April 16, 2001
Dear Shareholder:
The Annual Meeting of Shareholders of Cerner Corporation (the "Company")
will be held at 10:00 a.m., local time, on May 25, 2001, at the Cerner
Associate Center, located on the Cerner campus at 2901 Rockcreek Parkway,
North Kansas City, Missouri 64117. The enclosed notice of the meeting and
Proxy Statement contains detailed information about the business to be
transacted at the meeting.
The Board of Directors has nominated Gerald E. Bisbee, Jr., Ph.D., Michael
E. Herman, the present Class III Directors, and Nancy-Ann DeParle to stand
for election as Class III Directors for a term ending at the 2004 Annual
Meeting of Shareholders. The Board recommends that you vote for these
nominees.
In addition to the election of the Board of Directors, you are being asked
to approve:
1. the adoption of the Cerner Corporation 2001 Long-Term Incentive Plan F;
2. the adoption of the Cerner Corporation 2001 Associate Stock Purchase
Plan which qualifies under Section 423 of the Internal Revenue Code; and
3. the adoption of a qualified performance-based compensation plan, the
Cerner Corporation Performance Plan, for purposes of complying with Section
162(m) of the Internal Revenue Code.
The Board recommends that you vote for these items. On behalf of the Board
of Directors and Management, I cordially invite you to attend the Annual
Meeting of Shareholders.
The prompt return of your Proxy in the enclosed postage prepaid envelope
will help ensure that as many shares as possible are represented.
Very truly yours,
CERNER CORPORATION
Neal L. Patterson
Chairman of the Board of Directors and
Chief Executive Officer
Enclosures
CERNER CORPORATION
2800 Rockcreek Parkway
North Kansas City, Missouri 64117
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 25, 2001
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Cerner Corporation, a Delaware corporation (the "Company"), will be held at
the Cerner Associate Center, located on the Cerner campus at 2901 Rockcreek
Parkway, North Kansas City, Missouri 64117, on May 25, 2001, at 10:00 a.m.,
local time, and thereafter as it may from time to time be adjourned, for
the following purposes:
a. to elect three Class III Directors to serve for a three year term
until the 2004 Annual Meeting of Shareholders and until their respective
successors are duly elected and qualified;
b. to approve the adoption of the Cerner Corporation 2001 Long-Term
Incentive Plan F;
c. to approve the adoption of the Cerner Corporation 2001 Associate
Stock Purchase Plan which qualifies under Section 423 of the Internal
Revenue Code;
d. to approve the adoption of a qualified performance-based
compensation plan, the Cerner Corporation Performance Plan, for
purposes of complying with Section 162(m) of the Internal Revenue
Code; and
e. to consider and act upon any other matters which may properly
come before the Annual Meeting of Shareholders or any adjournment
thereof.
The foregoing matters are more fully described in the accompanying
Proxy Statement.
In accordance with the provisions of the Bylaws of the Company, the
Board of Directors has fixed the close of business on March 30, 2001 as the
record date for the determination of the holders of Common Stock entitled
to notice of, and to vote at, the Annual Meeting of Shareholders.
The Board of Directors of the Company solicits you to sign, date and
promptly mail the Proxy in the enclosed postage prepaid envelope,
regardless of whether or not you intend to be present at the Annual Meeting
of Shareholders. You are urged, however, to attend the Annual Meeting of
Shareholders.
BY ORDER OF THE BOARD OF DIRECTORS,
Randy D. Sims
Secretary
North Kansas City, Missouri
April 16, 2001
CERNER CORPORATION
2800 Rockcreek Parkway
North Kansas City, Missouri 64117
--------------
PROXY STATEMENT
--------------
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Cerner Corporation, a Delaware
corporation (the "Company"), for use at the Annual Meeting of Shareholders
of the Company to be held on May 25, 2001, commencing at 10:00 a.m., local
time, at the Cerner Associate Center, located on the Cerner campus at 2901
Rockcreek Parkway, North Kansas City, Missouri 64117, and any adjournment
thereof (the "Annual Meeting"). The Company anticipates mailing this Proxy
Statement, the accompanying form of Proxy and the Notice of Annual Meeting
of Shareholders to the holders of record of outstanding shares of common
stock, par value $.01 per share, of the Company (the "Common Stock") as of
March 30, 2001, on or about April 16, 2001.
Only the holders of record of shares of Common Stock as of the close
of business on March 30, 2001 are entitled to vote on the matters to be
presented at the meeting, either in person or by proxy. Holders of shares
of Common Stock are entitled to one vote per share outstanding in their
names on the record date with respect to such matters. At the close of
business on March 30, 2001, there were outstanding and entitled to vote a
total of 34,825,141 shares of Common Stock, constituting all of the
outstanding voting securities of the Company.
You are requested to complete, date and sign the accompanying Proxy
and return it promptly in the enclosed postage prepaid envelope. Your
Proxy may be revoked at any time prior to its exercise by written notice of
revocation delivered to the Secretary of the Company. Attendance at the
Annual Meeting will not in and of itself constitute a revocation of a
Proxy, but your Proxy will not be used if you attend the Annual Meeting and
prefer to vote in person. The persons designated as proxies were selected
by the Board of Directors and are officers and directors of the Company.
Proxies duly executed and received in time for the Annual Meeting will be
voted in accordance with shareholders' instructions. If no instructions
are given, duly executed Proxies will be voted as follows:
a. to elect Gerald E. Bisbee, Jr., Ph.D., Michael E. Herman and
Nancy-Ann DeParle as Class III Directors to serve for a three year
term until the 2004 Annual Meeting of Shareholders and until their
respective successors are duly elected and qualified;
b. to approve the Cerner Corporation 2001 Long-Term Incentive Plan
F;
c. to approve the Cerner Corporation 2001 Associate Stock Purchase
Plan which qualifies under Section 423 of the Internal Revenue Code;
d. to approve a qualified performance-based compensation plan, the
Cerner Corporation Performance Plan, for purposes of complying with
Section 162(m) of the Internal Revenue Code; and
e. in the discretion of the proxy holder as to any other matter
coming before the Annual Meeting.
2
QUORUM REQUIREMENTS
The presence in person or by proxy of holders of record of a majority
of the outstanding shares of Common Stock is required for a quorum to
transact business at the Annual Meeting, but if a quorum should not be
present, the Annual Meeting may be adjourned from time to time until a
quorum is obtained.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The table below sets forth information, as of March 15, 2001 (unless
otherwise indicated below), with respect to the beneficial ownership of
shares of Common Stock by (i) each person known to the Company to own
beneficially more than 5% of the aggregate shares of Common Stock
outstanding, (ii) each director and nominee for election as a director,
(iii) each executive officer named in the Summary Compensation Table, and
(iv) the executive officers and directors of the Company as a group. Each
of the persons, or group of persons, in the table below has sole voting
power and sole dispositive power as to all of the shares shown as
beneficially owned by them, except as otherwise indicated.
Amount and Nature
of Beneficial Percent of Shares
Name and Address of Beneficial Owner Ownership Outstanding
------------------------------------ ----------------- -----------------
Neal L. Patterson................... 3,635,597(1) 10.38%
Clifford W. Illig................... 3,271,436(2) 9.37%
Waddell & Reed Financial, Inc....... 2,585,075(3) 7.43%
Wellington Management Company, LLP.. 2,015,200(4) 5.79%
The Vanguard Group.................. 2,006,600(5) 5.76%
Jack A. Newman, Jr.................. 115,448 *
Michael E. Herman................... 64,000 *
Glenn P. Tobin, Ph.D................ 52,167 *
John C. Danforth.................... 45,300 *
Paul M. Black....................... 45,256 *
Gerald E. Bisbee, Jr., Ph.D......... 41,400 *
Earl H. Devanny, III................ 32,384 *
Jeff C. Goldsmith, Ph.D............. 16,215 *
William B. Neaves, Ph.D............. --- *
Nancy-Ann DeParle................... --- *
All directors and executive officers,
as a group (20 persons)............. 7,559,789 21.25%
____________________
* Less than one percent
(1)Includes 196,000 shares held in trust for minor children with Jeanne
Lillig-Patterson, wife of Neal L. Patterson, serving as trustee and
54,000 shares for which Mr. Patterson has shared voting and dispositive
power. Excludes 48,314 shares held by Jeanne Lillig-Patterson, wife of
Neal L. Patterson, as to which Mr. Patterson disclaims beneficial
ownership. The address for Mr. Patterson is Cerner Corporation, 2800
Rockcreek Parkway, North Kansas City, Missouri 64117.
3
(2)Includes 195,667 shares held in trust for minor children with Bonne A.
Illig, wife of Clifford W. Illig, serving as trustee and 62,093 shares
for which Mr. Illig has shared voting and dispositive power. The
address for Mr. Illig is Cerner Corporation, 2800 Rockcreek Parkway,
North Kansas City, Missouri 64117.
(3)According to a Schedule 13G, dated January 23, 2001 and filed by
Waddell & Reed Financial, Inc., Waddell & Reed Investment Management
Company, registered under Section 203 of the Investment Advisor's Act of
1940, has sole dispositive and voting power with respect to 2,585,075
shares of Common Stock. The address for Waddell & Reed Financial, Inc.
and Waddell & Reed Investment Management Company is 6300 Lamar Avenue,
P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.
(4)According to a Schedule 13G, dated February 13, 2001 and filed by
Wellington Management Company, LLP, Wellington Management Company, LLP
has shared dispositive power with respect to 2,015,200 shares of Common
Stock. The address for Wellington Management Company, LLP is 75 State
Street, Boston, Massachusetts 02109.
(5)According to a Schedule 13G, dated February 9, 2001 and filed by The
Vanguard Group, Vanguard Specialized Funds - Vanguard Health Care Funds
has sole voting and shared dispositive power with respect to 2,006,600
shares of Common Stock. The address for The Vanguard Group and
Vanguard Specialized Funds - Vanguard Health Care Funds is Post Office
Box 2600, Valley Forge, Pennsylvania 19482-2600.
4
ELECTION OF DIRECTORS
The Certificate of Incorporation of the Company provides that the
number of directors of the Company shall be fixed by, or in the manner
provided in, the Bylaws of the Company and divided into three classes, each
having a term of three years. Each year the term of office of one class of
directors expires. The Board of Directors currently consists of seven
members. The Board of Directors has passed a Resolution amending the
Bylaws to increase the size of the Board of Directors to eight members
effective immediately prior to the 2001 Annual Meeting of Shareholders.
Nancy-Ann DeParle has been nominated by the Board of Directors to fill the
newly created Board position.
The Board of Directors intends to present for action at the Annual
Meeting the election of Gerald E. Bisbee, Jr., Ph.D., Michael E. Herman and
Nancy-Ann DeParle, as Class III Directors to serve for a three year term
until the 2004 Annual Meeting of Shareholders and until their respective
successors are duly elected and qualified.
The Directors in Class I (John C. Danforth, Neal L. Patterson and Jeff
C. Goldsmith, Ph.D.) and the Directors in Class II (Clifford W. Illig and
William B. Neaves, Ph.D.) have been elected or appointed to terms expiring
at the time of the Annual Meetings of Shareholders in 2002 and 2003,
respectively. No shareholder may vote in person or by proxy for greater
than three nominees at the Annual Meeting. Shareholders do not have
cumulative voting rights in the election of directors. Directors will be
elected by the plurality vote of the holders of shares of Common Stock
entitled to vote at the Annual Meeting and present in person or by proxy.
It is intended that shares represented by a Proxy given pursuant to
this solicitation will be voted in favor of the election of Gerald E.
Bisbee, Jr., Ph.D., Michael E. Herman and Nancy-Ann DeParle as the Class
III Directors, unless such authority is specifically withheld. In the
event that any of such persons should become unavailable for election, it
is intended that the shares of Common Stock represented by the Proxy will
be voted for such substitute nominee as may be nominated by the Board of
Directors. The above named persons have indicated willingness to serve if
elected and it is not anticipated that any of them will become unavailable
for election.
The Certificate of Incorporation and Bylaws of the Company provide
that advance notice of shareholder nominations for an election of directors
must be given. Written notice of the shareholder's intent to make a
nomination at a meeting of shareholders must be received by the Secretary
of the Company not later than 120 days in advance of the date of such
meeting in the case of an annual meeting and, in the case of a special
meeting, not more than seven days following the date of notice of the
meeting. The notice must contain (i) the name and address of the
shareholder who intends to make the nomination and of the person or persons
to be nominated, (ii) a representation that the shareholder is a holder of
record of stock of the Company entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice, (iii) the names and addresses, as they
appear in the Company's books, of such shareholder, (iv) the class and
number of shares beneficially owned by such nominating shareholder and each
nominee proposed by such shareholder, (v) a description of all arrangements
or understandings between the nominating shareholder and each nominee and
any other person or persons (naming such person or persons), pursuant to
which the nomination or nominations are to be made, (vi) such other
information regarding each nominee proposed by such shareholder as would
have been required to be included in a proxy statement filed pursuant to
the proxy rules of the Securities and Exchange Commission, as then in
effect, if the Company were soliciting proxies for the election of such
nominees, and (vii) the consent of the nominee to serve as a director of
the Company if so elected. No such notice has been received, and the
chairman of the Annual Meeting is entitled to refuse to acknowledge the
nomination of any person which is not made in compliance with the foregoing
procedure. In any event, the Board of Directors has no reason to believe
that anyone will attempt to nominate another candidate for director.
The following table sets forth certain information as to the persons
nominated by the Board of Directors for election as directors of the
Company and each director whose term of office will continue after the
Annual Meeting:
Director Since/
Name Age Term Expires
---- --- ------------
To Serve in Office Until 2001 (Class III)
Gerald E. Bisbee, Jr., Ph.D. (1)(2) 58 1988/2001
Michael E. Herman (2) 59 1995/2001
Nancy-Ann DeParle 44 ----/----
5
To Serve in Office Until 2002 (Class I)
Neal L. Patterson 51 1980/2002
Jeff C. Goldsmith, Ph.D. (2) 52 1999/2002
John C. Danforth (1)(2) 64 1996/2002
To Serve in Office Until 2003 (Class II)
Clifford W. Illig 50 1980/2003
William B. Neaves, Ph.D. (1) 58 2001/2003
____________________
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Gerald E. Bisbee, Jr., Ph.D. has been a Director of the Company since
February 1988. Dr. Bisbee is Chairman and Chief Executive Officer of ReGen
Biologics, Inc., a company which designs, engineers and manufactures tissue
engineered products for orthopedic applications. He has been a Director of
APACHE Medical Systems, Inc. since December 1989, serving as Chairman of
the Board from December 1989 to November 1997 and from December 2000 to
present. He was Chief Executive Officer of APACHE Medical Systems from
December 1989 to November 1997. Dr. Bisbee was also appointed Secretary of
APACHE Medical Systems in December 2000. APACHE Medical Systems implements
software decision support systems for intensive care units. Dr. Bisbee
also served as a Director of SG Pacific Funds from 1989 to 1999 and is
presently a Director of HealthGate Data Corporation.
John C. Danforth has been a Director of the Company since May 1996.
He has been a partner in the law firm of Bryan Cave LLP since 1995. For
more than five years prior to 1995 he was a member of the United States
Senate. Mr. Danforth is a Director of Dow Chemical Corporation and
Metropolitan Life Insurance Company. Mr. Danforth also served as a
Director of Time Warner, Inc. from 1998 to 2000.
Nancy-Ann DeParle was Administrator of the Health Care Financing
Administration (HCFA) from 1997 to October 2000, when she resigned to
become a Fellow of the Institute of Politics and the Interfaculty Health
Policy Forum at Harvard University. She is currently working as a
consultant on health policy and regulatory issues. As HCFA Administrator,
Ms. DeParle was a key health policy advisor to President Clinton and
directed the Medicare, Medicaid, and State Children's Health Insurance
programs. Before joining HCFA, she served as Associate Director for Health
and Personnel at the White House Office of Management and Budget from 1993
to 1997. She has also worked as a lawyer in private practice and served as
the Commissioner of the Tennessee Department of Human Services. Ms. DeParle
is a nominee for Director of Guidant Corporation.
Jeff C. Goldsmith, Ph.D. has been a Director of the Company since
September 1999. He is a healthcare consultant and President of Health
Futures, Inc. Dr. Goldsmith served as National Advisor for Healthcare to
Ernst & Young for twelve years, and lectured for eleven years at the
Graduate School of Business at the University of Chicago. Dr. Goldsmith
also served as Director of Planning and Government Affairs at the
University of Chicago Medical Center and worked as a fiscal and policy
analyst in the Office of the Governor of Illinois.
Michael E. Herman has been a Director of the Company since May 1995.
He was President of the Kansas City Royals Baseball Club from 1992 to 2000.
He was Chairman of the Finance and Investment Committee of the Kauffman
Foundation from 1990 to 1999 and its President from 1985 to 1990. Mr.
Herman was the Executive Vice President and Chief Financial Officer of
Marion Laboratories, Inc. from 1974 to 1990. He is a Director of Janus
Capital Corporation and Eloquent, Inc.
Clifford W. Illig has been a Director of the Company for more than
five years. Mr. Illig served as Chief Operating Officer of the Company for
more than five years until October 1998 and as President of the Company for
more than five years until March 1999. Mr. Illig was appointed Vice
Chairman of the Board of Directors in March 1999.
William B. Neaves, Ph.D. has been a Director of the Company since
March 2001. Dr. Neaves has been President, Chief Executive Officer, and
member of the Board of Directors of The Stowers Institute for Medical
Research since June 2000. For twenty
6
years prior to 2000, he served in succession as Dean of Southwestern
Graduate School, Dean of Southwestern Medical School, and Chief Academic
Officer and holder of the Wildenthal Distinguished Chair in Biomedical
Science at the University of Texas Southwestern Medical Center. He is
presently a member of the University of Kansas City Trustees, the Kansas
City Life Sciences Institute, and the Kansas City Area Development Council.
Neal L. Patterson has been Chairman of the Board of Directors and
Chief Executive Officer of the Company for more than five years. Mr.
Patterson also served as President of the Company from March 1999 until
August 1999.
Meetings of the Board and Committees
The Board of Directors has established Audit and Compensation
Committees of the Board of Directors. The Board of Directors had an
Executive Committee during 2000, but the Executive Committee was disbanded
and dissolved effective March 9, 2001. The Board of Directors does not
have a Nominating Committee. During 2000, the Board of Directors held six
meetings.
The Executive Committee had authority to act in place of the Board of
Directors when the Board of Directors was not in session and could exercise
all of the powers of the Board of Directors, except with respect to certain
corporate matters, including mergers, dissolution, sale of property,
issuance of stock, declaring dividends or amending the Certificate of
Incorporation or Bylaws of the Company. The Executive Committee did not
meet during 2000. The Executive Committee was disbanded and dissolved
effective March 9, 2001.
The Audit Committee assists the Board of Directors in fulfilling its
responsibilities with respect to the accounting and financial reporting
practices of the Company and in addressing the scope and expense of audit
and related services provided by the Company's independent accountants.
The Audit Committee met four times during 2000.
The Compensation Committee reviews and approves the Company's
compensation policies and practices, establishes compensation for directors
and Mr. Patterson, reviews and approves the compensation of the other
executive officers of the Company, and approves major changes in the
Company's benefit plans and compensation philosophy. The Compensation
Committee met four times during 2000.
Audit Committee Report
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE
COMPANY'S FILINGS UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
EXCHANGE ACT OF 1934, THE FOLLOWING REPORT OF THE AUDIT COMMITTEE SHALL NOT
BE INCORPORATED BY REFERENCE INTO ANY SUCH FILINGS AND SHALL NOT OTHERWISE
BE DEEMED FILED UNDER SUCH ACTS.
The Audit Committee of the Company is currently composed of three
independent members of the Board of Directors and operates under a written
charter adopted by the Board of Directors (see attached Exhibit A). The
Audit Committee recommends to the Board of Directors the selection of the
Company's independent accountants.
Management is responsible for the Company's internal controls and the
financial reporting process. The independent accountants are responsible
for performing an independent audit of the Company's consolidated financial
statements in accordance with generally accepted auditing standards and to
issue a report thereon. The Audit Committee's responsibility is to monitor
and oversee these processes.
In this context, the Audit Committee has met and held discussions with
management and the independent accountants. Management represented to the
Audit Committee that the Company's consolidated financial statements were
prepared in accordance with generally accepted accounting principles, and
the Audit Committee has reviewed and discussed the consolidated financial
statements with management and the independent accountants. The Audit
Committee discussed with the independent accountants matters required to be
discussed by Statement on Auditing Standards No. 61 (Communications with
Audit Committees).
7
The Company's independent accountants also provided to the Audit
Committee the written disclosures and letter required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit
Committees), and the Audit Committee discussed with the independent
accountants that firm's independence.
Based upon the Audit Committee's discussion with management and the
independent accountants and the Audit Committee's review of the
representation of management and the report of the independent accountants
to the Audit Committee, the Audit Committee recommended that the Board of
Directors include the audited consolidated financial statements in the
Company's Annual Report on Form 10-K for the year ended December 30, 2000
to be filed with the Securities and Exchange Commission.
Members of the Audit Committee:
Gerald E. Bisbee, Jr., Ph.D.
John C. Danforth
William B. Neaves, Ph.D. (1)
____________________
(1) Dr. Neaves joined the Audit Committee on March 9, 2001.
8
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
Chief Executive Officer and the four most highly compensated executive
officers of the Company as to whom the total salary and bonuses for the
fiscal year ended December 30, 2000 exceeded $100,000:
Summary Compensation Table
Annual Compensation Long-Term Compensation
------------------- ---------------------- All Other
Compensation
Fiscal Number of Stock ------------
Name and Principal Position Year Salary($) Bonus($) Options Granted ($) (1)
--------------------------- ------ --------- -------- --------------- ------------
Neal L. Patterson 2000 436,154 191,250 - 2,970
Chairman of the Board of Directors 1999 390,000 - - 657
and Chief Executive Officer 1998 386,539 126,564 25,000 660
Jack A. Newman, Jr. 2000 386,539 239,270 - 2,950
Executive Vice President 1999 375,000 33,548 129,363 657
1998 369,230 131,094 - 660
Paul M. Black 2000 230,000 352,537 2,000 2,873
Executive Vice President and 1999 224,230 46,431 887 657
Chief Sales Officer 1998 203,847 135,417 29,940 660
Earl H. Devanny, III (2) 2000 332,692 213,438 25,000 4,700
President 1999 126,250 100,000 100,679 19
1998 - - - -
Glenn P. Tobin, Ph.D. (3) 2000 335,384 176,850 10,000 4,749
Executive Vice President and 1999 317,692 - 5,298 657
Chief Operating Officer 1998 214,615 51,718 105,500 640
____________________
(1)Includes Company matching contributions and discretionary profit
sharing distributions to the named individual's account pursuant to the
Cerner Corporation 401(k) Retirement Plan and premiums paid by the
Company on group term life insurance.
(2)Mr. Devanny became an executive officer of the Company on August 13,
1999.
(3)Dr. Tobin became an executive officer of the Company on April 27,
1998.
9
Stock Option Plans
The following table reports information with respect to the award of
stock options during the year ended December 30, 2000 for each of the named
executive officers in the Summary Compensation Table:
Option Grants In Last Fiscal Year
Number of Percent of
securities total options
underlying granted to Exercise
options employees price Expiration Grant date
Name granted(#) in fiscal year ($/Sh) date present value ($)
---- ---------- -------------- -------- ---------- -----------------
Neal L. Patterson - - - - -
Jack A. Newman, Jr. - - - - -
Paul M. Black (1)(2) 2,000 .2 24.00 06/05/10 29,184
Earl H. Devanny, III (1)(2) 25,000 1.9 24.00 06/05/10 364,803
Glenn P. Tobin, Ph.D. (1)(2) 10,000 .8 24.00 06/05/10 145,921
____________________
(1) These options were issued at a price that was equal to the fair market
value of the Company's Common Stock on the date of grant. The options
become exercisable in varying amounts per year over a period of five years
from the date of the grant, assuming the optionee remains an employee of
the Company.
(2) The grant date present value was calculated using the Black-Scholes
option pricing model with the following weighted average assumptions:
expected dividend yield of zero percent; expected stock volatility of
72.1%; risk-free interest rate of 5.0%; and expected years until exercise
of 4.7 years for each option.
The following table reports information with respect to the December
30, 2000 option values for each of the named executive officers in the
Summary Compensation Table:
Aggregated Option Exercises In Last Fiscal Year and December 30, 2000 Option Values
Number of
Securities
Underlying
Unexercised
Options at Value of Unexercised
December 30, 2000 In-the-Money Options at
(#) December 30, 2000 ($)
Shares -------------- -----------------------
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable (1) Unexercisable (1)
---- ------------ ------------ ----------------- -----------------
Neal L. Patterson - - 180,000/205,000 2,992,500/3,442,500
Jack A. Newman, Jr. - - 97,873/56,490 2,562,770/1,556,023
Paul M. Black 7,900 327,975 27,296/57,941 814,945/1,586,001
Earl H. Devanny, III - - 28,500/97,179 876,375/2,776,277
Glenn P. Tobin, Ph.D. - - 30,560/90,238 774,909/2,224,358
____________________
(1)The numbers in the column headed Number of Securities Underlying
Unexercised Options at December 30, 2000 and the dollar amounts in the
column headed Value of Unexercised In-the-Money Options at December 30,
2000 reflect (i) the number of
10
shares of the Company's Common Stock
into which options are exercisable and unexercisable and (ii) the
difference between the fair market value on December 30, 2000 of such
shares of Common Stock and the exercise price of the options.
Director Compensation
Non-employee directors of the Company receive compensation of $2,500
for each meeting of the Board of Directors attended and an additional $500
for each committee meeting attended, plus reimbursement for expenses
incurred in connection with attendance at Board of Directors meetings.
During 2000, payments, excluding expense reimbursements, were $16,000 to
Dr. Bisbee, $16,500 to Mr. Herman, $16,500 to Dr. Goldsmith and $18,500 to
Mr. Danforth.
In conjunction with becoming a Director of the Company in March 2001,
Dr. Neaves was granted options to purchase 20,000 shares of the Company's
Common Stock. These options were issued at a price that was equal to the
fair market value of the Company's Common Stock on the date of grant. The
options become exercisable in equal amounts each year over a period of five
years from the date of the grant, beginning in 2002, assuming Dr. Neaves
remains a Director of the Company. The options expire ten years from date
of grant.
In 2000, Dr. Bisbee was granted options to purchase 4,000 shares of
the Company's Common Stock. These options were issued at a price that was
equal to the fair market value of the Company's Common Stock on the date of
grant. The options become exercisable one year from the date of grant,
assuming Dr. Bisbee remains a Director of the Company. The options expire
ten years from date of grant.
Report of the Compensation Committee
The Compensation Committee of the Board of Directors (the
"Compensation Committee") is composed of the individuals listed below. All
of the members of the Compensation Committee are outside directors. The
Compensation Committee reviews and approves the Company's compensation
policies and practices, establishes compensation for directors and Mr.
Patterson, reviews and approves the compensation of the other executive
officers of the Company, and approves major changes in the Company's
benefit plans and compensation philosophy.
The compensation policies of the Company have been designed to enable
the Company to attract, motivate and retain experienced and qualified
executives. The Company seeks to provide competitive salaries based upon
individual performance, together with quarterly cash bonuses awarded for
the achievement of goals established by the Compensation Committee. In
addition, it has been the policy of the Company to grant stock options to
executives upon their commencement of employment with the Company or their
becoming such executive officers in an effort to strengthen the mutuality
of interests between such executives and the Company's shareholders.
Annual Compensation
Historically, total annual cash compensation for executive officers of
the Company consisted of base salary and a potential annual cash bonus (in
some instances payable by the award of restricted stock of the Company)
based upon incentive plans adopted each year by the Compensation Committee.
This year, the Company is seeking approval of a qualified performance-based
compensation plan, which is similar to the previous years' compensation
plans. Total annual cash compensation varies each year based on changes in
base salary and in the cash bonus. The incentive plans for executive
officers other than Mr. Patterson consists of various objective goals, both
related to areas for which such executive officer has responsibility and
for company wide performance. Attainment of each goal is objective, but
the amount of the bonus is also affected, in some instances, by a
subjective analysis of the executive's overall performance. Beginning in
year 2001, such bonus may only be adjusted downward from the maximum amount
stated in each individual's compensation plan. For Mr. Patterson, the sole
goal during the 2000 plan year consisted of earnings per share. Attainment
by Mr. Patterson of this goal is determined on an objective basis without
any subjective analysis of his overall performance. Under the incentive
plans, each executive may earn up to a maximum amount approved by the
Compensation Committee, based on and as determined by targets designed to
create a significant incentive in relation to such executive's salary.
During 2000, the Company's executive officers, as a group, earned
approximately 83 percent of the targeted incentives available.
11
The salary of each executive officer is approved on a subjective basis
by the Compensation Committee at a level believed to be sufficient to
attract and retain qualified individuals. In making this determination,
the Compensation Committee considers the executive's performance, salary
levels at other competing businesses and the Company's performance. In
approving salaries and incentive plan payments for 2000, the Compensation
Committee considered, among other matters, the Company's performance during
1999 and the compensation levels for 1998 and 1999 of the Company's
principle competitors for which information was available, although the
Compensation Committee did not target compensation to any particular group
of these companies. The factors impacting base salary levels are not
independently assigned specific weights but are subjectively considered by
the Compensation Committee.
Mr. Patterson's compensation during the year ended December 30, 2000
consisted of $436,154 in salary and $191,250 in payments earned under the
Company's incentive plans. Mr. Patterson earned approximately 78 percent
of the targeted incentives available under the incentive plans during 2000.
In determining Mr. Patterson's salary and potential incentive plan payments
for 2000, the Compensation Committee considered, among other matters, the
Company's performance during 1999 and the compensation of the chief
executive officer for 1998 and 1999 of the Company's principle competitors
for which information was available, although the Compensation Committee
did not target his compensation to any particular group of these companies.
Long-Term Incentive Compensation
The long-term incentive compensation for executive officers consists
of awards of stock options granted under the Company's stock option plans
typically upon their commencement of employment with the Company or
promotion to executive officer and stock options granted during the
employment as executive officers. The Compensation Committee believes stock
options create an incentive for executive officers to contribute to
sustained, long-term growth in the Company's performance. The Compensation
Committee believes that stock options create a mutuality of interest
between the Company's executive officers and shareholders. Stock option
grants provide the right to purchase shares of Common Stock at a specified
exercise price. All stock options issued to executive officers to date
have exercise prices equal to or greater than the fair market value of the
Common Stock on the date of the grant of the stock option.
Members of the Compensation Committee:
Gerald E. Bisbee, Jr., Ph.D.
John C. Danforth
Jeff C. Goldsmith, Ph.D.
Michael E. Herman
12
Company Performance
The following graph presents a comparison for the five-year period
ended December 29, 2000 of the performance of the Common Stock of the
Company with the Nasdaq Composite Index (as calculated by The Center for
Research in Security Prices) and the Nasdaq Computer/Data Processing Group
(as calculated by The Center for Research in Security Prices):
Comparison of 5 year Cumulative Total Return
Measurement Period Nasdaq Computer and Nasdaq Stock Market
(Fiscal Year Covered) Cerner Corporation Data Processing Index (US Companies)
--------------------- ------------------ --------------------- -------------------
Measurement Pt-12/30/95 $100.00 $100.00 $100.00
Measurement Pt-12/31/96 $ 75.61 $123.41 $123.03
Measurement Pt-12/30/97 $103.05 $151.61 $150.68
Measurement Pt-12/31/98 $130.49 $270.52 $212.46
Measurement Pt-12/31/99 $ 96.04 $594.39 $394.82
Measurement Pt-12/30/00 $225.61 $274.91 $237.37
The above comparison assumes $100 was invested on December 30, 1995 in
Common Stock of the Company and in each of the foregoing indices and
assumes reinvestment of dividends. The results of each component issuer of
each group are weighted according to such issuer's stock market
capitalization at the beginning of each year.
13
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected the firm of KPMG LLP as the
Company's independent certified public accountants to audit the financial
statements of the Company for the fiscal year ending December 29, 2001.
KPMG LLP has served as auditors for the Company since 1983. It is expected
that representatives of KPMG LLP will be present at the Annual Meeting.
They will have the opportunity to make a statement, if they desire to do
so, and also will be available to respond to appropriate questions.
Audit Fees
The aggregate fees incurred for professional services for the audit of
the Company's annual financial statements for the fiscal year ended
December 30, 2000, and the reviews of the financial statements included in
the Company's Form 10-Q for the fiscal year ended December 30, 2000, were
$123,000.
Financial Information Systems Design and Implementation Fees
The aggregate fees incurred for financial information systems design
and implementation services (as defined by Rule 2-01(c)(4)(ii) of
Regulation S-X promulgated by the SEC) rendered to the Company by KPMG for
the fiscal year ended December 30, 2000, were zero.
All Other Fees
The aggregate fees incurred for services rendered to the Company by
KPMG, other than those services covered in the sections captioned "Audit
Fees" and "Financial Information Systems Design and Implementation Fees,"
for the fiscal year ended December 30, 2000, were $150,600.
In making its determination regarding the independence of KPMG, the
Audit Committee considered whether the provision of the services covered in
the sections herein regarding "Financial Information Systems Design and
Implementation Fees" and "All Other Fees" was compatible with maintaining
such independence.
14
APPROVAL OF THE ADOPTION OF THE
CERNER CORPORATION 2001 LONG-TERM INCENTIVE PLAN F
The Board of Directors of the Company approved on March 9, 2001,
subject to shareholder approval, a long-term equity-based compensation
plan, formally titled the "Cerner Corporation 2001 Long-Term Incentive Plan
F" ("Plan F"), to provide key associates, consultants and non-employee
directors of the Company and its subsidiaries ("eligible participants")
with added incentive to remain employed by the Company and align such
individuals' interests with those of the Company's shareholders, and is
recommending to the shareholders that the shareholders adopt Plan F. The
Board of Directors believes that Plan F will create additional alignment
with eligible participants as shareholders. The Board of Directors also
believes that the use of Plan F is necessary for the Company to attract,
hire and retain quality associates in an industry that has a very
competitive market for talented employees and meets the Company's goal of
establishing a broad based, long-term orientation for the Company's high
performance associates. Plan F would permit the issuance of up to
2,000,000 shares of the Company's Common Stock pursuant to Awards granted
under Plan F, such as stock options, restricted stock awards and
performance share awards, as well as other awards such as stock
appreciation rights ("SARs"), phantom stock and performance unit awards
which may be payable in the form of Common Stock or cash (collectively all
such types of awards being hereinafter referred to as "Awards"); however,
not more than 500,000 of such shares will be available to granting any
types of grants other than Options or SARs as specifically set forth in
Plan F.
Description of Plan F
The following is only a brief summary of Plan F and is qualified in
its entirety by reference to its full text, a copy of which is attached
hereto as Annex I.
General. Plan F provides for the granting of stock options, SARs,
restricted stock awards, phantom stock, performance unit awards and
performance share awards to designated eligible participants.
Purpose. The purpose of Plan F is to promote the success, and enhance
the value, of the Company by linking the personal interests of eligible
participants to those of the Company's shareholders and by providing such
eligible participants with an incentive for outstanding performance. Plan
F is further intended to provide flexibility to the Company in its ability
to attract, motivate and retain the services of eligible participants upon
whose judgment, interest and special efforts the Company is largely
dependent for the successful conduct of its operations.
Eligibility to Receive Awards. Designated key associates of the
Company and its subsidiaries, consultants and non-employee directors are
eligible to be granted Awards under Plan F. However, incentive stock
options (see below) may be granted only to associates of the Company.
Plan Administration. Plan F is administered by a committee composed
of outside directors appointed by the Board of Directors of the Company
(the "Committee"). Subject to the terms of Plan F, the Committee has the
sole discretion to administer and interpret Plan F and determine who shall
be granted Awards, the size and types of such Awards and the terms and
conditions of such Awards.
Stock Options. Both incentive stock options and nonqualified stock
options may be granted under Plan F. The exercise price per share of the
shares of the Company's Common Stock subject to each option (the "option
price") is set by the Committee but may not be less than the fair market
value on the date of grant. Certain incentive stock options granted to
individuals owning more than 10% of the Company will be required to have a
higher option price equal to at least 110% of the value of the stock on the
date of grant. Options granted under Plan F are exercisable at the times
and on the terms established by the Committee. The grant and the terms of
incentive stock options shall be restricted to the extent required by the
Internal Revenue Code. The option price must be paid in full in cash or
the Committee also may permit payment of the option price by the tender of
previously acquired shares of the Company's Common Stock or such other
legal consideration which the Committee determines to be consistent with
Plan F's purpose and applicable law. Reload options, which are options
granted when an option holder exercises a stock option and makes payment of
the purchase price with previously owned shares of Common Stock, may be
granted under Plan F. A reload option grant is for the number of shares
utilized in payment of the purchase price and tax withholding, if any. The
option price for a reload option,
15
if granted, will be equal to the fair market value as of the date of
exercise of the option or the date of grant of such additional options,
whichever is later.
Section 162(m) of the Internal Revenue Code limits the Company's
deduction for compensation paid to certain executive officers to $1 million
per year unless such compensation is "performance-based." For purposes of
satisfying this requirement, Plan F limits the number of options that can
be granted to any individual during any calendar year to 500,000 shares.
This limitation is applicable to other Awards made under Plan F to the
extent such Awards are settled in shares of Company Common Stock.
Stock Appreciation Rights. Plan F permits the grant of two types of
SARs: freestanding SARs, tandem SARs, or any combination thereof. A
freestanding SAR is a SAR that is granted independently of any option. A
tandem SAR is a SAR that is granted in connection with a related option,
the exercise of which requires a forfeiture of the right to purchase a
share under the related option (and when a share is purchased under the
option, the SAR is similarly canceled). Tandem SARs may be granted either
at the time the option is granted or any time thereafter while the option
remains outstanding; provided, however, that in the case of an incentive
stock option, SARs may be granted only at the time of grant of the
incentive stock option. The Committee has complete discretion to determine
the number of SARs granted to any optionee or recipient and the terms and
conditions pertaining to such SARs. Unless the Committee determines
otherwise, the grant price shall be at least equal to the option price of
the related option in the case of a tandem SAR, or in the case of a
freestanding SAR, the fair market value of a share of the Company's Common
Stock on the date of grant.
Restricted Stock. Plan F permits the grant of restricted stock
awards. Restricted stock may be issued or transferred for consideration or
for no consideration, as determined by the Committee. The Committee may
establish conditions under which restrictions on shares of Restricted Stock
shall lapse over a period of time or according to such other criteria, such
as the achievement of specific performance goals, as the Committee deems
appropriate. Unless the Committee determines otherwise, during the period
of time in which the shares of Restricted Stock are restricted, the
individual to whom the shares have been granted shall not have the right to
vote the shares but shall have the right to receive any dividends or other
distributions paid on such shares, subject to any restrictions deemed
appropriate by the Committee. The Committee may accelerate the time at
which any restrictions lapse, and/or remove any restrictions.
Performance Unit and Performance Shares. Plan F permits the grant of
performance units and performance share awards which are bonuses payable in
cash, Common Stock or a combination thereof. Each Performance Unit/Share
shall represent the right of the grantee to receive an amount based on the
value of the Performance Unit/Share, if performance goals established by
the Committee are met. A Performance Unit shall have a value based on such
measurements or criteria as the Committee determines. A Performance Share
shall have a value equal to the fair market value of a share of the Company
Common Stock. When Performance Units/Shares are granted, the Committee
shall establish a performance period during which performance shall be
measured and at the end of each performance period, the Committee shall
determine to what extent the performance goals and other conditions of the
Performance Units/Shares are met. If the grantee of a Performance
Unit/Share ceases to be an associate during a performance period, or if
other conditions established by the Committee are not met, the grantee's
Performance Units/Shares shall be forfeited at the close of business on
such associate's last day of employment. The Committee may, however,
provide for complete or partial exceptions to this requirement as it deems
appropriate.
Phantom Stock. Plan F permits the grant of shares of phantom stock.
The Committee will establish the initial value of each share of Phantom
Stock at the time of the grant and may decide whether Company dividends, if
any, will be paid (either currently or accrued as contingent cash
obligations) on any shares of Phantom Stock. Payments made with respect to
a share of Phantom Stock will be in an amount equal to the fair market
value on the payment date of a share of Company Stock. Any amounts payable
with respect to Phantom Stock may be paid in the form of cash or in shares
of Company Stock in accordance with the terms and at such times as
determined by the Committee at the time of grant. Generally, the payment
of amounts with respect to shares of Phantom Stock will be associated with
the achievement of specific performance goals established from time to time
by the Committee. If the grantee of Phantom Stock ceases to be an
associate prior to becoming vested or otherwise entitled to payment, the
associate's Phantom Stock shall be forfeited at the close of business on
the associate's last day of employment. The Committee may, however, provide
for complete or partial exceptions to this requirement as it deems
appropriate.
16
Nontransferability of Awards. Awards granted under Plan F may not be
sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the applicable laws of descent and
distribution, or as otherwise specifically permitted by the Committee.
However, a grantee or recipient may designate one or more beneficiaries (in
the case of Nonqualified Stock Options only) to receive any exercisable or
vested Awards following his or her death.
Federal Income Tax Consequences. The following is only a general
summary of the possible federal income tax consequences that could result
under Plan F and should not be relied upon as being a complete statement.
It does not address the state or local tax aspects of participation in Plan
F.
The grant of an option or SAR will create no tax consequences for a
grantee or the Company. In general, the grantee will have no taxable
income upon exercising an incentive stock option if the applicable holding
period is satisfied (except that the alternative minimum tax may apply),
and the Company will receive no income tax deduction when an incentive
stock option is exercised. Upon exercising a nonqualified option or a SAR,
the grantee must recognize ordinary income equal to the difference between
the exercise price and the fair market value of shares of Common Stock on
the date of the exercise; the Company will be entitled to an income tax
deduction for the same amount, subject to the possible applicability of the
compensation deductibility limit of Section 162(m) of the Internal Revenue
Code. Generally, there will be no tax consequence to the Company in
connection with a disposition of shares acquired by a grantee upon exercise
of an option, except that the Company may be entitled to a tax deduction in
the case of a disposition of shares acquired by exercise of an incentive
stock option before the applicable holding periods have been satisfied.
With respect to other Awards made under Plan F that are settled either
in cash or in stock or other property that is either transferable or not
subject to substantial risk of forfeiture, the grantee generally must
recognize ordinary income equal to the cash or the fair market value of
shares or other property received, and the Company will be entitled to a
deduction for the same amount. With respect to Awards that are settled in
stock or other property that is restricted as to transferability and
subject to substantial risk of forfeiture, the grantee generally must
recognize ordinary income equal to the fair market value of the shares or
other property received at the first time the shares or other property
become transferable or not subject to a substantial risk of forfeiture,
whichever occurs earlier, and the Company will be entitled to a deduction
for the same amount, subject to possible limitation under Section 162(m) of
the Internal Revenue Code.
Amendment and Termination of Plan F. Except as specifically provided
for in Plan F, the Committee or the Board of Directors of the Company may
amend or terminate Plan F at any time or from time to time, without
obtaining the approval of the Company's shareholders. Unless terminated
earlier by the Committee, Plan F shall terminate on the day immediately
preceding the tenth anniversary of its effective date, unless Plan F is
extended with the approval of the shareholders.
Plan F Benefits
All key associates, consultants and non-employee directors of the
Company and its subsidiaries are eligible to participate in and receive
Awards under Plan F. The value and number of shares that potentially may
be received by the five individuals named in the Summary Compensation
Table, all current executive officers and all associates are not currently
determinable due to the voluntary and discretionary nature of Plan F.
Approval of Plan F
Approval of the proposal to adopt Plan F requires the affirmative vote
of the holders of a majority of the shares of Common Stock represented at
the Annual Meeting, in person or by proxy, and entitled to vote thereon.
Abstentions will have the same effect as votes against the proposal. Non-
voted shares will not be considered in attendance for the vote on this
proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE
ADOPTION OF THE CERNER CORPORATION 2001 LONG-TERM INCENTIVE PLAN F
17
APPROVAL OF THE ADOPTION OF THE CERNER CORPORATION 2001 ASSOCIATE STOCK
PURCHASE PLAN WHICH QUALIFIES UNDER INTERNAL REVENUE CODE SECTION 423
The Board of Directors of the Company approved on March 9, 2001,
subject to shareholder approval, an employee stock purchase plan, formally
titled the "Cerner Corporation 2001 Associate Stock Purchase Plan" (the
"Stock Purchase Plan") to provide associates of the Company and its
domestic subsidiaries with added incentive to remain employed with the
Company and to encourage increased efforts to promote the best interests of
the Company by permitting them to purchase shares of Common Stock at below-
market prices. The Stock Purchase Plan is intended to qualify as an
"employee stock purchase plan" within the meaning of Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code").
Description of the Cerner Corporation 2001 Associate Stock Purchase Plan
The following is only a brief summary of the Stock Purchase Plan and
is qualified in its entirety by reference to its full text, a copy of which
is attached hereto as Annex II.
General. The Stock Purchase Plan gives all eligible associates the
opportunity to purchase shares of Common Stock at below-market prices on
the last day of a successive three-month period (each such period is
referred to herein as a "Purchase Period"). There will be four such
Purchase Periods per year with the end of each Purchase Period being the
last business day of each calendar quarter and the beginning day of each
Purchase Period being the first business day following the end of the last
Purchase Period. Eligible Associates may elect on a quarterly basis to have
the Company withhold between 1% and 20% of their Compensation (as defined
in the Stock Purchase Plan) to be used to purchase Company Common Stock at
a 15% discount on the last day of the Purchase Period. All shares purchased
under the Stock Purchase Plan may not be sold, transferred or assigned for
a period of one year after the date issued.
Eligibility. Each individual employed by the Company and associates
of the Company's United States based subsidiaries, except as provided
below, shall be eligible to participate in the Stock Purchase Plan. The
following individuals shall be excluded from participation: (a) persons
who, as of the beginning of a Purchase Period, have been continuously
employed by the Company or its domestic subsidiaries for less than two
weeks; (b) persons who, as of the beginning of a Purchase Period, own
directly or indirectly, or hold options or rights to acquire under any
agreement or Company plan, an aggregate of 5% or more of the total combined
voting power or value of all outstanding shares of all classes of Company
Common Stock; and (c) persons who are customarily employed by the Company
for less than twenty hours per week or for less than five months in any
calendar year.
Shares Subject to the Stock Purchase Plan. A maximum of 1,000,000
shares of Common Stock may be purchased under the Stock Purchase Plan,
subject to appropriate adjustment in the event of a stock dividend, stock
split or combination, reorganization, merger, consolidation, liquidation or
any combination or exchange of shares of Common Stock. The Common Stock
subject to issuance under the terms of the Stock Purchase Plan may be
authorized but unissued shares or reacquired shares of Company Stock,
including treasury shares and shares purchased by the Company on the open
market for purposes of the Stock Purchase Plan or a combination thereof.
At the present time, the Company intends that all such shares will be
purchased by the Company on the open-market, making the Stock Purchase Plan
non-dilutive to shareholders. The Company may at some point in the future,
however, elect to issue authorized but unissued shares or treasury shares
to fund the Stock Purchase Plan which would be potentially dilutive to the
shareholders.
Administration. The Stock Purchase Plan will be administered by the
Board of Directors or by a committee of the Board (the "Committee")
appointed by the Board and serving at its pleasure (the Board or any such
Committee being herein referred to as the "Administrator"). Until such
time as the Board shall determine otherwise, the Compensation Committee of
the Board shall serve as Administrator. Subject to the provisions of the
Stock Purchase Plan, the Administrator has full power and authority to
interpret and administer the Stock Purchase Plan, to establish rules and
regulations, to appoint agents in connection therewith and to take any
other action that the Administrator deems necessary or desirable to
administer the Stock Purchase Plan.
Purchase Price. The purchase price of Common Stock under the Stock
Option Plan shall be 85% of the fair market value of the Company's Common
Stock on the last trading day of the Purchase Period (the "Purchase Date").
Payment for shares is made on the Purchase Date using the funds that have
accumulated through the after-tax payroll deductions over the Purchase
Period or in such other
18
form of payment deemed acceptable by the Administrator. Subject to
limitations as set forth in the Stock Purchase Plan or established by the
Committee and unless other means of payment are determined by the
Committee, the Company will deduct from each Participant's paycheck
on an after-tax basis an amount not less than 1% and not greater than 20%
of Compensation, such percentage to be determined by the Participant.
Limitations. In no event shall a Participant be entitled to purchase
Common Stock under the Stock Option Plan (and any other Company employee
stock purchase plan) at a rate which exceeds $25,000 of the fair market
value of such Common Stock during a calendar year, to be determined in the
manner provided by Section 423(b)(8) of the Code. Except in the case of
death, a Participant's right to purchase the Company Stock at the end of a
Purchase Period may not be sold, pledged, assigned, transferred or
hypothecated in any way (whether by operation of law or otherwise) and
shall not be subject to sale under execution, attachment or similar
process.
Amendments and Duration. The Administrator may terminate the Stock
Purchase Plan at any time and may amend the Stock Purchase Plan in any
manner permitted by law. No amendment shall be effective unless within one
year after it is adopted by the Board it is approved by the shareholders in
the manner prescribed under the Treasury Regulations under Section 423 of
the Code, if such amendment would: (a) increase the number of shares
reserved for purchase under the Stock Purchase Plan, unless such increase
is by reason of any change in the capital structure of the Company as set
forth above; (b) change the designation of corporations or other entities
whose employees may be given the opportunity to purchase Common Stock under
the Plan, except as permitted under Treasury Regulations 1.423-2(c)(4);
(c) materially modify the requirements as to eligibility for participation
in the Plan; or (d) materially increase the benefits accruing to
Participants under the Plan.
Federal Income Tax Consequences. The following is only a general
summary of the possible federal income tax consequences that could result
under the Stock Purchase Plan and should not be relied upon as being a
complete statement. It does not address the state or local tax aspects of
participation in the Stock Purchase Plan.
The Stock Purchase Plan is intended to qualify as an "employee stock
purchase plan" within the meaning of Section 423 of the Code. Under
Section 423 of the Code, an eligible associate who elects to participate in
the Stock Purchase Plan will not realize any taxable income at the time
Common Stock is purchased under the Stock Purchase Plan for such eligible
associate. If an associate disposes of Common Stock purchased under the
Stock Purchase Plan two years or more after the first day of the Purchase
Period or one year or more after the date the Common Stock is transferred
to the associate, whichever is later, the associate will recognize ordinary
income in an amount equal to the lesser of: (a) the excess of the fair
market value of the Common Stock at the time of the disposition over the
purchase price under the Stock Purchase Plan or (b) 15% of the fair market
value of the Common Stock on the first day of the Purchase Period. The
portion of the gain that is in excess of the amount recognized as ordinary
income, if any, is taxed as long-term capital gain. If the Common Stock is
disposed of at a price below the purchase price under the Stock Purchase
Plan, the loss will be treated as long-term capital loss. The Company will
not be entitled to any deduction with respect to a disposition of Common
Stock occurring under the circumstances described in this paragraph.
If an associate disposes of Common Stock purchased under the Stock
Purchase Plan within two years after the first day of the Purchase Period,
or within one year after the date the Common Stock is transferred to the
associate, whichever is later, the associate will recognize ordinary
income, and the Company will be entitled to a corresponding deduction, in
an amount equal to the excess of the fair market value of the Common Stock
on the last day of the Purchase Period over the purchase price of the
Common Stock under the Stock Purchase Plan. The associate's cost basis of
the Common Stock will be increased by the amount of the ordinary income
recognized by the associate. In addition, on the disposition of the Common
Stock, an associate will recognize capital gain or loss equal to the
difference between the price at which the Common Stock is disposed of and
the cost basis in the Common Stock, as so increased. The Company will not
be entitled to any deduction with respect to the amount recognized by the
associate as capital gain.
Miscellaneous Information. The Stock Purchase Plan is not subject to
the provisions of the Employee Retirement Income Security Act of 1974.
The Stock Purchase Plan is intended to satisfy the requirements of
Section 423 of the Code. A Participant will not obtain the benefits of
this provision of the Code if such Participant disposes of shares of Common
Stock acquired pursuant to the Plan within two
19
years from the first day of the applicable Purchase Period or within one
year from the date such Common Stock is purchased by the Participant,
whichever is later.
A Participant shall have no rights as a shareholder under the Plan
until he or she acquires the Common Stock on one of the Plan's Purchase
Dates, at which time the Participant will become a shareholder with respect
to shares for which payment has been completed as of the close of business
on the Purchase Date.
Stock Purchase Plan Benefits
All associates of the Company, except for those specifically excluded
as set forth above, are eligible to participate under the Stock Purchase
Plan. Directors who are not otherwise associates will not be permitted to
participate. The dollar value and number of shares that will be purchased
and received by the five individuals named in the Summary Compensation
Table (so long as such individuals are not restricted from participating in
the Stock Purchase Plan), all current executive officers and all associates
are not currently determinable due to the voluntary and discretionary
nature of the Stock Purchase Plan.
Approval of the Stock Purchase Plan
Approval of the proposal to adopt the Cerner Corporation 2001
Associate Stock Purchase Plan requires the affirmative vote of the holders
of a majority of the shares of Common Stock represented at the Annual
Meeting, in person or by proxy, and entitled to vote thereon. Abstentions
will have the same effect as votes against the proposal. Non-voted shares
will not be considered in attendance for the vote on this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ADOPTION OF THE
CERNER CORPORATION 2001 ASSOCIATE STOCK PURCHASE PLAN
WHICH QUALIFIES UNDER INTERNAL REVENUE CODE SECTION 423
20
APPROVAL OF A QUALIFIED PERFORMANCE-BASED COMPENSATION PLAN, THE CERNER
CORPORATION PERFORMANCE PLAN, FOR THE CORPORATION'S EXECUTIVE OFFICERS FOR
PURPOSES OF COMPLYING WITH SECTION 162(m) OF THE INTERNAL REVENUE CODE
The Board of Directors of the Company recommends approval of the
Cerner Corporation Performance Plan (the "Performance Plan") for purposes
of complying with Section 162(m) of the Internal Revenue Code. The
Performance Plan is similar to previous years' incentive compensation plans
approved by the Compensation Committee of the Board of Directors. The
reason for obtaining shareholder approval of the Performance Plan is to
ensure that all amounts paid under the Performance Plan to certain
executives will remain deductible to the Company for federal income tax
purposes. The federal tax law requires certain plans, like the Company's
Performance Plan, to be approved by shareholders at least once every five
years in order to ensure that all amounts paid are fully tax-deductible.
The Board of Directors has determined that it is appropriate and in
the best interests of the Company and the shareholders to ensure that all
amounts payable under the Performance Plan are fully tax-deductible to the
Company. The Board has determined, by resolution adopted on March 9, 2001,
to submit the plan to shareholders for their approval at this year's annual
meeting. If the shareholders approve the Performance Plan, all amounts
paid to associates and executive officers pursuant to the Performance Plan
in forthcoming periods, including at the end of 2001, will be fully tax-
deductible to the Company, generating substantial after-tax savings.
General Description of the Plan
The following is only a brief summary of the significant provisions of
the Performance Plan and is qualified in its entirety by reference to its
full text, a copy of which is attached as an exhibit to the Company's 2000
Annual Report on Form 10-K.
The Performance Plan has two components: a general feature and an
executive feature. Under the general feature, a broad range of officers and
associates may be eligible to receive awards that entitle such individuals
to quarterly and annual bonus payments if certain pre-determined
performance targets are met for such respective quarters or the year. The
executive feature, which applies only to executive officers of the Company
who are determined by the Company to be "Section 16 Insiders" for purposes
of Section 16 of the Securities Exchange Act of 1934, is similar in
concept, except that the determination of the performance targets is less
flexible than under the general feature, and the bonus amounts payable if
the targets are met are still subject to additional reductions under the
executive feature. Included within the group of individuals eligible to
receive awards under the executive feature of the Performance Plan are all
of the officers listed in the Summary Compensation Table of this Proxy
Statement.
Purpose
The purpose of the Performance Plan is to provide a meaningful
incentive on both a quarterly and annual basis to key associates and
executive officers of the Company and to motivate them to assist the
Company in achieving ambitious, attainable short-term goals. Individual
payments made under the Performance Plan will vary, depending upon
individual performance and, in some cases, operation unit achievements.
The Performance Plan is administered by the Compensation Committee of the
Board, which makes all determinations, including establishment of quarterly
and yearly performance targets, the associates/officers eligible for
awards, and the size of individual awards. In making determinations, the
Committee evaluates management's input and other relevant information.
General Feature
The general feature of the Plan applies to those individuals who are
not determined by the Company to be "Section 16 Insiders". The Committee
establishes general performance targets for the year or for particular
quarters, and if such targets are achieved, the Company will pay bonuses to
the eligible participants. The performance targets established by the
Committee may vary from participant to participant and may include targets
based on stock price, earnings per share, net income, return on equity,
return on assets, profit margins on a contract-by-contract basis, reduction
of certain accounts receivable or achievement of subsidiary or operating
plans.
Under the general feature, following the initial determination of
performance targets, the Committee will monitor actual corporate
performance throughout each fiscal quarter, and may decide at any time
before quarter or final year-end determinations are
21
reached to adjust the earlier target levels as appropriate, for example,
to take account of unusual or unanticipated corporate or industry-wide
developments. Final determination of the amounts to be paid to a
participant under the general feature of the plan may also be adjusted
upward or downward depending upon subjective evaluations by an associate's
executive or manager.
Executive Feature
The executive award feature of the Performance Plan was specifically
created and has been structured so as to ensure that all amounts paid to
Section 16 Insiders under the Performance Plan are deductible by the
Company for federal income tax purposes.
The principle difference between the general feature of the
Performance Plan and the executive feature is that (a) separate, more rigid
performance targets are set under the executive feature which may not be
changed during the applicable performance period and (b) the maximum
amounts payable to the eligible executive officers if those targets are
reached are determined under pre-established objective formulas, with only
limited discretion permitted to the Committee to reduce the amount of the
bonus payable.
Tax Law Requiring Shareholder Approval
Section 162(m) of the Internal Revenue Code provides that a publicly-
traded company will not be able to deduct for federal income tax purposes
any compensation in excess of $1 million paid by it in any one year to any
"covered employee" of the company, subject to certain exemptions. "Covered
employees" are essentially the senior executives, i.e., the officers listed
in the Summary Compensation Table in this Proxy Statement. The annual
compensation that is counted under the statute for purposes of the $1
million limit includes, among other things, base salary and cash bonuses.
However, various forms of compensation are exempt under Section 162(m),
including performance-based compensation paid under shareholder-approved
plans that meet certain criteria. The executive feature of the Company's
Performance Plan meets these criteria.
Operation of the Executive Feature
Under the executive feature of the Performance Plan, no later than the
90th day of each calendar year (in the case of annual-based awards or a
combination of annual and quarterly based awards) or no later than after
25% of a fiscal quarter has elapsed (in the case of awards based solely on
such fiscal quarter's performance targets), the Committee will set forth in
writing the executive targets for that period of time. The executive
targets are drawn from a limited number of financial measures specified in
the executive's award. These targets include: (a) Earnings Per Share, (b)
Company Operating Margins, (c) Agreement Margin or (d) other targets as
specifically set forth below and as determined by the Committee.
(a) The Earnings Per Share Target shall be expressed as a specific
target earnings per share for such year for the Company's common stock on a
fully diluted basis, before the after-tax effect of any extraordinary
items, the cumulative effect of accounting changes, or other nonrecurring
items of income or expense including restructuring charges.
(b) The Company Operating Margin Target shall be expressed as a
target percentage reflecting the leverage of the Company's revenue relative
to the expense associated with that revenue.
(c) The Agreement Margin Targets shall be expressed as a dollar
amount of booking margins on specified types of sales, adjusted for the
costs associated with delivery of the solutions.
(d) The Other Targets shall be determined based solely on the
following list of targets:
(i) Total shareholder return
(ii) Stock price increase
(iii) Return on equity
(iv) Return on capital
(v) Cash flow, including operating cash flows, free cash flow,
discounted cash flow return on investment, and cash flow
in excess of cost of capital
(vi) Economic value added
(vii) Market share
22
(viii) Client/associate satisfaction as measured by survey
instruments
(ix) Revenue Levels
(x) Employee Retention
(xi) Productivity measures
(xii) Diversification of business opportunities
(xiii) Price to earnings ratio
(xiv) Expense ratios
(xv) Total expenditures
(xvi) Completion of key projects
(xvii) Operating margin
The Committee need not apply all of the above measures to any
particular executive for any year. The Committee may select one or more of
the measures for any of the executives. In selecting one or more financial
measures, the Committee establishes a target level of performance for that
measure for the forthcoming year or quarters, which may not be changed
after it is selected.
Maximum Payments
The Committee determines the maximum payment for which the executive
is eligible. Such determination is based on a number of factors including
but not limited to their role in the Company, ratio of performance bonus to
salary and total potential compensation. The Committee has discretion to
reduce the amount of the bonus payable under the executive feature of the
Performance Plan but in no event may the amount of the bonus be increased
beyond its maximum limit. The amount of the bonus reduction, if any, will
depend upon a subjective bonus reduction factor, formally known as an
Annual Performance Evaluation (APE) Factor, which will be determined at the
executive's end-of-the-year evaluation. This factor will range from 100%
of the maximum bonus amount (i.e., 100% of the maximum allowed bonus will
be paid) for demonstrated distinguished performance to 40% if performance
does not satisfy the required standard. Beginning in fiscal year 2001, the
maximum amount payable to the Chief Executive Officer shall be 175% of the
Chief Executive Officer's base salary, and for all other "Section 16
Insiders", 150% of such individual's base salary.
Certification
Prior to making payments under the executive feature of the
Performance Plan, the Compensation Committee must certify in writing that
at least one of the preestablished targets for that quarter or year was
satisfied, and the Committee minutes must reflect this certification.
While the amounts of the quarterly or annual bonuses that may be paid
to executives under the executive feature in any one quarter or year cannot
be determined, the following table indicates the maximum bonus amounts that
would have been payable to each of the named executive officers in the
Summary Compensation Table and to all the current Section 16 executives as
a group in 2000 under the Performance Plan.
Maximum Potential Payment
-------------------------
Name under Performance Plan
---- ----------------------
Neal L. Patterson, $763,269
Chairman of the Board
and Chief Executive Officer
Jack A. Newman, Jr. $579,808
Paul M. Black $345,000
Earl H. Devanny, III $499,039
Glenn P. Tobin, Ph.D. $503,076
All Section 16 executives as a group $5,417,084
23
Approval of the Cerner Corporation Performance Plan
Approval of the proposal to adopt the Cerner Corporation Performance
Plan requires the affirmative vote of the holders of a majority of the
shares of Common Stock represented at the Annual Meeting, in person or by
proxy, and entitled to vote thereon. Abstentions will have the same effect
as votes against the proposal. Non-voted shares will not be considered in
attendance for the vote on this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ADOPTION OF THE
QUALIFIED CERNER CORPORATION PERFORMANCE PLAN
24
CERTAIN TRANSACTIONS
The Company leases an airplane from a company owned by Mr. Neal L.
Patterson and Mr. Clifford W. Illig. The airplane is leased on a per mile
basis with no minimum usage guarantee. The lease rate is believed to
approximate fair market value for this type of aircraft. During 1999 and
2000, respectively, the Company paid an aggregate of $511,853 and $495,664
for rental of the airplane. The airplane is used principally by Mr.
Patterson, Mr. Tobin and Mr. Devanny to increase the number of client
visits each can make and to reduce the physical strain of their heavy
travel schedules. The Company intends to continue the use of the airplane
in 2001.
On February 2, 2001, the Company announced its intent to acquire
certain assets and certain liabilities for cash of APACHE Medical Systems,
Inc., a Delaware corporation ("APACHE"). One of the Company's directors,
Gerald E. Bisbee, Jr., Ph.D., is currently Chairman of the Board of APACHE.
APACHE is a recognized leader in clinical decision support/outcomes
management systems and consulting services for the care of high-risk
patients, and provides products and services that enable health systems,
hospitals and providers to apply an evidence-based approach to achieve
clinical performance excellence, reduce cost and compete effectively under
managed care. APACHE also provides advanced clinical data collection
tools, registry management and analytic services for federal government
research, as well as in support of clinical trial design and product-
effectiveness evaluations for the pharmaceutical and medical device
industries. A definitive asset purchase agreement has not been executed as
of April 2, 2001, but it is anticipated that the cash purchase price for
the APACHE assets being purchased will be approximately $3.5 million,
subject to certain adjustments at closing. Dr. Bisbee's current ownership
of shares in APACHE is 500,000. As of April 2, 2001, Dr. Bisbee held
156,310 options to purchase APACHE stock, with 135,830 of those options
being vested. None of such 135,830 options were in the money as of April
2, 2001. Additionally, Dr. Bisbee was granted 300,000 performance, five-
year, $.75 warrants tied to raising capital for APACHE (which is not
related to the pending transaction with the Company). As of March 1, 2001,
APACHE had 7,466,966 shares of stock outstanding. Dr. Bisbee fully
disclosed his relationship with APACHE and his financial interest in APACHE
in a meeting with all members of the Board of Directors present. Dr.
Bisbee left the board room when the proposed APACHE transaction was
discussed and approved by remaining members of the Board of Directors.
The Company loaned to Earl H. Devanny, III, Stephen M. Garver, Steven
M. Goodrich, Jack A. Newman, Jr. and Glenn P. Tobin, Ph.D., executive
officers of the Company, $225,000, $270,000, $168,750, $205,468.75 and
$116,875, respectively. The loan to Mr. Devanny in the amount of $200,000
is interest-free for the first two years and thereafter bears interest at
the rate of 5% per annum. The loan to Mr. Newman in the amount of $100,000
is interest free. The loan to Dr. Tobin in the amount of $100,000 bears
interest at the rate of 3% per annum. The loans to Mr. Devanny, Mr. Newman
and Dr. Tobin in the amount of $25,000, $105,468.75 and $16,875,
respectively, and the loans to Mr. Garver and Mr. Goodrich were made
pursuant to an Executive Stock Purchase Plan and bear interest at a rate of
5.5% per annum. The loans to Dr. Tobin and Mr. Garver, made pursuant to
the Executive Stock Purchase Plan, were paid in full during 2000. The
balance due on the loans made to Mr. Newman was $185,468.75 at the end of
2000. The remaining loans are outstanding but not due.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than
ten percent of a registered class of the Company's equity securities, to
file with the Securities and Exchange Commission initial reports of
ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Executive officers, directors and
holders of ten percent or more of the Company's equity securities are
required to furnish the Company with copies of all Section 16(a) reports
they file.
Based solely on review of the copies of such reports furnished to the
Company or written representations that no other reports were required, the
Company believes that during the fiscal year ended December 30, 2000 all
Section 16(a) filing requirements applicable to its executive officers,
directors and holders of ten percent or more of the Company's equity
securities were complied with.
25
FINANCIAL STATEMENTS
The Annual Report to Shareholders of the Company for the fiscal year
ended December 30, 2000 is enclosed with this Proxy Statement.
GENERAL INFORMATION
Other Matters
The Bylaws of the Company require that for business to be properly
brought before an annual shareholders' meeting, the Company must have
received prior written notice of such business not later than 120 days in
advance of the date of such meeting. The notice must describe the proposed
business, the shareholders' name and address, a description of the class
and number of shares of stock of the Company which are beneficially owned
(as that term is defined in the Certificate of Incorporation of the
Company) by the shareholder, any material interest of the shareholder in
such business and all other information regarding the proposal which the
Company would be required to provide in a proxy statement filed pursuant to
the proxy rules of the Securities and Exchange Commission if proxies for
the proposal were being solicited by the Company. Because no such notice
has been received in a timely manner, the only business which may be
properly brought before the Annual Meeting are the matters set forth herein
or those brought before the meeting by or at the direction of the Board of
Directors.
The Board of Directors does not intend to present any matter for
action at the annual meeting other than the matters referred to in this
Proxy Statement. If any other matters properly come before the Annual
Meeting, it is intended that the holders of the proxies hereby solicited
will act in respect of such matters in accordance with their best judgment.
Deadline for Shareholder Proposals
Proposals by holders of the shares of Common Stock which are intended
to be presented at the 2002 Annual Meeting of Shareholders must be received
by the Company no later than December 17, 2001 to be eligible for inclusion
in the Company's Proxy Statement and form of proxy relating to that
meeting. Such proposals must also comply in full with the requirements of
Rule 14a-8 under the Securities Act of 1934 and must comply with the
advance notice and information requirement described under the heading
"GENERAL INFORMATION -- Other Matters" above to be presented at that
meeting.
Voting Matters
In accordance with Delaware law, a shareholder entitled to vote in the
election of directors can withhold authority to vote for all nominees for
directors or can withhold authority to vote for certain nominees for
directors. Abstentions from the proposals to approve the adoption of the
Cerner Corporation 2001 Long-Term Incentive Plan F; to approve the adoption
of the Cerner Corporation 2001 Associate Stock Purchase Plan which
qualifies under Section 423 of the Internal Revenue Code; or to approve the
adoption of the Qualified Cerner Corporation Performance Plan for purposes
of complying with Section 162(m) of the Internal Revenue Code are treated
as votes against the particular proposal. Broker non-votes on the election
of directors or the proposals to approve the adoption of the Cerner
Corporation 2001 Long-Term Incentive Plan F; to approve the adoption of the
Cerner Corporation 2001 Associate Stock Purchase Plan which qualifies under
Section 423 of the Internal Revenue Code; or to approve the adoption of the
Qualified Cerner Corporation Performance-Based Compensation Plan for
purposes of complying with Section 162(m) of the Internal Revenue Code are
treated as shares of Common Stock as to which voting power has been
withheld by the respective beneficial holders and, therefore, as shares not
entitled to vote on the proposal as to which there is the broker non-vote.
Expenses of Solicitation
All costs of this solicitation will be borne by the Company. In
addition to the use of the mails, proxies may be solicited personally or by
telephone or telegraph by some of the regular employees of the Company.
The Company has engaged ADP Investor Communication Services as paid
solicitors in connection with the Annual Meeting. ADP will be paid to
solicit proxies and distribute proxy materials to nominees, brokers and
institutions. The anticipated cost of such services is approximately
$8,000, plus expenses.
26
The Company may reimburse brokers and other persons holding stock in
their names, or in the names of nominees, for their expenses incurred
in sending proxy materials to their principals and obtaining their proxies.
The Company requests that brokerage houses and other custodians, nominees
and fiduciaries forward the soliciting materials to the beneficial owners
of the shares of Common Stock held of record by such persons.
BY ORDER OF THE BOARD OF DIRECTORS,
Randy D. Sims
Secretary
North Kansas City, Missouri
April 16, 2001
27
EXHIBIT A
EXHIBIT A
CERNER CORPORATION
AUDIT COMMITTEE CHARTER
I. PURPOSE
The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities. The Audit
Committee's primary duties and responsibilities are to:
1. Serve as an independent and objective party to monitor the
Corporation's financial reporting process and internal control
system.
2. Monitor the independence and performance of the Corporation's
independent auditors and internal auditing department.
3. Provide an open avenue of communication among the independent
auditors, financial and senior management, the internal auditing
department, and the Board of Directors.
The Audit Committee will primarily fulfill these responsibilities by
carrying out the activities enumerated in Section IV of this Charter.
These responsibilities are in addition to those duties set out for a member
of the Board of Directors.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall be independent directors.
Members of the Audit Committee shall be considered independent if they have
no relationship to the Corporation that may interfere with the exercise of
their independence from management and the Corporation. Examples of such
relationships include:
* a director being employed by the Corporation or any of
its affiliates for the current year or any of the past
three years;
* a director who accepts any compensation from the
Corporation or any of its affiliates in excess of
$60,000 during the previous fiscal year, other than
compensation for Board service or benefits under a tax-
qualified retirement plan, or non-discretionary
compensation;
* a director being a member of the immediate family of an
individual who is, or has been in any of the past three
years, employed by the Corporation or any of its
affiliates as an executive officer. "Immediate family
member" includes a person's spouse, parents, children,
siblings, mother-in-law, father-in-law, brother-in-law,
sister-in-law, son-in-law, daughter-in-law, and anyone
who resides in such person's home;
* a director who is a partner in, or a controlling
shareholder or an executive officer of, any for-profit
business organization to which the Corporation made, or
from which the Corporation received, payments (other
than those arising solely from investments in the
Corporation's securities) that exceed 5% of the
Corporation's consolidated gross revenues for that
year, or $200,000, whichever is more, in any of the
past three years; and
* a director being employed as an executive of another
entity where any of the Corporation's executives serve
on that entity's compensation committee.
One director who is not an independent director (as defined above) and is
not a current employee or an immediate family member of such employee may
be appointed to the Audit Committee, if the Board, under exceptional and
limited circumstances, determines that membership on the Committee by the
individual is required in the best interests of the Corporation and its
shareholders, and the Board discloses, in the next annual proxy statement
subsequent to such determination, the nature of the relationship and the
reasons for that determination.
28
All members of the Committee shall be capable of reading and understanding
fundamental financial statements, including a company's balance sheet,
income statement and cash flow statement or will be able to do so within a
reasonable period of time after his or her appointment to the Committee.
At least one member of the Committee shall have past employment experience
in accounting or finance, requisite professional certification in
accounting or any comparable experience or background which results in the
individual's financial sophistication, including being or having been a
chief executive officer, chief financial officer or other senior officer
with financial oversight responsibilities. Committee members may enhance
their familiarity with finance and accounting by participating in
educational programs conducted by the Corporation or an outside consultant.
The members of the Committee shall be elected by the Board at the annual
organizational meeting of the Board or until their successors shall be duly
elected and qualified. Unless a Chair is elected by the full Board, the
members of the Committee may designate a Chair by majority vote of the full
Committee membership.
III. MEETINGS
The Committee shall meet at least four times annually, or more frequently
as circumstances dictate. As part of its job to foster open communication,
the Committee should meet at least annually with management, the director
of the internal auditing department and the independent auditors in
separate executive sessions to discuss any matters that the Committee or
each of these groups believe should be discussed privately. In addition,
the Committee or at least its Chair should communicate with the independent
auditors and management quarterly to review the Corporation's financials
consistent with Section IV.3 below.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
Documents/Reports Review
1. Review, and if necessary, update this Charter at least annually.
Submit the Charter to the Board of Directors for approval and have the
document published at least every three years in accordance with SEC
regulations.
2. Review the Corporation's annual audited financial statements prior to
filing. Review should include discussion with management and independent
auditors of significant issues regarding accounting principles, practices,
and judgements. Discuss any items required to be communicated by the
independent auditors to the Audit Committee in accordance with SAS 61.
3. Discuss any items required to be communicated by the independent
auditors to the Audit Committee in accordance with SAS 61 in connection
with the Company's quarterly financial statements. The Chair of the
Committee may represent the entire Audit Committee for purposes of this
review.
4. Review significant findings prepared by the independent auditors and
internal reports to management prepared by the internal auditing department
and management's response thereto.
Independent Auditors
5. Recommend to the Board of Directors the selection of the independent
auditors, considering independence and effectiveness and approve the fees
and other compensation to be paid to the independent auditors. On an
annual basis, the Committee should review and discuss with the auditors all
significant relationships the auditors have with the Corporation that could
impair the auditors' independence.
6. The independent auditors are ultimately accountable to the Audit
Committee and the Board of Directors. The Audit Committee shall review the
performance of the independent auditors and approve any proposed discharge
of the independent auditors when circumstances warrant.
7. Consider the independent auditors' judgments about the quality and
appropriateness of the Corporation's accounting principles as applied to
its financial reporting.
29
8. In consultation with the independent auditors and the internal
auditors, review the integrity of the Corporation's financial reporting
processes and controls, both internal and external.
Ethical and Legal Compliance
9. Review or authorize the review of any matters within the Audit
Committee's scope of responsibilities. The Committee shall have the power
to retain independent counsel, auditors, or others to assist it in the
conduct of any such review.
10. Establish, review, and update periodically a Code of Ethical Conduct
and review management's controls for establishing a system to enforce this
Code.
11. Review activities, organizational structure, and qualifications of the
internal audit department.
12. Review, with the Corporation's counsel, legal compliance matters
including corporate securities trading policies.
13. Review, with the Corporation's counsel, any legal matter that could
have a significant impact on the Corporation's financial statements.
14. Annually prepare a report to shareholders as required by the
Securities and Exchange Commission. The report should be included in the
Company's annual proxy statement.
15. Perform any other activities consistent with this Charter, the
Corporation's by-laws, and governing law, as the Committee or the Board
deems necessary or appropriate.
# # #
30
ANNEX I
ANNEX I
CERNER CORPORATION
2001 LONG - TERM INCENTIVE PLAN F
The purpose of the Cerner Corporation Long-Term Incentive Plan F (the
"Plan") is to encourage designated key associates, consultants and non-
employee directors of Cerner Corporation (the "Company") and its
subsidiaries to contribute materially to the growth of the Company, thereby
benefiting the Company's shareholders by aligning the economic interests of
the participants with those of the shareholders.
1. Administration
(a) Committee. The Plan shall be administered and interpreted by a
committee (the "Committee") appointed by the Board of Directors of the
Company (the "Board"). The Committee shall consist of two or more persons
appointed by the Board, all of whom shall be "outside directors" as defined
under section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") and related Treasury regulations, and "non-employee directors" as
defined under Rule 16b-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
(b) Committee Authority. The Committee shall have the sole authority
to (i) determine the individuals to whom grants shall be made under the
Plan; (ii) determine the type, size and terms of the grants to be made to
each such individual; (iii) determine the time when the grants will be made
and the duration of any applicable exercise or restriction period,
including the criteria for exercisability and the acceleration of
exercisability; (iv) amend the terms of any previously issued Grant; and
(v) deal with any other matters arising under the Plan.
(c) Committee Determinations. The Committee shall have full power and
authority to administer and interpret the Plan, to make factual
determinations and to adopt or amend such rules, regulations, agreements
and instruments for implementing the Plan and for the conduct of its
business as it deems necessary or advisable, in its sole discretion. The
Committee's interpretations of the Plan and all determinations made by the
Committee pursuant to the powers vested in it hereunder shall be conclusive
and binding on all persons having any interest in the Plan or in any awards
granted hereunder. All powers of the Committee shall be executed in its
sole discretion, in the best interest of the Company, not as a fiduciary,
and in keeping with the objectives of the Plan and need not be uniform as
to similarly situated individuals.
2. Grants
Awards under the Plan may consist of grants of incentive stock options
as described in Section 5 ("Incentive Stock Options"), nonqualified stock
options as described in Section 5 ("Nonqualified Stock Options") (Incentive
Stock Options and Nonqualified Stock Options are collectively referred to
as "Options"), restricted stock as described in Section 6 ("Restricted
Stock"), stock appreciation rights as described in Section 7 ("SARs"),
performance units as described in Section 8 ("Performance Units"),
performance shares as described in Section 8 ("Performance Shares"), and
phantom stock as described in Section 9 ("Phantom Stock") (hereinafter
collectively referred to as "Grants"). All Grants shall be subject to the
terms and conditions set forth herein and to such other terms and
conditions consistent with this Plan as the Committee deems appropriate and
as are specified in writing by the Committee to the individual in a grant
instrument (the "Grant Instrument") or an amendment to the Grant
Instrument. The Committee shall approve the form and provisions of each
Grant Instrument. Grants under a particular Section of the Plan need not
be uniform as among the Grantees.
3. Shares Subject to the Plan
(a) Shares Authorized. Subject to the adjustment specified in Section
3(c) below, the aggregate number of shares of common stock of the Company
("Company Stock") that may be issued or transferred under the Plan is two
million (2,000,000) shares. Not more than five hundred thousand (500,000)
of such shares, subject to adjustment as provided in Section 3(c) below,
will be available to granting any types of Grants other than Grants of
Options or SARs. The shares may be authorized but unissued shares of
Company Stock or reacquired shares of Company Stock, including treasury
shares and shares purchased by the Company on the open market for purposes
of the Plan. If and to the extent Options or SARs granted under the Plan
terminate, expire, or are canceled, forfeited,
31
exchanged or surrendered without having been exercised or if any shares of
Restricted Stock, Performance Units, Performance Shares or Phantom Stock are
forfeited, the shares (if any) subject to such Grants shall again be
available for purposes of the Plan and credited back to the 2,000,000 share
limitation on Company Stock, as applicable. In addition, if any shares are
used by a Grantee as full or partial payment to the Company of the purchase
price relating to a Grant, whether by actual delivery or attestation, or in
connection with satisfaction of tax obligations relating to a Grant,
whether by actual delivery, attestation or having shares withheld from the
Grant, only the number of shares issued net of the shares tendered or
withheld shall be deemed delivered for purposes of determining the maximum
number of shares available for Grants under the Plan.
(b) Individual Limit. During any calendar year, no individual may be
granted Options or other Grants under the Plan that, in the aggregate, may
be settled by delivery of more than five hundred thousand (500,000) shares
of Company Stock, subject to adjustment as provided in Section 3(c). In
addition, with respect to Grants the value of which is based on the Fair
Market Value of Company Stock and that may be settled in cash (in whole or
in part), no individual may be paid during any calendar year cash amounts
relating to such Grants that exceed the greater of the Fair Market Value
(as defined in Section 5(b)(iii)) of the number of shares of Company Stock
set forth in the preceding sentence either at the date of grant or at the
date of settlement. This provision sets forth two separate limitations, so
that Grants that may be settled solely by delivery of Company Stock will
not operate to reduce the amount or value of cash-only Grants, and vice
versa; nevertheless, Grants that may be settled in Company Stock or cash
must not exceed either limitation.
With respect to Grants, the value of which is not based on the Fair
Market Value of Company Stock, no individual may receive during any
calendar year cash or shares of Company Stock with a Fair Market Value at
date of grant that, in the aggregate, exceeds five hundred thousand
dollars.
(c) Adjustments. If there is any change in the number or kind of
shares of Company Stock outstanding (i) by reason of a stock dividend, spin-
off, recapitalization, stock split, or combination or exchange of shares,
(ii) by reason of a merger, reorganization or consolidation in which the
Company is the surviving corporation, (iii) by reason of a reclassification
or change in par value, or (iv) by reason of any other extraordinary or
unusual event affecting the outstanding Company Stock as a class without
the Company's receipt of consideration, or if the value of outstanding
shares of Company Stock is substantially reduced as a result of a spin-off
or the Company's payment of an extraordinary dividend or distribution, the
maximum number of shares of Company Stock available for Grants, the maximum
number of shares of Company Stock that any individual participating in the
Plan may be granted in any year, the number of shares covered by
outstanding Grants, the kind of shares issued under the Plan, and the price
per share or the applicable market value of such Grants may be
appropriately adjusted by the Committee to reflect any increase or decrease
in the number of, or change in the kind or value of, issued shares of
Company Stock to preclude, to the extent practicable, the enlargement or
dilution of rights and benefits under such Grants; provided, however, that
any fractional shares resulting from such adjustment shall be eliminated.
Any adjustments determined by the Committee shall be final, binding and
conclusive. If and to the extent that any such change in the number or
kind of shares of Company Stock outstanding is effected solely by
application of a mathematical formula (e.g., a 2-for-1 stock split), the
adjustment described in this Section 3(c) shall be made and shall occur
automatically by application of such formula, without further action by the
Committee.
4. Eligibility for Participation
(a) Eligible Persons. All key associates of the Company and its
subsidiaries ("Associates"), including Associates who are officers or
members of the Board, shall be eligible to participate in the Plan.
Members of the Board who are not Associates shall be eligible to
participate in the Plan.
(b) Selection of Grantees. The Committee shall select the Associates
to receive Grants and shall determine the number of shares of Company Stock
subject to a particular Grant, and/or shall establish such other terms and
conditions applicable to such Grant, in such manner as the Committee
determines. Associates who receive Grants under this Plan shall
hereinafter be referred to as "Grantees."
5. Granting of Options
(a) Number of Shares. The Committee shall determine the number of
shares of Company Stock that will be subject to each Grant of Options.
32
(b) Type of Option and Price.
(i) The Committee may grant Incentive Stock Options that are intended
to qualify as "incentive stock options" within the meaning of section 422
of the Code or Nonqualified Stock Options that are not intended so to
qualify or any combination of Incentive Stock Options and Nonqualified
Stock Options, all in accordance with the terms and conditions set forth
herein.
(ii) The purchase price (the "Exercise Price") of Company Stock
subject to an Option shall be determined by the Committee and may be equal
to or greater than the Fair Market Value (as defined below) of a share of
Company Stock on the date the Option is granted; provided, however, that an
Incentive Stock Option may not be granted to an Associate who, at the time
of grant, owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any parent or subsidiary of
the Company, unless the Exercise Price per share is not less than 110% of
the Fair Market Value of Company Stock on the date of grant.
(iii) The Fair Market Value per share as of any date shall be the
closing reported sale prices of the Stock on The Nasdaq Stock Market (or
such other national securities exchange in the event the Company stock is
not then traded on The Nasdaq Stock Market) as of that date, or if there is
no such reported sales price on the relevant date, then on the last
previous day on which a sale was reported.
(c) Option Term. The Committee shall determine the term of each
Option. The term of any Option shall not exceed twenty-five years from the
date of grant. However, an Incentive Stock Option that is granted to an
Associate who, at the time of grant, owns stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company, or
any parent or subsidiary of the Company, may not have a term that exceeds
five years from the date of grant.
(d) Exercisability of Options. Options shall become exercisable in
accordance with such terms and conditions, consistent with the Plan, as may
be determined by the Committee and specified in the Grant Instrument or an
amendment to the Grant Instrument. The Committee may accelerate the
exercisability of any or all outstanding Options at any time for any
reason.
(e) Termination of Employment, Disability or Death. Except as provided
below, an Option may only be exercised while the Grantee is employed by the
Company. In the event that a Grantee ceases to be so employed for any
reason other than a "disability", death, retirement, or a termination for
the convenience of the Company, any Option held by the Grantee shall
terminate at the close of business ninety days after the Grantee's last day
of employment. In all such cases as described below under (i), (ii), (iii)
and (iv) the Option may be exercised only as to the shares of Company Stock
as to which the Option had become exercisable on or before the date the
Grantee ceases to be an Associate.
(i) In the event that the Grantee ceases to be employed in a manner
determined by the Committee or Board, in its sole discretion, to constitute
retirement (which determination shall be communicated to the Grantee within
sixty days of such termination), the Option may be exercised by the
Grantee, or in the case of the Grantee's death, by the Grantee's
beneficiaries entitled to do so, within three months following the
Grantee's retirement if the Option is an Incentive Stock Option or within
twelve months following the Grantee's retirement if the Option is a
Nonqualified Stock Option (provided in each case that such exercise must
occur within the Option term), but not thereafter.
(ii) In the event the Grantee dies (A) while he or she is an
Associate, (B) within the three-month period referred to in clause (iv)
below, or (C) within the three or twelve-month period referred to in clause
(i) above, the Option may be exercised by those beneficiaries of the
Associate entitled to do so within the twelve months following the
Grantee's death (provided that such exercise must occur within the Option
term), but not thereafter.
(iii) In the event the Grantee ceases to be employed by the Company
because the Grantee becomes "disabled", Incentive Stock Options held by the
Grantee may be exercised by the Grantee within twelve months following the
date the Grantee ceases to be an Associate (provided that such exercise
must occur within the Option term), but not thereafter. If the Grantee
becomes disabled within the three month period referred to in clause (iv)
below or within the three or twelve month period following his or her
retirement as provided in clause (i) above, Nonqualified Stock Options held
by the Grantee may be exercised by the Grantee within twelve months
following the date of the Grantee's disability (provided that such exercise
must occur within the Option term), but not thereafter.
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(iv) In the event the Grantee ceases to be employed by the Company
because the Grantee is terminated for the convenience of the Company (as
determined by the Committee or the Board in its sole discretion), any
Incentive Stock Option and/or Nonqualified Stock Option may be exercised by
the Grantee within three months after the date on which the Grantee ceases
to be employed by the Company (or within such shorter period of time as may
be specified by the Committee) provided that such exercise must occur
within the Option term, but not thereafter.
(v) For purposes of this Section 5(e) and Sections 6, 7 and 8:
(A) The term "Company" shall mean the Company and its subsidiary
corporations.
(B) "Disability" or "disabled" shall mean a Grantee's becoming
disabled within the meaning of section 22(e)(3) of the Code.
(f) Exercise of Options. A Grantee may exercise an Option that has
become exercisable, in whole or in part, by delivering a notice of exercise
to the Company with payment of the Exercise Price. The Grantee shall pay
the Exercise Price for an Option as specified by the Committee (x) in cash,
(y) with the approval of the Committee, by delivering shares of Company
Stock owned by the Grantee (including Company Stock acquired in connection
with the exercise of an Option, subject to such restrictions as the
Committee deems appropriate) and having an aggregate Fair Market Value for
such shares on the date of exercise equal to the aggregate Exercise Price
or (z) by such other method as the Committee may approve, including
attestation (on a form prescribed by the Committee) to ownership of shares
of Company Stock having a Fair Market Value on the date of exercise equal
to the Exercise Price, or payment through a broker in accordance with
procedures permitted by Regulation T of the Federal Reserve Board. In
addition, the Committee may authorize loans by the Company to Grantees in
connection with the exercise of an Option, upon such terms and conditions
that the Committee, in its sole discretion, deems appropriate. Shares of
Company Stock used to exercise an Option shall have been held by the
Grantee for the requisite period of time to avoid adverse accounting
consequences to the Company with respect to the Option. The Grantee shall
pay the Exercise Price and the amount of any withholding tax due (pursuant
to Section 10) at the time of exercise. Shares of the Company Stock shall
not be issued upon exercise of an Option until the Exercise Price is fully
paid and any required withholding is made. In the event that shares of
Company Stock are used to exercise an Option, the terms of such Option may
provide for a Grant of additional Options, or the Committee may grant
additional Options, to purchase, at Fair Market Value as of the date of
exercise of the Option or the date of grant of such additional Options,
whichever is later, for a term equal to the unexpired term of the exercised
Option, a number of shares of Company Stock equal to the sum of the number
of whole shares used to exercise the Option and the number of whole shares,
if any, withheld in payment of any withholding taxes.
(g) Limits on Incentive Stock Options. Each Incentive Stock Option
shall provide that, if the aggregate Fair Market Value of the stock on the
date of grant with respect to which Incentive Stock Options are exercisable
for the first time by a Grantee during any calendar year, under the Plan or
any other stock option plan of the Company or a parent or subsidiary,
exceeds one hundred thousand U.S. dollars ($100,000), then the Option, as
to the excess, shall be treated as a Nonqualified Stock Option.
6. Restricted Stock Grants
The Committee may issue or transfer shares of Company Stock to a
Grantee under a Grant of Restricted Stock, upon such terms as the Committee
deems appropriate. The following provisions are applicable to Restricted
Stock:
(a) General Requirements. Shares of Company Stock issued or
transferred pursuant to Restricted Stock Grants may be issued or
transferred for consideration or for no consideration, as determined by the
Committee. The Committee may establish conditions under which restrictions
on shares of Restricted Stock shall lapse over a period of time or
according to such other criteria as the Committee deems appropriate
including, without limitation, restrictions based upon the achievement of
specific performance goals. The period of time during which the Restricted
Stock will remain subject to restrictions will be designated in the Grant
Instrument as the "Restriction Period."
(b) Number of Shares. The Committee shall determine the number of
shares of Company Stock to be issued or transferred pursuant to a
Restricted Stock Grant and the restrictions applicable to such shares.
34
(c) Requirement of Employment. If the Grantee ceases to be employed
by the Company during the Restriction Period, or if other specified
conditions are not met, the Restricted Stock Grant shall terminate as to
all shares covered by the Grant as to which the restrictions have not
lapsed at the close of business on the Grantee's last day of employment,
and those shares of Company Stock must be immediately returned to the
Company. The Committee may, however, accelerate the termination of the
restrictions for all or a portion of such Restricted Stock as it deems
appropriate.
(d) Restrictions on Transfer and Legend on Stock Certificate. During
the Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Restricted Stock except to a Successor
Grantee under Section 11(a). Each certificate for a share of Restricted
Stock shall contain a legend giving appropriate notice of the restrictions
in the Grant. The Grantee shall be entitled to have the legend removed
from the stock certificate covering the shares subject to restrictions when
all restrictions on such shares have lapsed. The Committee may determine
that the Company will not issue certificates for shares of Restricted Stock
until all restrictions on such shares have lapsed, or that the Company will
retain possession of certificates for shares of Restricted Stock until all
restrictions on such shares have lapsed.
(e) Right to Vote and to Receive Dividends. Unless the Committee
determines otherwise, during the Restriction Period the Grantee shall not
have the right to vote shares of Restricted Stock. During the Restriction
Period the Grantee shall have the right to receive any dividends or other
distributions paid on such shares, subject to any restrictions deemed
appropriate by the Committee. Such dividends, if any, may be paid
currently, accrued as contingent cash obligations, or converted into
additional shares of Restricted Stock, upon such terms as the Committee may
establish, including the achievement of specific performance goals.
(f) Lapse of Restrictions. All restrictions imposed on Restricted
Stock shall lapse upon the expiration of the applicable Restriction Period
and the satisfaction of all conditions imposed by the Committee. The
Committee may terminate the restrictions, as to any or all Restricted Stock
Grants, without regard to any Restriction Period.
7. Stock Appreciation Rights
(a) General Requirements. The Committee may grant SARs to a Grantee
separately or in tandem with any Option (for all or a portion of the
applicable Option). Tandem SARs may be granted either at the time the
Option is granted or at any time thereafter while the Option remains
outstanding; provided, however, that, in the case of an Incentive Stock
Option, SARs may be granted only at the time of grant of the Incentive
Stock Option. The Committee shall establish the base amount of the SAR at
the time the SAR is granted. Unless the Committee determines otherwise,
the base amount of each SAR shall be equal to the per share Exercise Price
of the related Option or, if there is no related Option, the Fair Market
Value of a share of Company Stock as of the date of grant of the SAR.
(b) Tandem SARs. In the case of tandem SARs, the number of SARs
granted to a Grantee that shall be exercisable during a specified period
shall not exceed the number of shares of Company Stock that the Grantee may
purchase upon the exercise of the related Option during such period. Upon
the exercise of an Option, the SARs relating to the Company Stock covered
by such Option shall terminate. Upon the exercise of SARs, the related
Option shall terminate to the extent of an equal number of shares of
Company Stock.
(c) Exercisability. An SAR shall be exercisable during the period
specified by the Committee in the Grant Instrument and shall be subject to
such vesting and other restrictions as may be specified in the Grant
Instrument; provided, however, that the term of the SAR shall not exceed
ten years. The Committee may accelerate the exercisability of any or all
outstanding SARs at any time for any reason. SARs may only be exercised
while the Grantee is employed by the Company or during the applicable
period after termination of employment as described in Section 5(e) for
Options. For purposes of the preceding sentence, the rules applicable to a
tandem SAR shall be the rules applicable under Section 5(e) to the Option
to which it relates, and the rules applicable to any other SAR shall be the
rules applicable under Section 5(e) for a Nonqualified Stock Option. A
tandem SAR shall be exercisable only during the period when the Option to
which it is related is also exercisable.
(d) Value of SARs. When a Grantee exercises SARs, the Grantee shall
receive in settlement of such SARs an amount equal to the value of the
stock appreciation for the number of SARs exercised, payable in cash,
Company Stock or a combination thereof. The stock appreciation for an SAR
is the amount by which the Fair Market Value of the underlying Company
Stock on the date of exercise of the SAR exceeds the base amount of the SAR
as described in Subsection (a).
35
(e) Form of Payment. The Committee shall determine whether the
appreciation in an SAR shall be paid in the form of cash, shares of Company
Stock, or a combination of the two, in such proportion as the Committee
deems appropriate. For purposes of calculating the number of shares of
Company Stock to be received, shares of Company Stock shall be valued at
their Fair Market Value on the date of exercise of the SAR. If shares of
Company Stock are to be received upon exercise of an SAR, cash shall be
delivered in lieu of any fractional share.
8. Performance Units and Performance Shares
(a) General Requirements. The Committee may grant Performance Units
or Performance Shares to a Grantee. Each Performance Unit/Share shall
represent the right of the Grantee to receive an amount based on the value
of the Performance Unit/Share, if performance goals established by the
Committee are met. A Performance Unit shall have a value based on such
measurements or criteria as the Committee determines. A Performance Share
shall have a value equal to the Fair Market Value of a share of Company
Stock. The Committee shall determine the number of Performance
Units/Shares to be granted and the requirements applicable to such
Units/Shares.
(b) Performance Period and Performance Goals. When Performance
Units/Shares are granted, the Committee shall establish the performance
period during which performance shall be measured (the "Performance
Period"), performance goals applicable to the Units/Shares ("Performance
Goals") and such other conditions of the Grant as the Committee deems
appropriate.
(c) Payment with respect to Performance Units/Shares. At the end of
each Performance Period, the Committee shall determine to what extent the
Performance Goals and other conditions of the Performance Units/Shares are
met, the value of the Performance Units (if applicable) and the amount, if
any, to be paid with respect to the number of Performance Units/Shares that
have been earned. Payments with respect to Performance Units/Shares shall
be made in cash, in Company Stock, or in a combination of the two, as
determined by the Committee.
(d) Requirement of Employment. If the Grantee ceases to be employed
by the Company during a Performance Period, or if other conditions
established by the Committee are not met, the Grantee's Performance
Units/Shares shall be forfeited at the close of business on the Grantee's
last day of employment. The Committee may, however, provide for complete
or partial exceptions to this requirement as it deems appropriate. If the
Grantee ceases to be employed by the Company after the expiration of a
Performance Period but prior to payment, payment shall be made to the
Grantee or the Successor Grantee, if applicable.
9. Phantom Stock
(a) General Requirements. The Committee may grant Phantom Stock to a
Grantee in such amounts and upon such terms, and at any time and from time
to time, as shall be determined by the Committee.
(b) Value of Phantom Stock. The Committee shall establish the initial
value of the Phantom Stock at the time of grant which may be greater than,
equal to or less than the Fair Market Value of a share of Company Stock.
(c) Form and Timing of Payment. The Committee shall determine whether
the Phantom Stock shall be paid in the form of cash, shares of Company
Stock or a combination of the two, in such proportion as the Committee
deems appropriate. Cash payments shall be in an amount equal to the Fair
Market Value on the payment date of the number of shares of Company Stock
equal to the number of shares of Phantom Stock with respect to which
payment is made. The number of shares of Company Stock distributed in
settlement of a Phantom Stock Grant shall equal the number of shares of
Phantom Stock with respect to which settlement is made. Payment shall be
made in accordance with the terms and at such times as determined by the
Committee at the time of grant.
(d) Requirement of Employment. If the Grantee ceases to be employed
by the Company prior to becoming vested or otherwise entitled to payment,
the Grantee's Phantom Stock shall be forfeited at the close of business on
the Grantee's last day of employment. The Committee may, however, provide
for complete or partial exceptions to this requirement as it deems
appropriate.
36
10. Withholding of Taxes
(a) Required Withholding. All Grants under the Plan shall be subject
to applicable federal (including FICA), state and local tax withholding
requirements. The Company shall have the right to deduct from all Grants
paid in cash, or from other wages paid to the Grantee, any federal, state
or local taxes required by law to be withheld with respect to such Grants.
In the case of Options and other Grants paid in Company Stock, the Company
may require the Grantee or other person receiving such shares to pay to the
Company the amount of any such taxes that the Company is required to
withhold with respect to such Grants, or the Company may deduct from other
wages paid by the Company the amount of any withholding taxes due with
respect to such Grants.
(b) Election to Withhold Shares. If the Committee so permits, a
Grantee may elect to satisfy the Company's income tax withholding
obligation with respect to an Option, SAR, Restricted Stock, Performance
Units, Performance Shares or Phantom Stock, any of which is paid in Company
Stock, by having shares withheld having an aggregate Fair Market Value up
to an amount that does not exceed the required minimum amount necessary to
satisfy the federal (including FICA), state and local tax liabilities. The
election must be in a form and manner prescribed by the Committee and shall
be subject to the prior approval of the Committee.
11. Transferability of Grants
(a) Nontransferability of Grants. Except as provided below, only the
Grantee may exercise rights under a Grant during the Grantee's lifetime. A
Grantee may not transfer those rights except by will or by the laws of
descent and distribution or, with respect to Grants other than Incentive
Stock Options, if permitted in any specific case by the Committee, pursuant
to a domestic relations order (as defined under the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended, or the
regulations thereunder). When a Grantee dies, the personal representative
or other person entitled to succeed to the rights of the Grantee
("Successor Grantee") may exercise such rights which have not been
extinguished by the Grantee's death. A Successor Grantee must furnish
proof satisfactory to the Company of his or her right to receive the Grant
under the Grantee's will or under the applicable laws of descent and
distribution.
(b) Transfer of Nonqualified Stock Options. Notwithstanding the
foregoing, the Committee may provide in a Grant Instrument that a Grantee
may transfer Nonqualified Stock Options to family members or other persons
or entities according to such terms as the Committee may determine;
provided that the Grantee receives no consideration for the transfer of an
Option and the transferred Option shall continue to be subject to the same
terms and conditions as were applicable to the Option immediately before
the transfer.
12. Grants Subject to Code Section 162(m)
(a) Performance Based Grants. Any Grant to a Grantee who is a
"covered employee" within the meaning of Code Section 162(m), the
exercisability or settlement of which is subject to the achievement of
performance goals, shall qualify as "qualified performance-based
compensation" within the meaning of Code Section 162(m) and regulations
thereunder. The performance goals for such a Grant shall consist of one or
more of the business criteria set forth in Section 12(b), below, and a
targeted level or levels of performance with respect to such criteria, as
specified by the Committee in writing prior to (or, in the event the
applicable performance period is one year, within 90 days after
commencement of) the applicable performance period. Performance goals
shall be objective and shall otherwise meet the requirements of Section
162(m)(4)(C) of the Code and regulations thereunder. Performance goals may
differ for such Grants to different Grantees. The Committee shall specify
the weighting to be given to each performance goal for purposes of
determining the final amount payable with respect to any such Grant. The
Committee may, in its discretion, reduce the amount of a payout otherwise
to be made in connection with such a Grant, but may not exercise discretion
to increase such amount. All determinations by the Committee as to the
achievement of performance goals shall be certified in writing prior to
payment under the Plan, in the form of minutes of a meeting of the
Committee or otherwise.
(b) Business Criteria. Unless and until the Committee proposes for
shareholder approval and the Company's shareholders approve a change in the
general business criteria set forth in this Section, the attainment of
which may determine the amount and/or vesting with respect to Grants, the
business criteria to be used for purposes of establishing performance goals
for such Grants shall be selected from among the following alternatives,
each of which may be based on absolute standards or peer industry group
comparatives and may be applied at various organizational levels (e.g.,
corporate, business unit, division):
37
(i) Total shareholder return
(ii) Stock price increase
(iii) Return on equity
(iv) Return on capital
(v) Cash flow, including operating cash flows, free cash flow,
discounted cash flow return on investment, and cash flow in
excess of cost of capital
(vi) Economic value added
(vii) Market share
(viii) Client/associate satisfaction as measured by survey
instruments
(ix) Earnings per share
(x) Revenue Levels
(xi) Personal performance
(xii) Productivity measures
(xiii) Diversification of business opportunities
(xiv) Price to earnings ratio
(xv) Expense ratios
(xvi) Total expenditures
(xvii) Completion of key projects
(xviii) Employee Retention
In the event that Code Section 162(m) or applicable tax and/or
securities laws change to permit Committee discretion to alter the
governing performance measures without disclosing to shareholders and
obtaining shareholder approval of such changes and without thereby exposing
the Company to potentially adverse tax or other legal consequences, the
Committee shall have sole discretion to make such changes without obtaining
shareholder approval.
13. Deferrals
The Committee may permit or require a Grantee to defer receipt of the
payment of cash or the delivery of shares that would otherwise be due to
such Grantee by virtue of the exercise of any Option or SAR, the lapse or
waiver of restrictions applicable to Restricted Stock, the satisfaction of
any requirements or objectives with respect to Performance Units/Shares or
the vesting or satisfaction of any terms applicable to Phantom Stock. If
any such deferral election is permitted or required, the Committee shall,
in its sole discretion, establish rules and procedures for such deferrals.
14. Requirements for Issuance or Transfer of Shares
No Company Stock shall be issued or transferred in connection with any
Grant hereunder unless and until all legal requirements applicable to the
issuance or transfer of such Company Stock have been complied with to the
satisfaction of the Committee. The Committee shall have the right to
condition any Grant made to any Grantee hereunder on such Grantee's
undertaking in writing to comply with such restrictions on his or her
subsequent disposition of such shares of Company Stock as the Committee
shall deem necessary or advisable as a result of any applicable law,
regulation or official interpretation thereof, and certificates
representing such shares may be legended to reflect any such restrictions.
Certificates representing shares of Company Stock issued or transferred
under the Plan will be subject to such stop-transfer orders and other
restrictions as may be required by applicable laws, regulations and
interpretations, including any requirement that a legend be placed thereon.
15. Amendment and Termination of the Plan
(a) Amendment. The Committee or the Board of Directors of the Company
may amend or terminate the Plan at any time or from time to time, without
obtaining the approval of the Company's shareholders, except that the Plan
may not be amended (i) to increase the aggregate number of shares issuable
under the Plan for incentive stock options (but not nonqualified stock
options and excepting proportionate adjustments made under Section 3(c) to
give effect to stock splits, etc); (ii) to change the option price of
optioned stock (excepting proportionate adjustments made under Section
3(c); (iii) to change the requirement that the option price per share of
common stock covered by an incentive stock option (but not a nonqualified
stock option) granted under this plan not be less than 100% of the fair
market value of the Company's common stock on the date such option is
granted; (iv) to extend the time within
38
which Options may be granted or the time without which a granted Option may
be exercised; (v) to change, without the consent of the Optionee (or the
Optionee's, or the Optionee's estate's, legal representative), any Option
previously granted to him or her under the Plan; or (vi) make any amendment
if shareholder approval is required by Section 162(m) of the Code or the rules
of any stock exchange on which Company Stock is listed.
(b) Termination of Plan. The Plan shall terminate on the day
immediately preceding the tenth anniversary of its effective date, unless
the Plan is terminated earlier by the Committee or is extended by the
Committee with the approval of the shareholders.
(c) Termination and Amendment of Outstanding Grants. A termination or
amendment of the Plan that occurs after a Grant is made shall not
materially impair the rights of a Grantee unless the Grantee consents or
unless the Committee acts under Section 23(b). The termination of the Plan
shall not impair the power and authority of the Committee with respect to
an outstanding Grant. Whether or not the Plan has terminated, an
outstanding Grant may be terminated or amended under Section 23(b) or may
be amended by agreement of the Company and the Grantee consistent with the
Plan.
(d) Governing Document. The Plan shall be the controlling document.
No other statements, representations, explanatory materials or examples,
oral or written, may amend the Plan in any manner. The Plan shall be
binding upon and enforceable against the Company and its successors and
assigns.
16. Funding of the Plan
This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under this Plan. In no event
shall interest be paid or accrued on any Grant, including unpaid
installments of Grants.
17. Rights of Participants
Nothing in this Plan shall entitle any Associate or other person to
any claim or right to be granted a Grant under this Plan, and no Grant
shall entitle any Associate or other person to any future Grant. Neither
this Plan nor any action taken hereunder shall be construed as giving any
individual any rights to be retained by or in the employ of the Company or
any other employment rights.
18. No Fractional Shares
No fractional shares of Company Stock shall be issued or delivered
pursuant to the Plan or any Grant. The Committee shall determine whether
cash, other awards or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights
thereto shall be forfeited or otherwise eliminated.
19. Reorganization, Merger, Consolidation, Sale of Assets or Change
of Control.
(a) General. Except as otherwise provided in any Grant Instrument or
other agreement approved by the Committee to which any Board Director or
Eligible Associate is a party, in the event that the Company undergoes a
Change of Control, as defined in Section 19(c), each Option, share of
Restricted Stock and other Grant held by a Board Director shall without
regard to any vesting schedule, restriction or performance target,
automatically become fully exercisable or payable, as the case may be, as
of the date of such Change of Control. In addition to the foregoing, in
the event the Company undergoes a Change of Control or in the event of a
corporate merger, consolidation, major acquisition of property for stock,
separation, reorganization or liquidation in which the Company is a party
to and in which a Change of Control does not occur, the Committee, or the
board of directors of any corporation assuming the obligations of the
Company, shall also have the full power and discretion to prescribe and
amend the terms and conditions of any outstanding Grants granted hereunder.
The Committee may remove restrictions on Restricted Stock and may modify
the performance requirements for any other Grants. The Committee may
provide that Options or other Grants granted hereunder must be exercised in
connection with the closing of such transactions, and that if not so
exercised such Grants will expire. Any such determinations by the Committee
may be made generally with respect to all Grantees, or may be made on a
case-by-case basis with respect to particular Grantees. Notwithstanding the
foregoing, any transaction undertaken for the purpose of reincorporating
the Company under the laws of another jurisdiction, if such transaction
does not materially affect the beneficial ownership of the
39
Company's capital stock shall not constitute a merger, consolidation, major
acquisition of property for stock, separation, reorganization, liquidation
or Change of Control.
(b) Stock Options. By way of illustration, and not by way of
limitation, in the event of a Change of Control or in the event of
corporate merger, consolidation, major acquisition of property for stock,
separation, reorganization or liquidation in which the Company is a party
to and in which a Change of Control does not occur, the Committee may,
without obtaining shareholder approval (i) in all such events other than a
liquidation, cause any Option then outstanding to be assumed by the
surviving corporation in such corporate transaction; (ii) require the
mandatory surrender to the Company by any Grantee of some (in all such
events other than a liquidation) or all of the outstanding Options held by
a Grantee as of a date specified by the Company or the surviving
corporation, in which event the Company or the surviving corporation shall
thereupon cancel such Options and pay to each Grantee an amount of cash per
share equal to the amount that could have been attained upon the exercise
of such Option or realization of the Grantee's rights to the extent that
such cash is available for distribution to Grantees after payment of all
debt and senior securities of the Company; (iii) in all such events other
than a liquidation, require the substitution of a new Option for some or
all of the outstanding Options held by a Grantee provided that any
replacement or substituted Option shall be equivalent in economic value to
the Grantee; or (iv) in all such events other than a liquidation, make such
adjustment to any such Option then outstanding as the Company deems
appropriate to reflect such merger, consolidation, major acquisition of
property for stock, separation, reorganization or liquidation.
(c) Definition of Change of Control. For purposes of this Plan, a
Change of Control of the Company shall mean:
(i) The acquisition by any individual, entity or group within the
meaning of Section 12(d)(3) or 13(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act" a ("Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
35% or more of either: (A) the then outstanding shares of common stock of
the Company (the "outstanding Corporation Common Stock") or (B) the
combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Corporation Voting Securities"); provided, however, that for
purposes of this subsection (i), the following acquisitions shall not
constitute a Change of Control: (X) any acquisition directly from the
Company, (Y) any acquisition by the Company, (E) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or (Z) any acquisition
by any corporation pursuant to a transaction which complies with clauses
(A) and (B) of subsection (i) of this Section 19(c); or
(ii) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least
a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board; or
(iii) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company ( a "Business Combination"), in each case, unless, following such
Business Combination, (A), all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Corporation Common Stock and Outstanding Corporation Voting Securities
immediately prior to such Business Combination beneficially own, directly
or indirectly, more than 50% of, respectively, the then outstanding shares
of common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors,
as the case may be, of the Company resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to
such Business Combination of the Outstanding Corporation Common Stock and
Outstanding Corporation Voting Securities, as the case may be, (B) no
Person ( excluding any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 35% or more of, respectively,
the then outstanding shares of common stock of the Company resulting from
such Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (C) at least a
majority of the members of the board of directors of the Company resulting
from such Business Combination were members of the Incumbent Board at the
time of the execution of the initial agreement, or of the action of the
board, providing for such Business Combination; or
40
(iv) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
20. Effective Date of the Plan
This Plan will become effective on May 25, 2001, as approved by the
shareholders of the Company on May 25, 2001.
21. Headings
Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the Section
shall control.
22. Miscellaneous
(a) Grants in Connection with Corporate Transactions and Otherwise.
Nothing contained in this Plan shall be construed to (i) limit the right of
the Committee to make Grants under this Plan in connection with the
acquisition, by purchase, lease, merger, consolidation or otherwise, of the
business or assets of any corporation, firm or association, including
Grants to associates thereof who become Associates of the Company, or for
other proper corporate purposes, or (ii) limit the right of the Company to
grant stock options or make other awards outside of this Plan. Without
limiting the foregoing, the Committee may make a Grant to an associate of
another corporation who becomes an Associate by reason of a corporate
merger, consolidation, acquisition of stock or property, reorganization or
liquidation involving the Company or any of its subsidiaries in
substitution for a stock option or restricted stock grant made by such
corporation. The terms and conditions of the substitute grants may vary
from the terms and conditions required by the Plan and from those of the
substituted stock incentives. The Committee shall prescribe the provisions
of the substitute grants.
(b) Compliance with Law. The Plan, the exercise of Options and SARs
and the obligations of the Company to issue or transfer shares of Company
Stock under Grants shall be subject to all applicable laws and to approvals
by any governmental or regulatory agency as may be required. With respect
to persons subject to Section 16 of the Exchange Act, it is the intent of
the Company that the Plan and all transactions under the Plan comply with
all applicable provisions of Rule 16b-3 or its successors under the
Exchange Act. In particular, and without otherwise limiting the provisions
of this Section 22(b), no Grantee subject to section 16 of the Exchange Act
may exercise any Option or SAR except in accordance with applicable
requirements of Rule 16b-3 or its successors under the Exchange Act. The
Committee may revoke any Grant if it is contrary to law or modify a Grant
to bring it into compliance with any valid and mandatory government
regulation. The Committee may also adopt rules regarding the withholding
of taxes on payments to Grantees. The Committee may, in its sole
discretion, agree to limit its authority under this Section.
(c) Governing Law. The validity, construction, interpretation and
effect of the Plan and Grant Instruments issued under the Plan shall
exclusively be governed by and determined in accordance with the law of the
State of Missouri.
41
ANNEX II
ANNEX II
CERNER CORPORATION
2001 Associate Stock Purchase Plan
SECTION 1. PURPOSE OF PLAN
---------------
The Cerner Corporation 2001 Associate Stock Purchase Plan (the "Plan")
is designed to encourage and assist associates of Cerner Corporation
("Cerner" or "Company"), including all associates of Cerner U.S. based
subsidiaries, to acquire an equity interest in Cerner through the purchase
of shares of Cerner common stock, par value $.01 per share ("Common
Stock"). This Plan is intended to constitute an "employee stock purchase
plan" within the meaning of Section 423 of the Internal Revenue Code (the
"Code").
SECTION 2. ADMINISTRATION OF THE PLAN
--------------------------
The Plan shall be administered by Cerner's Board of Directors (the
"Board") or by a committee of the Board (the "Committee") appointed by the
Board and serving at its pleasure (the Board or any such Committee being
herein referred to as the "Administrator"). Until such time as the Board
shall determine otherwise, the Compensation Committee of the Board shall
serve as Administrator. The Administrator shall have full power and
authority, not inconsistent with the express provisions of the Plan, to
administer and interpret the Plan, including the authority to:
(i) grant options and authorize the issuance of shares;
(ii) make and amend all rules, regulations, guidelines, procedures
and policies for administering the Plan;
(iii) decide all questions and settle all disputes that may arise in
connection with the Plan;
(iv) appoint persons and entities to act as designated
representatives on the Administrator's behalf in administering
the Plan pursuant to its provisions (in which case the term
"Administrator" as used herein shall include such persons or
entities to the extent of such appointment);
(v) establish accounts with a person or entity appointed pursuant
to (iv) above ("Custodian") to hold Common Stock purchased
under the Plan ("Stock Account");
(vi) cause Cerner to enter into a written agreement with the
Custodian setting forth the terms and conditions upon which
Stock Accounts shall be governed ("Custodial Agreement"); and
(vii) require Participants to hold shares of Common Stock under the
Plan in Stock Accounts (in which case each Participant's
decision to participate in the Plan shall constitute the
appointment of such Custodian as custodial agent for the
purpose of holding such shares) until such time as shall be
specified in the Custodial Agreement.
All interpretations, decisions and determinations made by the
Administrator shall be binding on all persons concerned.
SECTION 3. NATURE AND NUMBER OF SHARES
---------------------------
The Common Stock subject to issuance under the terms of the Plan shall
be authorized but unissued shares or previously issued shares reacquired
and held by the Company. The aggregate number of shares that may be issued
under the Plan shall not exceed 1,000,000 shares of Common Stock.
In the event of any reorganization, recapitalization, stock split,
reverse stock split, stock dividend, combination of shares, exchange of
shares, merger, consolidation, offering of rights or other similar change
in the capital structure of the Company, the Board or the Committee may
make such adjustment, if any, as it deems appropriate in the number, kind
and purchase price of the shares available for purchase under the Plan and
in the maximum number of shares which may be issued under the Plan.
SECTION 4. ELIGIBILITY
-----------
Each individual employed by Cerner, including associates employed by
its U.S. based subsidiaries ("Associate"), except as provided below, shall
be eligible to participate in the Plan. The following individuals shall be
excluded from participation:
42
(a) Persons who, as of the date of grant of an Option, have been
continuously employed by Cerner for less than two (2) weeks;
(b) Persons who, immediately upon the grant of an Option, own
directly or indirectly, or hold options or rights to acquire under any
agreement or Company plan, an aggregate of five percent (5%) or more of the
total combined voting power or value of all outstanding shares of all
classes of Cerner Common Stock; and
(c) Persons who are customarily employed by the Company for less
than twenty (20) hours per week or for not more than five (5) months in any
calendar year.
SECTION 5. ENROLLMENT AND WITHDRAWAL
-------------------------
Each eligible Associate may enroll or re-enroll in the Plan as of the
first day of any Option Period (as hereinafter defined) after the Associate
first becomes eligible to participate. To enroll, an Associate must
complete and sign an enrollment form (including a payroll deduction
authorization) in a form acceptable to the Administrator and submit it to
the Company, or use such other means to enroll as is authorized by the
Administrator, at least 15 calendar days prior to the commencement of such
Option Period or by such other date as the Administrator may prescribe.
Participation in the Plan is voluntary. A "Participant" shall be an
Associate enrolled in the Plan.
A Participant will automatically be enrolled in all future Option
Periods unless the Participant withdraws from the Plan. If a Participant
withdraws from the Plan, he or she will cease to be a Participant and may
only participate in future Option Periods if he or she re-enrolls in the
Plan. Any Participant may withdraw from the Plan by notifying the Company
in writing during the Option Period provided that such notification is at
least three (3) business days prior to the Purchase Date (as defined
below). Upon such a withdrawal, the entire amount contributed to the Plan
by the Participant (and not yet used to purchase Common Stock) will be
refunded without interest as soon as administratively practicable. In the
event that a Participant notifies the Company within the three (3) day
period prior to the Purchase Date, the Participant will be withdrawn from
participating in the next following Option Period.
SECTION 6. GRANT OF OPTIONS
----------------
Except as described below with respect to the first year the Plan is
in effect, and unless changed by the Board or the Committee, the Plan will
be implemented by four (4) annual offerings of the Company's Common Stock
each calendar year (the "Option Periods"). There will be only two (2)
Option Periods in calendar year 2001, which will be as follows: (i) July 1,
2001 - September 30, 2001; and (ii) October 1, 2001 - December 31, 2001.
Thereafter, in each year that the Plan is in effect, the first Option
Period will begin on January 1 and end on March 31, the second Option
Period will begin on April 1 and end on June 30, the third Option Period
will begin on July 1 and end on September 30, and the fourth Option Period
will begin on October 1 and end on December 31.
Each person who is a Participant on the first day of an Option Period
(the "Grant Date") will as of such day be granted an option for the Option
Period (the "Option"). Such Option will be for the purchase of a maximum
number of shares of Common Stock to be determined by dividing (i) the
balance credited to the Participant's Payment Account (as defined in
Section 7(b)) during such Option Period by means of payroll deduction (or
such other means deemed acceptable by the Administrator) as of the Purchase
Date (as determined under Section 8 below), by (ii) the purchase price per
share of the Common Stock as determined under Section 8.
In no event shall a Participant be entitled to purchase, for any
Option Period, more than the lesser of (i) the number of shares obtained by
dividing $25,000 by the fair market value of a share of Common Stock on the
Grant Date for such Option Period, or (ii) the maximum number of shares
permitted to be purchased under Section 7(c) below.
The Administrator will reduce, on a substantially proportionate basis,
the number of shares of Common Stock receivable by each Participant upon
exercise of his or her Option for an Option Period in the event that the
number of shares then available under the Plan is otherwise insufficient,
and will return to Participant without interest any remaining unused
balance in the Participant's Payment Account as soon as administratively
practicable.
43
SECTION 7. METHOD OF PAYMENT
-----------------
(a) Form of Payment.
----------------- Payment for shares shall be made in
installments through after-tax payroll deductions during the Option Period,
with such deductions taken from pay periods paid during the Option Period,
or in such other form of payment deemed acceptable by the Administrator.
Subject to Section 18 and to the limits below and in Section 8, each
Participant may elect through payroll withholding during the Option Period
(or such other means deemed acceptable by the Company) to have credited to
his or her Payment Account an amount not less than one percent (1%) and not
greater than twenty percent (20%) of Compensation (as defined below);
provided that the Administrator from time to time before an enrollment date
may establish limits other than those herein described for all purchases to
occur during the relevant Option Period.
For purposes of the Plan, "Compensation" shall mean all compensation
paid to the Participant by the Company and currently includible in his or
her income, including variable compensation (such as commissions, bonuses
or other short-term incentive payments), overtime, and other amounts
includible in the general definition of compensation provided in Treasury
Regulation 1.415-2(d)(1), plus any amount that would be so included but
for the fact that it was contributed to (a) a qualified plan pursuant to an
elective deferral under Section 401(k) of the Code, (b) a nonqualified
deferred compensation plan, and/or (c) a cafeteria plan on a before-tax
basis pursuant to an election under Section 125 of the Code, but not
including (i) payments under stock option plans (including any amount of
income recognized upon the exercise of a stock option) and other employee
benefit plans or other amounts excluded from the definition of compensation
provided in the Treasury Regulations under Section 415 of the Code, and
(ii) reimbursements or other expense allowances, fringe benefits (cash and
noncash), moving expenses, payments of benefits under nonqualified deferred
compensation plans, and welfare benefits.
A Participant may decrease the rate of withholding on a prospective
basis effective as to future pay periods within an Option Period by giving
written notice (in a form acceptable to the Administrator) to the Company
not less than two (2) weeks prior to the desired effective date of such
decrease. A Participant may increase the rate of withholding by giving
written notice (in a form acceptable to the Administrator) to the Company
at least two (2) weeks prior to the next Option Period; provided, however,
that an increase in withholding shall be effective for future Option
Periods only and shall not be effective as to future pay periods with the
Option Period in which such request for an increase in withholding is made.
(b) Accounts.
-------- A "Payment Account" means the book entry account
maintained by the Company or Administrator to record the amount of
Participant's payments made pursuant to Section 7(a) and any cash amount
carried forward from an Option Period to the Grant Date for the next Option
Period pursuant to Section 9. All payments by each Participant shall be
credited to such Participant's Payment Account pending the purchase of
Common Stock in accordance with the provisions of the Plan. All such
amounts in the Payment Account shall be assets of the Company and may be
used by the Company for any corporate purpose. No interest will be paid on
amounts credited to a Participant's Payment Account.
(c) Limits on Purchase.
-------------------- In no event shall the rights of any
Participant to purchase shares (under this Plan and under any other stock
purchase plans of Cerner which are intended to qualify under Section 423 of
the Code) accrue at a rate that exceeds $25,000 per calendar year as
measured by the fair market value of such shares (determined in the case of
each such share as of the Grant Date of the related Option).
SECTION 8. PURCHASE PRICE
--------------
The purchase price of Common Stock issued pursuant to the exercise of
an Option shall be eighty-five (85%) of the fair market value of Common
Stock on the last trading day of the Option Period (the "Purchase Date").
Fair market value shall mean the closing price of Common Stock as
reported on The Nasdaq Stock Market or other national securities exchange
on which the Common Stock is then principally traded or, if that measure of
price is not available, on a composite index of such exchanges or, if that
measure of price is not available, in a national market system for
securities. In the event that there are no sales of Common Stock on any
such exchange or market on the Purchase Date, the fair market value of the
Common Stock shall be deemed to be the closing sales price on the next
preceding day on which Common Stock is sold on any such exchange or market.
In the
44
event that the Common Stock is not listed on any such market or exchange
on the Purchase Date, a reasonable valuation of the fair market value of
the Common Stock on such dates shall be made by the Administrator.
SECTION 9. AUTOMATIC EXERCISE OF OPTIONS; STOCK TRANSFER RESTRICTIONS
----------------------------------------------------------
If an Associate is a Participant in the Plan on a Purchase Date, he or
she will be deemed to have exercised the Option granted to him or her for
the period ending on that Purchase Date. Upon such exercise, the Company
will apply the balance of the Participant's Payment Account to the purchase
of the number of whole shares of Common Stock determined under Section 6
and, as soon as practicable thereafter, will issue and deliver said whole
shares to the Participant (unless Stock Accounts are established by the
Administrator pursuant to Section 2 of the Plan). Any cash remaining in the
Participant's Payment Account shall either be carried forward to the next
Grant Date (without interest) and become a part of the Payment Account for
the Option Period to which such next Grant Date applies, or, upon written
request of the Participant to the Administrator, be paid to Participant
without interest (unless Stock Accounts are established by the
Administrator pursuant to Section 2 of the Plan).
Notwithstanding anything herein to the contrary, Cerner's obligation
to issue and deliver whole shares of Common Stock under the Plan will be
subject to the approval required by any governmental authority in
connection with the authorization, issuance, sale or transfer of said
shares, to any requirements of any national securities exchange applicable
thereto, and to compliance by Cerner with other applicable legal
requirements in effect from time to time.
This Plan is intended to satisfy the requirements of Section 423 of
the Code. A Participant will not obtain the benefits of this provision of
the Code if such Participant disposes of shares of Common Stock acquired
pursuant to the Plan within two (2) years from the Grant Date or within one
(1) year from the date such Common Stock is purchased by the Participant,
whichever is later.
Additionally, any shares of Common Stock issued under the Plan may not
be sold, transferred or assigned for a period of one (1) year after the
date issued. Each certificate representing shares of Common Stock issued
under this Plan during such one (1) year period shall bear the following
legend:
"The Shares represented by this certificate may not
be sold, transferred or assigned, and the issuer shall
not be required to give effect to any attempted sale,
transfer or assignment, until a date that is more than
one (1) year after the date of issuance of this
certificate.";
or such other legend as shall be approved by the Administrator.
SECTION 10. TERMINATION OF EMPLOYMENT
-------------------------
Subject to Section 11, upon the termination of a Participant's
employment with the Company for any reason, the Participant's Payment
Account balance shall be frozen to future accruals and the Participant
shall be withdrawn from Plan participation and cease to be a Participant.
Upon the cessation of participation, any Option held by the Participant
under the Plan shall be treated as follows: (i) the Participant may give
written notice to the Administrator within three (3) business days after
the Participant's termination (so long as there is at least three (3)
business days remaining before the Purchase Date) of his/her desire to
cancel his/her Option under the Plan, in which case the Participant's
Payment Account balance will be returned to Participant; or, (ii) if no
such notice is received by Participant, or if there are less than three (3)
business days remaining before the Purchase Date when the written request
is made, then the Option will be exercised on the next Purchase Date. In
the case of death of the Participant, the Participant's Payment Account
shall be refunded in accordance with Section 11, without interest, as soon
as administratively practicable and the Participant will have no further
rights under the Plan.
SECTION 11. DEATH OF A PARTICIPANT
----------------------
Each Participant may designate one or more beneficiaries who, in the
event of the Participant's death, would receive any Common Stock and/or
cash credited to the Participant under the Plan. In the case of a
Participant who is married at time of death, the Administrator may
condition any designation of a beneficiary other than the Participant's
spouse on the written consent of such spouse. A designation of beneficiary
and election may be changed by the Participant at any time. Any such
designation or change in designation, if made in accordance with the Plan
and in a form and manner that is acceptable to the Administrator, shall be
effective upon receipt by the Company and shall be the exclusive means of
designating a beneficiary under the Plan. In the absence of a proper
beneficiary designation
45
under the Plan, the balance in the deceased Participant's Payment Account
under the Plan will be refunded without interest to his or her estate.
As soon as administratively feasible after the death of a Participant,
any Common Stock and/or cash credited to the Participant under the Plan
shall be delivered to the Participant's designated beneficiaries or, in the
absence of such designation, to the executor, administrator or other legal
representative of the Participant's estate. Such delivery and payment shall
relieve the Company of further liability to the deceased Participant or his
or her beneficiaries with respect to the Plan. If more than one beneficiary
is designated, each beneficiary shall receive an equal portion of the
Payment Account and, if any, the Stock Account, unless the Participant has
given express contrary instructions.
SECTION 12. ASSIGNMENT
----------
Except as provided in Section 11 above, a Participant's Option, funds,
securities, rights or other property held for the account of a Participant
shall not be sold, pledged, assigned, transferred, or hypothecated in any
way (whether by operation of law or otherwise) and shall not be subject to
sale under execution, attachment, or similar process. Any attempted sale,
pledge, assignment, transfer, hypothecation or other disposition of an
Option, or levy of attachment or similar process upon the Option not
specifically permitted herein shall be null and void and without effect.
A Participant's right to purchase shares under the Plan shall be
exercisable during the Participant's lifetime only by the Participant. If
this provision is violated, the Participant's election to purchase Common
Stock shall terminate and the only obligation of the Company remaining
under the Plan will be to refund to the Participant the amount then
credited to his or her Payment Account and deliver to Participant any whole
shares of Common Stock credited to him or her under any Stock Account.
SECTION 13. DISSOLUTION, MERGER AND CONSOLIDATION
-------------------------------------
Upon the dissolution or liquidation of the Company, or upon a merger
or consolidation of the Company in which the Company is not the surviving
corporation, each Option granted hereunder shall expire as of the effective
date of such transaction; provided, however, that the Administrator shall
give at least 30 days' written notice of such event to each Participant
during which time he or she shall have a right to exercise his or her
wholly or partially unexercised Option and, subject to earlier exercise
pursuant to Section 9, each Option shall be exercisable after receipt of
such written notice and prior to the effective date of such transaction.
SECTION 14. EQUAL RIGHTS AND PRIVILEGES
---------------------------
All eligible Associates shall have equal rights and privileges with
respect to the Plan so that the Plan qualifies as an "employee stock
purchase plan" within the meaning of Section 423 or any successor
provisions of the Code and related regulations. Any provision of the Plan
that is inconsistent with Section 423 or any successor provision of the
Code shall without further act of amendment by the Company be reformed to
comply with the requirements of Section 423. This Section 14 shall take
precedence over all other provisions of the Plan.
SECTION 15. RIGHTS AS STOCKHOLDER
---------------------
A Participant shall have no rights as a stockholder under an Option
until he or she becomes a stockholder as herein provided. A Participant
will become a stockholder with respect to shares for which payment has been
completed as provided in Section 8 as of the close of business on the
Purchase Date for the Option Period.
SECTION 16. MODIFICATION AND TERMINATION OF THE PLAN
----------------------------------------
The Board or the Committee may terminate the Plan at any time and may
at any time and from time to time amend the Plan in any manner permitted by
law. No amendment shall be effective unless within one (1) year after it
is adopted by the Board it is approved by Cerner's shareholders in the
manner prescribed under the Treasury Regulations under Section 423 of the
Code, if such amendment would:
(i) increase the number of shares reserved for purchase under the Plan,
unless such increase is by reason of any change in the capital
structure of the Company referred to in Section 3 hereof;
46
(ii) change the designation of corporations or other entities whose
employees may be offered Options under the Plan, except as permitted
under Treasury Regulations 1.423-2(c)(4);
(iii)materially modify the requirements as to eligibility for
participation in the Plan; or
(iv) materially increase the benefits accruing to Participants under the
Plan.
In the event the Plan is terminated, the Board or Committee may elect
to terminate all outstanding Options either immediately or upon completion
of the purchase of shares on the next Purchase Date, unless the Board has
determined that the right to make all such purchases shall expire on some
other designated date occurring prior to the next Purchase Date. If Options
are terminated prior to expiration, all funds contributed to the Plan that
have not been used to purchase shares shall be returned without interest to
the Participants.
SECTION 17. BOARD AND SHAREHOLDER APPROVAL; EFFECTIVE DATE
----------------------------------------------
This Plan was adopted by the Board on March 9, 2001. The Effective
Date of the Plan shall be May 25, 2001, subject to shareholder approval at
the annual meeting of shareholders of Cerner Corporation on that date.
SECTION 18. RETIREMENT PLAN HARDSHIP DISTRIBUTIONS
--------------------------------------
In the event that a Participant has received a hardship distribution
under the Cerner Corporation Foundations Retirement Plan, such Participant
shall be prohibited from making payments under Section 7 of this Plan for a
period of twelve (12) months after the Participant's receipt of the
hardship distribution.
SECTION 19. OTHER PROVISIONS
----------------
Options and other documentation under the Plan shall contain such
other provisions as the Administrator shall deem advisable, provided that
no such provision shall conflict with the express terms of the Plan.
SECTION 20. USE OF FUNDS.
------------
All payroll deductions received or held by the Company under the Plan
may be used by the Company for any corporate purpose. The Company shall
not be obligated to segregate such payroll deductions.
SECTION 21. ERISA
-----
This Plan is not subject to the provisions of the Employee Retirement
Income Security Act of 1974.
SECTION 22. EFFECT OF PLAN
--------------
The Provisions of the Plan shall, in accordance with its terms, be
binding upon, and inure to the benefit of, all successors of each Associate
participating in the Plan, including, without limitation, such Associate's
estate and the executors, administrators or trustees thereof, heirs and
legatees, and any receiver, trustee in bankruptcy or representative of
creditors of such Associate.
SECTION 23. WITHHOLDING TAXES
-----------------
Upon the exercise of any Option under the Plan, the Company shall have
the right to require the Associate to remit to the Company an amount
sufficient to satisfy all federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for
shares of Common Stock.
SECTION 24. EMPLOYMENT RIGHTS
-----------------
Nothing contained in the provisions of the Plan shall be construed to
give to any individual the right to be retained in the employ of the
Company or to interfere with the right of the Company to discharge any
Associate at any time.
47
SECTION 25. GOVERNING LAW
-------------
The Law of the State of Missouri will govern all matters relating to
this Plan except to the extent superseded by the federal laws of the United
States.
48
SHAREHOLDERS LETTER
A LETTER TO OUR SHAREHOLDERS, CLIENTS AND ASSOCIATES
Cerner had a great start to the new millennium, delivering
strong financial and operating results and making meaningful
progress in our efforts to transform healthcare.
SUMMARY OF THE YEAR 2000
Impressive Financial Results: In 2000, we set record levels
of bookings, revenues and cash flow. For the year ended
December 30, 2000, revenues increased 19 percent to $404.5
million from $340.2 million for 1999, demonstrating a strong
rebound of growth within our business. Our record new
bookings, included our highest quarter ever when we recorded
$113.4 million in the fourth quarter. Net earnings before
non-recurring and extraordinary items increased 197 percent
to $20.4 million compared with $6.9 million in the prior
year. Diluted earnings per share before non-recurring and
extraordinary items were $0.57 per share compared with $0.20
per share for the 1999 year, demonstrating our ability to
grow earnings in a difficult healthcare environment.
Operating margins expanded, excluding non-recurring items,
for the year to 9.2 percent, more than double the prior
year's 4.3 percent and demonstrating the overall strength of
our business model. Cash flow increased which led to
improving an already strong balance sheet.
Increased our market presence: During the last half of the
`90s, we completely rebuilt our Health Network Architecture
(HNA), creating the Millennium version and expanding our
product line from 11 healthcare information products to more
than 37 at the end of 2000. Over the last 18 months, we
more than doubled our direct sales force. Also, during
2000, we created a strategic, direct Cerner presence in
Europe. Between the new client relationships created
through our direct sales efforts and the acquisitions we
completed during the year, we grew our client base by 40
percent. These 430 new client relationships substantially
increase the potential cross-selling opportunities for our
technology. We created more than 330 new HNA Millennium
(Registered)footprints during the year. Cerner's total client
base now numbers more than 1,500. We also signed licensing
agreements with more than 80 other healthcare information
technology (HIT) companies to use HNA components, either
software or content, as key elements of their architecture
under our Power By Cerner program.
Expanded our platforms, market reach, products and services:
Our hosting services, Cerner Online, where we provide our
clients the technical infrastructure and services for Cerner
solutions in our world-class data center, became the
delivery platform of choice for more than $50 million of new
bookings in its first year. Many of these clients are
community hospitals and represent a significantly expanded
market for our products. The expanded sales force is
addressing these and other increased opportunities.
PowerChart Office (Trademarn), Cerner's physician clinical
practice solution, is having a significant impact on the way
many of our clients practice medicine. And ProFit (Trademark),
Cerner's new patient accounting solution, completed alpha
testing, opening up a market estimated at $3 billion.
Improved our business model: Historically, our revenue
visibility has been as low as 60 percent. In 2000, we were
able to start each period with close to 85 percent of that
period's revenue already in our backlog or available from
highly predictable sources. Our consulting organization
experienced record levels of profitability, increasing their
margins substantially and contributing positively to our
corporate profitability. Based on a healthy backlog of
profitable work, we expect the consulting profitability to
continue to increase over the next several years.
Delivered Impressive Operating Results: We now have more
than 800 applications in production on our HNA Millennium
product set in more than 125 client organizations worldwide.
Over the last several years, we have reduced implementation
times and resources by 50 percent. Today, over 85 percent
of Cerner Consulting associates have experience with our new
architecture, up from 40 percent two years ago. HNA
Millennium has scaled to support varied environments, with
more than 6,000 active users at our largest client. Our
overall system reliability has increased to more than 99.9
percent, as measured by reported unscheduled downtime. And
it is still improving. Our support calls have not increased
even though we have increased the number of converted
applications by nearly 25 percent in the past year.
Created Winona Health: We formed a unique partnership with
a Midwest community with a population of approximately
25,000, Winona, Minn., where we are in the process of
conducting a five-year study to investigate the impact
greater connectivity will have on the health status of a
community. We are working with the local medical community
to create a personal health system for all of the
community's citizens. Today, 48 of the 50 Winona physicians
have agreed to "wire" their practices to allow electronic
communications with their patients for scheduling requests,
prescription refills, and communicating results and
treatment plans, creating the basis of a new medium of
health care. We also are "wiring" all four of the locally-
owned pharmacies, the local clinical laboratory, the
emergency room, the acute care hospital and two nursing
homes. (See "Connecting the Person," below.)
Cerner Corporation | 1
2000 Annual Report
Fortune 100 Best Employer Award: In 2000, Cerner earned its
second Fortune magazine "100 Best Companies To Work For"
award in three years. We were the 56th best company to work
for in the country, according to this national business
publication.
Cerner Stock Price: The Cerner shareholder was rewarded in
2000 with a 135 percent increase in stock price (comparing
the closing price on December 31, 1999 to the closing price
on December 29, 2000), even more impressive when compared to
the 41 percent loss for the Nasdaq during the same period.
In the Wall Street Journal's Shareholder Scoreboard
published February 26, 2001, Cerner ranked as the 31st best
performer over the last 10 years out of the 1,000 companies
ranked in the study; and produced the 3rd best 10-year
performance of all software companies, finishing ahead of
companies such as Microsoft.
CERNER EMERGES AS THE CLEAR LEADER IN AN IMPROVING
HEALTHCARE INFORMATION TECHNOLOGY MARKET, SETTING THE STAGE
FOR AN EXCITING FUTURE
In 2000, Cerner emerged as the clear leader in the
healthcare information industry, even as healthcare provider
organizations struggled with low operating margins, access
to capital, labor shortages and public scrutiny of
fundamental systemic flaws in healthcare delivery. The
recently published Institute of Medicine report, Crossing
the Quality Chasm, clearly articulated the central role of
information technology in reinventing our healthcare
capabilities: "If we want safer, higher-quality care, we
will need to have redesigned systems of care, including the
use of information technology to support clinical and
administrative processes."
Relative to 1999, the healthcare provider market for
information technology clearly improved in 2000. The impact
of the Balanced Budget Act (BBA) was assimilated by
healthcare executives. Healthcare organizations made the
budgetary adjustments to the changes in reimbursement that
came from Medicare, at the same time Congress passed some
BBA relief, putting some funds back into the system. Our
clients still have thin operating margins and their access
to capital is constrained, but healthcare executives are
beginning to focus on creating better organizations and more
effective processes.
As we projected in last year's annual report, spending on
new projects by our clients in 2000 expanded in the wake of
the Y2K situation. With the passing of the Y2K issue, funds
that had been set aside to handle remediation were freed for
new projects.
Going forward, we believe this is one of the best
environments we have seen in the last ten years. We
anticipate a relatively stable, provider-friendly set of
policies and practices coming out of Washington, which
impacts as much as 50 percent of the revenue of our acute
care clients. The managed care organizations, which have a
cyclical business, have been getting rate increases, which
in part are being passed along to the provider
organizations.
The largest internal pressure point for providers is that
almost all healthcare organizations' core method of
operations are paper-based, manual systems which depend
heavily on the memories of doctors and nurses to make the
appropriate decision at the appropriate time. In the
increasingly complex medical environment, these processes
are inefficient, and result in a large number of avoidable
medical errors, and produce a huge variance in how
physicians diagnose and treat the same medical condition.
These variances of course lead to large variances in the
outcomes we receive as patients in the system.
The most significant external pressure on healthcare
organizations is increasing dramatically as the public
becomes more informed about the waste, errors and variance
produced by the current healthcare system. The USA Today,
March 2, 2001, front page headline following the release of
the IOM document was: "Report: Health System Broken".
The article also cited the 1999 IOM report, which documented
that there is evidence that up to 98,000 lives are lost to
avoidable medical errors in the nations hospitals in the
United States each year. There is no data to estimate the
number of deaths which occur outside the hospitals.
This environment is creating what we call "wild cards" that
could increase the rate of adoption of information
technology significantly beyond our current plan. An
example of such a wild card is the Leapfrog Group, a
subgroup of large employers from the Business Roundtable,
that is becoming a forceful proponent for change. Leapfrog
recommends that employers select health plans with hospitals
that, among other recommendations, use a computerized,
physician-order-entry system. Also, legislators are
increasingly logging in on the safety issues in healthcare.
California recently passed a bill requiring every hospital
in the state to prepare and file a plan on safety
improvement within their organizations by January 1, 2002.
Additionally, some form of patient safety legislation is
proposed in 40 different states. Congress is considering
including patient safety in a Patient Bill of Rights in the
current session.
Another potential wild card is the new privacy provisions of
the Health Insurance Portability and Accountability Act
(HIPAA), which strengthened the case for Cerner's integrated
architecture strategy. In its coverage of both electronic
and paper medical records, the new HIPAA provisions point
toward a centralized and systematized method of access
control that we think is best met with a single integrated
architecture.
Cerner Corporation | 2
2000 Annual Report
YEAR 2000 BROUGHT COMPETITIVE LANDSCAPE CHANGES
Our competitive landscape changed as much in 2000 as almost
any of the previous five years. What a year!
* 2000 started with a consensus belief that Internet-
based companies would revolutionize our industry, and these
"new age" companies would consolidate the traditional
companies along the way. Before the dot-com bubble burst,
there was a rapid consolidation of these companies, merging
about as fast as they were created. Next came the well-
publicized implosion of the dot-com companies in March of
2000, including those focused on healthcare. The
realization was that the Internet is a revolution in
connectivity, not a revolution in the way of doing business.
The second realization was that healthcare is complex and
difficult. The conclusion: Cerner has a bright future.
* Along the way, our two large competitors disappeared
into even larger companies. The first one did so in early
1999, the second one during 2000. Exit the largest HIT
companies; enter much larger equipment and drug companies.
We do not expect this to be the last time a large
capitalization company enters this market. Cerner has now
become the largest independent company in this business.
* Our industry has a history of a large number of niche
companies. The industry consultants coined the term, "best
of breed" to describe these niche, stand-alone products.
The year 2000 saw the market turn on the "best of breed."
Cerner acquired the assets and the operations of six smaller
HIT companies, which had literally run out of steam, and on
average paid less than one times revenues. The cost of
competing in this industry is getting larger, mainly due to
the high cost of development, which is caused by the
skyrocketing cost of programmers and the complexity of
contemporary information system architectures. These
factors and our investment in HNA Millennium are significant
barriers to entry and represent a strong opportunity for
Cerner.
OUR 2001 PLAN
The first four of our five business imperatives for 2001
have been basically the same since 1998. We believe it is
essential to grow our top line, expand our operating
margins, set the standard for operational excellence in our
industry and connect the person to their healthcare system.
Our new imperative added this year is to advance our
leadership of the market, with the ultimate goal of
transforming healthcare delivery - making it safer, more
efficient and better able to meet the needs of healthcare
consumers.
GROWING OUR REVENUES OVER THE NEXT DECADE
From 1990 to 2000, we maintained a 10-year compounded
average revenue growth rate that exceeded 20 percent. We
believe that we are well positioned to continue good growth
rates into the future. Here are our thoughts:
Over this last decade, our environment has been extremely
tough. Healthcare, and particularly healthcare providers,
struggled as an industry. Managed care became a major
factor in the early `90s, extracting margins and forcing
operational and clinical improvements. Strategies to cope
were abundant, but they all failed. The provider industry
consolidated both horizontally and vertically, creating
unwieldy organizations with few operating benefits. A
number of for-profit organizations were created focusing on
physician care or acute care systems with better management
approaches. After a brief period of excitement, these
techniques lost their luster, and management abandoned their
strategies, leaving dysfunctional pieces of healthcare in
many communities. And in the last four years, healthcare
has had a massive margin crunch caused by the 1997 Balanced
Budget Act, and all of the information systems world -
especially healthcare - was dramatically impacted by Y2K.
On top of all the environmental issues, Cerner completely
rebuilt its HNA architecture and all of the application
product sets.
We grew Cerner well throughout this period by focusing on a
clear strategy of organic growth based on aggressive
software development, using a common architecture focusing
on the person. This strategy has created two decades of
growth. From 1990 to 2000, our annual new business
bookings increased from $9.6 million to $399 million. We
believe we have laid the foundation to continue our growth
into this decade.
Our organic growth strategy and our attitude toward future
growth is illustrated with PathNetr, our original
application and market-leading, clinical laboratory system.
PathNet was first converted in 1982 at St. John Medical
Center, in Tulsa Okla. In 1985, PathNet understandably
constituted 100 percent of our new contracts. In 1990, it
was still close to 90 percent of our bookings revenue. In
2000, even after recording the highest level of laboratory
system bookings in the Company's history, PathNet
contributed only three percent of our total new contract
bookings. Products introduced after PathNet contributed the
remaining 97 percent. The unlocking of the human genome
will explode the role of laboratory medicine, creating a new
role for predictive medicine, in addition to diagnostic
medicine. Exciting. Plus we have virtually no market share
in laboratory systems outside of North America. We expect
to be able to continue to grow our PathNet revenues well
into this decade.
Cerner Corporation | 3
2000 Annual Report
However, the most impressive part of our outlook for growth
has to do with our clients' environment. Unlike the `90s,
we expect the issues facing healthcare will strongly
encourage the industry to completely endorse and adopt
information technology as it has never done before. In our
opinion, major factors such as cost, efficiency, safety,
quality and sensitivity to the consumer will have to be
dealt with over the next 10 years, creating a very good
environment for growth of Cerner. This, in conjunction with
how well we are prepared internally, creates true optimism
and confidence for future revenue growth.
EXPAND OPERATING MARGINS
We believe that operating margins of 20 percent are possible
and desirable for our type of business. Cerner operated for
three years, 1993-95, at operating margins greater than 20
percent. These margins make it possible to invest in the
information technology and architecture that healthcare
needs to address the issues illuminated by the IOM report.
As indicated above, we doubled our operating margins in
2000, from 4.3 percent to 9.2 percent. We intend to
continue to work to increase our operating margins.
The improvements in our business model, growing revenues
faster than spending, and general gains in quality,
productivity and efficiencies are the keys to making these
fundamental improvements. Growing our revenues while
expanding our operating margins will make for a financially
vibrant Cerner.
OPERATIONAL EXCELLENCE
We plan to set the standard for quality in all of
healthcare. Our business is complex, it demands excellence.
Our vision is large, it demands excellence. We need to
improve everything we do. We must improve how we develop
software and knowledge content, improving its quality,
reliability and our efficiency in its manufacture. We must
improve our professional services, improving the advice and
counsel we provide in how to transform healthcare
organizations. We need to become more efficient in order to
reduce our cost to our clients while we improve the value of
our services. We must improve client service, the way we
support the large number of clients who have our technology
running their clinical, managerial and financial processes.
A large job, a large challenge. If we continue to make the
progress we have over the last several years, we will
establish the operational standards in our industry.
CONNECTING THE PERSON
Connecting the person (the consumer) to their physician and
the rest of the healthcare community is an imperative for
Cerner and a fundamental part of the value information
technology can bring to healthcare (see "Created Winona
Health," above). We believe it will create profound changes
in healthcare, moving the center of healthcare closer to the
person, empowering them to become more responsible for
management of their health. As the Institute of Medicine
noted in Crossing the Quality Chasm:
. . .systems must be designed to serve the needs of
patients, and to ensure that they are fully
informed, retain control and participate in care
delivery whenever possible, and receive care that
is respectful of their values and preferences.
Patients should have unfettered access to their
own medical information and to clinical knowledge.
Clinicians and patients should communicate
effectively and share information.
Our Winona Health project will help Cerner and this industry
understand the value of this connection. We believe it will
be very valuable to the shareholders, as well as to the
communities in which we live.
Cerner Corporation | 4
2000 Annual Report
EXTEND CERNER'S LEADERSHIP POSITION
Healthcare has very large, systemic issues. We believe that
Cerner must continue to create innovative solutions and
services to make fundamental changes to healthcare and be an
advocate for these necessary changes to make healthcare
much safer, more efficient and capable of consistently
producing higher quality results.
One of the keys to extending our leadership is capitalizing
on our ability to deliver real knowledge-based medicine as
we develop our products. Through the power of Cerner's
single, integrated architecture, we believe that healthcare
will make a dramatic leap forward in the quality and safety
of the care it delivers. We see a transformed healthcare
system in the future, with healthcare organizations that:
make no avoidable errors, efficiently operate in a paperless
environment, consistently deliver the highest quality of
care based on the most current knowledge available, and are
highly sensitive to the needs of the persons and communities
which they serve.
To make that transformation possible will require strong
leadership and serious commitment, not just from Cerner's
top executives, but from our managers and all associates.
This is an important focus for us, as illustrated by a
recent episode in which our CEO, Neal Patterson, challenged
our managers to ensure the full productivity of our
associates. He also asked for and has received heightened
focus and renewed energy. This focus and energy is needed
to meet our clients' immediate needs, solve their future
challenges and move healthcare forward dramatically.
Cerner has an exciting, promising future. We have momentum.
We also have what we believe to be the most important
ingredients for the future: a strong vision and a very
talented, committed organization. It was these two
ingredients that made 2000 a success. It will be those two
ingredients which will create our future.
NEAL L. PATTERSON - Chairman and Chief Executive Officer
CLIFFORD W. ILLIG - Vice Chairman
EARL H. DEVANNY, III - President
GLENN P. TOBIN, Ph.D. - Executive Vice President and Chief
Operating Officer
Cerner Corporation | 5
2000 Annual Report
PROXY CARD
CERNER CORPORATION
2800 Rockcreek Parkway PROXY
North Kansas City, Missouri 64117
---------------------------------------------------------------------------
This Proxy is for the 2001 Annual Meeting of Shareholders of Cerner
Corporation, a Delaware corporation, to be held May 25, 2001, at 10:00
a.m., local time, at the Cerner Associate Center, located on the Cerner
Campus at 2901 Rockcreek Parkway, North Kansas City, Missouri 64117.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF CERNER CORPORATION.
The undersigned hereby appoints Clifford W. Illig and Neal L. Patterson,
and each of them, jointly and severally, with full power of substitution,
as attorneys-in-fact, to vote all the shares of Common Stock which the
undersigned is entitled to vote at the 2001 Annual Meeting of Shareholders
of Cerner Corporation to be held on May 25, 2001, and at any adjournment
thereof, on the transaction of any and all business which may come before
said meeting, as fully and with the same effect as the undersigned might or
could do if personally present for the purposes set forth.
---------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1, 2, 3 and 4.
---------------------------------------------------------------------------
1. Election of Directors:
Gerald E. Bisbee, Jr. Ph.D., Michael E. Herman and Nancy-Ann DeParle
___ FOR all the nominees ____ WITHHOLD AUTHORITY to vote for all the
nominees
____ WITHHOLD AUTHORITY to vote for the
following nominee(s):
______________________________________
2. Adoption of the Cerner Corporation 2001 Long-Term Incentive Plan F
___ FOR ___ AGAINST ___ ABSTAIN
3. Adoption of the Cerner Corporation 2001 Associate Stock Purchase Plan
___ FOR ___ AGAINST ___ ABSTAIN
4. Adoption of a qualified performance-based compensation plan, titled
the Cerner Corporation Performance Plan
___ FOR ___ AGAINST ___ ABSTAIN
(PLEASE SIGN AND DATE ON THE REVERSE SIDE AND MAIL PROMPTLY IN THE ENCLOSED
ENVELOPE)
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder(s). If no direction is made, this
proxy will be voted "FOR" proposals 1, 2, 3 and 4.
In their discretion, the proxies are to vote upon such other business as
may properly come before the meeting which the Board of Directors does not
have knowledge of a reasonable period of time before the solicitation of
this proxy.
Please date and sign as name appears hereon. If shares are held jointly or
by two or more persons, each shareholder named should sign. Executors,
administrators, trustees, etc. should so indicate when signing. If the
signer is a corporation, please sign full corporate name by duly authorized
officer. If a partnership, please sign in partnership name by authorized
person.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
and Proxy Statement, dated April 16, 2001.
DATE
-------------------------
-------------------------
(Signature)
-------------------------
Signature(s)
PLEASE MARK, SIGN, DATE AND
MAIL THIS PROXY IN THE
ENVELOPE PROVIDED.
If you expect to attend the
2001 Annual Meeting of
Shareholders please check
this box. _________
401K PROXY
I am a participant in the Cerner Corporation Foundations
Retirement Plan (the "Plan") of Cerner Corporation (the
"Company") entitled to vote the number of shares of Common
Stock, par value $.01 per share, of the Company (the "Common
Stock") indicated on this form.
I understand that AMERICAN CENTURY SERVICES, INC., as
trustee of the Plan (the "Trustee"), will vote the shares of
Common Stock upon instructions from participants. I further
understand that I may direct the Trustee to vote certain
shares of Common Stock in favor and certain shares of Common
Stock against any of the proposals, but that to do so
requires separate forms.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR PROPOSALS 1,
2, 3, AND 4.
CERNER CORPORATION
2800 Rockcreek Parkway PROXY
North Kansas City, Missouri 64117
---------------------------------------------------------------------------
This Proxy is for the 2001 Annual Meeting of Shareholders of Cerner
Corporation, a Delaware corporation, to be held May 25, 2001, at 10:00
a.m., local time, at the Cerner Associate Center, located on the Cerner
Campus at 2901 Rockcreek Parkway, North Kansas City, Missouri 64117.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF CERNER CORPORATION.
The undersigned hereby appoints Clifford W. Illig and Neal L. Patterson,
and each of them, jointly and severally, with full power of substitution,
as attorneys-in-fact, to vote all the shares of Common Stock which the
undersigned is entitled to vote at the 2001 Annual Meeting of Shareholders
of Cerner Corporation to be held on May 25, 2001, and at any adjournment
thereof, on the transaction of any and all business which may come before
said meeting, as fully and with the same effect as the undersigned might or
could do if personally present for the purposes set forth.
---------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1, 2, 3 and 4.
---------------------------------------------------------------------------
1. Election of Directors:
Gerald E. Bisbee, Jr. Ph.D., Michael E. Herman and Nancy-Ann DeParle
___ FOR all the nominees ____ WITHHOLD AUTHORITY to vote for all the
nominees
____ WITHHOLD AUTHORITY to vote for the
following nominee(s):
______________________________________
2. Adoption of the Cerner Corporation 2001 Long-Term Incentive Plan F
___ FOR ___ AGAINST ___ ABSTAIN
3. Adoption of the Cerner Corporation 2001 Associate Stock Purchase Plan
___ FOR ___ AGAINST ___ ABSTAIN
4. Adoption of a qualified performance-based compensation plan, titled
the Cerner Corporation Performance Plan
___ FOR ___ AGAINST ___ ABSTAIN
DATE
-------------------------
-------------------------
Signature
PLEASE MARK, SIGN, DATE AND
MAIL THIS PROXY IN THE
ENVELOPE PROVIDED.
TO: All Cerner Corporation Associate 401(k) Participants
The Annual Meeting of the Shareholders of Cerner Corporation
("Cerner" or the "Company") will be held at the Cerner
Associate Center on the Cerner campus at 2901 Rockcreek
Parkway, North Kansas City, Missouri 64117, on May 25, 2001,
commencing at 10:00 a.m. As a participant in the Cerner
Corporation Foundation Retirement Plan (the "Plan"), you are
entitled to instruct American Century Services, Inc. as
trustee of the Plan (the "Trustee"), to vote the shares of
Common Stock, par value $.01 per share, of the Company (the
"Common Stock"), which have been credited to you under the
Plan as of March 30, 2001.
As of this date, your Plan account has been credited with
<> shares of Common Stock. The number of shares of
Common Stock shown includes any shares of Common Stock
purchased with your elective deferrals, Company matching
contribution, and allocations to your account of shares of
Common Stock forfeited by terminated associates, as
allocated by the provisions of the Plan. Therefore, you may
not be fully vested in the total number of shares of Common
Stock indicated.
The Plan gives you the right to direct the Trustee to vote
your shares in accordance with your instructions.
Participants in the Plan for 2001 vote their shares on-line.
This email will provide the necessary links and information
to complete the voting process. Attached to this message
you will find links to: (i) all portions of Cerner's 2000
Annual Report, which includes: Annual Report Cover Pages;
Illustrative Map; Letter to Shareholders; and the Company's
10-K, and (ii) the Company's 2001 Proxy Statement, all of
which are located, in "read only" format, on the Knowledge
Repository. To access this information please use the
following links to these documents on the Knowledge
Repository.
LINK LINK LINK LINK LINK
The Company's 2000 Annual Report and its 2001 Proxy
Statement may also be provided, at the participant's
request, in hard copy form. To receive a paper copy of the
Company's 2000 Annual Report and its 2001 Proxy Statement,
please contact Steve Morrison at (816) 201-3073.
This link http://www.umb.com/proxy
------------------------ to a UMB Bank web site
will direct you to the correct page to vote the shares
allotted to you. You will need to type in the last 4-digits
of your Social Security Number and use this 17-digit control
number (<<17-digit control #>>) to access the voting
instructions page. The voting instructions page will ask
you to enter your email address in the space provided to
receive a confirmation notice. Follow the instructions
provided on the voting instructions page to vote your shares
and submit your votes. Your voting instructions must be
received by 5:00 p.m. CDT May 23, 2001.
Once you submit your votes the process is complete and your
votes will remain confidential.
ANNUAL REPORT COVER
Transforming Healthcare with Technology
Cerner Corporation 2000 Annual Report
CERNER LEADERSHIP AND CORPORATE INFORMATION
----------------------------------------------------------------------------
BOARD OF DIRECTORS
----------------------------------------------------------------------------
Neal L. Patterson John C. Danforth Michael E. Herman
Chairman of the Board Partner President, The Herman
& Chief Executive Officer Bryan Cave LLP Family Trading Company
Cerner Corporation St. Louis, MO & Past President,
Kansas City Royals
Clifford W. Illig Jeff C. Goldsmith, Ph.D. Club
Vice Chairman President Kansas City, MO
Cerner Corporation Health Futures, Inc.
Charlottesville, VA William B. Neaves, Ph.D.
Gerald E. Bisbee Jr., President & Chief
Ph.D., Chairman & Executive Officer
Chief Executive Officer The Stowers Institute
ReGen Biologics Inc., for Medical Research
Redwood City, CA Kansas City, MO
MANAGEMENT
----------------------------------------------------------------------------
Executive Committee Executive Management Senior Management
------------------- -------------------- -----------------
Neal L. Patterson Alan D. Dietrich Richard J. Flanigan Jr.
Chairman of the Board Senior Vice President Senior Vice President,
& Chief Executive Officer & Chief Marketing Officer Enterprise Business Units
Clifford W. Illig Stephen M. Goodrich Stephen D. Garver
Vice Chairman Senior Vice President Senior Vice President &
& Chief Quality Officer Managing Partner,
Earl H. Devanny, III Cerner Consulting
President David P. McCallie Jr., M.D.
Vice President & Thomas C. Tinstman, M.D.
Glenn P. Tobin, Ph.D. Chief Scientist Senior Vice President,
Executive Vice President & Cerner Consulting
Chief Operating Officer Randy D. Sims
Vice President, Chief Legal Kathryn A. Bingman
Paul M. Black Officer & Secretary Vice President &
Executive Vice President General Manager, IQHealth
& Chief Sales Officer Jeffrey A. Townsend
Vice President & Chief Robert J. Campbell
Jack A. Newman Jr. Engineering Officer Vice President of
Executive Vice President Learning Services
Charlotte A. Weaver
Douglas M. Krebs Vice President & Chief Mitchell Clark
Senior Vice President Nursing Officer Vice President &
& President, General Manager
Cerner Global Organization
Michael L. Fiorito
Marc G. Naughton Vice President &
Vice President General Manager
& Chief Financial Officer
Tonya M. Hongsermeier,
Stanley M. Sword M.D. Vice President,
Vice President & Patient Safety
Chief People Officer
Paul J. Sinclair
Vice President &
Senior Partner,
Cerner Consulting
--------------------------------------------------------------------------------
Annual Meeting of Shareholders
------------------------------
The annual meeting will be held at 10:00 a.m. on May 25,
2001, at the Cerner Associate Center, located on the Cerner
campus at 2901 Rockcreek Parkway, North Kansas City,
Missouri. A formal notice of the meeting, with a proxy
statement and proxy form, will be mailed to each shareholder
in April 2001.
Annual Report/10-K Report
-------------------------
Publications of interest to current and potential Cerner
investors are available upon
written request or via Cerner's Web site at www.cerner.com.
These include annual and
quarterly reports and the Form 10-K filed with the
Securities and Exchange Commission.
Such requests should be made to:
Administrator of
Shareholder Relations
Cerner Corporation
2800 Rockcreek Parkway
North Kansas City, MO
64117-2551
Inquiries of an administrative nature relating to
shareholder accounting records, stock transfer, change of
address, and miscellaneous shareholder requests should be
directed to the transfer agent and registrar, UMB Bank, at
(816) 860 7786.
Transfer Agent and Registrar
----------------------------
Securities Transfer Division
UMB Bank
P.O. Box 410064
Kansas City, MO 64141-0064
(816) 860 7786
Stock Listings
--------------
Cerner Corporation's common stock trades on
The Nasdaq Stock Market (Service Mark) under the symbol CERN.
Independent Accountants
-----------------------
KPMG LLP
Kansas City, MO
Legal Counsel
-------------
Stinson, Mag & Fizzell
Kansas City, MO
CERNER SOLUTIONS AND SERVICES
ENTERPRISE-WIDE SOLUTIONS
Cerner's CapStone (Registered)Enterprise Access Management
-------- ----------------------------
System
------ creates the enterprise-wide master person identifier
(EMPI)and automates the identification, eligibility,
registration and scheduling processes across hospitals,
clinics, physician practices and other care delivery
organizations,integrating the health system and incorporating
existing systems.
PowerChart (Registered) Electronic Medical Record System
---------- --------------------------------
is the enterprise clinician's desktop solution for viewing,
ordering, documenting and managing care delivery.
The Open Clinical Foundation (Registered)
------------------------ manages clinical
information,providing the foundation for the electronic
medical record.
The Open Management Foundation (Trademark)
-------------------------- stores
management information of enterprise financial, operational
and process results, creating the foundation for the
enterprise-wide management and executive information system.
The Open Agreement Foundation (Trademark)
------------------------- manages health plan
contracts and agreements, and member information.
The Open Research Foundation (Trademark)
------------------------ provides open
repository storage of clinical and medical information to
support medical research.
FINANCIAL AND OPERATIONAL
The ProFit (Trademark) Enterprise Billing and Accounts
------ -------------------------------
Receivable System
-----------------is Cerner's system for revenue accounting,
billing and accounts receivable for the entire health system
as well as each individual domain or organization. ProFit
integrates clinical and financial data and creates a single
bill.
PowerVision (Registered) Enterprise Decision Support
----------- --------------------------- links
comprehensive clinical and financial data and makes it
available at the point of care-allowing care to be better
managed as it occurs.
The ProFile (Trademark) Health Information Management System
------- ------------------------------------
helps meet the operations management needs of the health
information management (medical records) department and
includes functionality for the various chart tracking and
completion tasks.
The ProCure (Trademark) Materials Management System
------- --------------------------- automates
the business operations around supply chain, materials
acquisition and equipment management for the organization.
The ProCare (Trademark) Medical Management System
------- ------------------------- automates
medical management for the health system, addressing the
areas of utilization, case and risk management, as well as
infection control.
DECISION SUPPORT SYSTEMS AND KNOWLEDGE SOLUTIONS
Discern Expert (Registered) is an event-driven, rule-based
-------------- decision support software application that allows
users to define clinical and management rules (Alerts (Trademark))
that are applied to event data captured or generated by other
applications. It supports both synchronous (real-time, interactive)
processing and asynchronous (noninteractive) processing of
events. Discern Expert manages the evaluation and display
of executable clinical knowledge through either Cerner-
developed Alerts, which are licensed separately, or client-
developed Alerts.
Discern Explorer (Registered) is a decision support software
--------------- application integrated with other Cerner HNA
Millennium clinical and management information systems that allows
users to execute predetermined or ad hoc queries and reports
regarding process-related data that is generated by the other
applications.
Care Designs (Trademark)
------------ are clinical pathways and protocols that
automate the specific plans of care for an individual and
operate within Cerner's clinical systems.
POINT OF CARE CLINICAL SOLUTIONS
The INet (Registered) Intensive Care Management System
---- -------------------------------- is designed
to automate the entire care process in intensive care settings.
It supports chart review and browsing, order management,
documentation management and automatic data acquisition.
The CareNet (Registered) Acute Care Management System
------- ---------------------------- is designed
to automate the entire care process in acute or institutional
settings. The application collects, refines, organizes and
evaluates detailed clinical and management data. It enables
the entire care team to plan and manage individual
activities and plans, as well as measure outcomes and goals.
The CVNet (Registered) Cardiology Information System
----- ----------------------------- automates the
processes within the cardiology department, supporting the
scheduling, ordering, documentation and data capture
required by professionals in the cardiology domain.
The SurgiNet (Registered) Surgery Information System
-------- -------------------------- is designed
to address the needs of the surgical department, including
automating the functions of resource and equipment
scheduling, inventory management, anesthesia management and
operating room management.
The FirstNet (Registered) Emergency Medicine Information System
-------- -------------------------------------
offers patient and provider tracking and an intuitive presentation
of patient diagnoses and clinical events for the emergency
department. FirstNet provides basic emergency department
functionality, including quick admits, tracking, triage and
patient history, as well as a graphical reference to patient
location and order status.
The PowerChart Office (Trademark) Management System
----------------- ----------------- supports the
broad range of clinical and business activities that occur within
a physician office, clinic or large physician organization.
This system ties the office together with other medical
entities and automates key care team activities in both
primary and specialty care settings.
The ProCall (Registered) Home Care Management System
------- --------------------------- automates
the clinical and business processes of home care organizations,
such as home health agencies, visiting nurse associations
and hospices.
CLINICAL CENTERS
The PathNet (Registered) Laboratory Information System
------- ----------------------------- addresses
the information management needs of six clinical areas: general
laboratory, microbiology, blood bank transfusion services,
blood bank donor services, anatomic pathology and Human
Leukocyte Antigen. PathNet automates the ordering and
reporting of procedures, the production of accurate and
timely reports and the maintenance of accessible clinical
records.
The RadNet (Registered) Radiology Information System
------ ---------------------------- addresses
the operational and management requirements of radiology
departments or services. It allows a department to replace
its manual, paper-based system of record-keeping with an
efficient computer-based system that integrates with their
imaging systems. Cerner also provides image management
systems with picture archival and communications systems
(PACS) that are fully integrated with Cerner's radiology
information systems.
The PharmNet (Registered) Pharmacy Information System
-------- --------------------------- provides
full integration for rapid pharmacy order entry and support of
the clinical pharmacy in either an inpatient or retail
setting. PharmNet streamlines medication order entry,
enabling the pharmacist or technician to place all types of
pharmaceutical orders, and automates dispensing functions.
CONSUMER/PERSONAL HEALTH
Cerner's IQHealth (Trademark)
-------- facilitates powerful business-to-
consumer and business-to-business connections via the Internet.
With IQHealth, healthcare organizations can create and brand a
"health exchange" in the community to directly connect
hospitals, physicians, payers, consumers and others.
IQHealth provides the tools to create such local connections
as well as health information to improve the quality and
safety of care.
IQHealth's Personal Health Record (PHR)
--------------------------------------- is a personal health
management tool that gives consumers the ability to build a
permanent electronic record in which health information can
be securely stored as it accrues over time. Cerner Multum
(Trademark) drug database provides caregivers and consumers
alike with access to drug information and the ability to perform
drug interaction checking to prevent adverse events.
IQHealth's Health Risk Assessments
---------------------------------- allow organizations to
create Web-based surveys to assess individual and community
health risks.
Health Connections (Trademark),
------------------ a 24x7 call center staffed
by nurses, provides ready access to accurate health
information so that consumers can better manage their health
and participate in care decisions.
Health Facts (Registered)
------------ is Cerner's comparative data
warehouse for benchmarking information and services for
subscribers to support their own improvement processes.
INTERFACE TECHNOLOGIES
The Open Engine (Trademark) Application Gateway System
--------------------------------------------------
facilitates the exchange of data and assists in the management of
interfaces between foreign systems in a network environment. It
serves as a toolkit to help write interface code.
The Open Port (Trademark) Interface System
--------- ---------------- represents Cerner's
standardized technology for providing reliable foreign
system, medical device and other standard interfaces in a
timely manner. Message translation and data mapping are
done with point-and-click tools and a scripting environment.
Communications protocols are configured via table driven
parameters. These sophisticated methodologies result in
decreased implementation times and greater client
satisfaction.
CERNER COMMUNITY HEALTH MODEL
THE CERNER VISION
Cerner's business and information solutions are organized
and developed around a central vision of how healthcare can
and should operate within our communities. This vision is
founded on four stages which Cerner believes can be achieved
using information technology:
* Automate the core processes of healthcare: eliminate the
paper medical record and memory-based decision making.
* Connect the person: create the personal health system.
* Structure the knowledge: position every clinical decision
as a future learning event.
* Close the loop: implement evidence-based medicine.
These stages describe Cerner's business today and plans for
Cerner's business both in 2001 and beyond.
Automate the Care Process
Cerner is dedicated to the elimination of the manual-based
systems producing the paper medical record and the memory-
based methods physicians currently use to make medical
decisions.
Cerner is replacing manual processes with a complete
electronic medical record and interactive decision support
systems to assist physicians in making appropriate medical
decisions. Medical care cannot make significant steps
forward in quality and safety without leveraging the power
and advantages of information technology. As long as a
person's medical information is locked and isolated in a
paper-based record, a physician is cut-off from rapid,
contextual reference to the vast knowledge available in
today's medicine. The elimination of the paper record will
lead to a transformed health system that is more efficient,
safer and of higher quality.
Connect the Person
Cerner is dedicated to helping its clients build a personal
health system; creating a "new medium" between the person
and physician; empowering the individual; creating a new
center to healthcare and, ultimately, healthier communities.
The healthcare system is undergoing fundamental changes as
the person becomes more informed and demands to become more
involved in the decisions that affect their care and
treatment. Over the coming years, these forces will grow
and combine with movements toward more self-care, self-
payment and self-knowledge in the post human genome era.
The personal health system will interact with healthcare
organizations, enabling the person to better manage their
own health needs. They also will deliver benefits like
personal health management and aiding the move from a
reactive care system to a predictive health system.
Structure the Knowledge
Cerner is dedicated to building systems that treat every
clinical decision as a future learning event by structuring,
storing and studying the content surrounding each episode of
medical care, creating the evidence for improved methods of
diagnosing or treating a medical problem.
The knowledge that can be generated by studying the variance
in outcomes from different treatment regimens can only be
used to improve those regimens if there is a structure, or
fundamental common nomenclature, that can exactly capture
the express meaning implicit in the physician's
documentation and orders and from other supporting
clinicians. This information must be stored in such a way
that makes it comparable to similar encounters.
Organization of knowledge will speed scientific discovery.
In today's paper-based medical records, the study of data
presented by just a single hospital can take months or even
years. The promise of structured systems is that as the
data is accumulated, order is brought to the data
simultaneous to its collection, slashing the time required
to process information. Additionally, the volume of
information will provide heightened reliability of analysis
due to the wealth and quality of the data that is the
foundation of the analysis.
The knowledge generated by the outcomes of different
treatment regimens will help not only to improve those
regimens, but will deepen understanding of medicine in
general. Such immense amounts of knowledge will lead to
undetermined benefits in deepening our understanding of
medicine and its effect on the human body.
Close the Loop
Cerner is dedicated to building systems that implement
evidence-based medicine, dramatically reducing the current
average time from the discovery of an improved method to the
change in "standard of care" medical practice.
These advances in technology will offer great opportunities
to healthcare and must be used to practical effect. The new
knowledge gained today about better methods of diagnosing or
treating medical problems must be used tomorrow to deliver
better care, faster. Today, the current system of knowledge
dissemination may take as long as ten years before new
knowledge reaches widespread use. With information systems
designed to embed evidence-based medicine inside the
clinicians' workflow using pathways, guidelines and alerts,
physicians can ensure that every medical decision is based
on the best and most recent knowledge available.
The results will be better outcomes and reduced variance.
CERNERCORPORATION
2800 Rockcreek Parkway
North Kansas City, MO 64117-2551
(816) 221 1024
(816) 474 1742 (Fax)
http://www.cerner.com
UNITED STATES
DETROIT
Cerner Corporation
28333 Telegraph Road
Suite 500
Southfield, MI 48034-1903
(248) 357 1818
KANSAS CITY
Cerner Corporation
2800 Rockcreek Parkway
North Kansas City, MO 64177-2551
(816) 221 1024
DENVER
Cerner IQHealth
3200 Cherry Creek South Drive
Suite 300
Denver, CO 80209
(303) 733 4447
WASHINGTON D.C.
Cerner Corporation
Two Skyline Place
Suite 301
5203 Leesburg Pike
Falls Church, VA 22041
(703) 310 1100
HOUSTON
Cerner Radiology Information Systems
5 Greenway Plaza
Suite 1900
Houston, TX 77046
(713) 960 1907
ST. LOUIS
Cerner Citation
424 South Woods Mill Road
Suite 200
St. Louis, MO 63017
(314) 579 7900
WORLDWIDE
AUSTRALIA
Cerner Corporation Pty Limited
Level 10, 52 Alfred Street
Milsons Point
NSW 2061
Australia
+61 2 9900 4800
MALAYSIA
Cerner Malaysia Sdn Bhd
Level 36, Menara Citibank
165 Jalan Ampang
50450 Kuala Lumpur
Malaysia
+603 2169 6218
SAUDI ARABIA
Cerner Arabia Ltd.
6/F Suite 609 Al-Akaria Bldg. 3
Olaya Road
Riyadh
Kingdom of Saudi Arabia
+966 1 460 0510
SINGAPORE
Cerner Singapore Limited
391A Orchard Road
# 12-01 NgeeAnn City Tower A
Singapore 238873
+65 734 3566
EUROPE
Cerner International, Inc.
Waterloo Office Park
Dre're Richelle 161
Batiment N
B-1410 Waterloo
Belgium
+32 2 352 8880
CANADA
Cerner Canada Ltd.
Cerner Vision Centre
Phase 1, Tower 2, Level 3
800 Commissioners Road East
London, Ontario N6A4G5
Canada
(519) 685 8499
(Copyright) 2001 CernerCorporation 010/2001
COVER LETTER
March 28, 2001
Securities and Exchange Commission
450 Fifth Stree, N.W.
Judiciary Plaza
Washington, D.C 20549
RE: Cerner Corporation
Dear Sirs:
Pursuant to regulations of the Securities and Exchange Commission
submitted herwith for filing on behalf of Cerner Corporation (the
"Company"), a Delaware corporation, is the Company's Annual Report
on Form 10-K for the fiscal year ended December 30, 2001.
This filing is effected by direct transmission to the Commission's
Operational EDGAR System.
Very truly yours,
Cerner Corporation
Randy D. Sims
Chief Legal Counsel