CITATION's corporate powers and, except for the
CITATION Shareholder Approval, have been duly authorized by all
necessary corporate action. Assuming that this Agreement
constitutes the valid and binding obligation of Cerner and Merger
Sub, this Agreement constitutes a valid and binding agreement of
CITATION, enforceable in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws, now or hereafter in
effect, relating to or affecting creditors' rights and remedies
generally and to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in
equity or at law).
Section 4.3. Governmental Authorization.
-------------------------- The execution,
delivery and performance by CITATION of this Agreement and the
consummation by CITATION of the transactions contemplated hereby
require no action by or in respect of, or filing with, any
Governmental Entity other than (a) the filing of (i) the Articles
of Merger in accordance with the Missouri Law, (ii) the Certificate
of Merger in accordance with the Delaware Law, and (iii)
appropriate documents with the relevant authorities of other states
or jurisdictions in which CITATION or any CITATION Subsidiary is
qualified to do business; (b) compliance with any applicable
requirements of the HSR Act; (c) compliance with any applicable
requirements of the Securities Act and the Exchange Act; (d) such
as may be required under any applicable state securities or blue sky
laws; and (e) such other consents,approvals, actions, orders,
authorizations, registrations, declarations and filings that, if not
obtained or made, would not, individually or in the aggregate, (x)
be reasonably likely to have a CITATION Material Adverse Effect or
(assuming for this
<PAGE> 9
purpose that the Effective Time had occurred) a Surviving Corporation
Material Adverse Effect, or (y) prevent or materially impair the
ability of CITATION to consummate the transactions contemplated by
this Agreement.
Section 4.4. Non-Contravention.
----------------- The execution, delivery and
performance by CITATION of this Agreement and the consummation by
CITATION of the transactions contemplated hereby do not and will
not (a) contravene or conflict with CITATION's Articles of
Incorporation or Bylaws, (b) assuming compliance with the matters
referred to in Section 4.3 and the CITATION Shareholder Approval,
contravene or conflict with or constitute a violation of any
provision of any law, regulation, judgment, injunction, order or
decree binding upon or applicable to CITATION, (c) constitute a
breach or default under or give rise to a right of termination,
cancellation or acceleration of any right or obligation of
CITATION or any CITATION Subsidiary or to a loss of any benefit
or status to which CITATION is entitled under any provision of
any agreement, contract or other instrument binding upon CITATION
or any CITATION Subsidiary or any license, franchise, permit or
other similar authorization held by CITATION, or (d) result in
the creation or imposition of any Lien on any asset of CITATION
other than, in the case of each of clauses (b), (c) and (d), any
such items that would not, individually or in the aggregate (x)
be reasonably likely to have a CITATION Material Adverse Effect
or (y) prevent or materially impair the ability of CITATION to
consummate the transactions contemplated by this Agreement.
Section 4.5. Capitalization.
--------------
(a) The authorized capital stock of CITATION consists of
10,000,000 shares of Common Stock and 5,000,000 shares of
CITATION Preferred Stock. At the close of business on May 12,
2000, (i) 3,876,655 shares of Common Stock were issued and
outstanding, (ii) stock options ("CITATION Stock Options") and
warrants ("CITATION Warrants") to purchase an aggregate of
471,500 shares of Common Stock were issued and outstanding (of
which options and warrants to purchase an aggregate of 381,898
shares of Common Stock were exercisable), (iii) no shares of
Common Stock were held in its treasury, (iv) no shares of
CITATION Preferred Stock were issued and outstanding, and (v) no
stock options and warrants to purchase CITATION Preferred Stock
were issued and outstanding. All outstanding shares of capital
stock of CITATION have been duly authorized and validly issued
and are fully paid and nonassessable.
(b) As of the date hereof, except (i) as set forth in this
Section 4.5, and (ii) for changes since March 31, 2000, resulting
from the exercise of stock options outstanding on such date,
there are no outstanding (x) shares of capital stock or other
voting securities of CITATION, (y) securities of CITATION
convertible into or exchangeable for shares of capital stock or
voting securities of CITATION, or (z) options or other rights to
acquire from CITATION, and no obligation of CITATION to issue, any
capital stock, voting securities or securities convertible
into or exchangeable for capital stock or voting securities of
CITATION (the items in clauses (x), (y) and (z) being referred to
collectively as the "CITATION Securities"). There are no
outstanding obligations of CITATION or any CITATION Subsidiary to
repurchase, redeem or otherwise acquire any CITATION Securities.
There are no outstanding contractual obligations of CITATION to
provide funds to, or make any investment (in the form of a loan,
capital contribution or otherwise) in, any other Person. There
are no stockholder agreements, voting trusts or other agreements
or understandings to which CITATION is a party, or of which
CITATION is aware, relating to voting, registration or
disposition of any shares of capital stock of CITATION or
granting to any person or group of persons the right to elect, or
to designate or nominate for election, a director to the board of
directors of CITATION.
Section 4.6. Subsidiaries.
------------ Except as set forth on the CITATION
Disclosure Statement, CITATION does not have any subsidiaries and
does not own or control, directly or indirectly, any stock or
equity interest in any corporation or other Person.
Section 4.7. Financial Statements; No Material Undisclosed
---------------------------------------------
Liabilities.
-----------
(a) The audited consolidated balance sheets of CITATION as of
March 31, 1998 and 1999 and the draft audited consolidated
balance sheet as of March 31, 2000, together with the related
audited consolidated statements of operations, shareholders'
equity and cash flows for the fiscal years then ended in the case
of fiscal 1998 and 1999 and the draft audited financial
statements in the case of fiscal 2000, and
<PAGE> A-10
the notes thereto (the "CITATION Financial Statements") fairly
present in all material respects, in conformity with GAAP
consistently applied (except as may be indicated in the notes thereto),
the financial position of CITATION as of the dates thereof and its
results of operations, shareholders' equity and consolidated cash flows
for the periods then ended.
(b) There are no liabilities of CITATION of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable
or otherwise, in each case, that are required by GAAP to be set
forth on a balance sheet of CITATION, other than:
(i) liabilities or obligations disclosed or provided for in the
CITATION Balance Sheet or disclosed in the notes thereto;
(ii) liabilities or obligations under this Agreement or incurred
in connection with the transactions contemplated hereby; and
(iii) other liabilities or obligations that individually or
in the aggregate, would not be reasonably likely to have a
CITATION Material Adverse Effect.
Section 4.8. CITATION SEC Documents.
----------------------
(a) CITATION has filed all reports, filings, registration
statements and other documents required to be filed by it with
the SEC since March 31, 1995. No CITATION Subsidiary is required
to file any form, report, registration statement or prospectus or
other document with the SEC.
(b) As of its filing date, each CITATION SEC Document complied
as to form in all material respects with the applicable
requirements of the Securities Act and/or the Exchange Act, as
the case may be.
(c) No CITATION SEC Document filed pursuant to the Exchange Act
contained, as of its filing date, any untrue statement of a
material fact or omitted to state any material fact necessary in
order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. No
CITATION SEC Document, as amended or supplemented, if applicable,
filed pursuant to the Securities Act contained, as of the date
such document or amendment became effective, any untrue statement
of a material fact or omitted to state any material fact required
to be stated therein or necessary to make the statements therein
not misleading.
(d) CITATION and the CITATION Subsidiaries keep proper
accounting records in which all material assets and liabilities,
and all material transactions, of CITATION and the CITATION
Subsidiaries are recorded in conformity with GAAP applied on a
consistent basis. No part of CITATION's or any CITATION
Subsidiary's accounting system or records, or access thereto, is
under the control of a Person who is not an employee of CITATION
or such Subsidiary.
Section 4.9. Information to be Supplied.
--------------------------
(a) The information to be supplied by CITATION expressly for
inclusion or incorporation by reference in the Joint Proxy
Statement/Prospectus will (i) in the case of the Registration
Statement, at the time it becomes effective, not contain any
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make
the statements therein not misleading and (ii) in the case of the
remainder of the Joint Proxy Statement/Prospectus, at the time of
the mailing thereof, and at the time of the Special Meeting, not
contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The
Joint Proxy Statement/Prospectus will comply (with respect to
information relating to CITATION) as to form in all material
respects with the provisions of the Securities Act and the
Exchange Act.
<PAGE> A-11
(b) Notwithstanding the foregoing, CITATION makes no
representation or warranty with respect to any statements made or
incorporated by reference in the Joint Proxy Statement/Prospectus
based on and in accordance with information supplied by Cerner.
Section 4.10. Absence of Certain Changes.
-------------------------- Since March 31, 2000,
except as otherwise expressly contemplated by this Agreement,
CITATION has conducted its business in the ordinary course
consistent with past practice and there has not been (a) any
damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of CITATION that,
individually or in the aggregate, has had or would be reasonably likely
to have a CITATION Material Adverse Effect, (b) any action, event,
occurrence, development or state of circumstances or facts that,
individually or in the aggregate, has had or would be reasonably likely
to have a CITATION Material Adverse Effect or (c) any incurrence,
assumption or guarantee by CITATION of any material indebtedness for
borrowed money other than in the ordinary course and in amounts and on
terms consistent with past practices.
Section 4.11. Litigation.
---------- Section 4.11 of the CITATION
Disclosure Schedule contains a list of each action, suit,
investigation, arbitration or proceeding pending against, or to
the Knowledge of CITATION threatened against, CITATION or any of
its respective assets or properties before any arbitrator or
Governmental Entity. None of such actions, suits,
investigations, arbitrations or proceedings, individually or in
the aggregate, is reasonably likely to have a CITATION Material
Adverse Effect. There are no outstanding judgments, decrees,
injunctions, awards or orders against CITATION that are
reasonably likely to have, individually or in the aggregate, a
CITATION Material Adverse Effect.
Section 4.12. Taxes.
-----
(a) All Tax returns, statements, reports and forms
(collectively, the "CITATION Returns") required to be filed with
any taxing authority by, or with respect to, CITATION and the
CITATION Subsidiaries have been filed in substantial compliance
with all applicable laws.
(b) CITATION has timely paid all Taxes shown as due and payable
on the CITATION Returns that have been so filed, and all other
Taxes not subject to reporting obligations, and as of the time of
filing, the CITATION Returns correctly reflected the facts
regarding the income, business, assets, operations, activities
and the status of CITATION and the CITATION Subsidiaries (other
than Taxes that are being contested in good faith and for which
adequate reserves are reflected on the CITATION Balance Sheet).
(c) CITATION has made provision for all Taxes payable by them
for which no CITATION Return has yet been filed.
(d) The charges, accruals and reserves for Taxes with respect to
CITATION reflected on the CITATION Balance Sheet are materially
adequate under GAAP to cover the Tax liabilities accruing through
the date thereof.
(e) There is no action, suit, proceeding, audit or claim now
proposed or pending against or with respect to CITATION in
respect of any Tax that is reasonably likely to have a CITATION
Material Adverse Effect.
(f) CITATION has not been a member of an affiliated,
consolidated, combined or unitary group other than one of which
CITATION was the common parent.
(g) CITATION does not hold any asset subject to a consent under
Section 341(f) of the Code.
<PAGE> A-12
Section 4.13. Employee Benefits.
-----------------
(a) Section 4.13(a) of the CITATION Disclosure Schedule contains
a correct and complete list identifying each material "employee
benefit plan,", as defined in Section 3(3) of Employee Retirement
Income Security Act of 1974 ("ERISA"), each employment, severance
or similar contract, plan, arrangement or policy and each other
plan or arrangement (written or oral) providing for compensation,
bonuses, profit-sharing, stock option or other stock related
rights or other forms of incentive or deferred compensation,
vacation benefits, insurance coverage (including any self-insured
arrangements), health or medical benefits, disability benefits,
workers' compensation, supplemental unemployment benefits,
severance benefits and post-employment or retirement benefits
(including compensation, pension, health, medical or life
insurance benefits) that is maintained, administered or
contributed to by CITATION or any of its ERISA Affiliates and
covers any employee or former employee of CITATION or any
CITATION Subsidiary. Copies of such plans (and, if applicable,
related trust agreements) and all amendments thereto and written
interpretations thereof have been furnished, or will be made
available upon request, to Cerner together with the most recent
annual report (Form 5500 including, if applicable, Schedule B
thereto), all summary plan descriptions and material employee
communications prepared in connection with any such plan. Such
plans are referred to collectively herein as the "CITATION
Employee Plans." For purposes of this Section 4.13, "ERISA
Affiliate" of any Person means any other Person which, together
with such Person, would be treated as a single employer under
Section 414 of the Code.
(b) No CITATION Employee Plan is now or at any time has been
subject to Part 3, Subtitle B of Title I of ERISA or Title IV of
ERISA. At no time has CITATION or any of its ERISA Affiliates
contributed to, or been required to contribute to, any
"multiemployer plan," as defined in Section 3(37) of ERISA (a
"Multiemployer Plan"), or any other plan subject to Title IV of
ERISA (a "Retirement Plan"), and neither CITATION nor any of its
ERISA Affiliates has, or ever has had, any liability (contingent
or otherwise) relating to the withdrawal or partial withdrawal
from a Multiemployer Plan. To the Knowledge of CITATION, no
condition exists and no event has occurred that would be
reasonably likely to constitute grounds for termination of any
CITATION Employee Plan that is a Retirement Plan or, with respect
to any CITATION Employee Plan that is a Multiemployer Plan,
presents a material risk of a complete or partial withdrawal
under Title IV of ERISA and neither CITATION nor any of its ERISA
Affiliates has incurred any liability under Title IV of ERISA
arising in connection with the termination of, or complete or
partial withdrawal from, any plan covered or previously covered
by Title IV of ERISA that would be reasonably likely to have a
CITATION Material Adverse Effect. To the Knowledge of CITATION,
nothing has been done or omitted to be done and no transaction or
holding of any asset under or in connection with any CITATION
Employee Plan has occurred that will make CITATION or any
CITATION Subsidiary, or any officer or director of CITATION or
any CITATION Subsidiary, subject to any liability under Title I
of ERISA or liable for any tax pursuant to Section 4975 of the
Code (assuming the taxable period of any such transaction expired
as of the date hereof) that would be reasonably likely to have a
CITATION Material Adverse Effect.
(c) Each CITATION Employee Plan that is intended to be qualified
under Section 401(a) of the Code now meets, and at all times
since its inception have met, the requirements for such
qualification other than such requirements for which a remedial
amendment period has not expired, and each trust forming a part
thereof is now, and at all times since its inception has been,
exempt from tax pursuant to Section 501(a) of the Code. Each such
plan has received a determination letter from the Internal
Revenue Service to the effect that such plan is qualified and its
related trust is exempt from federal income taxes. CITATION has
furnished, or will make available upon request, to Cerner copies
of the most recent Internal Revenue Service determination letters
with respect to each such CITATION Employee Plan. Each CITATION
Employee Plan has been maintained and administered in substantial
compliance with its terms (except that in any case in which any
CITATION Employee Plan is currently required to comply with a
provision of ERISA or of the Code, but is not yet to be amended
to reflect such provision, such plan has been maintained and
administered in accordance with the provision) and with the
requirements prescribed by any and all statutes, orders, rules
and regulations, including but not limited to ERISA and the Code,
which are applicable to such CITATION Employee Plan. All
material reports, returns and similar documents with respect to
each CITATION Employee Plan required to be filed with any
governmental
<PAGE> A-13
agency or distributed to any CITATION Employee Plan participant have
been duly timely filed and distributed.
(d) There is no contract, agreement, plan or arrangement that,
as a result of the Merger, would be reasonably likely to obligate
CITATION to make any payment of any amount that would not be
deductible pursuant to the terms of Section 162(m) or Section
280G of the Code.
(e) Except as disclosed in writing to Cerner prior to the date
hereof, there has been no amendment to, written interpretation or
announcement (whether or not written) relating to, or change in
employee participation or coverage under, any CITATION Employee
Plan that would increase materially the expense of maintaining
such CITATION Employee Plan above the level of the expense
incurred in respect thereof for the fiscal year ended March 31,
2000.
(f) No CITATION Employee Plan promises or provides post-
retirement medical, life insurance or other benefits due now or
in the future to current, former or retired employees of CITATION
or any Subsidiary.
Section 4.14. Compliance with Laws; Licenses, Permits and
-------------------------------------------
Registrations.
-------------
(a) CITATION is not in violation of, nor has CITATION violated,
any applicable provisions of any laws, statutes, ordinances,
regulations, judgments, injunctions, orders or consent decrees,
except for any such violations that, individually or in the
aggregate, would not be reasonably likely to have a CITATION
Material Adverse Effect.
(b) CITATION has all permits, licenses, approvals,
authorizations of and registrations with and under all federal,
state, local and foreign laws, and from all Governmental Entities
required by CITATION to carry on its business as currently conducted,
except where the failure to have any such permits, licenses,
approvals, authorizations or registrations, individually or in the
aggregate, would not be reasonably likely to have a CITATION Material
Adverse Effect.
Section 4.15. Title to Properties.
-------------------
(a) CITATION has good and marketable title to, or valid
leasehold interests in, all its properties and assets except for
such as are no longer used or useful in the conduct of its
business or as have been disposed of in the ordinary course of
business and except for defects in title, easements, restrictive
covenants and similar Liens, encumbrances or impediments that do
not materially interfere with the ability of CITATION to conduct
its business as currently conducted. All such assets and
properties, other than assets and properties in which CITATION
has leasehold interests, are free and clear of all Liens, except
for Liens that do not and will not materially interfere with the
ability of CITATION to conduct its business as currently
conducted.
(b) CITATION (i) is in substantial compliance with the terms of
all leases to which it is a party and under which it is in
occupancy, and all such leases are in full force and effect and
(ii) enjoys peaceful and undisturbed possession under all such
leases.
Section 4.16. Intellectual Property.
---------------------
(a) CITATION owns or has a valid license to use: (i) all Marks;
(ii) all Patents; (iii) all Copyrights; and (iv) all Trade
Secrets; necessary to (x) carry on the business of CITATION as
currently conducted or as proposed to be conducted by the
Surviving Corporation, to (y) make, have made, use, distribute
and sell all products currently sold by CITATION and all products
in development, in each case, reasonably necessary to conduct
CITATION's business in the manner conducted on the date hereof.
(b) There are no outstanding and, to CITATION's Knowledge, no
threatened disputes or disagreements with respect to any
agreement to which CITATION is a party, relating to any of
<PAGE> A-14
CITATION's Marks, Patents, Copyrights, or Trade Secrets
(collectively, "CITATION Intellectual Property").
(c) CITATION is the owner of all right, title, and interest in
and to the CITATION Intellectual Property, free and clear of all
Liens and other adverse claims.
(d) All former and current employees of CITATION have executed
written contracts with CITATION that assign to CITATION all
rights to any inventions, improvements, discoveries, or
information relating to the business of CITATION. To CITATION's
Knowledge, no employee of CITATION has entered into any contract
that restricts or limits in any way the scope or type of work in
which the employee may be engaged or requires the employee to
transfer, assign, or disclose information concerning his work to
anyone other than CITATION.
(e) All of the Patents are currently in compliance with formal
legal requirements (including payment of filing, examination, and
maintenance fees and proofs of working or use), are valid and
enforceable, and are not subject to any maintenance fees or taxes or
actions.
(f) CITATION uses reasonable procedures to keep its Trade
Secrets confidential, and CITATION's Trade Secrets have been
disclosed only under written agreements that require the
recipient to hold such Trade Secrets confidential.
(g) No Patent has been or is now involved in any interference,
reissue, reexamination, or opposition proceeding. To CITATION's
Knowledge, there is no potentially interfering patent or patent
application of any third party.
(h) To CITATION's Knowledge, no CITATION Intellectual Property
is infringed or, to CITATION's Knowledge, has been challenged or
threatened in any way. To CITATION's Knowledge, none of the
products manufactured and sold or proposed to be sold, nor any
process or know-how used, by CITATION infringes or is alleged to
infringe any Patent or other proprietary right of any other
Person.
(i) Other than the software licenses set forth in the CITATION
Disclosure Schedules, CITATION is not required to make any
payments to any third parties in connection with third party
technology embedded in the CITATION Intellectual Property.
(j) All products made, used, or sold under the Patents have been
marked with the proper patent notice.
Section 4.17. Environmental Matters.
---------------------
(a) With such exceptions as, individually or in the aggregate,
would not be reasonably likely to have a CITATION Material
Adverse Effect, (i) no written notice, notification, demand,
request for information, citation, summons, complaint or order
has been received by, and no investigation, action, claim, suit,
proceeding or review is pending or to the Knowledge of CITATION,
threatened by any Person against, CITATION with respect to any
applicable Environmental Law and (ii) to the Knowledge of
CITATION, CITATION is and has been in compliance with all
applicable Environmental Laws.
(b) The term "Environmental Laws" means any federal, state,
local and foreign statutes, laws (including, without limitation,
common law), judicial decisions, regulations, ordinances, rules,
judgments, orders, codes, injunctions, permits or governmental
agreements relating to human health and safety, the environment
or to pollutants, contaminants, wastes, or chemicals, hazardous
substances, hazardous materials or hazardous wastes as any of
those terms is regulated or defined by Environmental Laws.
<PAGE> A-15
Section 4.18. Finders' Fees; Opinions of Financial Advisor.
--------------------------------------------
(a) Except for A.G. Edward & Sons, Inc. and AristaQuest, Inc.,
there is no investment banker, broker, finder or other
intermediary that has been retained by, or is authorized to act on
behalf of, CITATION or who might be entitled to any fee or
commission from CITATION or Cerner or any of its Affiliates upon
consummation of the transactions contemplated by this Agreement.
(b) CITATION has received the oral opinion of A.G. Edwards &
Sons, Inc., dated as of the date hereof, to the effect that, as
of such date, the Merger Consideration is fair, from a financial
point of view, to the holders of shares of Common Stock (other
than Cerner and any Cerner Subsidiary).
Section 4.19. Required Vote and Waiver; Board Approval.
----------------------------------------
(a) The only vote or waiver of rights of the holders of any
class or series of capital stock of CITATION required by law,
rule or regulation to approve and adopt this Agreement and/or any
of the other transactions contemplated hereby, including the
Merger, is the affirmative vote of the holders of more than two-
thirds of the outstanding shares of Common Stock in favor of the
approval and adoption of this Agreement and approval of the
CITATION Merger and the transactions contemplated hereby.
(b) CITATION's Board of Directors has unanimously (i) determined
and declared that this Agreement and the transactions
contemplated hereby, including the Merger, are advisable and in
the best interests of CITATION and its shareholders, (ii)
approved and adopted this Agreement, the Merger and the other
transactions contemplated hereby and (iii) resolved to recommend
to such shareholders that they vote in favor of adopting and
approving this Agreement and the Merger in accordance with the
terms hereof at a special meeting of the shareholders of CITATION
duly held for such purpose (the "CITATION Shareholders Meeting").
Section 4.20. State Takeover Statutes.
----------------------- CITATION has taken all
actions required to be taken by it in order to exempt this
Agreement, the Shareholder Agreement and the transactions
contemplated by each of them, including the exercise of the
options granted in the Shareholder Agreement, from the provisions
of Section 351.459 of the Missouri Law, and accordingly, such
Sections do not apply to the Merger or any of such transactions.
No other "control share acquisition," "business combination,"
"fair price" or other anti-takeover laws or regulations enacted
under state or federal laws in the United States apply to this
Agreement, the Merger or any of the transactions contemplated
hereby.
Section 4.21. Tax Treatment.
------------- Neither CITATION nor any of its
Affiliates has taken or agreed to take, or will take, any action
or is aware of any fact or circumstance that would prevent or
impede the Merger from qualifying as a 368 Reorganization.
Section 4.22. Certain Agreements.
------------------ Neither CITATION nor any of
its Affiliates (i) are parties to or otherwise bound by any
agreement or arrangement that limits or otherwise restricts
CITATION, the Surviving Corporation or any of their respective
Affiliates from engaging or competing in any line of business or
in any locations, which agreement or arrangement is material to
the business of CITATION or would be material to the business of
the Surviving Corporation (assuming the Merger has taken place),
in either case taken as a whole and (ii) except in the ordinary
course of business, have amended, modified or terminated any
material contract, agreement or arrangement of CITATION or any
CITATION Subsidiary or otherwise waived, released or assigned any
material rights, claims or benefits of CITATION or any CITATION
Subsidiary thereunder.
Section 4.23. Employment Agreements.
--------------------- There exists (i) no union,
guild or collective bargaining agreement to which CITATION is a
party, (ii) no employment, consulting or severance agreement
between CITATION and any Person (except for consulting agreements
that individually, and in the aggregate, are not material to
CITATION), and (iii) no employment, consulting, severance or
indemnification agreement or other agreement or plan to which
CITATION is a party that would be altered or result in any bonus,
golden parachute, severance or other payment or obligation to any
Person, or result in any acceleration of the time of payment or
in the
<PAGE> A-16
provision or vesting of any benefits, as a result of the
execution or performance of this Agreement or as a result of the
Merger or the other transactions contemplated hereby.
Section 4.24. Transactions With Directors, Officers and
-----------------------------------------
Affiliates.
----------
Except for any of the following matters which would
not be required to be disclosed pursuant to Item 404 of
Regulation S-K of the Commission (assuming CITATION were subject
to such Item), since March 31, 1999, there have been no
transactions between CITATION or any of its Subsidiaries and any
director, officer, employee, shareholder or "Affiliate" (as
identified pursuant to Section 7.7 hereof) of CITATION,
including, without limitation, loans, guarantees or pledges to,
by or for CITATION, from, to, by or for any of such Persons.
Except for any of the following matters which would not be
required to be disclosed pursuant to Item 404 of Regulation S-K
of the Commission (assuming that CITATION was subject to such
Item), since March 31, 1999, none of the officers or directors of
CITATION, and no spouse or relative of any of such Persons, has
been a director or officer of, or has had any material direct or
indirect interest in, any Person which during such period has
been a supplier, customer or sales agent of CITATION or has
competed with or been engaged in any business of the kind being
conducted by CITATION. Since March 31, 1999, none of the
compensation that would be required to be disclosed pursuant to
Item 402 of Regulation S-K of the Commission (assuming CITATION
were subject to such Item) to all directors, officers, employees,
shareholders or "Affiliates" of CITATION has been increased in a
manner that is inconsistent with the past practices of CITATION.
Section 4.25. Material Contracts.
------------------ Schedule 4.25 of the
CITATION Disclosure Schedule lists all material contracts and
agreements to which, as of the date hereof, CITATION is a party
or by which is bound or under which CITATION has or may acquire
any rights, which involve or relate to (i) obligations of CITATION
for borrowed money or other indebtedness where the amount of such
obligations exceeds $75,000 individually, (ii) the lease by
CITATION, as lessee or lessor, of real property for rent of more
than $75,000 per annum, (iii) the purchase or sale of goods
(other than raw material to be purchased by CITATION on terms
that are customary and consistent with the past practice of
CITATION and in amounts and at prices substantially consistent
with past practices of CITATION) or services with an aggregate
minimum purchase price of more than $75,000 per annum, (iv)
rights to manufacture and/or distribute any product which
accounted for more than $75,000 of the consolidated revenues of
CITATION during the fiscal year ended March 31, 2000 or under
which CITATION received or paid license or other fees in excess
of $75,000 during any year, (v) the purchase or sale of assets or
properties not in the ordinary course of business having a
purchase price in excess of $75,000, (vi) the right (whether or
not currently exercisable) to use, license (including any "in-
license" or "outlicense"), sublicense or otherwise exploit any
intellectual property right or other proprietary asset of
CITATION or any other Person which; (vii) any collaboration or
joint venture or similar arrangement; (viii) the restriction on
the right or ability of CITATION (A) to compete with any other
Person, (B) to acquire any product or other asset or any services
from any other Person, (C) to solicit, hire or retain any Person
as an employee, consultant or independent contractor, (D) to
develop, sell, supply, distribute, offer, support or service any
product or any technology or other asset to or for any other
Person, (E) to perform services for any other Person, or (F) to
transact business or deal in any other manner with any other
Person; (ix) any currency hedging; (x) individual capital
expenditures or commitments in excess of $75,000; or (xi) powers
of attorney. All such contracts and agreements are duly and
validly executed by CITATION and are in full force and effect in
all material respects. CITATION has not materially violated or
breached, or committed any material default under, any contract
or agreement, and, to the Knowledge of CITATION, no other Person
has materially violated or breached, or committed any material
default under, any contract or agreement. No event has occurred
which, after notice or the passage of time or both, would
constitute a default by CITATION under any contract or agreement
or give any Person the right to (A) declare a default or exercise
any remedy under any contract or agreement, (B) receive or
require a rebate, chargeback, penalty or change in delivery
schedule under any contract or agreement, (C) accelerate the
maturity or performance of any contract or agreement, or (D)
cancel, terminate or modify any contract or agreement, in each
case which, together with all other events of the types referred
to in clauses (A), (B), (C) and (D) of this sentence has had or
may reasonably be expected to have a CITATION Material Adverse
Effect. All such contracts and agreements will continue, after
the Effective Time, to be binding in all material respects in
accordance with their respective terms until their respective
expiration dates.
Section 4.26. Certain Business Practices.
-------------------------- Neither CITATION
norto the Knowledge of CITATION any director, officer, agent or
employee of CITATION has (i) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses
relating to political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to
foreign or domestic political parties or campaigns or violated
any
<PAGE> A-17
provision of the Foreign Corrupt Practices Act of 1977, as
amended, (assuming for purposes of this Section 4.26 that
CITATION is subject to Section 30A of the Exchange Act) or (iii)
made any other unlawful payment.
Section 4.27. Insurance.
--------- CITATION has made available to
Cerner a summary of all material insurance policies and all
material self-insurance programs and arrangements relating to the
business, assets and operations of CITATION . Each of such
insurance policies is in full force and effect. Since January 1,
1995, CITATION has not received any notice or other communication
regarding any actual or possible (i) cancellation or invalidation
of any material insurance policy, (ii) refusal of any coverage or
rejection of any material claim under any insurance policy, or
(iii) material adjustment in the amount of the premiums payable
with respect to any insurance policy. There is no pending
workers' compensation or other claim under or based upon any
insurance policy of CITATION other than claims incurred in the
ordinary course of business.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF MERGER SUB
Merger Sub represents and warrants to CITATION as follows:
Section 5.1. Organization.
------------ Merger Sub is a corporation duly
incorporated, validly existing and in good standing under the
laws of Delaware. Merger Sub is a direct wholly-owned subsidiary
of Cerner.
Section 5.2. Corporate Authorization.
----------------------- Merger Sub has all
requisite corporate power and authority to enter into this
agreement and to consummate the transactions contemplated by this
Agreement. The execution, delivery and performance by Merger Sub
of this Agreement and the consummation of the transactions
contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of Merger Sub. This
Agreement has been duly executed and delivered by Merger Sub and
assuming this Agreement constitutes a valid and binding agreement
of CITATION, constitutes a valid and binding agreement of Merger
Sub, enforceable against it in accordance with its terms, except
as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or
affecting creditors generally or by general equity principles.
Section 5.3. Non-Contravention.
----------------- The execution, delivery and
performance by Merger Sub of this Agreement and the consummation
by Merger Sub of the transactions contemplated by this Agreement
do not and will not contravene or conflict with its certificate
of incorporation or bylaws.
Section 5.4. No Business Activities.
---------------------- Merger Sub has not
conducted any activities other than in connection with the
organization of Merger Sub, the negotiation and execution of this
Agreement and the consummation of the transactions contemplated
by this Agreement. Merger Sub has no subsidiaries.
Section 5.5. Taxes.
----- Merger Sub has not taken or agreed to
take, will not take, and is not aware of any fact or circumstance
that would prevent or impede the Merger from qualifying as a 368
Reorganization.
ARTICLE VI
COVENANTS OF CITATION
CITATION agrees that:
Section 6.1. CITATION Interim Operations.
--------------------------- Except as set forth
in the CITATION Disclosure Schedule or as otherwise expressly
contemplated or permitted hereby, or as required by any
Governmental Entity of competent jurisdiction, without the prior
consent of Cerner, from the date hereof until the Effective Time,
CITATION shall conduct its business in all material respects in
the ordinary course consistent with past practice and shall use
commercially reasonable efforts to (i) preserve intact its
present business organization, (ii) maintain in effect all
material foreign, federal, state and local licenses, approvals
and authorizations, including, without limitation, all material
licenses and permits that are required for CITATION to carry on
its business and (iii)
<PAGE> A-18
preserve existing relationships with its material customers, lenders,
suppliers and others having material business relationships with it.
Without limiting the generality of the foregoing, except as otherwise
expressly contemplated or permitted by this Agreement, or as required
by a Governmental Entity of competent jurisdiction, from the date
hereof until the Effective Time, without the prior consent of Cerner,
CITATION shall not:
(a) amend its Articles of Incorporation or By-laws;
(b) split, combine or reclassify any shares of capital stock of
CITATION or declare, set aside or pay any dividend;
(c) (i) issue, deliver or sell, or authorize the issuance,
delivery or sale of, any shares of its capital stock of any class
or any securities convertible into or exercisable for, or any
rights, warrants or options to acquire, any such capital stock or
any such convertible securities, other than (A) a number of
shares of capital stock equal to that number of shares underlying
options forfeited prior to the Closing by former CITATION
employees, pursuant to the CITATION Employee Plans, or (B) Common
Stock upon the exercise of stock options or warrants in
accordance with their present terms or upon exercise of options
issued pursuant to clause (A) of this Section 6.1(c)(i); or (ii)
amend in any respect any term of any outstanding security of
CITATION;
(d) other than in connection with transactions not prohibited by
Section 6.1(e), incur any capital expenditures or any obligations
or liabilities in respect thereof, except for those (i)
contemplated by the capital expenditure budgets for CITATION made
available to Cerner, or (ii) incurred in the ordinary course of
business of CITATION and consistent with past practice;
(e) except in the ordinary course of business, acquire (whether
pursuant to cash merger, stock or asset purchase or otherwise) in
one transaction or series of related transactions (i) any assets
(including any equity interests) having a fair market value in
excess of $75,000, or (ii) all or substantially all of the equity
interests of any Person or any business or division of any Person
having a fair market value in excess of $75,000, but in no event
shall the expenditures, commitments, obligations or liabilities
made, incurred or assumed, as the case may be, by CITATION
pursuant to Sections 6.1(d) and 6.1(e) exceed $250,000 in the
aggregate;
(f) sell, lease, license, perform services, encumber or
otherwise dispose of any assets, other than (i) sales or licenses
of finished goods or the performance of services in the ordinary
course of business consistent with past practice, (ii) equipment
and property no longer used in the operation of CITATION's
business and (iii) assets related to discontinued operations of
CITATION or any CITATION Subsidiary;
(g) (i) incur any indebtedness for borrowed money or guarantee
any such indebtedness, (ii) issue or sell any debt securities or
warrants or rights to acquire any debt securities of CITATION,
(iii) make any loans, advances or capital contributions to or
investments in, any other Person, or (iv) guarantee any debt
securities or indebtedness of others in any case in an amount in excess
of $50,000, except, in each case, in the ordinary course of business
consistent with past practice (which exception shall include, without
limitation, borrowings under CITATION's existing credit agreements and
overnight borrowings);
(h) (i) enter into any agreement or arrangement that limits or
otherwise restricts CITATION or any of its Affiliates or any
successor thereto or that would, after the Effective Time, limit
or restrict CITATION or the Surviving Corporation, or any of
their respective Affiliates, from engaging or competing in any
line of business or in any location, or (ii) enter into, amend,
modify or terminate any material contract, agreement or
arrangement of CITATION or otherwise waive, release or assign any
material rights, claims or benefits of CITATION thereunder;
provided, however, that this Section 6.1(h) shall not prevent
CITATION from entering into material contracts with customers,
suppliers or distributors, so long as such contracts are entered
into in the ordinary course and consistent with CITATION's prior
practice;
<PAGE> A-19
(i) (i) except as required by law or a written agreement
existing on or prior to the date hereof, or as consistent with
past practice and routine raises on anniversary dates, increase
the amount of compensation of any director or executive officer
or make any increase in or commitment to increase any employee
benefits, (ii) except as required by law, a written agreement
existing on or prior to the date hereof, or a CITATION severance
policy existing as of the date hereof, grant any severance or
termination pay to any director, officer or employee of CITATION
or, (iii) adopt any additional employee benefit plan or, except
in the ordinary course of business consistent with past practice
and containing only normal and customary terms, or make any
contribution to any existing such plan or (iv) except as may be
required by law or a written agreement or employee benefit plan
existing on or prior to the date hereof, or as contemplated by
this Agreement, enter into, amend in any respect, or accelerate
the vesting under any CITATION Employee Plan, employment
agreement, option, license agreement or retirement agreements, or
(v) hire any employee with an annual base salary in excess of
$75,000;
(j) change (x) CITATION's methods of accounting in effect at
March 31, 2000 except as required by changes in GAAP, as
concurred with by its independent public accountants, or (y)
CITATION's fiscal year;
(k) (i) settle, propose to settle or commence, any litigation,
investigation, arbitration, proceeding or other claim that is
material to the business of CITATION, other than the payment,
discharge or satisfaction, in the ordinary course of business
consistent with past practice of liabilities (x) recognized or
disclosed in the CITATION Financial Statements (or the notes
thereto) or (y) incurred since the date of such Financial
Statements in the ordinary course of business consistent with
past practice, or (ii) make any material Tax election or enter
into any settlement or compromise of any Tax liability other than
in the ordinary course of business consistent with past practices
and containing only normal and customary terms;
(l) enter into any new material line of business;
(m) except to the extent required to comply with its obligations
hereunder or required by law, CITATION shall not amend or propose
to so amend its Articles of Incorporation, Bylaws or other
governing documents; or
(n) agree, resolve or commit to do any of the foregoing.
Section 6.2. Acquisition Proposals; Board Recommendation.
-------------------------------------------
(a) CITATION agrees that it shall not, nor shall it authorize or
knowingly permit any officer, director, employee, investment
banker, attorney, accountant, agent or other advisor or
representative of CITATION, directly or indirectly, to (i)
solicit, initiate or knowingly facilitate or encourage the
submission of any Acquisition Proposal for CITATION, (ii)
participate in any discussions or negotiations regarding, or
furnish to any Person any information with respect to, or take
any other action knowingly to facilitate any inquiries or the
making of any proposal that constitutes an Acquisition Proposal
for CITATION, (iii) grant any waiver or release under any
standstill or similar agreement with respect to any class of
CITATION equity securities or (iv) enter into any agreement with
respect to any Acquisition Proposal for CITATION; provided,
however, that if, at any time prior to receipt of the CITATION
Shareholder Approval, CITATION's Board of Directors reasonably
determines in good faith, after receipt of written advice from
outside counsel and independent financial advisor of CITATION,
that failing to take such action could reasonably be expected to
be a breach of its fiduciary duties to CITATION's shareholders
under applicable law, CITATION may, in response to an Acquisition
Proposal for CITATION made after the date of this Agreement which
was not solicited by CITATION or its representatives or agents
and which did not otherwise result from a breach of this Section
6.2, and which is reasonably likely to lead to a Superior
Proposal, and subject to compliance with Section 6.2(c)
(x) furnish information with respect to CITATION to any person
pursuant to a customary confidentiality agreement including
customary standstill provisions (as determined by CITATION after
consultation with its outside counsel) and (y) participate in
negotiations regarding such Acquisition Proposal for CITATION.
<PAGE> A-20
(b) Neither the Board of Directors of CITATION nor any committee
thereof shall (i) withdraw, or propose publicly to withdraw, in a
manner adverse to Cerner, the approval or recommendation by such
Board of Directors or such committee of the Merger or this
Agreement, (ii) subject to Section 6.2(d), modify, or propose
publicly to modify, in a manner adverse to Cerner, the approval
or recommendation by such Board of Directors or such committee of
the Merger or this Agreement, (iii) approve or recommend, or
propose publicly to approve or recommend, any Acquisition
Proposal for CITATION or (iv) approve or recommend, or propose to
approve or recommend, or execute or enter into, any letter of
intent, agreement in principle, merger agreement, acquisition
agreement, option agreement or other similar agreement or propose
publicly or agree to do any of the foregoing related to any
Acquisition Proposal for CITATION. Notwithstanding the
foregoing, if at any time prior to receipt of CITATION
Shareholder Approval the Board of Directors of CITATION
determines in good faith, after receipt of written opinions from
outside counsel and independent financial advisor of CITATION,
that it has received an Acquisition Proposal for CITATION that
constitutes a Superior Proposal which did not result from a breach
of this Section 6.2 and that failure to do one of the following
could reasonably be expected to be a breach of its fiduciary duties
to CITATION's shareholders under applicable Law, the Board of
Directors of CITATION may (subject to this and the following
sentences), after paying to Cerner the Termination Fee,
(x) withdraw or modify its approval or recommendation of the
Merger and this Agreement, (y) approve or recommend the Superior
Proposal (as defined below), or (z) or terminate this Agreement
(and concurrently with or after such termination, if it so
chooses, cause CITATION to enter into any Acquisition Agreement
with respect to the Superior Proposal), but in each of the cases
set forth in clause (x), (y) or (z), only at a time prior to
receipt of the CITATION Shareholder Approval and only at a time
that is after the tenth business day following Cerner's receipt
of written notice advising Cerner that the Board of Directors of
CITATION has received a Superior Proposal, specifying the
material terms and conditions of such Superior Proposal and
identifying the person making such Superior Proposal. Any such
withdrawal or modification of the recommendation of the Merger
and this Agreement and the transactions contemplated hereby shall
not change the approval of the Board of Directors of CITATION for
purposes of causing Section 351.459 of the Missouri Law to be
inapplicable to the Merger and this Agreement, the transactions
contemplated hereby and Cerner's entering into the Shareholder
Agreement and acquiring shares of Common Stock upon exercise of
the options granted therein. For all purposes of this Agreement,
a "Superior Proposal" means any bona fide proposal made by a
third party to acquire, directly or indirectly, for consideration
consisting of cash and/or securities, 100% of the CITATION
Securities then outstanding (whether pursuant to a tender or
exchange offer, merger, consolidation, share exchange, or other
business combination) or all or substantially all the assets of
CITATION and otherwise on terms which the Board of Directors of
CITATION determines in its good faith judgment (based on a
written opinion of CITATION's financial advisor) to be materially
more favorable to CITATION and its shareholders than the Merger
(taking into account any changes to the financial and other
contractual terms of this Agreement proposed by Cerner in
response to such proposal, the Person making the proposal, any
legal or regulatory considerations and all other relevant
financial and strategic considerations, including the timing of
the consummation of such transactions) and for which financing,
to the extent required, is then committed or which, in the good
faith judgment of the Board of Directors of CITATION, is
reasonably capable of being obtained by such third party.
(c) In addition to the obligations of CITATION set forth in
paragraphs (a) and (b) of this Section 6.2, CITATION shall
immediately advise Cerner orally and in writing of any request
for information or of any Acquisition Proposal for CITATION, the
material terms and conditions of such request or Acquisition
Proposal for CITATION and the identity of the person making such
request or Acquisition Proposal for CITATION. CITATION will keep
Cerner fully informed of the status and details (including
amendments or proposed amendments) of any such request or
Acquisition Proposal for CITATION. If, after CITATION receives a
Superior Proposal, Cerner desires to continue negotiations with
CITATION with respect to the Merger, CITATION agrees to
negotiate in good faith with Cerner.
(d) Nothing contained in this Section 6.2 shall prohibit
CITATION from taking and disclosing to its shareholders a
position contemplated by Rule 14d-9 and 14e-2(a) promulgated
under the Exchange Act or from making any disclosure to
CITATION's shareholders if, in the good faith judgment of the
Board of Directors of CITATION, after consultation with outside
counsel, failure so to disclose would be inconsistent with its
fiduciary duties to CITATION's shareholders under applicable Law;
provided,
<PAGE> A-21
however, neither CITATION nor its Board of Directors
nor any committee thereof shall, except as permitted by Section
6.2(b), withdraw or modify, or propose publicly to withdraw or
modify, its position with respect to the Merger or this Agreement
or approve or recommend, or propose publicly to approve or
recommend, an Acquisition Proposal for CITATION.
Section 6.3. Employment Agreements.
--------------------- CITATION agrees to use its
reasonable best efforts to cause each of the employees of
CITATION identified in Exhibit F hereto to execute and deliver to
Cerner employment agreements in the form attached hereto as
Exhibit G. CITATION agrees that it will not terminate the
employment of J. Robert Copper, Richard D. Neece, or any of the
employees of CITATION identified on Exhibit F hereto, without the
prior written consent of Cerner.
Section 6.4. Shareholder Agreement.
--------------------- CITATION agrees to use its
reasonable best efforts to cause each of the shareholders of
CITATION who is a party to the Shareholders Agreement to comply
with the covenants set forth in Article IV of the Shareholders
Agreement.
ARTICLE VII
COVENANTS OF CITATION AND CERNER
The parties hereto agree that:
Section 7.1. Reasonable Best Efforts.
----------------------- Subject to the terms and
conditions hereof, each party will use reasonable best efforts to
take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable under applicable
laws and regulations to consummate the transactions contemplated
by this Agreement as promptly as practicable.
Section 7.2. Certain Filings; Cooperation in Receipt of
------------------------------------------
Consents; Listing.
-----------------
As promptly as reasonably practicable after
the date hereof, CITATION and Cerner shall prepare and Cerner
shall file with the SEC the Registration Statement, in which the
Joint Proxy Statement/Prospectus will be included as Cerner's
prospectus. Each of CITATION and Cerner shall use all reasonable
efforts to have the Registration Statement declared effective
under the Securities Act as promptly as reasonably practicable
after such filing and to keep the Registration Statement
effective as long as is necessary to consummate the Merger and
the transactions contemplated thereby. CITATION shall mail the
Joint Proxy Statement/Prospectus to its shareholders as promptly
as reasonably practicable after the Registration Statement is
declared effective under the Securities Act and, if necessary,
after the Joint Proxy Statement/Prospectus shall have been so
mailed, promptly circulate amended, supplemental or supplemented
proxy material, and, if required in connection therewith,
resolicit proxies. On or before the effectiveness of the Registration
Statement, CITATION shall file the Joint Proxy/Prospectus with the SEC.
Cerner and CITATION shall take any action (other than qualifying to do
business in any jurisdiction in which it is not now so qualified or to
file a general consent to service of process) required to be taken under
any applicable state securities or blue sky laws in connection
with the issuance of shares of Cerner Common Stock in the Merger.
(a) No amendment or supplement to the Joint Proxy
Statement/Prospectus will be made by CITATION or Cerner without
the approval of the other party, which will not be unreasonably
withheld or delayed. Each party will advise the other party,
promptly after it receives notice thereof, of (i) the time when
the Registration Statement has become effective or any supplement
or amendment has been filed, (ii) the issuance of any stop order,
(iii) the suspension of the qualification of the shares of Cerner
Common Stock issuable in connection with the Merger for offering
or sale in any jurisdiction, or (iv) any request by the SEC for
amendment of the Joint Proxy Statement/Prospectus or comments
thereon and responses thereto or requests by the SEC for
additional information, in each case, whether orally or in
writing. If at any time prior to the Effective Time, CITATION or
Cerner discovers any information relating to either party, or any
of their respective Affiliates, officers or directors, that
should be set forth in an amendment or supplement to the Joint
Proxy Statement/Prospectus, so that such document would not
include any misstatement of a material fact or omit to state any
material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading,
the party that discovers such information shall promptly notify
the other party hereto and an appropriate amendment or supplement
describing such information shall be promptly filed with respect
thereto, and with respect to the
<PAGE> A-22
Registration Statement, as the case may be, with the SEC and, to the
extent required by law or regulation, disseminated to the shareholders
of CITATION.
(b) CITATION and Cerner shall cooperate with one another in (i)
determining whether any other action by or in respect of, or
filing with, any Governmental Entity is required, or any actions,
consents, approvals or waivers are required to be obtained from
parties to any material contracts, in connection with the
consummation of the transactions contemplated hereby, (ii)
seeking any such other actions, consents, approvals or waivers or
making any such filings, furnishing information required in
connection therewith and seeking promptly to obtain any such
actions, consents, approvals or waivers, (iii) setting a mutually
acceptable date for the CITATION Shareholders Meeting, and
(iv) taking all lawful action to call, give notice of, convene
and hold the CITATION Shareholders Meeting for the purpose of
obtaining the requisite votes to approve and adopt this
Agreement, the Merger and the other matters contemplated by this
Agreement. The Board of Directors of CITATION shall, subject to
its fiduciary duties under applicable law, declare the
advisability of and recommend adoption and approval of this
Agreement, the Merger and the other matters contemplated by this
Agreement by the shareholders of CITATION, and shall not, subject
to its fiduciary duties under applicable law, withdraw, modify or
materially qualify in any manner adverse to Cerner to such
recommendation or take any action or make any statement in
connection with the CITATION Shareholder Meeting materially
inconsistent with such recommendation (any such withdrawal,
modification, qualification or statement (whether or not
required), an "Adverse Change in the CITATION Recommendation").
(c) Each party shall afford the other party reasonable
opportunities to review any communication given by it to, and
consult with each other in advance of any meeting or conference
with, any Governmental Entity or, in connection with any
proceeding by a private party, with any other Person, and to the
extent permitted by the applicable Governmental Entity or other
Person, give the other party the opportunity to attend and
participate in such meetings and conferences, in each case in
connection with the transactions contemplated hereby.
(d) Cerner and CITATION agree to use their respective reasonable
best efforts to cause the shares of Cerner Common Stock to be
issued to CITATION Shareholders upon conversion of shares of
Common Stock in accordance with this Agreement, the Articles of
Merger and the Certificate of Merger to be approved for listing
upon issuance on the Nasdaq National Market.
Section 7.3. Public Announcements.
-------------------- Cerner and CITATION shall
use their reasonable best efforts to develop a joint
communications plan and each party shall use its reasonable best
efforts (i) to ensure that all press releases and other public
statements with respect to the transactions contemplated hereby
shall be consistent with such joint communications plan, and
(ii) unless otherwise required by applicable law or by
obligations pursuant to any rules of the Nasdaq National Market,
to consult with each other before issuing any press release or,
to the extent practical, otherwise making any public statement
with respect to this Agreement or the transactions contemplated
hereby.
Section 7.4. Access to Information; Notification of Certain
----------------------------------------------
Matters.
-------
(a) From the date hereof until the Effective Time and subject to
applicable law, CITATION shall (i) give to Cerner, its counsel,
financial advisors, auditors and other authorized representatives
reasonable access during normal business hours to the offices,
properties, books, records, contracts, commitments, officers and
employees and all other information concerning it and its
business, properties, assets, condition (financial or otherwise)
or prospects of such party, (ii) consistent with its legal
obligations, furnish or make available to Cerner, its counsel,
financial advisors, auditors and other authorized representatives
such financial and operating data and other information as such
Persons may reasonably request and (iii) instruct its employees,
counsel, financial advisors, auditors and other authorized
representatives to cooperate with the reasonable requests of
Cerner in its investigation. Any investigation pursuant to this
Section 7.4 shall be conducted in such manner as not to interfere
unreasonably with the conduct of the business of the other party.
Unless otherwise required by law, each of Cerner and CITATION
will hold, and will cause its respective officers, employees,
counsel, financial advisors, auditors and other authorized
representatives to hold, any nonpublic information obtained in
any such
<PAGE> A-23
investigation in confidence in accordance with the
Confidentiality Agreement. No information or knowledge obtained
in any investigation pursuant to this Section 7.4 shall affect or
be deemed to modify any representation or warranty made by any
party hereunder.
(b) Each party hereto shall give prompt notice to each other
party hereto of:
(i) the receipt by such party or any of such party's
Subsidiaries of any notice or other communication from any Person
alleging that the consent of such Person is or may be required in
connection with the transactions contemplated by this Agreement;
(ii) the receipt by such party or any of such party's
Subsidiaries of any notice or other communication from any
Governmental Entity in connection with any of the transactions
contemplated by this Agreement;
(iii) such party's obtaining Knowledge of any actions, suits,
claims, investigations or proceedings commenced, threatened
against, relating to or involving or otherwise affecting either
CITATION or Cerner, as the case may be, or any Subsidiary of
either of them which relate to the consummation of the
transactions contemplated by this Agreement; or
(iv) such party's obtaining Knowledge of the occurrence, or
failure to occur, of any event which occurrence or failure to
occur will be likely to cause (A) any representation or warranty
contained in this Agreement to be untrue or inaccurate in any
material respect, or (B) any material failure of any party to
comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement; provided,
however, that no such notification shall limit or otherwise
affect the representations, warranties, obligations or remedies
of the parties to the conditions to the obligations of the
parties hereunder.
Section 7.5. Further Assurances.
------------------ At and after the Effective
Time, the officers and directors of the Surviving Corporation
will be authorized to execute and deliver, in the name and on
behalf of CITATION or Merger Sub, any deeds, bills of sale,
assignments or assurances and to take and do, in the name and on
behalf of CITATION or Merger Sub, any other actions and things to
vest, perfect or confirm of record or otherwise in the Surviving
Corporation any and all right, title and interest in, to and
under any of the rights, properties or assets of CITATION or
Merger Sub acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with the Merger.
Section 7.6. Tax Treatment.
-------------
(a) Prior to the Effective Time, each party shall cooperate with
the other party and shall use its reasonable best efforts to
cause the Merger to qualify as a 368 Reorganization, and will not
take any action reasonably likely to cause the Merger not so to
qualify. The Surviving Corporation shall not take any action
after the Effective Time that would cause the Merger not to
qualify a 368 Reorganization.
(b) Each party shall cooperate with the other party and shall
use its reasonable best efforts to obtain the opinions referred
to in Sections 8.2(b) and 8.3(b) and in connection therewith,
each of Cerner and CITATION shall deliver to such counsel
customary representation letters substantially in the forms
attached hereto as Exhibit C
and Exhibit D (the "Cerner Representation Letter" and the "CITATION
Representation Letter", respectively) or otherwise in form and substance
reasonably satisfactory to such counsel.
Section 7.7. Affiliates.
---------- Not less than 45 days prior to the
Effective Time, CITATION shall deliver to Cerner a letter
identifying all persons who, in the reasonable judgment of
CITATION, may be deemed at the time this Agreement is submitted
for adoption by the shareholders of CITATION, "affiliates" of
CITATION for purposes of Rule 145 under the Securities Act and
such list shall be updated as necessary to reflect changes from
the date hereof. CITATION shall use reasonable best efforts to
cause each Person identified on such list to deliver to Cerner
not less than 10 days prior to the Effective Time, a written
agreement substantially in the form attached as Exhibit E
<PAGE> A-24
hereto (an "Affiliate Agreement"), which Affiliate Agreements shall
require compliance with Rule 145 under the Securities Act.
Section 7.8. Benefit Matters.
--------------- Cerner and CITATION will work
together to transition CITATION employees to Cerner employee
benefit plans, as appropriate.
Section 7.9. Antitrust Matters.
----------------- The parties hereto promptly
will complete all documents required to be filed with the Federal
Trade Commission and the Department of Justice in order to permit
the Merger and the transactions contemplated by this Agreement
and, together with the Persons who are required to join in such
filings, will file the same with the appropriate Governmental
Entities. The parties hereto promptly will furnish all materials
thereafter required by any of the Governmental Entities having
jurisdiction over such filings and will take all reasonable
actions and file and use all reasonable efforts to have declared
effective or approved all documents and notifications with any
such Governmental Entities, as may be required under the HSR Act
for the consummation of the Merger.
Section 7.10. Exemption From Liability Under Section 16(b).
--------------------------------------------
(a) Provided that CITATION delivers to Cerner the Section 16
Information with respect to CITATION prior to the Effective Time,
the Board of Directors of Cerner, or a committee of Non-Employee
Directors thereof (as such term is defined for purposes of Rule
16b-3(d) under the Exchange Act), shall adopt a resolution in
advance of the Effective Time providing that the receipt by the
CITATION Insiders of Cerner Common Stock in exchange for shares
of Common Stock, and of options to purchase Cerner Common Stock
upon assumption and conversion by the Surviving Corporation of
options to purchase Common Stock, in each case pursuant to the
transactions contemplated hereby and to the extent such
securities are listed in the Section 16 Information, are intended
to be exempt from liability pursuant to Rule 16b-3 under the
Exchange Act.
(b) "Section 16 Information" shall mean information accurate in
all respects regarding the CITATION Insiders, the number of
shares of Common Stock, or other CITATION equity securities,
deemed to be beneficially owned by each such CITATION Insider and
expected to be exchanged for Cerner Common Stock in connection
with the Merger.
(c) "CITATION Insiders" shall mean those officers and directors
of CITATION who are subject to the reporting requirements of
Section 16(a) of the Exchange Act who are listed in the Section
16 Information.
Section 7.11. Indemnification and Insurance.
-----------------------------
(a) The Certificate of Incorporation and By-Laws of Merger Sub
shall contain provisions with respect to indemnification and
exculpation similar to those set forth in the Articles of
Incorporation and By-Laws of CITATION, which provisions Cerner
shall not and shall cause Merger Sub not to amend, repeal or
otherwise modify for a period of five (5) years from the
Effective Time in any manner that would materially and adversely
affect the rights thereunder of individuals who at the Effective
Time were directors, officers, employees or agents of CITATION,
unless such amendment, repeal or other modification is required
by applicable law.
(b) From and after the Effective Time, Cerner and Merger Sub
agree that they will indemnify and hold harmless each present
director and officer of CITATION (when acting in such capacity)
determined as of the Effective Time (the "Indemnified Parties"),
against any costs or expenses (including reasonable attorneys'
fees), judgments, fines, losses, claims, damages or liabilities
(collectively, "Costs") incurred in connection with any claim,
action, suit, proceeding or investigation whether civil,
criminal, administrative or investigative, arising out of or
pertaining to matters existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or after
the Effective Time, to the fullest extent that CITATION would
have been permitted under Missouri Law and its Articles of
Incorporation or By-Laws in effect on the date of this Agreement
to indemnify such person (and Cerner and Merger Sub shall also
<PAGE> A-25
advance expenses as incurred to the fullest extent permitted
under applicable Missouri Law and the Articles of Incorporation
and the By-Laws of CITATION, provided that the person to whom
expenses are advanced provides an undertaking to repay such
advances if it is ultimately determined that such person is not
entitled to indemnification).
(c) Any Indemnified Party wishing to claim indemnification under
paragraph (b) of this Section 7.11, upon learning of any such
claim, action, suit, proceeding or investigation, shall promptly
notify Cerner thereof in writing, but the failure to so notify
shall not relieve Cerner of any liability it may have to such
Indemnified Party if such failure does not materially prejudice
Cerner. In the event of any such claim, action, suit, proceeding
or investigation (whether arising before or after the Effective
Time), (i) Cerner or Merger Sub shall have the right to assume
the defense thereof, and Cerner shall not be liable to such
Indemnified Parties for any legal expenses of other counsel or
any other expenses subsequently incurred by such Indemnified
Parties in connection with the defense thereof, except that if
Cerner or Merger Sub elects not to assume such defense, or if
there are any issues which raise material conflicts of interest
between Cerner or Merger Sub and the Indemnified Parties, the
Indemnified Parties may retain counsel reasonably satisfactory to
Cerner, and Cerner or Merger Sub shall pay all reasonable fees
and expenses of such counsel for the Indemnified Parties;
provided, however, that Cerner shall be obligated pursuant to
this paragraph (c) to pay for only one firm or counsel for all
Indemnified Parties and, as applicable, for local counsel, and
provided, however, the costs of more than one firm or counsel shall be
paid if the Indemnified Parties cannot be represented by one firm or
counsel because of a conflict of interest, (ii) the Indemnified
Parties will cooperate in the defense of any such matter, and (iii)
Cerner shall not be liable for any settlement effected without its
prior written consent (which consent shall not be unreasonably
withheld or delayed).
(d) For a period of five (5) years after the Effective Time and
to the extent available, Cerner or Merger Sub shall maintain in
effect policies of directors' and officers' liability insurance
covering those persons who are currently covered by CITATION's
directors' and officers' liability insurance policy on terms
(including the amounts of coverage and the amounts of
deductibles, if any) that are no less favorable to them in any
material respect than the terms now applicable to them under
CITATION's current insurance policies; provided that Cerner and
Merger Sub shall not be required to pay an annual premium for
such insurance in excess of 150% of the last annual premium paid
prior to the date hereof, but in such case shall purchase as much
coverage as possible for such amount.
(e) If Cerner or Merger Sub or any of their successors or
assigns (i) shall consolidate with or merge into any other
corporation or entity and shall not be the continuing or
surviving corporation or entity in such consolidation or merger
or (ii) shall transfer all or substantially all of its properties
and assets to any individual, corporation or other entity, then
and in each case, proper provisions shall be made so that the
successors and assigns of Cerner or Merger Sub, as the case may
be, shall assume all of the obligations set forth in this Section
7.11; provided, that the failure to make such provisions shall
not affect the validity of any such consolidation, merger or
transfer.
(f) The provisions of this Section 7.11 are intended to be for
the benefit of, and shall be enforceable by, each of the
Indemnified Parties, their heirs and representatives.
(g) Notwithstanding the foregoing, neither Cerner nor Merger Sub
shall have any obligation to indemnify or exculpate any officer
or director or CITATION from liability to Cerner, Merger Sub or
Cerner's stockholders for any acts related to or arising out of
the Merger, this Agreement or the transactions contemplated
hereby if and to the extent such person's conduct was finally
adjudged to have been knowingly fraudulent, deliberately
dishonest or willful misconduct.
<PAGE> A-26
ARTICLE VIII
CONDITIONS TO THE MERGER
Section 8.1. Conditions to the Obligations of Each Party.
------------------------------------------- The
respective obligations of CITATION, Cerner and Merger Sub to
consummate the Merger are subject to the satisfaction or waiver
on or prior to the Closing Date of the following conditions:
(a) Shareholder Approval.
-------------------- The CITATION Shareholder Approval
shall have been obtained;
(b) Securities Laws.
--------------- (i) The Registration Statement shall have
become effective in accordance with the provisions of the
Securities Act, no stop order suspending the effectiveness of the
Registration Statement shall have been issued by the SEC and no
proceedings for that purpose shall have been initiated or
threatened by the SEC and not concluded or withdrawn, (ii) all
state securities or blue sky authorizations necessary to carry
out the transactions contemplated hereby shall have been obtained
and be in effect, and (iii) the Nasdaq National Market shall
have approved the listing of the Cerner Common Stock portion of
the Merger Consideration, subject to notice of issuance;
(c) Antitrust.
--------- Any applicable waiting period under the HSR Act
contemplated by Section 7.9 hereof shall have expired or been
earlier terminated;
(d) Other Regulatory Approvals.
-------------------------- Other than the filings provided
for by Article II, all authorizations, consents, orders or
approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any Governmental Entity the failure
of which to obtain would have a CITATION Material Adverse Effect,
a Cerner Material Adverse Effect or a Surviving Corporation
Material Adverse Effect, shall have been filed, occurred or been
obtained; and
(e) No Injunctions or Restraints; Illegality.
---------------------------------------- No Laws shall
have been adopted or promulgated, and no temporary restraining
order, preliminary or permanent injunction or other order issued
by a court or other Governmental Entity of competent jurisdiction
shall be in effect, (i) having the effect of making the Merger
illegal or otherwise prohibiting, enjoining or restraining
consummation of the Merger or (ii) which otherwise would
reasonably be expected to have a Surviving Corporation Material
Adverse Effect after giving effect to the Merger; provided,
however, that the provisions of this Section 8.1(e) shall not be
available to any party whose failure to fulfill its obligations
pursuant to Sections 7.1 and 7.2 shall have been the cause of, or
shall have resulted in, such order or injunction.
Section 8.2. Conditions to the Obligations of Cerner and Merger
--------------------------------------------------
Sub.
---
The obligations of Cerner and Merger Sub to consummate the
Merger are subject to the satisfaction, or waiver by Cerner and
Merger Sub, on or prior to the Closing Date, of the following
further conditions:
(a) Representations and Covenants.
----------------------------- (i) CITATION shall have
performed in all material respects all of its obligations
hereunder required to be performed by it at or prior to the time
of the filing of the Articles of Merger and the Certificate of
Merger; (ii) the representations and warranties of CITATION in
this Agreement that are qualified as to materiality, CITATION
Material Adverse Effect or Surviving Corporation Material Adverse
Effect shall be accurate, and any such representations and
warranties that are not so qualified shall be accurate, in all
material respects, as of the date of this Agreement and as of the
Effective Time (except for representations and warranties that
address matters only as of a specific date, in which case such
representations and warranties qualified as to materiality,
CITATION Material Adverse Effect or Surviving Corporation
Material Adverse Effect shall be true and correct, and those not
so qualified shall be true and correct in all material respects, on
and as of such earlier date); and (iii) Cerner shall have received
a certificate signed by the Chief Executive Officer or Chief
Financial Officer of CITATION to the foregoing effect;
(b) Tax Opinion.
----------- Cerner shall have received an opinion of
Stinson, Mag & Fizzell, P.C. in form and substance reasonably
satisfactory to Cerner, on the basis of certain facts,
representations and
<PAGE> A-27
assumptions set forth in such opinion, dated as of the date of the
filing of the Articles of Merger and the Certificate of Merger, to
the effect that the Merger will qualify for federal income tax
purposes as a 368 Reorganization and that each of Cerner, CITATION
and Merger Sub will be a party to the reorganization within the
meaning of Section 368(b) of the Code. In rendering such opinion,
such counsel shall be entitled to rely upon representations of
officers of Cerner, CITATION and Merger Sub;
(c) Employment Agreements.
--------------------- J. Robert Copper and Richard D. Neece
shall have executed and delivered to Cerner employment agreements
in a form mutually agreeable to such parties;
(d) Affiliate Agreements.
-------------------- Cerner shall have received from each
Person named in the letter referred to in Section 7.7 an executed
copy of an Affiliate Agreement;
(e) Opinion of Counsel.
------------------ Cerner shall have received an opinion
of Thompson Coburn LLP in substantially the form attached hereto
as Exhibit H; and
(f) No Material Adverse Change.
-------------------------- There shall have been no
material adverse change in the financial condition, results of
operations or cash flows or assets, liabilities, business or
prospects of CITATION from March 31, 2000 through the Closing
Date.
Section 8.3. Conditions to the Obligations of CITATION.
----------------------------------------- The
obligations of CITATION to consummate the Merger are subject to
the satisfaction, or waiver by CITATION, on or prior to the
Closing Date, of the following further conditions:
(a) Representations and Covenants.
----------------------------- (i) Cerner shall have
performed in all material respects all of its obligations
hereunder required to be performed by it at or prior to the time
of the filing of the Articles of Merger and the Certificate of
Merger; (ii) the representations and warranties of Cerner and
Merger Sub in this Agreement that are qualified as to
materiality, Cerner Material Adverse Effect or Surviving
Corporation Material Adverse Effect shall be accurate, and any
such representations and warranties that are not so qualified
shall be accurate, in all material respects, as of the date of
this Agreement and as of the Effective Time (except for
representations and warranties which address matters only as of a
specific date, in which case such representations and warranties
qualified as to materiality, Cerner Material Adverse Effect or
Surviving Corporation Material Adverse Effect shall be true and
correct, and those not so qualified shall be true and correct in
all material respects, on and as of such earlier date); and
(iii) CITATION shall have received a certificate signed by the
Chief Executive Officer or Chief Financial Officer of Cerner and
Merger Sub to the foregoing effect;
(b) Tax Opinion.
----------- CITATION shall have received an opinion of
Thompson Coburn LLP in form and substance reasonably satisfactory
to CITATION, on the basis of certain facts, representations and
assumptions set forth in such opinion, dated as of the date of
the filing of the Articles of Merger and the Certificate of
Merger, to the effect that the Merger will qualify for federal
income tax purposes as a 368 Reorganization and that each of
Cerner, Merger Sub and CITATION will be a party to the
reorganization within the meaning of Section 368(b) of the Code.
In rendering such opinion, such counsel shall be entitled to rely
upon representations of officers of Cerner, Merger Sub and
CITATION;
(c) Employment Agreements.
--------------------- Cerner shall have executed and
delivered employment agreements to J. Robert Copper and Richard
D. Neece, in a form mutually agreeable to such parties;
(d) Opinion of Counsel.
------------------ CITATION shall have received an opinion
of Stinson, Mag & Fizzell and/or the General Counsel of Cerner,
in substantially the form attached hereto as Exhibit I; and
(e) No Material Adverse Change.
-------------------------- There shall have been no
material adverse change in the financial condition, results of
operations or cash flows or assets, liabilities, business or
prospects of Cerner from the date of the Cerner Balance Sheet
through the Closing Date.
<PAGE> A-28
ARTICLE IX
TERMINATION
Section 9.1. Termination.
----------- This Agreement may be terminated at
any time prior to the Effective Time by written notice by the
terminating party to the other party (except if such termination
is pursuant to Section 9.1(a)), notwithstanding approval thereof
by the shareholders of CITATION:
(a) by mutual written agreement of Cerner and CITATION;
(b) by either CITATION or Cerner, if
(i) the Merger shall not have been consummated by December 30,
2000 (the "Expiration Date") unless the holders of Common Stock
do not approve this Agreement by the Expiration Date, in which
case this Agreement is terminable under Section 9.1(b)(iii);
provided, however, that the right to terminate this Agreement
under this Section 9.1(b)(i) shall not be available to any party
whose breach of any provision of this Agreement has resulted in
the failure of the Merger to occur on or before the Expiration
Date;
(ii) there shall be any Law that makes consummation of the Merger
illegal or otherwise prohibited or any judgment, injunction,
order or decree of any Governmental Entity having competent
jurisdiction enjoining Cerner, CITATION or the Merger Sub from
consummating the Merger is entered and such judgment, injunction,
judgment or order shall have become final and nonappealable and,
prior to such termination, the parties shall have used reasonable
best efforts to resist, resolve or lift, as applicable, such law,
regulation, judgment, injunction, order or decree; or
(iii) the holders of Common Stock do not approve this
Agreement on or before the Expiration Date.
(c) by Cerner, (i) if there shall have occurred an Adverse
Change in the CITATION Recommendation (or the Board of Directors
of CITATION have resolved to take such action); (ii) if there
shall have occurred a willful and material breach of Section 6.2
by CITATION or any of its officers, directors, employees,
advisors or agents; (iii) if a breach of any representation,
warranty, covenant or agreement on the part of CITATION set forth
in this Agreement shall have occurred that would cause the
condition set forth in Section 8.2(a) not to be satisfied, and
such condition shall be incapable of being satisfied by the
Expiration Date; (iv) CITATION shall have failed to include in
the Joint Proxy Statement/Prospectus the recommendation of the
Board of Directors of CITATION in favor of the adoption and
approval of this Agreement and the approval of the Merger;
(v) the Board of Directors of CITATION shall have approved,
endorsed or recommended any Acquisition Proposal of CITATION;
(vi) a tender or exchange offer relating to securities of
CITATION shall have been commenced and CITATION shall not have
sent to its security holders, within ten business days after the
commencement of such tender or exchange offer, a statement
disclosing that CITATION recommends rejection of such tender or
exchange offer; or (vii) CITATION or CITATION's Board of
Directors or any committee thereof shall have resolved to do or
permit any of the foregoing;
(d) by CITATION, if a breach of any representation, warranty,
covenant or agreement on the part of Cerner set forth in this
Agreement shall have occurred that would cause the condition set
forth in Section 8.3(a) not to be satisfied, and such condition
is incapable of being satisfied by the Expiration Date;
(e) by CITATION, pursuant to the provisions of Section 6.2(b);
or
(f) automatically if the transactions contemplated herein are
enjoined by a court of competent jurisdiction for a period
extending beyond 90 days.
<PAGE> A-29
Section 9.2. Effect of Termination.
--------------------- If this Agreement is
terminated pursuant to Section 9.1, this Agreement shall
forthwith become void and there shall be no liability or
obligation on the part of Cerner or CITATION or their respective
officers or directors except with respect to the provisions of
Sections 9.2, 10.1, 10.4, 10.5, and 10.10 of this Agreement which
provisions shall remain in full force and effect and survive any
termination of this Agreement, and except that, notwithstanding
anything to the contrary contained in this Agreement, neither
Cerner nor CITATION shall be relieved or released from any
liabilities or damages arising out of its willful material breach
of this Agreement. The Confidentiality Agreement shall survive
termination of this Agreement.
Section 9.3. Termination Fees; Other Fees.
----------------------------
(a) CITATION agrees to pay to Cerner upon demand a termination
fee of Six Hundred Thousand Dollars ($600,000) (the "Termination
Fee") (i) if this Agreement is terminated pursuant to Section
9.1(b)(iii) and the closing sale price per share of Cerner Common
Stock, as reported by Nasdaq, is greater than $24.00 on at least
10 of the last 20 trading days immediately preceding the date for
the CITATION Shareholder Meeting as set forth in the definitive
Joint Proxy Statement/Prospectus, or (ii) pursuant to Section
6.2(b). In the event of a termination of this Agreement pursuant
to Section 6.2(b) or 9.1(b)(iii) of this Agreement, the payments
provided under this Section 9.3(a) shall be the sole and
exclusive remedy available to Cerner.
(b) Except as set forth in this Section 9.3, all
Expenses incurred in connection herewith and the
transactions contemplated hereby shall be paid by the party
incurring such Expenses, whether or not the Merger is
consummated. All CITATION Expenses will be recorded prior
to the Closing Date. As used in this Agreement, "Expenses"
includes all out-of-pocket expenses (including, without
limitation, all fees and expenses of counsel, accountants,
investment bankers, experts and consultants to a party
hereto and its affiliates) incurred by a party or on its
behalf in connection with or related to the authorization,
preparation, negotiation, execution and performance of this
Agreement and the transactions contemplated hereby,
including the preparation, printing, filing and mailing of
the Joint Proxy Statement/Prospectus and the solicitation of
shareholder approval.
ARTICLE X
MISCELLANEOUS
-------------
Section 10.1. Notices.
------- All notices and other communications
hereunder shall be in writing and shall be deemed duly given
(a) on the date of delivery if delivered personally, or by
telecopy or telefacsimile, upon confirmation of receipt, in each
case, if on a Business Day, and otherwise on the next Business
Day, (b) on the first service, (c) on the fifth Business Day
following the date of mailing if delivered by registered or
certified mail, return receipt requested, postage prepaid, or (d)
the second Business Day if delivered by nationally recognized
overnight courier. All notices hereunder shall be delivered as
set forth below, or pursuant to such other instructions as may be
designated in writing by the party to receive such notice:
if to the Surviving Corporation, to the address set
forth below for Cerner and CITATION, including copies;
if to Cerner and/or Merger Sub, to:
Cerner Corporation
2800 Rockcreek Parkway
Kansas City, Missouri 64117
Attention: President
<PAGE> A-30
with copies to:
Cerner Corporation
2800 Rockcreek Parkway
Kansas City, Missouri 64117
Attention: General Counsel
Stinson, Mag & Fizzell, P.C.
1201 Walnut Street, Suite 2800
Kansas City, MO 64106
Attention: Craig L. Evans
if to CITATION to:
CITATION Computer Systems, Inc.
424 South Woods Mill Road
Suite 200
Chesterfield, Missouri 63017
Attention: President
with a copy to:
Thompson Coburn LLP
One Firstar Plaza
St. Louis, Missouri 63101
Attention: Thomas A. Litz
Section 10.2. Amendments; No Waivers.
----------------------
(a) Any provision of this Agreement may be amended or waived
prior to the Effective Time if, and only if, such amendment or
waiver is in writing and signed, in the case of an amendment, by
Cerner and CITATION or in the case of a waiver, by the party
against whom the waiver is to be effective; provided that after
the CITATION Shareholder Approval, no such amendment or waiver
shall, without the further approval of such shareholders, be made
that would require such approval under any applicable law, rule
or regulation.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof
nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
Section 10.3. Assignment.
---------- Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by
any of the parties hereto, in whole or in part (whether by
operation of law or otherwise), without the prior written consent
of the other party, and any attempt to make any such assignment
without such consent shall be null and void. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and
assigns.
Section 10.4. Governing Law.
------------- This Agreement shall be construed
in accordance with and governed by the internal laws of the State
of Delaware without regard to any principles of Delaware
conflicts or choice of law.
Section 10.5. Counterparts; Effectiveness.
--------------------------- This Agreement may
be executed in one or more counterparts, all of which shall be
considered one and the same agreement and shall become effective
when one or more counterparts have been signed by each of the
parties and delivered to the other party, it being understood
that both parties need not sign the same counterpart. This
Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other
parties hereto.
<PAGE> A-31
Section 10.6. No Third Party Beneficiaries.
---------------------------- This Agreement
shall be binding upon and inure solely to the benefit of each
party hereto, and nothing in this Agreement, express or implied,
is intended to or shall confer upon any other Person any right,
benefit or remedy of any nature whatsoever under or by reason of
this Agreement.
Section 10.7. Interpretation.
-------------- When a reference is made in this
Agreement to Sections, Exhibits or Schedules, such reference
shall be to a Section of or Exhibit or Schedule to this Agreement
unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation."
Section 10.8. Enforcement.
----------- The parties agree that irreparable
damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their
specific terms. It is accordingly agreed that the parties shall
be entitled to specific performance of the terms hereof, this
being in addition to any other remedy to which they are entitled
at law or in equity.
Section 10.9. Entire Agreement.
---------------- This Agreement (together with
the exhibits and schedules hereto) constitutes the entire
agreement between the parties with respect to the subject matter
hereof and supersedes all prior agreements and understandings,
both oral and written, between the parties with respect to the
subject matter hereof.
Section 10.10. Severability.
------------ If any term, provision, covenant or
restriction set forth in this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or
unenforceable, the remainder of the terms, provisions, covenants
and restrictions set forth in this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or
invalidated so long as the economic or legal substance of the
transactions contemplated hereby is not deemed by a party (acting
reasonably and in good faith) to be materially adverse to that
party. Upon such a determination, the parties shall negotiate in
good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in order that the
transactions contemplated hereby may be consummated as originally
contemplated to the fullest extent possible.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
CERNER CORPORATION
By:_/s/Marc G. Naughton________________
Marc G. Naughton, Vice President and
Chief Financial Officer
CITATION COMPUTER SYSTEMS, INC.
By:_/s/J. Robert Copper_________________
J. Robert Copper, Chairman and Chief
Executive Officer
CERNER PERFORMANCE LOGISTICS, INC.
By:_/s/Marc G. Naughton__________________
Name: Marc G. Naughton, Vice President and
Chief Financial Officer
<PAGE> A-32
APPENDIX I
DEFINITIONS
"Acquisition Proposal for CITATION" means any offer or
proposal for a merger, consolidation, share exchange,
business combination, reorganization, recapitalization,
issuance of securities, liquidation, dissolution, tender
offer or exchange offer or other similar transaction or
series of transactions involving, or any purchase of 10% or
more of the assets, or directly or indirectly acquires
beneficial ownership of securities representing, or
exchangeable for or convertible into, more than 10% of the
outstanding securities of any class of voting securities of
CITATION or in which CITATION issues securities representing
10% of the outstanding securities of any class of voting
securities of CITATION, other than the transactions
contemplated by this Agreement.
"Affiliate" means, with respect to any Person, any
other Person, directly or indirectly, controlling,
controlled by, or under common control with, such Person.
For purposes of this definition, the term "control"
(including the correlative terms "controlling", "controlled
by" and "under common control with") means the possession,
direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person,
whether through the ownership of voting securities, or
partnership or other ownership interests, by contract, or
otherwise.
"Average Cerner Stock Price" means the average of the
closing sales price per share of Cerner Common Stock as
reported by NASDAQ on each of the 20 consecutive trading
days immediately preceding the third trading day prior to
the date of the determination.
"Business Day" means any day other than a Saturday,
Sunday or one on which banks are authorized by law to close
in the State of Missouri.
"Cerner Balance Sheet" means Cerner's audited balance
sheet dated January 1, 2000.
"Cerner Common Stock" means the common stock of Cerner,
par value $.01 per share, including the associated rights
(the "Cerner Stock Purchase Rights") to purchase shares of
Series A Preferred Stock of Cerner pursuant to the Amended
and Restated Rights Agreement, dated as of March 12, 1999,
between Cerner and UMB Bank, n.a., as Rights Agent. All
references in this Agreement to Cerner Common Stock shall be
deemed to include the Cerner Stock Purchase Rights.
"Cerner Disclosure Schedule" means the schedule
delivered to CITATION by Cerner pursuant to Article III
hereof containing exceptions to the representations and
warranties of Cerner set forth in such Article III.
"Cerner SEC Documents" means (i) Cerner's annual report
on Form 10-K for its fiscal year ended January 1, 2000 (the
"Cerner 10-K"), (ii) Cerner's quarterly report on
Form 10-Q (the "Cerner 10-Q") for its fiscal quarter ended
April 1, 2000, (iii) Cerner's proxy or information
statements relating to meetings of, or actions taken without
a meeting by, Cerner's stockholders held since May 28, 1999,
and (iv) all other reports, filings, registration statements
and other documents filed by it with the SEC since January
1, 1999.
"CITATION Balance Sheet" means CITATION's draft audited
balance sheet relating to its fiscal year ended on March 31,
2000.
"CITATION Disclosure Schedule" means the schedule
delivered to Cerner by CITATION pursuant to Article IV
hereof containing exceptions to the representations and
warranties of CITATION set forth in such Article IV.
"CITATION Preferred Stock" means the preferred stock,
par value $.01 per share, of CITATION.
"CITATION SEC Documents" means (i) CITATION's annual
report on Form 10-K for its fiscal year ended March 31, 1999
(the "CITATION 10-K"), (ii) CITATION's proxy or information
statements relating to meetings of,
<PAGE> A-33
or actions taken without a meeting by, CITATION's shareholders
held since August 19, 1999, and (iv) all other reports, filings,
registration statements and other documents filed by it with the SEC
since March 31, 1999.
"Closing" means the closing of the Merger contemplated
in this Agreement.
"Closing Date" means the date on which the Closing
occurs.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Common Stock" means the common stock, par value $.01
per share, of CITATION.
"Confidentiality Agreement" means the Confidentiality
Agreement by and between Cerner and CITATION attached hereto
as Exhibit J.
"Copyrights" mean all copyrightable works in both
published works and unpublished works registered and
unregistered, including, without limitation, any software.
"Exchange Act" means the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated
thereunder.
"Exchange Agent" means UMB Bank, n.a., or any successor
exchange agent agreed upon by Cerner and CITATION.
"Exchange Ratio" means 0.1695, such number may be
adjusted pursuant to Section 2.1(g).
"Governmental Entity" means any federal, state or local
governmental authority, any transgovernmental authority or
any court, tribunal, administrative or regulatory agency or
commission or other governmental authority or agency,
domestic or foreign.
"Joint Proxy Statement/Prospectus" means the joint
proxy statement/prospectus included in the Registration
Statement relating to the CITATION Shareholder Meeting,
together with any amendments or supplements thereto.
"Knowledge" means, with respect to the matter in
question, if any of (i) in the case of Cerner or Merger Sub,
Zane Burke and Randy Sims, and (ii) in the case of CITATION,
the executive officers and directors of CITATION, in each
case after good faith due inquiry.
"Law" means any federal, state, local, municipal,
foreign, international, multinational, or other judicial or
administrative order, judgment, decree, constitution,
statute, rule, regulation, treaty, ordinance or principle of
common law.
"Lien" means, with respect to any asset, any mortgage,
lien, pledge, charge, security interest or encumbrance of
any kind in respect of such asset.
"Marks" mean all fictional business names, trading
names, registered and unregistered trademarks, service
marks, and applications therefor as well as the goodwill of
the business associated therewith.
"Material Adverse Effect" means a material adverse
effect on the financial condition, business, results of
operations or prospects of a Person and its Subsidiaries,
taken as a whole, but shall exclude any material adverse
effect arising out of any change or development relating to
(i) U.S. or global economic or industry conditions, (ii)
changes in U.S. or global financial markets or conditions,
and/or (iii) any generally applicable change in Law or GAAP
or interpretation of any thereof. "Cerner Material Adverse
Effect" means a Material Adverse Effect in respect of
Cerner, "CITATION Material Adverse Effect" means a Material
Adverse Effect in respect of CITATION and "Surviving
Corporation Material Adverse Effect" means a Material
Adverse Effect in respect of the Surviving Corporation.
<PAGE> A-34
"Patents" mean all patents, patent applications, and
inventions and discoveries that may be patentable.
"Person" means an individual, a corporation, a limited
liability company, a partnership, an association, a trust or
any other entity or organization, including any Governmental
Entity.
"Registration Statement" means the Registration
Statement on Form S-4 registering under the Securities Act
the Cerner Common Stock issuable in connection with the
Merger.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations promulgated
thereunder.
"Subsidiary" means, with respect to any Person, any
corporation or other entity of which securities or other
ownership interests having ordinary voting power to elect a
majority of the board of directors or other Persons
performing similar functions are directly or indirectly
owned by such Person. "Cerner Subsidiary" means a
Subsidiary of Cerner.
"Tax" or "Taxes" means any federal, state, county,
local or foreign taxes, charges, levies, imposts, duties,
other assessments or similar charges of any kind whatsoever,
including any interest, penalties and addition imposed
thereon or with respect thereto.
"Trade Secrets" mean trade secrets (such as customer
information, technical and non-technical data, a formula,
pattern, compilation, program, device, method, technique,
drawing, process) and other confidential and proprietary
information concerning the products, processes, or services
of CITATION, including but not limited to: computer
programs; unpatented or unpatentable inventions; ideas,
discoveries or improvements; know-how, procedures,
methodologies, machines, lectures, manuals, reports,
illustrations, plans, designs, proposals, programming aids,
flow charts, algorithms, schematics; marketing,
manufacturing, or organizational research and development
results and plans; business and strategic plans; sales
forecasts and plans; personnel information, including the
identity of employees of CITATION, their responsibilities,
competence, abilities, and compensation; pricing and
financial information; current and prospective customer
lists and information on customers or their employees;
information concerning purchases of major equipment or
property; and information about potential mergers or
acquisitions.
"368 Reorganization" means a merger that qualifies as a
reorganization within the meaning of Section 368(a) of the
Code and the regulations promulgated thereunder.
In addition to the definitions set forth above, each of
the following terms is defined in the Section set forth
opposite such term:
TERMS SECTIONS
Adverse Change in the CITATION 7.2(b)
Recommendation
Affiliate Agreement 7.7
Agreement Preambl
e
Articles of Merger 2.1(b)
Cerner Preambl
e
Cerner Financial Statement 3.11
Cerner Representation Letter 7.6(b)
Cerner Return 3.12
Certificate of Merger 2.1(b)
Certificates 2.3(a)
CITATION Preambl
e
CITATION Employee Plans 4.13(a)
CITATION Financial Statements 4.7(a)
<PAGE> A-35
CITATION Insiders 7.10(c)
CITATION Intellectual Property 4.16(b)
CITATION Representation Letter 7.6(b)
CITATION Returns 4.12(a)
CITATION Securities 4.5(b)
CITATION Shareholder Approval Recital
s
CITATION Shareholders Meeting 4.19(b)
CITATION Stock Options 4.5(a)
CITATION Warrants 4.5(a)
Common Stock Recital
s
Costs 7.11(b)
Delaware Law 2.1(a)
Effective Time 2.1(b)
Environmental Laws 4.17(b)
ERISA 4.13(a)
ERISA Affiliate 4.13(a)
Exchange Fund 2.3(a)
Expenses 9.3
Expiration Date 9.1(b)(
i)
GAAP 3.5(d)
HSR Act 3.3
Indemnified Parties 7.11(b)
Merger Recital
s
Merger Consideration 2.1(e)(
i)
Merger Sub Preambl
e
Missouri Law 2.1(a)
Multiemployer Plan 4.13(b)
Retirement Plan 4.13(b)
Section 16 Information 7.10(b)
Shareholder Agreement Recital
s
Shares Recital
s
Stock Rights 2.1(f)
Superior Proposal 6.2(b)
Surviving Corporation 2.1(a)
<PAGE> A-36
APPENDIX B
[LETTERHEAD OF A.G. EDWARDS & SONS, INC.]
May 15, 2000
The Board of Directors
CITATION Computer Systems, Inc.
424 South Woods Mill Road
Suite 200
Chesterfield, MO 63017
Gentlemen:
You have requested our opinion as to the fairness, from a
financial point of view, to the shareholders (the
"Shareholders") of the stock of CITATION Computer Systems,
Inc. ("CCS" or the "Company") of the consideration to be
received by the Shareholders from Cerner Corporation
("Cerner") pursuant to the Agreement and Plan of Merger (the
"Agreement") dated as of May 15, 2000 between the Company,
Cerner and a wholly-owned subsidiary of Cerner ("Merger
Sub"). Pursuant to the Agreement, 90% of the shares of CCS
will be exchanged for shares of Cerner at an exchange rate
of 5.9 CCS shares for one share of Cerner common stock. The
remaining 10% of the CCS shares will be exchanged for $5.10
per share. After the exchange CCS shall be merged with and
into Merger Sub (the "Merger"). As a result of the Merger,
the separate corporate existence of CCS shall cease and
Merger Sub shall continue as a wholly-owned subsidiary of
Cerner. The sum of such transactions pursuant to the
Agreement is referred to as the "Transaction".
A.G. Edwards & Sons, Inc. ("A.G. Edwards"), as part of its
investment banking business, is regularly engaged in the
valuation of businesses and their securities in connection
with mergers and acquisitions, negotiated under writings,
competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for
estate, corporate or other purposes. We are not aware of
any present or contemplated relationship between A.G.
Edwards, the Company, or the Company's directors and
officers or its shareholders, or Cerner, its directors,
officers and shareholders, which in our opinion would affect
our ability to render a fair and independent opinion in this
matter.
In connection with this opinion, we have, among other
things:
i. reviewed the draft Agreement dated May 10, 2000 and
related documents;
ii. reviewed certain historical financial statements and
financial projections for the Company and Cerner;
iii. discussed with the Company's management the nature
of the negotiations of the terms of the Transaction;
iv. compared the relative value of the consideration to
be received by the Company's shareholders to
the historical public market value relationship
between CCS and Cerner stock;
v. held discussions with management of the Company and
Cerner regarding the past and current business
operations, financial condition and future prospects
of the Company and Cerner, including information
relating to the strategic, financial and operational
benefits anticipated from the Transaction;
vi. reviewed the industries in which the Company and
Cerner operate;
<PAGE> B-1
CITATION Computer Systems, Inc.
May 15, 2000
Page 2
vii. reviewed the Company's and Cerner's relative
contributions to the historical and projected
combined revenue, EBITDA, EBIT, net income and book
value;
viii. reviewed the pro forma financial impact to the
Company's shareholders of the Transaction giving
effect to certain cost saving synergies as estimated
by the management of the Company and Cerner;
ix. compared certain financial information for the
Company and Cerner, including the valuation in the
Transaction, with similar information and stock
market information for certain other companies, the
securities of which are publicly traded;
x. compared certain financial information for CCS,
including the valuation in the Transaction, with
similar information for certain recent selected
business combinations in the healthcare information
technology ("IT") sector;
xi. compared the premium above current market value that
the consideration represents to that of other
premiums received in other, selected transactions
which we deemed similar; and
xii. completed such other studies an analyses that we
considered appropriate.
In preparing our opinion, A.G. Edwards has assumed and
relied upon, without independent verification, the accuracy
and completeness of all financial and other information
publicly available or that was supplied or otherwise made
available to us by the Company and Cerner. We have not been
engaged to, and therefore we have not, verified the accuracy
or completeness of any of such information. A.G. Edwards
has been informed and assumed that the financial projections
supplied to, discussed with or otherwise made available to
us reflect the best currently available estimates and
judgments of the managements of the Company and Cerner as to
the expected future financial performance of the Company and
Cerner, in each case on a stand-alone basis and after giving
effect to the Transaction, including, without limitation,
the projected cost savings and other operating synergies
resulting from the Transaction as projected by the
managements of the Company and Cerner. A.G. Edwards has not
independently verified such information or assumptions, nor
do we express any opinion with respect thereto. We have not
made ay independent valuation or appraisal of the assets or
liabilities of the Company or Cerner, nor have we been
furnished with any such appraisals. A.G. Edwards has relied
upon the assurances of the management of the Company and
Cerner that they are not aware of any facts that would make
such information inaccurate or misleading. A.G. Edwards is
not capable of independently assessing the probability of
success of new technology applications being pursued by the
Company or Cerner.
In performing its analyses, A.G. Edwards made numerous
assumptions with respect to the healthcare IT sector in
which the Company and Cerner operate, general business and
economic conditions and government regulations, which are
beyond the control of the Company and Cerner. The analyses
performed by A.G. Edwards are not necessarily indicative of
actual values or actual future results, which may be
significantly more or less favorable than suggested by such
analyses. Such analyses were prepared solely as part of
A.G. Edwards' analysis of the fairness, from a financial
point of view, to the Shareholders, of the consideration to
be received pursuant to the Agreement and are being provided
to the Board of Directors of the Company in connection with
the delivery of this fairness opinion.
In rendering our opinion, A.G. Edwards has also assumed that
the Transaction will be accounted for as a "purchase"
business combination in accordance with Generally Accepted
Accounting Principles and that the Transaction will be
consummated on the terms contained in the Agreement, without
any waiver of any material terms or conditions by the
Company.
A.G. Edwards' opinion is necessarily based on economic,
market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
Our opinion as expressed herein, in any event, is limited to
the fairness, from a financial point of view, to the
Shareholders, of the consideration to be received by the
Shareholders pursuant to the Agreement.
<PAGE> B-2
CITATION Computer Systems, Inc.
May 15, 2000
Page 3
It is understood that this letter is solely for the
confidential use of the Board of Directors of the Company.
This opinion may not be reproduced, summarized, described,
characterized, excerpted from, referred to or given to any
other person for any purpose without the prior written
consent except that this opinion may be included in its
entirety and the procedures followed in rendering the
opinion may be summarized (each summary to be reviewed and
approved by A.G. Edwards) in any proxy materials to be
distributed to the Company's shareholders regarding a
Transaction.
Based upon and subject to the foregoing, it is our opinion
that, as of the date hereof, the consideration to be
received by the Shareholders pursuant to the Agreement is
fair, from a financial point of view.
Very truly yours,
A.G. EDWARDS & SONS, INC.
By:_/s/Douglas E. Reynolds__________
Douglas E. Reynolds
Managing Director-Investment Banking
<PAGE> B-3
APPENDIX C
SHAREHOLDER AGREEMENT
---------------------
SHAREHOLDER AGREEMENT (this "Agreement"), dated as of
May 15, 2000 among Cerner Corporation, a Delaware corporation
("Cerner"), and the shareholders of CITATION Computer Systems,
Inc., a Missouri corporation ("CITATION"), named on Schedule I
hereto (individually, a "Shareholder" and collectively, the
"Shareholders").
WHEREAS, CITATION and Cerner Performance Logistics,
Inc., a Delaware corporation and a wholly-owned subsidiary of
Cerner ("Merger Sub"), propose to enter into an Agreement and
Plan of Merger dated as of the date hereof (as amended from time
to time, the "Merger Agreement"; capitalized terms used but not
defined herein shall have the meanings set forth in the Merger
Agreement) with Cerner which provides, among other things, that
CITATION will merge with and into Merger Sub (the "Merger"); and
WHEREAS, as of the date hereof, each Shareholder owns
of record or beneficially the respective number of shares of
Common Stock set opposite such Shareholder's name on Schedule I
hereto; and
WHEREAS, as an essential condition to the willingness
of Cerner to enter into the Merger Agreement, Cerner has
requested that each Shareholder agree, and in order to induce
Cerner to enter into the Merger Agreement, each Shareholder has
agreed, to enter into this Agreement with respect to (i) all the
shares of Common Stock owned beneficially and of record by such
Shareholder as of the date hereof or of which such Shareholder
may hereafter acquire record or beneficial ownership (the
"Shares") and (ii) any other securities owned of record or
beneficially by such Shareholder as of the date hereof or of
which such Shareholder may hereafter acquire ownership of record
or beneficially which may be voted by or at the direction or on
behalf of the Shareholder at any meeting of CITATION shareholders
or with respect to which action taken without a meeting may be
authorized by or at the direction or on behalf of such
Shareholder by written consent (the "Other Securities").
NOW, THEREFORE, in consideration of the foregoing and
the mutual covenants and agreements contained herein and
intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
VOTING AGREEMENT
SECTION 1.1 Voting Agreement.
---------------- Each Shareholder hereby
agrees that, with respect to the CITATION Shareholders Meeting and
any other meeting of CITATION shareholders or any action to be
taken by written consent, the Shareholder shall:
(a) appear in person or by proxy (or use its reasonable best
efforts to cause the holder of record on any applicable record
date to appear in person or by proxy) for the purpose of
obtaining a quorum at the CITATION Shareholders Meeting and at
any adjournment or postponement thereof;
(b) vote (or cause to be voted) the Shares and the Other
Securities (or, as applicable, shall execute or cause to be
executed written consents in respect of the Shares and the Other
Securities) in favor of the approval and adoption of the Merger
Agreement, the Merger and, any other transactions or matters
contemplated by the Merger Agreement, and any actions required in
furtherance thereof and hereof; and
(c) not encourage any holder of securities of CITATION to vote
against the approval and adoption of the Merger Agreement, the
Merger or any other transactions or matters contemplated by the
Merger Agreement, and not take any action, or permit any action
to be taken, that would reasonably be expected to impede,
interfere, or be inconsistent with, delay, postpone, discourage,
disparage or otherwise adversely affect, the Merger Agreement,
the Merger, this Agreement and any other transactions or matters
contemplated by the Merger Agreement, or a Shareholder's
obligations hereunder, including, but not limited to, the
obligations of each Shareholder to vote for the approval and
adoption of the Merger
<PAGE> C-1
Agreement, the Merger and any other transactions or matters
contemplated by the Merger Agreement, and to use its reasonable
best efforts to consummate and make effective the transactions
contemplated by this Agreement, provided that nothing in this
Section 1.1 shall limit any individual Shareholder who is a
director of CITATION from exercising or performing any of such
Shareholder's rights or duties solely in such Shareholder's
capacity as a director of CITATION.
SECTION 1.2 Irrevocable Proxy.
----------------- In order to ensure that the
voting agreement set forth in Section 1.1 and the other
obligations of each Shareholder hereunder will be carried out,
each Shareholder hereby grants an irrevocable proxy, coupled with
an interest, in the form attached hereto as Exhibit A (the
"Irrevocable Proxy"). Such Shareholder hereby revokes all other
proxies and powers of attorney with respect to the Shares and the
Other Securities that such Shareholder may have heretofore
appointed or granted that would prevent such Shareholder from
performing its obligations hereunder, and no subsequent proxy or
power of attorney shall be given or written consent executed (and
if given or executed, shall not be effective) by such Shareholder
with respect thereto. All authority herein conferred or agreed
to be conferred shall survive the death or incapacity of any
Shareholder and any obligation of such Shareholder under this
Agreement shall be binding upon the transferees, heirs, personal
representatives, successors and assigns of such Shareholder.
SECTION 1.3 Evaluation of Investment.
------------------------ Each Shareholder,
by reason of such Shareholder's knowledge and experience in
financial and business matters, is capable of evaluating the
merits and risks of the investment in the Cerner Common Stock
following the Merger, contemplated by the Merger Agreement.
SECTION 1.4 Documents Delivered.
------------------- Each Shareholder
acknowledges receipt of copies of the following documents:
(a) the Merger Agreement and all schedules and exhibits
thereto;
(b) Cerner's Annual report on Form 10-K for the fiscal
year ended January 1, 2000;
(c) Cerner's Proxy Statement dated April 17, 2000;
(d) each report filed with the Securities and Exchange
Commission by Cerner on Forms 8-K and 10-Q since January 1,
2000; and
(e) any other information requested by any Shareholder
concerning an evaluation of an investment in Cerner Common Stock.
Each Shareholder also acknowledges that it possesses the
information relating to Cerner which such Shareholder deems
relevant to its investment in the Cerner Common Stock should the
Merger be consummated.
ARTICLE II
OPTION TO PURCHASE
SECTION 2.1 Grant of Option.
--------------- Each Shareholder hereby grants
to Cerner the right and option (the "Option") to purchase from
such Shareholder, at the times and on the terms and conditions
hereinafter set forth, all or part of the shares of Common Stock
set opposite such Shareholder's name on Schedule I hereto at the
purchase price determined as follows: (a) with respect to 90% of
such shares for which Cerner is exercising this Option, the
Merger Consideration set forth in Section 2.1(e)(i)(A) of the
Merger Agreement, and (b) with respect to 10% of such shares for
which Cerner is exercising this Option, the Merger Consideration
set forth in Section 2.1(e)(i)(B) of the Merger Agreement.
SECTION 2.2 Exercise of Option.
------------------ The Option granted
hereunder shall be exercisable in whole or in part from time to
time by delivery of the following by Cerner to the a Shareholder
of:
<PAGE> C-2
(a) Written notice of exercise signed by Cerner which
specifies the number of shares to be purchased; and
(b) Full payment for the shares, determined in
accordance with Section 2.1, with respect to which such Option
or portion thereof is thereby exercised.
SECTION 2.3 Deliver of Shares.
----------------- Exercises of this Option
shall be honored by the Shareholder delivering to Cerner, upon
receipt of the foregoing written notice and consideration, stock
certificates evidencing such shares, together with stock powers
executed by the Shareholder in blank.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of Each
--------------------------------------
Shareholder.
----------- Except as set forth on the disclosure letter
attached hereto, each Shareholder represents and warrants to
Cerner as follows:
(a) Each Shareholder (if it is a corporation, general
or limited partnership, limited liability company or other
legal entity) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation
or organization. Such Shareholder has the requisite power and
authority (and if a natural person, the legal capacity) to execute
and deliver this Agreement and to perform its obligations hereunder.
The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by
such Shareholder and no other proceedings on the part of such
Shareholder are necessary to authorize this Agreement and the
consummation of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by such
Shareholder and, assuming that this Agreement constitutes a valid
and binding agreement of Cerner, is a legal, valid and binding
obligation of such Shareholder, enforceable against such
Shareholder in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws, now or hereafter in
effect, relating to or affecting the rights and remedies of
creditors generally, and to general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or a law) and to general principles
governing the duties of fiduciaries.
(b) The execution and delivery of this Agreement by such
Shareholder do not, and the performance of this Agreement by such
Shareholder will not conflict with, result in any breach of or
constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation
of, or require payment under, or result in the creation of any
Encumbrances (as defined below) on any of the assets of such
Shareholder pursuant to any contract or other instrument to which
such Shareholder is a party or by which such Shareholder or any
of such Shareholder's assets are bound, except for any thereof
that would not reasonably be expected to materially impair the
ability of such Shareholder to perform such Shareholder's
obligations hereunder or to consummate the transactions
contemplated hereby.
(c) The execution and delivery of this Agreement by such
Shareholder do not, and the performance of this Agreement by such
Shareholder will not, require such Shareholder to obtain any
consent, approval, authorization or permit of, or to make any
filing with or notification to, any Governmental Entity based on
any federal, state, local or foreign law, statute, ordinance,
rule, regulation, permit, injunction, writ, judgment, decree or
order (collectively, "Laws") of any Governmental Entity, except
(i) pursuant to the Exchange Act, the Securities Act and the HSR
Act; and (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or
notifications, could not reasonably be expected to materially
impair the ability of such Shareholder to perform such
Shareholder's obligations hereunder or to consummate the
transactions contemplated hereby.
(d) There is no suit, action, investigation or proceeding
pending or, to the knowledge of such Shareholder, threatened
against such Shareholder at law or in equity before or by any
Governmental Entity that would reasonably be expected to
materially impair the ability of such Shareholder to perform such
Shareholder's obligations hereunder or to consummate the
transactions contemplated hereby.
<PAGE> C-3
(e) Such Shareholder owns beneficially and of record the shares
of Common Stock set forth opposite such Shareholder's name on
Schedule I hereto (the "Existing Shares"). Except as set forth
on Schedule I, the Existing Shares constitute all the shares of
Common Stock owned of record or beneficially by such Shareholder.
Except as set forth on Schedule I, such Shareholder has sole
voting power, sole power of disposition and all other Shareholder
rights with respect to all the Existing Shares, with no
restrictions, other than pursuant to applicable securities laws,
on such Shareholder's rights of disposition pertaining thereto.
Such Shareholder owns options or warrants to purchase or other
securities convertible or exchangeable into or exercisable for
the number of shares of such Common Stock set forth opposite such
Shareholder's name on Schedule I hereto (collectively, the
"Derivative Securities"). None of the Existing Shares or
Derivative Securities is subject to (i) any right of first
refusal or first offer, (ii) right to purchase, acquire or vote,
or (iii) proxy or power of attorney, except in the case of clause
(ii) or (iii) any rights created by this Agreement. Such
Shareholder has good and valid title to all the Existing Shares,
free and clear of all Encumbrances (other than any Encumbrance
created by this Agreement).
(f) Such Shareholder (i) is not a party to any agreement,
arrangement or understanding with respect to voting, holding or
disposing of any Shares, Other Securities, shares of Common Stock
or the shares of Cerner Common Stock, either as of the date
hereof or at any time in the future, and (ii) is not a member of
a "group" within the meaning of Section 13(d)(3) of the Exchange
Act and Rule 13d-5(b) thereunder, with respect to Shares, Other
Securities, shares of Cerner Common Stock, except for this
Agreement.
ARTICLE IV
COVENANTS OF THE SHAREHOLDER
SECTION 4.1 No Solicitation.
--------------- Each Shareholder and its
Representatives shall immediately cease and cause to be
terminated all existing discussions or negotiations to which the
Shareholder or its officers, directors, employees, agents,
accountants, counsel, advisors or consultants (collectively,
"Representatives") are a part relating to an Acquisition Proposal
for CITATION with any parties conducted heretofore. From the
date hereof until the Effective Time or, if earlier, the
termination of the Merger Agreement pursuant to Article IX
thereof, each Shareholder shall not, whether directly or
indirectly through Representatives or other intermediaries, and
will instruct such Shareholder's Representatives not to, whether
directly or indirectly through Representatives or other
intermediaries, initiate, solicit or encourage (including by way
of furnishing information or assistance), or take any other
action to facilitate, any inquiries or the making of any proposal
regarding a potential Acquisition Proposal for CITATION or any
transaction referred to in Section 6.2, or enter into or maintain
discussions or negotiate with any person regarding, in
furtherance of or relating to such inquiries or the making of a
proposal regarding or consummation of an Acquisition Proposal for
CITATION, or agree to or endorse any Acquisition Proposal for
CITATION, or disclose any non-public information relating to
CITATION to any person that has made or may reasonably be
expected to make a proposal regarding an Acquisition Proposal for
CITATION or that has advised CITATION that it is or may be
interested in making a proposal regarding an Acquisition Proposal for
CITATION, or authorize or permit any of such Shareholder's
Representatives to take any such action, and each Shareholder
shall use such Shareholder's reasonable best efforts to cause
such Shareholder's Representatives not to take any such action,
and each Shareholder shall promptly notify Cerner if any such
inquiries or proposals are made regarding a potential Acquisition
Proposal for CITATION, and each Shareholder shall promptly inform
Cerner as to the terms and details of any such inquiry or
proposal (including the identity of the true party in interest
making such inquiry or proposal) and, if in writing, promptly
deliver or cause to be delivered to Cerner a copy of such inquiry
or proposal, and each Shareholder shall keep Cerner informed, on
a current basis, of the status, terms and details of any such
inquiries or such proposals. Anything in this Section 4.1 to the
contrary notwithstanding, nothing in this Section 4.1 shall limit
any individual Shareholder who is also a director of the
CITATION, from exercising or performing any of such Shareholder's
rights or duties solely in such Shareholder's capacity as a
director of the CITATION.
Further Assurances.
------------------ Each Shareholder agrees to use
such Shareholder's reasonable best efforts to take, or
cause to be taken, all appropriate action, and to do,
or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to
consummate and make effective the transactions
contemplated by this Agreement, including, but not
limited to, the Merger or the transactions contemplated
by the Merger Agreement. If any further action is
<PAGE> C-4
necessary or desirable to carry out the purposes of
this Agreement, such Shareholder shall use such
Shareholder's reasonable best efforts to take all such
action as promptly as practicable.
ARTICLE V
SURVIVAL
SECTION 5.1 Survival.
-------- All provisions of this Agreement shall
survive any termination of the Merger Agreement and shall remain
in full force and effect, except as otherwise provided in
Sections 5.2 and 5.3.
SECTION 5.2 Termination.
----------- Articles I, II, III and IV shall
terminate upon any termination of the Merger Agreement in
accordance with Article IX thereof.
SECTION 5.3 Effect of Termination.
--------------------- In the event that any part
of this Agreement shall terminate pursuant to this Article V,
such part of this Agreement shall thereafter be void and the
parties hereto shall have no further rights or obligations with
respect thereto, except as a result of any prior breach thereof.
ARTICLE VI
DEFINITIONS
SECTION 6.1 Definitions.
----------- For purposes of this Agreement:
(a) "Beneficially own" or "beneficial ownership" with respect to
any securities shall mean having "beneficial ownership" of such
securities (as determined pursuant to Rule 13d-3 under the Exchange Act),
including pursuant to any agreement, arrangement or understanding,
whether or not in writing. Securities beneficially owned by one Person
shall include securities beneficially owned by all other Persons with
whom such Person would constitute a "group" within the meaning of
Section 13(d)(3) of the Exchange Act and Rule 13d-5(b) thereunder.
(b) "Person" shall mean an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization or
other entity.
(c) "Encumbrance" means any pledge, security interest, lien,
claim, encumbrance, mortgage, charge, hypothecation, option,
right of first refusal or offer, community property right, other
marital right, preemptive right, voting agreement, voting trust,
proxy, power of attorney, escrow, option, forfeiture, penalty,
action at law or in equity, security agreement, shareholder
agreement or other agreement, arrangement, contract, commitment,
understanding or obligation, or any other restriction,
qualification or limitation on the use, transfer, right to vote,
right to dissent, and seek appraisal, receipt of income or other
exercise of any attribute of ownership, except for those which do
not or could not reasonably be expected to, individually or in
the aggregate, materially impair the ability of such Shareholder
to perform such Shareholder's obligations hereunder or to
consummate the transactions contemplated hereby.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 Severability.
------------ If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced
by any rule of law, or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of
this Agreement is not affected in any manner materially adverse
to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that
the terms of this Agreement remain as originally contemplated to
the fullest extent possible.
<PAGE> C-5
SECTION 7.2 Entire Agreement.
---------------- This Agreement constitutes the
entire agreement between Cerner and each Shareholder with respect
to the subject matter hereof and supersedes all prior agreements
and understandings, both written and oral, between Cerner and
such Shareholder with respect to the subject matter hereof.
SECTION 7.3 Counterparts.
------------ This Agreement may be executed and
delivered (including by facsimile transmission) in one or more
counterparts, and by the different parties hereto in separate
counterparts, each of which when executed and delivered shall be
deemed to be an original but all of which taken together shall
constitute one and the same instrument.
SECTION 7.4 Assignment.
---------- Neither this Agreement nor any rights
or interests hereunder shall be assigned by any Shareholder
(whether by operation of law or otherwise) without the prior written consent
of Cerner, except that any Shareholder may transfer the Shares or Other
Securities subject to the Voting Agreement set forth in Section 1.1 hereof
and the Irrevocable Proxy attached hereto as Exhibit A. Cerner may assign,
in its sole discretion, its rights hereunder to any direct or indirect
wholly owned subsidiary or affiliate of Cerner, but no such
assignment shall relieve Cerner of its obligations hereunder if
such assignee does not perform such obligations.
SECTION 7.5 Amendments.
---------- This Agreement may not be amended,
supplemented, waived or otherwise modified or terminated, except
upon the execution and delivery of a written agreement executed
by the parties hereto.
SECTION 7.6 Notices.
------- All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall
be given (and shall be deemed to have been duly received if so
given) by hand delivery, facsimile transmission, mail (registered
or certified mail, postage prepaid, return receipt requested), or
courier service providing proof of delivery. All communications
hereunder shall be delivered to the respective parties at the
following addresses:
If to Cerner and/or Merger Sub, to:
Cerner Corporation
2800 Rockcreek Parkway
Kansas City, Missouri 64117
Attention: President
with copies to:
Cerner Corporation
2800 Rockcreek Parkway
Kansas City, Missouri 64117
Attention: General Counsel
Stinson, Mag & Fizzell, P.C.
1201 Walnut Street, Suite 2800
Kansas City, MO 64106
Attention: Craig L. Evans
If to Shareholder, in accordance with the
information set forth on Schedule I hereto.
with copies to:
CITATION, Inc.
424 South Woods Mill Road
Suite 200
Chesterfield, Missouri 63017
Attention: President
<PAGE> C-6
Thompson Coburn LLP
One Firstar Plaza
St. Louis, Missouri 63101
Attention: Thomas A. Litz
or to such other address as the person to whom notice is given
may have previously furnished the others in writing in the manner
set forth above.
SECTION 7.7 No Third Party Beneficiaries.
---------------------------- This Agreement is
not intended to be for the benefit of, and shall not be enforceable by,
any person or entity not a party hereto.
SECTION 7.8 Specific Performance.
-------------------- Each of the parties hereto
acknowledges that a breach by it of any agreement contained in
this Agreement may cause the other party to sustain damage for
which it may not have an adequate remedy at law for money
damages, and therefore each of the parties hereto agrees that in
the event of any such breach the aggrieved party may be entitled
to the remedy of specific performance of such agreement and
injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity.
SECTION 7.9 Remedies Cumulative.
------------------- All rights, powers and
remedies provided under this Agreement or otherwise available in
respect hereof at law or in equity shall be cumulative and not
alternative, and the exercise of any thereof by any party shall
not preclude the simultaneous or later exercise of any other such
right, power or remedy by such party.
SECTION 7.10 No Waiver.
--------- The failure of any party hereto to
exercise any right, power or remedy provided under this Agreement
or otherwise available in respect hereof at law or in equity, or
to insist upon strict compliance by any other party hereto with
its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof, shall not constitute a
waiver by such party of its right to exercise any such or other
right, power or remedy or to demand such compliance.
SECTION 7.11 Governing Law.
------------- This Agreement shall be governed
by, and construed in accordance with, the laws of the State of
Missouri, without giving effect to the principles of conflicts of
law thereof.
SECTION 7.12 Waiver of Jury Trial.
-------------------- EACH OF CERNER AND EACH
SHAREHOLDER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE ACTIONS OF PARENT OR SUCH SHAREHOLDER IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF.
SECTION 7.13 Descriptive Headings.
-------------------- The descriptive headings
used herein are inserted for convenience of reference only and
are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
<PAGE> C-7
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
CERNER CORPORATION
By:_/s/Zane Burke_____________
Name: Zane Burke
Title: Vice President
_/s/Richard D. Neece_______
Shareholder
_/s/J. Robert Copper_______
Shareholder
_/s/Larry Marcus___________
Shareholder
_/s/David T. Pieroni_______
Shareholder
CFB VENTURE FUND I, INC.
---------------------------
Shareholder
By:_/s/James F. O'Donnell__
Chairman and CEO
_/s/Fred L. Brown__________
Shareholder
<PAGE> C-8
SCHEDULE 1 - SHAREHOLDER AGREEMENT
<TABLE>
Other
Name of Securities
Shareholder Shares Owned Owned Address for Notices
----------- ------------ ----- -------------------
<C> <S> <S> <S>
J. Robert Copper 310,511 205,000 7500 Oxford Drive
Clayton, MO 63105-2808
Richard D. Neece 107,000 135,000 9966 Old Chatham Road
St. Louis, MO 63124
James F. O'Donnell 643,229 12,000 12312 Borcherding Lane
Des Peres, MO 63131
David T. Pieroni 23,968 22,000 25 Briarcliff
Ladue, MO 63124-1761
Fred L. Brown 36,164 22,000 14319 Manderleigh Woods Drive
Town & Country, MO 63017
Larry D. Marcus 12,418 15,000 248 Gay Avenue
Clayton, MO 63105
</TABLE>
_______________________________
1 Mr. O'Donnell beneficially owns 636,229 shares of Company
Common Stock through CFB Venture Fund I, Inc. ("CFB"), a
subsidiary of Commerce Bancshares, Inc. ("CBI"). Mr.
O'Donnell is the Chairman of CFB. Mr. O'Donnell may be deemed
to share voting and investment power over those shares with
CBI.
<PAGE> C-9
APPENDIX D
Section 351.455, RSMo
Shareholder who objects to merger may demand value of shares,
when.--
1. If a shareholder of a corporation which is a party to a
merger or consolidation shall file with such corporation, prior
to or at the meeting of shareholders at which the plan of merger
or consolidation is submitted to a vote, a written objection to
such plan of merger or consolidation, and shall not vote in favor
thereof, and such shareholder, within twenty days after the
merger or consolidation is effected, shall make written demand on
the surviving or new corporation for payment of the fair value of
his shares as of the day prior to the date on which the vote was
taken approving the merger or consolidation, the surviving or new
corporation shall pay to such shareholder, upon surrender of his
certificate or certificates representing said shares, the fair
value thereof. Such demand shall state the number and class of
the shares owned by such dissenting shareholder. Any shareholder
failing to make demand within the twenty day period shall be
conclusively presumed to have consented to the merger or
consolidation and shall be bound by the terms thereof.
2. If within thirty days after the date on which such
merger or consolidation was effected the value of such shares is
agreed upon between the dissenting shareholder and the surviving
or new corporation, payment therefor shall be made within ninety
days after the date on which such merger or consolidation was
effected, upon the surrender of his certificate or certificates
representing said shares. Upon payment of the agreed value the
dissenting shareholder shall cease to have any interest in such
shares or in the corporation.
3. If within such period of thirty days the shareholder and
the surviving or new corporation do not so agree, then the
dissenting shareholder may, within sixty days after the
expiration of the thirty day period, file a petition in any court
of competent jurisdiction within the county in which the
registered office of the surviving or new corporation is
situated, asking for a finding and determination of the fair
value of such shares, and shall be entitled to judgment against
the surviving or new corporation for the amount of such fair
value as of the day prior to the date on which such vote was
taken approving such merger or consolidation, together with
interest thereon to the date of such judgment. The judgment
shall be payable only upon and simultaneously with the surrender
to the surviving or new corporation of the certificate or
certificates representing said shares. Upon the payment of the
judgment, the dissenting shareholder shall cease to have any
interest in such shares, or in the surviving or new corporation.
Such shares may be held and disposed of by the surviving or new
corporation as it may see fit. Unless the dissenting shareholder
shall file such petition within the time herein limited, such
shareholder and all persons claiming under him shall be
conclusively presumed to have approved and ratified the merger or
consolidation, and shall be bound by the terms thereof.
4. The right of a dissenting shareholder to be paid the
fair value of his shares as herein provided shall cease if and
when the corporation shall abandon the merger or consolidation.
(L. 1943 p. 410 71)
<PAGE>
CITATION COMPUTER SYSTEMS, INC.
Special Meeting of Shareholders, August 17, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby nominates, constitutes and appoints
Richard D. Neece and J. Robert Copper (or such person as is
designated by the Board of Directors of CITATION Computer Systems,
Inc. (the "Company")) (the "Proxies"), or either of them (with full
power to act alone), true and lawful attorney(s), with full power of
substitution, for the undersigned and in the name, place and stead of
the undersigned at the Special Meeting of Shareholders to be held at
11 South Meramec, Clayton, Missouri at 10:00 a.m., local time, August
17, 2000, and any adjournments or postponements thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING:
1. APPROVAL OF ACQUISITION PROPOSAL
Proposal to adopt and approve the Agreement and Plan of
Reorganization, dated May 15, 2000, by and among Cerner
Corporation, Cerner Performance Logistics, Inc., and the
Company, as described in the accompanying Proxy
Statement/Prospectus dated July 6, 2000.
___ FOR ___ AGAINST ____ ABSTAIN
2. In their discretion, on such other business as may properly
come before the meeting (the Board of Directors is not aware
of any matter other than the above proposal which is to be
presented for action at the Special Meeting).
(Please Sign and Date on Reverse Side)
<PAGE>
(Continued from other side)
PLEASE SIGN AND RETURN PROMPTLY.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL
BE VOTED FOR THE APPROVAL OF THE ACQUISITION PROPOSAL. THE
UNDERSIGNED ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING AND
THE PROXY STATEMENT/PROSPECTUS DATED JULY 6, 2000.
(Please sign, date, and return this proxy form exactly as your name or
names appear below whether or not you plan to attend the meeting.)
___ Please check this box
if you plan to attend
the Special Meeting.
Date_________________________, 2000
Signature(s):______________________
___________________________________
___________________________________
Title or Authority (if applicable)
Please sign your name here exactly
as it appears hereon. Joint owners
should each sign. When signing as
an attorney, executor,
administrator, trustee, guardian,
corporate officer or other similar
capacity, so indicate. If the
owner is a corporation, an
authorized officer should sign for
the corporation and state his or
her title. This Proxy shall be
deemed valid for all shares held in
all capacities that they are held
by the signatory.
